UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
_____________________________ to _________________
Commission File Number:______________
La Jolla Fresh Squeezed Coffee Co., Inc.
(Exact name of registrant as specified in its charter)
Washington
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9060 Activity Road, Suite A, San Diego, California 92126
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
858.273.5282
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [_] Yes [X] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year. $0.00
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $6,306,000 aggregate market value as of March 31,
2000, based on the average bid and asked prices of such stock.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of March 31, 2000, there were
21,455,728 shares of the issuer's $.001 par value common stock issued and
outstanding.
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PART I
Item 1. Description of Business.
LA JOLLA FRESH SQUEEZED COFFEE(TM) CO., Inc., a Washington Corporation ("LJCC"
or "we"), is a manufacturer and distributor of gourmet cold-brewed coffee liquid
extract, gourmet non-alcoholic cold coffee beverages and flavorant products.
LJCC's proprietary cold extraction process combined with a revolutionary
delivery system provides the institutional and food industry with a convenient
gourmet coffee alternative that reduces labor, waste disposal costs, and
production costs. We compete for revenues with the wholesale specialty coffee
industry.
Management believes that the Company's cold-brewed coffee has the advantages of
great taste, lower acidity and oil content, and the convenience of instant
liquid coffee. The Company's cold-brewed coffee has a gourmet taste that is
uncommon in the liquid coffee industry where flavor is often traded for
convenience. The coffee taste is often described as clean with no acidic
aftertaste. The liquid coffee delivery system used by the Company eliminates the
substantial amount of coffee wasted every year by traditional coffee delivery
systems that pre-brew the coffee often making the coffee burnt, or bitter. Our
coffee can also be prepared by simply adding hot water. We also use a delivery
system that requires no brewing; the coffee is prepared only as needed. In fact,
the coffee preparation is virtually instant, which lowers labor costs, waste
disposal costs for coffee grains and filters, and costs of wasted coffee
disposed of because it is burnt or bitter. We believe our coffee stays fresher
longer in an air pot providing longer service life than most other coffees,
which tend to become bitter within an hour.
The Company is developing an important flavor creation capability. The creation
of unique and commercially desirable flavors is a mixture of art, science and
business. Our Flavorant products are coffee extracts that can be utilized as an
ingredient in the manufacture of beverages and other food products such as ice
cream. We believe that our products' purity level will provide a competitive
advantage in the coffee extract market. We plan to position our flavorant
product as a premium level ingredient.
In taste tests that range from small focus groups to multi-national
manufacturers and exporters of coffees, La Jolla Fresh Squeezed Coffee products
have been judged to be far superior to nationally recognized competitors. It is
our belief that La Jolla Fresh Squeezed Coffee is able to achieve superior
flavors for three principle reasons: (i) the Company generally uses superior
beans; (ii) the Company's cold-brewing process removes unnecessary amounts of
oils and acids that damage the flavor of coffee; and (iii) Stephen Corey, our
Founder who is Vice President of Product Development, and his staff have a
special gift for creating original delicious flavors well received by consumers.
The Company's principal technology, the cold-brewing process, traces its origin
from the famous Scripps/Corey family of La Jolla, California. The Corey family
first arrived to San Diego in 1907 and for nearly four generations, the
families' cold-brewing process, derived from the Peruvian Inca Indians 900 years
ago, was refined and improved, with each succeeding generation adding to and
enhancing the process, while safe guarding their methods. Dr. Martha Dunn
Corey's secret family recipe for formulating the extract was handed down to
Stephen Corey a direct descendent. Stephen Corey, a fourth generation La Jollan,
then dedicated his life to bringing cold-brewed coffee to the world. For four
years, Corey and his talented group of technicians and consultants perfected the
commercialization of the cold coffee product and manufacturing process.
This research and development culminated into the HIPEX 7000, a commercial grade
high volume ASME grade brewing vessel which manufacturers the Company's
cold-brewed gourmet coffee extract. The cold brewed gourmet extract is used in
our liquid coffee concentrate product, our non-alcoholic cold coffee drink,
similar in style to Starbucks' Frappaccino, and in our coffee flavorant
products. The Company is presently undertaking the final steps necessary to
produce larger commercial volumes of their coffee products. These steps include
the design and manufacture of a higher volume ASME grade brewing vessel,
delivery and installation of this vessel. Management believes there is
substantial potential for international licensing of the Company's equipment and
process.
The Company was incorporated in the state of Washington on February 9, 1987 as
North West Converters, Inc. On December 31,1996, the sole director and
shareholder discontinued the operations of the Company. On October 31,
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1997, our Articles of Incorporation were amended to change the par value of
common stock to $.001, and the Company then began operations in the wholesale
and retail gourmet and specialty foods and the operation of the retail store,
both of which were unsuccessful. On June 2, 1997, we amended our Articles of
Incorporation to change our name to North West Farms, Inc. In November 1998, we
began the development stage of entering the retail and wholesale specialty
coffee market. On June 2, 1999, we amended our Articles of Incorporation to
change our name to La Jolla Coffee Co., Inc. and on June 16,1999 we amended our
Articles of Incorporation to change our name to La Jolla Fresh Squeezed Coffee
Co., Inc. On June 15, 1999, the Company's Board of Directors ratified the
acquisition of the assets of Stephen's Coffee, Inc. and the merger with
Stephen's Coffee Holding, Inc. (See "Legal Proceedings"). The Nasdaq Stock
Market implemented a change in its rules requiring all companies trading
securities on the OTC Bulletin Board to become reporting companies under the
Securities Exchange Act of 1934. The Company was required to become a reporting
company by the close of business on February 24, 2000. The Company acquired all
the outstanding shares of Sorisole Acquisition Corp. to become successor issuer
to it pursuant to Rule 12g-3 in order to comply with the reporting company
requirements implemented by the Nasdaq Stock Market.
Our corporate headquarters and principal place of business is located at 9060
Activity Road, Suite A, San Diego, California 92126. The Company's phone number
is (858) 273-5282.
Our Industry and Growth. The specialty coffees industry, as a group, has grown
from $1.3 billion in 1993 to over $4 billion in 1998 (Source, SCAA, Specialty
Coffee Association of America). Sales are expected to approach $5,000,000,000
annually by the turn of the century. The SCAA expects industry growth not to
peak until around the year 2010. The US market for specialty coffee is large,
fragmented and growing. The development of the specialty coffee industry has
shown there is room for a variety of competitors.
According to the National Coffee Association's 1998 National Coffee Drinking
Trends report, approximately 65% of all consumers (age 10+) drink coffee on a
weekly basis, they drink an average of 3.0 cups per day, and the overall number
of coffee drinkers has grown from approximately 140 million in 1990 to
approximately 168 million in 1999. Coffee drinkers demographics include a wide
range of nationalities, ethnic origins, all age groups, sexes, income levels,
mainstream and fringe lifestyles.
The specialty coffee segment of the industry has experienced strong growth over
the past decade and is expected to continue to grow through the end of the
century. Specialty coffees provide consumers with a considerably higher quality
coffee experience for relatively little additional cost.
The specialty coffee market is highly competitive. Many of our competitors have
greater marketing and financial resources and brand name recognition combined
with larger customer base and distribution channels.
