(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

BARISTAS COFFEE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Nevada		20-3118202
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
411 Washington Ave. N., Kent, WA  98032
(Address of principal executive offices)
(800) 988-7735
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

Large accelerated filer [  ]		Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)		Smaller reporting company [X]

 

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			PAGE
PART I – FINANCIAL INFORMATION
	ITEM 1.	FINANCIAL STATEMENTS	3
	ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
	ITEM 4.	CONTROLS AND PROCEDURES	21
PART II – OTHER INFORMATION
	ITEM 1.	LEGAL PROCEEDINGS	22
	ITEM 1A.	RISK FACTORS	22
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	22
	ITEM 4.	MINE SAFETY DISCLOSURES	22
	ITEM 5.	OTHER INFORMATION	22
	ITEM 6.	EXHIBITS	23
SIGNATURES			24

 

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

 

 

	Page
Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	4
Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2014 and 2013	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	6
Notes to the Interim Consolidated Financial Statements	7

 

		September 30,				December 31,
		2014				2013
		(Unaudited)
Assets
Current assets
Cash		$	17,397			$	-
Inventory			30,737				30,737
Prepaid expenses			7,625				-
Total current assets			55,759				30,737
Property & equipment, net of accumulated depreciation
of $321,071 and $256,441, respectively			243,339				149,922
Loans to shareholders			300,000				162,500
Investment in marketable securities			100,325				41,954
Intangible assets, net			3,042,662				3,003,693
Other assets			7,660				7,660
Total Assets		$	3,749,745			$	3,396,466
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses		$	709,270			$	661,857
Shareholder loans			556,036				477,847
Notes payable			104,050				44,635
Total current liabilities			1,369,356				1,184,339
Stockholders' Equity
Preferred Stock, $0.001 par value,  30,000,000 shares authorized:
Series A Preferred Stock, $0.001 par value, 30,000,000 shares authorized,
23,763,358 and 7,313,358 shares issued and outstanding, respectively			23,763				7,313
Common Stock, $0.001 par value,  300,000,000 shares authorized;
294,115,297 and 295,233,305 shares issued and outstanding, respectively			294,115				295,233
Additional paid-in capital			7,826,885				7,497,058
Obligation to issue shares			40,500				-
Accumulated other comprehensive loss			(1,906,185	)			(1,964,556	)
Accumulated deficit			(3,947,921	)			(3,622,921	)
Total Baristas Coffee Company Inc. stockholders' equity			2,331,157				2,212,127
Noncontrolling interest			49,232				-
Total equity			2,380,389				2,212,127
Total Liabilities and Stockholders' Equity		$	3,749,745			$	3,396,466

 

 

Baristas Coffee Company Inc.

Interim Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Revenues		$	296,302			$	311,270			$	912,095			$	1,106,669
Operating expenses:
Direct costs			116,238				12,577				326,841				331,939
General and administrative			108,255				170,725				255,286				544,524
Stock-based compensation			20,000				236,795				35,000				586,403
Compensation			170,147				178,577				465,055				465,200
Professional expenses			31,115				8,962				74,782				26,887
Depreciation and amortization			38,892				11,125				115,976				121,865
Total operating expenses			484,647				618,761				1,272,940				2,076,818
Operating loss			(188,345	)			(307,491	)			(360,845	)			(970,149	)
Other (income) loss
Interest expense			89,122				28,935				167,423				86,805
Gain on loan settlement			(137,468	)			-				(137,500	)			-
Net other (income) loss			(48,346	)			28,935				29,923				86,805
Tax provision			-				-				-				-
Net loss			(139,999	)			(336,426	)			(390,768	)			(1,056,954	)
Less: Net loss attributable to the noncontrolling interest			(20,992	)			-				(65,768	)			-
Net loss attributable to the shareholders of Baristas Coffee Company Inc.			(119,007	)			(336,426	)			(325,000	)			(1,056,954	)
Other comprehensive income (loss)			(54,723	)			5,472				58,371				16,417
Less: Other comprehensive income (loss) attributable to the noncontrolling interest			-				-				-				-
Net Comprehensive loss attributable to the shareholders of Baristas Coffee Company Inc.		$	(173,730	)		$	(330,954	)		$	(266,629	)		$	(1,040,537	)
Loss per share, primary and dilutive		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding, primary and dilutive			295,258,068				287,623,341				296,955,907				274,649,045

