Securities And Exchange Commission
Washington, D.C. 20549
----------------------------------------------
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period From to
----- ------
Commission File Number 0-21397
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Coffee People, Inc.
(Exact name of registrant as specified in its charter)
Oregon 93-1073218
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
15100 SW Koll Pkwy, Suite J, Beaverton, OR 97006
(503) 672-9603
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of June 30, 1997, there were 3,247,512 shares of the registrant's Common
Stock outstanding.
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<PAGE>
COFFEE PEOPLE, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements 3
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION 14
Item 4: Submission of Matters to a vote of Security Holders. 14
Item 6: Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBIT 11 Statement Regarding Per Share Earnings 17
EXHIBIT 27 Financial Data Schedule 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
COFFEE PEOPLE, INC.
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
-------------------- ---------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,537 $ 10,274
Accounts receivable 80 26
Inventories 539 205
Prepaid expenses 157 141
Income taxes receivable 129 -
Deferred tax assets 27 28
Other current assets 4 96
-------------------- ---------------------
Total current assets 5,473 10,770
Property and equipment, net 7,755 5,513
Goodwill, net 5,917 -
Other assets 97 129
==================== =====================
Total assets $ 19,242 $ 16,412
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 1,306 $ 115
Current portion of long-term debt to related
parties 21 20
Accounts payable 1,181 533
Construction accounts payable 210 321
Accrued liabilities 633 262
Provision for store closures and
restructuring 2,346 -
Income taxes payable - 47
-------------------- ---------------------
Total current liabilities 5,697 1,298
Deferred tax liability 86 86
Long-term debt and capital lease obligations 4,932 267
Long-term debt to related parties 148 159
Stockholders' equity:
Common stock, no par value; authorized,
50,000,000 shares; issued and outstanding,
3,247,512 and 3,237,432 shares 14,524 14,492
Stock subscription notes receivable (292) (281)
Retained (deficit) earnings (5,853) 391
-------------------- ---------------------
Total stockholders' equity 8,379 14,602
-------------------- ---------------------
Total liabilities and stockholders' equity $ 19,242 $ 16,412
==================== =====================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
COFFEE PEOPLE, INC.
STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ ---------------------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------------ ----------------- ------------------ ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Retail sales $ 4,798 $ 2,983 $ 7,958 $ 5,776
Wholesale and other 91 48 124 100
------------------ ----------------- ------------------ ------------------
Total revenues 4,889 3,031 8,082 5,876
Cost of sales and related
occupancy expenses 2,412 1,449 4,014 2,783
Store operating expenses 1,814 931 2,949 1,804
Other operating expenses 1 12 1 25
Depreciation and amortization 344 118 547 232
General and administrative
expenses 884 436 1,556 855
Provision for store closures
and restructuring 5,500 - 5,500 -
------------------ ----------------- ------------------ ------------------
Income (loss) from operations (6,066) 85 (6,485) 177
Other income, net 89 45 214 82
Interest expense (77) (21) (92) (43)
------------------ ----------------- ------------------ ------------------
Income (loss) before benefit
(provision) for income taxes (6,054) 109 (6,363) 216
Benefit (provision) for income
taxes - (42) 119 (83)
Net income (loss) $ (6,054) $ 67 $ (6,244) $ 133
================== ================= ================== ==================
Earnings (loss) per share $ (1.87) $ 0.03 $ (1.93) $ 0.07
================== ================= ================== ==================
Shares used in computing
earnings (loss) per share 3,245,393 2,077,298 3,242,183 2,041,220
</TABLE>
<PAGE>
COFFEE PEOPLE, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------
June 30, June 30,
1997 1996
---------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,244) $ 133
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Depreciation and amortization 547 232
Provision for store closures and
restructuring 5,500 -
Deferred provision for income taxes 1 24
Interest income on stock subscriptions (11) (12)
Changes in operating assets and liabilities:
Accounts receivable (54) (19)
Inventories (334) 56
Prepaid expenses (52) 76
Income taxes receivable (129) -
Other current assets 92 -
Accounts payable 648 (289)
Accrued liabilities 371 (13)
Income taxes payable (47) (40)
---------------------- ------------------
Net cash provided by operating activities 288 148
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (5,801) (443)
Goodwill (5,950) -
Decrease in other assets (41) (57)
Construction accounts payable (111) -
---------------------- ------------------
Net cash used in investing activities (11,903) (500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and capital lease
obligations 6,000 -
Repayment of debt and capital lease obligations (143) (202)
Repayment of debt to related party (11) (44)
Proceeds from private placement, net - 3,725
Issuance of common stock 32 3
---------------------- ------------------
Net cash provided by financing activities 5,878 3,482
---------------------- ------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,737) 3,130
CASH AND CASH EQUIVALENTS, beginning of period 10,274 260
====================== ==================
CASH AND CASH EQUIVALENTS, end of period $ 4,537 $ 3,390
====================== ==================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COFFEE PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1997 and 1996
(Unaudited)
NOTE 1. FINANCIAL STATEMENT PRESENTATION:
The interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring adjustments and accruals, necessary for a fair statement of the
results for the interim periods. The financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
included herein are adequate to make the information presented not misleading.
