U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: September 30, 1996
[ ] 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: 33-20492-D
America's Coffee Cup, Inc.
(Exact name of small business issue as specified in its charter)
Colorado 84-1078201
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
12528 Kirkham Ct., Nos. 6 & 7, Poway, CA 92064
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (619) 679-3290
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (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
issuer was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days: Yes X No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check Mark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court: Yes No Not Applicable
X.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: Issuer
has one class of common stock, of which 845,577 shares were
outstanding on December 11, 1996.
Transitional Small Business Disclosure Format (check one): Yes
No X.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
BALANCE SHEET
(America's Coffee Cup, Inc.-Unaudited)
ASSETS
September 30, 1996
Unaudited December 31, 1995
CURRENT ASSETS
Cash and Cash Equivalents $110,035 $ 32,727
Accounts Receivable,
no allowance deemed
necessary 63,856 130,455
Inventories 88,150 135,776
Prepaid expense and other 19,192 15,996
TOTAL CURRENT ASSETS 281,233 314,954
PROPERTY AND EQUIPMENT, net 470,840 338,085
OTHER ASSETS:
License agreement, net 253,125 218,750
Slotting fee, net 47,732 61,581
Deferred offering costs
and other assets 3,403 72,060
TOTAL OTHER ASSETS 304,260 352,391
$1,056,333 $1,005,430
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $542,053 $259,457
License fee payable 100,000 -
Accrued expenses 88,204 62,239
Current portion of
long-term debt 575,951 722,717
TOTAL CURRENT LIABILITIES 1,306,208 1,044,413
LONG-TERM DEBT, less
current portion 441,249 480,160
STOCKHOLDERS' DEFICIT
Common stock, $.40 par value
(10,000,000 shares authorized,
802,043 shares issued and
outstanding as of
December 31, 1995) 338,226 320,816
Additional paid-in-capital 1,009,572 366,373
Preferred stock, $.10 par value
(1,000,000 shares authorized,
none issued and outstanding) - -
Accumulated deficit (2,038,922) (1,206,332)
TOTAL SHAREHOLDERS' DEFICIT (691,124) (519,143)
$1,056,263 $1,005,430
<PAGE>
STATEMENT OF OPERATIONS
(America's Coffee Cup, Inc.-Unaudited)
For the nine months ended
September 30, 1996 September 30, 1995
SALES $1,697,667 $2,191,641
COST OF SALES 685,169 1,041,934
Gross Profit 1,012,498 1,149,707
OPERATING EXPENSES
General and Administrative 1,691,779 1,441,517
Depreciation 43,288 24,504
TOTAL OPERATING EXPENSES 1,735,067 1,466,021
LOSS FROM OPERATIONS (722,569) (316,314)
OTHER INCOME (EXPENSES)
Interest expense (28,691) (67,002)
Other (81,330) 18,604
TOTAL OTHER INCOME
(EXPENSES) (110,021) (48,398)
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (832,590) (364,712)
Provision for income tax 800 800
NET LOSS BEFORE EXTRAORDINARY
ITEM (832,590) (365,512)
Extraordinary item, net of tax - 322,512
NET LOSS (832,590) (43,000)
Net loss per common share
before extraordinary item - (1.37)
Extraordinary item - 1.21
Net loss per common share (.98) (.16)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 845,567 266,222
<PAGE>
STATEMENT OF CASH FLOWS
(America's Coffee Cup, Inc. Unaudited)
Nine Months Ended
September 30, September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(832,590) $(43,000)
Adjustments to reconcile
net income
(loss) to net cash used
in operating activities:
Depreciation 43,288 24,504
Amortization of license agreement
included in cost of goods sold - 67,511
Extraordinary item -
extinguishment of debt - (322,512)
Convertible debt exchanged
fro common stock at less
than par value - 117,966
Changes in operating assets
and liabilities:
Accounts receivable 66,599 32,042
Inventory 47,626 (36,010)
Prepaid expenses (3,196) (77,507)
License agreement (34,375) -
Slotting fee 13,849 -
Deposits (3,403) (8,095)
Increase (decrease) in:
Accounts payable 282,596 243,667
Accrued expenses 25,965 7,945
License fee payable 100,000 -
NET CASH USED IN OPERATING ACTIVITIES (293,641) 6,511
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (176,043) (27,249)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt (185,677) (223,727)
Proceeds from convertible debt - 105,000
Proceeds from issuance of
common stock 17,410 -
Proceeds from additional
paid-in-capital 643,199 -
Deferred offering cost 72,060 -
NET CASH PROVIDED BY (USED IN )
FINANCING ACTIVITIES 546,992 (118,727)
NET INCREASE (DECREASE) IN CASH 77,308 (139,465)
CASH, BEGINNING OF PERIOD 32,727 228,864
CASH, END OF PERIOD $110,035 $89,399
<PAGE>
Notes to Financial Statements
(America's Coffee Cup, Inc. - Unaudited)
A. 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 be 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 December
31, 1995. The results of operations for the period ended September
30, 1996, may not necessarily be indicative of the operating
results for the entire 1996 year.
