UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

           (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2002

                                       OR

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______


                        Commission File Number 000-30444


                                  KAHALA CORP.
                     (fka Sports Group International, Inc.)
             (Exact name of registrant as specified in its charter)


             Florida                                             59-3474394
(State of other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


                         7730 E. Greenway Rd., Suite 104
                            Scottsdale, Arizona 85260
                    (Address of principal executive offices)


                                 (480) 443-0200
              (Registrant's telephone number, including area code)

Check whether issuer (1) has 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 [X] No [ ]

The number of shares outstanding of the registrant's Common Stock, $.001 per
value per share, as of November 14, 2002 was 22,317,875 shares.
<PAGE>
                                  KAHALA CORP.

                        Quarter Ended September 30, 2002

                                   FORM 10-QSB

                                      INDEX


Part I - FINANCIAL INFORMATION.................................................2

     ITEM 1.   FINANCIAL STATEMENTS............................................2

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......11

     ITEM 3.   CONTROLS AND PROCEDURES........................................19

Part II - OTHER INFORMATION...................................................20

     ITEM 1.   LEGAL PROCEEDINGS..............................................20

     ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS......................20

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES................................20

     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............20

     ITEM 5.   OTHER INFORMATION..............................................20

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K...............................22

SIGNATURES....................................................................29

                                       1
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STATEMENT OF INFORMATION FURNISHED

     The accompanying financial statements have been prepared in accordance with
Form 10-QSB instructions and applicable items of Regulation S-B, and in the
opinion of management, contain all adjustments (consisting of only normal and
recurring accruals) necessary to present fairly the Company's financial position
as of September 30, 2002 and the Company's results of operations for the nine
and three months ended September 30, 2002 and 2001 and statement of cash flows
for the nine months ended September 30, 2002 and 2001. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 2001 Annual Report on Form 10-KSB.

     Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the accompanying financial
statements be read in conjunction with the financial statements and related
notes thereto incorporated by reference in the Company's 2001 Annual Report on
Form 10-KSB.

                                       2
<PAGE>
KAHALA CORP.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002 (UNAUDITED)

ASSETS

CURRENT ASSETS
  Cash                                                             $    919,917
  Trade and other accounts receivable, net of allowance                 428,983
  Inventories                                                           227,173
  Prepaid expenses and other assets                                     112,248
  Deferred income taxes                                                  96,782
  Notes receivable - current portion, net of allowance                  903,626
                                                                   ------------
     Total current assets                                             2,688,729

PROPERTY AND EQUIPMENT, net                                             573,378

LEASE DEPOSITS                                                          363,391

NOTES RECEIVABLE - less current portion                               3,392,312

GOODWILL, net of accumulated amortization of $718,490                11,175,770

DEFERRED INCOME TAXES                                                 1,127,778
                                                                   ------------

TOTAL ASSETS                                                       $ 19,321,358
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                 $    247,418
  Accrued liabilities                                                   990,749
  Line of credit                                                        589,015
  Notes payable - current portion                                       222,402
  Confirmed bankruptcy liabilities - current portion                    987,345
                                                                   ------------
     Total current liabilities                                        3,036,929

NOTES PAYABLE - long-term portion                                     3,489,004

CONFIRMED BANKRUPTCY LIABILITIES - long term portion                  3,826,212

DEFERRED FRANCHISE FEE INCOME                                         2,612,028
                                                                   ------------
     Total liabilities                                               12,964,173
                                                                   ------------

STOCKHOLDERS' EQUITY:
  Series A preferred stock, $10.00 par value,
    575,000 shares designated, 575,000 issued                         5,750,000
  Series B preferred stock, $10.00 par value,
    650,000 shares designated, 650,000 issued                         6,500,000
  Series C preferred stock, $10.00 par value,
    160,000 shares designated, 160,000 issued                         1,600,000
  Common stock, $.001 par value, 100,000,000
    shares authorized, 22,317,875 issued and outstanding                 22,318
  Paid in capital                                                     6,640,787
  Accumulated deficit                                               (14,155,920)
                                                                   ------------
     Total stockholders' equity                                       6,357,185
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 19,321,358
                                                                   ============

                                       3
<PAGE>
KAHALA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
NINE AND THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Nine Months Ended               Three Months Ended
                                                      September 30,                   September 30,
                                              ----------------------------    ----------------------------
                                                  2002            2001            2002            2001
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
REVENUES:
  Net product and store sales                 $  1,749,125    $  1,871,465    $    735,757    $    588,034
  Franchise fees                                   950,532         589,750         471,000         192,500
  Royalties                                      1,693,507       1,676,611         718,883         540,593
  Rental income                                     97,800         123,397          30,600          36,600
                                              ------------    ------------    ------------    ------------
     Total revenues                              4,490,964       4,261,223       1,956,240       1,357,727
                                              ------------    ------------    ------------    ------------

EXPENSES:
  Cost of product sales                            735,553         722,140         315,579         186,665
  Personnel expenses                             1,599,718       1,756,865         705,512         509,675
  Rent                                             521,499         669,428         286,359         182,870
  Depreciation and amortization                     42,806         291,179          19,810         106,358
  General and administrative expenses              998,452         964,189         388,163         433,456
                                              ------------    ------------    ------------    ------------
     Total expenses                              3,898,028       4,403,801       1,715,423       1,419,024
                                              ------------    ------------    ------------    ------------

OPERATING INCOME (LOSS)                            592,936        (142,578)        240,817         (61,297)
                                              ------------    ------------    ------------    ------------

OTHER (INCOME) AND EXPENSES
  Interest expense                                 139,156         113,535          80,269          43,510
  Interest income                                 (188,186)        (88,750)       (113,551)        (38,297)
  Loss (Gain) on Sale of Royalty Stream                 --        (300,000)             --              --
  Loss (Gain) on Sale of Assets                         --           7,225              --         (72,449)
                                              ------------    ------------    ------------    ------------

     Total other (income) expense                  (49,030)       (267,990)        (33,282)        (67,236)
                                              ------------    ------------    ------------    ------------

INCOME BEFORE INCOME TAXES                         641,966         125,412         274,099           5,939

INCOME TAX (BENEFIT) PROVISION                          --              --              --              --
                                              ------------    ------------    ------------    ------------

NET INCOME (LOSS)                             $    641,966    $    125,412    $    274,099    $      5,939
                                              ============    ============    ============    ============

NET INCOME (LOSS) PER SHARE:
  Basic                                       $       0.03    $      (0.06)   $       0.01    $      (0.02)
                                              ============    ============    ============    ============
  Diluted                                     $       0.02    $      (0.06)   $       0.01    $      (0.02)
                                              ============    ============    ============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  Basic                                         22,317,875      15,476,514      22,317,875      17,466,799
                                              ============    ============    ============    ============
  Diluted                                       38,092,320      15,476,514      38,092,320      17,466,799
                                              ============    ============    ============    ============
</TABLE>

