As filed with the Securities and Exchange Commission on December ____ 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Cafe Britt Coffee Corporation
(Exact Name of Registrant as specified in its charter)
Cafe Britt Coffee Corporation
(Translation of Registrant's name into English)
- --------------------------------------------------------------------------------
Curacao
- --------------------------------------------------------------------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code) Number)
organization)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Heredia, Costa Rica, (506) 261-0707
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Eric P. Littman, Esquire
- --------------------------------------------------------------------------------
7695 S.W.104th Street, Suite 210, Miami, FL 33156 (305) 663-3333
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
- --------------------------------------------------------------------------------
Approximate date of proposed sale to the public: As soon as practicable after
the registration statement becomes effective.
If any of the securities being registered on this from are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462 under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement of the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8 (a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8 (a), may determine.
1
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of each Proposed Proposed
class of maximum maximum
securities Amount offering aggregate Amount of
to be to be price offering registration
registered (1) registered per unit price fee (2)
- --------------------------------------------------------------------------------
Common 10,000,000 $5.00 $50,000,000 $13,5000
$0.01 par
value
- --------------------------------------------------------------------------------
(1) Shares of Common Stock.
(2) Calculated pursuant to Rule 457(c) as the estimated opening "bid" price of
the shares of common stock being registered.
2
<PAGE>
TABLE OF CONTENTS
PART I.........................................................................4
SUMMARY INFORMATION AND RISK FACTORS........................................4
The Company...............................................................4
Risk Factors..............................................................5
Reliance on Key Personnel..............................................5
Competition............................................................5
Fluctuations in Availability and Cost of Coffee........................5
Lack of Product Diversification........................................6
Influence by Certain Existing Stockholders.............................6
Absence of Cash Dividends..............................................6
No Public Trading Market for the Company's Common Stock................7
The Company is Located in a Foreign Country............................7
Political or Economic Conditions in Costa Rica May Become Adverse......7
The Company's Production Depends on its Green Coffee suppliers.........7
The International Market Sets the Price of Coffee......................8
Year 2000..............................................................8
DESCRIPTION OF BUSINESS.....................................................8
DESCRIPTION OF PROPERTY....................................................18
LEGAL PROCEEDINGS..........................................................18
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS...............18
CONTROL OF REGISTRANT......................................................21
NATURE OF TRADING MARKETS..................................................21
TAXATION...................................................................22
SELECTED FINANCIAL DATA....................................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..................22
COMPENSATION OF DIRECTORS AND OFFICERS.....................................31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................31
USE OF PROCEEDS............................................................31
SELLING SECURITY HOLDERS...................................................32
PLAN OF DISTRIBUTION.......................................................39
DESCRIPTION OF SECURITIES..................................................40
INTEREST OF NAMED EXPERTS AND COUNSEL......................................40
PART II.......................................................................41
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES................................................................41
INDEMNIFICATION FOR OFFICERS AND DIRECTORS.................................41
RECENT SALES OF UNREGISTERED SECURITIES....................................41
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.................................................................41
EXHIBITS...................................................................41
FINANCIAL STATEMENTS.......................................................42
UNDERTAKINGS...............................................................60
SIGNATURES.................................................................61
3
<PAGE>
PART I
In this Report, references to "$" and "dollars" are to United States
dollars. Percentages and certain amounts contained herein have been rounded for
ease of presentation. Any discrepancies in any table between totals and the sums
of amounts listed are due to rounding.
This Report, information included in future filings by Cafe Britt Coffee
Corporation and information contained in written material, press releases and
oral statements issued by or on behalf of us contain, or may contain, statements
that constitute forward-looking statements. These statements appear in a number
of places in this Report and include statements regarding the intent, belief or
current expectations of us or our officers (including statements preceded by,
followed by or that include the words "believes", "expects", "anticipates" or
similar expressions) with respect to various matters, including without
limitation (i) our anticipated needs for, and the availability of, cash, (ii)
our liquidity and financing plans, (iii) trends affecting our financial
condition or results of operations, including anticipated expense levels, (iv)
our plans for expansion of our business and cost savings, (v) the impact of
competition, (vi) the impact of the "Year 2000" issue and (vii) the resolution
of certain legal and environmental proceedings. All forward-looking statements
in this Report are based on information available to us on the date hereof, and
we assume no obligation to update any such forward-looking statement.
The forward-looking statements are not guarantees of future performance
and involve risks and uncertainties. It is important to note that our actual
results may differ materially from those in the forward-looking statements as a
result of various factors. The accompanying information contained in this
Report, including, without limitation, the information under "Summary
Information and Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", identifies important factors
that could cause actual results to differ materially form those in the
forward-looking statements.
In the sections "Selected Financial Data" and "Management's Discussion and
Analysis or Plan of Operation", and in any discussion about the financial
statements, the periods under analysis refer to the years ended on June 30 of
1999, 1998 and 1997. In the discussion where the years 1999, 1998, and 1997 are
quoted as periods, it means the one-year period ended on June 30 of that
particular year.
Summary Information and Risk Factors
The Company
Cafe Britt Coffee Corporation, Inc. (hereinafter referred to as the
"Company" or "Cafe Britt"), is a corporation incorporated under the laws of
Curacao, Netherlands Antilles on July 1991. The Company currently has 10,000,000
shares issued and outstanding, par value of $0.01. The Company's headquarters
are located in Heredia, Costa Rica and its telephone number is (506) 261-0707.
The Company can also be found at its Website at www.cafebritt.com.
4
<PAGE>
Cafe Britt specializes in the sourcing, processing, and marketing of Costa
Rican coffee. Founded in 1985, the Company has achieved a reputation for gourmet
excellence and has become one of Costa Rica's leading premium coffee-roasting
companies. The company owns 100% of Grupo Cafe Britt, S.A., a Costa Rican
grower, roaster, and distributor of fine Arabica coffee, 100% of Finca Tropico,
S.A., the green coffee purchasing and trading arm of the company, 100% of Cafe
Britt Corporation, Inc., a Delaware corporation created to support the North
American development, and 25% of Boston Roasting and Import Trade Team, LLC, a
distributor to Club Stores and other chains in North America. Additionally,
Grupo Cafe Britt owns 100% of Beneficio Tierra Madre, a producer of certified
organic coffee. The Company has penetrated the export markets by selling small
volumes of premium coffee wholesale to suppliers primarily in the US and Canada,
and retail through small-package mail-order sales that are shipped directly from
Cafe Britt's roasters to households throughout North America.
Risk Factors
Reliance on Key Personnel
The Company's success will depend to a large degree upon the efforts and
abilities of its officers and key management employees, particularly Steven
Aronson, the Company's President and Chief Executive Officer. The loss of the
services of Mr. Aronson could have a material adverse effect on the Company's
business prospects and/or potential earning capacity. The Company has no written
employment or non-competition agreement with Mr. Aronson.
Competition
The market for specialty coffees is fragmented and highly competitive, and
competition is increasing substantially. The Company's whole bean coffees
compete directly against specialty coffees sold at retail through supermarkets
and a growing number of specialty coffee stores. In addition, the Company's
whole bean coffees compete indirectly against all other brands on the market.
The coffee industry is dominated by several large companies such as Kraft
General Foods, Inc., Procter & Gamble Co., and Nestle, S.A., many of which have
begun marketing gourmet coffee products. While the market for specialty gourmet
coffee stores remains fragmented, the Company competes directly with the market
leader, Starbucks, among others. Starbucks is rapidly expanding geographically
and has substantially greater financial, marketing and other resources than the
Company. Other competitors, some of which may have greater financial and other
resources than the Company, may also enter the markets in which the Company
currently operates or intends to expand.
Fluctuations in Availability and Cost of Coffee
The Company is dependent upon the supply of its primary raw material,
green coffee. Coffee is the world's second largest traded commodity and its
supply and price are subject to volatility beyond the control or influence of
the Company. Although most coffee trades in the
5
<PAGE>
commodity market, coffee of the quality sought by the Company tends to trade on
a negotiated basis at a substantial premium above commodity coffee pricing,
depending upon the supply and demand at the time of purchase. Supply and price
can be affected by multiple factors in the producing countries, including
weather, political, and economic conditions. In addition, green coffee prices
have been affected in the past, and may be affected in the future, by the
actions of certain organizations and associations, such as the International
Coffee Organization or the Association of Coffee Producing Countries, that have
historically attempted to establish commodity prices of green coffee through
agreements creating export quotas or restricting coffee supplies worldwide. No
assurance can be given that such organizations (or others) will not succeed in
raising green coffee prices, or that, if so, the Company will be able to
maintain its gross margins by raising its prices to its customers. Increases in
the price of green coffees, or the unavailability of adequate supplies of green
coffees of the quality sought by the Company, whether due to the failure of its
suppliers to perform, conditions in the coffee-producing countries, or
otherwise, could have a material adverse effect on the Company's results of
operations.
To mitigate the risks associated with increases in coffee prices and to
allow greater predictability in the prices the Company pays for its coffees over
extended periods of time, the Company typically enters into fixed-price purchase
commitments for a portion of its green coffee requirements. There can be no
assurance that these activities will successfully protect the Company against
the risks of increases in coffee prices or that they will not result in the
Company's payment of substantially more for its supply of coffee than it would
have been required to pay absent such activities.
Lack of Product Diversification
The Company's business is centered around essentially one product, coffee.
To date, the Company's operations have been limited to the sale of whole bean
coffees and coffee beverages, along with related products. Any decrease in
demand for specialty coffee could have a material adverse effect on the
Company's business, operating results and financial condition.
Influence by Certain Existing Stockholders
The Company's executive officers and directors beneficially own
approximately 66.1% of the outstanding shares of Common Stock. As a result, such
stockholders will be in a position to influence the affairs of the Company and
certain matters requiring a stockholder vote, including the election of
directors, the amendment of the Company's charter documents, the merger or
dissolution of the Company and the sale of all or substantially all of the
Company's assets.
Absence of Cash Dividends
The Company has paid no cash dividends on any of its shares of capital
stock since its inception and at the present time does not anticipate paying
dividends on the Common Stock in the foreseeable future. Any future dividends
will depend on the earnings, if any, of the Company, its financial requirements,
contractual commitments and other factors.
6
<PAGE>
No Public Trading Market for the Company's Common Stock
The Company's common stock is not currently listed for trading and there
can be no assurance that such a market will commence in the future. There can be
no assurances that a shareholder will be able to liquidate his or her investment
without considerable delay, if at all. After this Registration Statement is
declared effective, the Company intends to file for a listing to trade its
common stock on either the OTC Electronic Bulletin Board or the NASDAQ Small Cap
exchange. However, there is no assurance that a market for the Company's common
stock will commence, or the price may be highly volatile. Factors discussed
herein may have a significant impact on the market price of the Shares offered
for exchange. Moreover, due to the projected relatively low price of the
Company's securities, many brokerage firms may not effect transactions in the
Company's Common Stock. Rules enacted by the SEC increase the likelihood that
many brokerage firms will not participate in the market for the Company's Common
Stock. Those rules require, as a condition to brokers effecting transactions in
certain defined securities (unless such transaction is subject to one or more
exemptions), that the broker obtain from its customer or client a written
representation concerning the customer's financial situation, investment
experience and investment objectives. Compliance with these procedures tends to
discourage many brokerage firms from participating in the market for certain
securities.
The Company is Located in a Foreign Country
Costa Rica has been politically stable during the last five decades,
having a stable legal and regulatory environment. The company does not foresee
any political, or environmental turmoil or significant change in the political
and or regulatory areas in the near future that might have a significant impact
in our financial performance. However, the occurrence of such events might
eventually take place and might have an adverse impact on the results of our
operations.
Political or Economic Conditions in Costa Rica May Become Adverse
While the Company believes that current political and economic conditions
in Costa Rica are relatively stable, thereby presenting an investment
opportunity for certain prospective investors to make an investment in the
Company. However, at any time, the political and/or economic conditions in Costa
Rica may adversely change so as to effect underlying business assumptions about
the current opportunities which exist for doing business in a foreign country.
In particular, the governmental regime may change in Costa Rica or the region,
the currency exchange rate may change, or the cost of labor and/or goods and
services necessary to the operations of the Company may increase.
The Company's Production Depends on its Green Coffee suppliers
Costa Rica has been a stable supplier of green coffee to the international
market for the last fifty years. The Company has developed long-term
relationships with green coffee suppliers that provide a reasonable assurance
that the Company will have the necessary raw material for fulfilling a
potentially increasing demand of our products. However, there is no assurance
that the company will always have sufficient Costa Rican coffee to fulfill its
demand. The Company also has the expertise and contacts for purchasing coffee
from other Central and South American countries, and in case gourmet coffee from
Costa Rica becomes scarce, the Company could use those sources to expand
roasting facilities outside Costa Rica, thus increasing the product line for our
brand.
7
<PAGE>
The International Market Sets the Price of Coffee
The international price of coffee varies according to global supply and
demand conditions and according to short-term technical market conditions. The
Company uses hedging mechanisms in order to fulfill our pricing policies. Those
hedging mechanisms might involve contracts with suppliers for future delivery,
and transactions in the New York Coffee and Cocoa exchange using futures
contracts ("C" contract). Other mechanisms include building inventory equivalent
to a certain number of months of consumption. The Company has the expertise to
use a combination of these hedge mechanisms. There is no assurance that the
company will be able to transfer price increases in the raw material to the
consumer. From time to time the company may have to work with lower margins due
to coffee price increases. These substantial price risks may have adverse
material impacts on our results of operations.
Year 2000
Many computer systems and programs, including some of those used by the
Company, identify dates using only the last two digits of the year. These
computer programs and systems have time-sensitive software unable to distinguish
between dates in the year 2000 and dates in the year 1900. That inability, which
is referred to as the "year 2000 issue," if not addressed, could cause these
systems to fail or provide incorrect information after December 31, 1999 or when
using dates after December 31, 1999. The year 2000 problem could also impact the
embedded system in our production, packing and distribution operations. This
could have a material adverse impact on us and our results of operations and
financial condition, due to both our direct dependence on our own computer
systems and programs, particularly with respect to such critical tasks as
accounting, billing and ordering, and our indirect dependence on the system and
programs of other entities with whom we interact.
The Company has implemented a process for identifying, prioritizing and
modifying or replacing systems and programs that may be affected by the year
2000 issue. The Company is also monitoring the adequacy of the manner in which
other parties, including vendors of systems with whom we do business, are
addressing the year 2000 issue. The Company has completed an assessment of its
computer and embedded systems and determined the need to modify or replace
portions of our software and hardware so that our computer systems will function
properly with respect to dates in the year 2000 and after, and have already
included those modifications or replacements in our software. The Company
believes that its process is designed to be successful and will not experience
significant problems derived from the Year 2000 issue. However, because of the
complexity of the year 2000 issue, and the interdependence of organizations
using computer systems, the Company's efforts, or those of third parties with
whom the Company interacts, may not be satisfactorily completed in a timely
fashion.
Description of Business
Cafe Britt Coffee Corporation, Inc. (Cafe Britt or Britt) was incorporated
in 1991 as a Netherlands Antilles (Curacao) corporation. The company owns 100%
of Grupo Cafe Britt, S.A., a Costa Rican grower, roaster, and distributor of
fine Arabica coffee, 100% of Finca Tropico,
8
<PAGE>
S.A., its Costa Rican green coffee procurement and exporting company, and 100%
of Cafe Britt Corporation, Inc. a Delaware corporation for marketing development
in North America. In addition, Grupo Cafe Britt, S.A. owns 100% of Tierra Madre,
S.A., a producer of certified organic coffee, and 25% of Boston Roasting and
Import Trade Team, LLC, Cafe Britt North American distributor to the Club store
industry.