B. Net Loss per Common Share and Common Stock:
Net loss per common share of Common Stock is computed by
dividing net loss by the weighted average number of shares
outstanding for the periods presented.
C. Going Concern:
The Company has suffered recurring operating losses and, at
September 30, 1996, had a net deficiency in assets and working
capital. 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 an attempt to increase
working capital and improve profitability. During 1994, 1995 and
1996, the Company issued convertible debt, and during 1996,
conducted an offering of securities, the net proceeds of which were
received on August 21, 1996. Additionally, the Company has orally
agreed with Ralph's to relocate fixtures in several stores to new
locations which present better market demographics, close several
locations, continue installing concessions at newly constructed
Ralph's stores and began installing concessions at stores which are
being converted into Ralph's from Alpha Beta. The Company is also
continuing to pursue expansion into other grocery chains and has
installed concessions in two new chains.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
The following discussion of financial condition and results of
operations should be read in conjunction with the Company's
unaudited financial statements and notes thereto appearing
elsewhere in this form.
The Company has had recurring losses from operations since
inception and has a net capital deficiency, each of which raise
substantial doubts about its ability to continue as a going
concern. Accordingly, the auditors' report and opinion on the
financial statements as of and for the years ended December 31,
1995, and December 31, 1994, included an explanatory paragraph
about these uncertainties.
Nine Months Ended September 30, 1996, as Compared to Nine Months
Ended September 30, 1995
1996 1995
Revenue $1,697,667 $2,191,641
Costs of Sales 685,169 1,041,934
Operating Expenses 1,735,067 1,466,021
Loss from Operations (722,569) (316,314)
Other Income (Expenses) (110,021) (48,398)
Net Loss (832,590) (43,000)
The Company opened its first service concession in August of
1988, and, as of January 31, 1996, had expanded to 66 locations,
all of which were located in Southern California in a single
supermarket chain, Ralph's. During February of the current year,
the Company agreed with Ralph's to close concessions at eleven
locations and relocate ten of the fixtures to stores with higher
sales volume in neighborhoods with higher median income. During
the third quarter of the current year, the Company agreed with
Ralph's to close an additional allocations, none of which will be
relocated. The closed locations were operating, at best, at break
even. Management believes that the ten new locations have better
prospects and will increase revenues on a per location basis with
a greater likelihood of profitability because of their favorable
locations. Further, these closures had a direct impact on revenues
during the period ended September 30, 1996, because of (i) the
reduced number of locations generating revenues and (ii)the
repurchase by the Company from Ralph's of unsold coffee. These
factors contributed significantly to a reduction of revenues in the
amount of $493,974 (22.54%) to $1,697,667 for the first nine months
of 1996 from $2,191,641 during the first nine months of 1995.
Costs of sales decreased $356,765 (34.24%) to $685,169 during
the first nine months of 1996 from $1,041,934 during the first nine
months of 1995, and also decreased as a percentage of revenues to
40.36% from 52.46%. The decrease in the total of these costs was
due primarily to the decrease in number of sales concessions and to
the further decrease in the price per pound for coffee during the
first nine months of 1996 which the Company paid, as compared to
the prices paid in the corresponding period of 1995, which price
decrease accounted almost entirely for the decrease of these costs
as a percentage of revenues between the two periods.
