U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: March 31, 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
of incorporation or organization) (I.R.S. Employer Identification No.)
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 845,567 shares were
outstanding on May 13, 1996.
Transitional Small Business Disclosure Format (check one): Yes No X
.
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
BALANCE SHEET
(America's Coffee Cup, Inc.-Unaudited)
ASSETS
March 31, 1996 December 31, 1995
CURRENT ASSETS
Cash and Cash Equivalents $2,688 $32,727
Accounts Receivable,
no allowance necessary $116,865 $130,455
Inventories $119,435 $135,776
Prepaid expense and other $38,642 $15,996
TOTAL CURRENT ASSETS $277,630 $314,954
PROPERTY AND EQUIPMENT, net $447,032 $338,085
OTHER ASSETS:
License agreement, net $296,875 $218,750
Slotting fee, net $ 57,798 $ 61,581
Deferred offering costs $108,468 $72,060
TOTAL OTHER ASSETS $463,141 $352,391
$1,187,803 $1,005,430
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $222,352 $259,457
License fee payable $100,000 -
Bank Overdraft $26,475 -
Accrued expenses $90,113 $62,239
Current portion of long-term debt $962,217 $722,717
TOTAL CURRENT LIABILITIES $1,401,157 $1,044,413
LONG-TERM DEBT $457,660 $480,160
STOCKHOLDERS' DEFICIT
Common stock, $.40 par value $338,226 $320,816
(10,000,000) shares authorized,
802,043 and 845,567
shares issued and outstanding as
of December 31, 1995, and
March 31, 1996, respectively)
Preferred stock, $.40 par value
(1,000,000 shares authorized,
no shares issued andoutstanding
at December 31, 1995, or March
31, 1996)
Additional paid-in-capital $436,010 $366,373
Accumulated deficit $(1,445,250) $(1,206,332)
$(671,014) $(519,143)
TOTAL SHAREHOLDERS' DEFICIT $1,187,803 $1,005,430
(See accompanying notes to financial statements.)
<PAGE>
STATEMENT OF OPERATIONS
(America's Coffee Cup, Inc.-Unaudited)
For the three months For the three months
ended March 31, 1996 December 31, 1995
SALES $616,581 $749,637
COST OF SALES $245,582 $312,595
GROSS PROFIT $370,999 $437,042
OPERATING EXPENSES
General and Administrative $582,004 $467,784
Depreciation $ 24,493 $ 5,468
Total operating expenses $586,947 $473,252
LOSS FROM OPERATIONS $(215,948) $(36,210)
OTHER INCOME (EXPENSES)
Interest expense - $(19,046)
Other $(8,545) $(385)
Total other income (expenses)$(8,545) $(19,431)
LOSS BEFORE INCOME TAX EXPENSE $(224,493) $(55,641)
Provision for income tax - $800
NET LOSS $(224,493) $(56,441)
NET LOSS PER COMMON SHARE $(.26) $(.07)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 857,005 848,300
(See accompanying notes to financial statements.)
<PAGE>
STATEMENT OF CASH FLOWS
(America's Coffee Cup, Inc. Unaudited)
Three Months Ended
March 31, 1996 March 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(224,495) $(56,441)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating ativities:
Depreciation $2,611 $5,468
Amortization of license agreement
included in cost of goods sold $21,875 $21,875
Changes in operating assets
and liabilities:
Accounts receivable $13,590 $44,021
Inventories $16,341 $11,402
Prepaid expenses $(22,646) $(1,421)
Other assets $(3,165) $(2,709)
Increase (decrease) in:
Accounts payable $(37,105) $2,694
Accrued expenses $27,874 $19,162
Total adjustments $19,375 $100,492
Net cash provided by
(used in) operating activities $205,118 $44,051
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment $(111,558) $(6,859)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt $(45,000) $(12,052)
Proceeds from issuance of debt $262,000 -
Proceeds from convertible debt $69,637 $(82,500)
Net cash provided by (used in)
financing activities $286,637 $70,448
Net increase (decrease in cash) $(30,039) $107,640
CASH, BEGINNING OF PERIOD $32,727 $228,864
CASH, END OF PERIOD $2,688 $336,504
(See accompanying notes to financial statements.)
<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 March 31, 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,
1995, had a net deficiency in assets. These
conditions raise substantial doubt about the ability of the Company to
continue as a going concern.