NOTE 2. ACQUISITION OF COFFEE PLANTATION
On May 21, 1997, the Company acquired 15 specialty coffee retail stores in
Arizona from The Coffee Plantation, Inc., an Arizona corporation ("Coffee
Plantation"), for a purchase price of approximately $8,651,000. The transaction
was structured as an acquisition of assets and was accounted for under the
purchase method of accounting. Thirteen of the units are located in Phoenix and
two are located in Tucson. The Company also acquired Coffee Plantation's
wholesale coffee bean business. The Company financed $6,000,000 of the purchase
price with a term note from its bank, payable in 60 fixed principal payments,
plus interest (9% at June 30, 1997). In conjunction with the acquisition, the
Company recorded goodwill of approximately $5,950,000.
NOTE 3. PROVISION FOR STORE CLOSURES AND RESTRUCTURING
During the second quarter, the Company incurred a provision for store
closures and related restructuring of $5,500,000. The Company anticipates the
closure or sale of the seven stores located outside the Company's primary
markets of Oregon and Arizona. The Company wrote off the assets related to the
seven stores, which included approximately $3,045,000 of property and equipment,
$36,000 of prepaid expense, and $73,000 in other assets. The Company also
established a current liability of approximately $2,346,000 for additional costs
expected to be incurred in connection with the store closures and related
restructuring.
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion contains forward looking statements within the
meaning of the federal securities laws and involves a number of risks and
uncertainties. Actual results and trends may differ materially from the
statements contained in this discussion depending on a variety of factors. Such
factors include, but are not limited to, the price and availability of green
coffee and other raw materials, successful execution of the Company's planned
store dispositions, the ability of the Company to manage growth, the impact of
<PAGE>
competition, acceptance of the Company's products and image outside of Oregon
and other risks detailed in the Company's 1996 Annual Report on Form 10-KSB and
its Registration Statement on Form SB-2, effective September 25, 1996, both of
which are on file with the Securities and Exchange Commission.
OVERVIEW
- --------
Coffee People sells coffee beverages, coffee beans, cookies, pastries
and coffee related merchandise. The first Coffee People store opened in 1983. As
of June 30, 1997, the Company operated 47 stores.
In January 1996, the Company raised net proceeds of $3,725,000 in a
private placement of Common Stock. In September 1996, the Company completed an
initial public offering in which it raised net proceeds of $9,717,000 from the
sale of 1,225,000 shares of Common Stock.
At the time of its initial public offering, the Company operated 19
stores, all of which were located in Oregon. During the period from October 1996
through June 30, 1997, the Company opened 14 new stores -- two in Denver,
Colorado, three in southern California, seven in the Portland, Oregon
metropolitan area, and two in Chicago, Illinois. The Company closed one store in
Portland, Oregon, in April 1997, as anticipated, upon expiration of the store
lease.
On May 21, 1997 the Company acquired 15 Coffee Plantation stores in Phoenix
and Tucson, Arizona for cash consideration of approximately $8,651,000. The
transaction was an acquisition of assets, accounted for under the purchase
method of accounting. Assets acquired included property and equipment, leases,
inventories, prepaid expenses, wholesale business assets and intangible assets.
