As filed with the Securities and Exchange Commission on October 31, 2000
CIK: 0001107266
Registration No. 333-36868
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment No. 3 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CoffeeAM.com, Inc.
(Name of small business issuer in its charter)
Georgia 2095 58-2179311
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
100 Londonderry Court, Suite 112
Woodstock, Georgia 30188
678.494.1915
(Address and telephone number of principal executive offices
and principal place of business)
Brian J. Lunsford, President
CoffeeAM.com, Inc.
100 Londonderry Court, Suite 112
Woodstock, Georgia 30188
678.494.1915
(Name, address and telephone of agent for service)
Copies to:
Drew Field
534 Pacific Avenue
San Francisco, CA 94133
415.296.9795
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
CALCULATION OF REGISTRATION FEE
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Title of each Dollar Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering Amount of
to be registered registered per share/certificate price registration fee
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<S> <C> <C> <C> <C>
Common Stock, $1.00 par value $1,050,000 $ 7.00 $1,050,000 $ --
Total $ --
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</TABLE>
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 this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following: [X]
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<PAGE>
COFFEEAM.COM, INC.
Cross-reference Sheet Showing Location in Prospectus of:
PART I -- INFORMATION REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Caption in Prospectus
--------------------------------- ---------------------
<S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus...... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................... Inside Front Cover Page of Prospectus
3. Summary Information and Risk Factors Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Plan of Distribution -- Determination
of Offering Price
6. Dilution................................. Dilution
7. Selling Security Holders................. Not applicable
8. Plan of Distribution..................... Plan of Distribution
9. Legal Proceedings........................ Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons.................... Management
11. Security Ownership of Certain Beneficial
Owners and Management.................. Principal Shareholders
12. Description of Securities................ Description of Securities
13. Interest of Named Experts and Counsel Not applicable
14. Disclosure of Commission Position on Management -- Indemnification of
Indemnification for Securities Act .... Officers and Directors
15. Organization Within Last Five Years...... Not applicable
16. Description of Business.................. Prospectus Summary; Risk Factors;
Business; Certain Transactions
17. Management's Discussion and Analysis
or Plan of Operation................... Management's Plan of Operations
18. Description of Property.................. Business - Properties/Facilities
19. Certain Relationships and Related
Transactions........................... Certain Transactions
20. Market for Common Equity and Related .... Risk Factors; Shares Eligible
Stockholder Matters for Future Resale
21. Executive Compensation................... Management: Executive Compensation
22. Financial Statements..................... Index to Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure................... None
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 31, 2000
150,000 SHARES
[COFFEEAM.COM LOGO]
COMMON STOCK
----------
COFFEEAM.COM, INC. is offering directly to investors a minimum of 75,000
shares up to a maximum of 150,000 shares of common stock.
Our common stock is not listed on any national securities exchange or the
Nasdaq Stock Market.
Until a minimum of 75,000 shares have been purchased, all payments for
shares will be deposited into an escrow account at SouthTrust Bank. If the
minimum is not purchased by May 31, 2001, all payments deposited in the escrow
account will be promptly refunded in full, with interest and without any
deduction for expenses. This offering will end when all the shares have been
purchased or earlier, if we decide to close the offering.
----------
This offering involves a high degree of risk. See "Risk Factors" beginning
on page 4.
----------
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved of the shares or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
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Public Broker-dealer
Offering Discounts and Proceeds to
Price Commissions CoffeeAM.com
---------- ----------- ------------
Per Share $ 7.00 None $ 7.00
Total minimum, 75,000 shares $ 525,000 None $ 525,000
Total maximum, 150,000 shares $1,050,000 None $1,050,000
================================================================================
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The date of this Prospectus is___________, 2000
THE INFORMATION IN THIS PROSPECTUS MAY BE ADDED TO OR CHANGED. WE MAY NOT SELL
THESE SHARES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
SHARES, AND IS NOT SOLICITING OFFERS TO BUY THEM, IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
<PAGE>
We have not authorized anyone to give you any information or make any
representation that is not in this prospectus. The information in this
prospectus is current and correct only as of the date of this prospectus,
regardless of the time of its delivery or of any sale of the shares. We are
offering to sell, and seeking offers to buy the shares only in jurisdictions
where offers and sales are permitted.
TABLE OF CONTENTS
Page
----
Prospectus summary........................................................ 3
Risk factors.............................................................. 4
Use of proceeds .......................................................... 5
Dilution.................................................................. 6
Dividend policy........................................................... 7
Management's discussion and analysis of financial.........................
condition and results of operations....................................... 7
Business.................................................................. 9
Management................................................................ 13
Certain transactions...................................................... 15
Principal shareowners..................................................... 15
Description of securities................................................. 16
Future resale of securities............................................... 16
Plan of distribution...................................................... 17
Experts................................................................... 18
Available Information..................................................... 18
Index to financial statements............................................. 18
2
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Prospectus summary
Our business
Coffee.com, Inc. sells our own fresh-roasted coffees, teas and and related
products. Our business began in 1993, for sales to coffee shops and through
catalog and telephone orders. We launched our website in March 1999. During the
first six months of 2000, 42% of our total sales were made on the Internet. We
intend to use the funds from this offering primarily to advertise our website
and expand our capacity to sell our products.
How to buy shares
CoffeeAM.com, Inc. is offering 150,000 shares of its common stock at $7.00 per
share. The offering is being made directly by CoffeeAM.com, Inc. To purchase
shares, you may either:
Complete the share purchase order, including your credit card data, on the
secure website link, or Complete the share purchase order in printed form and
mail it to us, with your check or credit card data.
How you can communicate with us
Our office is at 100 Londonderry Court, Suite 112, Woodstock, Georgia 30188. Our
shareowner relations telephone numbers are (678) 494-1915 and (800) 803-7774.
Our fax number is (678) 494-3433. You are invited to call or write Brian
Lunsford, our President. The email address is [email protected].
3
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Risk factors
You should carefully consider the following risks and the rest of this
prospectus before deciding whether and how much to invest in our shares. You
could lose all or part of your investment.
We may have to raise more capital, or reduce growth and future income, affecting
the value of your shares.
If we only sell the minimum in this offering, our fixed expenses will be a
larger part of our income and we will have to limit spending for the purpose of
attracting new business. Even if we sell the maximum shares offered, we will
need more capital to achieve our objectives. We expect to have one or more
further public offerings of shares but additional funds may not be available
when needed. Selling more shares may dilute the existing shareowners. Debt
financing would require additional interest expense, reducing our earning
potential.
No public trading market exists for the shares.
Because this initial offering is only for up to $1,050,000, there may be no
public trading market for our shares right after it is completed. CoffeeAM.com,
Inc. realizes the need for the development of a trading market for its shares
and will explore avenues to make this a reality. We will do our best to arrange
with a registered broker-dealer to provide an order matching service for persons
wishing to buy or sell shares after this offering is complete. If that does not
happen, shareholders will have to find a prospective buyer and negotiate a price
and terms of sale, until a trading market or order matching service exists.
We are risking our existing business by generating losses to build an electronic
commerce business.
We had our first operating loss in 1999 and an accumulated deficit of
$84,454 at June 30, 2000. We anticipate having losses in the upcoming quarters
as we increase our expenditures for expansion of our Internet-based business.
The "Use of Proceeds and "Business" sections of this prospectus describe these
expenditures and our objectives. Failure to achieve these objectives could cause
the business and our shares to be of little or no value.
Our business plan will succeed only if we can use the Internet to grow and be
profitable
We sell products that are not essential and customers may choose not to buy
from us if the Internet becomes slower and less reliable to use. We have not
made the substantial investment in security and privacy protections that larger
businesses could and invasion of our site could cause us to lose customers and
have to spend large amounts.
We could be overwhelmed by new competitors and lose your investment
New, aggressive competition could result in reduced margins on our products
and services, loss of market share or less user traffic to our website. We do
not have the resources to sustain losses of any significant amount or length of
time. We already compete with many proven, well-established grocery and coffee
shop businesses. Those businesses or others can establish and expand rival
Internet sites by investing relatively little money or time.
We could fail if we lose our officers, or if we cannot recruit and train
additional skilled people.
Our two officers, Brian Lunsford and Maranda Lunsford, have been sole
owners of CoffeeAM.com, Inc. shares since the end of 1998 and have been working
full time to plan and meet our objectives. We do not have an employment
agreement with them and we are not beneficiaries of any key person life
insurance covering them. We are seeking additional people to train, so that we
can continue to grow and to decrease our dependence upon our two officers.
4
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Use of proceeds
The net proceeds to CoffeeAM.com, Inc. from this offering are estimated to be
approximately $425,000 if the minimum amount is sold and $950,000 if the maximum
is sold, in each case after payment of $100,000 of offering expenses. We expect
to use the net proceeds over the 12-month period commencing from the date that
the minimum escrowed proceeds are released, for the purposes outlined below. If
more than the minimum, but less than the maximum offering is raised, we intend
to allocate proceeds in excess of the minimum in the same proportions as if the
maximum were raised.
Minimum Maximum
(75,000 shares) (150,000 shares)
---------------- ----------------
1. Facility expansion ........... $ 30,000 7% $ 40,000 4%
2. Advertising initiatives....... 100,000 23% 205,000 22%
3. Marketing franchises.......... 50,000 12% 200,000 21%
4. Repayment of debt............. 50,000 12% 145,000 15%
5. Capital equipment............. 120,000 28% 165,000 17%
6. Internet development.......... 45,000 11% 135,000 15%
7. Working capital............... 30,000 7% 60,000 6%
-------- ---- -------- ----
$425,000 100% $950,000 100%
======== ==== ======== ====
Description of Use of Net Proceeds
1. Facility expansion. CoffeeAM.com, Inc. recently moved to a 15,500 sq.
ft. facility located in Woodstock, in the Suburbs of Atlanta. The
monies allocated to Facility Expansion will allow CoffeeAM to expand
operations in the new space.
