SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended May 31, 1998.
[ ] 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
268 WEST 400 SOUTH, SALT LAKE CITY, UTAH 84101
---------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(801) 575-8073
--------------
(ISSUER'S TELEPHONE NUMBER)
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 XX NO
The number of outstanding shares of the issuer's common stock, $0.001
par value (the only class of voting stock), as of May 31, 1998 was 22,920,736
1
<PAGE>
TABLE OF CONTENTS
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS..................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................................4
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.....................................................5
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................5
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................5
SIGNATURES.....................................................................6
INDEX TO EXHIBITS..............................................................7
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Company" refers to Kelly's Coffee Group, Inc., a
Colorado corporation and its predecessors unless otherwise indicated. The
unaudited, condensed interim financial statements including a balance sheet for
the Company as of the quarter ended May 31, 1998 and statements of operations,
and statements of cash flows for the interim period up to the date of such
balance sheet and the comparable period of the preceding year are attached
hereto as Pages F-1 through F-8 and are incorporated herein by this reference.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.]
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
Balance Sheet................................................................F-2
Statement of Operations......................................................F-3
Statement of Cash Flows......................................................F-4
Statement of Shareholders' Equity............................................F-5
Notes to Unaudited Financial Statements......................................F-6
F-1
<PAGE>
KELLY'S COFFEE GROUP, INC.
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
MAY 31, 1998
May 31,
1998
---------------
ASSETS
Current Assets
TOTAL CURRENT ASSETS $ -
---------------
TOTAL ASSETS $ -
---------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Net Liabilities of
discontinued operations (Note 5) $ 2,310,870
---------------
Total Current Liabilities 2,310,870
---------------
TOTAL LIABILITIES 2,310,870
---------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 50,000
shares authorized, none issued and outstanding -
Common stock, $0.001 par value, 22,920,736
shares issued and outstanding 22,921
Additional paid-in capital 2,225,215
Accumulated deficit (4,559,006)
---------------
Accumulated deficit from inception of development (36,120)
---------------
Total Stockholders' equity (deficit) (2,310,870)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) $ -
---------------
SEE NOTES TO FINANCIAL STATEMENTS
F-2
<PAGE>
<TABLE>
<CAPTION>
KELLY'S COFFEE GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENTS OF OPERATIONS
From inception
of Development
Stage on March
For the Quarter Ended 1, 1998 through
May 31 May 31,
1998 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
SALES $ - $ 494,701 $ -
COST OF SALES - 227,078 -
---------------- ---------------- ----------------
GROSS MARGIN - 267,623 -
---------------- ---------------- ----------------
OPERATING EXPENSES
General and Administrative - - -
Depreciation and - 17,496 -
Amortization - 30,004 -
General and Administrative 36,120 186,943 36,120
---------------- ---------------- ---------------
Total Operating Expenses 36,120 234,443
INCOME (LOSS) FROM OPERATIONS (36,120) 33,180 (36,120)
---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Other Income (Expense) - 352 -
Interest Expense - - -
---------------- ---------------- ----------------
Total Other Income (Expense) - 352 -
---------------- ---------------- ----------------
INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS AND
MINORITY INTEREST (36,120) 33,532 (36,120)
DISCONTINUED OPERATIONS (NOTE 5)
LOSS FROM DISCONTINUED
OPERATIONS - - -
MINORITY INTEREST IN (GAIN) LOSS - (5,030) -
---------------- ---------------- ---------------
NET INCOME (LOSS) $ (36,120) $ 28,502 $ 36,120
================ ================ ===============
INCOME (LOSS) PER SHARE
Loss from operations $ (0.00) $ 0.00
Loss from discontinued operations - 0.00
---------------- ----------------
BASIC LOSS PER SHARE (0.00) 0.00
=============== ================
WEIGHTED AVERAGE SHARES
OUTSTANDING 22,051,180 12,000,666
-============== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
KELLY'S COFFEE GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
From inception of
Development
Stage on March 1,
For the three months ended 1998 Through
May 31, May 31,
1998 1997 1998
--------------- --------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (36,120) $ 28,502 $ (36,120)
Adjustments to reconcile net loss to
net cash used in operating activitieS
Depreciation and Amortization - 17,496 -
Minority interest in loss - 5,030 -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts
receivable - 122,076) -
(Increase) decrease in inventory - 14,297 -
(Increase) decrease in prepaids - - -
Increase (decrease) in cash overdraft - 48,304 -
Increase (decrease) in related party
payables - (8,885) -
Increase (decrease) in accounts payable
and accrued expenses - 46,741 -
Increase (decrease) in net liabilities of - - -
Discontinued operations - - -
---------- ----------- -------------
NET CASH PROVIDED (USED IN) OPERATING
ACTIVITIES (36,120) 29,409 (36,120)
---------- ----------- -------------
Cash flow from Investing Activities:
Purchase of fixed assets - - -
Net Cash used in Investing Activities - - -
---------- ----------- -------------
Net Cash (Used) by Financing Activities
Issuance of common stock for services 36,120 (29,409) 36,120
---------- ----------- -------------
Net Cash provided by Financing
Activities 36,120 (29,409) 36,120
Net Increase (Decrease) in Cash - - -
Cash at Beginning of Period - - -
---------- ----------- -------------
Cash at End of Period $ - $ - $ -
========== =========== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
KELLY'S COFFEE GROUP, INC.