The Company specializes in the sourcing, processing, and marketing of
Costa Rican coffee. Steve Aronson created Cafe Britt (Grupo Cafe Britt, S.A.) 15
years ago with the vision of offering the finest quality Costa Rican coffee to
the local market. Since that time, the Company has achieved a reputation for
gourmet excellence and has become one of Costa Rica's leading premium
coffee-roasting companies.
The Company sells coffee in both the domestic (Costa Rican) and export
markets. We contributed to the creation of Costa Rica's domestic premium coffee
market. Before Britt, premium coffee was almost unheard of within Costa Rica, as
most of it was shipped to international markets. According to a recent survey,
Cafe Britt has the highest brand recognition for any coffee brand. Among Costa
Rican middle and upper income coffee drinkers, 90% of them recognize the Cafe
Britt brand and 66% within Britt's potential market have tasted Cafe Britt(1).
In addition, our factory and farm are a major tourist attraction in Costa Rica,
receiving around 50,000 visitors yearly.
The Coffee Lover's Club has sold coffee to more than 40,000 individuals
around the world, and we have served institutional accounts in North America for
over seven years.
Operating Segments
Cafe Britt's principal business is coffee roasting and marketing, and its
operations include the segments of coffee sales and tourism. The company is
organized around the following business areas:
o Domestic Sales, wholesale distribution to restaurants, hotels and
business firms, and distribution to supermarkets and other types of
stores;
o Retail: company owned coffee shops and kiosks;
o Exports, including Cafe Britt's Coffee Lover's Club, a mail order
continuity program executed from Costa Rica, with continuity clients
in North America;
o Coffee tour de Cafe Britt, a multimedia presentation attracting over
45,000 visitors per year;
o Tierra Madre Organic Coffee, Cafe Britt pioneered the cultivation of
organic coffee in Costa Rica under the brand Tierra Madre;
o Finca Tropico, S.A. is Cafe Britt's subsidiary for purchasing and
exporting green coffee.
Cafe Britt has a leadership position in the gourmet coffee segment in
Costa Rica, with a well-established brand name and a reputation for quality.
- ----------
(1) According to a survey by Informacion Total: Habitos basicos de consumo de
cafe en el segmento meta de Cafe Britt. San Jose, July 1999.
9
<PAGE>
In this description, all subsidiaries are treated as part of Cafe Britt
Coffee Corporation, Inc. (Cafe Britt or Britt).
Company Overview and outlook
Through 1997, the Company had penetrated the export markets by selling
small volumes of premium coffee wholesale to suppliers, primarily in the United
States, and through small-package mail-order sales that were shipped directly
from Cafe Britt in Costa Rica to households in the US and Canada.
From 1997 to 1998 net sales grew from $4.14 million to $5.03 million for a
22% increase. In 1999 net sales reached 8.85 million for a 76% increase.
The Company believes the outlook for Cafe Britt is promising since it has
taken its first steps in penetrating a forecast $5 billion gourmet coffee market
in North America. The Company expects to sell over $12 million during calendar
year 2000. However, there is no assurance that sales will reach this level.
Products and services
Roasted coffee
The Company's coffee sales include roasted coffee under the following
presentations:
Light Roast: Is an American roast considered to be the "cupper's
choice". Its lighter body allows its subtle flavors to remain evident.
Dark Roast: Is a "full city roast", distinguished by its full-bodied
flavor. It has superb aroma, is exceptionally well balanced and has a
rich, full taste that lingers on the palate.
Espresso: Is a French roast distinguished by its full-bodied fruity
flavor. It has excellent aroma and is intense, but not at all bitter or
muddy.
Decaffeinated: Uses a water-based process, which maintains the aroma
and flavor of the excellent-quality coffee beans. Among coffee gourmets,
Costa Rican coffee is famous for being one of the finest pure coffee
varieties to decaffeinate
Toll packing agreements: We export more than 50 metric tons as a
toll packer, selling coffee under the label of the distributor.
Green coffee: The Company serves a few selected green coffee
accounts in USA and Europe. The company believes the international green
coffee experience of certain officers of Cafe Britt is a competitive
advantage.
10
<PAGE>
Coffee Liquor
In January 1996, the Company began to market a new coffee liquor brewed
and bottled by Holtermann & Cia, called "Licor de Cafe Britt". Sales have grown
rapidly and Licor de Cafe Britt is now one of the two best selling coffee
liquors in Costa Rica.
Britt receives 4% of gross revenues for all domestic sales and 50% of the
profits on international sales of Licor de Cafe Britt. It supplies the coffee to
Holtermann at wholesale prices and Holtermann provides us the liquor in bottles
at cost. Holtermann currently sells domestically about 600 cases of Licor de
Cafe Britt per month.
Licor de Cafe Britt is a specially formulated brew, which the Company
painstakingly developed and tested over the past few years. The imported price
of Kahlua is generally about $60 per case and $5 per bottle to wholesalers with
retailers typically adding at least 30%. Britt has successfully priced wholesale
its liquor at $36 per case and $3 per bottle to wholesalers.
Espresso Machines
The Company has established an espresso machine division that has
encountered a receptive market among restaurant and hotel owners in Costa Rica
who are beginning to realize the importance of serving high-quality
espresso-based coffee beverages. From 1990 to 1996, the Company sold 9 espresso
machines. In late 1996 Cafe Britt became the exclusive distributor of La Cimbali
espresso machines, and has placed approximately 80 machines in the last 12
months.
The demand for espresso machines in Costa Rica continues to grow and the
Company has units on back order. With a relatively low investment, the Company
expects to take more than 80% market share of this strategic market. The
machines are normally sold to the customers. For selected strategic clients, the
equipment is given to them as a value added service.
Coffee Tour and Cruise Ships
In the last eight years, the Company has have received more than 200,000
tourists from all over the world who have come to the Coffee Tour de Cafe Britt.
The Coffee Tour is an information-driven, entertaining theatrical experience
with Costa Rican coffee. Many travel agencies send their clients to the
Coffeetour when they arrange their trips to Costa Rica.
Marketing efforts for the Coffee Tour will continue to focus on leading
domestic and foreign travel agencies, which have historically provided over 50%
of the visitors to Britt's facility. Other markets, which have been profitably
penetrated, include hotels and bed and breakfasts, cruise ships, and local
private, educational, and government organizations. Given the size of the
potential market and the success to date, we believe the Coffee Tour will remain
one of the major marketing tools of Cafe Britt.
11
<PAGE>
Quality
In order to ensure the quality in our processes, the Company is
implementing a quality assurance system under the ISO 9000 model. We expect to
obtain the international certification during the first half of year 2000.
The Company is able to maintain the high quality of our products by
participating in the whole production process. The Company works closely with
its coffee suppliers and wet mills and complete 100% of the roasting, packing
and shipping process, sending its coffee directly to ours clients' table in many
cases.
Shipping and Distribution
Cafe Britt Coffee Lover's Club
In 1992, the Company created its Coffee Lover's Club to send coffee
directly to the members' homes. In 1996 the Coffee Lover's Club operation was
moved in its entirety to Cafe Britt headquarters in Costa Rica, and now all
individual shipments (from two 12 oz packs to any amount such as 20 bag cases)
are sent via DHL WORLDWIDE EXPRESS directly to households. By shipping directly
from Britt's facilities, the coffee is fresher, shipments are customized to the
individual's product mix preferences, and the consumer enjoys the value of
having their coffee come directly from the country of origin. Customers can
order their coffee through the 1-800 GO BRITT line, which is also answered in
Costa Rica.
Most Coffee Lover's Club members have visited our Coffee Tour and continue
to order Britt coffee at home for more than six months. The Company's goal is to
sell regularly to 10% of the approximately 50,000 Coffee Tour visitors, leading
to a projected four-fold increase in volume in 3 years. Currently, about 20% of
the people who take the Coffee Tour get onto the mailing list and a portion of
them order coffee at least once. Most direct mail-order customers are located in
the US and Canada.
To take advantage of changing cost structures, the mail order business is
now completely carried out from Costa Rica. Phones are answered by our employees
in Costa Rica where land, and labor are relatively less expensive compared to
similar services in the USA. The 1-800-GO BRITT telephone line is answered
directly in Cafe Britt headquarters, averaging about $1.80 per phone call from
the US. The company is investing in the development of a new electronic commerce
Internet site. This new platform is an important part of our whole marketing
strategy.
The Company does not have significant competition from Costa Rican
companies who export gourmet quality coffee in small quantities directly to
households. Outside of Costa Rica, Gevalia coffee is considered a competitor as
are a number of small companies in Colombia, which roast and pack on-site for
mail orders. However, only Cafe Britt educates large numbers of visitors and
sells them coffee once they return to their home countries. Britt's unique
positioning within the coffee
12
<PAGE>
industry has drawn the attention of the international business expert Michael
Porter(2) who has supervised a case study on our company.
Retail
Cafe Britt has a strong presence with tourism-related retail outlets, and
plans to increase its participation in the retail business through company-owned
coffee shops and coffee kiosks. The Company currently has retail outlets in two
of the places with highest tourism traffic in Costa Rica, i.e. the International
Airport, and the Poas National Park.
Cafe Britt plans to continue to expand its sales in the high-quality
coffee segment, by enhancing its exposure among the university-educated
population and tourists. Britt was recently granted the concession to operate
the National Theater Cafe; operations started in November, 1999. Cafe Britt
plans to selectively augment its exposure in upscale high traffic locations.
Distributors
Cafe Britt uses Cefa Comercial, a Costa Rican distributor, in order to
serve local supermarket chains. Cafe Britt is in all the main supermarkets in
Costa Rican metropolitan areas. Cefa is responsible for having the stores well
stocked. They are also responsible for all in-store promotions, and for the
required maintenance of the shelves. Stores in upscale neighborhoods generally
perform better than stores located in lower income areas.
The Company is negotiating different distribution arrangements for
neighboring countries like Nicaragua, Guatemala and Panama, Cancun (Mexico) and
Chile. The Company has started to sell coffee in the Caribbean through a
distributor in St. Marteen.
Company owned distribution
Our own sales force serves the institutional market (hotels, restaurants,
business firms) in Costa Rica. Our employees act like coffee consultants for our
clients, providing knowledge relevant to all aspects of preparing and serving
coffee and coffee beverages.
Sales and Marketing
The Company markets its products in over 8 countries around the world. The
following table presents the percentage of our total net sales by geographic
region for each of the periods indicated.
- ----------
(2) Michael Porter teaches at Harvard Business School, where he developed the
widely acclaimed MBA courses on competitive strategy. See his two major
works Competitive Strategy and Competitive Advantage: Creating and
Sustaining Superior Performance.
13
<PAGE>
1999 1998 1997
-----------------------------------------
Costa Rica 60.5% 58.1% 62.0%
United States 29.3 31.4 27.5
Canada 0.9 1.0 0.8
Europe 1.1 0.3 0.6
Others 8.1 9.2 9.0
-----------------------------------------
Total 100.0% 100.0% 100.0%
=========================================
The gourmet coffee market in Costa Rica is a small but growing niche.
According to our own estimates the size of the gourmet coffee market in Costa
Rica is currently $6 million, and we have an estimated 70% market share. The
Company defines this market as the market for coffee of SHB (Strictly Hard Bean)
type, that is sold in Costa Rica, to the trade channel (supermarkets, coffee
shops, business firms, hotels and restaurants).
Eighteen months ago, the Company decided to expand into the North American
Club Store market, and created Boston Roasting and Import Trade Team, LLC
(Boston Roasting) to market and distribute our products to Club Stores in North
America. This is a partnership with a group from Boston named Cambridge
Associates Holdings Corporation. A $1.5 million financing package was arranged,
to provide Cafe Britt with the capital structure required for this expansion.
During this time, the Company sold coffee to Sam's Club Stores in the USA and
Costco in Canada. During these 18 months the Company acquired the necessary
knowledge to supply these and similar chains and it is estimated that the Club
Store market will become an important part of our marketing plan in the next two
years.
In addition, the Company also started a regional expansion into Latin
America and the Caribbean. A distributor for Guatemala has been selected. Also,
a distributor in Saint Marteen, in the Caribbean, has been selected. Britt has
contacted clients in Panama, including PriceSmart, a club store chain expanding
into Central and South America, and other clients in Cancun, Mexico. The Company
is looking for distributors in order to serve these clients.
Competition
Export Markets
Export of coffee roasted in Costa Rica is a small but growing industry.
The Company believes there are several reasons why coffee exporting from Costa
Rica can provide a price advantage in the competitive international markets. The
two main advantages are manufacturing costs and quality assurance. The cost of
roasting coffee in Costa Rica can be up to 40% less than the cost of roasting
coffee in the US, for a comparable-size gourmet roaster. Furthermore, we believe
that the fact that we can oversee the whole process "from the plantation to the
cup" gives an edge in quality assurance that few roasters in the world can
match.
14
<PAGE>
Additionally, there is no processing tax levied on producer-country
roasted coffees shipped to the United States and Canada. With these advantages,
the Company has been actively exporting roasted coffee in high-quality 12 oz
consumer-size packages and in institutional 5-pound bags.
Also, the Company has become one of the largest DHL clients in Latin
America. Recently, DHL launched a marketing campaign throughout the Americas
that features Mr. Aronson and the Cafe Britt success story. Cafe Britt's
achievements are possible because liberalization in Costa Rican coffee laws and
regulations (as successfully championed by Britt). New communications and
transportation technologies have reduced delivery costs. These changes allow the
Company to operate completely from the country of origin, offering world-class
service without foregoing the cost advantages of selling from the source. The
Company believes it would be difficult for other coffee companies to match the
marketing concepts and cost-structure advantages developed by Britt.
The Company also believes that the Coffeetour is a marketing tool that
reaches the end consumer. There are significant entry costs for other roasters
in case they want to set up a comparable program. The Coffeetour with its eight
years of experience helps build Britt's robust marketing concept and brand
image.
Domestic Market
In addition to penetrating international markets by exporting its
high-quality Costa Rican product, the Company played a major role in the
creation of Costa Rica's domestic premium coffee market. Before Britt, premium
coffee was almost unheard of within Costa Rica, as practically all of it was
exported to international markets. Now, 90% of Costa Ricans within Britt's
potential market recognize the Cafe Britt brand and 66% within that same market
have tasted Cafe Britt(3).
The Company was recently granted the concession to operate the National
Theater Cafe, one of the most visited places in downtown San Jose. Also, we are
increasing our rotating inventory of espresso machines. Some of these machines
are sold in cash, others are given to strategic clients as a value added service
that provide additional marketing presence.
The infrastructure platform for servicing our customers is anticipated to
receive a major improvement, including new software to manage the call center,
new customer service software, and the integration of communications with
clients (computer-telephony integration) through e-mail, voice mail, telephone
and fax.
The Company's domestic market position has improved year by year. Sales
figures for the largest supermarket chain in Costa Rica indicate Cafe Britt has
a healthy 81% share of the total gourmet coffee market. Cafe Britt and Cafe
1820, a private label that we manufacture, together account for about 23% of the
pure coffee products(4) in the same chain.
- ----------
(3) According to a survey by Informacion Total: Habitos basicos de consumo de
cafe en el segmento meta de Cafe Britt. San Jose, July 1999.
(4) In Costa Rica, some coffee is sold mixed with sugar.
15
<PAGE>
The Company also provides private label services for local and export
clients, managing brands like Cafe 1820, Cafe Tropico, and Cafe Forestal. In
addition to these product lines, Cafe Britt is committed to developing its
certified Tierra Madre organic coffee brand, which has proven to be very
successful in the past, normally selling out in the first months of the crop
year (see below).
In 1998 the Company launched "Cafe Sabemas" a private labeled coffee for
the largest supermarket chain in Costa Rica. This brand is projected to sell
over 150,000 lb. per year in the coming year.
The Company believes that its best defense against continued competitor
attempts to enter the high-quality, higher-priced coffee segment that we
dominate, is to put competitors on the defensive by selling other lower quality
brands like Cafe 1820 and the new private label coffee for the supermarket
chain. Simultaneously, the Company intends to use its strengths in marketing and
in green coffee purchasing, roasting and packaging capacity to keep and expand
its current positioning of the Britt brand name as the highest quality coffee
available.