Liquid Coffee Concentrate. We are part of the specialty coffee industry that is
generally defined as Liquid Extracts, Cold Flavored Coffees, and Super Premium
Coffee. The Nestle Corporation, which recently entered the liquid extract
market, predicts that the liquid extracts industry has a $680,000,000 market
potential. 55 billion cups of coffee are served annually in total food service,
1.7 billion cups of that is soluble coffee. The Soluble Coffee Sector is defined
as all forms of instant coffee, including liquid coffee extracts and powdered
concentrates. Liquid coffee concentrate is a part of, and also competes with the
soluble coffee industry. The primary customers of the soluble coffee market are
the Institutional and Hospitality sectors, which are the largest consumers of
coffee and require convenient and economical coffee products. More specifically,
the hospitality convention oriented larger hotels (125 rooms plus) use
concentrates to predictably and conveniently dispense large volumes of coffee to
several hundred guests often at one time. Brewing coffee creates a time and
labor requirement that does not satisfy the demands of this market. Not
surprisingly, this market is the first to embrace the coffee concentrate
concept. In fact, eighty percent of all coffee served in Las Vegas is liquid
coffee concentrate.
Hospitality and Institutional use of coffee concentrates in the United States is
led by Douwe Egbert, a subsidiary of Sara Lee. Superior Coffee distributes Douwe
Egbert products. Douwe Egbert offers a turnkey solution, which is economical and
easy to use but produces very mediocre tasting coffee.
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The Gourmet Coffee Concentrate Market is currently a small but emerging market,
which Management believes will echo the development and stratification of the
ground coffee markets. Low-grade concentrates have pioneered the coffee
concentrate business over the last ten years in the United States and paved the
way for premium products. We compete with a number of liquid Coffee
manufacturers including: Douwe Egbert, Amelia Bay, Victory House, Beverage House
Inc., Lykes Pasco, Cool Brew, Nestle, Toddy, Sivetz, Filtron, and Flavor Brands.
Douwe Egbert is the leader in the coffee concentrates market offering products
that are economical and easy to use. These competitors use higher coffee
concentration levels at the expense of flavor.
We believe our gourmet coffee taste is our competitive advantage. We achieve
this gourmet taste by using our proprietary cold-brewing process and choosing
lower coffee concentration levels, which enhances the flavor and aromatic
profile of our coffee extract.
Cold Coffee Beverage. This "milk bottle" packaged market is dominated by a
Starbucks/Pepsi partnership producing Frappucino beverages. Starbucks has a 90%
market share. Starbuck's, the market leader, has brand name recognition,
distribution channels and strong financial resources. The remaining 10% is
divided among the smaller regional companies such as Coffee House USA and Buzz's
Coffee.
Ingredient Market. Coffee is used as a key flavor ingredient in the manufacturer
of hundreds of food products in the US and abroad. These products include: hot,
cold and adult beverages, baked goods, cakes, cookies, novelties, candies, ice
creams. Our extracts are ideally suited for broad spectrum of flavorant
applications due to their excellent flavor profile, purity, and consistency.
These qualities are unique to our extracts due to our proprietary cold-brewing,
filtering, and packaging processes.
Kosher Market. The company's products recently received a Star-K kosher
certification. The Star-K certification is a universally recognized symbol for
purity and quality. We believe there is a tremendous market opportunity in the
Orthodox Jewish community because we will be replacing inferior instant coffee
used during the Sabbath and Passover with a gourmet alternative.
Products And Services.
Javalixir. Javalixir, which was developed for the food service and hospitality
industry, is our pure coffee concentrate. We target major food service
providers, such as family style restaurant chains, fast food chains, national
and international hotel chains and the Military providing a complete program
that offers economical solutions for high volume customers.
JavaNectar. JavaNectar is our premium cold coffee beverage served over ice or
through granita "slushy" machines widely used in convenience store applications.
We believe that JavaNectar is superior to our competitor's cold coffee
beverages, which are largely derived from powder bases. The initial target
market is convenience stores in the southwest.
Retail Javalixir Coffee Concentrate. The Retail Javalixir Coffee Concentrate is
packaged as 5 ounce and 12 ounce bottles. We anticipate that the product will be
offered to individuals by upscale gourmet grocery chains and by our Internet
retail site currently under renovation.
Ingredients. Our flavorant products are coffee extracts that can be utilized as
an ingredient in the manufacture of beverages and other food products such as
ice cream. We believe that our products' purity level will provide a competitive
advantage in the coffee extract market. We plan to position the flavorant
product as a premium level ingredient.
Future Products. The Bottled Javanectar is a 10-ounce cold coffee drink, similar
to Starbuck's Frappuccino beverage which has successfully been sold in every
region of the country. We believe that the bottled Javanectar offers a higher
quality, better tasting beverage at a comparable price. Starbucks manufacturing
process involves a "full retort" to insure adequate pasteurization, the beverage
is heated to approximately 280 degrees Fahrenheit for a minimum of two hours.
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We believe that this process destroys much of the coffee flavors, thereby
leaving the consumer's pallet with a relatively bland flavor note. We process
our bottled beverage using a less invasive process approved by the Food and Drug
Administration, which we believe leaves the majority of the coffee flavor
intact. We anticipate that we will begin shipping our bottled Javanectar in July
2000. The shelf life of this product is estimated at 6 months, allowing us to
market the product through national distribution channels. Our target markets
include supermarkets, upscale gourmet markets and convenience stores.
Our Distribution. LJSFC will employ a combination of one sales person and one
food broker for each of the three major markets in California. These markets
include San Diego, Los Angeles and San Francisco. As popularity and subsequent
demand increases through these regions, brokers and distributors will be
employed to penetrate the various fringe markets.
Our Competition. The schedule below identifies, to the best of the Company's
knowledge, the primary competitors for the liquid coffee business in the United
States. Currently the competition has clustered around low-medium grade products
while the Company is targeting the gourmet coffee niche.
<TABLE>
<CAPTION>
Concentration Liquid Cold Concentration Bean Quality Quality/ Price/
Brewed Level Taste Cup
<S> <C> <C> <C> <C> <C> <C> <C>
Lykes Pasko 35 to 1 Yes No High Med Med $.07-.11
Douwe Egbert 35 to 1 Yes No High Med Med $.07-.12
Victoria House 6 to 1 Yes Yes Medium Low Low $.13
Amelia Bay 70 to 1 Yes No High Medium Medium $.07-10
Coffee Drop 90 to 1 Yes No Medium Low Low $.07-09
Sivetz 6 to 1 Yes No Medium High High $.18
Filtron 6 to1 Yes Yes Medium Low-Medium Medium $.24
Flavor Brands 6 to1 Yes No Medium-High Low-Medium Medium $.16
Beverage House 90 to1 Yes No Medium-High Low-Medium Medium $.07
LJFS Coffee 12 to 1 Yes Yes Medium High High $.07-.11
</TABLE>
Our cold-brewed competitors are regionally based and Management believes their
products are inferior in quality and taste.
Our Business Strategy.
Management has focused the Company's marketing effort on our cold-brewed coffee
concentrate and flavorant products because these products will achieve the
fastest profits. The cold-brewed coffee concentrates target market is the
hospitality and food service sector. Our flavorant products target the food
manufacturing industry, which uses our product as a flavoring ingredient in the
manufacture of ice creams baked goods, candies and beverages. The Company
continues to develop higher volume cold-brewing vessels, and plans to exploit
the resulting licensing opportunities in foreign markets. The Company is
developing its own flavor formulas, such as the "French Vanilla" flavor, in
order to expand product lines, improve quality, and increase profit margins.
Coffee Concentrate. Our strategy is to position La Jolla Fresh Squeezed Coffee
as the new gourmet entry in the liquid coffee market offering superior quality
at a nominally higher price. We target customers with high volume consumption
who require convenience and speed. The Company seeks to create the first
"national brand" premium grade cold-brewed coffee beverage. This is our main
profit center.
Our target market is the hospitality and food service industry where we offer
turnkey coffee solutions by providing our gourmet coffee concentrate and state
of the art coffee dispensing machine. We supply our cold brewed coffee
concentrate in 1- gallon bag-in-box (BIB) aseptically filled containers. The
Company is targeting opinion-leading customers including major hotel chains,
fast food restaurants, hospitals and national airlines. After these accounts are
established, the Company will then pursue more traditional distribution channels
such as large food and beverage brokers and major retail and grocery chain
stores.