Operating expenses during the first nine months of 1996
increased $269,046 (18.35%) to $1,735,067 from $1,466,021 due
principally to an increase in general and administrative expenses
of $250,262 (17.36%) to $1,691,779 from $1,441,517. The increase
in general and administrative expenses was primarily the result of
the hiring of a new marketing executive, the finalization of the
build out of the warehouse and delivery systems by the Company that
was necessitated from the change in coffee supplier, the
relocations and closures within Ralph's, the installations of
fixtures in two new grocery chains, as well as the additional labor
and supply expenses incurred in this regards, product development
costs for new product lines and the expenses incurred in the sale
of securities by the Company. Operating expenses were further
increased as a result of an increase in depreciation of $18,784.
The result of the above was a loss from operations of
$722,569.
Interest expense was substantially reduced during the first
nine months of 1996 as a result of the conversion of approximately
$205,000 in debt securities during the last six months of 1995 and
in February of the period under discussion. Further, several loans
were repaid from the proceeds of the public offering.
The Company generated negative cash flows from operations of
$293,641 during the first nine months of 1996 due primarily to the
relocations and closures within Ralph's, the build out of the
warehouse and delivery system, the opening of locations in two new
chains, and the purchase of inventory. This compared to a positive
operating cash flow of $6,511 from operations in the first nine
months of 1995. Cash was used outside of operations to purchase
property and equipment and repay the Brothers' and bridge loan
debt. Cash was generated from the public offering and the
conversion of outstanding debt, which resulted in an increase in
cash of $77,308 during the period, as compared to a decrease of
$118,721 in cash during the comparable period of 1995.
Liquidity and Capital Resources
The Company, from inception through August of 1995,
principally relied upon two sources for its working capital: (i)
cash flow generated from operations and (ii) the extension of
credit by Brothers' in the forms of (a) trade account repayment
terms, (b) the advancement of fixture and delivery costs and (c)
the advancement of slotting fees to Ralph's on behalf of the
Company. The Company, since August, 1995, has (i) replaced
Brothers' with other suppliers, (ii) reorganized its business
within Ralph's, (iii) expanded its product lines to include and
focus on organic coffees, (iv) expanded its sales locations outside
of Ralph's and (v) completed a secondary offering of its
securities. The principal immediate results of these efforts have
been a substantial decrease in gross revenues of the Company and
the price per pound paid for coffee. Management believes that the
long-term results of these efforts will allow the Company to be
operationally profitable at each of its locations and to expand the
number of its sales outlets into operationally profitable
locations.
On August 21, 1996, the Company completed an offering of
54,000 units of its securities consisting of one share of Series A
Preferred Stock and fifty Redeemable Series A Warrants. The
offering raised gross proceeds of $1,134,000 for the Company.
Expenses of approximately $264,241 were incurred in the conduct of
the offering, including sales commissions of $113,400, a
non-accountable expense allowance of $34,000, legal fees of $79,662
and other expenses, which left net proceeds to the Company of
$869,759 which were applied as follows: (i) $371,031 to the
repayment of bridge loans, (ii) $189,307 to the repayment of
accounts payable, and (iii) $100,000 to Brothers', as discussed
further below.
The Company and Brothers' settled their litigation, as
previously reported and discussed further under Item 2, below, on
January 25, 1996, by agreeing to the joint stipulation for the
settlement of all obligations between Brothers' and the Company in
exchange for the Company agreeing to pay Brothers' the sum of
$1,025,280. The stipulated judgment requires the stipulated amount
to be repaid in 40 equal monthly installments of $30,246 which were
to have begun on April 1, 1996, and were to have ended on July 1,
1999. Pursuant to an agreement reached subsequent to the
settlement agreement, these payment obligations were extended after
the Company agreed to and did pay Brothers' $15,000 on January 25,
February 17, and March 13, 1996, and $30,246 on the first day of
April, May, June, July, August, September and October, 1996. On
the conclusion of the public offering, on or about August 21, 1996,
the Company paid Brothers' an additional sum of $100,000. The
Company has not made any further payments to Brothers' since
October 1, 1996, and Brothers' has notified the Company that it is
in default
of the stipulated judgement and must pay the total amount now due
thereunder, an amount claimed to be 662,504. The Company and
Brothers' are now engaged in further discussion concerning the
repayment of this obligation. If not successful, Brothers' could
apply for the entry of an unsecured judgment against the Company
and execute the judgment against the assets of the Company, which
would allow Brothers' to sell these assets, subject to pre-existing
liens, to satisfy the judgment amount. Any such sale would satisfy
only a partial amount of the judgment, and would leave the Company
without any business to pursue and substantial obligations to
repay, which it could not. This action on the part of Brothers'
would force the Company to seek relief from its creditors under
federal bankruptcy laws. The Company has engaged an attorney to
assist it in the preparation of a filing for this purpose.