The Company has successfully sold at prices far higher than traditional
coffee brands. Competitors have attempted to enter its still growing market
niche but we believe we maintain several advantages that will make it difficult
for others to take away significant market share.
The Company believes it is the first and most recognized quality coffee
purveyor in Costa Rica according to information compiled from retail and
institutional sources by BAS(5) as well as from Britt surveys of consumers.
Second, the Company pioneered the development of new market channels for
coffee at non-traditional tourist-oriented retail outlets, as well as at its
Coffee Tour attraction, allowing the company name to be associated with Costa
Rican tourism, the country's largest foreign exchange earner.
Third, the Company believes it is unique in that it is the only Costa
Rican domestic roaster with expertise in green coffee procurement for
international gourmet coffee roasters. Until 1991, export markets had the only
quality-conscious buyers because the domestic market was controlled by the
state-run auction mechanism. As such the Company believe this leaves it
unmatched raw material purchasing experience among the local competition.
Fourth, while some exporters with raw material purchasing skills have
attempted to enter the domestic-roasted market using third-party roasters, none
have the domestic marketing experience displayed by the Company. It is
noteworthy that the two largest coffee roasters in Costa Rica have attempted to
enter the gourmet niche, and, after two to three years of spending much larger
promotional budgets than the Company, have
- ----------
(5) Business Advisory Service, a research and project-financing agency in
Central America, set up by IFC the private arm of the World Bank.
16
<PAGE>
failed to take away significant market share from Britt, and have reduced
significantly their efforts in this niche, retrenching to strengthen their
positions in the low end of their product lines.
Employees and Labor
At year-end June 1999, the Company employed a total of 93 persons. Cafe
Britt has promoted the creation of an "Asociacion Solidarista", a non-union
company supported employee organization ruled by Costa Rican law, with the goal
of promoting savings and other benefits for employees. 57 of these persons
belong to the "Asociacion". The Company believes that its overall relationship
with its employees and "Asociacion Solidarista" is satisfactory.
Research and development
The Company is formalizing the research and development process following
the guidelines of ISO 9001 in its Design Control chapter and the Company has a
Design Committee, which coordinates all development and design projects.
Patents, Trademarks and Licenses
The Company has exclusive rights to use the CAFE BRITT brand for roasted
coffee and all other related products it can market using that name.
Environmental Matters
We organically grow coffee on the site of the Coffeetour and on other
farms supervised by us. Certified organic coffee is cultivated without chemical
fertilizers, herbicides nor pesticides. Tierra Madre, the organic coffee
subsidiary of Grupo Cafe Britt, S.A. has been growing and processing certified
organic coffee since 1989 and is a pioneer in organic farming in Central
America. Organic coffee is estimated to be about 10% more expensive to grow, but
it plays an important role in the Company's strategy. In the past, the main
limitation for selling organic coffee has been the reluctance of producers who
do not want to make the shift towards organic production. The Company has
researched organic production and already started a plan to promote the
cultivation of organic coffee, which can be exported as roasted or green coffee.
Organic coffee is one of the fastest growing market niches in the coffee
industry. The Company has developed an organic retail size coffee package and
plan to launch our Tierra Madre organic coffee at retail in the coming months.
Tierra Madre was started originally as a model of sustainable agriculture,
showing farmers how to cultivate coffee in ways that are friendly to the
habitat, including rational use of shade, recycling of water, and intelligent
use of natural inputs. The Tierra Madre organization offers technical assistance
to farmers who want to convert to organic methods, in addition to managing about
50 acres of production.
17
<PAGE>
Cafe Britt has also made efforts to control its emissions beyond what the
Costa Rican law requires. The Company purchased catalytic control equipment and
will be installing a second equipment in the next year to improve the quality of
the air that is expelled by the roasters. The Company does not foresee any
liability for remedial action in this area.
The Company has an environmental committee and is working on other areas
of environmental sustainability. We believe sustainability is an important
element in our corporate culture and strategy.
Government Regulation
The coffee industry in Costa Rica is primarily regulated by ICAFE
(Instituto del Cafe de Costa Rica). They exert a variety of controls to the
whole coffee industry and keep statistics for the country. Cafe Britt fulfills
all rules and regulations required by ICAFE and other competent government
bodies.
Description of Property
Cafe Britt's facilities consist of roast coffee processing and marketing
and tourism facilities (including a visitor tour and show, a food-serving area,
and a packaged coffee sales outlet). Both facilities are located on its 5 acre
property in Heredia, - about seven miles north of San Jose, the capital city of
Costa Rica. The parcel was formerly used as a coffee farm and is located on
gently rising grounds with attractive views of nearby volcanoes. It is served by
paved roads and has adequate electricity and water connections.
Legal Proceedings
Other than ordinary and routine litigation incidental to its business, the
Company is not engaged in any other litigation.
Directors, Executive Officers, Promoters and Control Persons
The names and positions of our current executive officers and directors
are as follows:
Current Position
Name Position Held Since
---- -------- ----------
Steven J. Aronson President and Chief President since 1985
Executive Officer and Chief Executive
Officer since 1991
Pablo E. Vargas Chief Financial Officer and 1998
Director
Tina Aronson United States Representative 1991
Marianela Monge Exports Manager 1996
Phillipe Aronson Sales Manager 1997
Edward Logeman Managing Director 1998
Guillermo Groisman Director 1994
Michael Caggiano Director 1999
18
<PAGE>
Steven J. Aronson, Chairman, President, and CEO
Mr. Aronson, an American permanently residing in Costa Rica, founded Cafe
Britt in 1985. Originally the Company derived its expertise in gourmet coffee
from Mr. Aronson's experience as a supplier of high-quality Costa Rican coffee
to many of the world's leading specialty roasters and importers such as
Seattle's Best Coffee, Peets Coffee of San Francisco, and Starbucks.
Mr. Aronson has 25 years of coffee procurement and international trading
experience working in both environments, as an officer in multinational
companies and as entrepreneur. He has founded coffee and cocoa processing
companies in several countries of Latin America. He has a worldwide network of
coffee market contacts as well as intimate knowledge of coffee farm practices in
Costa Rica.
Mr. Aronson is a well-respected authority on coffee in Costa Rica as well
as being recognized in world coffee circles. He has been continuously involved
in the coffee industry for over 25 years, having previously worked in futures
trading, coffee purchasing, sales, and quality control prior to founding coffee
processing and trading companies in Costa Rica. Mr. Aronson graduated with a BA
from the University of Michigan at Ann Arbor and is a Ph.D. candidate in
agricultural economics at Stanford University. He is a frequent speaker and/or
moderator at domestic and international coffee industry forums. He has also
counseled the Costa Rican government at international coffee meetings. He has
complete verbal fluency in four languages, and reading ability in six.
Pablo E. Vargas, Financial Director (Chief Financial Officer)
Mr. Vargas has been involved with Cafe Britt for the past eight years.
From 1995 to 1998 he was in charge of roasted coffee exports and strategic
planning. He is now Financial Director (CFO), in charge of all financial and IT
operations for the company. Mr. Vargas has a Bachelor's degree in Agricultural
Economics from Universidad de Costa Rica, and Master's degrees in Agricultural
Economics and Business Administration, both degrees from Michigan State
University. Mr. Vargas lived three years in Michigan, and one year in Monterrey,
Mexico prior to working for Cafe Britt. Mr. Vargas had previous experience in
the consulting field with international development organizations, and he is a
recipient of the prestigious Fulbright Scholarship.
Tina Aronson, United States Representative
Ms. Aronson opened the US office for Cafe Britt in 1989 and has been
developing the US wholesale and retail markets for Cafe Britt. Her office in
Newton, MA, in addition to servicing restaurant clients like Legal Sea Foods,
had responsibility for the creation of Britt's mail
19
<PAGE>
order program. This office lends general marketing and sales support in our
Expansion to North America. Ms. Aronson graduated with a B.A. from American
University and holds a M.A. from the University of Michigan. Prior to opening
the US office, Ms. Aronson did extensive market research for retail development
for the city of Boston and the city of Worcester. She was also involved in a
government backed financing program to small business firms.
Marianela Monge, Exports Manager
Ms. Monge has 9 years executive experience in various branches of the
coffee industry, from procurement and export of green coffee to mail order
logistics. Presently Ms. Monge, in addition to managing the export department,
acts as the Direction's Representative in our implementation of our quality
assurance system. After studying biology at the University of Costa Rica and
further work at the University of Rhode Island on English courses, Ms. Monge
joined Coca Cola's Central American & Caribbean offices where she became
executive assistant to Financial and Marketing managers. She is presently
completing an MBA degree.
Phillippe Aronson, Sales Manager
Phillippe Aronson is the President's son. He is 24 years old and has been
Sales Manager for Cafe Britt since 1997. He has been trained by a well-respected
green coffee Brazilian exporter (Irmaos Riveiro), and worked for Starbucks and
Seattle's Best Coffee in the US. Mr. Aronson has received office coffee training
from John Conti in Louisville, Kentucky, general coffee training in Lavazza in
Torino, Italy and further training from La Cimbali, in Milano, Italy. He is
completely fluent in English, Spanish, French and Portuguese, and besides
supervising local sales operations, is now opening regional accounts in the
Caribbean and Latin America.
Edward Logeman, Director
Mr. Logeman is an attorney at law associated with Maduro and Curiel's Bank
of Curacao, Netherlands Antilles. Mr. Logeman has more than 10 years of
experience dealing with corporate law and corporate issues for companies
incorporated in the Netherlands Antilles.
Guillermo Groisman, Director
Mr. Groisman owns a distribution company in Costa Rica and worked with
Steve Aronson for more than 12 years in the coffee industry as trader and
financial manager. Mr. Groisman is a Certified Public Accountant and is well
known in Costa Rica's financial community.
Michael Caggiano, Director
Mr. Caggiano, a PhD in economics from The Rand Corporation, has been
involved with a group of investors with interests in hotel and medical
facilities in Costa Rica. He is Chief Operating Officer of Talley and Co. in Los
Angeles, CA, and spends about 40% of his time in Costa Rica.
20
<PAGE>
Control of Registrant
Pursuant to our Articles of Incorporation, our authorized share capital
consists of 20,000,000 ordinary shares having a par value of $0.01 per share, of
which 10,000,000 shares are issued and outstanding.
The following table sets forth certain information as of June 30, 1999
with respect to each shareholder known to Cafe Britt to own more than 5% of the
ordinary shares and with respect to the ownership of ordinary shares by all
directors and officers of Cafe Britt as a group.
Person or Group Number of Shares Owned Percent of Class
--------------- ---------------------- ----------------
El Ciruelo NV. (1) (3) (5) 5,766,165 57.7%
Cafe Tropico, S.A. (2) (3) (5) 223,755 2.2
Other Aronson Family
members (4) 537,100 5.4
All directors and officers as a
Group (12 persons) (6) 6,596,970 66.0
(1) The registered office address of El Ciruelo NV is c/o Maduro & Curiel's
Bank N.V., Sharlooweg 31, P.O. Box 4888, Curacao, Netherlands Antilles.
(2) The registered office address of Cafe Tropico, S.A. is P.O. Box 1027-1000,
San Rafael, Heredia, Costa Rica.
(3) Steven Aronson, president and CEO of Cafe Britt, beneficially owns 100% of
El Ciruelo N.V. and Cafe Tropico, S.A.
(4) Benjamin Aronson, Catherine Aronson, Jeremy Aronson, Marie Aronson,
Philippe Aronson and Raphael and Henny Aronson beneficially own 0.25%,
0.25%, 0.25%. 0.25%, 2%, and 2.37% respectively of Cafe Britt's
outstanding voting equity securities.
(5) The business address of Steven Aronson is P.O. Box 528-3000, Heredia,
Costa Rica.
(6) Includes (1) 5,989,920 shares owned directly by El Ciruelo NV and Cafe
Tropico, S.A., of which Steven Aronson is beneficial owner, (2) 537,100
shares owned by other members of Aronson's Family, as described in the
previous number four, and (3) an aggregate of 69,950 shares owned directly
by certain directors and officers.
Nature of Trading Markets
No public trading market exists for the Company's securities and all of
its outstanding securities are restricted securities as defined in Rule 144. As
of November 1, 1999, there were 340 holders of record of the Company's common
stock on. No dividends have been paid to date and the Company's Board of
Directors does not anticipate paying dividends in the foreseeable future.
21
<PAGE>
Taxation
Cafe Britt Coffee Corporation, Inc. is incorporated in Curacao (also known
as the Netherlands Antilles), a well-respected dollar-denominated territory
where major multi-national corporations have established offshore offices. The
main advantages of incorporating in Curacao are clear and simple corporate law
and regulations, and the tax advantages it offers, with a maximum corporate net
income tax rate of 2.4% on the first $56,000 and 3% on amounts that exceed
$56,000.(6)
As a "receptive tourism agency," Cafe Britt maintains a tourism contract
with Instituto Costarricense de Turismo (ICT), the government agency that
regulates Costa Rican tourism. Also, Cafe Britt also enjoyed the benefits of an
Export Contract with the Costa Rican government represented by the Consejo
Nacional de Inversiones. Under the terms of these two contracts, Britt was
exempt from all import duties on machinery and packaging material through
September 1999. The cost advantages conferred by this exemption provided some
incentive for raising capital to purchase new equipment during the last two
years.
Selected Financial Data
- --------------------------------------------------------------------------------
Year ended June 30,
================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------
Net Sales $8,850,711 $5,030,124 $4,138,212
Gross Profit 2,459,615 1,249,656 1,062,260
Income (loss) before 368,630 19,258 4,378
interest and taxes
Financing expenses 264,550 314,068 343,809
Income tax 12,647 (17,114) (2,021)
Net income (loss) 116,727 (311,924) (341,452)
Inventories 1,233,153 885,441 --
Accounts receivable 957,506 422,820 --
Current Assets 3,075,734 2,434,069 --
Net fixed assets 3,143,525 2,638,360 --
Current liabilities 753,947 641,229 --
Long term liabilities 1,535,269 1,683,187 --
Net Shareholders' Equity 4,697,649 3,224,141 --
Exchange rate 286.11 256.38 232.55
- --------------------------------------------------------------------------------
Management's Discussion and Analysis or Plan of Operation
Net Sales
The Company's net sales are affected by numerous factors including
competition from other coffee companies and families' disposable income. Sales
in Costa Rica are also affected by changes in the exchange rate.
- ----------
(6) In addition, capital gains realized on the disposal of assets are not
taxable, while capital losses are not tax deductible.
22
<PAGE>
The Company net sales growth in the last years has been achieved by increased
marketing efforts and increased demand of the Company's products. The Costa
Rican market in the recent years has become more receptive to paying a premium
in order to obtain higher quality beans. Consumers are migrating from lower
quality coffees to higher quality products. The Costa Rican market had been
dominated by coffee products mixed with sugar in the roasting process, which are
cheaper than any pure coffee product. The pure coffee category has been growing
at the expense of the mixed coffee products, and Cafe Britt has benefited from
this trend as well. The fact that Costa Rica remains a strong destination for
tourists also has a positive impact on Cafe Britt sales.
Cost of Products sold
Cost of products is influenced primarily by the international green coffee
prices. Although our raw material is purchased in origin, all the suppliers of
green coffee price their beans according to the international coffee market,
typically represented by the nearby positions of the "C" coffee contract of the
New York Coffee and Cocoa Exchange. The Company has used different mechanisms to
hedge the risk of adverse price fluctuations, including carrying inventories,
long term relationships with suppliers, purchase agreements of one or more years
at a fixed price, and futures contracts. Typically in years when the price of
coffee rises, the operating margins are reduced, because the company is not
capable of transferring the full cost increase to the consumer. In years of low
coffee prices the margins for the company improve. The market for coffee as a
finished good is much more stable than the commodity market.
