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 November 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
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Commission file number: 33-2128-D
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KELLY'S COFFEE GROUP, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-1062062
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(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 January 12, 2001 was
52,074,427.
1
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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 5. OTHER INFORMATION.....................................................6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................6
SIGNATURES.....................................................................7
INDEX TO EXHIBITS..............................................................8
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
2
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ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Company" refers to Kelly's Coffee Group, Inc., a
Nevada corporation, its subsidiary corporations and predecessors unless
otherwise indicated. Unaudited, consolidated condensed interim financial
statements including a balance sheet for the Company for the period ended
November 30, 2000, 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-7 and
are incorporated herein by this reference.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.]
3
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INDEX TO FINANCIAL STATEMENTS
PAGE
Balance Sheet................................................................F-2
Statement of Operations......................................................F-3
Statement of Cash Flows......................................................F-4
Notes to Unaudited Financial Statements......................................F-5
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.]
F-1
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<TABLE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company Until August 29, 2000)
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
<CAPTION>
November 30,
2000
---------------------
<S> <C>
ASSETS
Current Assets
Cash $ 595,205
Accounts Receivable 50,000
Marketable securities - available for sale (Note 3) 52,535
Prepaid Expenses 6,236
Current Notes Receivable 109,181
---------------------
Total Current Assets 813,157
Fixed Assets 539,600
Less: Accumulated Depreciation (3,663)
---------------------
Total Fixed Assets 535,937
TOTAL ASSETS $ 1,349,094
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 39,965
Accrued Expenses 11,189
Net Liabilities of discontinued operations 712,739
---------------------
Total Current Liabilities 763,893
---------------------
TOTAL LIABILITIES 763,893
---------------------
Minority Interest (699)
SHAREHOLDERS' EQUITY
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,
52,074,427 shares issued and outstanding 52,074
Additional paid-in capital 3,233,866
Unrealized gains (losses) on marketable securities (70,008)
Accumulated deficit (pre-development stage) (4,522,886)
Accumulated surplus 1,892,854
---------------------
Total Stockholders' equity (deficit) 585,900
---------------------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 1,349,094
======================
</TABLE>
See Notes to Financial Statements
F-2
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<TABLE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company Until August 29, 2000)
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Three months ended For the Nine months ended
November 30 November 30
2000 1999 2000 1999
---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues
Rental Revenue $ 80,279 $ - $ 80,279 $ -
Other Property Revenue 1,319 - 1,319 -
Miscellaneous Revenue 12,439 12,439 -
---------------- -------------- --------------- --------------
Total Revenue 94,037 - 94,037 -
---------------- -------------- --------------- --------------
Rental Related Expenses 49,479 - 49,479 -
Gross Profit Margin 44,558 - 44,558 -
Operating Expenses
General and Administrative 161,194 39,953 175,858 55,760
---------------- -------------- --------------- --------------
Income (Loss) From Operations (116,636) (39,953) (131,300) (55,760)
---------------- -------------- --------------- --------------
Other Income (Expense)
Interest income (expense) 3,911 - (29,816) -
Realized gain on sale of securities 691,405 45,204 915,004 242,444
---------------- -------------- --------------- --------------
Net gain (loss) before Extraordinary Items 578,680 5,251 753,888 186,684
Extraordinary gain - debt settlement 197,727 - 955,586 755,270
================ ============== =============== ==============
Net Income (Loss) $ 776,407 $ 5,251 $ 1,709,474 $ 941,954
Other Comprehensive Income
Unrealized holding gains (losses) 940,127 - (70,008) -
---------------- -------------- --------------- --------------
Comprehensive Income (Loss) 1,716,534 5,251 1,639,466 941,954
Income (Loss) per Share $ 0.02 $ 0.00 $ 0.03 $ 0.02
---------------- -------------- --------------- --------------
Weighted average shares outstanding 52,074,427 51,555,736 52,074,427 51,555,736
================ ============== =============== ==============
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
<TABLE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company until August 29, 2000)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the three months ended For the nine months ended
November 30, November 30,
2000 1999 2000 1999
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 776,407 $ 5,251 $ 1,709,474 $ 941,954