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Our goal is to dominate the marketplace in San Diego, then Southern California.
This approach significantly lowers shipping costs and increases profit margins
by eliminating distributors and brokers. San Diego is a highly populated city
with several universities, a military presence and a thriving tourism industry;
which all contribute to large industrial and food service demand. We target
customers already using our competitors' liquid coffee, because these customers
already understand the benefits of liquid coffee. However, We provide these
customers with a superior gourmet tasting liquid extract alternative. We believe
that our gourmet taste will increase these institutions coffee revenues because
better taste should translate into more coffee being served.
Management estimates that tens of millions of coffee drinkers have varying
degrees of sensitivity to the heavy acid and oil content of most coffees. This
deterrent often minimizes or eliminates their consumption of coffee. Utah State
University is testing the oil and acid content level in our coffee. When the
Company has scientifically established that our coffee is lower in acid and oil
than our competitors, then our products will be positioned as a healthier
alternative.
Flavorant Products. Our Flavorant products are coffee extracts formulated to be
utilized as ingredients in the manufacture of beverages and other food products.
Our flavorant products focus on the food manufacturing industry for use in
products such as ice creams, baked goods, candies and beverages. This is a large
and lucrative market segment in which there is tremendous volume potential. We
believe that our products' superior taste and aromatic profiles will provide a
competitive advantage in the food manufacturing market. The Company intends to
promote its brand identity, whenever possible, in the ingredients business by
requiring clear labeling of La Jolla Fresh Squeezed Coffee Co. as the provider
of the coffee extract, similar to "Intel inside". We plan to position our
flavorant products as premium level ingredients.
Image and Brand Identity.
[GRAPHIC OMITTED]
La Jolla, California the Company's namesake is internationally known as the
"Riviera of the Pacific". We strive to reflect a brand identity and image that
reflects this world famous city's image; sophisticated, yet in keeping with the
laid back California lifestyle. Our logo contains the image of a beach chair
with a cup of coffee alongside it, which beckons the consumer to take a break,
slow down, relax and enjoy a small indulgence. Many consumers have embraced this
small indulgence concept as demonstrated by the record number gourmet coffee
shops clustered around business districts where people actually leave their
offices for an excellent cup of coffee. The company is in the process of filing
several federal trademark applications to protect its trade names.
"Micro Cafe." La Jolla Fresh Squeezed Coffee is in the development stages of
entering the coffee retail store sector. We are interested in the concept of a
"Micro Cafe". A 650 square foot store where we can offer all the products and
services of a larger store, while adding our delicious and innovative products
and brand related merchandise. We would offer the best assortment of popular
coffee products along with our own La Jolla Fresh Squeezed Coffee offerings. We
believe there exists a "hole" in the market between the coffee kiosks on wheels
and the Starbucks style super store. These cafes businesses have low start up
and operating costs and the flexibility to compete in any marketplace. Typical
costs are less than $75,000 for a fully operational store as compared to the
$250,000 to $400,000 of a Starbucks style store. The large corporate coffee
stores offer a distinct franchise opportunity for a small intimate neighborhood
store where the product is excellent and the server actually knows you by name.
Recent media announcements indicate tens of thousands of so-called "right sized"
employees are looking for franchise opportunities.
We believe possible entry into this retail coffee shop market would provide La
Jolla Fresh Squeezed Coffee with a public presence for our products and allow us
to capture high margin retail sales and continue market research.
Our Suppliers and Equipment Vendors.
Coffee Markets. Coffee is the world's second largest agricultural product, which
is a commercially grown in tropical regions in over 50 countries. The coffee
markets supply, and therefore the price, is extremely volatile. Most coffee is
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traded in the commodity market. There are different quality ranges within each
of the many different coffee varieties, which are priced accordingly. LJCC's
liquid coffee concentrate allows for the finest quality beans to be blended with
medium lesser quality grade beans, yet still achieve a gourmet flavor. LJCC
trades in premium grade coffees, at negotiated prices usually above that of the
commodity market depending on the current supply and demand, and in medium grade
generally at the commodity price. Stephen Corey's background, experience and
palate helps us maintain our high quality by combining the characteristics of
different coffees and grades of coffee to create unique gourmet blends at
reasonable prices.
The producing countries, economic, political and weather conditions often affect
coffee prices. Historically, large organizations and associations also influence
green coffee prices by agreements that establish quotas or restrict worldwide
coffee supplies. In order to combat these external factors, LJCC engages
contracts and forward commitments in the coffee-buying season to ensure supply.
Using a wide variety and grade blend also reduces are exposure to price
volatility of the premium grade coffees. Developing relationships with our
suppliers also mitigates market exposure.
La Jolla Fresh Squeezed Coffee purchases green coffee beans for roasting and
grinding according to customer specification and extract requirement. The
Company buys premium beans from sources in Costa Rica, Brazil, El Salvador,
Guatemala, Columbia and Hawaii. Beans are purchased directly from growers and
through various coffee brokers. The major suppliers are as follows: Daymar
Coffee, Holland Coffee, Cafe Moto.
Roasting. LJCC procures and roasts high-end green coffee beans to its exacting
specifications according to the customer and extraction requirement by Cafe Moto
in San Diego, California.
Dispensing Equipment. Karma Inc. a leading manufacturer of highly efficient
coffee dispensing equipment provides the machines used in dispensing our liquid
coffee concentrate. Their national network provides nationwide distribution and
support for LJCC.
Packaging Machines. Cole Palmer a leading manufacture of high quality packaging
machines provides the equipment used in packaging LJCC product for market.
Our Patents And Trademarks. The HIPEX 7000, LJCC's brewing vessel, is refined
and highly efficient seventh generation technology. The vessel produces a 12 to
1 coffee concentrate. The Company currently holds no patents. The Company is
protecting the proprietary rights of the cold-brewing process using a strictly
enforced trade secret protocol until a patent protection is received from the
United States Trademark and Patent Office. A patent application has not been
filed. On November 4, 1999, LJCC filed an application with the United States
Trademark and Patent Office to protect "Fresh Squeezed Coffee(TM)". LJCC is
currently changing its logo and when that is complete an application for "La
Jolla Fresh Squeezed Coffee Co." with the accompanying logo will be sought
including all product names.
Governmental Regulation. LJCC is subject to the general laws and regulations
relating to the food service industry. There are no specific laws or regulations
that govern the coffee industry as a whole, that are materially different than
other retail or wholesale food businesses.
Research And Development. LJCC invested $100,462 and $902,250 in research and
development costs respectively in 1998 and 1999.
Employees. As of December 31, 1999,the Company had 7 employees, of which 7 were
full time and none were part time employees. The Company believes employee
relations are good.
Item 2. Description of Property.
Our Property. As of the dates specified in the following table, we held the
following property:
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----------------------------------------------------
Property December 31, 1999
----------------------------------------------------
Cash and Equivalents $16,526.00
----------------------------------------------------
Property and equipment, net $102,225.00
----------------------------------------------------
Our Facilities. The Company headquarters are located in our 5700 square foot
manufacturing facility at 9060 Activity Road, Suite A, San Diego CA 92126.
Geologistics America's Inc., a sublessee, has subleased the property to James H.
Watson, Jr. dba Entrepreneur Investments Inc, LLC ("EI") with permission of the
Lessor, AMB Property Corporation. EI's sublease terminates June 30, 2002. EI has
subleased the property by oral agreement to the Company. The company pays $2907
every month. Total rent expense for all leases for the years ended December 31,
1999 and 1998 amounted to approximately $72,254 and $48,775, respectively. We
believe that our current facility will support the Company's growth up to
approximately $10,000,000.