Several steps have been taken by the Company in an attempt to increase
working capital and improve profitability. During
1994, 1995 and 1996, the Company issued convertible debt, and during 1995,
signed a letter of intent with an underwriter
for the purpose of conducting an offering of securities, the net proceeds
of which are currently estimated to approximate
$3,200,000. Additionally, the Company has orally agreed with Ralph's to
relocate fixtures in several stores to new locations
which present better market demographics, 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.
D. Property and Equipment:
Property and equipment at March 31, 1996, and March 31, 1995, consisted of
the following:
1996 1995
Office equipment and furniture 42,718 41,107
Store equipment and fixtures 523,234 440,277
Automobile 79,670 26,526
Less accumulated depreciation 195,977 178,193
Net property and equipment 449,643 329,717
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; however, management has
taken a number of steps which it believes will
assure the future of the Company irrespective of its current capital
raising efforts.
The following discussion should be read with the understanding that
the Company was a start-up entity with limited
working capital. The Company has historically shown substantial losses
during the second and third calendar quarters of
each year, due to seasonal trends, while posting positive operating cash
flows during the first and final quarters of the year,
the effect of which has been a substantial reduction in the net losses
incurred by the Company in each year.
Results of Operations
Three Months Ended March 31, 1996, as Compared to Three Months Ended March
31, 1995
1996 1995
Revenue 616,581 749,637
Costs of Sales 245,582 312,595
Operating Expenses 586,947 473,252
Loss from Operations (215,948) ( 36,210)
Other Income (Expenses) ( 8,545) ( 19,431)
Net Loss (224,493) ( 56,441)
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 are 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. As of the date of this report, four of these
locations had been installed and a schedule implemented to install the
remaining six locations by the end of June. The eleven
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. These closures had a direct impact on revenues during
the quarter 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
$133,056 (17.75%) to $616,581 for the first quarter
of 1996 from $749,637 during the first quarter of 1995.
Costs of sales decreased $67,013 (21.44%) to $245,582 during the first
quarter of 1996 from $312,595 during the
first quarter of 1995, and also decreased as a percentage of revenues to
39.83% from 41.70%. The decrease in the total of
these costs was due primarily to the further decrease in the price per
pound for coffee during the first quarter 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. The decrease in the total
of these costs was also due, in lesser part, to the relocation within
Ralph's discussed in the immediately preceding paragraph.
Operating expenses during the first quarter of 1996 increased $113,695
(24%) to $586,947 from $473,252 due
to an increase in general and administrative expenses of $114,220 (24.41%)
to $582,004 from $467,784. The increase in
general and administrative expenses were 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 and the anticipated expansion within Ralph's, as discussed above,
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
debt securities by the Company. Operating expenses were further increased
as a result of an increase in depreciation of
$19,025 and an increase in amortization expenses of $27,531 as compared to
the comparable quarter of 1995.
The result of the above was a loss from operations of $215,948 in the
quarter due principally to the relocation
within Ralph's discussed above, the build out of the warehouse and delivery
system to accommodate the change in coffee
supplier and anticipated new growth within Ralph's, the development of new
product lines, the hiring of marketing personnel
and the sale of debt securities.
Interest expense was substantially reduced during the first quarter
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 quarter under discussion;
thus, the net loss of $224,493 was approximately equal to the loss from
operations.
The Company generated negative cash flows from operations of $205,118
during the first three months of 1996
due primarily to the relocation within Ralph's, the build out of the
warehouse and delivery system discussed above, and the
purchase of inventory. This compared to a positive operating cash flow of
$44,051 from operations in the first quarter of
1995. Cash was used outside of operations to purchase property and
equipment ($111,558) and repay the brothers debt
($45,000). Cash was generated from the sale of the Bridge Loan Notes
($262,000) and the conversion of outstanding debt
($69,637), which, when combined with the cash flows used in operations
during the first quarter of 1996, resulted in a
decrease in cash of $30,039 during the period, as compared to an increase
of $107,640 in cash during the comparable period
of 1995.
