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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
MAY 21, 1997
------------
COFFEE PEOPLE, INC.
-------------------
(Exact name of registrant as specified in its charter)
OREGON 0-21397 93-1073218
- -----------------------------------------------------------------------
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
15100 SW KOLL PARKWAY, SUITE J, BEAVERTON, OREGON 97006
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(503) 672-9603
- ----------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Coffee People, Inc., an Oregon corporation ("Coffee People"),
purchased 15 retail specialty coffee stores located in Phoenix and Tucson
Arizona, and a related coffee bean wholesale business, from The Coffee
Plantation, Inc., an Arizona corporation ("Coffee Plantation") effective May 21,
1997.
The sale occurred pursuant to an Assets Purchase Agreement
between Coffee People, Coffee Plantation and The Second Cup Inc., the sole
shareholder of Coffee Plantation ("Second Cup"), dated as of April 21, 1997 (the
"Assets Purchase Agreement").
The purchase price for the assets was approximately $8.65
million, a sum determined by negotiation between the parties. Coffee People paid
the full purchase price in cash at closing, except for an immaterial
post-closing adjustment payment made in July 1997.
The assets acquired include inventory, machinery, fixtures,
equipment, leasehold interests in the stores and other operating assets.
The foregoing description of the Assets Purchase Agreement is
qualified in its entirety by reference to the Assets Purchase Agreement, filed
as Exhibit 2.2 to the Form 8-K filed on April 28, 1997.
Coffee People financed $6 million of the purchase price with a
5-year term loan from Bank of America NT & SA, upon the terms and conditions set
forth in a loan agreement, a copy of which was filed as Exhibit 2.3 to the Form
8-K filed on April 28, 1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Audited Financial Statements of The Coffee Plantation, Inc. as
of, and for the period ended June 29, 1996, together with the report
of Price Waterhouse, Chartered Accountants.
Unaudited Financial Statements of The Coffee Plantation, Inc. as
of, and for the thirteen-week period ended April 7, 1997.
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Statement of Operations for the
year ended December 31, 1996.
Unaudited Pro Forma Condensed Balance Sheet as of March 31, 1997.
Unaudited Pro Forma Condensed Statement of Operations for the
quarter ended March 31, 1997.
Notes to Unaudited Pro Forma Financial Statements.
(c) Exhibits
2.1 Assets Purchase Agreement, dated April 21, 1997,
between Coffee People, Coffee Plantation and Second
Cup (omitting all schedules and exhibits).(1)
2.2 Amendment No. 1 to Business Loan Agreement, dated
April 21, 1997 between Bank of America NT & SA
and Coffee People.1
- ----------------------------
1. Incorporated by reference to the Company's Report on Form 8-K,
as filed on April 28, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COFFEE PEOPLE, INC.
(Registrant)
Date: August 3, 1997 By: /s/ Kenneth B. Ross
- --------------------- --------------------------
Kenneth B. Ross
Chief Financial Officer
<PAGE>
The Coffee Plantation, Inc.
(a wholly-owned subsidiary of The Second Cup, Inc.)
FINANCIAL STATEMENTS
(in United States dollars)
June 29, 1996 and June 24, 1995
<PAGE>
August 16, 1996
AUDITORS' REPORT
To the Shareholder of
The Coffee Plantation, Inc.
We have audited the balance sheets of The Coffee Plantation, Inc. as at June 29,
1996 and June 24, 1995 and the statements of operations and retained earnings
(deficit) and changes in cash flows for the fiscal 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 an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 29, 1996 and June 24,
1995 and the results of its operations and the changes in its cash flows for the
fiscal years then ended in accordance with generally accepted accounting
principles in the United States.
/s/ Price Waterhouse
Chartered Accountants
<PAGE>
- ---------------------------------------------------
THE COFFEE PLANTATION, INC.
(a wholly-owned subsidiary of The Second Cup, Inc.)