                                       4
<PAGE>
KAHALA CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS, (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    2002            2001
                                                                ------------    ------------
<S>                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (loss)                                             $    641,966    $    125,412
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Depreciation and amortization                                       42,806         250,890
  Loss (Gain) on sale of assets                                           --           7,225
  Changes in assets and liabilities (net of acquisiton):
    Trade and other accounts receivable                              462,623         280,839
    Inventories                                                      (12,240)        (20,844)
    Prepaids and other current assets                                 26,494         (25,201)
    Accounts payable                                                (161,818)        (22,271)
    Accrued liabilities                                             (394,828)       (389,009)
    Deferred franchise fee income                                   (348,032)       (385,000)
                                                                ------------    ------------
          Net cash provided by (used in) operating activities        256,973        (177,959)
                                                                ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                               (164,365)       (176,525)
  Cash acquired in business acquistion                             1,493,963              --
  Purchase of business                                            (1,550,000)             --
  Financing of notes receivable                                     (550,000)       (500,000)
  Collections on notes receivable                                    698,806         280,459
  Proceeds from sale of property and equipment                       200,000         216,508
                                                                ------------    ------------
          Net cash provided by (used in) investing activities        128,404        (179,558)
                                                                ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings on line of credit                              --         458,140
  Proceeds from borrowings on notes payable                        1,300,000         500,000
  Principal repayments on notes payable                             (535,867)       (495,901)
  Payments on confirmed bankruptcy liabilities                    (1,230,861)       (178,830)
                                                                ------------    ------------
          Net cash provided by (used in) financing activities       (466,728)        283,409
                                                                ------------    ------------

INCREASE (DECREASE) IN CASH                                          (81,351)        (74,108)

CASH, BEGINNING OF PERIOD                                          1,001,268          99,885
                                                                ------------    ------------

CASH, END OF PERIOD                                             $    919,917    $     25,777
                                                                ============    ============
</TABLE>

                                       5
<PAGE>
KAHALA CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS, (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)

SUPPLEMENTAL CASH FLOW INFORMATION:                        2002          2001
                                                        ----------    ----------
  Interest paid                                         $  139,156    $  111,567
                                                        ==========    ==========

  Income taxes paid                                     $       --    $       --
                                                        ==========    ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:

Common stock issued as preferred stock dividends        $       --    $1,026,750
                                                        ==========    ==========

Sale of property & equipment under notes receivable     $   90,000    $  493,176
                                                        ==========    ==========

Notes Receivable on Deferred Revenue                    $1,925,000    $       --
                                                        ==========    ==========

                                       6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements represent the financial position
of Kahala Corp. (the "Company") as of September 30, 2002, including our results
of operations for the nine and three months ended September 30, 2002 and 2001
and cash flows for the nine months ended September 30, 2002 and 2001. These
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions for Form
10-QSB. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles (GAAP) for complete
financial statements. In the opinion of management, all adjustments to these
unaudited financial statements necessary for a fair presentation of the results
for the interim period presented have been made. The results for the nine and
three months ended September 30, 2002 and 2001 may not necessarily be indicative
of the results for the entire fiscal year. These financial statements should be
read in conjunction with our Form 10-KSB for the year ended December 31, 2001,
including specifically the financial statements and notes to such financial
statements contained therein.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our accounting policies, and the methods of applying those policies, which
affect the determination of our financial position, results of operations or
cash flows are summarized below:

CASH: includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less. At times, cash deposits may exceed government insured limits.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Surf City Acquisition
Corp. II, Surf City Squeeze, Inc., Surf City Squeeze Franchise Corp., Kona Coast
Provisions, Inc. ("Kona"), Malibu Smoothie Franchise Corp., Selman Systems, Inc.
("Selman") and its one operating subsidiary, Frullati Franchise Systems, Inc.,
Fru-Cor, Inc., Rollerz Franchise Systems, LLC, Tahi Mana, LLC, Tovali Products,
LLC ("Tovali"), and R 1 Franchise Systems, LLC, and its operating subsidiary,
Ranch * 1, Inc., and its various subsidiaries acquired in the second quarter of
2002 ("Ranch * 1"). All significant inter company accounts and transactions are
eliminated.

INVENTORIES: consist primarily of food products, drink mixes, supplements and
supplies. Inventories are recorded at the lower of cost or market on a first-in,
first-out basis.

REVENUE RECOGNITION: Initial franchise fees are deferred until substantially all
services and conditions relating to the sale of the franchise have been
performed or satisfied. The Company will occasionally finance the initial
franchise fee by taking a note receivable from the franchisee. The notes
receivable are typically payable by the franchisees over three to five years.

                                       7
<PAGE>
Fees from Area Development Agreements or similar development arrangements
("ADA") are recognized as revenue on a pro rata basis based on the number of
stores opened to-date to total stores to be developed as stipulated in the ADA.
If the total number of stores stipulated in the ADA are not opened at the
expiration of the ADA, the balance of such fees is recognized.

Kona and Tovali sell mixes, supplements and related supplies to franchisees.
Revenue on such sales is recognized when the product is shipped. Sales from the
corporate-owned stores are recognized at the point of sale.

The Company is entitled to marketing program income (the "Program Income") from
suppliers on the basis of product volume shipped by those suppliers to
franchised and corporate-owned stores. Program Income is recognized when
suppliers have shipped, and stores have received, products for which Program
Income apply.

The Company also receives sublease rental income. The Company is the primary
lessee on certain franchised stores. Rental income is recognized ratably over
the term of the subleases.

INCOME TAXES: The Company provides for income taxes based on the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, which, among other things, requires that recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date of
the financial statements.

USE OF 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.

GOODWILL: is recorded for the difference between the purchase price of the
acquired business and the fair value of the identifiable net assets. Beginning
in the three months ended March 31,2002, the Company began applying the
provisions of Financial Accounting Standards Board Statements of Financial
Accounting Standards No.'s 142 GOODWILL AND OTHER INTANGIBLE ASSETS. As of
January 1, 2002 the Company discontinued the practice of amortizing goodwill.
The Company has unamortized goodwill of $11,175,700 that resulted from the
acquisitions of Selman in 1999, Rollerz in 2000, and Ranch * 1 in 2002, which
alone added $6,314,145. The Company performed the tests for impairment of the
carrying value of goodwill for these three reporting units and has determined
that no impairment existed at September 30, 2002. Amortization expense for the
nine month and three month periods ended September 30, 2001 was $166,181 and
$55,393, respectively.

                                       8
<PAGE>
3. INCOME TAXES

The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes for
the periods ended September 30, 2002 and 2001 consisted of the following:

<TABLE>
<CAPTION>
                                      NINE MONTHS ENDED          THREE MONTHS ENDED
                                          SEPT. 30,                  SEPT. 30,
                                    ----------------------     ----------------------
                                      2002         2001          2002         2001
                                    ---------    ---------     ---------    ---------
<S>                                 <C>          <C>           <C>          <C>
Current tax (benefit) provision     $ 256,786    $  50,308     $ 109,639    $   4,377
Deferred tax (benefit) provision     (256,786)     (50,308)     (109,639)      (4,377)
                                    ---------    ---------     ---------    ---------
Total income tax provision          $     -0-    $     -0-     $     -0-    $     -0-
                                    =========    =========     =========    =========
</TABLE>

4. NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the year. Preferred stock dividends,
if applicable, are subtracted from the net income to determine the amount
available to common shareholders. See ITEM 5 OTHER INFORMATION - in April, 2002,
the preferred shareholders agreed to suspend dividends indefinitely effective
December 1, 2001. Therefore, the calculation of the net income per share does
not reflect a preferred dividend for the nine months ended September 30, 2002 in
arriving at the net income available to common shareholders. For the period
ended September 30, 2002, warrants and options to purchase 3,015,000 common
shares were not considered in the calculation for diluted earnings per share
because the effect of their inclusion would be anti-dilutive. For the period
ended September 30, 2001, preferred stock convertible to 15,766,667 common
shares and warrants to purchase one million common shares were not considered in
the calculation for diluted earnings per share because the effect of their
inclusion would be anti-dilutive.

