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 June 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 August 14, 2002 was 22,317,875 shares.
<PAGE>
                                  KAHALA CORP.

                           Quarter Ended June 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

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....................................21

SIGNATURES....................................................................27

                                       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 June 30, 2002 and the Company's results of operations for the six and
three months ended June 30, 2002 and 2001 and statement of cash flows for the
six months ended June 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
JUNE 30, 2002 (UNAUDITED)

ASSETS
CURRENT ASSETS
  Cash                                                             $  1,804,817
  Trade and other accounts receivable, net of allowance                 534,426
  Inventories                                                           226,909
  Prepaid expenses and other assets                                     161,767
  Deferred income taxes                                                  96,782
  Notes receivable - current portion, net of allowance                  165,642
                                                                   ------------
     Total current assets                                             2,990,343

PROPERTY AND EQUIPMENT, net                                             628,824

LEASE DEPOSITS                                                          363,393

NOTES RECEIVABLE - less current portion                               2,547,930

GOODWILL, net of accumulated amortization of $439,484                11,175,770

DEFERRED INCOME TAXES                                                 1,127,778

                                                                   ------------

TOTAL ASSETS                                                       $ 18,834,038
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                 $    348,021
  Accrued liabilities                                                 1,208,493
  Line of credit                                                        589,015
  Notes payable - current portion                                       486,235
  Confirmed bankruptcy liabilities - current portion                    655,650
                                                                   ------------
     Total current liabilities                                        3,287,414

NOTES PAYABLE - long-term portion                                     3,422,299

CONFIRMED BANKRUPTCY LIABILITIES - long term portion                  5,330,212

DEFERRED FRANCHISE FEE INCOME                                           711,028
                                                                   ------------
     Total liabilities                                               12,750,953
                                                                   ------------

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                                               (14,430,020)
                                                                   ------------
     Total stockholders' equity                                       6,083,085
                                                                   ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 18,834,038
                                                                   ============

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

<TABLE>
<CAPTION>
                                               Six Months Ended June 30,      Three Months Ended June 30,
                                              ----------------------------    ----------------------------
                                                  2002            2001            2002            2001
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
REVENUES:
  Net product and store sales                 $  1,013,368    $  1,283,431    $    676,838    $    597,242
  Franchise fees                                   479,532         397,250         369,532         169,500
  Royalties                                        974,625       1,136,018         554,764         641,327
  Rental income                                     67,200          86,797          35,200          38,399
                                              ------------    ------------    ------------    ------------
     Total revenues                              2,534,725       2,903,496       1,636,334       1,446,468
                                              ------------    ------------    ------------    ------------

EXPENSES:
  Cost of product sales                            419,974         535,475         272,150         260,392
  Personnel expenses                               894,206       1,247,190         564,954         653,113
  Rent                                             235,141         486,558         150,280         196,897
  Depreciation and amortization                     22,995         184,821          15,069          84,188
  General and administrative expenses              610,289         530,733         382,330         192,946
                                              ------------    ------------    ------------    ------------
      Total expenses                             2,182,605       2,984,777       1,384,783       1,387,536
                                              ------------    ------------    ------------    ------------

OPERATING INCOME (LOSS)                            352,120         (81,281)        251,551          58,932
                                              ------------    ------------    ------------    ------------

OTHER (INCOME) AND EXPENSES
  Interest expense                                  58,888          70,025          38,441          32,348
  Interest income                                  (74,635)        (50,453)        (37,438)        (24,787)
  Gain on Sale of Royalty Stream                        --        (300,000)             --              --
  Gain on Sale of Assets                                --          79,674              --          41,813
                                              ------------    ------------    ------------    ------------

  Total other (income) expense                     (15,747)       (200,754)          1,003          49,374
                                              ------------    ------------    ------------    ------------

INCOME BEFORE INCOME TAXES                         367,867         119,473         250,548           9,558

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

NET INCOME (LOSS)                             $    367,867    $    119,473    $    250,548    $      9,558
                                              ============    ============    ============    ============

NET (LOSS) PER SHARE:
  Basic                                       $       0.02    $      (0.04)   $       0.01    $      (0.02)
                                              ============    ============    ============    ============