- ---------------------------------------------------
BALANCE SHEETS
(in United States dollars)
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,758,058 $ 43,242
Accounts receivable, net of allowance for
doubtful accounts of $12,294 and $5,294 53,704 70,189
Due from affiliated company 7,410 -
Inventories 544,136 297,538
Prepaid expenses and other assets 180,602 212,000
Deferred income taxes 217,852 -
--------------------------------------
2,761,762 622,969
Deferred income taxes 1,838,148 -
Property and equipment, net 4,011,835 3,425,731
Goodwill, net of $144,386 and $82,375 of
accumulated amortization 2,245,457 2,307,468
--------------------------------------
$ 10,857,202 $ 6,356,168
======================================
Liabilities
Current liabilities
Accounts payable $ 171,282 $ 433,940
Accrued expenses 776,890 230,109
--------------------------------------
948,172 664,049
Loans from affiliated company 3,800,000 -
Deferred income taxes - 40,063
--------------------------------------
4,748,172 704,112
Shareholder's Equity
Common stock - par value $.001; 1,000 shares authorized,
189 and 111 shares issued and outstanding 1 1
Paid-in capital 9,466,745 5,566,745
Retained earnings (deficit) (3,357,716) 85,310
--------------------------------------
6,109,030 5,652,056
--------------------------------------
$ 10,857,202 $ 6,356,168
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS (DEFICIT)
(in United States dollars)
<TABLE>
<CAPTION>
Fiscal year ended
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Net sales $ 10,781,666 $ 6,705,599
Expenses
Cost of sales and related occupany 5,724,258 3,345,683
Selling and store 4,760,301 2,319,188
Administration 1,440,648 1,027,798
Depreciation and amortization of property and equipment 675,127 214,501
Amortization of goodwill 62,011 55,375
--------------------------------------
12,662,345 6,962,545
--------------------------------------
Loss before the undernoted (1,880,679) (256,946)
Provision for store closures (3,599,500) -
Interest income (expense)
Income 12,158 44
Expense to an affiliated company (66,094) -
--------------------------------------
(53,936) 44
--------------------------------------
Loss before income taxes (5,534,115) (256,902)
Benefit from income taxes 2,091,089 96,501
--------------------------------------
Loss for the fiscal year (3,443,026) (160,401)
Retained earnings, beginning of fiscal year 85,310 245,711
--------------------------------------
Retained earnings (deficit), end of fiscal year $ (3,357,716) $ 85,310
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN CASH FLOWS
(in United States dollars)
<TABLE>
<CAPTION>
Fiscal year ended
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Operating activities
Loss for the fiscal year $ (3,443,026) $ (160,401)
Adjustments to reconcile loss to net cash provided
by (used in) operating activities
Depreciation and amortization 737,138 269,876
Loss on disposal of property and equipment 85,562 -
Provision for store closures 3,599,500 -
Deferred income taxes (2,096,063) (17,161)
Changes in operating assets and liabilities
Accounts receivable 16,485 (18,158)
Due from affiliated company (7,410) -
Inventories (246,598) (81,701)
Prepaid expenses and other assets (122,602) (161,967)
Accounts payable (262,658) 306,248
Accrued expenses 24,281 53,221
Income taxes payable - (106,583)
--------------------------------------
(1,715,391) 83,374
Investing activities
Payment for goodwill - (411,065)
Purchase of property and equipment (4,318,213) (2,689,009)
Proceeds from disposal of property and equipment 48,420 -
--------------------------------------
(4,269,793) (3,100,074)
Financing activities
Issuance of common stock 3,900,000 3,199,944
Loans from affiliated company 3,800,000 -
Payment to former owners - (493,179)
--------------------------------------
7,700,000 2,706,765
--------------------------------------
Net increase (decrease) in cash and cash equivalents 1,714,816 (309,935)
Cash and cash equivalents, beginning of fiscal year 43,242 353,177
--------------------------------------
Cash and cash equivalents, end of fiscal year $ 1,758,058 $ 43,242
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 29, 1996 and June 24, 1995
(in United States dollars)
- --------------------------------------------------------------------------------
1 DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
THE BUSINESS
The Coffee Plantation, Inc. (the "company") purchases high-quality
whole bean coffees and up to February 17, 1996 roasted its own coffee.
On February 18, 1996, the company commenced to have its coffee beans
roasted by an affiliated company, Gloria Jean's Inc. The company's
sales are primarily derived from the sale of roasted coffee along with
a variety of coffee beverages, pastries, and coffee-related accessories
and equipment, through company-operated retail stores in Arizona,
California and Texas. In addition, the company sells roasted coffee
beans to retailers. As of June 29, 1996, the company operated 22
stores.
FISCAL YEAR-END
The company's fiscal year ends on the Saturday closest to June 30.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of
the short maturity of these items. The carrying amount of the loans
from the affiliated company approximates fair value because the
interest rate approximates market rates.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid instruments with a maturity of
three months or less at the time of purchase to be cash equivalents.