Beginning in January, 1996, the Company sold, directly and
through an unaffiliated intermediary, promissory notes to two
unaffiliated third parties. These notes were repaid from the
proceeds of the public offering, which amount approximated $371,031
on the date of repayment. In conjunction with the sale of these
notes, the Company issued to the note holders warrants which allow
the holders to acquire during a period of five years from August
10, 1996, up to 1,810,000 shares of Common Stock at a current price
of approximately $.39 per share. The shares of Common Stock were
registered in the public offering. The agreements which led to the
issuance of the Bridge Loan Warrants have customary anti-dilution
protections against such matters as reverse stock split,
reclassifications and reorganizations. Additionally, the note
holders received warrants which entitled them on exercise to
receive up to 2,585,650 shares of Common Stock at a price of $1.00
per share.
The Company raised approximately $123,750 in working capital
during the final month of 1994 from a group of European investors
who purchased two year, unsecured, 9% interest bearing notes which
are presently convertible into shares of Common Stock at a price
per share of $9.00. In February of 1996, two of these investors
converted $78,750 and $8,296.77 in principal and interest,
respectively, for a total of $87,047, into 43,524 shares of Common
Stock at a price of $2.00 per share. There is approximately
$54,000 which will become due under these notes on December 30,
1996. The Company is currently unable to repay these amounts.
PART II-OTHER INFORMATION
Item 1. Legal Information.
Brothers' initiated suit against the Company in December,
1995, in the Circuit Court for the 15th Judicial District in and
for Palm Beach County, Florida. The suit claimed that the Company
had failed to make payments under a promissory note for accrued
payables due Brothers' after the execution and delivery of a
"Supply Termination Agreement." The Company was prepared to defend
the suit vigorously, as the first and only payment then due had
been made. The Company and Brothers' settled the matter on January
25, 1996, without the necessity of the Company even filing an
answer, by agreeing to the joint stipulation for the settlement of
all obligations between Brothers' and the Company, including the
obligations under the Supply Termination Agreement and the note
discussed immediately above. The agreed to stipulated amount
was$1,025,280. Under the original terms of this settlement, the
amount which the Company was required to pay Brothers' by April 1,
1996, was $717,696, which would have resulted in a release to the
Company of an additional $307,584 in debt and which would have had
an equal impact on shareholders' equity. As originally agreed, if
this payment was not made by April 1, 1996, the total amount due
Brothers' would increase to $1,025,280, to be repaid, along with
interest at the rate of 10% per annum, in 40 equal monthly
installments of $30,246 beginning on April 1, 1996, and ending on
July 1, 1999. The lump sum payment option was extended until the
close of the public offering, but the Company did not exercise
this option. The obligation is unsecured.
The Company paid Brothers' $15,000 on January 25, February 17,
and March 13, 1996, and $30,246 on the first day of April, May,
June, July, August, September and October of 1996, all of which
amounts were credited against the amount due Brothers'. An
additional $100,000 was paid to Brothers' on the conclusion of the
public offering, as discussed above. The Company did not make
either of the required November or December payments, and has been
notified by Brothers' that it is in default of the stipulation and
that all amounts due under the stipulation are now due. The
Company and Brothers' are now engaged in further discussion
concerning the amount claimed to be due. If the Company does not
reach an agreement with Brothers' to satisfy this obligation, a
judgment may be entered against it in the amount of the liability
now owing, as well as the expenses of entering the judgment and
collecting on the judgment. Brothers' would then be entitled to
exercise its rights as a judgment creditor and attach and sell all
of the assets of the Company, subject to the rights of existing
lien holders. Any such sale would satisfy only a partial amount of
the judgment, and would leave the Company without any business to
pursue and substantial obligations to repay, which it could not.
This action on the part of Brothers' would force the Company to
seek relief from its creditors under federal bankruptcy laws.