Of the total purchase price, $6,000,000 was financed with proceeds from a
five-year term loan from Bank of America. One of the Coffee Plantation stores is
scheduled to close upon expiration of the store lease in August 1997. The
closure of this store is not expected to have a material adverse effect on the
Company's revenues or income.
During the second quarter, the Company incurred a provision of
$5,500,000 relating to the anticipated closure or sale of the seven stores
located outside its primary Oregon and Arizona markets and for related
restructuring. Such stores include the two stores located in Denver, Colorado,
the three stores located in southern California, and the two stores located in
Chicago, Illinois. The Company intends to dispose of the stores as expeditiously
as possible while endeavoring to maximize the amount of store value and to
minimize the Company's total future cash outlays.
The Company's decision to dispose of or close these stores was made
because sales at these stores had not developed as anticipated and because the
stores were incurring significant operating losses. The Company believes that by
disposing of these stores, by focusing on its core markets, and by making
substantial reductions in general and administrative overhead expense, it can
return itself to profitability. This is a forward looking statement. There can
be no assurance that all of these actions can be taken by the Company or that,
if taken, such actions will return the Company to profitability.
After the closure or disposition of the seven stores outside Oregon and
Arizona, and the closure of the one Coffee Plantation store upon its lease
<PAGE>
expiration in August 1997, the Company will have a total of 39 stores --25
stores in Oregon and 14 in Arizona.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues. Total revenues increased 61.3% to $4,889,000 for the three
months ended June 30, 1997 from $3,031,000 for the same period in 1996. Retail
sales increased 60.8% to $4,798,000 for the 1997 period from $2,983,000 for the
1996 period.
Comparable store sales for the 18 stores open for the full three months
ended June 30, 1997 and 1996 increased 2.8%, primarily due to a price increase
effected in September 1996 on coffee beverages. Comparable store sales were
adversely affected by a 14.0% decline in sales at one of the Company's stores
located in a shopping center that is undergoing redevelopment.
The increase in comparable store sales represents 4.5% of the overall
increase in retail sales. Incremental sales from the three stores opened in the
fourth quarter of 1996 contributed 12.5% of the increase. Incremental sales from
the seven stores that opened in the first quarter of 1997 contributed 29.9% of
the increase and incremental sales from the nineteen stores opened and acquired
in the second quarter of 1997 contributed 56.6% of the increase. One store,
located in close proximity to one of the company's most successful stores, was
closed during the quarter due to the expiration of the lease. Sales for this
store accounted for only 0.4% of total retail sales and had a negative impact of
3.5% on the overall retail sales increase. Sales at the Arizona stores
contributed 52.4% of the overall increase in retail sales for the period and
contributed 92.6% of the increase in sales from stores opened or acquired during
the three months ended June 30, 1997.
Wholesale and other sales increased 89.6% to $91,000 for the three
months ended June 30, 1997 from $48,000 for the same period in 1996. The
increase is due to sales from the wholesale business acquired as part of the
Coffee Plantation acquisition. Sales from the Arizona wholesale business
accounted for $54,000 of total wholesale and other sales for the quarter.
Costs and expenses. Cost of sales and related occupancy expenses as a
percentage of total revenues increased to 49.3% for the three months ended June
30, 1997 as compared to 47.8% for the same period in 1996. The primary
components were an increase of 0.2% in cost of sales and an increase of 1.3% in
occupancy costs. The increase in cost of sales as a percentage of total revenues
is due primarily to the effect of the new stores opened in the first and second
quarters of 1997 as well as higher coffee prices. The increase in occupancy
expenses as a percentage of total revenues is due primarily to rent expenses
incurred at the fourteen new stores opened in 1996 and 1997 which generated
lower sales volumes than the Company's stores opened prior to 1996 and which,
consequently, had higher occupancy expenses as a percentage of sales.
Store operating expenses as a percentage of retail sales increased to
37.8% for the three months ended June 30, 1997 from 31.2% for the same period in
1996. The increase is due primarily to operating expenses associated with the
<PAGE>
fourteen new stores opened in 1996 and 1997. These stores, because of their low
sales volumes, have higher operating expenses as a percentage of retail sales.