The concentration of credit associated with cash and cash equivalents
is low due to the credit quality of the financial institutions and the
liquidity of these financial instruments.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Certain of the company's inventories are subject to significant
price fluctuations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization of property and equipment is provided on the straight-line
method over their estimated useful lives as follows:
Roasting and store equipment,
furniture, fixtures and other seven years
Leasehold improvements lesser of 10 years and
remaining term of lease
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS ...continued
June 29, 1996 and June 24, 1995
(in United States dollars)
STORE PREOPENING EXPENSES
Costs incurred in connection with start-up and promotion of new store
openings are capitalized and amortized over one year from the date of
store opening. Preopening occupancy costs for up to a six-month period
are amortized over 10 years.
GOODWILL
Amortization of goodwill is provided on the straight-line method over a
40-year period. Management's policy is to review the ongoing value of
the goodwill on a periodic basis by comparing undiscounted future
projected earnings to the carrying value of the goodwill. Any
difference would be recorded as an impairment adjustment. Management is
of the opinion that there has been no decline in the value assigned to
the goodwill.
ADVERTISING
Advertising costs are expensed as incurred. For the years ended June
29, 1996 and June 24, 1995, advertising costs were $144,478 and
$57,838, respectively.
INCOME TAXES
The company computes income taxes using the asset and liability method,
as prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes
are provided for the temporary differences between the financial
reporting basis and the tax basis of the company's assets and
liabilities. A valuation allowance is provided against deferred tax
assets to the extent that it is more likely than not that the asset
will not be realized.
The results of operations of the company are included in the parent
company's consolidated federal income tax returns. For financial
reporting purposes, the parent company has allocated the benefit from
income taxes to the company as though it were a separate taxpayer.
2 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Coffee
Unroasted $ 151,824 $ 97,601
Roasted 240,207 46,544
Other merchandise held for sale 80,342 106,593
Supplies 71,763 46,800
--------------------------------------
$ 544,136 $ 297,538
======================================
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS ...continued
June 29, 1996 and June 24, 1995
(in United States dollars)
3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Leasehold improvements $ 4,821,548 $ 1,987,479
Roasting and store equipment 248,428 244,751
Furniture, fixtures and other 2,835,632 1,489,947
--------------------------------------
7,905,608 3,722,177
Less: Accumulated depreciation and amortization (3,893,773) (296,446)
--------------------------------------
$ 4,011,835 $ 3,425,731
======================================
</TABLE>
4 LOANS FROM AFFILIATED COMPANY
The demand loans bear interest at 8-1/4% per annum. The loans have been
classified as long-term since the lender does not intend to demand
repayment in the next fiscal year. Interest paid in the current fiscal
year was $66,094.
5 PROVISION FOR STORE CLOSURES
The company plans to close or divest its stores in all states other
than Arizona in fiscal 1997 and has made a provision of $3,599,500. The
provision for these stores includes a write-down of capital assets in
the amount of $2,923,000 to estimated fair value, as well as a
write-off of the deferred store opening costs and a provision of
$522,500 for estimated lease termination costs. The write-down of
capital assets represents a provision for 100% of the net book value of
the leasehold improvements and a 50% provision of the net book value of
furniture, fixtures and other store equipment. The resultant net book
value of furniture, fixtures and other store equipment in the amount of
$385,000 represents the estimated fair value of these assets based on
management's estimate of similar used equipment. The amount the company
will ultimately realize on the disposition of these assets could differ
materially from the amount assumed in arriving at the provision noted
above.
These stores, including store administration costs, depreciation and
amortization, incurred a loss of approximately $1,280,000 in the
current fiscal year.
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS ...continued
June 29, 1996 and June 24, 1995
(in United States dollars)
6 INCOME TAXES
The company's benefits from income taxes comprise the following:
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Current provision (benefit)
Federal $ 4,974 $ (79,340)
Deferred benefit
Federal (1,875,425) (8,578)
State (220,638) (8,583)
--------------------------------------
(2,096,063) (17,161)
--------------------------------------
$ (2,091,089) $ (96,501)
======================================
</TABLE>
The reconciliation of the statutory federal income tax rates to the
company's effective income tax rates is as follows:
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
------------------------------------
<S> <C> <C>
Statutory federal rate (35.0)% (35.0)%
State income taxes (3.0) (3.0)
Provision-to-return adjustment 0.2 -
State valuation allowance - 0.4
------------------------------------
Effective combined federal and state rate (37.8)% (37.6)%
====================================
</TABLE>
The company has net deferred tax assets at June 29, 1996 of $2,056,000.