  Diluted                                     $       0.02    $      (0.04)   $       0.01    $      (0.02)
                                              ============    ============    ============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  Basic                                         22,317,875      14,468,458      22,317,875      15,367,973
                                              ============    ============    ============    ============

  Diluted                                       38,091,542      14,468,458      38,091,542      15,367,973
                                              ============    ============    ============    ============
</TABLE>

                                       4
<PAGE>
KAHALA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   2002           2001
                                                                -----------    -----------
<S>                                                             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net  Income (loss)                                            $   367,867    $   119,473
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  Depreciation and amortization                                      22,995        184,821
  Loss (Gain) on sale of assets                                          --         79,674
  Changes in assets and liabilities (net of acquisiton):
    Trade and other accounts receivable                             107,185         34,152
    Inventories                                                     (11,978)        16,292
    Prepaids and other current assets                               (23,026)       (37,041)
    Accounts payable                                                (61,215)       (58,054)
    Accrued liabilities                                            (177,084)      (385,433)
    Deferred franchise fee income                                  (324,032)      (224,000)
                                                                -----------    -----------
          Net cash provided by (used in) operating activities       (99,288)      (270,116)
                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                                      --       (174,830)
Cash acquired in business acquistion                              1,493,961
Purchase of business                                             (1,300,000)
Financing of notes receivable                                      (550,000)            --
Collections on notes receivable                                     356,171        220,253
Proceeds from sale of property and equipment                             --        166,509
                                                                -----------    -----------
          Net cash provided by (used in)  investing activities          132        211,932
                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit                               --        455,401
Proceeds from borrowings on notes payable                         1,300,000             --
Principal repayments on notes payable                              (338,739)      (337,385)
Payments on confirmed bankruptcy liabilities                        (58,556)      (110,254)
                                                                -----------    -----------
          Net cash provided by (used in) financing activities       902,705          7,762
                                                                -----------    -----------

INCREASE (DECREASE) IN CASH                                         803,549        (50,422)

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

CASH, END OF PERIOD                                             $ 1,804,817    $    49,463
                                                                ===========    ===========
</TABLE>

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

                                                            2002          2001
                                                          --------      --------
SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                           $ 58,888      $ 40,429
                                                          ========      ========

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

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:

Common stock issued as preferred stock dividends          $     --      $680,500
                                                          ========      ========

Sale of property & equipment under notes receivable       $     --      $468,176
                                                          ========      ========

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

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements represent the financial position
of Kahala Corp. (the Company) as of June 30, 2002, including our results of
operations for the six and three months ended June 30, 2002 and 2001 and cash
flows for the six months ended June 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 six and three months ended June
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.
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"). 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 in 2002, which 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 June 30, 2002. Amortization expense for the six month and
three month periods ended June 30, 2001 was $139,502 and $69,751, 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 June 30, 2002 and 2001 consisted of the following:

                                    SIX MONTHS ENDED       THREE MONTHS ENDED
                                         JUNE 30,                JUNE 30,
                                  ---------------------   ---------------------
                                     2002        2001        2002        2001
                                  ---------   ---------   ---------   ---------
Current tax (benefit) provision   $ 142,021   $  45,391   $  99,212   $   3,989
Deferred tax (benefit) provision   (142,021)    (45,391)    (99,212)     (3,989)
                                  ---------   ---------   ---------   ---------
Total income tax provision        $      -0-   $     -0-  $      -0-  $     -0-
                                  =========   =========   =========   =========

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 six months ended June 30, 2002 in
arriving at the net income available to common shareholders. For the period
ended June 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 June
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.