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 3,663 - 3,663 -
Decrease (increase) in accounts receivable (80,134) - (109,181) -
Decrease (increase) in prepaid expenses (6,236) - (6,236) -
Gain on sale of securities (691,405) (45,204) (915,004) (242,444)
Gain on settlement of debt (197,727) - (945,309) (775,270)
Increase (decrease) in accounts payable (328,484) - 39,587 -
Increase (decrease) in accrued expenses 11,189 - 11,189 -
Common stock issued for services 2,207 8,000 22,859 8,000
Net Cash Provided (Used in) Operating
Activities (510,520) (31,953) (188,958) (67,760)
-------------- ------------- -------------- ------------
Cash flow from Investing Activities:
Purchase of fixed assets - - (539,600) -
Sale of securities 1,043,635 18,320 1,308,915 71,149
Net Cash provided by (used in) Investing
Activities 1,043,635 18,320 769,315 71,149
-------------- ------------- -------------- ------------
Net Cash from Financing Activities
Stock issued for cash - - - -
Stock repurchased (5,000) - - -
Net Cash provided by (used in) Financing
Activities (5,000) - - -
-------------- ------------- -------------- ------------
Net Increase (Decrease) in Cash 528,115 (13,633) 580,357 3,389
Cash at Beginning of Period 67,090 17,022 14,848 -
-------------- ------------- -------------- ------------
Cash at End of Period $ 595,205 $ 3,389 $ 595,205 $ 3,389
============== ============= ============== ============
</TABLE>
See Notes to Unaudited Financial Statements
F-4
<PAGE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company Until August 29, 2000)
Notes to the Unaudited Financial Statements
November 30, 2000
NOTE 1 - ORGANIZATION
The Company was classified as a development stage company on March 1,
1998, as a result of the dissolution of Kelly-Berg. On August 29, 2000,
the company purchased 18,400,000 shares of Witchita Development
Corporation (fka/ Cyber Botanical, Inc.) for $540,554, which gave it no
less than a 90% interest. Witchita Development used the proceeds from
the stock sale to acquire ownership of an 8 story office building in
Witchita, Kansas. At that time, the company's status changed from a
development stage company to a holding company with a subsidiary who's
primary operations are real estate development and property management.
NOTE 2 - PRELIMINARY NOTE
The accompanying condensed financial statements have been prepared
without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally
included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These financial statements reflect all adjustments which, in
the opinion of management, are necessary to a fair statement of the
results for the periods presented. It is suggested that these condensed
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10KSB for the year ended February 29, 2000.
NOTE 3 - MARKETABLE SECURITIES - available for sale
The Company has applied the principles of Statement of Financial
Accounting Standards, No. 115, "Accounting for Certain Investments In
Debt and Equity Securities". In accordance with the principle, the
company has classified all investments as available-for-sale, and has
recorded a cumulative unrealized loss on marketable securities of
$70,008 in reduction of the original cost basis. This loss represents
the reduced market value below the original cost basis in the
securities as of November 30, 2000. The following is a summary of
marketable securities at November 30, 2000:
57,500 shares of Liberty Mint (LBMT)
valued at $0.0469 per share $ 2,697
5,000 shares of Axia Group, Inc (AXIA)
valued at $0.8125 per share 4,063
46,173 shares of Twin Faces East Entertainment (TFAC)
valued at $0.0938 per share 4,331
F-5
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KELLY'S COFFEE GROUP, INC.
(A Development Stage Company Until August 29, 2000)
Notes to the Unaudited Financial Statements (continued)
November 30, 2000
Note: the following securities are currently restricted shares but become free
trading within the next 12 months and are therefore carried at market value
28,800 shares of Healthwatch International (HEAL)
valued at $0.6875 per share 19,800
35,526 shares of Oasis Resorts International, Inc. (OAII)
valued at $.2031 per share 7,215
153,827 shares of Twin Faces East Entertainment (TFAC)
valued at $.0938 per share 14,429
------
Total Marketable Securities $ 52,535
=========
All marketable securities represent less than 5% of the
outstanding shares in each Company.
NOTE 4 - NOTES RECEIVABLE
On September 14, 2000, the Company extended a loan to World
Alliance Consulting for $100,000 at 18% annual interest. The note
along with all accrued interest was scheduled to be paid on
November 14, 2000. The company extended the loan to January 14,
2001 in return for an increase in the principle amount of $5,000.
The specific details of the note are as follows:
Principle Loan Amount $ 100,000.00
Interest accrued to Nov 14, 2000 3,357.13
Loan extension Fee 5,000.00
Interest accrued 11/15 - 11/30 824.19
------------
Total Loan Payoff as of November 30, 2000 $ 109,181.32
NOTE 5 - SUPPLEMENTAL SCHEDULES
The accompanying schedules are provided to demonstrate the
respective contribution made to the balance sheet and income
statements consolidated above by both the parent company and the
subsidiary company for the period ended November 30, 2000. It is
important to note that the subsidiary company is being spun off
during the first quarter of 2001, in a distribution to Kelly's
Coffee Group (parent) shareholders. Also, in accordance with
consolidation rules, some items have been eliminated in the
consolidation process which appear on the individual balance
sheets.