The components of the net deferred tax assets consist primarily of net
operating loss carryforwards and temporary differences resulting from
certain transactions recognized in different periods for financial
reporting and tax purposes. Income taxes recovered during the fiscal
year totalled $93,561 (paid in 1995 - $125,781).
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS ...continued
June 29, 1996 and June 24, 1995
(in United States dollars)
Significant components of the company's stand-alone deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
--------------------------------------
<S> <C> <C>
Deferred tax assets
Property and equipment $ 951,105 -
Accrual for store closing costs 198,550 -
Net operating loss carryforwards 981,041 134,917
Other 31,361 16,894
--------------------------------------
2,162,057 151,811
Deferred tax liabilities
Property and equipment - 109,561
Goodwill 93,998 59,739
Other 12,059 11,907
--------------------------------------
106,057 181,207
--------------------------------------
2,056,000 (29,396)
Valuation allowance - (10,667)
--------------------------------------
Net deferred income tax asset (liability) $ 2,056,000 $ (40,063)
======================================
</TABLE>
The company has recorded a deferred tax asset of $981,041, reflecting
the benefit of approximately $2,600,000 in loss carryforwards, which
commence to expire in 2010. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss
carryforwards. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax assets will be
realized. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future
taxable income are reduced.
The company is contingently and severally liable for assessments of
additional tax on the consolidated federal income tax returns of its
parent company and its other subsidiary companies.
<PAGE>
- -------------------------------------------------------------------------------
THE COFFEE PLANTATION, INC.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS ...continued
June 29, 1996 and June 24, 1995
(in United States dollars)
7 COMMITMENTS
The company leases retail stores, a distribution facility and office
space under operating leases expiring through 2005. Most lease
agreements contain renewal options at varying terms and rent escalation
clauses. Certain leases provide for contingent rentals based upon gross
sales.
Rental expense under these agreements was as follows:
<TABLE>
<CAPTION>
June 29 June 24
1996 1995
------------------------------------
<S> <C> <C>
Minimum rentals $ 855,879 $ 358,797
Contingent rentals 107,774 89,027
------------------------------------
$ 963,653 $ 447,824
====================================
</TABLE>
At June 29, 1996, the future minimum annual rental commitments
were as follows:
Fiscal year ending
1997 $ 1,142,260
1998 1,159,287
1999 1,185,744
2000 1,133,286
2001 1,023,986
Thereafter 3,741,430
--------------------
$ 9,385,993
====================
8 OTHER RELATED PARTY INFORMATION
Effective February 18, 1996, an affiliated company commenced roasting
the company's coffee. The company is charged $0.42 per pound roasted on
a cost reimbursement basis and the cost totalled $55,640 during the
current fiscal year. Effective April 1996, the affiliated company
charged the company rent and other office expenses for the use of its
facilities which amounted to $16,167 for the current fiscal year.
During the fiscal year ended June 29, 1996, the company issued to its
parent company 78 shares (1995 - 64) of common stock for cash of
$3,900,000 (1995 - $3,199,944).
During the fiscal year ended June 24, 1995, the company paid earn-out
amounts of $493,179 to the former owners pursuant to an Asset Purchase
Agreement.
9 COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform to the
current year's presentation.
<PAGE>
COFFEE PLANTATION, INC.
-----------------------
BALANCE SHEETS
--------------
(Dollars in thousands)
ASSETS
------
<TABLE>
<CAPTION>
April 5, March 30,
1997 1996
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 598 $ 183
Accounts receivable
3 91
Inventories
219 492
Prepaid expenses
237 676
Deferred tax assets
218 -
----------------- -----------------
Total current assets 1,275 1,442
Property and equipment, net 3,480 7,325
Goodwill, net 2,198 2,260
Other assets 1,838
-
----------------- -----------------
Total assets $ 8,791 $ 11,027
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable
193 286
Accrued liabilities
873 492
Deferred income taxes
- 40
----------------- -----------------
Total current liabilities 1,066
818
Long-term debt to related parties 3,800
-
Stockholders' equity:
Common stock 9,467 10,912
Retained deficit (5,542) (703)
----------------- -----------------
Total stockholders' equity 3,925 10,209
----------------- -----------------
Total liabilities and stockholders' equity $ 8,791 $ 11,027
================= =================
</TABLE>
<PAGE>
COFFEE PLANATION, INC.