2. Advertising initiatives. We plan to conservatively develop our brand
through websites and portals, and such offline media as direct mail,
print advertising, and public relations.
3. Franchise initiative. CoffeeAM.com, Inc. will be launching a franchise
program in which its franchisees will service Office Buildings and
restaurants requiring delivery and service for their coffee needs.
Management of CoffeeAM.com, Inc. has significant experience in
franchising and will use this means to further increase CoffeeAM.com,
Inc.'s brand exposure.
4. Repayment of Debt. CoffeeAM.com, Inc. will use a portion of the
proceeds of this offering to repay the loan from its principal
shareowner, described in "Certain Transactions."
5. Capital goods. Based on increased volume we will need to buy
additional equipment for the roasting, processing, and shipment of our
products.
6. Internet development. CoffeeAM.com, Inc. will use the proceeds on
improvements of its web site, to increase efficiency, increase
usability, and allow for the expected increase in scale.
7. Working capital. As our business grows, we will need additional
capital to finance larger inventories of coffee beans, tea and our
other products.
We do not anticipate changes in the proposed allocation of estimated net
proceeds of this offering. However, events may require changes and we reserve
the right to make changes, if we believe they are in the best interests of
CoffeeAM.com, Inc. Our board of directors will make any decisions regarding any
proposed changes to the allocation of the estimated net proceeds.
Proceeds not immediately required for these purposes will be invested in
United States government securities, short-term certificates of deposit, money
market funds or other investment grade, short-term interest-bearing instruments.
5
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Dilution
The public offering price per share is substantially higher than the net
tangible book value per share of our common stock. Purchasers of shares in this
offering will experience immediate and substantial dilution in the pro forma net
tangible book value per share. The issuance of additional equity securities
could also cause substantial dilution of the ownership interest of purchasers of
the shares offered by this prospectus.
On June 30, 2000, CoffeeAM.com, Inc. had a negative net tangible book value
of ($243,784) or ($0.07) per share. The net tangible book value per share is
equal to our total tangible assets, which excludes $314,530 of unamortized
goodwill from acquisition, less total liabilities and divided by total number of
shares of common stock outstanding. After giving effect to the sale of the
minimum and maximum number of shares being offered, at the $7.00 per share
public offering price, and the application of the estimated net proceeds, our
pro forma net tangible book value as of June 30, 2000, would have been $181,216
after sale of the minimum and $706,216 after sale of the maximum number of
shares, or $0.05 per share and $0.18 per share. This represents an immediate
increase in net tangible book value to present owners of $0.12 per share at the
minimum and $0.25 per share at the maximum. It represents an immediate dilution
to new investors purchasing shares in this offering of $6.95, or 99%, per share
at the minimum and $6.82, or 97%, per share at the maximum.
The following table shows, on a pro forma basis as of June 30, 2000, the
difference between existing shareowners and new shareowners in this offering,
with respect to the number of shares purchased, the total consideration paid and
the average price paid per share:
Minimum Maximum
(75,000 shares) (150,000 shares)
--------------- ----------------
Public offering price per share........... $ 7.00 $ 7.00
Net tangible book value per share
on June 30, 2000...................... $(0.07) $(0.07)
Increase in net tangible book value
per share to present owners........... $ 0.12 $ 0.25
Pro forma net tangible book value per
share after this offering............... $ 0.05 $ 0.18
Net tangible book value dilution per
share to new investors.................. $ 6.95 $ 6.82
====== ======
This table shows what the present owners paid for their ownership of the
business in 1998, net of the dividend paid April 30, 2000, compared to the price
of shares in this offering, assuming that the minimum number of shares are sold
in this offering:
Shares owned Percent Amounts paid Percent Price/share
------------ ------- ------------ ------- -----------
Present owners 3,687,500 98% $ 50,000 9% $0.001
New investors 75,000 2% $525,000 91% $ 7.00
The following table shows the same information, assuming that the maximum number
of shares are sold in this offering:
Shares owned Percent Amounts paid Percent Price/share
------------ ------- ------------ ------- -----------
Present owners 3,687,500 96% $ 50,000 5% $0.001
New investors 150,000 4% $1,050,000 95% $ 7.00
6
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Dividend policy
CoffeeAM.com, Inc. does not pay any cash dividend on its common stock. We
presently intend to retain any future earnings to finance our growth plan. Any
future agreements with lenders may also restrict our ability to pay dividends.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion should be read together with the financial statements, and their
notes, and other information in this prospectus..
Overview
CoffeeAM.com, Inc. sells gourmet coffee and other specialty beverage products to
retail coffee businesses and to consumers. Both business-to-business and
business-to-consumer sales are made primarily through our Internet site located
on the World Wide Web at www.CoffeeAM.com, Inc. We blend or roast some of our
products and we distribute some for other manufacturers.
From its beginning in 1993 through the change in its ownership in December 1998,
CoffeeAM.com, Inc. derived most of its revenue from telephone and catalog sales
to coffeehouses and restaurants. In March 1999, we launched our Internet
presence and have focused on developing the premiere Internet specialty beverage
site. Sales on our website in 1999 were $203,853, or approximately 20% of total
sales for the year. This repositioning allows us to sell our products as easily
to a large wholesale customer as to a person who orders a pound or two of coffee
a month. We use the same roastery for both client bases and simply use larger
packaging for wholesale customers.
Results of operations for 1999 compared to 1998
In 1999 we were able to continue to grow revenues, while virtually remaking
ourselves into an Internet enterprise. Sales increased from $1,004,106 in 1998
to $1,282, 714 in 1999. Our gross profit, before operating expenses, was
$795,105 in 1999, up from $538,396 in 1998. Gross margins improved to 62.0% of
revenue in 1999 versus 53.6% in 1998. This significant improvement in margins
was due to improved pricing, expansion into the direct consumer market and
favorable coffee commodity prices. As revenue numbers continue to grow, we
expect to be able to improve our gross margins through better purchase prices on
increased quantities.
Management's decision to launch our CoffeeAM.com, Inc. website for retail
customers, along with recruiting the staff needed to grow our business, resulted
in a loss of $39,916 in 1999 compared to net income of $205,535 for the prior
year. Our selling, general and administrative expenses went from $332,861 in
1998 to $821,380 in 1999. Salaries increased as a result of our expansion from
four full-time employees in 1998 to an average of seven in 1999. We incurred
costs related to the development of our website, the initial marketing of the
website and other expenses related to our site's launch. As e-commerce is a new
business method, we had to implement new systems and procedures for fulfillment
of orders and customer service situations.
We also began to incur an additional expense item in 1999 through our "Free
Shipping" policy. We began shipping 95% of our packages via UPS, and paying the
cost of shipping for all goods purchased through our web site. We do not have
plans to change this policy in the future, as it has been useful in increasing
our customer base.
Financial condition at December 31, 1999 compared to December 31, 1998
There were no accounts receivable when the business was purchased by its present
owners, in mid-December 1998. The year-end balance results from approximately
two weeks of sales. The balance at the end of 1999 reflects a full year's
operations by present management. We have become more restrictive on the
issuance of credit terms to
7
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wholesale customers. This new policy has in management estimation had little
impact on sales growth, but should allow us to reduce exposure to bad debt
expenses.
We have managed our inventory levels much more adeptly in 1999. By increasing
our turns, we have been able to reduce our year-end inventory 37.1% vs. 1998.
While sales increased 27.7% in the same period. We credit better staffing and
more timely ordering for this improvement.
The note receivable from shareholder has since been paid in full.
Both accounts payable and accrued expenses were at zero when ownership changed
during December 1998, the year-end balances result from approximately two weeks'
operations. The 1999 year-end amounts are more reflective of current practices.
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Management's focus on investing for growth resulted in increased revenues. We
also increased operating expenses as we expanded both our staff and our physical
plant, to handle expected greater volume. Our $25,872 loss in the first six
months of 2000 compared to a $49,229 loss for the first six months of 1999.
Revenues grew at a rate of 32%, increasing to $723,020 for the first six months
of 2000 compared with $546,949 for the first six months of 1999. Sales on our
website in the first six months of 2000 were $304,167, or approximately 42% of
total sales, compared to $18,851, or approximately 3% of total sales, for the
year earlier period. During the same periods, gross margins continued to
improve, due to increased buying efficiencies and favorable coffee commodity
prices.
The first six months of 2000 reflects an increase in our rent expense as we
moved into our new 15,500 square foot facility. We have expanded our staff to 13
employees from five in the previous period. During the first six months of 2000,
we invested in the development of our own web design department. In the 1999
period, we were exclusively using outside vendors for that purpose.
CoffeeAM.com, Inc. experienced significantly higher shipping expenses in the
first six months of 2000, as they grew to $70,675 from $32,551 during the first
six months of 1999. This increase is due to the greater amount of small packages
shipped, as we have continued to expand the number of our retail customers.
In the 2000 period, we first began to accrue depreciation, interest expenses,
and inventory adjustments as they occurred, instead of as an end-of-the-year
adjustment. While this reflects negatively when comparing the first six months
of 2000 to the first six months of 1999, it will have no material impact on the
full year of 2000 compared to full year 1999.
The amount for prepaid expenses is principally costs of this offering. The loan
from stockholder and the decrease in stockholders' equity results from the
dividend and loan described in "Certain Transactions."