 

 

 

 

		Nine Months Ended
		September 30,
		2014				2013
Cash Flows from Operating Activities:
Net loss		$	(325,000	)		$	(1,056,954	)
Adjustment to reconcile net income to net cash provided by operations:
Depreciation and amortization			115,976				121,865
Gain on loan settlement			(137,500	)			-
Stock-based and non-cash compensation			35,000				586,403
Minority interest in net loss of consolidated entities			(65,768	)			-
Changes in assets and liabilities:
Inventory			-				(2,305	)
Prepaid and other assets			(4,625	)			(2,000	)
Accounts payable and accrued expenses			54,029				(177,239	)
Net Cash Used in Operating Activities			(327,888	)			(530,230	)
Cash Flows from Investing Activities:
Proceed on assets disposal			-				31,456
Purchase of intangible assets			(39,344	)			-
Purchase of property and equipment			(176,018	)			(25,578	)
Net Cash Provided by (Used in) Investing Activities			(215,362	)			5,878
Cash Flows from Financing Activities:
Proceeds from issuance / subscription of preferred stock			152,500				-
Proceeds from issuance of common stock			-				195,000
Proceeds from minority interest			115,000				-
Net proceeds from notes payable			189,415				358,851
Net proceeds from (repayment of) stockholder loans			103,732				(29,499	)
Net Cash Provided by (Used in) Financing Activities			560,647				524,352
Net decrease in Cash			17,397				-
Cash at beginning of period			-				-
Cash at end of period		$	17,397			$	-
Supplemental cash flow information:
Interest paid		$	-			$	-
Taxes paid		$	-			$	-
Noncash investing and financing activities:
Interest paid by equity		$	6,616			$	-
Debt converted to equity		$	155,544			$	-
Stock issued / granted for intangible assets		$	33,000			$	-

 

 

 

Baristas Coffee Company Inc.

Notes to Interim Consolidated Financial Statements

September 30, 2014 and 2013

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES     

Description of Business

Baristas Coffee Company, Inc. ("Baristas" "The Company") is a Nevada C Corporation that was originally formed on October 18, 1996. The Company was originally formed as InfoSpi.com in 1996, for the purposes of developing, and developed software programs, hired programmers, and procured funding from a venture capital group, prior to merging with Innovative Communications Technologies, in 2001. From that time until 2010, it has had assets, liabilities, operations including employees every year and was engaged with contractors, had revenue and expenses, and/or technology development. On December 22, 2009, it acquired greater than a 60% interest in Pangea Networks, Inc. ("Pangea")/ DBA Baristas and Inc., and it acquired for cash, stock, and other consideration, numerous coffee stands in the greater Seattle area through the acquisition of Pangea; In May of 2010 the Company changed its name to Baristas Coffee Company, Inc.

Baristas operates a specialty drive-through beverage retailer with attractive female theme-costumed models as servers. Baristas provides its customers the ability of drive up and order their choice of a custom-blended espresso drink, freshly brewed coffee, or other beverages.  We generate revenue by offering our patrons the finest hot and cold beverages, specializing in specialty coffees, blended teas and other custom drinks. In addition, we offer smoothies, fresh-baked pastries and other confections.

Principles of Consolidation

The consolidated financial statements reflect the financial position and operating results of Baristas and includes our 51% investee, Barista Coffee Company of Florida, LLC, as of January 1, 2014. Intercompany transactions and balances have been eliminated.