In 1997, coffee prices were generally higher than in the next two years.
Coffee prices have come down this year as well and the prospect from a global
supply and demand point of view leads to think that for the next two years
coffee prices will remain under 1.50 per lb. However there is no assurance of
this since commodity prices are affected by unpredictable events.
The other component of cost of goods is the cost of packaging and
manufacturing costs. Both items have remained stable in the last three years,
with a minor increase in the packaging materials prices, which has been offset
by increased production efficiency.
Selling Expenses
Selling expenses include primarily the costs associated with selling the
coffee in Costa Rica, North America, and other markets, advertising and
promotional expenses as well as promotional expenses for the Coffeetour in Costa
Rica and United States. In Costa Rica the Company has its own distribution to
the institutional channel (hotels, restaurants, business firms, etc).
General and Administrative Expenses
General and Administrative expenses include corporate overhead and related
administrative functions, like human resources, accounting, finance, the cost of
the implementation of the quality system, and depreciation associated with the
sale of coffee and the Coffeetour.
23
<PAGE>
Other income, net
Other sources of income include the selling of roasting services to
clients who provide their raw materials, and CAT (Certificado de Aporte
Tributario), a tax subsidy given by the government of Costa Rica as a percentage
of exports up to September 30, 1999. CAT was given to companies to promote the
exportation of non-traditional goods, under Export Contracts with the
government, all of which finalized in September 30, 1999. Other sources of
income included royalties received for the sale of Licor de Cafe Britt
distributed by Holtermann & Cia. Other expenses are also included and deducted
from other income.
Gain on sale of permanent investment
Grupo Cafe Britt sold during June of 1998 a 7.5% of its participation in
Boston Roasting and Import Trade Team, L.L.C., the sale involved a net gain of
$350,864. Expenses related to this transaction were deducted.
Translation Loss (gain)
The company carries most of its operations in Costa Rica, and the Costa
Rican corporations carry their accounting in colones, the local currency.
Depending on the net position of monetary assets and liabilities, the company
may incur in translation gains or losses. Monetary assets denominated in colones
generate translation losses while monetary liabilities held in colones generate
translation gains.
Financing expense
Financing expense consists primarily of interest on borrowings under
working capital facilities that we maintained and interest on long-term debt and
capital lease obligations.
Income tax
Income taxes consist of the consolidation of the income taxes computed on
a separate entity basis, in each country in which we have operations. Since the
Company is a non-US company with substantial operations outside the United
States, a substantial portion of its results of operations is not subject to
U.S. taxation. The Company is however, subject to U.S. taxation on constructive
operating profits of its U.S. subsidiary, calculated in accordance with the tax
provisions governing related party transactions.
Results of operations
The following table presents, for each of the periods indicated, income
statement data expressed as a percentage of net sales:
24
<PAGE>
- --------------------------------------------------------------------------------
Year ended June 30,
================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales 100% 100% 100%
Cost of sales 72.2 75.2 74.3
Gross Profit 27.8 24.8 25.7
Selling expenses 12.9 14.2 19.4
General and Administrative
Expenses 8.7 18.3 26.2
Other income and gain on sale of
permanent investment, net (0.3) (12.5) (6.0)
Translation loss (gain) 2.3 4.4 (14.0)
Income (loss) before interest and
taxes 4.2 0.4 0.1
Financing expenses (3.0) (6.2) (8.3)
Income tax 0.1 (0.3) (0.0)
Net income (loss) 1.3% (6.2) (8.3)
- --------------------------------------------------------------------------------
The following table presents for each of the periods indicated (1) net
sales by geographic region, (2) net sales by segment and (3) gross product by
segment
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year ended June 30,
=============================================================================================================
1999 1998 1997
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net sales by geographic area:
Costa Rica $ 5,354 60.5% $ 2,924 58.1% $ 2,566 62.0%
United States 2,597 29.3 1,578 31.4 1,140 27.5
Canada 81 0.9 52 1.0 34 0.8
Europe 100 1.1 14 0.3 24 0.6
Others 718 8.1 462 9.2 374 9.0
Total net sales $ 8,850 100% $ 5,030 100% $ 4,138 100%
Net sales by segment
Coffee sales $ 8,254 93.3% $ 4,647 92.4% $ 3,815 92.2%
Tourism 596 6.7 383 7.6 323 7.8
Operation Profit by segment
Coffee sales 512 5.8 (379) (7.5) (695) (16.8)
Tourism 35 0.4 (6) (0.1) (130) (3.1)
Total Operation Profit (loss) 547 6.2 (385) (7.6) (825) (19.9)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1999 Compared with 1998
Net sales
In 1999 net sales were $8.85 million compared with $5.03 million for 1998,
an increase of 76%. The increase in net sales of $3.82 million was primarily the
result of higher sales of roasted coffee in Costa Rica and the inclusion of
green coffee sales. The retail division had a substantial increase from $441,000
in 1998 to $828,000 in 1999. Export sales of roasted coffee also increased 55%
from $1.31 million in
25
<PAGE>
1998 to $2.03 million in 1999. Coffee tour sales grew 56% going from $383,000 in
1998 to $596,000 in 1999.
The growth in sales was supported by an increase of $431,000 in selling
expenses.
With current infrastructure, machinery and equipment, the company has
production capacity up to 200 metric tons per month or 2,400 metric tons per
year (440,000 lb per month or 5.3 million lb per year). During the next high
season the Company estimates its monthly production level will be at 60% of our
capacity.
Cost of sales
Cost of sales went from $3.78 million in 1998 to $6.39 million in 1999, an
increase of 69%. Cost of sales as a percentage of sales went from 75.2% in 1998
to 72.2% in 1999. Gross margin improved primarily because of lower green coffee
prices.
Gross Profit
Gross Profit was $2.46 million in 1999 compared to $1.25 million in 1998,
an increase of $1.21 million or 97%. As a percentage of sales, gross profit
improved from 24.8 in 1998 to 27.8 in 1999. The higher volumes also brought
economies of scale and cost reductions, which together with lower green coffee
prices improved the gross margin. This positive impact in gross margin was
partially offset by a change in the product mix, because the inclusion of green
coffee sales lowered the average gross margin. In the future, it is expected
that gross margin of roasted coffee sales will increase. However, the inclusion
of green coffee sales and the corresponding lower gross profit associated with
these sales, will cause a reduction in the gross profit of the company as a
whole as a percentage of sales.
Selling Expenses
Selling expenses increased $431,000 or 60%, going from $712,000 in 1998 to
$1.14 million in 1999. This was primarily the result of a marketing plan based
on increased promotion at the point of sale and expansion of retail activities.
General and Administrative Expenses
General and administrative expenses experienced a reduction from $922,000
in 1998 to $770,000 in 1999. The reduction was due to a plan to decrease costs
and expenses. However, during the last months the company hired professional
staff in the areas of Information Technology, Accounting, and Human Resources,
and as a result, the general and administrative expenses will increase again in
the coming months. A second factor contributing to the reduction comes from the
fact that expenses are carried out in Costa Rican colones, and because of the
devaluation there is a foreign translation effect of applying a higher exchange
rate in 1999. From time to time depending on Costa Rica's
26
<PAGE>
economic conditions, the prices and rates for some goods and services become
cheaper when converted to US dollars.
Other income, net
Other income decreased from $277,000 in 1998 to $28,669 in 1999. This
decrease is due primarily to lower levels of sales of toll packing services. As
the company increases its own production, the use of the manufacturing
facilities for third-party products becomes less attractive.
Gain on sale of permanent investment
This transaction was a one-time negotiation of 7.5 % of the company's
participation in Boston Roasting and Import Trade Team, LLC. The company sold
this at a profit of $350,000 net of expenses. The company does not have plans to
sell any of its remaining interest in Boston Roasting.
Translation loss (gain)
The company has substantial operations in Costa Rica, where transactions
are predominantly carried out in colones, the local currency. Monetary assets
held in colones generate translation losses, while monetary liabilities held in
colones generate translation gains, due to devaluation. Translation loss
decreased from $223,000 to $207,000.
Financing expenses
Financing expenses experienced a reduction of 16%, from $314,000 in 1998
to $265,000 in 1999. This reduction is due to the substitution of debt for
equity.
Income tax
The net effect from the 1% income tax paid, and the deferred income taxes,
cause a positive balance for 1999, of $13,000, against a net income tax of
$17,000 paid during 1998.
1998 Compared with 1997
Net sales
In 1998 net sales were $5.03 million compared with $4.14 million for 1997,
an increase of 22%. The increase in net sales of $0.89 resulted from higher
export and local coffee sales, excluding retail sales, which decreased 9%
because the company did not have the stand in the international airport during
1998.
Local coffee sales (wholesale and supermarkets) grew 19% from $2.09
million in 1997 to $2.48 million in 1998. Export sales of roasted coffee
increased 57% from $0.84 million in 1997 to $1.31 million in
27
<PAGE>
1998. Sales to Sam's Club stores from January to June 1998 contributed to this
growth.
Cost of sales
Cost of sales increased 23%, from $3.07 million in 1997 to $3.78 million
in 1998. Cost of sales as a percentage of net sales was 75.2% in 1998 and 74.3%
in 1997, showing a stable behavior.
Gross Profit
Gross Profit was $1.25 million in 1998 compared to $1.06 million in 1997,
an increase of 18%. As a percentage of sales, gross profit went from 25.7 in
1997 to 24.8 in 1998.
Selling Expenses
Selling expenses decreased slightly from $804,000 in 1997 to $712,000 in
1998, in an effort to reduce expenses while the company was restructuring its
capital base. The push in sales and marketing would come during 1999.
General and Administrative Expenses
General and administrative expenses experienced a reduction from $1.08
million in 1997 to $922,000 in 1998. The reduction came from a company effort to
become more efficient.
Other income, net
Other income decreased from $580,000 in 1997 to $277,000 in 1998.
Gain on sale of permanent investment
See comment in previous section.
Translation loss (gain)
Translation gain of $250,000 during 1997 turned into a loss of 223,000
during 1998. This is the case because in 1998 the company had more colon
denominated monetary assets and more dollar denominated liabilities than in
1997.
Financing expenses
Financing expenses experienced a reduction of 16%, from $314,000 in 1997
to $265,000 in 1998. This reduction is due to the substitution of debt for
equity.
Income tax
The net effect from the 1% income tax paid, and the deferred income taxes,
cause a positive balance for 1998, of $13,000 against a net income tax of
$17,000 paid during 1997.
28
<PAGE>
Seasonality
Our business is subject to seasonal fluctuations primarily attributable to
the lower temperatures in the Northern Hemisphere from November to April. This
cold weather coincides with the high season for Costa Rican tourism industry.
Liquidity and capital resources
Net cash provided by operating activities for 1999 was $326,000, an
increase of $165,000 from 1998. Net cash used by operating activities in 1997
reached $917,000. The increase in net cash by operating activities is primarily
attributable to the increase in sales and the improvement of operating margins.
Net cash used by investing activities reached $804,000 in 1999, $759,000
in 1998 and $233,000 in 1997. These capital expenditures during these periods
were primarily for expansion of our production capacity and for improvements in
tourism facilities. Investments included a new packaging line, a silo for
blending and storing green coffee on site, expansion of the factory area,
automation of product flows and electronic controls. A new restaurant was built
and the theater was remodeled. The total invested in purchase of property, plant
and equipment for the three-year period was $1.8 million.
Cash provided by financing activities was $1.0 million in 1999, $755,000
in 1998 and $1.3 million in 1997. The principal source of cash from investing
activities has been the issuance of common stock through private placements,
having raised $1.4 million in 1999, $1.7 million in 1998 and $1.1 million in
1997. Proceeds from loans were $228,000 in 1998 and $1.1 million in 1997,
whereas loan payments were $342,000 in 1999, 1.1 million in 1998 and $755,000 in
1997. In the three-year period the company received 1.4 million from loans, and
paid $2.2million as loan payments, using a net amount of $884,000 for this
concept.
The company has a revolving line of credit of $500,000 with Banco Improsa,
a Costa Rican bank, and the Company plans to obtain an additional line for
working capital in the coming months.
Impact of Year 2000 Issue
The Year 2000 computer issue is the result of computer programs being
written using two digits rather than four digits to define the applicable year.
Any of Cafe Britt's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions, send invoices, ship products, or engage in similar normal business
activities. In addition to hardware and software, the Year 2000 computer issue
may also affect printers, facsimile machines, security systems, elevators, and
other systems that are controlled by microprocessors. The Year 2000 computer
issue will affect Cafe Britt, its vendors and suppliers, customers, and other
third parties with whom Cafe Britt does business.
29
<PAGE>
To address this issue, Cafe Britt has created a plan under the
direction of the CFO, which consists of a team of Cafe Britt personnel and
third-party consultants. The phases of the plan include assessment, remediation
or replacement, testing and certification, and implementation.
Cafe Britt is focusing on the following four areas of exposure:
o Information technology;
o Non-information technology, or non-IT systems (for example,
climate control systems, copy machines, security systems,
etc.);
o Technology products sold by Cafe Britt; and
o Third-party relationships.
Cafe Britt has completed its evaluation of the Year 2000 readiness of its
information technology and the critical sections of its non-information
technology systems. Information technology includes, client server applications,
end-user applications, infrastructure hardware and software, and networks and
voice systems. Cafe Britt has completed the assessment of all information
technology systems that it believes could be significantly affected by the Year
2000 computer issue, and has completely replaced the accounting and
administration software. All critical software currently in use is Y2k
compliant.
Cafe Britt has identified its most important customers, suppliers, and
business partners (for example, printers, paper suppliers, distributors, and
financial institutions), and is in the process of contacting them to determine
the extent to which Cafe Britt may be vulnerable in the event that those parties
fail to properly correct their own Year 2000 computer issues. Cafe Britt will be
monitoring the responses and progress of these parties. To date, Cafe Britt is
not aware of any third party whose Year 2000 issues would have a material effect
on Cafe Britt, but has no independent means of ensuring that third parties will
be Year 2000 ready or whether their remediation efforts will be compatible with
those of Cafe Britt.
We estimate that our total year 2000 project costs, including assessment,
development of a modification or replacement plan, purchase of new hardware and
software and implementation, will be approximately $180,000. From this,
approximately $150,000 have been capitalized and $25,000 expensed. The costs
incurred to date were funded through cash flow from operations.
Cafe Britt believes that it has an effective program in place to resolve
any Year 2000 computer issues in a timely manner. With the progress up to date,
management believes that the Year 2000 computer issue will not pose significant
operational problems for Britt's computer systems.
While Cafe Britt is not currently aware of any significant exposure, it
cannot be sure that all Year 2000 remediation processes will be completed and
properly tested before the Year 2000, or that contingency plans will be
sufficient to mitigate the risk of all forms of Year 2000 readiness problems for
Cafe Britt and its significant customers, suppliers, and business partners.
30
<PAGE>
Compensation of Directors and Officers
During the year ended June 30, 1999 the company paid a total of $272,000 to its
officers and directors (8 persons). The company does not currently have pension
or retirement plans for its officers or directors.