The increase is also partly attributable to higher labor costs at the 15 Coffee
Plantation stores in Arizona.
Depreciation and amortization as a percentage of total revenues
increased to 7.2% for the three months ended June 30, 1997 from 4.0% for the
same period in 1996, due primarily to the impact of higher design and build-out
costs for the stores opened in 1996 and 1997. These stores carry higher
depreciation expense as a percentage of total revenues than stores opened prior
to 1996. This category was further affected by the amortization of goodwill
associated with the acquisition of the Coffee Plantation stores in Arizona.
General and administrative expenses increased to $884,000 for the three
months ended June 30, 1997 from $436,000 for the same period in 1996, due
primarily to the costs associated with supporting the stores in California,
Colorado and Illinois, the acquisition and assimilation of the Arizona stores,
the addition of management personnel, and other costs. As a percentage of total
revenues, general and administrative expenses increased to 18.1% for the three
months ended June 30, 1997 from 14.4% for the same period in 1996.
Average store sales and store contribution margin. For the three months
ended June 30, 1997, the Company's 21 neighborhood and drive-through stores open
for the full period achieved average store sales of $138,000 and an average
store contribution margin of 8.4% compared to $187,000 and 20.7%, respectively,
for the 12 stores open during the full period of 1996. The decline in average
store sales and store contribution margins is due to the low sales volumes and
relatively higher operating expenses at the 10 stores opened in the fourth
quarter of 1996 and the first quarter of 1997. The six airport stores and one
kiosk store open for the full period achieved average store sales of $121,000
and an average store contribution margin of 16.0%, respectively, compared to
$106,000 and 11.3% for the full period of 1996. The increase in store
contribution margins at the Company's airport stores is due primarily to labor
efficiencies and product cost savings.
Other income. Other income as a percentage of total revenues increased
to 1.8% for the three months ended June 30, 1997 from 1.5% for the same period
in 1996 due to interest earned on the proceeds remaining from the Company's
initial public offering in September 1996.
Interest Expense. Interest expense as a percentage of total revenues
increased to 1.6% for the three months ended June 30, 1997 from 0.7% for the
same period in 1996, as a result of interest incurred on the bank loan that
helped finance the Coffee Plantation acquisition in May 1997.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Total revenues increased 37.5% to $8,082,000 for the six
months ended June 30, 1997 from $5,876,000 for the same period in 1996. Retail
sales increased 37.8% to $7,958,000 for the period from $5,776,000 in 1996.
Comparable stores sales for the 18 stores open for the full six months
ended June 30, 1997 and 1996 increased 2.9% due to a price increase effected in
September 1996 on coffee beverages. Comparable store sales for the period were
adversely affected by a 12.4% decline in sales at one of the Company's stores
located in a shopping center that is undergoing redevelopment.
The increase in comparable store sales represents 7.5% of the overall
increase in retail sales. Incremental sales from the three stores opened in the
fourth quarter of 1996 contributed 19.0% of the increase. Incremental sales from
the seven stores opened in the first quarter of 1997 contributed 30.2% of the
increase and incremental sales from the nineteen stores opened and acquired in
the second quarter of 1997 contributed 47.1% of the increase. One store was
closed during the period due to the expiration of its lease. Sales for this
store accounted for 1.1% of total retail sales for the period and had a negative
impact of 3.7% on the overall retail sales increase. Sales at the Arizona stores
contributed 43.6% of the overall increase in retail sales for the period and
contributed 56.4% of the increase in sales from stores opened or acquired during
the six months ended June 30, 1997.
Wholesale and other sales increased 24.0% to $124,000 for the six
months ended June 30, 1997 from $100,000 for the same period in 1996. The
increase is due to sales from the wholesale business acquired as part of the
Coffee Plantation acquisition. Sales from the Arizona wholesale business
accounted for $54,000 of total wholesale and other sales for the six months. The
overall increase was offset by a decrease in the Company's Oregon wholesale
business due to the Company's decision to turn over the servicing of its Oregon
wholesale business to an outside firm. Sales made in Oregon to the outside firm
are made at a fixed mark-up over cost.