Item 3. Legal Proceedings.
The Company is not aware of any pending litigation nor does it have any reason
to believe that any such litigation exists, except as follows:
In or about November 1999, Michael Gilbert, a former director of the Stephen's
Coffee, Inc. and Stephen's Coffee Holding, Inc. and current shareholder of the
Company, filed an action in the United States District Court, Central District
of California, alleging that the transfer of the assets of Stephen's Coffee,
Inc. to the Company was fraudulent and seeking declaratory relief to unwind the
transaction. In November 1998, the Company believed it had settled this matter
by the payment of $15,000.00 (U.S. Dollars), the issuance of 150,000 shares and
the resignation of Mr. Gilbert as a director of Stephen's Coffee, Inc. and
Stephen's Coffee Holding, Inc. The Company believes that the claim is without
merit and intends to vigorously defend it.
In or about November 1999, Thomas Reed, a current shareholder of the Company,
filed an action in the Los Angeles Superior Court, alleging similar claims as
those of Michael Gilbert, specifically that the transfer of the assets of
Stephen's Coffee, Inc. to the Company was fraudulent and seeking declaratory
relief to unwind the transaction. The Company believes that the claim is without
merit and intends to vigorously defend it.
In or about November 1999, Nina Ushakow filed an action in Monterey superior
Court alleging default on a promissory note for a $33,656. The Company believes
the claim is without merit and intends to vigorously defend it.
Item 4. Submission of Matters to Vote of Security Holders
None
PART II
Item 5. Market Price for Common Equity and Related Stockholder Matters.
We participate in the OTC Bulletin Board, an electronic quotation medium for
securities traded outside of the Nasdaq Stock Market and prices for our common
stock are published on the OTC Bulletin Board under the trading symbol "LJCC".
This market is extremely limited and the prices quoted are not a reliable
indication of the value of our common stock. On April 27, 2000, the closing
price of our common stock, as reported on the OTC Bulletin Board, was $.4375,
and there were approximately 300 record holders of our common stock. The
following table specifies the reported high and low sales or closing prices of
the Company's common stock on the OTCBB for the periods indicated.
----------------------------------------------------------------
Period High Low
----------------------------------------------------------------
October 1, 1999 - December 31, 1999 $1.01 $ .34375
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July 1, 1999 - September 30, 1999 $ 1.75 $ .59375
----------------------------------------------------------------
April 1, 1999 - June 30, 1999 $ 1.6875 $ 1.00
----------------------------------------------------------------
January 1, 1999 - March 31, 1999 $ 1.125 $ 0.00
----------------------------------------------------------------
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The Company is authorized to issue 50,000,000 shares of common stock, $.001 par
value, each share of common stock having equal rights and preferences, including
voting privileges. The shares of $.001 par value common stock of the Company
constitute equity interests in the Company entitling each shareholder to a pro
rata share of cash distributions made to shareholders, including dividend
payments. The Bylaws of the Company specify how the cash available for
distribution, whether occurring from operations or sales or refinancing, is to
be shared among the shareholders. The holders of the Company's common stock are
entitled to one vote for each share of record on all matters to be voted on by
shareholders. There is no cumulative voting with respect to the election of
directors of the Company or any other matter, with the result that the holders
of more than 50% of the shares voted for the election of those directors can
elect all of the Directors. The holders of the Company's common stock are
entitled to receive dividends when, as and if declared by the Company's Board of
Directors from funds legally available therefor; provided, however, that cash
dividends are at the sole discretion of the Company's Board of Directors. In the
event of liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities of the Company and after
provision has been made for each class of stock, if any, having preference in
relation to the Company's common stock. Holders of the shares of Company's
common stock have no conversion, preemptive or other subscription rights, and
there are no redemption provisions applicable to the Company's common stock. All
of the outstanding shares of Company's common stock are duly authorized, validly
issued, fully paid and non-assessable.
Dividend Policy. The Company has never declared or paid a cash dividend on its
capital stock and does not expect to pay cash dividends on its Common Stock in
the foreseeable future. The Company currently intends to retain its earnings, if
any, for use in its business. Any dividends declared in the future will be at
the discretion of the Board of Directors and subject to any restrictions that
may be imposed by the Company's lenders.
Penny Stock Regulation. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks". Penny
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the Commission, which (i) contained a
description of the nature and level of risk in the market for penny stocks in
both public offerings and secondary trading; (ii) contained a description of the
broker's or dealer's duties to the customer and of the rights and remedies
available to the customer with respect to violation to such duties or other
requirements of Securities' laws; (iii) contained a brief, clear, narrative
description of a dealer market, including "bid" and "ask" prices for penny
stocks and significance of the spread between the "bid" and "ask" price; (iv)
contains a toll-free telephone number for inquiries on disciplinary actions; (v)
defines significant terms in the disclosure document or in the conduct of
trading in penny stocks; and (vi) contains such other information and is in such
form (including language, type, size and format), as the Commission shall
require by rule or regulation. The broker-dealer also must provide, prior to
effecting any transaction in penny stock, the customer (i) with bid and offer
quotations for the penny stock; (ii) the compensation of the broker-dealer and
its salesperson in the transaction; (iii) the number of shares to which such bid
and ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (iv) month account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If any of the Company's securities become subject to the penny stock rules,
holders of those securities may have difficulty selling those securities.
9
<PAGE>
As of December 31, 1999, there were 21,500 options to purchase common stock at
$1.00 per share, the majority of which expire on October 6, 2001 and 100,000
options to purchase common stock at $0.05 per share, which expire on December
31, 2001.
Item 6. Management's Discussion and Analysis of Financial Condition or Plan of
Operation.
The following information specifies forward-looking statements of our
management. Forward-looking statements are statements that estimate the
happening of future events and are not based on historical fact. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may", "will", "could", "expect", "estimate", "anticipate", "probable",
"possible", "should", "continue", or similar terms, variations of those terms or
the negative of those terms. Actual results may differ materially from those
contemplated by the forward-looking statements.
Results of Operations. The Company has not yet realized any revenue from
operations, although it does expect to in the foreseeable future. The Company's
only source of liquidity in the next 12 months will be the sale of its
securities. The Company has limited cash reserves and is dependent on raising
significant funds in order to develop and commercially exploit its financial
services website. In the event the Company is unable to raise significant funds,
the Company will be unable to implement its business plan.
Our success is materially dependent upon our ability to satisfy additional
financing requirements. We are reviewing our options to raise substantial equity
capital. We cannot estimate when we will begin to realize positive gross
revenue. In order to satisfy our requisite budget, management has held and
continues to conduct negotiations with various investors. We anticipate that
these negotiations will result in additional investment income for us. To
achieve and maintain competitiveness, we may be required to raise additional
substantial funds. We anticipate that we will need to raise significant capital
to develop, promote and conduct its operations. Such capital may be raised
through public or private financing as well as borrowing and other sources.
There can be no assurance that funding for our operations will be available
under favorable terms, if at all. If adequate funds are not available, we may be
required to curtail operations significantly or to obtain funds by entering into
arrangements with collaborative partners or others that may require us to
relinquish rights to certain products and services that we would not otherwise
relinquish.
Liquidity and Capital Resources. As of December 31, 1999, we have not realized
any revenues from our operations. The Statement of Cash Flows for the year ended
December 31, 1999, indicate a net loss of $2,711,836.00, compared to a net loss
of $371,487.00 during the same period in 1998. We cannot predict when we will
begin realizing positive revenue.