Liquidity and Capital Resources
CoffeeAM.com, Inc. has traditionally financed it growth through cash from
operations. It has debt payable to its former owners and as the result of a loan
from its current owner made on April 30, 2000, to fund a dividend of the same
date. We plan to issue equity and debt instruments in the future as necessary to
fund the retirement of debt and the planned growth.
We buy products on trade terms from our suppliers while collecting the majority
of our receivables in cash or by credit card. We do not currently have a line of
credit with any financial institution. We have no long-term debt other than the
notes payable to the previous owner, described in note 5 of the notes to
financial statements.
Inflation and commodity prices
We do not believe inflation will have a material impact on our future
operations. We are very much affected by fluctuations in the price of coffee on
the world market, which results primarily from weather conditions.
8
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Forward-Looking Statements
This section and other forward-looking statements in this prospectus are based
on our current expectations. Our actual results could differ materially from
those anticipated in these forward-looking statements, as a result of various
factors, including the risks described in this prospectus.
Capital Requirements. Our growth plans call for significant investments in its
website infrastructure and the mass marketing of it site to retailers and
direct-consumers. The inability to raise those funds would adversely affect
CoffeeAM and its growth strategy.
Acquisition Strategy. We have no plans to acquire other businesses at this time.
We will, however, be open to possibilities that we believe would increase our
customer base and revenues.
Advertising Strategy. We plan to spend extensively on advertising in 2000. This
spending will be done in both targeted and broadcast media and will include both
online and offline advertising.
Web Design. We plan major improvements for our website during 2000. These
improvements will be in the user experience, the content offerings and
back-office processing. Improvements on our website will be an ongoing process,
as the e-commerce industry continues to develop. Our website will include more
information on coffee, teas, and other products that we market. We also plan to
expand the information we provide for those who wish to add gourmet beverages to
their existing businesses.
Seasonality
Specialty food sales are inherently seasonal, with highest volumes during the
fourth quarter holiday season. Additionally, our business has a large
gift-giving component. Our wholesale business is less seasonal. Approximately
32% of our 1999 sales were realized in the fourth quarter. The 1998 amount was
28%. We expect fourth quarter sales to continue to represent a disproportionate
amount of annual sales in the future.
Year 2000 Issues
We upgraded all of our internal computer and software systems as well as
communications equipment to Y2K compliant standards. We sought and received
assurances in writing from our major Internet service providers of their
compliance with Y2K requirements. Our costs for preparations for Year 2000 were
minimal. We have had no significant Y2K problems.
Business
CoffeeAM.com, Inc. is an electronic commerce company focused on the sale of
gourmet and specialty coffees and teas over the Internet to the retail,
corporate gift and wholesale markets. We roast over 45 high-quality Arabica
coffees and offer over 150 flavored coffees, organic coffees, select estate
coffees, gourmet teas and giftbaskets, as well as commercial and home coffee
equipment. Our website combines merchandise and related content. We operate a
warehouse and our customers' orders are fulfilled directly by us. We do have
some equipment drop-shipped to our customers.
We were incorporated in August 1993 and launched our online retail store in
March 1999. The majority of our revenue comes from the wholesale customer
accounts which we had serviced prior to taking on our Internet initiative. These
wholesale customers resell the coffee in whole bean or ground form for home
consumption. Many of them also brew and sell coffee beverages at their place of
business.
The present owners purchased the business in December 1998. Their purpose was to
have a business with an existing traditional foundation and build onto it an
Internet-based business. The previous owners had started in 1993 as a coffee
house in an Atlanta suburb. They roasted coffees on-site and began selling them
to other coffee houses. They sold the coffee house and opened a wholesale
roasting operation in 1995. Since the change in ownership, we have focused on
expanding our product offerings, building our brand name through advertising and
promotional campaigns, pursuing online shopping initiatives, recruiting
personnel, developing business-to-business services and exploring strategic
electronic commerce opportunities. In December 1999, we launched a
9
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wholesale program enabling consumers to purchase coffee and tea in bulk at
wholesale prices. Currently our retail and wholesale customers pay for orders by
credit card while we pay our suppliers on trade terms. As a result, we are able
to increase our working capital between the time we receive payment for orders
and the time we are required to pay suppliers.
We reported a loss of $39,916 in the year ended December 31, 1999, after pretax
income of $205,535 in 1998. We expect to incur losses in the next few quarters,
from these kinds of expenditures:
- advertising and promotional expenditures to build our brand name and
attract customers,
- the continued development of our website,
- expanding our product offerings,
- developing relationships with strategic business partners,
- attracting, retaining and motivating qualified employees,
- developing an "extranet" system to electronically link us to our
suppliers to improve order processing,
- continuing to develop our order processing technology, and
- continuing to increase our production capacity.
Our products and operations
The products we sell are known as "gourmet and specialty beverage," defined as
distinctive beverages of high quality. This includes our gourmet coffees, teas,
and related products.
CoffeeAM.com, Inc. is committed to providing the highest quality Arabica coffees
available from around the world. To achieve this goal, we work closely with our
coffee brokers and estate owners to carefully select the coffee beans and then
perfectly roast the coffees to maximize their taste and flavor differences.
We roast our coffee in small batches to ensure consistency. We vary the roast
time and temperature, to maximize a particular coffee's taste characteristics.
We use state-of-the-art roasting technology, which enables more exact specific
roasts, so that we may offer consistent taste profiles. We use gas heated cast
iron drum roasters, which we believe offer a higher degree of flexibility than
the typical commercial roasting machines. We have developed specific roasting
formulas for each coffee type to establish a CoffeeAM.com, Inc. recipe for each
coffee type, which we call our perfect roast. We believe that this roasting
process distinguishes it from many other specialty coffee companies and has
resulted in strong customer loyalty.
CoffeeAM, also offers flavored coffees, unlike some of its competitors. We
flavor our coffee during the production process, to provide our customers with a
higher taste consistency.
We package our coffee with one-way valve bag packaging technology, which
provides an extended shelf life for our coffees. This technology enables us to
expand our geographic distribution while maintaining our high standards for
quality and freshness.
CoffeeAM.com, Inc. provides online retail and wholesale customers a broad
selection of high quality specialty coffees, teas, and related products which
can be ordered at any time and promptly delivered. We aim to generate repeat
business by providing a positive ordering experience for our customers, offering
informed content, and offering extremely competitive pricing on the products we
market.
Our business-to-business market
Our business-to-business market includes sales to specialty food retailers, gift
shops, caterers, restaurants and other resellers of specialty beverage products.
Forrester Research estimates that business-to-business electronic commerce will
grow from $17 billion in 1997 to $327 billion in 2002.
Suppliers of specialty beverage products have traditionally distributed their
products either by using a food broker to sell to retailers at wholesale prices,
or by attempting to sell their products direct to retailers. Many suppliers have
been ineffective at direct selling and the assortment of specialized food
brokers and distributors that currently supports the industry is highly
fragmented. As a result, many retail outlets for specialty beverage products are
underserved or have limited access to the products they would like to carry.
Even more scarce than availability of quality products is the industry
information and product information that these specialized retailers need to
operate
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their businesses effectively. CoffeeAM.com, Inc. intends to bridge this gap by
offering the widest range of products, and by also offering `online-consulting'
to those in the business and those looking to enter the business. This
relationship could allow CoffeeAM.com, Inc. to maintain a large and consistent
amount of traffic to its site and to offer ancillary products to these
customers.
CoffeeAM believes that these resellers of specialty beverage products are
interested in buying online and that shipping costs are often a deterrent. We
have offered free shipping, on most items, to all continental US locations via
UPS. This shipping expense is costly, but we believe the benefit of customer
attraction has offset the related expense. This program is constantly being
reviewed, to see whether it will be part of our long-term strategy.
Our business-to-business market may be affected by the unfamiliarity of certain
retailers with the Internet in general and, more specifically, as a means for
conducting commerce. Many industries are embracing the digital marketplace for
goods on a daily basis, and we believe it is becoming quite apparent that many
if not all industries will follow suit. We have staked our claim to the digital
marketplace for specialty beverages and more precisely gourmet coffee and tea.
For this goal we are also in the process of implementing a new order processing
system, which should enable us to offer online auctioning of equipment and other
improvements related to the information we provide for those in the coffee
business. We are also working to increase our site's familiarity among specialty
food retailers.
We require credit card payment from our wholesale purchasers, rather than the
more typical weekly or monthly trade credit terms. Due to the high turnover rate
in the coffeehouse and restaurant business, CoffeeAM is very restrictive at
extending terms. By limiting the amount of terms we grant and requiring most
transactions to be paid in advance via card, we have been able to keep bad debt
losses very low.
We believe that the wholesale marketplace we have created will significantly
influence and improve the specialty beverage shopping experience and selection.
The following highlights CoffeeAM.com, Inc.'s strategy:
- the specialty coffee market is highly fragmented with only a single
dominant retailer, Starbucks. We estimate there are at least 10,000
independent coffeehouses throughout the United States;
- we have an "early-to-market" digital market place for the coffee and
tea industry;
- we have the ability to increase our product offerings with very little
incremental costs;
- we have the ability to offer specialized content, for high and
consistent traffic levels;
- small businesses are increasingly familiar with the Internet,
especially as a means to procure goods;
- manufacturers are increasingly dependent on online relationships for
the distribution of their goods;
- our history has focused on helping customers establish coffee and tea
businesses and we are now seeing many non-traditional businesses
looking to add gourmet beverages to their offerings; and
- as we build the digital marketplace, more specialty beverage companies
and those who have products for this market will see the necessity of
selling there.