Costs and expenses. Cost of sales and related occupancy costs as a
percentage of total revenues increased to 49.7% for the six months ended June
30, 1997 from 47.4% for the same period in 1996. The components of this increase
were an increase in cost of sales of 0.6% and an increase in occupancy expenses
of 1.8%. The increase in cost of sales as a percentage of sales was due to the
effect of new stores opened in the first and second quarters of 1997 which
stores had higher product costs as a percentage of sales than the company's more
mature stores and because of higher coffee prices in 1997. The increase in
occupancy expenses as a percentage of total revenues is due primarily to rent on
the fourteen new stores opened in 1996 and 1997, which stores, because of low
sales volumes, have higher occupancy expenses as a percentage of sales.
Store operating expenses as a percentage of retail sales increased to
37.1% for the six months ended June 30, 1997 from 31.2% for the same period in
1996. The increase is due primarily to operating expenses associated with the
fourteen new stores opened in 1996 and 1997. These stores, because of their low
sales volumes, have higher operating expenses as a percentage of retail sales.
<PAGE>
The increase is also partly attributable to higher labor costs at the 15 Coffee
Plantation stores in Arizona.
Depreciation and amortization as a percentage of total revenues
increased to 6.8% for the six months ended June 30, 1997 from 4.0% for the same
period in 1996, due to the impact of higher build-out costs for stores opened in
1996 and 1997. The new stores carry higher depreciation expense as a percentage
of sales than stores opened before 1996. This category was further affected by
the amortization of goodwill associated with the acquisition of the Coffee
Plantation stores in Arizona.
General and administrative expenses as a percentage of total revenues
increased to 19.3% for the six months ended June 30, 1997 compared to 14.6% for
the same period in 1996, due primarily to the costs associated with supporting
the stores in California, Colorado and Illinois, the acquisition and
assimilation of the Arizona stores and the addition of management personnel.
Average store sales and store contribution margin. For the six months ended
June 30, 1997, the Company's 14 neighborhood and drive-through stores open for
the full period achieved average store sales of $325,000 and an average store
contribution margin of 15.1% compared to $360,000 and 21.1%, respectively, for
the 12 neighborhood and drive-through stores open during the full period of
1996. The decrease in average store sales is due to the lower sales volume
achieved at the three stores opened in fourth quarter of 1996. The decrease in
contribution margin is due to the operating losses incurred by these three
stores during the six-month period. The Company's airport and kiosk stores open
for the full period achieved average store sales of $233,000 and an average
store contribution margin of 15.8%, as compared to $208,000 and 10.4%,
respectively, for 1996. The increase in average store sales for the Company's
airport and kiosk stores resulted from higher transaction volumes at the airport
and from the price increase effected in September 1996 on coffee beverages. The
increased contribution margin is primarily due to labor efficiencies and product
cost savings at the airport stores.
Other income. Other income as a percentage of total revenues increased
to 2.7% for the six months ended June 30, 1997 from 1.4% for the same period in
1996, due to interest earned on the remaining proceeds from the Company's
initial public offering in September 1996.
Interest Expense. Interest expense as a percentage of total revenues
increased to 1.1% for the six months ended June 30, 1997 from 0.7% for the same
period in 1996, as a result of interest incurred on the bank loan to help
finance the Coffee Plantation acquisition in May 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
With respect to the seven stores identified for sale, disposition or
closure, the Company will continue to make cash outlays for store losses and for
such items as rent, utilities and insurance until such time as it is able to
sell the store or until it can negotiate satisfactory arrangements with
landlords for re-leasing the store premises or for otherwise terminating the
lease. There can be no assurance that the Company will be successful at selling
its stores or in negotiating with landlords for the re-leasing of the store
premises or for terminating the leases. If the Company is not successful in
<PAGE>
these efforts, such cash outlays could continue for an indeterminate period
during the term of the store leases.
The Company has suspended its plans to open or acquire new stores,
pending the disposition of its stores outside of its core Oregon and Arizona
markets. The Company may resume new store development or acquisitions, however,
if circumstances warrant. Furthermore, the Company intends to evaluate a number
of strategic alternatives and has retained Black & Company, Inc. a Portland,
Oregon-based investment banking firm, to advise it on a full range of potential
actions, including strategic acquisitions of other specialty coffee retailers
and the merger or sale of the company.