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                --------------------------------------------------------------------------------
                                                2002                                      2001
                                --------------------------------------   ---------------------------------------
                                  Income                      Per          Income                       Per
                                  (Loss)       Shares        share         (Loss)        Shares        share
                                ----------   -----------   -----------   -----------   -----------   -----------
<S>                             <C>          <C>           <C>           <C>           <C>           <C>
Net Income                      $  641,966                               $   125,412
Preferred stock dividends               --                                (1,026,750)

BASIC EARNINGS PER SHARE

Income (Loss) available to
  common  stockholders          $  641,966    22,317,875      $ 0.03     $  (901,338)   15,476,514      $(0.06)

Effect of dilutive securities                 15,774,445      $(0.01)            N/A

DILUTED EARNINGS PER SHARE      $  641,966    38,092,320      $ 0.02                                    $(0.06)

                                                       THREE MONTHS ENDED SEPTEMBER 30,
                                --------------------------------------------------------------------------------
                                                2002                                      2001
                                --------------------------------------   ---------------------------------------
                                  Income                      Per          Income                       Per
                                  (Loss)       Shares        share         (Loss)        Shares        share
                                ----------   -----------   -----------   -----------   -----------   -----------
Net Income                      $  274,099                               $     5,940
Preferred stock dividends               --                                  (346,250)

BASIC EARNINGS PER SHARE

Income (Loss) available to
  common stockholders           $  274,099    22,317,875      $ 0.01     $  (340,310)   17,466,799      $(0.02)

Effect of dilutive securities          N/A    15,774,445                         N/A

DILUTED EARNINGS PER SHARE      $  274,099    38,092,320      $ 0.01                                    $(0.02)
</TABLE>

5. ACQUISITION OF RANCH * 1

In May 2002, the Company acquired Ranch *1, Inc and its wholly owned
subsidiaries. In connection with this acquisition, the Company acquired the
following assets and liabilities: (a) $1,493,961 in cash; (b) $208,223 in other
current assets; (c) $1,679,693 in long-term assets other than goodwill,
consisting primarily of seven corporate-owned Ranch * 1 stores and notes
receivable primarily from franchisees; (d) $6,314,145 in goodwill; (e)
$5,075,000 in liabilities in accordance with the Bankruptcy Plan of
Reorganization; (f) $874,024 in other liabilities; and (g) $1,000,000 in
deferred financing costs. The Bankruptcy Plan of Reorganization liabilities
include: (i) an initial cash payment, calculated after taking into account all
class 1 creditors, to be finalized on the date each class 2 creditor has been
determined to have an allowed claim; (ii) a 5 year note in the aggregate amount
of $2,250,000 payable to the class 2 creditors; and (iii) a 7 year note in the
aggregate amount of $575,000 payable to the class 3 creditors.

                                       10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

Certain of the information discussed in this quarterly report, and in particular
in this section entitled "Management's Discussion and Analysis or Plan of
Operation," contain forward-looking statements that involve risks and
uncertainties that might adversely affect the Company's operating results in the
future in a material way. The words "believes," "may," "likely," "expects,"
"anticipates," and similar expressions identify forward-looking statements,
which speak only as of the date the statement was made. Such forward-looking
statements are within the meaning of that term in Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements may include, but are not limited to, projections of
revenues, including sales of franchises and corporate-owned locations, income or
loss, plans for future operations, and financing needs or plans. Statements in
the Company's Annual Report on Form 10-KSB, including the Notes to the Company's
Consolidated Financial Statements and "Management Discussion and Analysis or
Plan of Operation", describe factors, among others, that could contribute to
such differences. Such factors include, without limitation, the effect of
national and regional economic and market conditions in the U.S. where the
Company franchises and operates store locations, costs of labor and employee
benefits, costs of marketing, the success or failure of marketing efforts, costs
of food and non-food items used in the operation of the Company's stores,
intensity of competition for locations and franchisees as well as customers,
perception of food safety, spending patterns and demographic trends, legal
claims and litigation, the availability of financing for the Company and its
franchisees at reasonable interest rates, and legislation and governmental
regulations affecting the Company's business. Many of these factors are beyond
the Company's control.

GENERAL

The Company was incorporated in the state of Florida in September 1997, as
Secretarial Services of Orlando, Inc. and in March 1999 changed its name to
Sports Group International, Inc. In January, 2001, the Company changed its name
to Kahala Corp. Prior to March 1999, the Company had no significant operations.
The term "Company" refers to Kahala Corp. and its subsidiaries. The Company's
common stock trades over-the-counter on the Electronic Bulletin Board under the
symbol "KAHA". From March, 1999 until January 31, 2001, the Company's common
stock traded on the over-the-counter Electronic Bulletin Board under the symbol
"SPGK."

The Company has developed its business through the following acquisitions: (i)
the Surf City Squeeze concept was acquired by the Company on March 15, 1999
through a reverse merger with Surf City Acquisition Corp. II ("SCAC"), with the
transaction being accounted for as a recapitalization of SCAC, with SCAC as the
acquirer; (ii) the Frullati Cafe and Bakery concept was acquired by the Company
on May 21, 1999 through its acquisition of 100% of Selman Systems, Inc.
("Selman") (the Company also acquired eight individual Frullati Cafe & Bakery

                                       11
<PAGE>
units through Selman's purchase of 100% of Fru-Cor, Inc. ("Fru-Cor") on July 7,
1999); (iii) the Rollerz concept was acquired during the second quarter of 2000
from a corporation owned and controlled by the Company's President and CEO (the
"Rollerz Transaction"); and (iv) the Ranch * 1 grilled chicken concept was
acquired by the Company during May, 2002 through its purchase of 100% of the
reorganized Ranch * 1, Inc ("Ranch 1") as described in more detail below. See,
RANCH * 1 FINANCING, PLAN OF REORGANIZATION, AND ACQUISITION, below. In addition
to the above-mentioned acquisitions, the Company developed the Tahi Mana concept
internally during 2000.

COMPANY OVERVIEW

The Company currently operates and franchises, under the Frullati Cafe and
Bakery, Surf City Squeeze, Rollerz, Ranch * 1 and Tahi Mana brand names
(collectively, the "Concepts"), juice bars, health food cafes, and quick service
restaurants centered around chicken products that serve a combination of the
following food products: blended fruit drinks and other hot and cold beverages,
deli sandwiches (both hot and cold), gourmet rolled sandwiches, grilled and
fried chicken sandwiches, French fries, salads (both with and without chicken),
soups, baked goods, healthy snacks, and nutritional supplements in shopping
malls, airports, medical centers, office buildings, street locations and health
clubs throughout the United States, Canada, and select Middle Eastern and
Pacific Rim countries. As of September 30, 2002, the Company, through its
subsidiaries, has approximately 257 total locations of the Concepts, the
majority of which are either franchised or licensed by third parties. Of the 257
total locations of the Concepts, 117 operate as Surf City Squeeze outlets, 89
operate as Frullati Cafe & Bakery outlets, 6 operate as Rollerz outlets, 44
operate as Ranch * 1 outlets, and 1 operates as a Tahi Mana outlet. As of
September 30, 2002, 252 of the Company's outlets were owned and operated by
third party franchisees or licensees, with the remaining five locations owned
and operated by the Company as corporate-owned locations. All of the Company's
five corporate-owned locations are Ranch * 1 units. The Company also sells
proprietary smoothie mixes, other nutrients and supplements, and various
marketing and logo products to its franchisees and licensees through its wholly
owned subsidiaries.

