UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
----- Act of 1934 for the Quarterly Period Ended November 30, 1997
Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934 for the Transition Period from ________ to ________
Commission file number 33-2128-D
---------
KELLY'S COFFEE GROUP, INC.
--------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1062062
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
647 Seventeenth Avenue
Longmont, Colorado 80502-1539
-----------------------------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (303) 772-1784
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_| No |X|
The number of shares outstanding of the Registrant's common stock on May
14, 1998 was 12,000,666.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE>
ITEM 1. Financials.
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
------
November 30, February 28,
1997 1997
----------- -----------
(Unaudited)
CURRENT ASSETS
Inventory $461,865 $481,869
Accounts receivable, net 153,436 63,239
-------- --------
Total Current Assets 615,301 545,108
FIXED ASSETS, net of accumulated
depreciation 314,525 364,562
OTHER ASSETS
Goodwill, net of accumulated amortization 21,987 24,078
-------- --------
TOTAL ASSETS $951,813 $933,748
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
November 30, February 28,
1997 1997
----------- -----------
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ 33,852 $ 5,026
Accounts payable 409,552 337,495
Accounts payable related party 96,755 41,568
Accrued expenses 43,789 53,803
Net liabilities of discontinued operations 1,160,106 1,160,106
Arbitration award payable 738,986 775,270
Notes payable - current portion 198,905 104,344
----------- -----------
Total Current Liabilities 2,681,945 2,477,612
Notes payable - less current portion -- 12,634
----------- -----------
TOTAL LIABILITIES 2,681,945 2,490,246
----------- -----------
MINORITY INTEREST 30,787 56,832
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 50,000 shares
authorized, none issued and outstanding -- --
Common stock, $0.001 par value, 100,000,000
shares authorized, 12,000,666 shares issued
and outstanding 12,001 12,001
Additional paid-in capital 1,600,488 1,600,488
Accumulated deficit (3,373,408) (3,225,819)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,760,919) (1,613,330)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 951,813 $ 933,748
=========== ===========
The accompanying notes are an integral part of
these consolidatd financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 305,135 $ 180,916 $ 1,148,859 $ 1,521,310
COST OF SALES 231,177 93,811 674,878 840,508
------------ ------------ ------------ ------------
GROSS MARGIN 73,958 87,105 473,981 680,802
------------ ------------ ------------ ------------
OPERATING EXPENSES
Depreciation and amortization 17,560 9,505 52,552 52,712
Rent 3,000 -- 9,000 20,304
General and administrative 185,134 245,120 586,415 794,081
------------ ------------ ------------ ------------
Total Operating Expenses 205,694 254,625 647,967 867,097
------------ ------------ ------------ ------------
NET INCOME (LOSS)
FROM OPERATIONS (131,736) (167,520) (173,986) (186,295)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Other income -- -- 352 4,810
Interest expense -- (1,053) -- (20,587)
------------ ------------ ------------ ------------
Total Other Income (Expense) -- (1,053) 352 (15,772)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS
AND MINORITY INTEREST (131,736) (168,573) (173,634) (202,072)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS
Gain on disposal of Kelly's
Specialty Group -- 320,000 -- 320,000
Loss from operations of Kelly's
Specialty Group -- (94,705) -- (284,117)
------------ ------------ ------------ ------------
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS -- 225,295 -- 35,883
------------ ------------ ------------ ------------
MINORITY INTEREST IN
(GAIN) LOSS 19,760 25,286 26,045 30,311
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (111,976) $ 82,008 $ (147,589) $ (135,878)
============ ============ ============ ============
INCOME (LOSS) PER SHARE $ (0.01) $ 0.01 $ (0.01) $ (0.01)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 12,000,666 11,990,776 12,000,666 10,889,107
============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
Additional
Preferred Stock Common Stock
------------------------- --------------------
Subscriptions Accumulated Stock Paid-in
Shares Amount Shares Amount Capital Receivable Deficit
------ ------ ------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
February 29, 1996 -- $ -- 9,553,300 $ 9,554 $ 1,297,014 $ -- $(2,976,822)
Common stock issued
for services rendered -- -- 2,347,366 2,347 291,074 -- --
Common stock issued
in settlement of
accounts payable -- -- 100,000 100 12,400 -- --
Net loss for the
year ended
February 28, 1997 -- -- -- -- -- -- (248,997)
------ ----------- ----------- ----------- ----------- ---------- -----------
Balance,
February 28, 1997 -- -- 12,000,666 12,001 1,600,488 -- (3,225,819)
Net loss for the
nine months ended
November 30, 1997
(unaudited) -- -- -- -- -- -- (147,589)
------ ----------- ----------- ----------- ----------- ----------- -----------
Balance,
November 30, 1997
(unaudited) -- $ -- 12,000,666 $ 12,001 $ 1,600,488 $ -- $(3,373,408)
====== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS OPERATING ACTIVITIES
Net income (loss) $(111,976) $ 82,008 $(147,589) $(135,878)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 17,560 9,505 52,552 52,712
Minority interest in gain (loss) (19,760) (25,286) (26,045) (30,311)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,775) 120,161 (90,197) 102,414
(Increase) decrease in inventory 7,596 (4,653) 20,004 159,540
Increase (decrease) in prepaids -- -- -- (10,427)
Increase (decrease) in cash overdraft 22,839 33,352 28,826 33,352
Increase (decrease) in related party payables 14,067 41,568 55,187 41,568
Increase (decrease) in accounts payable and
accrued expenses (43,200) (143,265) 62,043 (40,579)
Increase (decrease) in arbitration
award payable -- -- (36,284) --
Increase (decrease) in net liabilities of