Fiscal Year End

Our fiscal year end is December 31.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current year presentation for comparative purposes.  

Estimates and Assumptions

Preparing financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include, but are not limited to, estimates for asset and goodwill impairments, stock-based compensation forfeiture rates, future asset retirement obligations, and inventory reserves; assumptions underlying self-insurance reserves and income from unredeemed stored value cards; and the potential outcome of future tax consequences of events that have been recognized in the financial statements. Actual results and outcomes may differ from these estimates and assumptions.

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Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.  At September 30, 2014 and December 31, 2013, the Company had $17,397 and $nil, respectively.

Marketable Securities

The Company's marketable equity securities have been classified and accounted for as available-for-sale.  Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations at each balance sheet date.  The Company classifies its marketable equity securities as either short-term or long-term based on the nature of each security and its availability for use in current operations.  The Company's marketable equity securities are carried at fair value, with the unrealized gains or losses reported as a component of shareholder's equity.

Adjustments resulting from the change in fair value, included in accumulated other comprehensive income in shareholder's equity, were gains of $58,371 and $16,417 as of September 30, 2014 and 2013, respectively.

Fair Value of Financial Instruments

The carrying amount of the Company's cash, accounts receivables, accounts payables, and accrued expenses approximates their estimated fair values due to the short-term maturities of those financial instruments.

The Company has adopted a single definition of fair value, a framework for measuring fair value, and providing expanded disclosures concerning fair value whereby estimated fair value is the price to be paid for an asset or the amount to settle a liability in an orderly transaction between market participants at the measurement date. Accordingly, fair value is a market-based measurement and not an entity-specific measurement.

The Company utilizes the following hierarchy in fair value measurements: 

 Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

	As of September 30, 2014 Fair Value Measuring Using
	Carrying Value				Level 1				Level 2				Level 3				Total
Investments in Marketable Securities, available-for-sale		$	100,325			$	100,325				-				-			$	100,325
Total		$	100,325			$	100,325				-				-			$	100,325

 

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Inventories

Inventories are stated at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost, on a first-in, first-out basis.  Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete or in excess of future needs. Items determined to be obsolete are reserved for. The Company provides for the possible inability to sell its inventories by providing an excess inventory reserve. As of September 30, 2014 and December 31, 2013 the Company determined that no reserve was required.

Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Cost includes all direct costs necessary to acquire and prepare assets for use, including internal labor and overhead in some cases. Depreciation of property, plant and equipment, which includes assets under capital leases, is provided on the straight-line method over estimated useful lives, generally ranging from 3 to 5 years for equipment and 5 years for buildings. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life, generally 5 years. For leases with renewal periods at our option, we generally use the original lease term, excluding renewal option periods, to determine estimated useful lives. If failure to exercise a renewal option imposes an economic penalty to us, we may determine at the inception of the lease that renewal is reasonably assured and include the renewal option period in the determination of the appropriate estimated useful lives. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated with any remaining gain or loss recognized in net earnings.

Goodwill

We test goodwill for impairment on an annual basis during our third fiscal quarter, or more frequently if circumstances, such as material deterioration in performance or a significant number of store closures, indicate reporting unit carrying values may exceed their fair values. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine if the fair value of the reporting unit is more likely than not greater than its carrying amount. If we do not perform a qualitative assessment or if the fair value of the reporting unit is not more likely than not greater than its carrying amount, we calculate the implied estimated fair value of the reporting unit. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to the implied estimated fair value.