Our plans for the CoffeeAM.com, Inc. office delivery and service franchise
CoffeeAM.com, Inc. plans to establish a franchise system to serve market
segments that are not expected to rely on Internet purchasing. Many restaurants,
and almost all offices use a coffee delivery service which delivers coffee,
provides equipment, and replenishes other coffee related supplies. This type of
service is not feasible for CoffeeAM.com, Inc. to perform directly. We intend to
establish a network of independent CoffeeAM.com, Inc. franchisees that will
deliver gourmet coffee and tea to office customers. We believe these franchisees
could allow us to increase volumes, and strengthen our brand.
We have not yet developed our plans for the franchise system and have no
timetable for implementation. We do not expect delivery and service franchises
to become a material part of CoffeeAM.com, Inc.'s business within the
foreseeable future. Franchising involves different legal and management
structures from the business that we are currently operating. We believe that
our management has the required ability to build this new operation.
Our consumer market
All of our sales directly to consumers are made online, through our website on
the Internet. While we are not aware of any statistical estimates of the amount
of online sales of gourmet and specialty beverage products, we believe that the
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market size and growth rate will follow the estimates for all online food sales.
Forrester Research estimates that total online food sales for 1998 were
approximately $234 million and that total online food sales are expected to
reach $1.1 billion in 2000 and $10.8 billion by 2003, representing a compounded
annual growth rate of 115%. Market research firm International Data Corporation
estimates that worldwide business to consumer commerce over the Internet will
grow from $12 billion in 1997 to $425 billion in 2002.
As of March 21, 2000, 59.22% of our business had come from repeat customers.
Also as of that date, CoffeeAM.com, Inc. had provided products to 6,558
customers.
We believe that our method of selling products direct to the consumer will
become the preferred way for people to receive their gourmet coffees & teas. The
following highlights CoffeeAM.com, Inc.'s opportunity:
- gourmet coffee's major sales growth over the past decade has created a
more knowledgeable consumer;
- we are the first company to aggressively focus on `Roastery-Direct'
gourmet coffees online;
- we can increase our product offerings with very little incremental
costs;
- we will offer specialized information on our website that is not in
stores or shops;
- we have the ability to sell unique, hard to find items not easily
obtainable at a local supermarket;
- we have none of the costs of physical retail locations in the
thousands of markets which we service;
- we receive orders and allow consumers to shop 24 hours a day/7 days a
week;
- our products are delivered direct to the consumer's front door; - we
establish `recurring-shipments' so that the consumer need not worry
about running out of product;
- our product is a consumable, and customers reorder when they `use-up'
our product; and
- we roast to order and do not incur product spoilage or the even worse
option - selling stale coffee.
Our Competition
An Internet search will show that many small competitors exist at any one time,
but only a few large ones have product offerings similar to CoffeeAM. We are
very small, compared to industry leaders in the overall coffee roasting and
marketing industry. We are not aware of any large business that is dedicated
exclusively to the Internet coffee or the Internet specialty beverage industry.
If one or more of the industry giants shifts its focus toward an online venture,
our business could be adversely affected by strong competitive tactics, or
positively affected by the resulting increase in market awareness of Internet
shopping for gourmet coffees and teas.
We are not aware of any digital marketplace that exists for the gourmet coffee
and tea business sector. We do not anticipate any significant competition in the
sale of franchises for our office delivery system. However, our franchisees will
have to complete with many national companies that have significantly more
resources than CoffeeAM.com, Inc. or its franchisees.
Employees
We currently have nine employees, all full time. We intend to hire employees as
sales continue to increase, and are actively recruiting for many positions. We
expect to have 18 employees by the end of 2000.
Facilities
CoffeeAM moved into expanded facilities in May, 2000. Our new seven-year lease
is for 15,500 square feet, at 100 Londonderry Court Suite 112, Woodstock,
Georgia. Lease payments are $7,500 per month, triple net.
We continue to be responsible on the lease for our previous space, at 3588
Pierce Drive in Chamblee, Georgia. The current monthly payment is $2,500, triple
net, and increases each year, to $2,760 per month in the year before its May
2003 expiration. We have sub-leased this space at a rate that is more than our
cost. We believe that the lessee will continue to make current payments over the
remaining lease and, if not, that we could sub-lease to another tenant with no
material cost to CoffeeAM.com, Inc.
Intellectual property, research and development
Applications are pending with the U.S. Patent and Trademark Office for trademark
of "CoffeeAM.com" and "e-coffee." We have no other patents, trademarks, licenses
or other intellectual property protection and we do not believe that any further
protection is useful. We have not spent a material amount on research and
development activities in the last two years. We have considered our web site
development to be part of our operating costs.
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Government regulations, environmental laws
Our operations are not subject to regulation by the Food and Drug
Administration, the United States Department of Agriculture or any other federal
agency. They are not subject to state regulation, except that the Georgia
Department of Agriculture checks our scales for accuracy. No government approval
is necessary for our principal products and services and we do not believe that
any existing or probable governmental regulations will have a material effect on
our business. Our coffee roasting and other operations have not incurred any
material costs of compliance with environmental laws.
Legal Proceedings
CoffeeAM.com, Inc. is not a party to any pending legal proceeding.
Management
CoffeeAM.com, Inc. 's board of directors is responsible for our policies and the
selection and oversight of management. The board is elected annually by the
shareowners. The present terms for all directors will conclude at the annual
meeting of shareowners in 2001.
Directors and Officers
Name, residence address Age Responsibility
----------------------- --- --------------
Brian J. Lunsford 26 President, Director and Chief
490 Bottesford Drive Executive Officer
Kennesaw, GA 30144
Maranda E. Lunsford 24 Vice President, Director
490 Bottesford Drive
Kennesaw, GA 30144
David R. Blech 44 Vice President of Finance, Director
4525 Dorset Lane
Suwanee, GA 30024
Juel Veach 45 Director
1329 Spalding Drive
Atlanta, GA 30350
Howe D. Whitman 58 Director
4102 Whitewater Creek Rd.
Atlanta, Georgia
Each of the three officers will devote 100% of their working time to
CoffeeAM.com, Inc.'s business.
Background information
Brian J. Lunsford became president of CoffeeAM.com, Inc. in December 1998. From
1993 to 1996, he was vice president of Professional Carpet systems, one of the
largest commercial carpet service companies in the United States. While there,
he oversaw the development of more than 200 franchises. In 1996, he founded
Alligator Renovator, an Atlanta-based commercial services company, which he sold
in 1997. From then until the acquisition of CoffeeAM.com, Inc. he was primarily
researching businesses to acquire that could expand by use of the Internet.
During August through October, 1998, he worked in a sales capacity for
HeadHunter.NET, an online job recruiting service. He is married to Maranda
Lunsford.
Maranda E. Lunsford became vice president of CoffeeAM.com, Inc. in December
1998, with responsibilities particularly in online strategy, product quality and
user experience. Before joining CoffeeAM.com, Inc., she was completing her
degree at Kennesaw State University. She is married to Brian Lunsford.
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David R. Blech became controller of CoffeeAM.com, Inc. in December 1998 and was
recently made vice president of finance. From 1995 to 1998, he was vice
president and an owner of PAWE, which was merged into the largest car wash
company in the United States. During 1988 to 1995, he was vice president of
finance for Knight Energy Services, a Florida real estate developer and operator
of service stations and car washes.
Juel Veach joined our board of directors in March 2000. He has owned and
operated a commercial service in Atlanta since 1989. From 1982 to 1989, he was
the controller and system analyst for a division of Standard Coffee Company of
New Orleans.
Howe D. Whitman became a director in March 2000. He has worked in the real
estate industry for over 35 years. In addition to serving on the board of
advisors for Colony Homes of Woodstock, Georgia, Mr. Whitman is also on the
Board of Directors for the Lakeland, Florida development council. Since 1973,
Mr. Whitman has served as President of Heritage Equities.
Committees
Audit Committee. The board has established an audit committee of the two
independent directors, Juel Veach and Howe Whitman. The audit committee will
make recommendations concerning the engagement of independent public
accountants, review their independence, the services they provide and the
results of the audit engagement. The audit committee will also consider the
range of audit and non-audit fees and review the adequacy of our internal
accounting controls.
Meetings and compensation of directors
The directors meet quarterly. The audit committee meets at least once annually.
Beginning in 2000, Directors receive $200 plus options to buy 100 shares with a
strike price set at the day of the board meeting, for each board and committee
meeting they attend. We reimburse them for travel expenses to attend meetings.
Executive compensation
The following table shows, for the year ended December 31, 1999, annual
compensation, including salary, bonuses and certain other compensation, paid by
CoffeeAM.com, Inc. to its chief executive officer, any executive officers whose
annual compensation exceeded $100,000 and to all executive officers as a group.
We have no employment agreements, no plans to pay bonuses and no bases upon
which any bonuses would be determined.
<TABLE>
<CAPTION>
Annual Compensation
------------------- All Other
Name and Principal Position Salary Bonus Compensation
--------------------------- -------- ------ ------------
<S> <C> <C> <C>
Brian J. Lunsford, President..................... $ 44,308 $ none $ none
All executive officers as a group (3 persons).... $100,165 $ none $ none
</TABLE>
Stock incentive compensation plan
CoffeeAM has reserved a total of 132,500 shares of its common stock for grant to
employees and consultants. No options have yet been granted. We will not grant
options with an exercise price of less than 85% of the fair market value of
CoffeeAM.com, Inc. shares on the date of grant.
Indemnification of directors and officers and limitation of their liability
Officers or directors are not liable to CoffeeAM.com, Inc. or its shareowners,
under Georgia law, if they acted in a manner they believed in good faith to be
in or not opposed to CoffeeAM.com, Inc.'s best interests. They are not liable in
any criminal proceeding if they had no reasonable cause to believe their conduct
was unlawful. As permitted by Georgia law, CoffeeAM.com, Inc. will indemnify its
officers and directors against liability and their defense costs in any
proceeding in which they have been successful or where the directors who are not
involved determines that the applicable standard of conduct has been met.