discontinued operations -- (320,000) -- (130,588)
--------- --------- --------- ---------
Net Cash Provided in
Operating Activities (114,649) (206,610) (81,503) 41,803
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (424) -- (424) (144,363)
--------- --------- --------- ---------
Net Cash (Used) in Investing Activities (424) -- (424) (144,363)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable -- -- (33,146) --
Proceeds from notes payable 115,073 -- 115,073 377,400
--------- --------- --------- ---------
Net Cash Provided (Used) by
Financing Activities 115,073 -- 81,927 377,400
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH -- (206,610) -- 274,840
CASH, BEGINNING OF PERIOD -- 520,887 -- 39,437
--------- --------- --------- ---------
CASH, END OF PERIOD $ -- $ 314,277 $ -- $ 314,277
========= ========= ========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
------------------------------ ---------------------------
1997 1996 1997 1996
----------- --------- --------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ -- $ -- $ -- $ 19,534
Income taxes paid $ -- $ -- $ -- $ --
NONCASH FINANCING ACTIVITIES
Common stock issued for
services rendered $ -- $ -- $ -- $293,421
Common stock issued for
accounts payable $ -- $ 12,500 $ -- $ 12,500
The accompanying notes are an integral part of
these consolidated financial statemnts.
7
</TABLE>
<PAGE>
KELLY'S COFFEE GROUP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
November 30, 1997 and February 28, 1997
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at November 30, 1997 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with general
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's February 28, 1997 audited consolidated
financial statements. The results of operations for the periods ended
November 30, 1997 and 1996 are not necessarily indicative of the
operating results for the full year.
The accompanying notes are an integral part of
these consolidatd financial statements.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis and Plan of Operation
- ------------------------------------------------------------------
In the next 12 months, the Company , through its operating subsidiaries,
intends to increase its revenue base by offering additional products and
services to its existing customer base. The Company also intends to increase its
marketing efforts through an increase in its sales staff and by attending trade
shows. Subject to the availability of sufficient funds, the Company intends to
reestablish its presence in the coffee retail store business. The Company has
plans to open one retail coffee store in Denver, Colorado and is considering
opening additional stores. In addition, the Company is considering the
possibility of acquiring small, currently operating coffee shops.
The ability to conduct these operations will depend on the Company's
ability to obtain sufficient funding. The Company is considering raising capital
through sales of equity or debt securities. The Company does not have available
internal sources of liquidity and it is unlikely that bank financing would be
available to it in the near future. The Company has no commitments for financing
from outside sources, and there can be no assurance that the Company will be
able to successfully raise capital or that, if it does, it will be able to
operate profitably.
During the next 12 months, the Company plans to realize operating
efficiencies by maintaining the most experienced staff at minimum required
levels. Previous job specific employees are being cross trained in multiple
manufacturing areas to minimize bottlenecks. The Company has also implemented
tighter inventory controls to reduce excess quantities and maximize usage of
scrap. The Company has moved its facilities to an "Enterprise Zone" that yields
significant tax incentives to businesses located there.
Results of Operations
- ---------------------
For the nine months ended November 30, 1997 and 1996, the Company and its
85% owned subsidiary realized net sales of $1,148,859 and $1,521,310,
respectively. Taking into account cost of sales and expenses, the Company's net
loss in these periods totaled $147,589 ($0.01 per share) and $135,878 ($0.01 per
share), respectively.
Capital Resources
- -----------------
At November 30, 1997, the Company had total current liabilities of
$2,681,945 and total current assets of $615,301, for a working capital deficit
of $2,066,644. The Company's cash position continues to be poor, and the Company
continues to experience liquidity problems. The Company's plan to ease its
liquidity concerns and improve its operations is described above. There can be
no assurance that the Company's plans will be successful. Moreover, the level of
the Company's indebtedness could have important consequences to the Company,
including: (i) a significant amount of the Company's cash flow from operations
must be dedicated to debt service and will not be available for other purposes;
(ii) the Company's ability to obtain additional financing in the future may be
limited; and (iii) the Company's level of indebtedness could make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and limit its flexibility in reacting to changes in its industry and
economic conditions generally. Many of the Company's competitors currently
operate on a less leveraged basis and may have significantly greater operating
and financial flexibility than the Company.
9
<PAGE>
PART II
OTHER INFORMATION
Not applicable.
10
<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 thereunto duly authorized.
KELLY'S COFFEE GROUP, INC.
Date: May 18, 1998 By: /s/ Terrence A. Buttler
----------------------------------------
Terrence A. Buttler, President and Chief
Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 153
<ALLOWANCES> 0
<INVENTORY> 462
<CURRENT-ASSETS> 615
<PP&E> 315
<DEPRECIATION> 0
<TOTAL-ASSETS> 952
<CURRENT-LIABILITIES> 2682
<BONDS> 0
0
0
<COMMON> 1612
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 952
<SALES> 1149
<TOTAL-REVENUES> 1149
<CGS> 675
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (173)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
