Kahala Corp

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International Guild of Hospitality & Restaurant Managers

Kahala Corp., incorporated in September 1997, operates and franchises, under the Frullati Cafe & Bakery, Surf City Squeeze, Rollerz and Tahi Mana brand names, juice bars and health food cafes that serve blended fruit drinks and healthy foods and snacks in shopping malls, airports, hospitals, office buildings and health clubs. The Company operates throughout the United States , Canada and in Saudi Arabia and Qatar . As of December 31, 2001 , Kahala, through its subsidiaries, has approximately 212 total locations, all of which are either franchised or licensed by third parties. The Company also sells proprietary smoothie mixes and other nutrients and supplements to its franchisees, and licensees through its wholly owned subsidiary, Tovali Products, L.L.C. (Tovali). Kahala, through its R 1 Franchise Systems, L.L.C. (R 1 Franchise), is a lender under a debtor-in-possession (DIP) loan agreement to Ranch * 1, Inc. (Ranch * 1) and its wholly owned subsidiaries (collectively, Ranch 1), with the ultimate intent of acquiring Ranch * 1, Inc.

The Company conducts its business through six operating divisions: Frullati Cafe and Bakery, which started operations in 1985; Surf City Squeeze, which started operations in 1989; Rollerz, which started operations in 2000; Tahi Mana, which started operations in 2000, and the product distribution business through Tovali. Kahala's sixth operating division, R 1 Franchise, began operations during 2001.

Frullati Division

The Frullati Division operates through Selman Systems, Inc. (Selman), which the Company acquired in May 1999. Selman was formed in 1992, and operates exclusively as the holding company for its four wholly owned subsidiaries: Frullati Enterprises, Inc. (Frullati Enterprises), Frullati Franchise Systems, Inc. (Frullati Franchise), Frullati Systems, Inc. (Frullati Systems) and Fru-Cor Inc. (Fru-Cor). Of these four only Frullati Franchise had any operations as of December 31, 2001 . The key-operating unit of the Frullati Division is the Frullati Cafe & Bakery Store. The Company franchises Frullati Cafe & Bakery Stores, and occasionally owns and operates stores for its own account at various times.

Frullati Franchise was formed in 1994 to act as a franchiser of Frullati Cafe & Bakery stores to third parties, and to provide continuing training and support for its franchisees. As of December 31, 2001 , Frullati Franchise had 64 franchisees operating 91 locations in 14 states across the United States . Frullati Enterprises was formed in 1996 to act as a holding company for certain Company-owned Frullati Cafe & Bakery stores, some of which were separately incorporated, and subsequently merged into Frullati Enterprises. As of December 31, 2001 , Frullati Enterprises did not own or operate any Frullati Cafe & Bakery outlets. Frullati Systems was formed in 1993 to act as the real estate development arm of Selman. In this capacity, Frullati Systems searched for new commercial sites throughout the United States for both franchisees and Kahala-owned Frullati Cafe & Bakery stores. Fru-Cor was acquired by Selman in July 1999. Fru-Cor was formed in 1998 to act as the holding company for seven Frullati Cafe & Bakery locations owned by unrelated third parties.

Surf City Squeeze Division

Kahala's Surf City Squeeze division offers primarily smoothies and other nutritional drinks and supplements. Surf City Squeeze stores are entirely operated by franchisees and licensees, and offer a more limited food menu than Frullati Cafe and Bakery and Rollerz stores, but offer a greater variety of nutritional drinks and supplements.

The Company acquired Surf City Acquisition Corporation II (SCAC) in March 1999. SCAC owns all of the stock of Surf City, Surf City Franchising Corporation (SCSFC), Malibu Smoothie Franchising Corporation (Malibu Smoothie) and Kona Coast Provisions, Inc. ( Kona Coast ).

Surf City Squeeze, Inc. ( Surf City ) was formed in 1989 to operate juice bars for its own account and to license the Surf City Squeeze juice bar concept to third parties. SCSFC was formed in 1995 to franchise Surf City Squeeze stores to third parties. As of December 31, 2001 , SCSFC has 45 franchisees operating 51 franchised locations in eight states throughout the United States , and in Qatar and Saudi Arabia . Malibu Smoothie was formed in 1998 to act as the franchiser for new Surf City Squeeze franchises and to simplify the preparation of the franchiser’s audited financial statements included in its Uniform Franchise Offering Circular during the period Surf City was operating under the Plan of Reorganization. As of December 31, 2001 , Malibu Smoothie had 22 franchisees operating 43 franchised locations in California , Illinois , Michigan and Canada .

Rollerz Division

The Rollerz division operates through Rollerz Franchise Systems, L.L.C. (Rollerz Franchise), a wholly owned subsidiary formed by the Company in March 2000. The key-operating unit of the Rollerz Division is the Rollerz retail store. Kahala both franchises Rollerz stores and owns and operates stores for its own account. As of December 31, 2001 , Rollerz Franchise had four franchisees operating Irvine , California , Frisco , Texas , Tempe , Arizona , and Edison , New Jersey .

Tahi Mana Division

The Tahi Mana division operates through Tahi Mana, L.L.C., a wholly owned subsidiary formed by Kahala in February 2000. The key-operating unit of the Tahi Mana Division is the Tahi Mana retail store, located in upscale health clubs and other high-traffic, fitness-related locations. As of December 31, 2001 , Tahi Mana, L.L.C. had one franchisee operating a single unit in Scottsdale , Arizona . The Company is not actively promoting or further developing its Tahi Mana Division.

Product Distribution Division

The Company's product distribution division, which sells smoothie mixes, nutritional products, supplements, uniforms, menus and other printed logo items to franchisees and licensees of its four retail food concepts only, was comprised of two subsidiaries: Kona Coast and Tovali. During 2001, Kona Coast sold all of its remaining inventory to third parties, and, as of December 31, 2001 , was no longer operating.

Tovali, a wholly owned subsidiary of the Company, was formed in February 2000 to act as a distributor of smoothie mixes, nutritional products and supplements, uniforms and other printed logo items for all of Kahala's retail food concepts, except Surf City Squeeze. When Kona Coast ceased its operations, Tovali also became the distributor for the Company's Surf City Squeeze concept. Tovali sells its proprietary nutritional products and logo items to franchisees and licensees of all four of its retail food outlets.

Ranch * 1 Division

The Ranch * 1 division operates through R 1 Franchise, a wholly owned subsidiary formed by the Company in July 2001, to enter into a DIP Loan and Security Agreement with Ranch 1, with the ultimate intent of acquiring Ranch * 1. Ranch * 1, through its wholly owned subsidiaries, owns, operates and franchises Ranch * 1 quick-service restaurants that specialize in the sale of grilled chicken sandwiches and other grilled chicken products, Ranch * 1 fries and other food and beverage items. As of December 31, 2001, there are 53 Ranch * 1 restaurants operating in 12 states, the District of Columbia and Taiwan, of which 49 are franchised to third parties and the remaining four are corporate-owned. On July 3, 2001 , Ranch 1 filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York.

The Company's main competitors are Jamba Juice and Smoothie King.

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