CoffeeAM.com, Inc. will pay reasonable expenses, including attorneys' fees,
incurred by directors or officers in advance of the final disposition of a
proceeding, if they furnish written affirmation of good faith belief that they
have met the applicable standard of conduct, together with a written promise to
repay any advances if it is determined they are not entitled to
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indemnification. We have been informed that, in the opinion of the Securities
and Exchange Commission, any indemnification for liabilities arising under the
federal Securities Act of 1933 is unenforceable, as against public policy
expressed in that Act. We do not presently carry any insurance against the
liability of CoffeeAM.com, Inc.'s officers and directors.
Certain transactions
All of the outstanding shareownership of CoffeeAM.com, Inc. was purchased in
December 1998 by Marandar Marketing, Inc., which is incorporated and located in
Georgia. It is wholly owned by Brian Lunsford and Maranda Lunsford and has no
operations. The total purchase price was $562,706, of which $250,000 was paid in
cash by Marandar to the former owners, Lee Fiedler and Mary Fiedler. Of the
balance, $232,706 was paid to the former owners from CoffeeAM.com, Inc.'s cash
and receivables. The remaining $80,000 was represented by a note from
CoffeeAM.com, Inc. to the former owners, at a 6.08% interest rate, payable
$1,280 a month until December 2005. The terms were negotiated between the former
owners of all of CoffeeAM.com, Inc.'s shares and Marandar and were as favorable
to CoffeeAM.com, Inc. as those generally available from unaffiliated third
parties. CoffeeAM.com, Inc. lacked sufficient independent directors to ratify
the transaction at the time it was initiated.
CoffeeAM.com, Inc. advanced funds to Marandar during 1999 and had a note
receivable at December 31, 1999 for $12,187. This amount has been repaid and
there are currently no advances outstanding.
CoffeeAM.com, Inc. declared a $200,000 dividend to Marandar on April 30, 2000.
Brian Lunsford made a $200,000 loan to CoffeeAM.com, Inc. on April 30, 2000. On
July 14, 2000, Marandar made a $55,000 contribution to CoffeeAM.com, Inc.'s
capital, through reducing the balance on Mr. Lunsford's loan to $145,000. The
loan is due on April 30, 2001, with an 8% annual interest rate. Proceeds of this
offering would be used to repay that loan. The terms of these transactions were
as favorable to CoffeeAM.com, Inc. as those generally available from
unaffiliated third parties. CoffeeAM.com, Inc. lacked sufficient independent
directors to ratify the transaction at the time it was initiated.
The lease of our new facilities commences June 1, 2000. The landlord is a group
of individuals doing business as "Cherokee Venture II," The group is affiliated
with Howe D. Whitman, who became a CoffeeAM.com, Inc. director on March 24,
2000. On May 5, 2000, Mr. Whitman also purchased 15,000 shares of CoffeeAM.com,
Inc.'s common stock, at $7.00 per share. Payment for the shares was $57,000 in
cash and $48,000 in reduced rentals over the first three years of the lease. The
terms of this lease were as favorable to CoffeeAM.com, Inc. as those generally
available from unaffiliated third parties. The lease has been ratified by a
majority of our independent directors who did not have an interest in the
transactions and who had access, at CoffeeAM.com, Inc.'s expense, to
CoffeeAM.com, Inc.'s or independent legal counsel.
All future material affiliated transactions and loans will be made or entered
into on terms that are no less favorable to CoffeeAM.com, Inc. than those that
can be obtained from unaffiliated third parties and must be approved by a
majority of CoffeeAM.com, Inc.'s independent directors who do not have an
interest in the transactions and who had access, at CoffeeAM.com, Inc.'s
expense, to CoffeeAM.com, Inc.'s or independent legal counsel.
Principal shareowners
The following table shows the beneficial ownership of CoffeeAM.com, Inc.'s
common stock immediately prior to this offering, giving effect to the stock
dividend effected May 4, 2000 and as adjusted to reflect the sale of the shares
being offered, for shares owned by:
* each of CoffeeAM.com, Inc.'s directors and executive officers, * each
shareowner we know to own beneficially 5% or more of the outstanding
shares of our common stock and
* all directors and officers as a group.
We believe that the beneficial owners of the common stock listed below, based on
information they furnished, have sole investment and voting power over their
shares, subject to community property laws where applicable.
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Percentage of Total Common
Number of Stock Beneficially Owned
Shares ---------------------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
------------------------ ---------- -------- --------
Brian J. Lunsford 3,687,500* 99.6% 95.7%
Maranda E. Lunsford 3,687,500* 99.6% 95.7%
Howe D. Whitman 15,000 0.4% 0.3%
All directors and executive
officers as a group (5 Persons) 3,702,500 100% 96.1%
* Brian J. Lunsford and Maranda E. Lunsford are the sole shareowners of Marandar
Marketing, Inc., the registered owner of these shares. They are married to each
other and report each other's shares as beneficial owners.
Description of securities
Our articles of incorporation and the Georgia Business Corporation Code
authorize us to issue up to 10,000,000 shares of common stock. We may also issue
securities for borrowings. Before sales in this offering, CoffeeAM.com, Inc. had
3,702,500 shares of common stock outstanding, held by three shareowners. This
includes shares issued in the May 4, 2000 stock dividend of 1,676 shares of
common stock for each share owned on that date. No shares of preferred stock
have ever been issued.
Common stock
The owners of common stock elect all the members of CoffeeAM.com, Inc.'s board
of directors. Each share owned is entitled to one vote on all matters to be
voted on by shareowners. A majority of the shares issued is a quorum. The
shareowners are entitled to receive dividends when, as and if declared by the
board of directors out of funds legally available. In the event of liquidation,
dissolution or winding up of the corporation, the shareowners are entitled to
share ratably in all assets remaining which are available for distribution to
them after payment of liabilities. Shareowners, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the common stock. All of the outstanding shares of common stock,
and the shares issued in this offering, will be fully paid and nonassessable.
The transfer agent and registrar for our common stock is American Stock
Transfer.
Future resales of securities
The shares sold in this offering will be freely tradable, without restriction or
registration under federal securities laws. Sales of shares to residents of
certain states or jurisdictions may require registration or an applicable
exemption from registration provisions of the shares in those states or
jurisdictions.
Order-matching service
The shares have been not been approved for listing on any registered national
securities exchange or on the Nasdaq stock market. After completion of this
offering, we expect to arrange for a registered securities broker-dealer to
provide an order-matching service for persons wishing to sell or buy shares
after this offering is over. However, it is possible that this service may not
become or remain available. In that case, anyone wishing to sell shares would
have to find a buyer and make arrangements for the price, payment and transfer
of the shares.
Restricted shares
The 3,702,500 shares of common stock issued before this offering are "restricted
securities" and may not be sold in a public distribution except in compliance
with the federal Securities Act of 1933 or an applicable exemption under the
Securities Act, including its Rule 144. Rule 144(k) provides that a person who
is not an officer, director or principal shareowner of CoffeeAM.com, Inc. and
who has owned shares for at least a year could offer and sell those shares
through any trading market, if reporting and other requirements were met.
The three present shareholders have entered into a "lock-in agreement" with
CoffeeAM.com, Inc., further restricting the sale or other transfer of their
shares for a period of 2 years after the completion of this offering. All
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of the 3,702,500 shares of common stock now outstanding are subject to this
agreement. None of these shares can be transferred during the first year after
completion of this offering. During the second year after completion of this
offering, an aggregate of 2 1/2% of these shares may be sold or transferred
during each calendar quarter.
Tax effects of selling "Small Business Stock"
Individuals buying shares in this offering, and holding them for at least five
years, would pay a maximum 14% effective tax rate on any gain from their sale,
under existing tax laws. Or, no tax at all would be payable on the sales
proceeds "rolled over" into the purchase of other "small business stock," within
60 days of the sale. This favorable tax treatment could be changed. Various
conditions and limitations apply. You will want to consult your own tax advisor
if this tax effect is important in your investment decision.
Plan of distribution
CoffeeAM.com, Inc. is offering shares and certificates directly to the public,
without any registered securities broker-dealer as an intermediary. Notices of
the offer and how to get a prospectus will be posted on our website,
www.coffeeam.com, and may also be in selected print media and sent to our
customers and others by mail. These notices will be in the form permitted by
Rule 134 of the federal Securities Act of 1933. Copies of this prospectus will
be accessible through our website to persons registering as residents of states
in which we may lawfully offer shares. The share purchase agreement will also be
available on the website to those persons and can be completed and submitted
electronically or printed and mailed. Printed copies of the prospectus and share
purchase order will be mailed to those requesting them. Notice of accepted share
purchase orders will be sent by email or regular mail. Shares are to be sold on
a "first come - first served," based on when we receive your share purchase
order. The offering will end when either all of the shares have been sold or we
terminate the offering. When the offering is completed, you will receive a
certificate for your shares.
Any other communications concerning the offer will be effected through Brian
Lunsford, our chief executive officer, who will not receive any commissions or
other compensation based on transactions in securities. His activities are
intended to be within Rule 3a4-1 of the federal Securities Exchange Act of 1934
and he will comply with securities regulations of the states in which the
offering is to be registered. We plan to offer shares to residents of the states
of Alaska, California, Colorado, Connecticut, Delaware, Florida, Georgia,
Hawaii, Idaho, Illinois, Louisiana, Michigan, New Jersey, New York, North
Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas,
Virginia, Washington and Wyoming. We have applied to register this offering in
those states, and to license Brian Lunsford as our sales agent, as required by
their securities laws. If our shares are not registered, or exempt from
registration in a state, or we do not have a required licensed agent there, we
will not offer shares to its residents.