----------------------
STATEMENTS OF CASH FLOWS
------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------------------
April 5, March 30,
1997 1996
------------------ -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (131) $
(203)
Adjustments to reconcile net loss to net cash
provided by operating activities -
Depreciation and amortization
122 216
Changes in operating assets and liabilities:
Accounts receivable
1 (28)
Inventories
41 (30)
Prepaid expenses
(81) 44
Accounts payable
183 (472)
Accrued liabilities
(234) 20
------------------ -----------------
Net cash provided by operating activities
(99) (453)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net
(302) (582)
------------------ -----------------
Net cash used in investing activities
(302) (582)
------------------ -----------------
DECREASE IN CASH
(401) (1,035)
CASH, beginning of period
995 1,218
------------------ -----------------
CASH, end of period $ 594 $ 183
================== =================
</TABLE>
<PAGE>
COFFEE PLANTATION, INC.
-----------------------
STATEMENTS OF INCOME
--------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------
April 5, March 30,
1997 1996
------------------ -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Retail sales $ 2,421 $ 2,816
Wholesale and other
- 156
------------------ -----------------
Total revenues 2,421 2,972
Cost of sales and related
occupancy expenses 1,265 1,571
Store operating expenses 1,280
929
Depreciation and amortization
124 202
General and administrative
expenses
162 257
------------------ -----------------
Loss from operations (338)
(59)
Interest expense
(72) -
Loss before benefit for income taxes (131) (338)
Benefit for income taxes
- 135
------------------ -----------------
Net loss $ (131) $ (203)
================== =================
</TABLE>
<PAGE>
COFFEE PEOPLE, INC.
-------------------
PRO FORMA CONDENSED FINANCIAL STATEMENTS
----------------------------------------
On May 21, 1997, Coffee People, Inc. (the Company) acquired certain assets from
The Coffee Plantation, Inc. a wholly owned subsidiary of Second Cup Ltd.
(Plantation), which assets included inventory, certain prepaids, property and
equipment for 15 coffeehouse stores (the Acquired Stores), and assumed certain
lease obligations for a purchase price of $8,651,000. The purchase price was
paid upon closing.
The Company financed the transaction with a $6,000,000 term note payable to a
bank in 60 fixed principal plus interest payments beginning June 1, 1997.
The acquisition will be accounted for using the purchase method of accounting,
with the assets acquired and liabilities assumed recorded at fair values. The
results of operations of the Acquired Stores will be included with those of the
Company beginning on the acquisition date.
The accompanying pro forma condensed financial statements illustrate the effects
of the acquisition on the Company's financial position and results of
operations. The pro forma condensed balance sheet as of March 31, 1997 is based
on the historical balance sheet of the Company as of that date and the
historical balance sheet of Plantation as of April 5, 1997 and assumes the
acquisition took place on March 31, 1997. The pro forma condensed statement of
operations for the year ended December 31, 1996 is based on the historical
statement of operations of the Company for that period and the historical
statement of operations of Plantation for the 53-week period ended January 11,
1997. The pro forma condensed statement of operations assumes the acquisition
took place on January 1, 1996.
The pro forma condensed statement of operations for the quarter ended March 31,
1997 is based on the historical results of operations of the Company for the
quarter and the historical results of operations of Plantation for the 13-week
period ended April 5, 1997. The pro forma condensed statement of operations for
the quarter ended March 31, 1997 assumes the acquisition took place on January
1, 1997.
The pro forma condensed financial statements are not intended to be indicative
of the financial position or results of operations which actually would have
been realized had the acquisition occurred at the times assumed, nor of the
future results of operations of the combined entities. The accompanying pro
forma condensed financial statements should be read in conjunction with the
historical financial statements and notes of the Company and Plantation.
<PAGE>
COFFEE PEOPLE, INC.