- --------------------------------------------------------------------------------
Steven Aronson, President and Chief Executive Officer $125,000
- --------------------------------------------------------------------------------
Pablo Vargas, Chief Financial Officer and Director 48,000
- --------------------------------------------------------------------------------
Tina Aronson, United States Representative 49,500
- --------------------------------------------------------------------------------
Marianela Monte, Exports Manager 32,500
- --------------------------------------------------------------------------------
Phillipe Aronson, Sales Manager 17,000
- --------------------------------------------------------------------------------
Edward Logeman, Managing Director 0
- --------------------------------------------------------------------------------
Guillermo Groisman, Director 0
- --------------------------------------------------------------------------------
Michael Caggiano, Director 0
- ----------------------------------------------------------------------
$272,000
- ----------------------------------------------------------------------==========
Certain Relationships and Related Transactions
In January 1999, the Company entered into an agreement with Cafe Tropico,
S.A., a related party with common shareholders but not part of Cafe Britt, to
execute its sale contracts of green coffee since January 1999. After this
initial transitional phase, the agreement allows Cafe Britt to continue to serve
Cafe Tropico's international clients for account of Cafe Britt. This brings
additional revenues to Cafe Britt. During the first six months green coffee
sales under this contract were $2.8 million. In the future Finca Tropico, S.A.
will handle all green coffee operations as a subsidiary of Cafe Britt Coffee
Corporation.
In addition, Boston Roasting and Import Trade Team LLC, a U.S. Company
owned by Cambridge Associates Holdings Corp., other shareholders and Cafe Britt,
granted a $1.500.000 subordinated loan in 1997 for working capital and
purchasing of equipment, with no due date and 12% yearly interest rate.
Decisions in Boston Roasting are made by the consensus of four managers,
two of which represent the interests of Grupo Cafe Britt, S.A. Cafe Britt sells
coffee at competitive market levels to Boston Roasting and has a 25%
participation in the profits of the venture. Cafe Britt holds options to
purchase an additional 7.5% of the company over the next 4 years.
Use of Proceeds
The Company will not receive any proceeds from the sale of the common
stock offered hereby; nor will such proceeds be available for the Company's use
or benefit.
31
<PAGE>
Selling Security Holders
The shares of Common Stock of the Company offered by this Prospectus are
being sold for the account of the Selling Security Holders identified in the
table indicated below (the "Selling Security Holders"). The Selling Security
Holders are offering for sale an aggregate of 10,000,000 shares of the Company's
Common Stock.
The following table sets forth the number of Shares being held of record
or beneficially (to the extent known by the Company) by such Selling Security
Holders and provides (by footnote reference) any material relationship between
the Company and such Selling Security Holders, all of which is based upon
information currently available to the Company.
- --------------------------------------------------------------------------------
Number of
No. Name Of Shareholder Shares Owned
- --------------------------------------------------------------------------------
1 Alejandro Alpizar Munoz 100
- --------------------------------------------------------------------------------
2 Anna Alvarez 100
- --------------------------------------------------------------------------------
3 Antonieta Brenes Jimenez 100
- --------------------------------------------------------------------------------
4 Ana Rita Chavarria Avila 100
- --------------------------------------------------------------------------------
5 Clyde C. Adams 9,500
- --------------------------------------------------------------------------------
6 Dieter Adler 1,090
- --------------------------------------------------------------------------------
7 Kimberly S. Alexander 2,250
- --------------------------------------------------------------------------------
8 Abba Lichtenstein 2,000
- --------------------------------------------------------------------------------
9 Alexander Tom Lichtenstein 100
- --------------------------------------------------------------------------------
10 Jonathan Lichtenstein 100
- --------------------------------------------------------------------------------
11 Joshua Tom Lichtenstein 100
- --------------------------------------------------------------------------------
12 Natalie Lichtenstein 100
- --------------------------------------------------------------------------------
13 Murray Alter 5,000
- --------------------------------------------------------------------------------
14 Alejandra Mora Moreno 100
- --------------------------------------------------------------------------------
15 Ana Sanchez 100
- --------------------------------------------------------------------------------
16 Benjamin Aronson 25,000
- --------------------------------------------------------------------------------
17 Catherine Aronson 25,000
- --------------------------------------------------------------------------------
18 Jeremy Aronson 25,000
- --------------------------------------------------------------------------------
19 Marie Aronson 25,000
- --------------------------------------------------------------------------------
20 Philippe Aronson 200,000
- --------------------------------------------------------------------------------
21 Raphael And Henny Aronson 112,500
- --------------------------------------------------------------------------------
22 Raphael And Henny Aronson 124,600
- --------------------------------------------------------------------------------
23 El Ciruelo S.A. 5,766,165
- --------------------------------------------------------------------------------
24 Tina Aronson 100
- --------------------------------------------------------------------------------
25 Armando Rosales 100
- --------------------------------------------------------------------------------
26 Alice Avrutick 2,000
- --------------------------------------------------------------------------------
27 Louis Avrutick 2,000
- --------------------------------------------------------------------------------
28 H. Thomas And Paula M. Bartlett 2,000
- --------------------------------------------------------------------------------
29 Thomas Bazemore 10,000
- --------------------------------------------------------------------------------
30 Robert L. And Deborah A. Bedell And Campbell 2,000
- --------------------------------------------------------------------------------
31 Corporacion De Inversiones Dilido Internacional,S.A. 10,473
- --------------------------------------------------------------------------------
32 Mable R. Bell 2,000
- --------------------------------------------------------------------------------
33 Bennett Enterprises, Inc. 2,000
- --------------------------------------------------------------------------------
34 Frank P. Bernarducci , Ttee 9,500
- --------------------------------------------------------------------------------
35 Robert Blais 2,200
- --------------------------------------------------------------------------------
36 Emmy Lou Bradt 11,250
- --------------------------------------------------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
37 Bosque Del Cabo S.A. 1,000
- --------------------------------------------------------------------------------
38 Michael N. Caggiano, Ph.D. 50,000
- --------------------------------------------------------------------------------
39 Caltkco S.A. 170,921
- --------------------------------------------------------------------------------
40 Carlos Arce 100
- --------------------------------------------------------------------------------
41 Robert And Cinthis Carli 2,000
- --------------------------------------------------------------------------------
42 Carmen Chavarria 100
- --------------------------------------------------------------------------------
43 Carlos Blanco 100
- --------------------------------------------------------------------------------
44 Carlos Brown Wiltshire 100
- --------------------------------------------------------------------------------
45 Claudia Gomez 100
- --------------------------------------------------------------------------------
46 Miu Kan Cheng Lom 10,000
- --------------------------------------------------------------------------------
47 Charlie Cho 10,000
- --------------------------------------------------------------------------------
48 Cirilo Farley Farley 100
- --------------------------------------------------------------------------------
49 Cesar Melendez Espinoza 100
- --------------------------------------------------------------------------------
50 Carlos Manuel Gonzalez 100
- --------------------------------------------------------------------------------
51 Robert B. And Claire Jeanne Margaret Colton 4,500
- --------------------------------------------------------------------------------
52 Charles Cool 40,000
- --------------------------------------------------------------------------------
53 Brendan Burke 500
- --------------------------------------------------------------------------------
54 Karen Cooper 500
- --------------------------------------------------------------------------------
55 Martha Corcoran 20,000
- --------------------------------------------------------------------------------
56 Mario Correia 22,500
- --------------------------------------------------------------------------------
57 Carolina Salas Alfaro 100
- --------------------------------------------------------------------------------
58 Christian Segura Acosta 100
- --------------------------------------------------------------------------------
59 Christopher Vega Alfaro 800
- --------------------------------------------------------------------------------
60 Esteban Vega Alfaro 800
- --------------------------------------------------------------------------------
61 Kenneth Vega Alfaro 800
- --------------------------------------------------------------------------------
62 Comercializadora Laf S.A. 800
- --------------------------------------------------------------------------------
63 Lisbeth Alfaro Fallas 800
- --------------------------------------------------------------------------------
64 Donald Layne Carter 11,250
- --------------------------------------------------------------------------------
65 The Greenwich Company 24,300
- --------------------------------------------------------------------------------
66 Anton H. Derosa 1,778
- --------------------------------------------------------------------------------
67 Aaron M. Derosa 222
- --------------------------------------------------------------------------------
68 Anton W. Derosa 222
- --------------------------------------------------------------------------------
69 Dionisio Echeverria 100
- --------------------------------------------------------------------------------
70 Craig Dixon 4,000
- --------------------------------------------------------------------------------
71 Don L. Carter 4,500
- --------------------------------------------------------------------------------
72 Michael L. Doren 6,000
- --------------------------------------------------------------------------------
73 William J. Downey, Jr. 30,000
- --------------------------------------------------------------------------------
74 James M. Duenow Pension Plan Trust 31,040
- --------------------------------------------------------------------------------
75 Shirley Dundon 6,250
- --------------------------------------------------------------------------------
76 Elizabeth Anticona 100
- --------------------------------------------------------------------------------
77 Exdys Cuadra Alvarado 100
- --------------------------------------------------------------------------------
78 Peter H. Edwards 116,364
- --------------------------------------------------------------------------------
79 Edwin Espinoza 100
- --------------------------------------------------------------------------------
80 Elieth Sanchez Sanchez 6,000
- --------------------------------------------------------------------------------
81 Juan Diego Sanchez 850
- --------------------------------------------------------------------------------
82 Erick Miranda Rojas 100
- --------------------------------------------------------------------------------
83 Eduardo Mosheim 100
- --------------------------------------------------------------------------------
84 Charles Endress 2,000
- --------------------------------------------------------------------------------
85 Eliecer Poveda Loaiza 100
- --------------------------------------------------------------------------------
86 Erika Rojas Barrantes 100
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
87 Richard Eurich 3,273
- --------------------------------------------------------------------------------
88 Lewis L. Fagen 8,000
- --------------------------------------------------------------------------------
89 Robert Fairchild 30,000
- --------------------------------------------------------------------------------
90 Robert Faulstich 8,000
- --------------------------------------------------------------------------------
91 Fernando Castro Barahona 100
- --------------------------------------------------------------------------------
92 Gary Prudential Securities, C/F Gary Feldman Money 4,400
- --------------------------------------------------------------------------------
93 Fernelli Araya Brenes 100
- --------------------------------------------------------------------------------
94 Francisco Esquivel Vargas 100
- --------------------------------------------------------------------------------
95 Larry And Mary Frances Fleming 3,300
- --------------------------------------------------------------------------------
96 Franciny Montero Salas 100
- --------------------------------------------------------------------------------
97 Dena M. Forte 2,000
- --------------------------------------------------------------------------------
98 Addison C. Fox 4,000
- --------------------------------------------------------------------------------
99 Greivin Arce 100
- --------------------------------------------------------------------------------
100 Mark Gatlin (Ira) Lincoln Trust 9,000
- --------------------------------------------------------------------------------
101 Carter & Sloope, Inc. 11,250
- --------------------------------------------------------------------------------
102 Carter & Sloope, Inc. Profit Sharing Plan 11,250
- --------------------------------------------------------------------------------
103 Tom Sloope 4,504
- --------------------------------------------------------------------------------
104 Gevry Becker 100
- --------------------------------------------------------------------------------
105 Gonzalo Campos Zuniga 100
- --------------------------------------------------------------------------------
106 Greivin Cordoba Jimenez 100
- --------------------------------------------------------------------------------
107 Gabriela Echeverria 100
- --------------------------------------------------------------------------------
108 Gerardo Garita Jara 100
- --------------------------------------------------------------------------------
109 Avice M. Gingold 100
- --------------------------------------------------------------------------------
110 Dylan A. Gingold 100
- --------------------------------------------------------------------------------
111 Roslyn Sivitz 400
- --------------------------------------------------------------------------------
112 Garold La Rue 100
- --------------------------------------------------------------------------------
113 Ken Glass 20,000
- --------------------------------------------------------------------------------
114 Gustavo Montero Camacho 100
- --------------------------------------------------------------------------------
115 Ana Gomar 100
- --------------------------------------------------------------------------------
116 Jesus Gomar 100
- --------------------------------------------------------------------------------
117 Lucia Gomar 100
- --------------------------------------------------------------------------------
118 Miguel Angel Gomar 100
- --------------------------------------------------------------------------------
119 Rosa Maria Gomar 20,600
- --------------------------------------------------------------------------------
120 Cesar Gonzalo Romero Loaiza 6,750
- --------------------------------------------------------------------------------
121 Philip B. Graham 10,000
- --------------------------------------------------------------------------------
122 Rusty Grant 2,000
- --------------------------------------------------------------------------------
123 Arnold Greenberg 116,364
- --------------------------------------------------------------------------------
124 Andres Nunez 68,500
- --------------------------------------------------------------------------------
125 El Bisonte, S.A. 68,500
- --------------------------------------------------------------------------------
126 Geckos, S.A. 69,300
- --------------------------------------------------------------------------------
127 La Hormiguita Trabajadora, S.A. 68,500
- --------------------------------------------------------------------------------
128 Panza Verde S.A. 68,500
- --------------------------------------------------------------------------------
129 Swen Aron 68,500
- --------------------------------------------------------------------------------
130 Vanessa Aron 68,500
- --------------------------------------------------------------------------------
131 Frutas Secas, S.A. 6,850
- --------------------------------------------------------------------------------
132 Edwin A. Handler 26,827
- --------------------------------------------------------------------------------
133 Charles Pedrotta 3,640
- --------------------------------------------------------------------------------
134 Stanley Held, Lincoln Trust FBO Custodian 3,273
- --------------------------------------------------------------------------------
135 Daphne Hendrickson 100
- --------------------------------------------------------------------------------
136 Harland Hendrickson 4,451
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
137 Hyram Hendrickson 100
- --------------------------------------------------------------------------------
138 Loretta Hendrickson 4,451
- --------------------------------------------------------------------------------
139 Karen Herrera Beita 2,000
- --------------------------------------------------------------------------------
140 Stonewall Equity L. P. (Charles L. Hershberger) 4,250
- --------------------------------------------------------------------------------
141 Dr. Webb Hersperger 4,000
- --------------------------------------------------------------------------------
142 O.A. Hildebrandt, Dvm 10,000
- --------------------------------------------------------------------------------
143 Francoise Hilger (IRA) 4,500
- --------------------------------------------------------------------------------
144 James Hobson 2,000
- --------------------------------------------------------------------------------
145 ICMC Paramount Fund LI Ein# 75-2 10,500
- --------------------------------------------------------------------------------
146 Segundo Imbert 10,000
- --------------------------------------------------------------------------------
147 Ivelisse Colon Perez 750
- --------------------------------------------------------------------------------
148 Sherwin W. Iverson 2,000
- --------------------------------------------------------------------------------
149 Timothy R. Ives 4,000
- --------------------------------------------------------------------------------
150 Jacqueline Steller 100
- --------------------------------------------------------------------------------
151 Jorge Arroyo 100
- --------------------------------------------------------------------------------
152 John Brenes Luna 100
- --------------------------------------------------------------------------------
153 Jose Chanto Calderon 100
- --------------------------------------------------------------------------------
154 Jorge Fonseca Vindas 100
- --------------------------------------------------------------------------------
155 Jose Hernandez Valerio 100
- --------------------------------------------------------------------------------
156 Gerardo Jimenez 2,000
- --------------------------------------------------------------------------------
157 Juan Jose Oviedo 100
- --------------------------------------------------------------------------------
158 Jose Luis Chavarria Castro 100
- --------------------------------------------------------------------------------
159 Lewis And Dorothy Johnson 4,000
- --------------------------------------------------------------------------------
160 Ken Jones Marital Trust 6,000
- --------------------------------------------------------------------------------
161 Bradley Jones 10,000
- --------------------------------------------------------------------------------
162 Joris Brinckerhoff 200
- --------------------------------------------------------------------------------
163 Annette Brinckerhoff 4,500
- --------------------------------------------------------------------------------
164 Katrina Brinckerhoff 4,500
- --------------------------------------------------------------------------------
165 Marcos Gutierrez 450
- --------------------------------------------------------------------------------
166 El Mundo De Las Mariposas, S.A. 38,645
- --------------------------------------------------------------------------------
167 Maria Sabido 300
- --------------------------------------------------------------------------------