Witchita
Kelly's Coffee Development
--------------------- ---------------------
Balance Sheet
Assets
Cash $ 112,766 $ 482,439
Accounts Receivable - 112,253
Marketable Securities - 52,535
Prepaid Expenses - 6,237
Notes Receivable 109,181 -
Investment in Subsidiaries 540,554 -
Fixed Assets (net) - 535,937
=============== ==================
Total Assets $ 762,501 $ 1,189,401
F-6
<PAGE>
<TABLE>
KELLY'S COFFEE GROUP, INC.
(A Development Stage Company Until August 29, 2000)
Notes to the Unaudited Financial Statements (continued)
November 30, 2000
<CAPTION>
Witchita
Kelly's Coffee Development
-------------------- ---------------------
<S> <C> <C>
Liabilities
Accounts Payable $ 94,317 $ 7,902
Accrued Expenses - 11,189
Liabilities-Discontinued Operations - 712,739
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Total Liabilities 94,317 731,830
Minority Interest - (699)
Equity
Common Stock 52,074 19,507
Paid in Capital 3,233,866 520,348
Unrealized Gains (Losses) - (70,008)
Accumulated Deficit (pre-development) (4,522,886) -
Accumulated Surplus (deficit) 1,905,130 (11,577)
--------------- ------------------
Total Equity 668,184 458,270
=============== ==================
Total Equity and Liabilities $ 762,501 $ 1,189,401
Witchita
Kelly's Coffee Development
------------------- ---------------------
Income Statement
Revenues
Rental Revenues - 80,279
Other Property Related Income - 1,319
Miscellaneous Income 12,439 -
---------------- ------------------
Total Revenues 12,439 81,598
Rental Expenses - 49,479
---------------- ------------------
Gross Profit Margin 12,439 32,119
General & Administrative Expense 91,403 62,310
---------------- ------------------
Income (Loss) from Operations (78,964) (30,191)
Other Income (Expense)
Interest 1,790 2,121
Realized gain (loss) on sale of securities 664,263 27,142
---------------- ------------------
Net Income (Loss) before Extraordinary Items 587,089 (928)
Extraordinary gain - debt settlement 197,727 -
---------------- ------------------
Net Income (Loss) 784,816 (928)
================ ==================
</TABLE>
F-7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operations
As used herein the term "Company" refers to Kelly's Coffee Group, Inc., a Nevada
corporation its subsidiaries and predecessors, unless the context indicates
otherwise. The Company is a holding company whose subsidiary operates commercial
real estate in downtown Witchita, Kansas.
On August 29, 2000, the Company acquired 18,400,000 newly issued shares of the
common stock of from Witchita Development Corporation (WDC) formerly known as
Cyberbotanical, Inc., in exchange for a cash payment in the sum of $540,554. The
acquisition rendered no less than a 90% ownership of the issued and outstanding
shares of WDC. WDC applied the proceeds of this sale to acquire title to an
office building known as the Board of Trade Building, located at 120 Market,
Wichita, Kansas on August 30, 2000.
The Board of Directors determined that investing in WDC and acquiring improved
property would generate positive cash flows for the Company. The 48,800 square
foot, eight story office building is located in the central business district of
Wichita, Kansas. Occupancy rates for the building currently exceed 85%. Property
management for the building has been retained. The building is rented at an
average of approximately $6.00 a square foot by the current tenants, including
the prior owners of the building who remain as tenants. (For more information
regarding this transaction, please see Form 8-K filed on September 12, 2000. )
The Company signed an agreement with WDC on October 17, 2000, whereby all assets
and liabilities from its discontinued operations were to be transferred by the
Company to WDC. This was done in an effort to facilitate the ability to complete
a merger or acquisition candidate. Accordingly, all of the Company's assets
consisting of cash, receivables and marketable securities were also transferred
to WDC as compensation for assumption of the Company's liabilities. Moreover,
WDC agreed to indemnify and protect the Company from debts and liabilities
resulting from discontinued operations. During the quarter ended November 30,
2000, the Company settled $197,727 in liabilities (including accrued interest)
at a cost of $100 prior to the transfer of assets and liabilities to WDC.
The Company continues to attempt to identify and acquire additional favorable
business opportunities. The Company has reviewed and evaluated a number of
business ventures for possible acquisition or participation. The Company has not
entered into an agreement, nor does it have any commitment or understanding to
enter into or become engaged in any additional transactions 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 further business opportunities at such time as specific opportunities
warrant.
Results of Operations
The Company generated $94,037 in revenues for the three months and nine months
ended November 30, 2000. Revenues for both periods were comprised of rental
revenues generated after September 1, 2000, from WDC's purchase of The Board of
Trade Building in Witchita, Kansas on August 31, 2000. The Company had $0
revenues before August 31, 2000, due to lack of operations.