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED JUNE 30,
                                -----------------------------------------------------------------------
                                               2002                                  2001
                                ---------------------------------     ---------------------------------
                                 Income                     Per        Income                     Per
                                 (Loss)        Shares      share       (Loss)        Shares      share
                                ---------    ----------    ------     ---------    ----------    ------
<S>                             <C>          <C>           <C>        <C>          <C>           <C>
Net (Loss) Income               $ 367,867                             $ 119,473
Preferred stock dividends              --                              (680,500)

BASIC EARNINGS PER SHARE

Income (Loss) available to
  common stockholders           $ 367,867    22,317,875    $ 0.02     $(561,027)   14,001,541    $(0.04)

Effect of dilutive securities                15,773,667                     N/A

DILUTED EARNINGS PER SHARE      $ 367,867    38,091,542    $ 0.01                                $(0.04)
</TABLE>

                                       9
<PAGE>
<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED JUNE 30,
                                -----------------------------------------------------------------------
                                               2002                                  2001
                                ---------------------------------     ---------------------------------
                                 Income                     Per        Income                     Per
                                 (Loss)        Shares      share       (Loss)        Shares      share
                                ---------    ----------    ------     ---------    ----------    ------
<S>                             <C>          <C>           <C>        <C>          <C>           <C>
Net (Loss) Income               $ 250,548                             $   9,559
Preferred stock dividends              --                              (346,250)

BASIC EARNINGS PER SHARE

Income (Loss) available to
  common stockholders           $ 250,548    22,317,875    $ 0.01     $(336,931)   15,367,973    $(0.02)

Effect of dilutive securities                15,773,667                     N/A

DILUTED EARNINGS PER SHARE      $ 250,548    38,091,542    $ 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; (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 in 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 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 June 30, 2002, the Company, through its subsidiaries, has approximately
263 total locations of the Concepts, the majority of which are either franchised
or licensed by third parties. Of the 263 total locations of the Concepts, 116
operate as Surf City Squeeze outlets, 92 operate as Frullati Cafe & Bakery
outlets, 6 operate as Rollerz outlets, 48 operate as Ranch * 1 outlets, and 1
operates as a Tahi Mana outlet. As of June 30, 2002, 256 of the Company's
outlets were owned and operated by third party franchisees or licensees, with
the remaining seven locations owned and operated by the Company as
corporate-owned locations. All of the Company's seven corporate-owned locations
are Ranch * 1units. 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
chicken products and the associated Ranch * 1

                                       12
<PAGE>
Famous French Fries, including grilled 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 chicken sandwiches and other grilled chicken products, Ranch * 1 famous
fries, and other food and beverage items. Currently, there are 48 Ranch * 1
restaurants operating in 12 states, the District of Columbia, and Taiwan, of
which 41 are franchised to third parties and the remaining seven 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 six months ended June 30, 2002 decreased by
$368,771 to $2,534,725 from $2,903,496 during the same six month period in 2001.
For the three months ended June 30, 2002, total operating revenues increased by
$189,866 to $1,636,334 from $1,446,468 during the same period of 2001. This
increase in operating revenues during the three months ended June 30, 2002 is
due to the inclusion of the financial results of Ranch 1 from the date of
acquisition to June 30, 2002 (hereinafter, the "Ranch Interim Period"),
including the results of the seven corporate-owned Ranch *1 units. This increase
was partially offset by the Company selling six company-owned locations of the
Concepts, excluding Ranch * 1, to third party franchisees during the six month
period July 1, 2001 until December 31, 2001 (the "2001 Store Sales").
Additionally, during 2001, a total of ten under-performing corporate-owned
locations of the Concepts,

                                       14
<PAGE>
excluding Ranch * 1, were closed in an effort to increase the Company's overall
profitability, six of which were closed during the six month period ending June
30, 2001 (collectively, the "2001 Store Closures"). The decrease in operating
revenues during the six months ended June 30, 2002 is due to the operating
revenue for the six months ended June 30, 2001 including a non-recurring
$300,000 of royalty income from a purchase closing in March, 2001 of the
Company's future royalties from the franchisees of its Concepts, excluding Ranch
* 1, in the state of Illinois by Rilwala Foods, Inc., an area representative of
the Company whose controlling principal is Haresh Shah, a current director of
the Company ("Illinois Royalty Transaction").