As a part of our ongoing operations, we may close certain stores within a reporting unit containing goodwill due to underperformance of the store or inability to renew our lease, among other reasons. We abandon certain assets associated with a closed store including leasehold improvements and other non-transferable assets. When a portion of a reporting unit that constitutes a business is to be disposed of, goodwill associated with the business is included in the carrying amount of the business in determining any loss on disposal. Our evaluation of whether the portion of a reporting unit being disposed of constitutes a business occurs on the date of abandonment. Although an operating store meets the accounting definition of a business prior to abandonment, it does not constitute a business on the closure date because the remaining assets on that date do not constitute an integrated set of assets that are capable of being conducted and managed for the purpose of providing a return to investors. As a result, when closing individual stores, we do not include goodwill in the calculation of any loss on disposal of the related assets. As noted above, if store closures are indicative of potential impairment of goodwill at the reporting unit level, we perform an evaluation of our reporting unit goodwill when such closures occur. There were no goodwill impairment charges recorded during the periods ended September 30, 2014 and 2013.

Other Intangible Assets

Definite-lived intangible assets, which mainly consist of acquired rights, trade secrets, trademarks and copyrights, are amortized over their estimated useful lives, and are tested for impairment when facts and circumstances indicate that the carrying values may not be recoverable. There were no other intangible asset impairment charges recorded during the periods ended September 30, 2014 and 2013.

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Long-lived Assets

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.  We did not recognize any impairment losses for any periods presented.

 

Revenue Recognition

Consolidated revenues are presented net of intercompany eliminations for investees controlled by us. Additionally, consolidated revenues are recognized net of any discounts, returns, allowances and sales incentives, including coupon redemptions and rebates. Company-operated stores revenues are recognized when payment is tendered at the point of sale. Company-operated store revenues are reported net of sales, use or other transaction taxes that are collected from customers and remitted to taxing authorities. All revenue is recognized when (i) persuasive evidence of an arrangement exists; (ii) the service or sale is completed; (iii) the price is fixed or determinable; and (iv) the ability to collect is reasonably assured.

Marketing and Advertising

Advertising costs are expensed as incurred.  Advertising costs totaled $15,156 and $nil for the periods ended September 30, 2014 and 2013.

Stock-based Compensation

Income Taxes

The Company uses the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and the tax basis of assets, liabilities, the carry forward of operating losses and tax credits, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. 

Earnings per Share

Basic earnings per common share equal net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.   The Company incurred a net loss for periods ended September 30, 2014 and 2013, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be anti-dilutive.

As of September 30, 2014, convertible shareholder loans of $556,036, convertible notes payable of $104,050 and 23,763,358 shares of preferred stock were considered to be anti-dilutive. 

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Recent Accounting Pronouncements

Accounting standards that have been issued by the FASB or other standards setting bodies that do not require adoption until a future date are being evaluated by the Company to determine whether adoption will have a material impact on the Company's financial statements.

NOTE 2 – GOING CONCERN

NOTE 3 – INVENTORY

Inventories were comprised of:

NOTE 4 – MARKETABLE SECURITIES

The following tables show the Company's available-for-sale security as of September 30, 2014 and December 31, 2013.  The fair value for Reeltime Rentals, Inc ("RLTR") is based on closing market price, less a marketability discount of 15%.  The fair value of Business Continuity Systems, Inc. (BUCS) is based on a 100% valuation allowance to the market price due to limited information and activity. 

September 30, 2014

 

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December 31, 2013

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

The Company recorded depreciation for the periods ended September 30, 2014 and 2013 of $82,601 and $88,490, respectively.

NOTE 6 – INTANGIBLE ASSETS AND GOODWILL

The Company recorded amortization for the periods ended September 30, 2014 and 2013 of $33,375 and $33,375, respectively.

Goodwill

The intangible assets were purchased along with the hard assets, from the Pangea purchase in December 2009, for $3.5 million in our common stock.  After the assets and intangible assets were identified, the remaining $2,770,651 was recorded as goodwill.  The Company does not amortize goodwill.  Instead, the Company evaluates goodwill annually in the fourth quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred.  As of September 30, 2014 and December 31, 2013, the Company determined that no such impairment existed.