As of June 30, 1997 the Company had $4,537,000 in cash and equivalents.
The Company had a working capital deficit of $224,000 as of June 30,
1997 as compared to positive working capital of $9,472,000 at December 31, 1996.
For the six months ended June 30, 1997 and for the same period in 1996,
cash provided by operating activities was $288,000 and $148,000, respectively.
For the six months ended June 30, 1997 the Company had net cash
provided by financing activities of $5,878,000 primarily as a result of the
$6,000,000 bank loan used to help finance the acquisition of the Coffee
Plantation stores in May 1997. For the six months ended June 30, 1996, net cash
provided by financing activities totaled $3,482,000 primarily as a result of net
proceeds of $3,725,000 from the Company's private placement completed in January
1996.
The Company has a bank line of credit with Bank of America providing
for borrowings through August 1, 1998 of up to $500,000. Borrowings bear
interest at the rate of 0.5% over the bank's prime rate (9.0% as of June 30,
1997) and are secured by substantially all of the Company's assets, including
accounts receivable, inventories, trade fixtures and equipment. As of June 30,
1997, there were no borrowings outstanding under the line of credit; however,
$73,000 of the line was reserved for a letter of credit dated August 1, 1997.
As a result of the $5,500,000 write off taken in the second quarter to
provide for store closures and related restructuring charges, the Company fell
out of compliance with certain financial covenants and other terms of its loan
agreement with Bank of America relating to its credit line, to the $6,000,000
term loan used to help finance the Coffee Plantation acquisition, and to another
term loan with a balance as of June 30, 1997, of $80,500. Bank of America has
agreed to waive such noncompliance, provided that the Company maintains minimum
cash balances of $2,400,000 and provided that certain financial information is
periodically provided to the bank. As of August 12, 1997, the company was in
compliance with such terms.
For the six months ended June 30, 1997 and for the same period in 1996,
net cash used in investing activities was $11,903,000 and $500,000 respectively.
The primary use of net cash used in investing activities was for the acquisition
of the Coffee Plantation stores in May 1997 for which the Company paid
approximately $8,651,000. The remaining cash used in investing activities was
for capital expenditures relating to the new retail stores. The Company
currently anticipates that any significant capital expenditures for the
<PAGE>
remaining two quarters of 1997 will be curtailed pending activities related to
the disposition or closure of the seven stores outside of Oregon and Arizona.
The Company believes that anticipated cash flow from operations,
existing cash and bank debt will be sufficient to meet the Company's cash
requirements through the end of 1997.
STORE CLOSURES, COFFEE PRICES, AND OTHER RISKS
- ---------------------------------------------------------
In connection with the disposition or closure of the seven Company
stores outside of Oregon and Arizona, the Company may incur substantially
greater expenses than is currently anticipated. Such expenses could result from,
among other risks, the inability of the Company to discharge its lease
obligations upon store closure, expenses and liabilities incurred in connection
with the layoff of store employees and losses relating to disposition of store
inventory and supplies. In addition, the sale or closure of the stores will
require the attention of Company management, which during the transition period
may have an adverse effect on the Company's operations in Oregon and Arizona.
Coffee prices continue to be volatile and the Company continues to
experience price fluctuations for purchased coffee. During the first half of
1997, the commodities markets have witnessed a significant increase in the price
of green coffee, with prices for coffee climbing from a level in the $1.15 per
pound range in December 1996 to over $2.85 per pound in June 1997. The Company's
supply agreement provides for the Company to purchase its coffee at a fixed
amount over green cost. As a result, the Company's cost of coffee will fluctuate
with the price of green coffee. Because the current market price for green
coffee is substantially higher than existed prior to December 1996, the Company
is incurring higher coffee costs. In response to these higher prices, the
Company initiated a price increase in late June 1997 on both drinks and whole
beans. It is uncertain what impact, if any, this price increase will have on
transaction volumes. The Company's inability to pass through higher coffee
prices in the form of higher retail prices, or a consequent reduction in sales
because of fewer customer transactions, could have a material adverse affect on
the Company's earnings.