In December of 1995, counsel for Robert Matossian and
Fidiparex, S.A., demanded the recision of and subsequent conversion
into Common Stock of notes which the Company had entered into with
certain affiliates of one of its directors, Mr. Pierce, on December
30, 1994, alleging, among other claims, breach of fiduciary duty to
the Company by Messrs. Marsik and Pierce. The notes were converted
into Common Stock on August 17, 1995. Mr. Matossian was a
consultant to the Company from June 1, 1993, until July 31, 1995,
when his consulting agreement was terminated by the Company. Mr.
Matossian was also a director of the Company with Messrs. Pierce
and Marsik during the time that the notes were entered into and the
conversion of the notes effected. Mr. Matossian initiated suit,
purportedly on behalf of the Company, in the Superior Court in San
Diego County, California, sometime in the third quarter of 1996,
using a group of attorneys different from the first and using
plaintiffs different than originally and allegedly represented by
the first group attorneys. (The reason for the change of attorneys
and plaintiffs has not been explained.) The Company and Messrs.
Marsik and Pierce are prepared to vigorously defend their actions,
and have corresponded such to Mr. Matossian and Fidiparex, S.A. An
answer and counterclaim will be filed during December, 1996.
Management believes that the Company stands to collect substantial
sums against the various plaintiffs under its counter-claims for
breach of contract by the plaintiffs of various obligations which
they had to the Company.
The Company, during the third quarter of 1996, was sued by an
unaffiliated third party in a Florida state court claiming amounts
due to it from the settlement of the Brothers' litigation. The
amount claimed approximates $48,000. The suit claims that the
Company has breached its contract in failing to pay a percentage of
the amount by which it was said to benefit through the settlement
of the Brothers' litigation. The Company has filed an answer and
is vigorously defending the lawsuit.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Company, on December 10, 1996, entered into a letter of
intent to acquire Beverage International Group, Ltd., a Colorado
corporation, located in the Denver metropolitan area ("Big"). If
the acquisition contemplated by the letter of intent is
consummated, the shareholders of Big would receive 75% of the
aggregate outstanding shares of the Company's Common Stock
outstanding after the merger and shareholders of the Company would
receive 25% of such shares. This percentage allocation would not
include those shares of Common Stock which may be acquired by
those persons, if any, exercising warrants issued by the Company in
its recent public offering. The closing of the acquisition is
presently scheduled for February 15, 1997. The acquisition is
subject to due diligence by the parties of the respective
corporations. Further, the Company is required to loan $165,000
to Big on or before December 13, 1996, $165,000 on or before
December 20, 1996 and $170,000 on or before December 27, 1996.
These amounts will be evidenced by a promissory note in the
original principal amount of $500,000 bearing simple interest of 9%
per annum, with all principal and interest due and payable twelve
months after the date of the note. The Company is further required
to have no less than $3,800,000 in cash pursuant to the exercise of
those warrants discussed above on or before February 15, 1997, and
is required to solicit shareholder approval and change its name to
Beverage International Group, Ltd. On the date of the acquisition,
the board of the Company will be expanded to seven members, which
will include the five current members of the board of Big, Mr.
Marsik and an additional member. The executive officers will be
the current executive officers of Big and Mr. Marsik, who will be
Senior Vice President. Pending the acquisition, the Company and
Big are required to enter into agreements with their lenders,
vendors and other parties to which they are indebted to reduce,
eliminate or reschedule their debts and liabilities in a manner to
be acceptable to all parties.
Item 6. Exhibits and Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the small business issuer has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICA'S COFFEE CUP, INC.
By: /s/ Robert W. Marsik
Robert W. Marsik
Chief Executive, Financial
and Accounting Officer
Date: December 16, 1996
* * * * * * * * *
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000830746
<NAME> AMERICAS COFFEE CUP INC
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 110,035
<SECURITIES> 0
<RECEIVABLES> 63,856
<ALLOWANCES> 0
<INVENTORY> 88,150
<CURRENT-ASSETS> 281,233
<PP&E> 470,840
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,056,333
<CURRENT-LIABILITIES> 1,306,208
<BONDS> 0
0
0
<COMMON> (691,124)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,056,263
<SALES> 1,697,667
<TOTAL-REVENUES> 1,697,667
<CGS> 0
<TOTAL-COSTS> 1,735,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,691
<INCOME-PRETAX> (832,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (832,590)
<EPS-PRIMARY> (.98)
<EPS-DILUTED> (.98)
</TABLE>