The stores operating under the Frullati Cafe and Bakery brand name are located
primarily in shopping malls, airports and hospitals in the midwest, southwest,
and southeastern United States. The average Frullati Cafe and Bakery store
derives approximately 60% of its total revenue from blended fruit drinks and
other beverage sales and approximately 40% from the sale of sandwiches, baked
goods, soups, salads and other healthy food items. The stores operating under
the Surf City Squeeze brand name are located in shopping malls and health clubs
primarily in California, Arizona and Canada. The average Surf City store derives
the majority of its revenue from the sale of blended fruit drinks and other
beverages, and nutrients and supplements that are added to the drinks. The
stores operating under the Rollerz brand name are located in office buildings
and shopping malls in Arizona, Texas, Illinois, New Jersey, and California. The
average Rollerz store derives approximately 75% of its total revenues from
gourmet rolled sandwiches, soups, salads, baked goods, and other healthy snacks
and approximately 25% from the sale of blended fruit drinks and other beverage
items. The stores operating under the Ranch * 1 brand name are located
predominately in shopping malls, airports, and street retail locations
throughout Manhattan, New York and the surrounding Tri-State area. The average
Ranch * 1 store derives the majority of its total revenue from the sale of
grilled and fried chicken products and the associated Ranch * 1 Famous French

                                       12
<PAGE>
Fries, including grilled and fried chicken sandwiches, salads, fajitas, chicken
fingers, and chicken rice bowls. The store operating under the Tahi Mana brand
name is located in a health club in Arizona. This Tahi Mana store derives the
majority of its revenue from the sale of blended fruit drinks and other
beverages, nutrients and supplements that are added to the drinks or can be
taken home, and healthy snacks. The Company is not currently actively promoting
or further developing its Tahi Mana brand for multiple reasons set forth in
detail in the Company's 2001 Form 10-KSB.

The Company derives its revenues primarily from area representative and
development fees, initial franchise and license fees, ongoing royalty payments,
sales from its company-owned stores, when applicable, and sales of nutritional
and health food products and related items to its franchisees and licensees. The
Company's long-term strategy is to operate primarily as a franchisor, and
through strategic acquisitions and internal growth, to become one of the larger
franchisors of juice bars, healthy food cafes, and other retail quick service
food concepts in the United States and select international markets that include
Canada, Europe, the Middle East, Australia, and certain Pacific Rim countries.
The Company's recently completed acquisition of the Ranch * 1 grilled chicken
concept discussed below is one such recently completed strategic acquisition in
furtherance of the Company's long term strategy. The Company also plans to
operate a limited number of company-owned stores in certain key markets where
the stores can be geographically concentrated. To date, the Company has only
identified the Phoenix, Arizona metropolitan area as an area where it will
operate company-owned stores.

RANCH * 1 FINANCING, PLAN OF REORGANIZATION, AND ACQUISITION

Ranch * 1, Inc., through its wholly owned subsidiaries, owns and operates and
franchises Ranch * 1 quick service restaurants that specialize in the sale of
grilled and fried chicken sandwiches and other grilled and fried chicken
products, Ranch * 1 famous fries, and other food and beverage items. Currently,
there are 44 Ranch * 1 restaurants operating in 12 states, the District of
Columbia, and Taiwan, of which 39 are franchised to third parties and the
remaining five are corporately owned. On July 3, 2001, Ranch * 1, Inc. and each
of its wholly owned subsidiaries (collectively, "Ranch 1") filed for Chapter 11
bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of
New York.

During July, 2001, the Company, through a newly formed wholly owned subsidiary,
R 1 Franchise Systems, L.L.C. ("R 1 Franchise"), entered into a
Debtor-In-Possession Loan and Security Agreement with Ranch 1 to provide up to
$2,000,000 in debtor in possession financing to Ranch 1 during the pendency of
its bankruptcy reorganization (the "Loan Agreement"). In connection with the
Loan Agreement, on July 6, 2001, the Company and R 1 Franchise entered into a
Memorandum of Agreement with the Company's largest single shareholder, the
R.E.&M. Petersen Living Trust, that provides up to $2,500,000 to R 1 Franchise
for purposes of the Loan Agreement (the "Financing Agreement").

On July 31, 2001, the U.S. Bankruptcy Court for the Southern District of New
York entered a final order (the "Final Order") approving the Loan Agreement
between Ranch 1 and R 1 Franchise. As of May 1, 2002, R 1 Franchise has advanced
Ranch 1 $1,200,000 under the Loan Agreement. Additionally, as of June 30, 2002,
R 1 Franchise has been advanced the entire $2,500,000 under the Financing
Agreement.

                                       13
<PAGE>
The Final Order also approved a joint franchise marketing agreement between
Ranch 1 and R 1 Franchise that provides for R 1 Franchise to be paid a
commission equal to 50% of the initial franchise fees and area development fees
generated from sales by R 1 Franchise of new Ranch * 1 franchises and area
development rights during the period when Ranch 1 is operating under Chapter 11
bankruptcy protection. R 1 Franchise was paid a total of $50,000 in commissions
under this franchise marketing agreement.

In January, 2002, Ranch 1, R 1 Franchise, and the Official Committee of
Unsecured Creditors in the Ranch 1 bankruptcy case jointly filed a Plan of
Reorganization (the "Plan") and related Disclosure Statement with the Court. The
Plan and Disclosure Statement provide, among other things, for R 1 Franchise to
own 100% of the reorganized Ranch 1 upon the effective date, as detailed below,
of the Plan.

On February 14, 2002, the Court informally approved the Plan and related
Disclosure Statement. A formal confirmation order was subsequently submitted to
the Court (the "Confirmation Order"). On April 4, 2002, the Court formally
executed and entered the Confirmation Order, thereby formally approving the Plan
and related Disclosure Statement. Since the Court did not formally enter the
Confirmation Order until April 4, 2002, the Plan and related Disclosure
Statement are not effective until May, 2002.

Beginning in May, 2002, in conjunction with the Plan, 100% of the equity of
Ranch 1 is owned by R 1 Franchise, a wholly owned subsidiary of the Company. The
outstanding amount under the Loan Agreement of $1,200,000 plus an additional
$1,550,000 in cash was contributed to Ranch 1 as equity. As a result, the
Company has assumed assets and liabilities under the Plan, including payments to
the creditors of Ranch 1, comprised of the following: (i) an initial cash
payment, after taking into account all class 1 creditors, to be finalized on the
date each class 2 creditor has been determined to have an allowed claim; (ii) a
5 year note in the aggregate amount of $2,250,000 to class 2 creditors; and
(iii) a 7 year note in the aggregate amount of $575,000 to class 3 creditors.

RESULTS OF OPERATIONS

Total operating revenues for the nine months ended September 30, 2002 increased
by $229,741 to $4,490,964 from $4,261,223 during the same nine month period in
2001. For the three months ended September 30, 2002, total operating revenues
increased by $598,513 to $1,956,240 from $1,357,727 during the same period of
2001. These increases in operating revenues during the nine and three months
ended September 30, 2002 is due to the inclusion of the financial results of
Ranch 1 from its May, 2002 date of acquisition by the Company to September 30,
2002 (hereinafter, the "Ranch Interim Period"), including the results of several
corporate-owned Ranch *1 units. This increase was partially offset by the
Company selling a total of eleven company-owned locations of the Concepts,
excluding Ranch * 1, to third party franchisees during 2001 (the "2001 Store
Sales"). Additionally offsetting this increase in total operating revenue,
during 2001, a total of ten under-performing corporate-owned locations of the

                                       14
<PAGE>
Concepts, excluding Ranch * 1, were closed in an effort to increase the
Company's overall profitability, six of which were closed during the nine month
period ending September 30, 2001 (collectively, the "2001 Store Closures").