168 Suministros Entomologicos Costarricenses, S.A. 35,135
- --------------------------------------------------------------------------------
169 La Finca De Mariposas, S.A. 41,270
- --------------------------------------------------------------------------------
170 Jack Aurelia Holdings (Pines) 10,000
- --------------------------------------------------------------------------------
171 Jose Pablo Umana Alvarado 100
- --------------------------------------------------------------------------------
172 Jesus Rojas Zuniga 100
- --------------------------------------------------------------------------------
173 Johny Segura Acosta 100
- --------------------------------------------------------------------------------
174 Jose Segura Villalobos 100
- --------------------------------------------------------------------------------
175 Kimberly Easson 100
- --------------------------------------------------------------------------------
176 Marjorie Kent Leff, Trustee 4,000
- --------------------------------------------------------------------------------
177 Paul King 393,248
- --------------------------------------------------------------------------------
178 Raymond And Connie Kline 2,000
- --------------------------------------------------------------------------------
179 Kelly Murphy Coto 100
- --------------------------------------------------------------------------------
180 Leonel Barrios Flores 100
- --------------------------------------------------------------------------------
181 Lucila Blanco Meneses 100
- --------------------------------------------------------------------------------
182 Leslie Mc Bride 100
- --------------------------------------------------------------------------------
183 David M. And Margaret L. Lewey And Zerbe 2,000
- --------------------------------------------------------------------------------
184 Luis Fernando Mendez Trejos 100
- --------------------------------------------------------------------------------
185 Luis Fernando Monge Perez 100
- --------------------------------------------------------------------------------
186 Luis Hernandez Hernandez 100
- --------------------------------------------------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
187 Laura Herrera Gonzalez 100
- --------------------------------------------------------------------------------
188 James A. Libby, Dr. 10,000
- --------------------------------------------------------------------------------
189 Mary Lou Lind 2,000
- --------------------------------------------------------------------------------
190 Eric P. Littman, P.A. 150,000
- --------------------------------------------------------------------------------
191 Leslie Lechanu 100
- --------------------------------------------------------------------------------
192 Luis Nunez Vargas 100
- --------------------------------------------------------------------------------
193 Alan And Judith Loew 2,000
- --------------------------------------------------------------------------------
194 Lorena Villegas Calvo 100
- --------------------------------------------------------------------------------
195 Sovereign Corp. Services Ltd. 10,000
- --------------------------------------------------------------------------------
196 Maria De Los Angeles Arburola Matamoros 100
- --------------------------------------------------------------------------------
197 Marco Martinez (IRA) 4,500
- --------------------------------------------------------------------------------
198 Marvin Bogantes Venegas 100
- --------------------------------------------------------------------------------
199 Jim And Sue McCord 22,500
- --------------------------------------------------------------------------------
200 Mauro Chacon 100
- --------------------------------------------------------------------------------
201 Maria Cristina Cortaberria 100
- --------------------------------------------------------------------------------
202 Mario Delgado Soto 100
- --------------------------------------------------------------------------------
203 Katherine Merrick 10,000
- --------------------------------------------------------------------------------
204 Mauricio Esquivel 100
- --------------------------------------------------------------------------------
205 Michael Forrest 6,100
- --------------------------------------------------------------------------------
206 Marlon Garro Murillo 100
- --------------------------------------------------------------------------------
207 Joseph F. And Sylvia O. Michaels 2,000
- --------------------------------------------------------------------------------
208 Miguel Chavarria Sanchez 100
- --------------------------------------------------------------------------------
209 Peter Paul Van Doalhoff 100
- --------------------------------------------------------------------------------
210 Eleonora Mijne 1,100
- --------------------------------------------------------------------------------
211 John Mischler 5,023
- --------------------------------------------------------------------------------
212 Marlene Mitchell 1,000
- --------------------------------------------------------------------------------
213 Marco Martin 100
- --------------------------------------------------------------------------------
214 Marianela Monge 4,000
- --------------------------------------------------------------------------------
215 Mario Morales Carvajal 100
- --------------------------------------------------------------------------------
216 Peninsula De Los Mogos, S.A. 2,000
- --------------------------------------------------------------------------------
217 Martin Mueller 5,000
- --------------------------------------------------------------------------------
218 Marta Vega Carballo 100
- --------------------------------------------------------------------------------
219 Mariela Zuniga Vargas 100
- --------------------------------------------------------------------------------
220 Shepherd L. Nachbar 2,000
- --------------------------------------------------------------------------------
221 Keith J. And Margaret C. Neville 2,000
- --------------------------------------------------------------------------------
222 Nelson Ortiz Coto 100
- --------------------------------------------------------------------------------
223 Oscar Arce Gonzalez 100
- --------------------------------------------------------------------------------
224 Omar Elizondo Granados 100
- --------------------------------------------------------------------------------
225 Ouida Jan Smith 1,800
- --------------------------------------------------------------------------------
226 Irvin Olsen 1,818
- --------------------------------------------------------------------------------
227 Ann (Marissa) O'Neill 4,018
- --------------------------------------------------------------------------------
228 Olman Solano Contreras 100
- --------------------------------------------------------------------------------
229 TENENCIA DE OZMEN TENENCIA DE OZMEN
C/O Lic. Henry Lang 45,455
- --------------------------------------------------------------------------------
230 Pablo Vargas 3,100
- --------------------------------------------------------------------------------
231 Ana Beatriz Campos Mora 4,000
- --------------------------------------------------------------------------------
232 Beatriz Del Carmen Vargas Campos 1,000
- --------------------------------------------------------------------------------
233 Jose Pablo Vargas Campos 1,000
- --------------------------------------------------------------------------------
234 Patricia Acosta Ramos 100
- --------------------------------------------------------------------------------
235 Paola Vargas Saenz 100
- --------------------------------------------------------------------------------
236 Coe J. Parker 4,000
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
237 Harish R. Patel 2,250
- --------------------------------------------------------------------------------
238 Charles Pedrotta 21,173
- --------------------------------------------------------------------------------
239 Paul Laarman 4,000
- --------------------------------------------------------------------------------
240 Patricia Murillo Bolanos 100
- --------------------------------------------------------------------------------
241 Christine Pratt 2,000
- --------------------------------------------------------------------------------
242 Greg S. And Dianna Purdy 2,200
- --------------------------------------------------------------------------------
243 Purdy Family Trust 4,000
- --------------------------------------------------------------------------------
244 Mark R. Rahner (Custodian For Troy R. Rahner) 12,000
- --------------------------------------------------------------------------------
245 Ralph Chavez 20,000
- --------------------------------------------------------------------------------
246 Ricardo Araya Chaverri 100
- --------------------------------------------------------------------------------
247 Rosa Cajas Echenique 100
- --------------------------------------------------------------------------------
248 Rolando Casal Arias 100
- --------------------------------------------------------------------------------
249 Rolando Castro 100
- --------------------------------------------------------------------------------
250 George C. Reed and Thomas Bahringer 10,000
- --------------------------------------------------------------------------------
251 Shaun J. Regan 2,500
- --------------------------------------------------------------------------------
252 Joyce Olson Resnikoff 9,000
- --------------------------------------------------------------------------------
253 W. Scott Rhinehart 10,000
- --------------------------------------------------------------------------------
254 Frances T. Riccardi 2,000
- --------------------------------------------------------------------------------
255 Rocio Lopez 100
- --------------------------------------------------------------------------------
256 Hubert Robitaille 22,500
- --------------------------------------------------------------------------------
257 Ken Rock 5,240
- --------------------------------------------------------------------------------
258 Rosario Salazar 100
- --------------------------------------------------------------------------------
259 Colores Internacionales, S.A. 13,500
- --------------------------------------------------------------------------------
260 Elinor T. Rosenmiller 3,422
- --------------------------------------------------------------------------------
261 Abigail B. Wootton 100
- --------------------------------------------------------------------------------
262 Betsy A. Rosenmiller 250
- --------------------------------------------------------------------------------
263 Dennis D. Jones 250
- --------------------------------------------------------------------------------
264 Diane L. Rosenmiller 250
- --------------------------------------------------------------------------------
265 Matthew T. Baker 250
- --------------------------------------------------------------------------------
266 Matthew T. Wootton 250
- --------------------------------------------------------------------------------
267 Nicholas Seidner 250
- --------------------------------------------------------------------------------
268 Susan R. Wootton 250
- --------------------------------------------------------------------------------
269 Wendy R. Jones 250
- --------------------------------------------------------------------------------
270 C.R. De Escazu Empresa Costarricense S.A. 11,045
- --------------------------------------------------------------------------------
271 C.R. Inversion Ltda. 5,522
- --------------------------------------------------------------------------------
272 David Morgan Iii 5,522
- --------------------------------------------------------------------------------
273 Thomas A. Pendergast 5,522
- --------------------------------------------------------------------------------
274 Suzanne A. Stallman 5,522
- --------------------------------------------------------------------------------
275 Stallman Leasing Company 15,522
- --------------------------------------------------------------------------------
276 Proyecto Turistico Ararat S.A. 11,045
- --------------------------------------------------------------------------------
277 Peter J. and Linda D. Van Giesen 11,045
- --------------------------------------------------------------------------------
278 Roberto Quesada Vargas 100
- --------------------------------------------------------------------------------
279 Ronald Smith 6,546
- --------------------------------------------------------------------------------
280 Andrew H. and Ruth Ann Ruble 400
- --------------------------------------------------------------------------------
281 W. Eugene and Peggy C. Ruble 4,000
- --------------------------------------------------------------------------------
282 Bruce F. Russell 2,250
- --------------------------------------------------------------------------------
283 Rodolfo Vargas Rivera 100
- --------------------------------------------------------------------------------
284 Roy Vindas Nunez 100
- --------------------------------------------------------------------------------
285 Salvador Solis Zecena 1,600
- --------------------------------------------------------------------------------
286 Paul Santoro 4,000
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
287 Sandra Casco Casco 100
- --------------------------------------------------------------------------------
288 Helga Schlichter, TTE 6,000
- --------------------------------------------------------------------------------
289 Robert Schlichter, TTE 10,000
- --------------------------------------------------------------------------------
290 Helga Schlichter, TTE 6,000
- --------------------------------------------------------------------------------
291 Robert J. Schlichter, TTE 10,000
- --------------------------------------------------------------------------------
292 Vinzenz A. Schmack 7,500
- --------------------------------------------------------------------------------
293 Kurt Alexander Schmack 2,500
- --------------------------------------------------------------------------------
294 Scott Schmidt 5,400
- --------------------------------------------------------------------------------
295 David Schroeder 20,000
- --------------------------------------------------------------------------------
296 Richard N. And Linda R. Shaffer 2,000
- --------------------------------------------------------------------------------
297 Cecil Skinner Jr. 5,000
- --------------------------------------------------------------------------------
298 Thomas Sloan 22,500
- --------------------------------------------------------------------------------
299 Thomas Mc Rae Sloan 12,375
- --------------------------------------------------------------------------------
300 Daniel H. Watts 12,375
- --------------------------------------------------------------------------------
301 Anthony E. Smith 2,000
- --------------------------------------------------------------------------------
302 Scott Snyder 16,000
- --------------------------------------------------------------------------------
303 Carol N. Sprau 10,000
- --------------------------------------------------------------------------------
304 Donald P. Squire Sr. 5,020
- --------------------------------------------------------------------------------
305 Donald P. Squire Jr. 6,000
- --------------------------------------------------------------------------------
306 Stroh Family Trust, Dtd 8/25/88 45,000
- --------------------------------------------------------------------------------
307 Richard W. Talley 393,248
- --------------------------------------------------------------------------------
308 Gordon D. Teeter 10,000
- --------------------------------------------------------------------------------
309 Tony Grego 100
- --------------------------------------------------------------------------------
310 Richard H. R. Toland, Inc. 10,000
- --------------------------------------------------------------------------------
311 West German Motor Imports, Inc. 10,000
- --------------------------------------------------------------------------------
312 Cafe Tropico, S.A. 223,755
- --------------------------------------------------------------------------------
313 Lewis J. Vellis Family Trust 45,000
- --------------------------------------------------------------------------------
314 Victor Hugo Mora 100
- --------------------------------------------------------------------------------
315 William Wages 4,500
- --------------------------------------------------------------------------------
316 Will Corcoran Ira (Lincoln Trust) 10,000
- --------------------------------------------------------------------------------
317 Nancy B. And Stephen S. Weinstein 20,000
- --------------------------------------------------------------------------------
318 Elizabeth C. Wilcox, Trustee 10,000
- --------------------------------------------------------------------------------
319 Thomas Williams (IRA) 4,500
- --------------------------------------------------------------------------------
320 Jack Wilson 10,473
- --------------------------------------------------------------------------------
321 Lincoln Trust, FBO Ruth Wilson 10,145
- --------------------------------------------------------------------------------
322 Walter Mora 100
- --------------------------------------------------------------------------------
323 Allan and Lea Wolinetz 9,091
- --------------------------------------------------------------------------------
324 Wallis W. Wood 5,000
- --------------------------------------------------------------------------------
325 Dr. Woods Woods Family Chiropractic 4,000
- --------------------------------------------------------------------------------
326 George S. Wright 4,000
- --------------------------------------------------------------------------------
327 Richard Krug 2,000
- --------------------------------------------------------------------------------
328 Yessenia Guillen Gonzalez 100
- --------------------------------------------------------------------------------
329 Yamileth Montero Campos 100
- --------------------------------------------------------------------------------
330 Jo Ann Young 10,022
- --------------------------------------------------------------------------------
331 Zaida Cordero Rojas 100
- --------------------------------------------------------------------------------
332 Amy Lynn Zywotko 3,600
- --------------------------------------------------------------------------------
333 Computer Connection (Zywotko) 15,200
- --------------------------------------------------------------------------------
334 Gary E. And Jean Evans Zywotko And Evans, Ts 400
- --------------------------------------------------------------------------------
335 Gary Zywotko 30,000
- --------------------------------------------------------------------------------
336 Mark Edward Zywotko 3,600
- --------------------------------------------------------------------------------
337 Tammy Ann Zywotko 3,600
- --------------------------------------------------------------------------------
338 Michael E. Mcdonald 3,300
- --------------------------------------------------------------------------------
339 David Strawderman 5,000
- --------------------------------------------------------------------------------
340 Victoria Strawderman 5,000
- --------------------------------------------------------------------------------
Total Shares 10,000,000
- --------------------------------------------------------------------------------
38
<PAGE>
Plan of Distribution
Selling Security Holders
The Selling Security Holders are offering shares of Common Stock for their
own account and not for the account of the Company. The Company will not receive
any proceeds from the sale of the shares of Common Stock by the Selling Security
Holders.
Each Selling Security Holder will, prior to any sales, agree (a) not to
effect any offers or sales of the Common Stock in any manner other than as
specified in this Prospectus, (b) to inform the Company of any sale of Common
Stock at least one business day prior to such sale and (c) not to purchase or
induce others to purchase Common Stock in violation of Regulation M under the
Exchange Act.
The shares of Common Stock may be sold from time to time to purchasers
directly by any of the Selling Security Holders acting as principals for their
own accounts in one or more transactions in the over-the-counter market or in
negotiated transactions at market prices prevailing at the time of sale or at
prices otherwise negotiated. Alternatively, the shares of Common Stock may be
offered from time to time through agents, brokers, dealers or underwriters
designated from time to time, and such agents, brokers, dealers or underwriters
may receive compensation in the form of commissions or concessions from the
Selling Security Holders or the purchasers of the Common Stock.
Under the Exchange Act, and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, each Selling Security Holder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling Security
Holder. There are possible limitations upon trading activities and restrictions
upon broker-dealers effecting transactions in certain securities which may also
materially affect the value of, and an investor's ability to dispose of, the
Company's securities.
The Company will use its best efforts to file, during any period in which
offers or sales are being made, one or more post-effective amendments to the
Registration Statement, of which this Prospectus is a part, to describe any
material information with respect to the
39
<PAGE>
plan of distribution not previously disclosed in this Prospectus or any material
change to such information in this Prospectus.
Description of Securities
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $.01 per share. As of the date hereof, there were 10,000,000
shares of Common Shares outstanding.