In addition to the risks set forth above, the Company is subject to,
and reference is made to, the risks detailed in the Company's 1996 Annual Report
on Form 10-KSB, filed with the Securities and Exchange Commission on March 31,
1997, and Registration Statement on Form SB-2, effective September 25, 1997.
NEW ACCOUNTING STANDARDS
- ------------------------
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
simplifies the standards for computing earnings per share and makes them
comparable to international EPS standards. It replaces primary EPS with basic
EPS that excludes dilution and uses the weighted-average number of common shares
outstanding for the period. This statement is effective for financial statements
for periods ending after December 15, 1997, with restatement of prior earnings
per share required. The Company is in the process of analyzing the impact of
this statement and does not believe that it will have a material impact on
earnings per share.
<PAGE>
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a vote of Security Holders.
(a) The annual meeting of stockholders of the registrant was held on
April 24, 1997.
(b) The meeting involved the election of directors. Proxy statements
for the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees as listed on the proxy statement.
All of management's nominees were elected. The following table sets
forth information with respect to votes cast for and against each
nominee:
Votes for Votes Against Votes Broker
Nominee Election Election Abstaining Non-votes
------- -------- -------- ---------- ---------
James L. Roberts 2,665,577 1,450 0 -
Douglas L. Ayer 2,665,277 1,750 0 -
Gary G. Talboy 2,665,027 2,000 0 -
Jeffrey M. Ferguson 2,665,327 1,700 0 -
Taylor H. Devine 2,664,977 2,050 0 -
The stockholders ratified appointment of Arthur Andersen LLP as
independent auditors. The appointment was approved by a vote of
2,654,968 in favor, 4,000 against, and 8,059 abstentions and no broker
non-votes.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed two Current Reports on Form 8-K during the quarter
ended June 30, 1997.
A Current Report dated April 21, 1997 was filed to report under Item 5
an agreement to purchase 15 retail specialty coffee stores in Arizona
from Coffee Plantation.
A Current Report on Form 8-K dated May 21, 1997, as amended by a
Current Report on Form 8-K/A of the same date filed August 4, 1997, was
filed to report under Item 2 the closing of the Coffee Plantation
acquisition, and under Item 5 the resignation of James L. Roberts as
Chief Executive Officer and the appointment of Taylor H. Devine as
President and Chief Executive Officer.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Coffee People, Inc.
/s/ Kenneth B. Ross
-------------------
Kenneth B. Ross
Chief Financial Officer
and Secretary
Signing on behalf of the registrant and as
principal financial officer
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
11 Statement Regarding Per Share Earnings
27 Financial Data Schedule
COFFEE PEOPLE, INC.
<TABLE>
CALCULATIONS OF EARNINGS PER SHARE
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fully Dilluted
Weighted average
shares outstanding
for the period 3,245,393 2,001,924 3,242,183 1,965,847
Dilutive common
stock options using
the treasury stock
method - 75,374 - 75,374
Total shares used
for per share
calculations 3,245,393 2,077,298 3,242,183 2,041,220
Net income (loss) $(6,054,000) $67,000 $(6,244,000) $133,000
Earnings (loss)
per share $(1.87) $.03 $(1.93) $.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COFFEE
PEOPLE INCORPORATED QUARTERLY 1997 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,537
<SECURITIES> 0
<RECEIVABLES> 80
<ALLOWANCES> 0
<INVENTORY> 539
<CURRENT-ASSETS> 5,473
<PP&E> 9,466
<DEPRECIATION> 1,711
<TOTAL-ASSETS> 19,242
<CURRENT-LIABILITIES> 5,697
<BONDS> 0
0
0
<COMMON> 14,524
<OTHER-SE> (292)
<TOTAL-LIABILITY-AND-EQUITY> 14,242
<SALES> 4,889
<TOTAL-REVENUES> 4,889
<CGS> 2,412
<TOTAL-COSTS> 2,412
<OTHER-EXPENSES> 8,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (92)
<INCOME-PRETAX> (6,363)
<INCOME-TAX> 119
<INCOME-CONTINUING> 6,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,244)
<EPS-PRIMARY> (1.93)
<EPS-DILUTED> (1.93)
</TABLE>