Royalty revenue slightly increased to $1,693,507 for the nine months ended
September 30, 2002 compared to $1,676,611 for the same nine month period in
2001. Royalty revenue increased to $718,883 for the three months ended September
30, 2002, compared to $540,593 for the same three month period in 2001. These
increases in royalty revenue during both the nine and three month periods ending
September 30, 2002 are primarily attributable to the inclusion of Ranch 1's
operating results for the Ranch Interim Period, partially offset by the sharing
of royalties in Texas and Illinois for all of the Company's Concepts, except
Ranch * 1, under royalty financing agreements entered into in the year ended
December 31, 2001, and described in more detail in the Company's 2001 Form
10-KSB.

Cost of product sales increased to $735,553 for the nine months ended September
30, 2002, compared to $722,140 for the same nine month period in 2001. For the
three months ended September 30, 2002, cost of product sales increased to
$315,579, compared to $186,665 for the same period of 2001. These increases in
the cost of product sales are primarily due to the inclusion of the operating
results the Company's newly acquired Ranch 1 division for the Ranch Interim
Period in the Company's results for the nine and three month periods ending
September 30, 2002.

Personnel costs decreased by $157,147 to $1,599,718 for the nine months ended
September 30, 2002, compared to $1,756,865 for the same nine month period in
2001. For the three months ended September 30, 2002, personnel costs increased
by $195,837 to $705,512, compared to $509,675 for the same three month period of
2001. The decrease in personnel costs during the nine months ended September 30,
2002 is primarily attributable to the reduction in staff associated with the
2001 Store Sales and 2001 Store Closures detailed above, partially offset by the
inclusion of Ranch 1's financial results for the Ranch Interim Period and a
slight increase in the Company's corporate administrative staff to support the
additional franchisees who purchased the former corporate-owned locations of the
Concepts as part of the 2001 Store Sales. The increase in personnel costs during
the three months ended September 30, 2002 is primarily due to Ranch 1's
financial results from the Ranch Interim Period being included in the Company's
results, with Ranch 1 having a fully staffed office in New York, New York during
this time period.

Rent expense decreased by $147,929 to $521,499 for the nine months ended
September 30, 2002, compared to $669,428 for the same nine month period of 2001.
For the three months ended September 30, 2002, rent expense increased by
$103,489 to $286,359, compared to $182,870 during the same three month period of
2001. The decrease in rent expense during the nine months ended September 30,
2002 is primarily the result of the Company selling a total of eleven of its
corporate-owned locations of the Concepts, excluding Ranch * 1, during 2001 and
closing an additional ten under performing company-owned outlets of the Concepts
during 2001, partially offset by the inclusion of Ranch 1's financial results
for the Ranch Interim Period. The increase in rent expense during the three
months ended September 30, 2002 is primarily due to Ranch 1's financial results

                                       15
<PAGE>
from the Ranch Interim Period being included in the Company's results, including
the rent for all of the Ranch 1 corporate stores discussed above.

General and administrative expenses slightly increased by $34,263 to $998,452
for the nine months ended September 30, 2002, compared to $964,189 for the same
period of 2001. For the three months ended September 30, 2002, general and
administrative expenses decreased by $45,293 to $388,163, compared to $433,456
during the same three month period of 2001. The increase in general and
administrative expenses during the first nine months of 2002 is primarily
attributable to the following items: (i) an increase in travel expenses during
the first nine months of 2002 as the Company completed its acquisition of Ranch
* 1, based in New York, and assumed ownership and operational responsibility of
the corporate-owned Ranch * 1 locations, some of which are located in New York;
(ii) a increase in insurance, workers compensation, health insurance, fringe
benefits, and related overhead expenses at the individual store level due to the
Company now having five corporate-owed Ranch * 1 locations as of September 30,
2002; and (iii) an increase in professional fees during the first nine month
periods of 2002 arising from the acquisition of Ranch * 1 directly from Chapter
11 bankruptcy. The decrease in general and administrative expenses during the
three months ended September 30, 2002 is primarily attributable to a reduction
in professional fees during this three month period since the acquisition of
Ranch * 1 directly from Chapter 11 bankruptcy was completed in May, 2002.

Total other income decreased by $218,960 to $49,030 for the nine months ended
September 30, 2002, compared to $267,990 for the same nine month period of 2001.
This decrease in other income for the nine months ended September 30, 2002 is
primarily due a non-recurring gain of $300,000 recorded in the first three
months of 2001 from the sale of the Company's future royalties from the
franchisees of its Concepts, excluding Ranch * 1, in the state of Illinois to
Rilwala Foods, Inc., an area representative of the Company whose controlling
principal is Haresh Shah, a current director of the Company. The
above-referenced gain of $300,000 recorded during the first quarter of 2001 was
partially offset by a combination of the following items: (i) no losses on the
sale of assets were experienced during 2002 as the Company did not own any
locations of the Concepts as of December 31, 2001; and (ii) an increase in
interest income during the first nine months of 2002 resulting from an increased
level of notes receivable arising from the 2001 Store Sales, note receivable
acquired as part of the Ranch 1 acquisition, and the sale of various area
representative agreements during the past year which had a portion of their
purchase price represented by a promissory note. For the three month period
ended September 30, 2002, total other income decreased by $33,954 to $33,282,
compared to total other income of $67,236 during the same three month period of
2001. This decrease in total other income during the three month period ended
September 30, 2002 was a result of a combination of the following three items:
(i) no gain on the sale of assets was experienced during 2002 as the Company did
not own any locations of the Concepts as of December 31, 2001 compared to a gain
on the sale of assets recorded during the three months ended September 30, 2002
of $72,449; (ii) an increase in interest expense during the three months ended
September 30, 2002 due to interest incurred under the Financing Agreement
detailed above, the funds from which were utilized to acquire Ranch 1; and (iii)
an increase in interest income during the three months ended September 30, 2002
resulting from an increased level of notes receivable arising from the 2001
Store Sales, notes receivable acquired through the acquisition of Ranch 1, and
note receivable arising from the sale of various area representative agreements
during the past year.

                                       16
<PAGE>
With only five corporate-owned locations of the Concepts as of September 30,
2002, all of which were recently acquired as part of the Ranch * 1 acquisition,
the Company's future operating profitability has become more dependent upon
franchise and royalty revenue. It is the Company's intention to sell these
remaining five corporate-owned Ranch * 1 outlets to third party franchisees over
the next 12 months. Once these five Ranch * 1 outlets are sold to third party
franchisee, gross revenues should stabilize as the Company will have completed
its transition from corporate-owned locations to having all franchised locations
of its Concepts. The Company will continue to attempt to grow its existing
Concepts through the franchising of new locations and assisting franchisees in
increasing volumes at their existing locations.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2002, the Company's liquidity worsened compared to June 30,
2002, March 31, 2002 and December 31, 2001, but improved as compared to
September 30, 2001. The Company's current ratio is 0.89 as of September 30,
2002, compared to 0.91 as of June 30, 2002, 1.66 as of March 31, 2002, 1.11 as
of December 31, 2001 and 0.80 as of September 30, 2001. The recent reduction in
the working capital and current ratio is due primarily to the completion of the
Company's acquisition of Ranch * 1, including the assumption of certain
bankruptcy related obligations under the Plan, offset by the cash drawn on the
Company's Financing Agreement for Ranch * 1.