The Company's Plan of Operations for Next 12 Months. The Company has continued
to review its business plan and evaluate various opportunities. In the next
twelve months, we anticipate that we will market and promote the following
products:
Javalixir: Food Service & Hospitality. Javalixer will be marketed through trade
shows, Internet, direct sales to opinion leading customers, industry trade
publications and in conjunction with dispensing equipment manufacturers such as
Karma, who are being sought out for turn key solutions for high volume coffee
service. We will convert existing customers of Douwe Egbert and those
institutions who will benefit from our convenient dispensing format. These
customers in turn will demand supply of our product through their existing
distribution channels. This will force the distributors to carry our product
line.
Javanectar 32-oz. Tetrapak. Marketing will be directed through major food
distributing companies such as Starbucks, which supplies the food service
industry. Forming alliances with reputable food brokers will be key to success
in this sector of the market. The employment of food brokers will in turn allow
the Company to minimize overhead for sales staff in the initial phases of our
sales effort.
10
<PAGE>
10-oz Javanectar / "Frappuccino" style bottled beverage. Because introducing a
product in this category on a national scale is extremely costly, we will
initially direct our efforts within the southern California region through
C-stores, upscale grocery chains, and deli style restaurants chains. As LJFSC
builds brand identity throughout Southern California, we will expand to the
east. Distribution will be handled through conventional channels.
Retail Javalixir. The Company intends to go "head to head" with its retail
competitors by placing product on the same supermarket shelf in geographic
regions that have already accepted the concept of liquid coffee. We intend to
take full advantage of the years of marketing required to convert conventional
coffee drinkers to a liquid format. The combination of our high end packaging,
competitive pricing and on-site sampling programs will drive sales. This is
clearly one of the most expensive and least profitable marketing campaigns we
will undertake. However, we believe this effort will benefit the company in
terms of building brand identity. Brokers who deal exclusively in specialty
gourmet products will be instrumental to our success in this regard.
In the next twelve months, we anticipate that we will fill the following
positions:
Manufacturing and Production. The company is evaluating manufacturing and
production managers to support production ramp-up. Currently consultants and
members of the Board of Directors support this function.
Chemist and Food Scientist. We anticipate that we will a chemist and food
scientist that can support both quality control and quality assurance functions
and help manage production related activities. Currently consultants support
this function.
Sales Force. We will employ a combination of one sales person and one food
broker for each of the three major markets in California. These markets include
San Diego, Los Angeles and San Francisco. As popularity and subsequent demand
increases through these regions, brokers and distributors will be employed to
penetrate the various fringe markets. The Company will implement a combination
of minimum base salary and commission. As sales increase, sales personnel will
move toward straight commission and appropriate equity compensation.
Product Research and Development. Under development Hipex 7000 HV, the next
generation brewing vessel that will manufacture our liquid coffee extract.
Output capacity per day: 500 gallons 12x concentrate (162,500 finished cups).
This machine will be ordered over the next year at an approximate cost of
$90,000.
Product Stabilization and the resulting extension of shelf life is a key
component to commercialization. We have entered into a consulting relationship
with Cornell University Food Sciences Division and Utah State University. The
Company has also achieved satisfactory stabilization with their shelf stable
Javalixir testing with a private consultant. We expect to have a stabilized
javalixer in the 2nd quarter of 2000. This will dramatically enlarge Food
Service and general distribution opportunities.
The Company requires additional cash infusion to continue to operate. To that
end, the Company has a Private Placement Memorandum circulating to raise up to
$1,500,000 from the issuance of common stock to be used for operating costs, an
increased marketing effort and to purchase equipment to increase its production
capacity. The operations of the Company will be scaled to level of capital
raised to fund it.
Item 7. Financial Statements
Copies of Financial Statements specified in Regulation 228.310 (Item 310) are
filed with this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants.
There have been no changes in or disagreements with the Company's accountants
since the formation of the Company required to be disclosed pursuant to Item 304
of Regulation S-B.
11
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.
Executive Officers and Directors. We are dependent on the efforts and abilities
of certain of our senior management. The interruption of the services of key
management could have a material adverse effect on our operations, profits and
future development, if suitable replacements are not promptly obtained. We
anticipate that we will enter into employment agreements with each of our key
executives; however, no assurance can be given that each executive will remain
with us during or after the term of his or her employment agreement. In
addition, our success depends, in part, upon our ability to attract and retain
other talented personnel. Although we believe that our relations with our
personnel are good and that we will continue to be successful in attracting and
retaining qualified personnel, there can be no assurance that we will be able to
continue to do so. All officers and directors of the Company will hold office
until their resignation or removal.
Our directors and principal executive officers are as specified on the following
table:
----------------------------------------------------------------------
Name and Address Age Position
----------------------------------------------------------------------
Kurt B. Toneys 45 President, Chief Executive Officer and a
director
----------------------------------------------------------------------
Stephen F. Corey 44 Secretary, Vice President and a director
----------------------------------------------------------------------
Kurt B. Toneys. Mr. Toneys is the President, Chief Executive Officer and a
director of the Company. Mr. Toneys was the President of Polar Pacific, Inc., a
California-based global distributor of refrigerants and reclamation technologies
from 1996 through 1998. Mr. Toneys was a partner in Charles duPont & Co., a
private investment banking firm from 1993 to 1996. Toneys studied business
administration with emphasis in Finance and Entrepreneurship at the University
of Southern California.
Stephen F. Corey. Mr. Corey is Secretary, Vice President of Product Development
and a director of the Company. Mr. Corey has performed over five continuous
years of intense scientific research on coffee and coffee processing systems in
the following areas: coffee history, molecular structure of coffee, extraction
processes, new technology of concentration & extraction, blend creation, product
receptivity, and statistical analysis. Mr. Corey is directly responsible for
developing the various coffee lines used by the Company as well as overseeing
its manufacturing process and research and development for all future products.
Mr. Corey studied science, chemistry, physics and empirical background in
engineering while attending three years of college in Davos, Switzerland and one
year at the College of Idaho. Mr. Corey holds technical degrees in Aviation and
Airway Sciences.
There is no family relationship between any of the officers and directors of the
Company. Other than the officers, there are no significant employees expected by
the Company to make a significant contribution to the business of the Company.
There are no orders, judgments or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining any officer or director of the Company from engaging in or
continuing any conduct, practice or employment in connection with the purchase
or sale of securities, or convicting such person of any felony or misdemeanor
involving a security, or any aspect of the securities business or of theft or of
any felony, nor are any officer or director of the Company so enjoined.
Section 16(a) Beneficial Ownership Reporting Compliance. We do not presently
have knowledge as to whether all of our officers, directors, and principal
shareholders have filed all reports required to be filed by those persons on,
respectively, Form 3 (Initial Statement of Beneficial Ownership of Securities),
a Form 4 (Statement of Changes of Beneficial Ownership of Securities), or a Form
5 (Annual Statement of Beneficial Ownership of Securities).
Item 10. Executive Compensation
12
<PAGE>
Any compensation received by our officers, directors, and management personnel
will be determined from time to time by our Board of Directors. Our officers,
directors, and management personnel will be reimbursed for any out-of-pocket
expenses incurred on our behalf.
Summary Compensation Table. The table set forth below summarizes the annual and
long-term compensation for services in all capacities to the Company payable to
our Chief Executive Officer and our other executive officers whose total annual
salary and bonus is anticipated to exceed $50,000 during the year ending
December 31, 2000. Our Board of Directors may adopt an incentive stock option
plan for our executive officers which would result in additional compensation.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Annual Salary ($) Bonus ($) Other Annual All Other Compensation
Compensation ($)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kurt B. Toneys, President 2000 $79,000.00 None None None
----------------------------------------------------------------------------------------------------------------------
Stephen Corey, Secretary, 2000 $79,896.70 None None None
Vice President
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation of Directors. Our directors who are also employees receive no extra
compensation for their service on our Board of Directors.