Determination of offering price
Because there has been no market for our common stock, the public offering price
has been determined by our board of directors. Among the factors considered were
CoffeeAM.com, Inc.'s results of operations, its current financial condition, its
future prospects, the state of the markets for its products and services, the
experience of management and the economics of the industry segment in general.
Escrow of minimum proceeds
We are making this offering on a minimum/maximum basis subject to subscription
and payment for not less than the minimum 75,000 shares and not more than the
maximum 150,000 shares. All subscription payments will be deposited into an
escrow account at SouthTrust Bank, N.A as escrow agent. The sole duty of the
escrow agent, other than specified in the escrow agreement, shall be to
establish and maintain the escrow account and receive and hold the funds
deposited by us. We acknowledge that the escrow agent is performing the limited
function of escrow agent and that this fact in no way means the escrow agent has
passed in any way upon the merits or qualifications of, or has recommended, or
given approval to, any person, security or transaction.
No securities dealer is buying all of the shares in this offering, so less than
the maximum amount may be raised. If the minimum is not sold in this offering by
May 31, 2001, all proceeds deposited in the escrow account will be promptly
refunded in full, with interest, but without any deduction for expenses.
During the escrow period, all subscription payments for shares must be delivered
with a completed share purchase order to the escrow agent. CoffeeAM.com, Inc.
will mail a copy of the share purchase order to each purchaser within fifteen
business days of acceptance by us. Stock certificates will not be issued to
subscribers until the minimum has been sold. Until then, purchasers will be
subscribers and not security holders of CoffeeAM.com, Inc.. During the escrow
period, subscribers will have no right to a return of their payment.
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After the minimum has been fully subscribed, we will continue to offer the
shares, not subject to payment for any further minimum amount, but not for more
than a total of 150,000 shares. This offering will end when we have sold the
maximum amount or on March 31, 2001, if we have not sold the minimum by then. We
may decide to close the offering earlier, if some major event has occurred that
would materially change our business or the investment described in this
prospectus. We reserve the right to reject any subscription or share purchase
agreement in full or in part and to terminate the offering at any time prior to
the sale of all the shares being offered.
The escrow agent is performing the limited function of escrow agent and this
fact in no way means the escrow agent has passed in any way upon the merits or
qualifications of, or has recommended, or given approval to, any person,
security or transaction
Experts
The financial statements of CoffeeAM.com, Inc. as of and for the periods ended
December 31, 1998 and December 31, 1999 have been included in this prospectus in
reliance on the report of Cherry, Bekaert & Holland, certified public
accountants.
Available Information
This prospectus is part of a registration statement on Form SB-2 filed under the
Securities Act of 1933. This prospectus does not contain all of the information
in the registration statement and its exhibits. Statements in this prospectus
about any contract or other document are just summaries. Copies of material
contracts are filed as exhibits to the registration statement and are available
as an EDGAR filing on various websites, including www.sec.gov.
CoffeeAM.com, Inc. will have to file reports under the Securities Exchange Act
of 1934. You may read and copy the registration statement and our reports at the
Securities and Exchange Commission's public reference rooms at 450 Fifth Street,
N.W., Washington, D.C. 20549, Seven World Trade Center, 13th Floor, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. You may telephone the Commission's Public Reference Branch at
800-SEC-0330. Our registration statement and reports are also available on the
Commission's Internet site at http://www.sec.gov.
We intend to furnish our shareowners with annual reports containing audited
financial statements after the end of each fiscal year.
Index to financial statements
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Income F-3
Statements of Changes in Stockholders' equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-8-17
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Coffeeam.com, Inc.
formerly known as
Arabica International, Inc.
Chamblee, Georgia
We have audited the accompanying balance sheets of Coffeeam.com, Inc. formerly
known as Arabica International, Inc. (wholly owned subsidiary of Marandar
Marketing, Inc.) as of December 31, 1999 and 1998 and the related statements of
income, changes in stockholders' equity, and cash flows for the years then
ended. 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 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
misstatement. 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 financial position of Coffeeam.com, Inc. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the periods then ended in conformity with generally accepted accounting
principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
Certified Public Accountants
Atlanta, Georgia
March 3, 2000, except for Note 11, as to
which the date is May 5, 2000
F-1
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Balance Sheets
June 30, 2000, December 31, 1999 and 1998
Assets
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------
2000 1999 1998
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash $ 26,238 $ 40,663 $ 29,318
Accounts receivable
Trade, net of allowance for uncollectible
Accounts of $6,000, $-0- and $6,000 for
December 31, 1999 and 1998 and
June 30, 2000 47,134 62,683 16,771
Inventories 88,591 81,975 139,999
Prepaid expenses 110,568 3,603 --
-------- -------- --------
Total current assets 272,531 188,924 186,088
-------- -------- --------
Net property and equipment 210,018 175,709 161,819
-------- -------- --------
Other assets
Other 3,158 --
Note receivable shareholder 35,887 12,187 --
Goodwill, net of accumulated
Amortization of $23,298, $-0- and $34,947
for December 31, 1999 and 1998 and
June 30, 2000 314,530 326,179 349,477
-------- -------- --------
Total other assets 353,575 338,366 349,477
-------- -------- --------
Total assets $836,124 $702,999 $697,384
======== ======== ========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Balance Sheets
June 30, 2000, December 31, 1999 and 1998
(continued)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------
2000 1999 1998
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Current liabilities
Accounts payable $ 189,103 $ 101,103 $ 29,686
Accrued expenses 26,644 22,260 23,401
Current maturities of long-term debt 55,928 52,156 24,743
Loan from stockholder 200,000 -- --
--------- --------- ---------
Total current liabilities 471,675 175,519 77,830
--------- --------- ---------
Long-term debt, net of current maturities 293,703 323,099 375,257
--------- --------- ---------
Total liabilities 765,378 498,618 453,087
--------- --------- ---------
Stockholders' equity
Common stock, authorized 10,000,000 Shares,
3,687,500 shares issued and Outstanding
for December 31, 1999 and 1998, 3,702,500
shares issued and outstanding for
June 30, 2000 200 200 200
Paid-in capital 155,000 250,000 250,000
Accumulated deficit (84,454) (45,819) (5,903)
--------- --------- ---------
Total stockholders' equity 70,746 204,381 244,297
--------- --------- ---------
Total liabilities and
Stockholders' equity $ 836,124 $ 702,999 $ 697,384
========= ========= =========
</TABLE>
F-3
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Statements of Income
Periods ended June 30, 2000 and 1999 and
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------
June 30, December 31,
-------------------------- --------------------------
2000 1999 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Sales $ 723,020 $ 546,949 $ 1,282,714 $ 1,004,106
Less cost of sales 266,767 268,971 487,609 465,710
----------- ----------- ----------- -----------
Gross profit 456,253 277,978 795,105 538,396
Selling, general and administrative expenses 482,125 327,207 821,380 332,861
----------- ----------- ----------- -----------
Income (loss) from operations (25,872) (49,229) (26,275) 205,535
----------- ----------- ----------- -----------
Other income (expense)
Interest expense 12,763 6,921 13,641 --
----------- ----------- ----------- -----------
Net income (loss) $ (38,635) $ (56,150) $ (39,916) $ 205,535
=========== =========== =========== ===========
Pro forma data (unaudited)
Net income (loss) as reported $ (38,635) $ (56,150) $ (39,916) $ 205,535
Pro forma income tax expense -- -- -- 70,400
----------- ----------- ----------- -----------
Pro forma net income loss $ (38,635) $ (56,150) $ (39,916) $ 135,135
=========== =========== =========== ===========
Basic and diluted income (loss) per
common share * $ (0.01) $ (0.01) $ (0.01) $ 0.04
=========== =========== =========== ===========
Weighted average number of common
shares outstanding * 3,692,000 3,687,000 3,687,000 3,687,000
=========== =========== =========== ===========
</TABLE>
* Adjusted to reflect the stock dividend declared on May 4, 2000. See notes to
financial statements.
F-4
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Statements of Changes in Stockholders' Equity
Years ended December 31, 1999 and 1998
and Period ended June 30, 2000
<TABLE>
<CAPTION>
Retained
Common Earnings/
Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance (Deficit)
December 31, 1997 2,200 $ 200 $ $ (79,726) $ (79,526)
Net income 211,438 211,438
Effect of acquisition by
Marandar Marketing, Inc. 250,000 (131,712) 118,288
--------- --------- --------- --------- ---------
Balance as of
December 17, 1998 2,200 200 250,000 250,200
Net loss from acquisition to
December 31, 1998 (5,903) (5,903)
--------- --------- --------- --------- ---------
Balance as of
December 31, 1998 2,200 200 250,000 (5,903) 244,297
Stock dividend* 3,685,300 00
Net loss (39,916) (39,916)
--------- --------- --------- --------- ---------
Balance as of
December 31, 1999 3,687,500 200 250,000 (45,819) 204,381
Stock issuance 15,000 105,000 105,000
Distribution (200,000) (200,000)
Net loss (38,635) (38,635)
--------- --------- --------- --------- ---------
Balance as of
June 30, 2000 (unaudited) 3,702,500 $ 200 $ 155,000 $ (84,454) $ 70,746
========= ========= ========= ========= =========
</TABLE>
* Adjusted to reflect the stock dividend approved on May 4, 2000.
See notes to financial statements.