UNAUDITED STATEMENT OF SHAREHOLDER'S EQUITY
MAY 31, 1998
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- --------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- --------- ------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 28,
1998 - - 21,716,736 21,717 2,190,299 (4,522,886)
COMMON STOCK ISSUED FOR SERVICES AT
$0.03 PER SHARE - - 1,815,000 1,815 52,635 -
COMMON STOCK RETURNED TO TREASURY AT
$0.03 PER SHARE FOR SERVICES NOT PERFORMED - - (611,000) (611) (17,719) -
NET LOSS FOR THE QUARTER ENDED MAY 31, 1998 - - - - - (36,120)
-------- --------- -------------- ---------- ----------- ---------------
BALANCE, MAY 31, 1998 - $ - 22,920,736 $ 22,921 $ 2,225,215 $ (4,559,006)
======== ========= ============== ========== =========== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company)
Notes to the Unaudited Financial Statements
May 31, 1998
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
A. ORGANIZATION
The financial statements for 1997 include those of Kelly's Coffee
Group, Inc. and its 85% owned subsidiary Kelly - Berg Corporation of
Colorado, Inc. (Kelly - Berg) collectively, they are referred to herein
as "the Company". All intercompany accounts and transactions have been
eliminated. The Company discontinued operations of its Subsidiary on
February 28, 1998. (See Note 3)
The Company was reclassified as a development stage company on March 1,
1998, as a result of the dissolution of Kelly-Berg.
B. BASIC LOSS PER SHARE
Basic loss per share has been calculated based on the weighted average
number of shares of common stock outstanding during the period.
C. INCOME TAXES
As of May 31, 1998, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $4,500,000 that may be
used in future years to offset taxable income. The net operating loss
carryforward will begin to expire in 2014. The tax benefit of the
cumulative carryforwards has been offset by a valuation allowance of
the same amount.
D. CONCENTRATIONS OF CREDIT RISK
The Company has no significant concentrations of credit risk other than
in the normal course of business.
E. ESTIMATES
The preparation of 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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its 85% owned subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.
F-6
<PAGE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company)
Notes to the Unaudited Financial Statements
May 31, 1998
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
G. MARKETABLE SECURITIES - AVAILABLE FOR SALE
The Company has classified its marketable securities as
"available-for-sale" securities. Trading securities are stated at fair
value. Unrealized gains and losses are reported as a separate component
of equity.
NOTE 2 - BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has sustained operating losses since its inception and has a net
capital deficiency. In the interim, shareholders of the Company have
committed to meeting its minimal operating expenses.
NOTE 3 - DISCONTINUED OPERATIONS
On February 28, 1998, the Board of Directors of the Company decided to
discontinue the manufacturing and distribution of store fixtures and
merchandise showcases due to a lack of funding and increased losses.
The following is a summary of the loss from discontinued operations.
THE YEAR ENDED FEBRUARY 28, 1998
--------------------------------
NET SALES $ 1,209,148
COST OF PRODUCTS SOLD 415,150
GROSS PROFIT 793,998
EXPENSES
General and administrative 581,037
Salaries and wages 827,455
Depreciation and amortization 67,061
Bad debt expense 43,497
LOSS ON DISPOSAL OF ASSETS 572,015
-----------
F-7
<PAGE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
May 31, 1998
NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)
TOTAL EXPENSES 2,091,065
LOSS BEFORE INCOME TAXES (1,297,067)
INCOME TAX EXPENSE -
NET LOSS $ (1,297,067)
-----------
BASIC LOSS PER SHARE OF COMMON STOCK $ (0.07)
=============
The Company had liabilities of $2,310,870 which are associated with the
discontinued operations. No income tax benefit has been attributed to
the loss from discontinued operations.
NOTE 4 - BASIS OF REPRESENTATION
The accompanying consolidated unaudited condensed financial statements
have been prepared by management in accordance with the instructions in
Form 10-QSB and, therefore, do not include all information and
footnotes required by generally accepted accounting principles and
should, therefore, be read in conjunction with the Company's Annual
Report to Shareholders on Form 10-KSB for the fiscal year ended
February 28, 1999. These statements do include all normal recurring
adjustments which the Company believes necessary for a fair
presentation of the statements. The interim operations results are not
necessarily indicative of the results for the full year ended February
28, 1999.