Liquidity and Capital Resources
The Company, since inception, has principally relied upon two sources
for its working capital for operations and
expansion, (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. In early 1995, the Company began a
program to increase cash flow from operations, the
most significant result of which was the replacement of Brothers with other
suppliers. New suppliers provide coffee to the
Company at an average cost savings per pound of $1.45, a decrease of
approximately 33%. The Company expects further
revenue enhancements and other cost savings and expense reductions to come
from (i) additional employee training to
improve sales efforts at the service concessions, (ii) the conversion of
debt aggregating $117,970 in principal and accrued
interest to Common Stock on August 17, 1995, which resulted in an
approximate savings of $13,200 per year in interest,
(iii) the termination on July 31, 1995, of a consulting agreement with
Fidiparex, S.A., which resulted in an approximate
savings of $40,000 per year, (iv) the conversion to Common Stock in
February of this year of debt evidenced by debentures
aggregating $87,047 in principal and accrued interest, which resulted in
an approximate savings of $7,830 per year in
interest expense, and (v) the establishment of new supply contracts for
coffee accessory products. The Company plans to
further increase revenues through the closure of eleven stores and the
relocation of ten of the fixtures in these stores to new
locations, as discussed above in the third paragraph under this item, and
the expansion of concession stands in Ralph's. <PAGE>
These savings will be
partially offset by (i) an increase over a six month
period in fees of $4,000 per month payable to an
individual to assist the Company in the upgrade of its accounting and
financial programs and the implementation of these
programs, (ii) a $15,000 increase in the annual salary of Mr. Marsik and
(iii) the employment of a new marketing executive,
Mr. Vandenberg, at an annual salary of $67,200.
Prior to August 25, 1995, the Company was obligated to purchase its
supply of gourmet coffee exclusively from
Brothers, the country's largest wholesale and retail supplier of gourmet
coffee. On that date, the Company entered into an
agreement (the "Supply Termination Agreement") with Brothers to supersede
all previous agreements between the parties.
Under the terms of the Supply Termination Agreement, the Company and
Brothers terminated the obligation of the Company
to purchase its supply of coffee exclusively from Brothers and agreed to
the consolidation, satisfaction and structured
repayment of certain debt which had been accrued by the Company in favor
of Brothers during the term of their relationship,
which dated back to 1989. On the date of execution, the Company further
agreed to pay Brothers, from the proceeds of a
currently contemplated public offering, if successful, approximately
$740,000, as evidenced by two unsecured promissory
notes. Pursuant to the Supply Termination Agreement, the Company and
Brothers mutually released all claims, demands
and liabilities between them, with the exception of those obligations
specifically set forth in the agreement, as well as those
accounts payable which accrued after June 1, 1995. Included within the
debt released was $350,000 in slotting fees which
Brothers had paid on behalf of the Company to Ralph's. The debt remaining
to be repaid arose principally from the start-up
and expansion of the Company and consisted of (i) unpaid trade accounts
accrued to April 1, 1993, and (ii) slotting fees paid
by Brothers on behalf of the Company to obtain space for the concessions
of the Company in Ralph's. Additionally, the
Company acquired from Brothers under this agreement all concession fixtures
and equipment in those stores installed prior
to the date of the agreement, which were valued by the parties at $295,000.
On November 22, 1995, the Company executed a promissory note in the
principal amount of $292,312.78, which
evidenced accrued accounts payable due Brothers after the execution and
delivery of the Supply Termination Agreement.
The Company made its first payment under this note on December 15, 1995,
but Brothers initiated suit on this note after this
date in the Circuit Court for the 15th Judicial District in and for Palm
Beach County, Florida. The Company and Brothers
settled the matter without the necessity of an answer to the complaint by
the Company on January 25, 1996, 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,
an aggregate of $1,025,280 in principal as
of January 25, 1996. Brothers originally agreed to reduce this amount to
$717,696 if paid by April 1, 1996, and if not paid
by that date, the $1,025,280 was to have been paid in 40 equal monthly
installments of $30,246 beginning on April 1, 1996,
and ending on July 1, 1999. Brothers subsequently extended the April 1,
1996, due date until June 7, 1996. Pursuant to
the settlement agreement, the Company paid Brothers $15,000 on January 25,
February 17, and March 13, 1996, and
$30,246 on April 1 and May 1, 1996, all of which amounts were credited
against the amount which is due Brothers, whether
paid by June 7, 1996, or later through monthly payments. In consideration
for the extension until June 7, 1996, the Company
agreed to pay interest at 10% per annum from April 1, 1996, on the balance
then due, an amount equal to $10,000, which
amount of interest was paid along with the $30,246 payment due on May 1,
1996.