Employment Contracts. We have entered into an employment contract with Stephen
Corey.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1999 by (i) each person or
entity known by us to be the beneficial owner of more than 5% of the outstanding
shares of common stock, (ii) each of our directors and named executive officers,
and (iii) all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner
-------------------------- ----------------------------------- ------------------------------------ -----------------
<S> <C> <C> <C>
$.001 Par Value Common Cape Mckinnon Inc., 154B 18th 7,100,000 Shares, Shareholder 34.81%
Stock Avenue, San Francisco, California
94121
$.001 Par Value Common Donald Kurth, 3300 PGA Blvd., 1,200,000 Shares, Shareholder 5.88%
Stock Suite 410, Palm Beach Gardens,
FL. 33410
$.001 Par Value Common Stephen F. Corey, 9060 Activity 4,140,000 Shares, Secretary, Vice 20.3%
Stock Road, Suite A, Director San President, Director
Diego, California 92126
$.001 Par Value Common All directors and named executive 34.81%
Stock officers as a group
</TABLE>
Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. In accordance with Commission rules, shares of our common stock
which may be acquired upon exercise of stock options or warrants which are
currently exercisable or which become exercisable within 60 days of the date of
the table are deemed beneficially owned by the optionees. Subject to
13
<PAGE>
community property laws, where applicable, the persons or entities named in the
table above have sole voting and investment power with respect to all shares of
our common stock indicated as beneficially owned by them.
Changes in Control. Management of the Company is not aware of any arrangements
which may result in "changes in control" as that term is defined by the
provisions of Item 403 of Regulation S-B.
Item 12. Certain Relationships and Related Transactions.
Transactions with Promoters. There were no transactions with promoters, except
for the following.
Pursuant to our acquisition of and our election to become the successor issuer
to Sorisole Acquistion Corporation, a Delaware corporation for reporting
purposes pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, we issued 500,000 shares of our $001 par
value common stock to Danilo Cacciamatta.
Related Party Transactions. There have been no related party transactions which
would be required to be disclosed pursuant to Item 404 of Regulation S-B, except
for the following:
We have entered into a website development agreement with 1st Net Tech, which is
owned by Greg Writer, a former director of the Company.
We have entered into a sublease agreement for our facilities with Entrepreneur
Investments, which is owned by Greg Writer, a former director of the Company.
Item 13. Exhibits and Reports on Form 8-K
3.1 Articles of Incorporation of La Jolla Fresh Squeezed Coffee Co., Inc., as
amended.*
3.2 Amendment to Articles of Incorporation*
3.3 Amendment to Articles of Incorporation*
3.4 Amendment to Articles of Incorporation*
3.5 Amendment to Articles of Incorporation*
3.6 By-Laws of La Jolla Fresh Squeezed Coffee Co., Inc.*
10.1 Stock Acquisition and Reorganization Agreement by and among La Jolla Fresh
Squeezed Coffee Co., Inc. and Sorisole Acquisition Corp., dated February
22, 2000.*
10.2 Plan of Recapitalization and Merger by and between La Jolla Fresh Squeezed
Coffee Company, Inc. and Stephen's Coffee Holding, Inc. dated November 24,
1999.
10.3 Agreement of Purchase and Sale of Assets by and between La Jolla Coffee
Co., Inc. dnd Stephen's Coffee Co., Inc. dated June 15, 1999.
10.4 Internet Web Site Development Agreement by and between Northwest Farms,
Inc. and Technologies, Inc. dated November 9, 1998.**
10.5 Employment Agreement by and between Northwest Farms, Inc. and Stephen Corey
dated November 3, 1998.**
14
<PAGE>
10.6 Sublease Agreement by and between Geologistics Americas, Inc. and James H.
Watson dba Entrepreneur Investments, LLC dated March 23, 1999.**
27 Financial Data Schedule*
* previously filed with Amendment No.1 to Form 8-K which was filed on April 24,
2000
** to be filed by amendment to Form 10-KSB
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned in the City of San Diego, California, on May 26, 2000.
La Jolla Fresh Squeezed Coffee Co., Inc.,
a Washington corporation
By: /s/ Kurt B. Toneys
------------------
Kurt B. Toneys
Its: President, Chief Executive Officer
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ................................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheet as of December 31, 1999 ..................... F-3
Consolidated Statements of Operations for each of the years
in the two-year period ended December 31, 1999 and the period
from August 13, 1993 (Inception) to December 31, 1999 .................. F-4
Consolidated Statements of Stockholders' Deficit for the period
from August 13, 1993 (Inception) to December 31, 1999 ................. F-5
Consolidated Statements of Cash Flows for each of the years
in the two-year period ended December 31, 1999 and the period
from August 13, 1993 (Inception) to December 31, 1999 .................. F-8
Notes to Consolidated Financial Statements ............................. F-9
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
Board of Directors
La Jolla Fresh Squeezed Coffee Co., Inc.
We have audited the accompanying consolidated balance sheet of La Jolla Fresh
Squeezed Coffee Co., Inc., (the "Company"), a development-stage company, as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' deficit, and cash flows for each of the years in the two-year
period ended December 31, 1999 and the period from August 13, 1993 (Inception)
to December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of La Jolla Fresh
Squeezed Coffee Co., Inc. as of December 31, 1999, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1999 and the period from August 13, 1993 (Inception) to
December 31, 1999, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has incurred operating losses,
has a working capital deficit and requires additional financing to sustain
operations. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Irvine, California
April 21, 2000
F-2
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 16,526
Accounts receivable 3,771
-----------
Total current assets 20,297
Property and equipment, net 102,225
-----------
$ 122,522
===========
LIABILITIES & STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 11,637
Accrued expenses 63,371
Accrued payroll and related benefits 13,021
Other liabilities 8,000
-----------
Total current liabilities 96,029
Due to related party 78,547
-----------
Total liabilities 174,576
Commitments and contingencies --
Stockholders' deficit:
Common stock, $0.001 par value; 50,000,000
shares authorized; 20,398,486 issued and outstanding 20,398
Additional paid-in capital 4,036,683
Deficit accumulated during the development stage (3,599,135)
Note receivable from officer (510,000)
-----------
Total stockholders' deficit (52,054)
-----------
$ 122,522
===========
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended For the period from
December 31, August 13, 1993
----------------------------------- (Inception) to
1999 1998 December 31, 1999
------------ ------------ -------------------
<S> <C> <C> <C>
Net sales $ -- $ -- $ --
Cost of sales -- -- --
------------ ------------ ------------
Gross profit -- -- --
Operating expenses-
Selling, general and administrative 1,501,836 371,487 2,389,135
Stock issued for services 1,210,000 -- 1,210,000
------------ ------------ ------------
Net loss $ (2,711,836) $ (371,487) $ (3,599,135)
============ ============ ============
Basic and diluted loss per share $ (.14) $ (.12)
============ ============
Basic and diluted weighted average common shares
outstanding 18,730,031 3,032,264
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-4
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM AUGUST 13, 1993 (INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------ Additional During the Note
Paid-In Development Receivable
Shares Amount Capital Stage From Officer Total
---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued to founder and
shareholders in recapitalization 1,142,500 $ 1,143 $ 148,113 $ -- $ -- $ 149,256
Capital contributed by founder -- -- 362,556 -- -- 362,556
Net loss for the period from August 13, 1993
(Inception) through December 31, 1997 -- -- -- (515,812) -- (515,812)
---------- ---------- ---------- ---------- ----- ----------
Balances, December 31, 1997 1,142,500 1,143 510,669 (515,812) -- (4,000)
Capital contributed by founder 105,094 -- -- 105,094
Shares retained by shareholders in
recapitalization on November 1, 1998 11,086,797 11,087 (11,087) -- -- --
Stock issued in November and December
1998 in a private placement at $0.35 503,571 503 175,747 -- -- 176,250
per share
Net loss -- -- -- (371,487) -- (371,487)
---------- ---------- ---------- ---------- ----- ----------
Balances, December 31, 1998 12,732,868 12,733 780,423 (887,299) -- (94,143)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Continued)
FOR THE PERIOD FROM AUGUST 13, 1993 (INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------ Additional During the Note
Paid-In Development Receivable
Shares Amount Capital Stage From Officer Total
---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Stock issued from January to March 1999