Royalty revenue decreased to $974,625 for the six months ended June 30, 2002
compared to $1,136,018 for the same six month period in 2001. Royalty revenue
decreased to $554,764 for the three months ended June 30, 2002, compared to
$641,327 for the same three month period in 2001. Even though the Company has a
greater number of franchised units in 2002, the decrease is attributable
primarily to the sharing of royalties in Texas and under the Illinois Royalty
Transaction 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 decreased to $419,974 for the six months ended June 30,
2002, compared to $535,475 for the same six month period in 2001. For the three
months ended June 30, 2002, cost of product sales were relatively unchanged at
$272,150, compared to $260,392 for the same period of 2001. This decrease during
the six months ended June 30, 2002 was primarily due to the 2001 Store Sales and
the 2001 Store Closures whereby the Company reduced the number of its
corporate-owned locations of the Concepts, excluding Ranch * 1, by a total of
ten units during the period July 1, 2001 to December 31, 2001, as discussed in
the preceding paragraph. This decrease was partially offset by 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 six and three month
periods ending June 30, 2002.

The gross margin of store and product revenues slightly increased to
approximately 59% for the six months ended June 30, 2002, compared to
approximately 58% for the six months ended June 30, 2001. Additionally, the
gross margin of store and product revenues increased to approximately 60% for
the three months ended June 30, 2002, compared to approximately 56% for the same
three month period of 2001. These minimal increases in gross margin are
attributable to the Company's revenues for the six and three months ending June
30, 2002 including the revenues from seven corporate-owned Ranch * 1 units
during the Ranch Interim Period, where gross margins are routinely higher than
the margins from raw materials and related supplies sold by the Company's Kona
and Tovali subsidiaries to third party franchisees and licensees.

Personnel costs decreased by $352,984 to $894,206 for the six months ended June
30, 2002, compared to $1,247,190 for the same six month period in 2001. For the
three months ended June 30, 2002, personnel costs decreased by $88,159 to
$564,954, compared to $653,113 for the same three month period of 2001. These
decreases in personnel costs are primarily attributable to the reduction in

                                       15
<PAGE>
staff associated with the 2001 Store Sales and 2001 Store Closures detailed
above, partially offset by the inclusion of the 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.

Rent expense decreased by $251,417 to $235,141 for the six months ended June 30,
2002, compared to $486,558 for the same six month period of 2001. For the three
months ended June 30, 2002, rent expense decreased by $46,617 to $150,280,
compared to $196,897 during the same three month period of 2001. These decreases
in rent expense during the six and three months ended June 30, 2002 is primarily
the result of the Company selling a total of six of its corporate-owned
locations of the Concepts, excluding Ranch * 1, during the period from July 1,
2001 through December 31, 2001, and closing an additional ten under performing
company-owned outlets of the Concepts during 2001.

General and administrative expenses increased by $79,556 to $610,289 for the six
months ended June 30, 2002, compared to $530,733 for the same period of 2001.
For the three months ended June 30, 2002, general and administrative expenses
increased by $189,384 to $382,330, compared to only $192,946 during the same
three month period of 2001. These increases in general and administrative
expenses are primarily attributable to the following items: (i) an increase in
travel expenses during the first six and three months of 2002 as the Company
completed its acquisition of Ranch * 1, based in New York, and assumed ownership
and operational responsibility of seven corporate-owned Ranch * 1 locations,
four 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 seven corporate-owed
Ranch * 1 locations as of June 30, 2002; and (iii) an increase in professional
fees during the first six and three month periods of 2002 arising from the
acquisition of Ranch * 1 directly from Chapter 11 bankruptcy.

Total other income decreased by $185,007 to $15,747 for the six months ended
June 30, 2002, compared to $200,754 for the same six month period of 2001. This
decrease in other income for the six months ended June 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 three items: (i) no loss on the sale of assets experienced during 2002
as the Company did not own any locations of the Concepts as of December 31,
2001; (ii) a reduction in interest expense during the first six months of 2002
due a reduction in the Company's overall level of indebtedness and historically
low interest rates; and (iii) an increase in interest income during the first
six months of 2002 resulting from an increased level of notes receivable arising
from the 2001 Store Sales and the sale of various area representative agreements
during the past year. For the three month period ended June 30, 2002, total
other expense decreased by $48,371 to $1,003, compared to total other expense of
$49,374 during the same three month period of 2001. This decrease in total other
expense during the three month period ended June 30, 2002 was a result of a
combination of the following three items: (i) no loss on the sale of assets