[Remainder of this page intentionally left blank]
F-8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Quarterly Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to continue its expansion strategy,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements including
herein, the inclusion of such information should not be regarded as are
presentation by the Company or any other person that the objectives and plans of
the Company will be achieved.
As used herein the term "Company" refers to Kelly's Coffee Group, Inc., a
Colorado corporation and its predecessors, unless the context indicates
otherwise. The Company discontinued its operations on February 28, 1998. The
Company is currently a shell company whose purpose will be to acquire operations
through an acquisition, merger or begin its own start-up business.
The Company is in the process of attempting to identify and acquire a favorable
business opportunity. The Company has reviewed and evaluated a number of
business ventures for possible acquisition or participation by the Company. The
Company has not entered into any agreement, nor does it have any commitment or
understanding to enter into or become engaged in a transaction as of the date of
this filing. The Company continues to investigate, review, and evaluate business
opportunities as they become available and will seek to acquire or become
engaged in business opportunities at such time as specific opportunities
warrant.
RESULTS OF OPERATIONS
Sales revenues for the three months ended May 31, 1998 were $0 compared to
$494,701 for the same period in 1997 The Company had no sales in for the first
quarter of 1998 because it ceased operations as of February 28, 1998, as a
result of reoccurring losses.
Costs of sales revenues for the three ended May 31, 1998, were $0 compared to
$227,078 for the same period in 1997. The Company had no cost of sales in the
first quarter of 1998 because it ceased operations as of February 28, 1998.
General and administrative expenses were $36,120 for the three months ended May
31, 1998 compared to $186,943 for the same period in 1997. The general and
administrative expenses decreased as a result of the Company's decision to
discontinue its operations. The general and administrative expenses for the
three months ended May 31, 1998, were attributable to maintaining the Company's
status as a public shell corporation and fees paid to professionals for various
services including debt settlement.
The Company recorded a net loss of $36,120 for the three months ended May 31,
1998 compared to $28,502 net profit for the same period in 1997. The losses in
1998 were primarily attributable to the discontinuation of operations and
expenses relating to maintaining the Company's status as a public shell entity.
CAPITAL RESOURCES AND LIQUIDITY
At May 31, 1998, the Company had current assets of $0 and total assets of $0 as
compared to $0 and $0 , respectively at February 28, 1998. The Company had a net
working capital deficit of $ 2,310,870 at May 31, 1998 compared to a working
capital deficit of $2,310,870 at February 28, 1998.
Net stockholders' deficit in the Company was $2,310,870 as of May 31, 1998,
compared to $1,584,828 as of May 31, 1997.
4
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments concerning the Company's legal proceedings
during the quarter ended May 31, 1998. For more information on the Company's
legal proceedings, please see Part I Item 3. Legal Proceedings of the Company's
February 28, 1998 Form 10KSB.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter the Company issued a total of 1,815,000 shares of its commons
stock pursuant to Section 4(2) of Securities Act of 1933 in exchange for
services rendered to the Company. The shares were valued at $.03 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS Exhibits required to be attached by Item 601 of Regulation S-B are
listed in the Index to Exhibits on page 7 of this Form 10-QSB, and are
incorporated herein by this reference.
(B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the period
covered by this Form 10QSB.
5
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 2nd day of December 1999.
KELLY'S COFFEE GROUP, INC.
/s/
- ----------------------
Richard D. Surber December 2, 1999
Presidentand Director
/s/
- --------------------- December 2, 1999
Wayne Newton
Controller
6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
3(i) * Articles of Incorporation of the Company
(incorporated herein by reference from Exhibit No.
3(i) to the Company's Form S-18 as filed with the
Securities and Exchange Commission on September 16,
1988 ).
3(ii) * Bylaws of the Company, as amended (incorporated
herein by reference from Exhibit 3(ii) of the
Company's Form S-18 as filed with the Securities
and Exchange Commission on September 16, 1988).
4(a) * Form of certificate evidencing shares of "Common
Stock" in the Company (incorporated from Exhibit
4(a) to the Company's Form S-18 as filed with the
Securities and Exchange Commission on September 16,
1988 ).
27 8 Financial Data Schedule "CE"
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MAY 31, 1998, THAT WERE
FILED WITH THE COMPANY'S REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000833209
<NAME> Kelly's Coffee Group, Inc
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-START> Mar-1-1998
<PERIOD-END> May-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 2,310,870
<BONDS> 0
0
0
<COMMON> 22,921
<OTHER-SE> (2,333,790)
<TOTAL-LIABILITY-AND-EQUITY> (2,310,870)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,120)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