F-5
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Statements of Cash Flows
Period ended June 30, 2000 and
1999 and Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------
June 30, 2000 June 30, 1999 December 31, December 31,
(Unaudited) (Unaudited) 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Reconciliation of net income to net cash
used in operating activities
Net income (loss) $ (38,635) $ (56,150) $ (39,916) $ 205,535
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation 16,590 18,236 31,821 31,566
Amortization 11,649 11,648 23,297 2,324
Changes in assets and liabilities, net
of acquisitions
(Increase) decrease in accounts receivable 15,549 (61,408) (45,912) 7,811
(Increase) decrease in inventories (6,616) 21,633 58,024 (56,533)
(Increase) decrease in prepaid assets (58,965) (1,087) (3,603) --
Increase in other assets (3,158) -- -- --
Increase in cash overdraft -- 14,346 -- --
Increase (decrease) in accounts payable 88,000 46,199 71,417 (13,922)
Increase (decrease) in accrued expenses 4,384 (10,991) (1,141) (29,659)
--------- --------- --------- ---------
Net cash provided by (used for)
operating activities 28,798 (17,574) 93,987 147,122
--------- --------- --------- ---------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Statements of Cash Flows
Period ended June 30, 2000 and
1999 and Years ended December 31, 1999 and 1998
(continued)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------
June 30, 2000 June 30, 1999 December 31, December 31,
(Unaudited) (Unaudited) 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from investing activities
Capital expenditures $ (50,899) $ (10,130) $ (45,710) $ (25,669)
--------- --------- --------- ---------
Cash flows from financing activities
Principal payments on notes payable (25,624) -- (24,745) (64,731)
Loan to stockholder (23,700) (1,614) (12,187) --
Payments to former owners related
to acquisition -- -- -- (151,932)
Distribution to stockholder (200,000) -- -- --
Loan from stockholder 200,000 -- -- --
Issuance of common stock 57,000 -- -- --
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities 7,676 (1,614) (36,932) (216,663)
--------- --------- --------- ---------
Net increase (decrease) in cash (14,425) (29,318) 11,345 (95,210)
Cash and cash equivalents - beginning
of year 40,663 29,318 29,318 124,528
--------- --------- --------- ---------
Cash and cash equivalents - end of year $ 26,238 $ -- $ 40,663 $ 29,318
========= ========= ========= =========
</TABLE>
F-7
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements
June 30, 2000, December 31, 1999 and 1998
Note 1 - Summary of Significant Accounting Policies
Business Activity
COFFEEAM.COM, Inc. formerly known as Arabica International, Inc. (the
"Company") is a Georgia corporation, incorporated on February 9, 1996.
On December 17, 1998, the Company was acquired in a stock purchase by
Marandar Marketing, Inc. The Company engages in the roasting and sale
of gourmet coffee beans. Sales are generally to coffee houses,
restaurants and individuals via the internet. No customer represents
more than 10% of annual sales.
Inventories
Inventories are valued using the first-in, first-out (FIFO) method. All
inventories are stated at the lower of cost or market.
Property and Equipment
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line and
accelerated methods over the estimated useful lives of assets of 5 to
10 years.
Intangible and Long-lived Assets
Intangible assets subject to amortization includes goodwill related to
the acquisition by Marandar Marketing, Inc.. Amortization is on a
straight-line basis over 15 years.
The Company evaluates the impairment of intangible and long-lived
assets on an ongoing basis in relation to the undiscounted cash flows
of the related asset.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements, and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-8
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 1 - Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company considers instruments with a maturity of three months or
less to be cash equivalents for purposes of the statements of cash
flows.
Interim Financial Statements
The Company's financial statements for the six months ended June 30,
2000 and 1999, and all related footnote information for those periods,
are unaudited, and reflect all adjustments which, in management's
opinion, are necessary for fair presentation. All such adjustments are
of a normal, recurring nature.
Fair Value of Financial Instruments
The estimated fair value of the Company's cash, accounts receivable and
payable, and notes payable approximated their carrying value at year
end.
Basic Earnings per Common Share
Basic earnings per common share equals the total of net earnings
divided by the weighted average number of common shares outstanding.
Advertising
The Company expenses advertising costs as they are incurred.
Advertising costs were $53,501, $13,015 and $48,400 for the periods
ended December 31, 1999 and 1998 and June 30, 2000, respectively.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter
S of the Internal Revenue Code. Accordingly, the financial statements
do not include a provision for income taxes because the Company does
not incur federal or state income taxes. Instead, its earnings and
losses are included in the stockholders' personal income tax returns
and are taxed based on personal tax strategies.
F-9
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 1 - Summary of Significant Accounting Policies (continued)
Impact of New Accounting Standards
The Financial Accounting Standards Board (FASB) has issued the
following accounting pronouncement which the Company will be required
to adopt in future periods:
FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" requires that derivative instruments such as
options, forward contracts and swaps be recorded as assets and
liabilities at fair value and provides guidance for recognition of
changes in fair value depending on the reason for holding the
derivative. The Company does not presently have transactions involving
derivative instruments, but may do so in the future. The Company is
required to adopt Statement No. 133 for all fiscal quarters of all
fiscal years beginning after June 15, 2000.
Note 2 - Acquisition
On December 17, 1998, all the Company's outstanding stock was purchased
by Marandar Marketing, Inc. A summary of the transaction is as follows:
Cash paid by Marandar Marketing, Inc. $250,000
Cash and receivables paid by Arabica
International, Inc. 232,706
Note payable to former owner 80,000
--------
Total purchase price $562,706
========
Fair value of net assets acquired $213,229
========
Goodwill $349,477
========
The financial statements reflect the allocation of Marandar's purchase
price to the fair values of the assets acquired and liabilities
assumed, effective as of December 17, 1998, the purchase date.
Accordingly, the results of operations for substantially all of 1998
reflect the Company's historical cost basis in assets and liabilities,
and the Company's financial position as of December 31, 1999 and 1998,
and the results of operations for the year ended December 31, 1999,
reflect the effects of the purchase price allocation. F-10
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 3 - Inventories
Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
June 30, 2000 December 31, December 31,
(Unaudited) 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Coffee $ 36,918 $ 33,719 $ 93,934
Accessories, flavoring and equipment 51,673 48,256 46,065
-------- -------- --------
$ 88,591 $ 81,975 $139,999
======== ======== ========
</TABLE>
Note 4 - Property and Equipment
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
June 30, 2000 December 31, December 31,
(Unaudited) 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Furniture and office equipment $ 54,118 $ 37,157 $ 25,959
Equipment 155,161 144,337 110,860
Leasehold improvements 49,150 26,036 25,000
--------- --------- ---------
258,429 207,530 161,819
Less: Accumulated depreciation (48,411) (31,821) --
--------- --------- ---------
$ 210,018 $ 175,709 $ 161,819
========= ========= =========
</TABLE>
Depreciation expense was $36,473 for the year ending December 31, 1999
and $31,566 for the year ended December 31, 1998. The unaudited balance
of depreciation expense for the period ended June 30, 2000 was $16,590.
F-11
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 5 - Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, 2000 December 31, December 31,
(Unaudited) 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
6.08% note payable to former owner with monthly
payments of $5,118 until December 2005 $ 279,705 $ 300,204 $ 320,000
6.08% acquisition note payable to former owner with
monthly payments of $1,280 until December 2005 69,926 75,051 80,000
--------- --------- ---------
349,631 375,255 400,000
Less: Current maturities (55,928) (52,156) (24,743)
--------- --------- ---------
$ 293,703 $ 323,099 $ 375,257
========= ========= =========
</TABLE>
The above notes payable are secured by all the assets of the Company
and are personally guaranteed by the parent's stockholder. The notes
arose from the acquisition of the Company by Marandar Marketing, Inc.
as discussed in Note 4.
Maturities of long-term debt are as follows:
2000 $52,156
2001 55,928
2002 59,971
2003 64,305
2004 68,955
Thereafter 73,940
F-12
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 6 - Operating Leases
The Company leases a building and office space under an operating
lease. The lease expires at various dates through 2003. Rental expense
under the lease was $28,992, $28,811 and $24,052 for the periods ended
December 31, 1999 and 1998 and June 30, 2000, respectively. The
unaudited balance of rental expense for the period ended June 30, 2000
was $24,052. The following is a schedule by years of minimum rentals
under the above lease agreement as of December 31, 1999.
2000 $30,700
2001 31,760
2002 32,720
2003 13,800
2004 --
Note 7 - Supplemental Cash Flow Information
Interest paid totaled $13,641 and $-0- for the periods ended December
31, 1999 and 1998 and $12,762 and $-0- for the periods ended June 30,
2000 and 1999, respectively.
Note 8 - Concentration of Credit Risk
The Company operates from one location in Atlanta to manufacture and
sell its product. The Company extends credit to its customers
substantially without collateral. Sales are generally throughout the
entire United States. The business operations are influenced by the
general economic conditions of the U. S.
Note 9 - Commitments
The Company has an agreement with a consulting firm for services
relating to a direct public offering of its stock. The agreement calls
for $2,500 monthly payments until June 15, 2000. The total fee for the
agreement is $33,200.
As part of the purchase agreement, $50,000 was paid to the former
owners for consulting services during the year ended December 31, 1999.
F-13
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 10 - Pro Forma Financial Information (Unaudited)
The results of operations for the year ended December 31, 1998, had the
acquisition of the Company by Marandar Marketing, Inc. occurred as of
January 1, 1998 are as follows:
<TABLE>
<CAPTION>
Historical Proforma Proforma
Amounts Adjustments Amounts
---------- ----------- ----------
<S> <C> <C> <C>
Sales $1,004,106 $ -- $1,004,106
Cost of sales 465,710 -- 465,710
---------- ---------- ----------
Gross profit 538,396 -- 538,396
Selling, general and
administrative expenses 332,861 25,376 358,237
---------- ---------- ----------
Net income before taxes 205,535 25,376 180,159
Tax provision -- 70,400 70,400
---------- ---------- ----------
$ 205,535 $ 95,776 $ 109,759
========== ========== ==========
</TABLE>
The proforma adjustments relate to additional depreciation and
amortization of goodwill that would have been recorded if the
acquisition had occurred as of January 1, 1998.