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NOTE 7 – RELATED PARTY TRANSACTIONS

Loan Receivable

The Company has a receivable from a related party for services in prior years.  On June 18, 2014, the Company reached a settlement agreement with the related party to pay $300,000, including reimbursement of prior years' expenses of $162,500. During the period ended September 30, 2014, the Company recorded a gain on settlement of $137,500. The Company will evaluate the collectability of the loan quarterly.

Shareholder loans

The Company has issued a number of notes with various maturities dates to related parties for advances.   These notes are convertible at market price and accrue interest at 8% per annum.  Due to the short-term nature of these loans they are recorded as current liabilities.  The outstanding balances at September 30, 2014 and December 31, 2013 were $556,036 and $477,847, respectively. The Company plans to pay the loans back as cash flows become available.

NOTE 8 – NOTE PAYABLE

The Company has issued a number of notes with various maturities dates to unrelated parties.   These notes are convertible at market price and accrue interest at 8% per annum.  Due to the short-term nature of these loans they are recorded as current liabilities.  The outstanding balances at September 30, 2014 and December 31, 2013 were $104,050 and $44,635, respectively. 

NOTE 9 – STOCKHOLDER'S EQUITY

During the period ended September 30, 2014, the Company issued the following shares of Series A Convertible Preferred Stock:

·

300,000 shares to a non-affiliated investor for cash of $15,000.

·

4,400,000 shares to officers and directors for cash of $110,000.

·

11,750,000 shares to officers and director to replace 11,750,000 shares of common stock, which were cancelled.

The Company has authorized 300,000,000 common shares with a par value of $0.001 per share.  Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.  Holders have equal ratable rights to dividends from funds legally available and are entitled to share in assets available for distribution upon liquidation.  Holders do not have preemptive, subscriptive, conversion or cumulative voting rights, and there are no redemption or sinking find provisions or rights.  Holders of common stock have the right to approve any amendment of the Articles of Incorporation, elect directors, approve any plan of merger and approve a plan for the sale, lease or exchange of all of the Company's assets as proposed by the Board of Directors. There are no restrictions that limit the Company's ability to pay dividends on its common stock. The Company has not declared any dividends since incorporation.

During the period ended September 30, 2014, the Company issued the following shares of common stock:

·

2,150,000 shares in exchange for services valued at $33,000.

·

1,250,000 shares in exchange for intangible assets valued at $25,000.

·

7,231,992  shares in exchange for debt valued at $162,160.

·

11,750,000 shares of common stock were retired and replaced by 11,750,000 shares of Series A convertible preferred stock.

During the period ended September 30, 2014, the Company granted 400,000 common shares to a vendor for its work on the intangible assets with value of $8,000 and 250,000 common shares to an employee for her services with value of $5,000. This $13,000 was included in obligation to issue shares.

There were 294,115,297 and 295,233,305 common shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively.

Minority Interest

Certain unrelated third parties hold 49% of Baristas Coffee Company of Florida, LLC, a consolidated subsidiary. During the period ended September 30, 2014, the minority interest contributed $115,000 in equipment and expenses and recognized $65,768 in losses from the operations.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net earnings and other comprehensive income (loss).  Accumulated other comprehensive loss reported on our balance sheets consists of unrealized losses on available-for-sale securities.

NOTE 10 – NET INCOME (LOSS) PER SHARE OF COMMON STOCK

The Company follows ASC 260, "Earnings per Share," ("EPS") which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation.  In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted EPS include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented. As at September 30, 2014 and December 31, 2013, the Company had $556,036 and $477,847 in convertible shareholder loans, respectively, $104,050 and $44,635 convertible notes payable, respectively, and 23,763,358 and 7,313,358 convertible preferred stock issued and outstanding, respectively, which have been omitted from diluted EPS.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Leases

Rental expense under operating lease agreements:

Minimum future rental payments under non-cancelable operating leases as of September 30, 2014:

From time to time the Company may become a party to litigation matters involving claims against the Company.  Management believes that there are no current matters that would have a material effect on the Company's financial position or results of operations.