The Company anticipates that it will have sufficient liquidity to sustain its
operations over the next 12 months, including its obligations under Ranch * 1's
Plan discussed above and its repayment obligations under the associated
Financing Agreement. As of September 30, 2002, the balance outstanding under the
Ranch * 1 Financing Agreement was $2,404,000. In late December 1999, the Company
obtained a $1,000,000 credit facility from a national banking institution
comprised of an $800,000 term note (the "Term Note") and a $200,000 revolving
line of credit. During the first quarter of 2001, the Company entered into an
agreement with the same national banking institution to increase the amount of
its revolving line of credit from $200,000 to $500,000. Additionally, the
Company is currently negotiating with the same national banking institution to
increase its revolving line of credit by another $250,000. As of September 30,
2002, the balance outstanding under the Term Note is approximately $37,934 and
approximately $492,015 is outstanding under the $500,000 revolving line of
credit.

The Company does not anticipate the need for significant capital expenditures in
the near future. However, if certain prospective store locations would be better
as company-owned stores rather than franchised locations, the Company may
require significant capital to build-out and open those prospective stores.

During 2001, the Company continued to finance the sale of its corporate-owned
locations by taking notes receivable from the buyers. Most of the notes are
payable over three to five years. During the fourth quarter of 2001, the Company
wrote-off approximately $900,000 of its notes receivable balance due primarily
from franchisees due to uncollectibility, and established an additional reserve
for uncollectibility against its remaining notes receivable balance of
approximately $800,000. During 2002, the Company has also sold several Area
Representative Agreements for the development of the Concepts, with a

                                       17
<PAGE>
significant portion of the purchase price for these agreements usually
represented by a four to seven year promissory note. Notes receivable balances,
after the above-referenced allowance, totaled $4,295,938 at September 30, 2002.
This practice of taking notes receivable and its recent experience with
uncollectable note receivable balances has caused the Company to carefully
manage its cash flows in order to maintain relationships with vendors and meet
payments on its debt obligations. Since the Company has sold the majority of its
corporate-owned locations, it does not anticipate an increase in notes
receivable due to store sale at levels commensurate with that of the past twelve
to eighteen months. However, if the Company continues to sell Area
Representative Agreements where a significant portion of the purchase price is
deferred under a promissory note, the Company's notes receivable balance would
continue to increase at levels commensurate with the past twelve to eighteen
months.

Net cash provided by operating  activities  was  approximately  $256,973 for the
first nine months of 2002, compared to net cash used in operating  activities of
$177,959 for the corresponding nine month period of 2001. The primary sources of
cash from operating activities during the first nine months of 2002 causing this
change are as follows:  (i) net income of $641,966  during the first nine months
of 2002; and (ii) a decrease in trade and other accounts  receivable of $462,623
during the same nine  month  period of 2002 as the  Company  has  increased  the
collection  efforts on its outstanding  royalties and related  receivables  from
franchisees.  These sources of cash from operating  activities  during the first
nine months of 2002 were almost completely offset by the following uses of cash:
(i) a decrease in accounts  payable and accrued  liabilities of $556,646  during
the first nine months of 2002 as the  Company's  continues to reduce its overall
level of outstanding obligations; and (ii) a reduction in deferred franchise fee
income  of  $348,032  during  the first  nine  months  of 2002 as  multiple  new
franchise  units  opened  during the first nine months of 2002 where the initial
franchise fee or area representative fee was paid during 2001.

Net cash provided by investing activities was approximately $128,404 for the
first nine months of 2002, compared to net cash used in investing activities of
$179,558 during the comparable nine month period of 2001. The primary reasons
for this increase are as follows: (i) $1,493,963 in cash received by the Company
during the first nine months of 2002 that was held by Ranch * 1, Inc. on the
date the Company's acquisition was completed; and (ii) an overall increase in
the collections on the Company's notes receivable of approximately $418,000
during the first nine months of 2002 as compared to the same period of 2001. The
above sources of cash were partially offset by the Company contributing as
equity during the first nine months of 2002 $1,550,000 to Ranch * 1, Inc. as
part of its acquisition completed in May, 2002.

Net cash used in financing activities for the first nine months of 2002 was
approximately $466,728, compared to net cash provided by financing activities of
$283,409 during the same nine month period of 2001. The main reason for this
difference was the Company making payments of $1,230,861 on its confirmed
bankruptcy liabilities during the first nine months of 2002 due primarily to its
acquisition of Ranch 1 during May, 2002, compared to payments on confirmed
bankruptcy liabilities of only $178,830 during the same period of 2001. The
above uses of cash was partially offset by the Company borrowing an additional
$1,300,000 under the Financing Agreement during the first nine months of 2002 to
fund its advances and ultimate equity contribution to Ranch * 1, Inc. as part of
the Loan Agreement and subsequent completed acquisition of the grilled chicken

                                       18
<PAGE>
chain in May, 2002, compared to net borrowings under lines of credit and the
Financing Agreement of $958,140 during the same nine month period of 2001.

The Company believes that it can effectively implement its growth plans for the
current fiscal year's operations with the $1,000,000 credit facility, including
the newly increased $500,000 revolving line of credit, discussed above.
Nevertheless, in addition to current negotiations to increase its revolving line
of credit to $750,000, the Company is seeking additional debt or equity
financing from various sources, including investment banks, venture capitalists,
and private investors, to fund future expansion and for potential future
acquisitions.

The Company has never paid cash dividends on its common stock and does not
anticipate a change in this policy in the foreseeable future.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Factors that may affect the Company's future results are described in detail at
pages 39-40 of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2001. These factors include, without limitation, the effect of
national and regional economic and market conditions in the U.S. where the
Company franchises and operates store locations (including declining customer
traffic in airports and regional shopping malls due to the weakening United
States economy and the terrorist attacks of September 11, 2001), costs of labor
and employee benefits, costs of marketing, the success or failure of marketing
efforts, costs of food and non-food items used in the operation of the Company's
stores, intensity of competition for locations and franchisees as well as
customers, the Company's ability to negotiate favorable lease terminations with
the applicable landlords for the locations covered by the 2001 Store Closures,
perception of food safety, spending patterns and demographic trends, legal
claims and litigation, the availability of financing for the Company and its
franchisees at reasonable interest rates, the Company's ability to integrate the
Ranch * 1 concept with its four existing brands, and legislation and
governmental regulations affecting the Company's business. Many of these factors
are beyond the Company's control. Due to the factors noted above and in the
Company's Form 10-KSB for the year ended December 31, 2001, the Company's future
earnings and stock price may be subject to significant volatility. Any shortfall
in revenues or earnings from levels expected by the investing public or
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock.

ITEM 3. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our annual and periodic
reports filed with the SEC is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. These disclosure
controls and procedures are further designed to ensure that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure.

Based on the most recent evaluation, which was completed within 90 days of the
filing of this report, our chief executive officer and chief financial officer
believe that our disclosure controls and procedures are effective. There have
been no significant changes in our internal controls or in other factors that
could significantly affect the internal controls subsequent to the date we
completed our evaluation.