The Company had costs of sales revenues of $49,479 for the three months and nine
months ended November 30, 2000, and $0 for the same periods in 1999. General and
administrative expenses were $161,194 and $175,858 for the three months and nine
months ended November 30, 2000, compared to $39,953 and $55,760 for the same
periods in 1999. The general and administrative expenses increased for
4
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the three and nine month periods ended November 30, 2000, compared to the same
period in 1999 due to activities related to the sale of securities, commissions
paid on the building purchase, registration of stock in its subsidiary and
proxies, as well as merger and change of domicile activities. The Company
continues to attempt to resolve debts and search for an appropriate candidate
for a reverse merger.
The Company recorded net income of $776,407 and $1,709,474 for the three and
nine month periods ended November 30, 2000 compared to net income of $5,251 and
$941,954 for the same periods in 1999. Net income for 2000 recorded for the
three months ended November 30, 2000, was attributable to $116,636 in losses
from operation, $695,316 in income from securities sales and interest, and
$197,727 in gains from the settlement of debt. Net income for 2000 recorded for
the nine months ended November 30, 2000, was attributable to $131,300 in losses
in operation, $885,188 in income from securities sales and interest, and
$955,586 in gains from the settlement or write off of debt. Significant changes
in net income from periods ended 1999 to 2000 are attributable to the sale of
securities and debt settlement.
Capital Resources and Liquidity
At November 30, 2000, the Company had current assets of $813,158 and total
assets of $1,349,094. The Company had a net working capital surplus of $49,265
at November 30, 2000.
Net stockholders' equity in the Company was $585,901 as of November 30, 2000,
compared to a deficit of $1,055,974 for the same period in 1999. The Company's
net stockholder's equity improved by $1,641,875 primarily as a result of the
Company's ability to extinguish debt for nominal expense and gains on securities
sales.
The Company's working capital decreased due to sale of securities. The
securities are marked to current market values as of November 30, 2000. As the
securities value held for investment fluctuate according to changes in the
market, the value of shareholder equity also fluctuates accordingly.
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
All the legal proceedings mentioned in the Company's 10KSB filed for the period
ended February 29, 2000, were settled as mentioned in that filing. The Company
is not aware of any other pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Shareholder's Meeting held at the offices of the Company on
September 20, 2000, a majority of the shareholders of the Company approved a
resolution calling for the Company to change its state of domicile from the
State of Colorado to the State of Nevada. The holders of 28,247,903 of the
52,047,427 issued and outstanding shares of the Company were present at the
meeting in person or by proxy. Of the 28,247,903 shares present at the meeting,
27,301,649 shares or ninety seven percent (97%) voted in favor or the change of
domicile; 837,794 shares or three percent (3%) voted against the resolution to
change the Company's domicile; and 108,460 shares or less than one percent (<1%)
abstained from the voting.
5
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ITEM 5. OTHER INFORMATION
The Company filed an SB-2 to register eighteen million four hundred thousand
(18,400,000) shares of its WDC stock. The Company agreed to distribute the
shares pro-rata to its shareholders of record on January 1, 2001. The Securities
and Exchange Commission gave the offering an effective date of January 2, 2001,
at 9:00 a.m. eastern standard time. The Company is in the process of
distributing the shares to its shareholders.
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.
-------------------
6
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 12th day of January, 2001.
Kelly's Coffee Group, Inc.
/s/ Richard Surber
--------------------------
Richard Surber, President and Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Richard Surber
-----------------------
Richard Surber President and Director January 12, 2001
/s/ David M. Wolfson
---------------------
David M. Wolfson Director January 12, 2001
/s/ Kevin J. Schillo
----------------------
Kevin J. Schillo Director January 12, 2001
7
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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).
3(iii) * Articles of Incorporation of Kelly's Coffee Group, Inc.
(Nevada) (incorporated herein by reference from Appendix B
of the Company's Form 14-A as filed with the Securities and
Exchange Commission on August 17, 2000 .)
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 ).
10(a) * Stock Purchase Agreement dated September 12, 2000, for the
purchase of 18,400,000 shares of Cyberbotanical, Inc.
(incorporated by reference in Form 8-K filed with the SEC on
September 12, 2000.)
10(b) * Purchase Agreement dated October 17,2000 to sell and
transfer assets and liabilities to Witchita Development
Company (f.k.a Cyberbotanical, Inc.) (incorporated by
reference in Form 8-K filed with the SEC on October 19,
2000.)
* Previously filed as indicated and incorporated herein by
reference from the referenced filings previously made by the
Company.
8