NOTE 12 – SUBSEQUENT EVENTS

Subsequent to September 30, 2014, the Company issued the following preferred stock and common stock:

·

250,000 common shares to an employee valued at $5,000.

·

400,000 common shares to a non-affiliated company in exchange for services valued at $8,000.

·

1,100,000 preferred shares to an officer and director for $27,500 cash.

Management has evaluated subsequent events through the date the financial statements were issued and determined there are no additional items to disclose.

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses.  Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language.  Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein as well as in the "Description of Business – Risk Factors" section in our Registration Statement on Form 10, as filed on July 22, 2014.  You should carefully review the risks described in our Form 10 and in other documents we file from time to time with the Securities and Exchange Commission.  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

All references in this Form 10-Q to the "Company," "Baristas", "we," "us," or "our" are to Baristas Coffee Company, Inc.

We prepare our interim consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the interim consolidated financial statements are prepared. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions.  On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our interim consolidated financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our interim consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenue was 296,302 for the three months ended September 30, 2014 compared to 311,270 for the three months ended September 30, 2013, a decrease of $14,968 or 4.81%. The decrease was primarily due to the closing of three coffee stands during the fourth quarter of 2013.  We had 13 coffee stands for the period ended September 30, 2013, whereas, we had 10 coffee stands for the period ended September 30, 2014.

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The changes in our operating expenses from September 30, 2014 to September 30, 2013 are as follows:

Direct costs for generating sales was $116,238 for the three months ended September 30, 2014 compared to $12,577 in the three months ended September 30, 2013, an increase of 103,661 or 824.21%. The low direct costs in three months ended September 30, 2013 was primarily the result of proposed closure of coffee stands during the fourth quarter of 2013.

General and administrative expenses consisted of expenses covering office, supplies, shipping, telephone, internet insurance, and other general operating costs related to our business. General and administrative expenses was $108,255 for the three months ended September 30, 2014 compared to $170,725 for the three months ended September 30, 2013, a decrease of $62,470 or 36.59%. The decrease was the result of coffee stand closures during the fourth quarter of 2013.

Stock-based compensation and compensation expenses consisted of: $20,000 in stock issued for compensation in the three months ended September 30, 2014 compared to $236,795 in the three months ended September 30, 2013, a decrease of $216,795 or 91.55%; $170,147 in payroll compensation and related tax expenses in the three months ended September 30, 2014 compared to $178,577 for the three months ended September 30, 2013, an decrease of $8,430 or 4.72%. The net increase is the result of management employees and contract employees were paid via payroll in 2014 vs stock based compensation in 2013.

Professional expenses was $31,115 for the three months ended September 30, 2014 compared to $8,962 in the three months ended September 30, 2013, an increase of $22,153 or 247.19%. The increase was primarily due to additional work performed on compliance with the reporting requirements.

Depreciation and amortization expenses for the nine months ended September 30, 2014 was $38,892, increased $27,767 or 249.59%, compared to $11,125 in the three months ended September 30, 2013.

 

Net other (income) loss was ($69,338) for the three months ended September 30, 2014, compared to $28,935 for the three months ended September 30, 2013, an increase of $98,273 or 339.63%. The net other (income) loss is comprised of interest expense, gain on loan settlement, and minority interest. The increase in the net other (income) loss is primarily due to a gain on loan settlement of $137,468  and a gain on minority interest of $20,992, offset by interest expense in the current period of $89,122, as compared to 2013. During the period ended September 30, 2013, we did not have any disposal of assets, or a minority interest position, thus net other loss consisted solely of interest expense. 

  

The net loss of the three months ended September 30, 2014 was $119,007 compared to the net loss of $336,426 for the three months ended September 30, 2013. The Company had a loss per weighted common shares outstanding of ($0.00) for the three months ended September 30, 2014 compared to ($0.00) for the three months ended September 30, 2013.