in a private placement at $0.35 per share 496,429 496 173,254 -- -- 173,750
Stock issued from May to October 1999
in a private placement at $0.65 per share 475,846 476 308,824 -- -- 309,300
Value of stock options granted to officers
in February 1999 at $0.15 per share -- -- 1,000,000 -- -- 1,000,000
Exercise of stock options in February 1999
at $0.15 per share for note 3,400,000 3,400 506,600 -- (510,000) --
Exercise of stock options in February 1999
at $0.15 per share for employment services 1,600,000 1,600 238,400 -- -- 240,000
Stock issued in June 1999 valued at $0.65
per share for services 1,000,000 1,000 649,000 -- -- 650,000
Stock issued for cash in June, August,
September and October 1999 at $0.65 per share 446,152 446 289,554 -- -- 290,000
Stock issued for cash in November 1999
at prices ranging from $0.31 to $0.36 172,191 172 60,703 -- -- 60,875
per share
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-6
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Continued)
FOR THE PERIOD FROM AUGUST 13, 1993 (INCEPTION)
TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------ Additional During the Note
Paid-In Development Receivable
Shares Amount Capital Stage From Officer Total
---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Stock issued for cash in December
1999 at $0.40 per share 75,000 75 29,925 -- -- 30,000
Net loss -- -- -- (2,711,836) -- (2,711,836)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1999 20,398,486 $ 20,398 $ 4,036,683 $(3,599,135) $ (510,000) $ (52,054)
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended For the period from
December 31, August 13, 1993
--------------------------------- (Inception) to
1999 1998 December 31, 1999
----------- ----------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,711,836) $ (371,487) $(3,599,135)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 16,232 -- 16,232
Value of stock options issued below fair value 1,000,000 -- 1,000,000
Issuance of common stock for services
rendered 890,000 -- 890,000
Changes in operating assets and liabilities:
Accounts receivable (3,771) -- (3,771)
Accounts payable 6,109 5,528 11,637
Accrued expenses 53,871 9,500 63,371
Accrued payroll and related benefits 9,357 3,664 13,021
Other liabilities 8,000 -- 8,000
----------- ----------- -----------
Net cash used in operating activities (732,038) (352,795) (1,600,645)
----------- ----------- -----------
Cash flows from investing activities-
Purchases of property and equipment (118,457) -- (118,457)
----------- ----------- -----------
Cash flows from financing activities:
(Decrease) increase in due to related parties (10,000) 88,547 78,547
Issuance of common stock for cash 863,925 176,250 1,189,431
Contributions of capital -- 101,094 467,650
----------- ----------- -----------
Net cash provided by financing activities 853,925 365,891 1,735,628
----------- ----------- -----------
Net increase in cash 3,430 13,096 16,526
Cash at beginning of period 13,096 -- --
----------- ----------- -----------
Cash at end of period $ 16,526 $ 13,096 $ 16,526
=========== =========== ===========
Non Cash Financing Activities-
Stock issued to officer for promissory note $ -- $ 510,000 $ 510,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-8
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1 - Organization
La Jolla Fresh Squeezed Coffee Company, Inc., formerly North West Farms, Inc.
("LJFSC"), incorporated in the state of Washington, and its subsidiaries
(collectively the "Company") intends to manufacture, market and distribute
quality cold-brewed coffee liquid extract and gourmet non-alcoholic cold coffee
drinks. The Company since Inception has had no significant operations and,
accordingly, is a company in the development stage.
Stephen's Coffee Co., Inc. ("SCC") was incorporated in the state of California
on August 13, 1993 ("Inception"). SCC is the operating company responsible for
the development of manufacturing methods and products for distribution.
Effective November 1, 1998, SCC was acquired for 1,142,500 shares of common
stock representing approximately 9% of the outstanding voting stock of LJFSC in
exchange for the common stock of SCC. LJFSC has had no significant operations.
For accounting purposes, the combination is treated as a recapitalization of
SCC.
The accompanying consolidated financial statements reflect the historical assets
and liabilities, and the related historical operations of SCC for all periods
presented.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements at December 31, 1999, include
the accounts of the Company and its subsidiaries. All inter-company accounts
have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
losses from operations since its inception and requires substantial funds for
its operational activities and sales efforts. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management is
seeking financing through a private placement of its common stock. There are no
assurances that funds will be available to or, if available, that the Company
will achieve revenues sufficient to meets its cost structure. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reported periods. Actual results could materially differ from those
estimates. Significant estimates made by management include, but are not limited
to, the allowance for losses on uncollectible accounts receivable, and the
impairment of long-lived assets.
F-9
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies, continued
Concentration of credit risk
The Company purchased certain products from two suppliers, which accounted for
approximately 24% and 23% of total purchases during the year ended December 31,
1999. No suppliers represented more than 10% during the year ended December 31,
1998. Management does not believe that the loss of such suppliers could have a
severe impact on the results of operations.
Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Property and Equipment
Property and equipment are depreciated over their estimated useful lives using
the straight-line method over three to seven years. Additions and betterments
are capitalized. The cost of maintenance and repairs is charged to expense as
incurred. When depreciable property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in operations.
The Company periodically reviews the value of its property and equipment for
impairment whenever events or changes in circumstances indicate that the book
value of an asset may not be recoverable. An impairment loss would be recognized
whenever the review demonstrates that the future undiscounted net cash flows
expected to be generated by an asset from its use and eventual deposition are
less than the carrying amount of the asset. Management believes no permanent
impairment has occurred.
Revenue Recognition
Revenue from coffee products is recognized upon shipment of product. Estimated
returns and allowances are accrued to expenses at the time of sale.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between bases used for financial reporting and income tax reporting
F-10
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies, continued
purposes. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for certain deferred tax assets if it is more likely than not that the
Company will not realize tax assets through future operations.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for stock-based compensation. However, SFAS No. 123
allows an entity to continue to measure compensation cost related to stock and
stock options issued to employees using the intrinsic method of accounting
prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the accounting
method of APB No. 25 must make pro forma disclosures of net income (loss) and
earnings (loss) per share, as if the fair value method of accounting defined in
SFAS No. 123 had been applied. Through December 31, 1999, the Company had no
employee stock options outstanding.
Loss Per Share
Basic EPS is computed as net income (loss) divided by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common stock issuable through stock
options, warrants and other convertible securities. The Company did not have any
potentially dilutive common stock equivalents outstanding as of December 31,
1999 or 1998.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other consolidated financial statements. Comprehensive income includes net
income (loss), as well as certain non-shareholder items that are reported
directly within a separate component of stockholders' equity and bypass net
income (loss). The Company had adopted the provisions of this statement during
the current fiscal year, with no impact on the accompanying consolidated
financial statements.
Disclosures about Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The provisions of this statement require
disclosures of financial and descriptive information about an enterprise's
operating segments in annual and interim financial reports issued to
stockholders. The statement defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating
decision-maker in the determination of resource allocation and assessing
performance, and for which discrete financial information is available. The
Company has adopted the provisions of this statement in 1999 with no impact on
the accompanying consolidated financial statements.