-------------------
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
-------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
(Unaudited)
(Dollars in Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
COFFEE COFFEE PRO FORMA
PEOPLE, INC. PLANTATION ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $12,281 $11,896 $(2,476) (2) $21,701
COST OF SALES AND RELATED OCCUPANCY
COSTS 5,860 5,891 (2,960) (2) 8,791
STORE OPERATING EXPENSES 3,873 4,774 (496) (2) 8,151
OTHER OPERATING EXPENSES 44 - - 44
DEPRECIATION AND AMORTIZATION 530 723 (265) (2)
292 (3) 1,280
GENERAL AND ADMINISTRATIVE
EXPENSES (6) 1,868 1,904 (614) (2) 3,158
------- ------- ------ -------
Income (loss) from
operations 106 (1,396) 1,567 277
INTEREST AND OTHER INCOME (EXPENSE) 225 (54) 17 (2)
(540) (4) (352)
PROVISION FOR STORE CLOSURE - (3,599) 3,599 (2) -
------- ------- ------ -------
Income (loss) before
(provision) benefit for
income taxes 331 (5,049) 4,643 (75)
(PROVISION) BENEFIT FOR INCOME TAXES (127) 1,907 (2,081) (2)
330 (5) 29
------- ------- ------ -------
Net income (loss) 204 (3,142) 2,892 (46)
EARNINGS (LOSS) PER SHARE 0.09 (0.02)
SHARES USED IN COMPUTING EARNINGS
PER SHARE 2,349,702 2,349,702
</TABLE>
The accompanying notes are an integral part of this proforma financial
statement.
<PAGE>
COFFEE PEOPLE, INC.
-------------------
PRO FORMA CONDENSED BALANCE SHEET
---------------------------------
MARCH 31, 1997
--------------
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
------
COFFEE COFFEE PRO FORMA
PEOPLE, INC. PLANTATION ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,400 $ 598 $(3,249) (1) $ 5,749
Accounts receivable 24 3 (3) (1) 24
Inventories 258 219 20 (1) 497
Intercompany accounts receivable - 1,567 (1,567) (1) -
Prepaid expenses 188 237 (214) (1) 211
Income taxes receivable 110 - - 110
Deferred income taxes 28 218 (218) (1) 28
Other current assets 65 - - 65
------- ------- ------- -------
9,073 2,842 (5,231) 6,684
PROPERTY, PLANT AND EQUIPMENT 7,340 3,480 (202) (1)
(941) (1) 9,677
GOODWILL - 2,198 3,854 (1) 6,052
LONG-TERM DEFERRED INCOME TAXES - 1,838 (1,838) (1) -
OTHER ASSETS 143 - - 143
------- ------- ------- -------
Total assets $16,556 $10,358 $(4,358) $22,556
======= ======= ======= =======
</TABLE>
<PAGE>
COFFEE PEOPLE, INC.
-------------------
PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
---------------------------------------------
MARCH 31, 1997
--------------
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
COFFEE COFFEE PRO FORMA
PEOPLE, INC. PLANTATION ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt
and capital lease obligations $ 105 $ - $ 1,200 $ 1,305
Current portion of long-term debt
to related parties 20 - - 20
Accounts payable 722 193 (193) (1) 722
Construction accounts payable 371 - - 371
Accrued liabilities 445 873 (873) (1) 445
------- ------- ------- -------
Total current liabilities 1,663 1,066 134 2,863
DEFERRED TAX LIABILITY 86 - - 86
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 242 - 4,800 (1) 5,042
LONG-TERM DEBT TO RELATED PARTIES 154 3,800 (3,800) (1) 154
STOCKHOLDERS' EQUITY:
Common stock 14,496 9,467 (9,467) (1) 14,496
Stock subscription notes
receivable (286) (3,358) 3,358 (1) (286)
Retained earnings 201 (617) 617 (1) 201
------- ------- ------- -------
Total stockholders' equity 14,411 5,492 (5,492) 14,411
------- ------- ------- -------
Total liabilities and
stockholders' equity $16,556 $10,358 $(4,358) $22,556
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this proforma balance sheet.
<PAGE>
COFFEE PEOPLE, INC.