At the conclusion of this Offering of the 10,000,000 Common Shares issued
and outstanding, 10,000,000 Common Shares are unregistered securities, and, in
the future, said unregistered shares may only be sold upon compliance with Rule
144, adopted under the Securities Act of 1933. In Securities and Exchange
Commission (SEC) Release No. 33-7390, Revision of Holding Period Requirements in
Rules 144 and 145, the SEC amended the holding period contained in Rule 144 to
permit the resale of limited amounts of restricted securities by qualified
persons after a one-year, rather than a two-year, holding period. Also, the
amendments permit unlimited resales of restricted securities held by
non-affiliates of the Company after a holding period of two years, rather than
three years. There are no promoters, underwriters or persons or firms acting in
any similar capacity associated with the Company.
Holders of Common Shares are entitled to one vote per Common Share on all
matters to be voted on by Shareholders. The Common Shares do not have cumulative
voting rights. Holders of a majority of the Common Shares are also members of
the Board of Directors. A majority vote is sufficient for most other actions
requiring the vote or concurrence of Shareholders. The Company's Officers and
Directors as a group (eight persons) own directly approximately 62.6% of the
Issuer's capital stock outstanding.
All Shares are entitled to share equally in dividends when and if declared
by the Board of Directors out of funds legally available therefor. It is
anticipated that the Company will not pay cash dividends on its Shares in the
foreseeable future. In the event of liquidation or dissolution of the Company,
whether voluntary or involuntary, holders of the Shares are entitled to share
equally in all assets of the Company legally available for distribution to
Shareholders. The holders of Shares have no preemptive or other subscription
rights to acquire authorized but unissued capital stock of the Company, and
there are no conversion rights or redemption or sinking fund provisions with
respect to such Shares. All of the outstanding Shares and those Shares issued in
accordance with this offering will be fully paid and non-assessable.
Interest of Named Experts and Counsel
Eric P. Littman, P.A., counsel to the Company, is the owner of 150,000
shares of common stock of the Company.
40
<PAGE>
PART II
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Indemnification for Officers and Directors
Neither the Company's Articles of Incorporation by-laws provide for the
indemnification of directors or officers of the Company. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Recent Sales of Unregistered Securities
In a series of transactions between May 1, 1998 and June 30, 1999 the
Company issued a total of 1,000,000 restricted shares pursuant to Rule 506 of
Regulation D a promulgated under the Securities Act of 1933, as amended. The
shares were issued for a total of $2.5 million less commission, to some of the
shareholders listed in "Selling Security Holders" above.
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
There have not been changes of our independent accountants for the last
three years, due to any disagreement on accounting or financial disclosures.
Exhibits
3A. Articles of Incorporation of the Registrant
3B. By-Laws of the Registrant
5. Opinion of Counsel as to the legality of
securities being issued
4. Specimen of Common Stock Certificate
of Registrant
10. Material Contracts
21. Subsidiaries of Registrant
23A Consent of ______
23B Consent of Ernst & Young International
27 Financial Data Schedule
41
<PAGE>
Financial Statements
Index to Consolidated Financial Statements.
Consolidated Financial Statements
Report of Marin, Mendez & Co., a member firm of
Ernst & Young International F - 2
Consolidated Balance Statements at June 30
1999 and 1998 F - 3
Consolidated Statements of Income for the year ended
June 30, 1999, 1998, and 1997 F - 4
Consolidated Statements of changes in shareholders equity
for the year ended June 30, 1999, 1998, and 1997 F - 5
Consolidated Statements of Cash Flows for the year ended
June 30, 1999, 1998, and 1997 F - 6
Notes to Financial Consolidated Statements F - 7
42
<PAGE>
TABLE OF CONTENTS - PART II. FINANCIAL STATEMENTS
PAGE
F-
PART II. CONSOLIDATED FINANCIAL STATEMENTS.....................................2
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS........................2
Independent Auditors' Report.............................................3
CONSOLIDATED BALANCE SHEETS.................................................4
CONSOLIDATED STATEMENTS OF INCOME...........................................5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY..................6
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................8
1. Operations...........................................................8
2. Summary of Significant Accounting Policies...........................8
2. Summary of Significant Accounting Policies (Continued)...............9
2. Summary of Significant Accounting Policies (Continued)..............10
3. Accounts Receivable.................................................10
4. Inventories.........................................................10
5. Balances and transactions with related parties......................11
6. Property, Plant and Equipment.......................................11
7. Accounts Payable....................................................12
8. Export Incentives...................................................12
9. Income Tax..........................................................12
9. Income Tax (continued)..............................................13
10. Gain on Sale of Investment..........................................13
11. Common Stock and Additional Paid-in Capital.........................13
12. Other Income, net...................................................14
13. Segments and Related Information....................................14
13. Segments and Related Information (continued).......................15
14. Contingencies.......................................................16
15. Impairment evaluation...............................................16
16. Stock compensation plans............................................16
43
<PAGE>
PART II. CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Cafe Britt Coffee Corporation, Inc. is responsible for all
information and representations contained in the financial statements and other
sections of this report. Management is also responsible for the internal
consistency of such information and representations. In preparing the financial
statements, it is necessary for management to make informed judgments and
estimates and to select accounting principles, which are appropriate for the
circumstances.
In meeting its responsibility for the reliability of the financial statements,
management relies on Cafe Britt's internal control systems and procedures. In
designing such control procedures, management recognizes that errors or
irregularities may nevertheless occur and that estimates and judgments are
needed to assess and balance the relative costs and expected benefits of
controls. However, management believes that Cafe Britt's accounting controls do
provide reasonable assurance that assets are safeguarded and those transactions
are properly recorded and executed in accordance with corporate policy and
management's authorization. As a further safeguard, Cafe Britt has a program of
internal audits and appropriate follow-ups by management.
The financial statements have been audited by Cafe Britt's independent auditors,
Marin, Mendez, & Co, a member firm of Ernst & Young International, in accordance
with United State generally accepted auditing standards. In connection with its
audit, Marin, Mendez & Cia, develops and maintains an understanding of Cafe
Britt's accounting and financial controls, and conducts such tests and related
procedures as it deems necessary to render its opinion on the financial
statements. The adequacy of Britt's internal financial controls and the
accounting principles employed in financial reporting are under the general
surveillance of the Audit Committee of the Board of Directors, consisting of
five outside directors. The independent auditors and internal auditors have free
and direct access to the Audit Committee and meet with the committee
periodically to discuss accounting, auditing, and financial reporting matters.
Cafe Britt has adopted a series of practices for quality assurance, following
the ISO 9001 model, and has distributed and explained to its employees a quality
statement that sets up the conduct that the company seeks in all employees and
has obtained a written commitment from each employee to follow this quality
statement in his or her particular job. It has developed and instituted
additional internal controls and audit procedures designed to prevent or detect
violations of the policies or controls. Management believes this provides
reasonable assurance that its operations meet a high standard of business
conduct.
Steven J. Aronson Pablo E. Vargas
President Chief Financial Officer
Cafe Britt Coffee Corporation, Inc.
44
<PAGE>
Independent Auditors' Report
To the Shareholders
Cafe Britt Coffee Corporation, Inc.
We have audited the accompanying consolidated balance sheets of Cafe Britt
Coffee Corporation, Inc. and subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of income, and changes in the shareholders'
equity and cash flows for each of the three years in the period June 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by Management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Cafe Britt Coffee
Corporation and subsidiaries at June 30, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years of
the period ended June 30, 1999, in conformity with United States generally
accepted accounting principles.
Mario Marin S.
San Jose, Costa Rica
September 9, 1999
Policy R-1153 expires on
September 30, 2000
Law 6663 stamp for (cent)1.000
adhered to and canceled in the original.
45
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars)
<TABLE>
<CAPTION>
June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 809,911 $ 306,421
Accounts receivable, net (Note 3) 957,506 1,265,654
Inventories (Note 4) 1,233,153 885,441
Prepaid expenses 75,164 219,387
----------- -----------
Total current assets 3,075,734 2,676,903
Accounts receivable - related parties (Note 5) 489,024 41,866
Property, plant and equipment, net (Note 6) 3,143,525 2,638,360
Software and other assets 200,967 136,109
Deferred income tax (Note 9) 53,968 19,849
E Goodwill - net of accumulated amortization of $15,764 and
$3,941 respectively (Note 2) 23,647 35,470
----------- -----------
Total assets $ 6,986,865 $ 5,548,557
=========== ===========
Liabilities and shareholders' equity Current liabilities:
Notes payable $ -- $ 130,083
Accounts payable (Note 7) 600,028 398,840
Accrued expenses 153,919 67,160
Current portion of long-term debt -- 45,146
----------- -----------
Total current liabilities 753,947 641,229
Accounts and notes payable - related parties (Note 5) 1,519,261 1,500,000
Long-term debt 16,008 183,187
Shareholders' equity:
Common stock, 20,000,000 shares authorized, 10,000,000
and 9,222,000 issued and standing at June 30, 1998 and
1999 respectively, $0.01 par value (Note 11) 100,000 92,220
Additional paid-in capital (Note 11) 5,223,301 3,874,300
Accumulated deficit (625,652) (742,379)
----------- -----------
Total shareholders' equity 4,697,649 3,224,141
----------- -----------
Total liabilities and shareholders' equity $ 6,986,865 $ 5,548,557
=========== ===========
</TABLE>
See notes to consolidated financial statements.
46
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in US Dollars)
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Sales $ 8,850,711 $ 5,030,124 $ 4,138,212
Cost of sales 6,391,096 3,780,468 3,075,952
-----------------------------------------
Gross profit 2,459,615 1,249,656 1,062,260
Operating expenses:
Selling expenses 1,142,779 712,083 803,690
General and administrative expenses 769,837 922,339 1,084,008
Other income, net (Note 12) (28,669) (276,517) (579,609)
Gain on sale of investment (Note 10) -- (350,864) --
Translation loss (gain) 207,038 223,357 (250,207)
-----------------------------------------
Income (loss) before financing expenses and Taxes 368,630 19,258 4,378
Financing expenses (264,550) (314,068) (343,809)
Income tax (Note 9) 12,647 (17,114) (2,021)
-----------------------------------------
Net income (loss) $ 116,727 $ (311,924) $ (341,452)
=========================================
</TABLE>
Earnings per share calculation:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 116,727 $ (311,924) $ (341,452)
Denominator:
Weighted average outstanding shares 9,641,828 7,924,849 7,387,029
-----------------------------------------
Basic and diluted EPS $ 0.01 $ (0.04) $ (0.05)
=========================================
</TABLE>
See notes to consolidated financial statements.
47
<PAGE>
CAFE BRITT COFFEE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended June 30, 1999, 1998 and 1997
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 $ 70,515 $ 1,058,776 $ (89,003) $ 1,040,288
Stock issuance 5,214 1,092,917 -- 1,098,131
Net loss -- -- (341,452) (341,452)
----------- ----------- ----------- -----------
Balance at June 30, 1997 75,729 2,151,693 (430,455) 1,796,967
Common stock issuance, net of expenses 16,491 1,722,607 -- 1,739,098
Net loss -- -- (311,924) (311,924)
----------- ----------- ----------- -----------
Balance at June 30, 1998 92,220 3,874,300 (742,379) 3,224,141
Common stock issuance, net expenses 7,780 1,399,001 -- 1,406,781
Payment of additional-paid-in capital to
former stockholder -- (50,000) -- (50,000)
Net income -- -- 116,727 116,727
----------- ----------- ----------- -----------
Balance at June 30, 1999 $ 100,000 $ 5,223,301 $ (625,652) $ 4,697,649
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
48
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)
<TABLE>
<CAPTION>
Year ended
June 30,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 116,728 $ (311,924) $ (341,452)
Adjustments to reconcile net
income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 324,819 263,358 182,970
Allowance for doubtful accounts 81,663 25,090 2,478
Allowance for obsolescence and slow turn-over -- 22,151 --
Translation adjustment 186,798 162,172 95,664
Changes in operating assets and liabilities:
Short term investments -- -- --
Accounts receivable 108,078 (654,060) (129,669)
Inventories (461,952) (419,289) (87,140)
Prepaid expenses 144,223 (145,382) 65,159
Other assets (64,858) 23,296 (17,239)
Deferred income tax (34,119) (2,610) (22,173)
Accounts with related parties (427,898) 1,321,234 (569,053)
Accounts payable 254,913 (131,495) 229,668
Accrued expenses 97,856 8,825 (326,710)
-----------------------------------------
Net cash provided by (used in) operating activities 326,251 161,366 (917,497)
Investing activities
Purchase of property, plant and equipment (804,259) (758,748) (232,641)
-----------------------------------------
Net cash used in investing activities (804,259) (758,748) (232,641)
Financing activities
Net proceed from common stock issuance 1,406,781 1,739,098 1,098,131
Bank overdraft payments -- (60,249) (165,049)
Proceeds from loans -- 228,333 1,137,657
Loan payments (342,408) (1,152,595) (755,003)
Payment made to former preferred stockholder (50,000) -- --
-----------------------------------------
Net cash provided by financing activities 1,014,373 754,587 1,315,736
-----------------------------------------
Net increase in cash and equivalents 536,365 157,205 165,598
Translation effect on cash flows (32,875) (16,208) (9,358)
Cash and cash equivalents at beginning of year 306,421 165,424 9,184
-----------------------------------------
Cash and cash equivalents at end of year $ 809,911 $ 306,421 $ 165,424
=========================================
Other disclosures:
Interest paid $ 268,673 $ 300,877 $ 318,591
Income tax paid 23,534 21,320 19,260
</TABLE>
See notes to consolidated financial statements.
49
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. Operations
Cafe Britt Coffee Corporation, Inc. (Cafe Britt) was incorporated under the laws
of Curacao, Netherlands Antilles on July 1991, and its articles of incorporation
were amended on April, 1998, to reflect the current capital structure. Cafe
Britt Coffee Corporation, Inc. is the 100% owner of the following corporations:
o Grupo Cafe Britt, Sociedad Anonima, founded in 1994 under the laws of the
Republic of Costa Rica, which owns 100% of Beneficio Tierra Madre,
Sociedad Anonima;
o Finca Tropico, Sociedad Anonima, founded in 1999 under the laws of the
Republic of Costa Rica
o Cafe Britt Corporation, Inc., incorporated under the laws of Delaware in
1998.
The Group's principal activities are the sale of green coffee, the roasting of
coffee and sale of roasted coffee in Costa Rica and export markets through a
wide variety of distribution net works, including supermarkets, hotels and
restaurants and company stores in Costa Rica. The Group also carries out tours
in its facilities located at Costa Rica.
Risk and uncertainties
The Group carries out significant operations in Costa Rica. Costa Rica has
a stable legal and regulatory environment and significant changes are not
foreseen. Cafe Britt has developed long form relationships with Costa
Rican green coffee suppliers which gives it reasonable assurance of
obtaining the necessary raw material to fulfill demand. In addition, the
company has experience in dealing with suppliers from other Central
American countries to solve supply shortfalls.
International price of coffee vary in accordance with supply and demand
conditions. Cafe Britt has the policy of building up inventories to supply
consumption for three months. By doing so it protects itself from suddenly
changes in price. The company faces competition in all of its business
areas.
50
<PAGE>
2. Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles. The principal accounting
policies are as follows:
a. Consolidation
The consolidated financial statements include the accounts of Cafe Britt Coffee
Corporation, Inc., and its 100% owned subsidiaries Cafe Britt Corporation, Inc.,
Grupo Cafe Britt, S.A. and its subsidiary Beneficio Tierra Madre, S.A., and
Finca Tropico, S.A. All significant intercompany accounts and transactions were
eliminated in the consolidation.
Investments in 20% to 50% owned entities are accounted for using the equity
method, while investments in entities less than 20% owned and for which Cafe
Britt does not have control are accounted under the cost method.
b. US Dollars translation
Selling and purchasing transactions are mostly denominated in U.S. Dollars.