F-11
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies, continued
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Accordingly, the Company will adopt SFAS
No. 133 beginning on January 1, 2000. SFAS No. 133 establishes standards for the
accounting and reporting of derivative instruments and hedging activities,
including certain derivative instruments embedded in other contracts. Under SFAS
No. 133, entities are required to carry all derivative instruments at fair value
on their balance sheets. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging activity and the underlying
purpose for it. The Company does not believe that the adoption of SFAS No. 133
will have a significant impact on the Company's consolidated financial
statements or related disclosures.
Note 3 - Acquisition
As discussed in Note 1, LJFSC entered into an asset purchase agreement with SCC
to acquire all the assets of SCC for 1,142,500 shares of its common stock. Since
the acquisition was treated as a recapitalization of SCC, these shares are
reflected as outstanding since Inception. The shares totaling 11,086,797
retained by the shareholders of LJFSC are considered as issued in connection
with the recapitalization in the accompanying consolidated statements of
stockholders' deficit. LJFSC had no assets nor operations at the date of the
acquisition.
Note 4 - Property and Equipment
Property and equipment consists of the following at December 31, 1999:
Equipment $ 59,956
Furniture and fixtures 1,249
Leasehold improvements 57,252
---------
118,457
Less accumulated depreciation (16,232)
---------
$ 102,225
Note 5 - Commitments and Contingencies
Lessee
The Company is the lessee of office equipment under operating leases typically
for periods of three years. The Company leases its office space under an
operating lease in which the terms are for a period of six months. Total rent
expense for all leases for the years ended December 31, 1999 and 1998 amounted
to approximately $72,254 and $48,775, respectively.
F-12
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 5 - Commitments and Contingencies, continued
The Company's future annual minimum lease payments for all non-cancelable
operating leases as of December 31, 1999, are as follows:
Years Ending
2000 $ 64,614
2001 47,172
2002 29,730
2003 7,957
-------
$ 149,473
=======
Litigation
In November 1999, a former director of SCC made a claim against the Company
alleging that certain corporate formalities were not complied with during the
transfer of the assets of SCC entitling the plaintiff to unwind the transfer,
$150,000 in damages and additional shares in the Company. In November 1998, the
Company believed it had settled the matter by the payment of $15,000, the
issuance of 150,000 shares and the director's resignation. The outcome of the
case is uncertain. As such, no provision for loss has been made in the
accompanying consolidated statements of operations.
In November 1999, a shareholder of the Company filed a claim against the Company
alleging similar claims as above, specifically that the transfer of the assets
of SCC was fraudulent and is seeking declaratory relief to unwind the transfer,
and other damages. The outcome of the case is uncertain. As such, no provision
for loss has been made in the accompanying consolidated statements of
operations.
Note 6 - Stockholders' Deficit
During the period from Inception to December 1998, the president and founder of
SCC had personally funded much of the operations. Approximately $468,000 was
contributed to further the research and development of its cold extraction
process and delivery system.
Common Stock Issuances
As discussed in Notes 1 and 3, effective November 1, 1998, NWF issued 1,142,500
shares of its common stock for all the assets subject to liabilities assumed of
SCC. Since the acquisition was treated as a recapitalization of SCC, these
shares are reflected as outstanding since Inception. The shares totaling
11,086,797 retained by the stockholders of NWF are considered as issued in
connection with the recapitalization in the accompanying consolidated statements
of stockholders' deficit.
In 1998, the Company issued 503,571 shares of common stock for $0.35 per share
in a private placement offering for a total of $176,250. In 1999, the Company
sold an additional 496,429 shares of common stock for $0.35 per share pursuant
to such offering for a total of $173,750.
From May to October 1999, the Company received $309,300 from a private placement
offering issuing 475,846 shares of its common stock for $0.65 per share.
F-13
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 6 - Stockholders' Deficit, continued
In June 1999, the Company issued 1,000,000 shares of common stock to a third
party in exchange for the development and maintenance of the Company's website.
The services were valued at $650,000 or $0.65 per share. The Company disputes
the transaction due to lack of performance by the vendor and the Company is
currently pursuing cancellation of a portion of the shares. No adjustment has
been made to the accompanying consolidated financial statements as a result of
managements' intent to cancel certain shares under this arrangement.
At various times during 1999, the Company issued 446,152 shares of common stock
at $0.65 per share for total proceeds of $290,000.
In November 1999, the Company issued 172,191 shares of common stock at prices
ranging from $0.31 to $0.36 per share for total proceeds of $60,875.
In December 1999, the Company issued 75,000 shares of common stock at $0.40 per
share for total proceeds of $30,000.
Stock Options
In 1999, the Company adopted the 1999 Incentive Stock Option Plan (the "Plan"),
which authorizes the granting of options to key employees, directors, and/or
consultants to purchase unissued common stock subject to certain conditions,
such as continued employment. Options are generally granted at the fair market
value of the Company's common stock at the date of grant and become exercisable
over a period of three years from the date of grant. During 1999, options to
purchase 5,000,000 shares of the Company's common stock were granted and
exercised at $0.15 per share.
In February 1999, pursuant to the Plan, the Company granted to two officers
options to purchase 3,400,000 and 1,600,000 shares of its common stock at $0.15
per share. The officers exercised these options in February 1999 in exchange for
a promissory note bearing interest at six percent per annum due in 2009 for the
3,400,000 shares and services rendered for the 1,600,000 shares. No payments
have been made on the note during 1999. The Company recorded additional
compensation expense during 1999 of $1,000,000 for the value of these options
granted below fair value based on the difference between the estimated fair
value of $0.35 and the exercise price of $0.15.
Note 7 - Provision for Income Taxes
The Company's net deferred tax assets at December 31, 1999, consist of net
operating loss carryforwards for federal and state income tax reporting
amounting to approximately $3.6 million and $1.7 million, respectively. At
December 31, 1999, the Company provided a 100% valuation allowance for these net
operating loss carryforwards totaling approximately $1.4 million. The Company's
net operating loss carryforwards will begin to expire in 2019 and 2004 for
federal and state income tax purposes, respectively. The Company recorded no
benefit for income taxes during the periods presented. During the years ended
December 31, 1999 and 1998, the Company's total valuation allowance increased
approximately $1.1 million and $149,000, respectively.
F-14
<PAGE>
LA JOLLA FRESH SQUEEZED COFFEE CO., INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 7 - Provision for Income Taxes, continued
The difference between the tax benefit assuming a Federal income tax rate of 34%
and amounts recorded in the financial statements of zero percent is the result
of the Company recording a 100% valuation allowance for its deferred tax assets.
As a result of changes in ownership, the Company's use of net operating loss
carryforwards may be limited by section 382 of the Internal Revenue Code until
such net operating loss carryforwards expire. Deferred tax assets have been
computed using the maximum expiration terms of 20 and 5 years for federal and
state tax purposes, respectively.
Note 8 - Subsequent Events
On February 22, 2000, the Company acquired all the outstanding shares of common
stock of Sorisole Acquisition Corp. ("Sorisole"), a Delaware corporation, from
the shareholders thereof in exchange for 3,500,000 shares of common stock.
Sorisole is a reporting shell corporation and has no assets or liabilities and
no significant operations. This acquisition will be accounted for as a
recapitalization of the Company.
From January to April 2000, the Company issued 340,000, 78,950, 249,500 and
61,111 shares of its common stock for cash to unrelated parties at $0.12, $0.19,
$0.40 and $0.45 per share, respectively, in a private placement under the
provisions of the Securities Act of 1933. The Company received approximately
$182,000 pursuant to such offering.
F-15