-------------------
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
-------------------------------------------
FOR THE QUARTER ENDED MARCH 31, 1997
------------------------------------
(Unaudited)
(Dollars in Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
COFFEE COFFEE PRO FORMA
PEOPLE, INC. PLANTATION ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
NET SALES $3,193 $2,421 $(302) (2) $5,312
COST OF SALES AND RELATED OCCUPANCY
COSTS 1,559 1,265 (458) (2) 2,366
STORE OPERATING EXPENSES 1,134 930 (40) (2) 2,024
DEPRECIATION AND AMORTIZATION 203 123 (16) (2)
81 (3) 391
GENERAL AND ADMINISTRATIVE
EXPENSES (6) 717 163 (39) (2) 841
------ ------ ----- ------
Income (loss) from
operations (420) (60) 170 (310)
INTEREST AND OTHER INCOME (EXPENSE) 111 (71) 17 (2)
(135) (4) (78)
------ ------ ----- ------
Income (loss) before
(provision) benefit for
Income taxes (309) (131) 52 (388)
(PROVISION) BENEFIT FOR INCOME
TAXES 119 - (52) (2)
80 (5) 147
------ ------ ----- ------
Net income (loss) (190) (131) 80 (241)
(LOSS) PER SHARE (0.06) (0.07)
SHARES USED IN COMPUTING EARNINGS
PER SHARE 3,271,184 3,271,184
</TABLE>
The accompanying notes are an integral part of this proforma financial
statement.
<PAGE>
COFFEE PEOPLE, INC.
-------------------
NOTES TO PRO FORMA FINANCIAL STATEMENTS
---------------------------------------
DECEMBER 31, 1996 AND MARCH 31, 1997
------------------------------------
(Unaudited)
(Dollars in Thousands)
1. Pro forma adjustments to record the purchase of the acquired stores:
<TABLE>
<CAPTION>
Components of purchase price-
<S> <C>
Cash paid for the acquired stores $ 2,651
Cash from borrowings 6,000
-------
Total purchase price $ 8,651
=======
</TABLE>
<TABLE>
<CAPTION>
Cost in excess of assets acquired-
<S> <C>
Purchase price $ 8,651
Equity of Plantation (5,492)
Elimination of assets and liabilities not acquired or assumed as part of the
acquisition:
Cash 598
Accounts receivable 3
Intercompany accounts receivable 1,567
Prepaid 214
Deferred income taxes 218
Property 202
Goodwill 2,189
Long-term deferred income taxes 1,838
Accounts payable (193)
Accrued liabilities (873)
Debt to related parties (3,800)
-------
Cost in excess of net assets acquired $ 5,131
=======
</TABLE>
<TABLE>
<CAPTION>
Allocation of cost in excess of assets acquired-
<S> <C>
Write-up of inventories $ 20
Write-down of property and equipment acquired to fair
value (941)
Goodwill 6,052
-------
$ 5,131
=======
</TABLE>
2. Pro forma adjustment to eliminate revenues and expenses of stores
not acquired as part of the acquisition.
<PAGE>
3. Pro forma adjustment to adjust depreciation and amortization:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Elimination of depreciation and amortization expense on assets
of Acquired Stores
$(458) $(107)
Depreciation and amortization on new cost basis of property
and equipment of the Acquired Stores
358 90
Amortization on cost in excess of net assets acquired over 15
years 392 98
----- -----
$ 292 $ 81
===== =====
</TABLE>
4. Pro forma adjustment to adjust interest expense to reflect the interest
expense related to the debt obtained for the acquisition at prime plus
.5% (9.0% at date of acquisition).
5. Pro forma adjustment to adjust tax expense to reflect the income tax
effect of the pro forma loss before income taxes, at the Company's
effective tax rate.
6. The pro forma general and administrative expenses include a
proportional allocation to the 15 Coffee Plantation Stores of the
corporate and administrative salaries and related employee benefit
costs, and other corporate overhead expenses, which were allocated to
all stores operated by The Coffee Plantation, Inc. The Company
believes that a substantial portion of such allocated expenses are
redundant as a result of its overhead infrastructure and, accordingly,
does not believe that pro forma general and administrative expenses
are indicative of the actual general and administrative expenses that
would have been incurred had the Company owned and operated the Coffee
Plantation Stores for the year ended December 31, 1996 and for the
quarter ended March 31, 1997.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. PAGE
- ----------- ----
2.1 Assets Purchase Agreement, dated April 21, 1997, between Coffee
People, Coffee Plantation and Second Cup, Inc. (omitting all
schedules and exhibits).1
2.2 Amendment No. 1 to Business Loan Agreement, dated April 21, 1997
between Bank of America NT & SA and Coffee People.1
- --------------------------
1. Incorporated by reference to the Company's Report on Form 8-K, as filed
on April 28,1997.
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