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Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenue was 912,095 for the nine months ended September 30, 2014 compared to 1,106,669 for the nine months ended September 30, 2013, a decrease of $194,574 or 17.58%.  The decrease was the result of coffee stand closures during the fourth quarter of 2013.

The changes in our operating expenses from September 30, 2014 to September 30, 2013 are as follows:

Direct costs for generating sales was $326,841 for the nine months ended September 30, 2014 compared to $331,939 in the nine months ended September 30, 2013, a decrease of $5,098 or 1.54%. The decrease, in 2014, was the result of coffee stand closures during the fourth quarter of 2013.

General and administrative expenses consisted of expenses covering office, supplies, shipping, telephone, internet insurance, and other general operating costs related to our business. General and administrative expenses of $255,286 for the nine months ended September 30, 2014 compared to $544,524 for the nine months ended September 30, 2013, a decrease of $289,238 or 53.12%. The decrease was primarily due to a Department of Labor judgment in 2013.

Stock-based compensation and compensation expenses consisted of: $35,000 in stock issued for compensation in the nine months ended September 30, 2014 compared to $586,403 in the nine months ended September 30, 2013, a decrease of $551,403 or 94.03%; The decrease is the result of management employees and contract employees were paid via payroll vs stock based compensation in 2013.

 

Professional expenses was $74,782 for the nine months ended September 30, 2014 compared to $26,887 in the nine months ended September 30, 2013, an increase of $47,895 or 178.13%. The increase was primarily due to additional work performed on compliance with the reporting requirements.

Depreciation and amortization expenses for the nine months ended September 30, 2014 of $115,976, decreased $5,889 or 4.83%, compared to $121,865 in the nine months ended September 30, 2013.

 

Net other (income) loss was $(35,845) for the nine months ended September 30, 2014 compared to $86,805 for the nine months ended September 30, 2013, an increase of $122,650 or 141.29%. The net (income) loss is comprised of interest expense, gain on loan settlement, and minority interest. The increase in the net other income is primarily due to a gain from loan settlement of $137,500 and a gain in minority interest of $65,768, offset by interest expense in the current period of $167,423, as compared to 2013.  During the period ended September 30, 2013, we did not have any disposal of assets, or a minority interest position, thus net other loss in 2013 consisted solely of interest expense. 

  

The net loss for the nine months ended September 30, 2014 was $266,629 compared to the net loss of $1,040,537 for the nine months ended September 30, 2013. The Company had a loss per weighted common shares outstanding of ($0.00) for the nine months ended September 30, 2014 compared to ($0.00) for the nine months ended September 30, 2013.

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The Company's liquidity may be effected by general decrease in revenues during the holiday months and by the need to allocate startup costs for the Knoxville restaurant.

Baristas forecasts opening ten new franchise locations in addition to maintaining our existing locations, during the next 12 month period. We will receive a franchise fee of $25,000 for each new location ($250,000 in revenue) and anticipate expenses in supporting each new franchise location to be $17,500 ($175,000 in expenses) for an additional net profit of $75,000 before royalties and other revenues. We anticipate hiring an operations manager as franchise sales are closed.

We believe that we have enough cash on hand and from operations to operate for the next 12 months.  However, we will require additional financing if we are to complete our expansion plan for the next 12 months.  While we are optimistic that we can generate the revenue from new franchise fees and refinancing of our existing properties, we do not have any current financing available to us.  If we are unable to generate additional fees through franchising, in order to execute our plan of expansion, we would be required to raise funds through a sale of equities, the issuance of debt or a combination thereof. We have no assurances that we would be successful in raising the requite financing.

We have a history of operating losses as we have focused our efforts on raising capital and building our brand and expanding our business locations. The report of our independent auditors issued on our consolidated financial statements as of and for the year ended December 31, 2013, expresses substantial doubt about our ability to continue as a going concern. For the period ended September 30, 2013, we were successful in raising net proceeds of $195,000 and $329,352 through debt financing in order to fund the development and growth of our operations. During the period ended September 30, 2014, we were successful in raising net proceeds of $152,500 through issuance of preferred shares and $293,147 through debt financing in order to fund the development and growth of our operations. Our ability to continue as a going concern is dependent on our obtaining additional adequate capital to fund additional operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations.