                                       19
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

NONE - The Company is party to several pending legal proceedings involving
primarily landlords and vendors, all of which are deemed by the management of
the Company to be ordinary and routine litigation incidental to the business,
and none of which is believed likely to have a material adverse effect on the
Company, its financial position or operations. SEE LIQUIDITY AND CAPITAL
RESOURCES - RISK FACTORS, in the Company's 2001 Form 10-KSB for additional
information on the number and status of the legal proceedings involving
landlords.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

NONE

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5. OTHER INFORMATION

RANCH * 1 ACQUISITION:

On April 4, 2002, the Court formally executed and entered the Confirmation
Order, thereby formally approving Ranch * 1's Plan and related Disclosure
Statement. Due to the Confirmation Order being entered on April 4, 2002, the
Company, through its R 1 Franchise subsidiary, owns one hundred percent (100%)
of the reorganized Ranch * 1 and its wholly-owned subsidiaries effective May,
2002.

SUSPENSION OF DIVIDEND ON PREFERRED SHARES:

At its regular meeting in April, 2002, the Company's Board of Directors approved
the suspension of the quarterly dividends payable on all three of the Company's
outstanding classes of preferred stock effective December 1, 2001 until further
notice. Since inception, the dividend on all three classes of the Company's
preferred stock had been paid in shares of the Company's common stock.
Simultaneous with the Board of Director's action, the holders of the Company's
Series A, B, and C preferred stock each waived the cumulative feature of their
preferred shares during this dividend suspension period.

                                       20
<PAGE>
INDEPENDENT DIRECTOR RESIGNATION:

On August 2, 2002, Philip Trimbach, an independent director since December 12,
2001, resigned from the Company's Board of Directors. In his resignation notice
furnished to the Company, Mr. Trimbach noted that his resignation from the
Company's Board of Directors was solely for personal reasons, and was not a
result of any direct or indirect disagreement with the Company on any matter
relating to the Company's operations, policies or practices. The Company plans
to fill the vacancy on its Board of Directors left by Mr. Trimbach's resignation
at its next annual meeting of shareholders in December, 2002.

                                       21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     EXHIBIT NUMBER      DESCRIPTION
     --------------      -----------

         2.1             Order Confirming First Modified Joint Plan of
                         Reorganization Proposed by the Debtor and the Official
                         Committee of Unsecured Creditors, incorporated by
                         reference to the Company's Registration Statement on
                         Form 10-SB filed with the Securities and Exchange
                         Commission on December 20, 1999, File No. 0-30444.

         2.2             First Modified Joint Plan of Reorganization Proposed by
                         the Debtor and the Official Committee of Unsecured
                         Creditors dated May 13, 1997, as amended July 22, 1997,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         2.3             Amended Disclosure Statement accompanying First
                         Modified Joint Plan of Reorganization Proposed by the
                         Debtor and the Official Committee of Unsecured
                         Creditors dated May 13, 1997, as amended July 22, 1997,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         2.4             Share Purchase Agreement between Sports Group
                         International, Inc. and Surf City Acquisition
                         Corporation II dated March 15, 1999, incorporated by
                         reference to the Company's Registration Statement on
                         Form 10-SB filed with the Securities and Exchange
                         Commission on December 20, 1999, File No. 0-30444.

         2.5             Membership Interest Purchase Agreement between Sports
                         Group International, Inc. and Apache Peak Capital,
                         L.LC., dated March 12, 1999, incorporated by reference
                         to the Company's Registration Statement on Form 10-SB
                         filed with the Securities and Exchange Commission on
                         December 20, 1999, File No. 0-30444.

                                       22
<PAGE>
         2.6             Share Purchase Agreement between Sports Group
                         International, Inc., Ziad S. Dalal and Selman Systems,
                         Inc. dated May 21, 1999, incorporated by reference to
                         the Company's Registration Statement on Form 10-SB
                         filed with the Securities and Exchange Commission on
                         December 20, 1999, File No. 0-30444.

         2.7             Stock Purchase Agreement between Selman Systems, Inc.,
                         Kenneth L. Musgrave, Ltd., Tony Condor and Larry Pearce
                         dated May 21, 1999, incorporated by reference to the
                         Company's Registration Statement on Form 10-SB filed
                         with the Securities and Exchange Commission on December
                         20, 1999, File No. 0-30444.

         3.1             Amended and Restated Articles of Incorporation of
                         Sports Group International, Inc., incorporated by
                         reference to the Company's Registration Statement on
                         Form 10-SB filed with the Securities and Exchange
                         Commission on December 20, 1999, File No. 0-30444.

         3.2             Bylaws of Sports Group International, Inc.,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         3.3             Articles of Amendment to the Company's Articles of
                         Incorporation filed December 28, 2000 Changing the
                         Company's Name to Kahala Corp. and Creating the Series
                         C Preferred Stock, incorporated by reference to the
                         2001 Annual Report filed on Form 10-KSB with the
                         Securities and Exchange Commission on April 15, 2002,
                         File No. 0-30444.

         3.4             Articles of Amendment to the Company's Articles of
                         Incorporation filed December 12, 2001 Adjusting the
                         Conversion Ratio of the Company's Series A & B
                         Preferred Stock, incorporated by reference to the 2001
                         Annual Report filed on Form 10-KSB with the Securities
                         and Exchange Commission on April 15, 2002, File No.
                         0-30444.

         4.1             Promissory Note with United Texas Bank, incorporated by
                         reference to the Company's Registration Statement on
                         Form 10-SB filed with the Securities and Exchange
                         Commission on December 20, 1999, File No. 0-30444.

                                       23
<PAGE>
         4.2             Bank One Promissory Note, incorporated by reference to
                         the Company's Registration Statement on Form 10-SB
                         filed with the Securities and Exchange Commission on
                         December 20, 1999, File No. 0-30444.

         4.3             Promissory Note between SCAC and the Petersen Trust,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         4.4             Consent and Waiver of Terms of Series A Preferred
                         Stock, incorporated by reference to the Company's
                         Registration Statement on Form 10-SB filed with the
                         Securities and Exchange Commission on December 20,
                         1999, File No. 0-30444.

         10.1            Sports Group International, Inc.'s 1999 Stock Option
                         Plan, incorporated by reference to the Company's
                         Registration Statement on Form 10-SB filed with the
                         Securities and Exchange Commission on December 20,
                         1999, File No. 0-30444.

         10.2            Employment Agreement between Mr. Kevin A. Blackwell and
                         Sports Group International, Inc. dated October 1, 1999,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         10.3            Employment Agreement between Mr. David A. Guarino and
                         Sports Group International, Inc. dated October 1, 1999,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         10.4            Series B Preferred Stock and Warrant Purchase Agreement
                         between Sports Group International, Inc., Robert E.
                         Petersen and Margaret Petersen dated May 20, 1999,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

                                       24
<PAGE>
         10.5            Warrant to purchase 1,000,000 shares of the Company's
                         Common Stock, incorporated by reference to the
                         Company's Registration Statement on Form 10-SB filed
                         with the Securities and Exchange Commission on December
                         20, 1999, File No. 0-30444.

         10.6            Master Franchise Agreement between Surf City Squeeze
                         Franchise Corp. and 1238176 Ontario, Inc. dated July 7,
                         1998, incorporated by reference to the Company's
                         Registration Statement on Form 10-SB filed with the
                         Securities and Exchange Commission on December 20,
                         1999, File No. 0-30444.

         10.7            Indemnification Agreement for Kathryn Blackwell,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         10.8            Indemnification Agreement for Kevin Blackwell,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         10.9            Indemnification Agreement for David Guarino,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         10.10           Indemnification Agreement for Robert Corliss,
                         incorporated by reference to the Company's Registration
                         Statement on Form 10-SB filed with the Securities and
                         Exchange Commission on December 20, 1999, File No.
                         0-30444.