The former owners filed a final tax filing for the Company as of
December 17, 1998. Federal and state income tax liability up to
December 17, 1998 is the responsibility of the former owners.
F-14
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 10 - Pro Forma Financial Information (Unaudited) (continued)
As described in Note 1, the Company has elected to be taxed as an S
corporation under the provisions of the Internal Revenue Code. Assuming
the completion of the offering, the Company will terminate its S
corporation election and will accordingly become subject to federal and
state income taxes. Upon termination of the S corporation election,
deferred income taxes reflecting the tax effect to temporary
differences between the Company's financial statement and tax bases of
certain assets and liabilities will become a net liability or asset of
the Company and will be reflected on the balance sheet with a
corresponding nonrecurring tax expense or benefit in the statement of
operations for the first calendar quarter following the offering.
Deferred taxes relate primarily to accounts receivable allowances and
capitalization of start up costs. The amount of such net deferred tax
assets approximates $45,000 and $6,000 at December 31, 1999 and 1998,
respectively.
The pro forma data in the statement of income provides information as
if the Company had been treated as a C corporation for income tax
purposes for all periods presented. The following unaudited pro forma
information reflects the reconciliation between the statutory provision
for income taxes and the actual provision relating to the incremental
income tax expense that the Company would have incurred if it had been
subject to federal and state income taxes.
<TABLE>
<CAPTION>
June 30, 2000 December 31, December 31,
(Unaudited) 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Income taxes at federal statutory rate $ 11,590 $(11,975) $ 58,800
State taxes, net of federal benefit 2,318 (2,400) 11,600
Portion applicable to former owners -- -- --
Reserve for realization of deferred tax benefit (13,908) (14,375) --
-------- -------- --------
Pro forma income taxes $ -- $ -0- $ 70,400
======== ======== ========
</TABLE>
F-15
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 11 - Subsequent Events
Name Change
Effective April 26, 2000, the Company changed its name from Arabica
International, inc. to COFFEEAM.COM, Inc.
Dividend
A dividend of $200,000 was made on April 30, 2000 to the sole
shareholder of the corporation, Marandar Marketing, Inc.
Loan from Officer
On April 30, 2000, the Company received $200,000 as a loan from its
President, Brian J. Lunsford. The loan is due in one year with interest
due at 8% per annum.
Revocation of S Election
On May 1, 2000, the Company resolved to revoke its status as an S
corporation for federal income tax purposes.
Stock Dividend
On May 4, 2000, the Company increased its authorized number of shares
to 10,000,000. In addition, the Company declared a share dividend of
3,685,000 shares to be included in a replacement share certificate in
addition to the 2,200 shares surrendered to the Company by the sole
owner, Marandar Marketing, Inc. The new share certificate was issued
for a total of 3,687,500 shares.
F-16
<PAGE>
COFFEEAM.COM, INC.
formerly known as
ARABICA INTERNATIONAL, INC.
(WHOLLY OWNED SUBSIDIARY OF MARANDAR MARKETING, INC.)
Notes to Financial Statements (continued)
June 30, 2000, December 31, 1999 and 1998
Note 11 - Subsequent Events (continued)
Stock Issuance
On May 5, 2000, the Company issued 15,000 shares to an individual in
exchange for $57,000 and the execution and delivery of a contract
relating to the rental of new office and warehouse space. The stock was
valued at $7.00 per share based on the cash received and the fair value
of the rent concession.
Capital Contribution
On July 14, 2000, the Company received a $55,000 contribution of
capital from its parent company, Marandar Marketing, Inc. The
contribution was effected by the cancellation of $55,000 of the note
payable to the Company's President, Brian J. Lunsford. The debt
cancellation was treated as a capital contribution to Marandar,
Marketing, Inc., the parent, by its sole stockholder, Brian J.
Lunsford. The parent company then made a $55,000 contribution to
Paid-in capital of Coffeeam.com, Inc. The net effect is a $55,000
reduction in note payable officer and an $55,000 increase in paid-in
capital.
F-17
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation, Article 6, provide that the
personal liability of a director to the Registrant or its shareholders for
monetary damages for breach of duty of care or other duty as a director shall be
limited to the amount of the director's compensation for services as a director
during the twelve month period immediately preceding the breach. The exceptions
to this limitation are a director's liability for (i) any appropriation, in
violation of the director's duties, of any business opportunity of the
Registrant's, (ii) acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) liability as
required by the Georgia Business Corporation Code and (iv) any transaction from
which the director derived an improper personal benefit.
The Registrant's Bylaws, Article Ten, require the Registrant to indemnify
officers or directors who are made or threatened to be made a party to any
proceeding because they were officers or directors, to the extent that they have
been successful in their defense. The indemnification is subject to a
determination that the officers or directors acted in the manner they reasonably
believed to be in or not opposed to the best interests of the Registrant and,
with respect to any criminal proceeding, had no reasonable cause to believe
their conduct was unlawful. This determination is to be made by a majority vote
of a quorum of disinterested directors, or a firm of independent legal counsel
or an affirmative vote of a majority of the Registrant's shares. If any
indemnification is paid otherwise than by a court order, action by the
shareowners or by the issuer's insurance carrier, information about the payment
is to be mailed to each shareowner. The Registrant may advance expenses incurred
by an officer or director in defending a civil or criminal action. The officer
or director must repay the advances if it is determined that indemnification is
not authorized.
These provisions in the Registrant's articles and bylaws may permit
indemnification to directors, officers or persons controlling the Registrant for
liabilities arising under the Securities Act of 1933. The Registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
All expenses of the offering are estimated to be:
Securities and Exchange Commission filing fee............... $ 264
Blue sky fees and expenses.................................. 10,740
Accountant's fees and expenses.............................. 20,200
Special Counsel's fees and expenses......................... 45,000
General Counsel's fees and expenses......................... 3,000
Printing.................................................... 1,200
Postage..................................................... 4,000
Marketing expenses.......................................... 15,000
Miscellaneous............................................... 496
--------
Total.................................................. $100,000
========
No securities are registered for sale by security holders. No premium is to be
paid on any policy to insure or indemnify directors or officers against any
liabilities they may incur in the registration, offering or sale of these
securities.
Item 26. Recent Sales of Unregistered Securities.
(a) The only securities that the Registrant sold within the past three years
without registering the securities under the Securities Act were the sale
of 30,000 shares of common stock, on May 5, 2000.
(b) No underwriters were used. The one purchaser is an accredited investor as
defined in Section 2(15)(ii) of the Securities Act of 1933 and Rules 215(d)
and (e) and 501(a)(4) and (5) and a sophisticated person as described in
Rule 506(b)(2)(ii).
(c) All shares were sold for cash and reduced rentals over the first three
years of a lease. The total offering price of the securities sold was
$105,000. No underwriting discounts or commissions were paid in the
transaction.
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<PAGE>
(d) The Registrant claims exemption from registration under Rule 701 of the
General rules and Regulations under the Securities Act of 1933, for this
transaction. The facts relied upon to make the exemption available are that
the sale of shares was to one person, who is a director of the Registrant,
who is an affiliate of the Registrant's landlord and who had access to all
the information about the Registrant necessary to make an informed
investment decision. The shares were issued under a written compensation
contract for the participation of Mr. Whitman as a director.
Item 27. Exhibits
Exhibits listed below are filed as part of this Registration Statement
pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation of the Registrant
3.2 Amended and Restated By-laws of the Registrant
4.1 Articles 8 and 9, page 6 of the Amended and Restated Articles of
Incorporation and Article Two of the Amended and Restated
By-laws (Exhibits 3.1 and 3.2)
4.2 Description of common stock certificate
5 Opinion and consent of counsel with respect to the legality of
the shares
10.1 Lease between Registrant and Cherokee Venture II
23.1* Consent of Cherry, Bekaert & Holland, L.L.P., Certified Public
Accountants
23.2 Consent of Counsel (reference is made to Exhibit 5)
24 Power of Attorney
99.1 Share Purchase order
99.2 Escrow Agreement with SouthTrust Bank (revised)
99.2 Lock-in Agreement
----------
* Filed with this amendment
Item 28. Undertakings.
(a) The 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:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) 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.
(d) The registrant has been advised that, in the opinion of the Securities and
Exchange Commission, indemnification to directors, officers and controlling
persons of the registrant for liabilities arising under the Securities Act is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this Pre-Effective
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, in Woodstock, Georgia, on October 27, 2000.
COFFEEAM.COM, INC. (Issuer)
By /s/ BRIAN J. LUNSFORD
----------------------------------------
Brian J. Lunsford, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
pre-effective amendment no. 3 to registration statement was signed by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ BRIAN J. LUNSFORD President, Director and October 27, 2000
----------------------------- Chief Executive Officer
Brian J. Lunsford
/s/ DAVID R. BLECH Vice President of Finance, Director October 27, 2000
----------------------------- (Principal financial and accounting
David R. Blech officer)
/s/ MARANDA E. LUNSFORD Vice President, Director October 27, 2000
-----------------------------
Maranda E. Lunsford
/s/ JUEL VEACH Director October 27, 2000
-----------------------------
Juel Veach
/s/ HOWE D. WHITMAN Director October 27, 2000
-----------------------------
Howe D. Whitman
</TABLE>
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