 

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities for the periods ended September 30, 2014 and 2013:

For the nine months ended September 30, 2014, we incurred a net loss of $325,000. Net cash used in operating activities was $327,888, net cash used in investing activities was $215,362 and net cash provided by financing activities was $560,647.  For the nine months ended September 30, 2013, we incurred a net loss of $1,056,954. Net cash used in operating activities was $530,230, net cash provided by investing activities was $5,878 and net cash provided by financing activities was $524,352.

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Working Capital Information - The following table presents a summary of our working capital at the end of each period: 

As of September 30, 2014, the Company had a working capital deficit of $1,313,597, compared to $1,153,602 at December 31, 2013, or an increase in working capital deficit of $159,995 (13.87%). As of September 30, 2014, the Company had cash and cash equivalents of $17,397 as compared to $0 on December 31, 2013. For 2014, current assets increased $25,022 (81.41%) due to increases of $17,397 in cash and $7,625 in prepaid expenses. Current liabilities increased $185,017 (15.62%), with an increase in accounts payable and accrued expenses of $47,413 (7.16%), an increase in shareholder loans of $78,189 (16.36%), and an increase in notes payable of $59,415 (133.11%).

Funding Requirements: We expect to incur substantial expenses and generate ongoing operating losses for the foreseeable future as we prepare for the ongoing development and launch of our sports bar business, grow the existing base of our coffee store locations and support business and further expand this business into additional facilities and locations. If we are unable to raise an adequate amount of capital, however, we could be forced to curtail or cease operations. Our future capital uses and requirements depend on numerous forward-looking factors.

These factors include the following:

·

the time and expense needed to complete the successful launch of the sports bar business;

 

·

the expense associated with building a network of coffee shops to market the brand;

 

·

the degree and speed of  developing our franchises with BMOC.

During 2014, we entered joint venture agreements to launch franchises in new states and as well to develop a sports bar. We have yet to achieve profitability as a result of the Company's non-operating expenses, and the issuance of shares of our common stock to third parties for various services rendered. As we grow, the use of our common stock as currency will decline when our cash availability grows.

 

In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing, and the success of our future operations.

 

Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling debt securities, if convertible, further dilution to our existing stockholders would result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements.

 

If adequate funds are not available, we may be required to terminate, significantly modify or delay the development and launch of our businesses, reduce our planned commercialization efforts, or obtain funds through means that may require us to relinquish certain rights that we might otherwise seek to protect and retain. Further, we may elect to raise additional funds even before we need them if we believe the conditions for raising capital are favorable.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a "smaller reporting company", we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon those evaluations, management concluded that our disclosure controls and procedures were not effective as of September 30, 2014, in light of the material weaknesses that were found during an assessment of our internal control over financial reporting to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the nine months ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

ITEM 1A. RISK FACTORS.

As a "smaller reporting company", we are not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the period ended September 30, 2014, the Company issued the following shares of common stock:

·

7,231,992 shares in exchange for debt valued at $162,160.

·

1,250,000 shares in exchange for intangible assets valued at $25,000

·

2,150,000 shares in exchange for service valued at $33,000

·

11,750,000 common stocks were retired and replaced by 11,750,000 preferred stocks.

Subsequent to September 30, 2014, and through to date of this form, the Company issued the following shares of common stock and preferred stock:

·

250,000 shares of common stock to an employee valued at $5,000.

·

400,000 shares of common stock in exchange for intangible assets valued at $8,000.

·

250,000 shares of common stock to a non-affiliated people in exchange for services.

·

1,100,000 shares of preferred stock were issued for cash of $27,500.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS

 

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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.