Because of the significant of transactions in U.S. dollars Management has
defined the U.S. dollar as the reporting currency of Cafe Britt. The companies'
records for Cafe Britt Coffee Corporation, Inc. and Cafe Britt Corporation, Inc.
are kept in United States Dollars. The accounting records for Grupo Cafe Britt,
S.A. and Beneficio Tierra Madre, S.A., are kept in Colones (Costa Rican
currency). The accompanying consolidated financial statements expressed in US
Dollars include a translation of Grupo Cafe Britt, S.A. and its subsidiary's
accounting records, made as follows: monetary assets and liabilities were
translated applying the exchange rate prevailing at the end of the period;
property, plant and equipment and stockholders' equity were translated based on
the historical exchange rate; income
51
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policies (Continued)
and expense accounts were translated applying the average exchange rate of the
period, except depreciation expenses which were translated at the same rates of
the related assets. The translation effect is included in the consolidated
statements of income.
c. Cash and cash equivalents
Cash and cash equivalents consist primarily of cash in banks and highly liquid
investment securities that have maturities of three months or less when
purchased. The carrying amount approximates fair market value due to the
short-term maturity of these instruments.
d. Inventories
Finished goods in-process inventories, raw and packaging materials are valued at
average cost. These costs do not exceed market value.
e. Property, plant and equipment
Property, plant and equipment are recorded at the acquisition or construction
cost. Gains and losses from the retirement or sale of fixed assets are included
in the consolidated statements of income, as are repairs and maintenance
expenses that do not extend the useful life of the assets.
Depreciation is calculated using the straight-line method over the expected life
of the assets.
f. Development of internal use software
Software development costs are recorded as other assets and will be amortized in
a five year period. Designing and training costs are recorded as expenses.
52
<PAGE>
g. Goodwill
Corresponds to the price paid for the shares of Tierra Madre, S.A., in excess of
the assets acquired which is been amortized in 5 years, by using the straight
line method.
h. Employee severance payments
Costa Rica Labor Law requires the payment of an indemnization to the employees
under certain circumstances. The companies recognize the expense under the
assumption of voluntary retirement and, from time to time, it pays these
obligations voluntarily.
i. Sales recognition
Sales are recorded at the moment of billing.
53
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policies (Continued)
j. 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 amounts reported in the financial statements and accompanying notes.
Actual results could be different from those estimates. The significant
estimates that affect the financial statements include, but are not limited to,
unrecoverable accounts receivable, inventory valuation, amortization periods,
and recoverability of long-term assets such as intangibles, software, and
goodwill.
k. Fiscal years
As per Costa Rica Tax Law fiscal year ends September 30. Accordingly Grupo Cafe
Britt and Tierra Madre, S.A. filed their last income tax returns as of September
30, 1998 and 1997.
3. Accounts Receivable
Accounts receivable are as follows:
June 30,
---------------------------
1999 1998
----------- -----------
Customers $ 770,531 $ 1,101,688
Export incentives (Note 8) 189,479 156,864
Shareholders -- 3,454
Employees 13,086 14,654
Others 85,775 15,366
----------- -----------
1,058,871 1,292,026
Allowance for doubtful accounts (101,365) (26,372)
----------- -----------
$ 957,506 $ 1,265,654
=========== ===========
4. Inventories
Inventories are as follows:
June 30,
---------------------------
1999 1998
----------- -----------
Finished goods $ 33,837 $ 119,570
Raw materials 523,422 438,045
Packing material 490,414 191,924
In-transit goods 203,881 134,132
Others 10,233 33,725
----------- -----------
1,261,787 917,396
Allowance for obsolescence and slow turn-over (28,634) (31,955)
----------- -----------
$ 1,233,153 $ 885,441
=========== ===========
54
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Balances and transactions with related parties
Balances with related parties were as follows:
June 30,
-------------------------
1999 1998
-------- --------
Receivable:
Cafe Tropico, S.A. (*) $436,019 $ --
Reserva de Exportaciones, S.A 49,313 --
Others 3,692 41,866
-------- --------
$489,024 $ 41,866
======== ========
(*) In January 1999, the Cafe Britt entered into an agreement with Cafe Tropico,
S.A., a green coffee exporter of which an officer of the company is the
beneficial owner. In order to transfer this business activity to Cafe Britt, the
client base of Cafe Tropico was transferred to Cafe Britt in two steps. During
1999, Cafe Britt has been executing all sales commitments of Cafe Tropico and
has financed these pending sales as part of the agreement. These sales amounted
$2,775,078.
Collecting terms on these accounts are not defined and consequently these
accounts were classified as long term receivables.
June 30,
---------------------------
1999 1998
---------- ----------
Payable:
Boston Roasting and Import Trade
Team LLC, subordinated loan (*) $1,500,000 $1,500,000
El Ciruelo de Getsemani 12,495 --
Others 6,766 --
---------- ----------
$1,519,261 $1,500,000
========== ==========
(*) Boston Roasting and Import Trade Team LLC is a U.S. Company owned by certain
of the stockholders of Cafe Britt. In 1997 this company granted a $1,500,000
loan for working capital land purchasing of equipment, with no due date and 12%
yearly interest rate.
6. Property, Plant and Equipment
Property, plant and equipment is as follows:
June 30,
-------------------------------
1999 1998
-------- ----------- -----------
Useful
Life
--------
Land N/A $ 213,840 $ 213,840
Construction in process N/A 188,529 379,557
Buildings 50 929,250 718,992
Machinery and equipment 10 2,156,099 1,602,709
Furniture and office equipment 10 623,862 414,653
Vehicles 10 227,187 204,757
Coffee equipment 10 72,210 72,210
----------- -----------
Accumulated depreciation 4,410,977 3,606,718
----------- -----------
$ 3,143,525 $ 2,638,360
=========== ===========
55
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Accounts Payable
Accounts payables are as follows:
June 30,
-------------------------
1999 1998
-------- --------
Suppliers $473,011 $156,384
Advances from customers 13,215 126,514
Accounts payable - foreign -- 24,667
Others 113,802 91,275
-------- --------
$600,028 $398,840
======== ========
8. Export Incentives
Britt Exportaciones, S.A. (entity merged with Grupo Cafe Britt, S.A.) has an
export contract with the Government of Costa Rica under Law No. 7092. This
contract grants the Company the benefit of Tax Credit Certificates (CATs) up to
September 1999, for an amount of 10.5% of the FOB value of exports to
non-traditional markets (defined as markets other than Central America) as well
as complete exemption from income taxes until September 1996. CATs are issued by
the Central Bank of Costa Rica in local currency. They are freely negotiable and
can be used as a tax credit, once they reached their maturity date, to pay taxes
collected by Central Bank of Costa Rica, which will accept them at face value.
The maturity period for this certificates is 18 months after issuance and expire
24 months after the corresponding issuance date. CAT's are recorded as other
income in the consolidated statement of income.
9. Income Tax
The income tax rate established by the Costa Rican Income Tax Law is 30%.
However, companies are required to pay an alternative 1% tax on fixed assets
which may be credited to the income tax. In the three years ended June 30,1999,
the Costa Rican companies incurred a fiscal loss.
Income tax under FASB No. 109 is detailed as follows:
Year ended June 30,
----------------------------------
1999 1988 1997
-------- -------- --------
Current (1% on fixed assets) $(23,535) $(21,320) $(19,260)
Deferred:
Variation in temporary differences 34,119 2,610 17,239
Translation effect 2,062 1,596 --
-------- -------- --------
36,182 4,206 17,239
-------- -------- --------
$ 12,647 $(17,114) $ (2,021)
======== ======== ========
56
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Income Tax (continued)
The components of the long term deferred income tax are as follows:
June 30,
--------------------------
1999 1998
--------- ---------
Deferred tax assets:
Loss carry forwards $ 201,181 $ 119,921
Less: Valuation allowance (201,181) (119,921)
--------- ---------
Severance indemnities 14,969 6,467
Allowance for doubtful accounts 30,409 5,470
Inventory obsolescence allowance 8,590 7,912
--------- ---------
Net deferred tax assets $ 53,968 $ 19,849
========= =========
At June 30, 1999, income tax returns filed by the Companies during the preceding
four years are subject to review by the Tax Authorities. However, Management
estimates that no tax payments would result from such reviews, others than those
already paid or recorded.
At June 30, 1999, non-Costa Rican companies did not have significant operations
and accordingly, had not incurred significant tax liabilities.
10. Gain on Sale of Investment
Corresponds to the sale of 7.5% of the participation of Grupo Cafe Britt, S.A.
in Boston Roasting & Import Trade Team, L.L.C
11. Common Stock and Additional Paid-in Capital
Until June 1998, the group was principally composed by Grupo Cafe Britt, S.A.
and its subsidiary Tierra Madre, S.A. of which the common stock was composed by
97,500 shares with a par value of (cent)2,150 each (equivalent to $10 per
share). Additionally Grupo Cafe Britt had issued preferred stock for $1,732,526
with no right to vote, with interest ranging from 5% to 8% annually and
convertible into common stock. During 1998 all common and preferred stock were
transferred to Cafe Britt Coffee Corporation Inc. which became the 100% owner of
Grupo Cafe Britt, S.A. Consequently, Grupo Cafe Britt former stockholders became
stockholders of the Holding Company, Cafe Britt Coffee Corporation Inc.
As of June 30, 1999, Cafe Britt Coffee Corporation, Inc. common stock is
composed of 10,000,000 shares of $0.01 each. (9,221,910 in 1998 and 7,572,801 in
1997).
57
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Other Income, net
Other income is detailed as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Income for CAT'S $ (97,254) $ (94,034) $ (70,191)
Income for service provided to third parties (115,567) (264,969) (508,081)
-----------------------------------
(212,821) (359,003) (578,272)
Other expenses (income) net 184,151 82,486 (1,337)
-----------------------------------
$ (28,669) $(276,517) $(579,609)
===================================
</TABLE>
13. Segments and Related Information
As per SFAS 131 the group has defined two segments as follows:
a. Coffee sales: Includes all sales to supermarkets and other third
party outlets, including hotels and restaurants in Costa Rica as
well as four retail outlets. Also includes roasted coffee sold
outside of Costa Rica, the cultivation of Organic coffee and the
selling of green coffee (non-organic) to roasters and brokers in
Europe and North America.
b. Tourism: The company operates the "Coffeetour de Cafe Britt", a
multi-media theatrical presentation that receives about 50,000
visitors per year, in addition to other coffee-related tours and
events.
A summary of financial information regarding the above mentioned segments is as
follows:
1999 1998 1997
------------------------------------
(000 omitted)
Net sales
Coffee sales $ 8,254 $ 4,647 $ 3,815
Tourism 596 383 323
------------------------------------
Total net sales $ 8,850 $ 5,030 $ 4,138
===================================
Operation profit
Coffee sales $ 512 $ (379) $ (695)
Tourism 35 (6) (130)
------------------------------------
Total ongoing operations 547 (385) (825)
Other income, net 29 277 250
Gain on sale of investment -- 350 --
Translation effect (207) (223) 580
Financing expenses (265) (314) (344)
------------------------------------
Income (loss) before taxes $ 104 $ (295) $ (339)
===================================
58
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Segments and Related Information (continued)
Other information:
1999
-------------------------------------------------
Purchase of
Identifiable Property Plant
Depreciation Assets and Equipment
-------------------------------------------------
Coffee sales $254 $5,531 $1,127
Tourism 23 551 71
Not identifiable 36 649 --
-------------------------------------------------
$313 $6,731 $1,198
=================================================
1998
-------------------------------------------------
Purchase of
Identifiable Property Plant
Depreciation Assets and Equipment
-------------------------------------------------
Coffee sales $217 $4,541 $ 663
Tourism 16 413 --
Not identifiable 26 862 --
-------------------------------------------------
$259 $5,816 $ 663
=================================================
1997
-------------------------------------------------
Purchase of
Identifiable Property Plant
Depreciation Assets and Equipment
-------------------------------------------------
Coffee sales $159 $3,191 $ --
Tourism 10 403 179
Not identifiable 14 558 292
-------------------------------------------------
$183 $4,152 $ 471
=================================================
Geographic Information:
The group attributes revenues and long lived assets to different geographic
areas on the basis of the location of the customers, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------
Long Lived Long Lived Long Lived
Revenues Assets Revenues Assets Revenues Assets
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Costa Rica $5,354 $4,177 $2,924 $3,001 $2,566 $2,423
United States 2,597 1,353 1,578 1,541 1,140 769
Canada 81 -- 52 -- 34 --
Europe 100 -- 14 -- 24 --
Others 718 1,201 462 1,274 374 960
------------------------------------------------------------------------------------
$8,850 $6,731 $5,030 $5,816 $4,138 $4,152
====================================================================================
</TABLE>
59
<PAGE>
CAFE BRITT COFFEE CORPORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Contingencies
Cafe Britt is involved in ordinary and routine litigation incidental to its
business. There are no such matters pending that Cafe Britt expects to be
material in relation to its financial condition or results of operations.
15. Impairment evaluation
Cafe Britt examines the carrying value of its long-lived assets, certain
identifiable intangibles, and goodwill to determine whether there is any
impairment losses. If indicators of impairment were present in those assets and
future cash flows were not expected to be sufficient to recover the assets
carrying amount, an impairment loss would be charged to expense in the
identified period. No event has been identified that would indicate an
impairment of the value of long-lived assets, identifiable intangibles, and
goodwill recorded in the accompanying consolidated financial statements.
16. Stock compensation plans
As of June 30, 1999 the company has not established stock compensation or stock
purchase plans. The company plans to establish stock compensation and/or stock
option plans once its shares become tradable in the public market.
Undertakings
The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
a. Include any prospectus required by Section 10(a)(3) of the
Securities Act;
b. Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation form the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b),
if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
c. Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling person of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the undersigned of expenses incurred or paid by a director, officer
or controlling person of the undersigned in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the undersigned will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of
such issue.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form F-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Heredia,
Costa Rica, on the 2nd of February, 2000.
CAFE BRIT COFFEE CORPORATION
By: /s/ STEVEN J. ARONSON
---------------------------------
Steven J. Aronson
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
and on the dates indicated:
SIGNATURE TITLE DATE
/s/ STEVEN J. ARONSON President and Chief
- --------------------- Executive Officer, Director 02/02/00
/s/ PABLO E. VARGAS Chief Financial Officer, Director 02/02/00
- -------------------
/s/ EDWARD LOGEMAN Director
- ------------------
/s/ GUILLERMO GROISMAN Director 02/02/00
- ----------------------
/s/ MICHAEL CAGGIANO Director
- --------------------
61
Marin, Mendez & CO.
Ernst & Young International
We consent to the reference to our firm under caption "Experts" and to the use
of our reports dated September 9, 1999, in the Registration Statement (Form
SB-2) and related Prospectus of Cafe Britt Coffee Corporation for the
registration of 10.000.000 shares of its commons stock.
Mario Marin S
Partner
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Audited
Financial Statements as of June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 809,911
<SECURITIES> 0
<RECEIVABLES> 957,506
<ALLOWANCES> (101,365)
<INVENTORY> 1,233,153
<CURRENT-ASSETS> 3,075,734
<PP&E> 3,143,525
<DEPRECIATION> (1,267,452)
<TOTAL-ASSETS> 6,986,865
<CURRENT-LIABILITIES> 753,947
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 5,223,301
<TOTAL-LIABILITY-AND-EQUITY> 6,986,865
<SALES> 8,850,711
<TOTAL-REVENUES> 8,850,711
<CGS> 5,974,096
<TOTAL-COSTS> 6,391,096
<OTHER-EXPENSES> 2,009,323
<LOSS-PROVISION> 81,662
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 368,630
<INCOME-TAX> 12,647
<INCOME-CONTINUING> 116,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,727
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