         10.11           Indemnification Agreement for Don Plato, incorporated
                         by reference to the Company's Registration Statement on
                         Form 10-SB filed with the Securities and Exchange
                         Commission on December 20, 1999, File No. 0-30444.

         10.12           Compromise Settlement and Non-Modification Agreement
                         between Sports Group International, Inc., Selman
                         Systems, Inc., and Ziad S. Dalal, dated February 1,
                         2000, incorporated by reference to the Company's
                         Amendment No. 1 to its Form 10-SB/A Registration
                         Statement filed with the Securities and Exchange
                         Commission on February 16, 2000.

                                       25
<PAGE>
         10.13           Series C Preferred Stock Agreement between Sports Group
                         International, Inc. and Rilwala Group, Inc. dated
                         December 28, 2000, incorporated by reference to Exhibit
                         10.13 of the Company's 2000 Annual Report on Form
                         10-KSB filed with the Securities and Exchange
                         Commission on April 2, 2001, File No. 000-30444.

         10.14           Exclusive Master Development Agreement and Investment
                         Agreement between Sports Group International, Inc. and
                         Rilwala Group, Inc. dated November 1, 2000,
                         incorporated by reference to the Company's 2000 Annual
                         Report on Form 10-KSB filed with the Securities and
                         Exchange Commission on April 2, 2001, File No.
                         000-30444.

         10.15           Debtor-In-Possession Loan and Security Agreement by and
                         between R 1 Franchise Systems, L.L.C. and Ranch * 1,
                         Inc (and its affiliated entities) dated July 5, 2001,
                         incorporated by reference to the Company's Quarterly
                         Report on Form 10-QSB filed with the Securities and
                         Exchange Commission on August 14, 2001, File No.
                         000-30444.

         10.16           Final Order Entered by the United States Bankruptcy
                         Court for the Southern District of New York Authorizing
                         Ranch 1, Inc. (and its affiliated entities) to Obtain
                         Post-Petition Secured Financing Pursuant to Sections
                         364(C)(1), 364(C)(2) and 364(C)(3) of the Bankruptcy
                         Code, and Approving Joint Franchise Marketing
                         Agreement, incorporated by reference to the Company's
                         Quarterly Report on Form 10-QSB filed with the
                         Securities and Exchange Commission on August 14, 2001,
                         File No. 000-30444.

         10.17           Memorandum of Agreement by and between Kahala Corp., R
                         1 Franchise Systems, L.L.C. (fka Ranch * 1 Acquisition,
                         L.L.C.), and the RE&M Petersen Trust dated July 6,
                         2001, incorporated by reference to the 2001 Annual
                         Report filed on Form 10-KSB with the Securities and
                         Exchange Commission on April 15, 2002, File No.
                         0-30444.

                                       26
<PAGE>
         10.18           Plan of Reorganization Jointly Proposed By The Debtors,
                         The Official Committee of the Unsecured Creditors and R
                         1 Franchise Systems, LLC Filed With the United States
                         Bankruptcy Court for the Southern District of New York,
                         incorporated by reference to the 2001 Annual Report
                         filed on Form 10-KSB with the Securities and Exchange
                         Commission on April 15, 2002, File No. 0-30444.

         10.19           First Amended Disclosure Statement Pursuant to Section
                         1125 of the Bankruptcy Code for the Joint Plan of
                         Reorganization of Ranch * 1, Inc. and the Other
                         Above-Captioned Debtors and Debtors-In-Possession Filed
                         With the United States Bankruptcy Court for the
                         Southern District of New York, incorporated by
                         reference to the 2001 Annual Report filed on Form
                         10-KSB with the Securities and Exchange Commission on
                         April 15, 2002, File No. 0-30444.

         10.20           Continuing Royalty Fee Agreement by and between Kahala
                         Corp., Malibu Smoothie Franchise Corp., Frullati
                         Franchise Systems, Inc., Rollerz Franchise Systems,
                         LLC, Tahi Mana, LLC, and R. B. Texas Collections, Inc.
                         dated December 13, 2001, incorporated by reference to
                         the 2001 Annual Report filed on Form 10-KSB with the
                         Securities and Exchange Commission on April 15, 2002,
                         File No. 0-30444.

         10.21           Order Confirming Plan of Reorganization Jointly Filed
                         by the Debtors, the Official Committee of Unsecured
                         Creditors and R 1 Franchise Systems, L.L.C.,
                         incorporated by reference to the 2001 Annual Report
                         filed on Form 10-KSB with the Securities and Exchange
                         Commission on April 15, 2002, File No. 0-30444.

         11*             Computation of Per Share Earnings - Located in the
                         September 30, 2002 Statement of Operations and footnote
                         four to such financial statement filed herewith on page
                         four and nine, respectively.

         21              Subsidiary Information. (See Chart), incorporated by
                         reference to the Company's Registration Statement on
                         Form 10-SB filed with the Securities and Exchange
                         Commission on December 20, 1999, File No. 0-30444.

                                       27
<PAGE>
         99.1            Certification of Chief Executive Officer to June 30,
                         2002 Quarterly Report Pursuant to Section 906 of the
                         Sarbanes-Oxley Act of 2002, incorporated by reference
                         to the Company's Quarterly Report on Form 10-QSB filed
                         with the SEC on August 19, 2002, File No. 000-30444.

         99.2            Certification of Chief Financial Officer to June 30,
                         2002 Quarterly Report Pursuant to Section 906 of the
                         Sarbanes-Oxley Act of 2002, incorporated by reference
                         to the Company's Quarterly Report on Form 10-QSB filed
                         with the SEC on August 19, 2002, File No. 000-30444.

         99.3*           Certification of Chief Executive Officer to September
                         30, 2002 Quarterly Report Pursuant to Section 906 of
                         the Sarbanes-Oxley Act of 2002.

         99.4*           Certification of Chief Financial Officer to September
                         30, 2002 Quarterly Report Pursuant to Section 906 of
                         the Sarbanes-Oxley Act of 2002.

         ----------
         *    Filed herewith.

(b)  Reports on Form 8-K

NONE

                                       28
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


KAHALA CORP.
(Registrant)


By: /s/ Kevin Blackwell                                  Date: November 14, 2002
    ---------------------------------
    Kevin Blackwell
    Chairman, CEO, and Director


By: /s/ David Guarino                                    Date: November 14, 2002
    ---------------------------------
    David Guarino
    Vice President, Chief Financial Officer, and Director
    (Principal Financial and Accounting Officer)

                                       29
<PAGE>
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

     I, Kevin Blackwell, the Chairman and Chief Executive Officer of Kahala
Corp., certify that:

     1.   I have reviewed this quarterly report on Form 10-QSB of Kahala Corp.;

     2.   Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          a)   designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

          c)   presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

          a)   all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;

     6.   The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002


                                        /s/ Kevin Blackwell
                                        ----------------------------------------
                                        Chairman, CEO & Director

                                       30
<PAGE>
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

     I, David Guarino, the Vice-President and Chief Financial Officer of Kahala
Corp., certify that:

     1.   I have reviewed this quarterly report on Form 10-QSB of Kahala Corp.;

     2.   Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

     3.   Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

          a)   designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

          c)   presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

          a)   all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls;

     6.   The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002.


                                        /s/ David Guarino
                                        ----------------------------------------
                                        Vice President & Chief Financial Officer

                                       31