                                       16
<PAGE>
experienced during 2002 as the Company did not own any locations of the Concepts
as of December 31, 2001; (ii) a reduction in interest expense during the three
months ended June 30, 2002 due to a reduction in the Company's overall level of
indebtedness and historically low interest rates; and (iii) an increase in
interest income during the three months ended June 30, 2002 resulting from an
increased level of notes receivable arising from the 2001 Store Sales and the
sale of various area representative agreements during the past year.

With only seven corporate-owned locations of the Concepts as of June 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 all seven
of these corporate-owned Ranch * 1 outlets to third party franchisees over the
next 12 months. Once these seven 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 June 30, 2002, the Company's liquidity declined compared to March 31, 2002
and December 31, 2001, but improved as compared to June 30, 2001. The Company's
current ratio is 0.91 as of June 30, 2002, compared to 1.66 as of March 31,
2002, 1.11 as of December 31, 2001 and 0.77 as of June 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 June 30, 2002, the balance outstanding under the
Ranch * 1 Financing Agreement was $2,450,000. 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 June 30, 2002,
the balance outstanding under the Term Note is approximately $112,447 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.

                                       17
<PAGE>
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. Notes receivable balances, after this allowance, totaled
2,713,572 at June 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 at levels commensurate with that of the past twelve
to eighteen months.

Net cash used in operating activities was approximately $99,288 for the first
six months of 2002, compared to net cash used in operating activities of
$270,116 for the corresponding six month period of 2001. The primary sources of
cash from operating activities during the first six months of 2002 causing this
change are as follows: (i) net income of $367,867 during the first six months of
2002; and (ii) a decrease in trade and other accounts receivable of $107,185
during the same six 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
six months of 2002 were completely offset by the following uses of cash: (i) a
decrease in accounts payable and accrued liabilities of $238,299 during the
first six 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 $324,032 during the first six months of 2002 as multiple new franchise
units opened during the first six months of 2002 where the initial franchise fee
or area representative fee was paid during 2001.

Net cash provided by investing activities was approximately $132 for the first
six months of 2002, compared to net cash provided by investing activities of
$211,932 during the comparable six month period of 2001. The primary reasons for
this decrease are as follows: (i) the Company advancing Ranch * 1, Inc. $550,000
during the first six months of 2002 under the Loan Agreement; and (ii) the
Company contributing as equity $1,300,000 to Ranch * 1, Inc. as part of its
acquisition completed in May, 2002. These uses of cash were completely offset by
the following: (i) $1,493,961 in cash received by the Company during the first
six 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 during the same period.

Net cash provided by financing activities for the first six months of 2002 was
approximately $902,705, compared to net cash provided by financing activities of
$7,762 during the same six month period of 2001. The primary reason for this
increase was the Company borrowing an additional $1,300,000 under the Financing
Agreement during the first six 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 chain in May, 2002.

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

                                       18
<PAGE>
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.

                                       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.

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.

                                       20
<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.

                                       21
<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.

                                       22
<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.

                                       23
<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

                                       24
<PAGE>
                              10-SB/A Registration Statement filed with the
                              Securities and Exchange Commission on February 16,
                              2000.

               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.

                                       25
<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
                              June 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.

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

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

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

     (b)  Reports on Form 8-K

On May 16, 2002, the Company filed a Current Report on Form 8-K to report under
Item 2 the acquisition of one hundred percent (100%) of the equity of the
reorganized Ranch * 1, Inc. and its wholly-owned subsidiaries. The Company
intends to file an amendment to this Current Report on Form 8-K to include the
required Supplementary Consolidated Financial Statements required under the
report.

                                       26
<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: August 19, 2002
    -----------------------------------
    Kevin Blackwell
    President, CEO, and Director


By: /s/ David Guarino                             Date: August 19, 2002
    -----------------------------------
    David Guarino
    Vice President, Chief Financial Officer, and Director
    (Principal Financial and Accounting Officer)

                                       27