Beginning in January, 1996, the Company sold, directly and through an
unaffiliated intermediary, $262,000 of
promissory notes (the "Bridge Loan Notes") to two unaffiliated third
parties. The Bridge Loan Notes bear interest at the rate
of 12% per annum and are due to be paid at the earlier of the close of the
public offering which the Company is currently
contemplating or July 30, 1996. The Bridge Loan Notes are secured by a
second position in all tangible and intangible
property which the Company now owns and may subsequently acquire. The
first three months of interest on these notes was
paid in advance at each closing, as were the due diligence and/or placement
fees, the result of which was a net of $235,800
in loan proceeds to the Company.
In conjunction with the sale of the Bridge Loan Notes, the Company
issued to the purchaser thereof warrants (the
"Bridge Loan Warrants") which allow the holders thereof to acquire during
a period of five years from the commencement
of the public offering which the Company is currently contemplating up to
78,600 units, each consisting of four shares of
Common Stock and four warrants at a price of $6.50 per unit. When recorded
in the financial statements, the units are
anticipated to be recorded at $786,000 and the difference between the
$786,000 and the proceeds of $510,900 will be <PAGE>
recorded as a finance expense.
The shares of Common Stock and warrants
underlying these units have been included in the
contemplated public offering for sale by the holders of the Bridge Loan
Warrants. 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.
In addition, in May of 1996, the Company sold an additional note, for
$40,000 (the "May Note"). The first three
months of interest on this note, the sum of $800, was paid in advance at
the closing of the sale. An affiliate of the holder of
this note subsequently became a consultant to the Company for $4,000 per
month during a six month term, as discussed in
the third paragraph of this item.
If the currently contemplated public offering by the Company is not
closed by July 30, 1996, the Company will (i)
repay the Bridge Loan and May Notes in full and (ii) at the option of the
holders thereof, issue a second warrant, in lieu of
and on substantially similar terms as the Bridge Loan Warrants, to purchase
up to 135,000 shares of Common Stock, which
have been registered in the public offering, at a price per share which
will equal 65% of the average bid price for these shares
for the 20 trading days preceding the maturity date. If the Bridge Loan
and May Notes are not repaid from the proceeds of
the contemplated public offering, the holders thereof at their option may
either (i) call the Bridge Loan and May Notes and
proceeds against the collateral or (ii) surrender the Bridge Loan and May
Notes to the Company in exchange for 403,000
shares of Common Stock which have also been registered with the public
offering.
The Company raised approximately $233,750 in working capital during
the final month of 1994 from (i) a group
of European investors who purchased two year, unsecured, 9% interest
bearing notes in the principal amount of $123,750
which are presently convertible into shares of Common Stock at a price per
share of $9.00 and (ii) parties then affiliated with
a director, who purchased one year, unsecured 11.5% interest bearing
promissory notes in the principal amount of $110,000,
all of which were converted on August 17, 1995, into 589,848 "restricted"
shares of Common Stock. In February of 1996,
two European 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.
Management expects that operations and the proceeds of the proposed
public offering discussed above will be
sufficient to provide operating capital for expansion. The lower cost of
coffee derived from new supply sources is anticipated
to improve operating cash flow as well as to pay any remaining indebtedness
following the close of the public offering.
Additional coffee concessions are self-funding.
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
the 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 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,
an aggregate of $1,025,280 in principal as
of January 25, 1996. Under the 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, 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 obligation
is unsecured. The Company paid Brothers $15,000 on January 25, February
17, and March 13, 1996, and $30,246 on April
1 and May 1, 1996, all of which amounts were credited against the amount
which is due Brothers. Brothers subsequently
agreed to allow the Company until June 7, 1996, to make this lump sum
payment, provided that all of the other terms of the
settlement are adhered to. If the Company does not repay this obligation
by June 7, 1996, and does not make the monthly
payments, a judgment will be entered against it in the amount of
$1,025,280, less the good faith and other payments to the
date of judgment, plus interest and the costs and expenses of entering the
judgment and collecting on it. 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.
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 the 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. 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.
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.
None.
Item 6 Exhibits and Reports on Form 8-K.
None.
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: Robert W. Marsik
Chief Executive, Financial
and Accounting Officer
