Securities And Exchange Commission
Washington, D.C. 20549
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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 September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period From to
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Commission File Number 0-21397
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Coffee People, Inc.
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(Exact name of registrant as specified in its charter)
Oregon 93-1073218
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(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 September 30, 1997, there were 3,261,085 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 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds 17
Item 6: Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
EXHIBIT 10.1 Engagement letter with Black & Company, Inc.,
dated August 7, 1997 20
EXHIBIT 10.2 Amendment No. 3 to Business Loan Agreement with
Bank of America, dated August 12, 1997 25
EXHIBIT 10.3 Amendment No. 4 to Business Loan Agreement with
Bank of America, dated October 10, 1997 26
EXHIBIT 11 Statement Regarding Per Share Earnings 29
EXHIBIT 27 Financial Data Schedule 30
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
BALANCE SHEETS
(Dollars in thousands)
ASSETS
September 30, December 31,
1997 1996
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<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,907 $ 10,274
Accounts receivable 130 26
Inventories 594 205
Prepaid expenses 212 141
Income taxes receivable 129 -
Deferred tax assets 28 28
Other current assets 2 96
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Total current assets 4,002 10,770
Property and equipment, net 7,626 5,513
Goodwill, net 5,878 -
Other assets 119 129
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Total assets $ 17,625 $ 16,412
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital
lease obligations $ 1,307 $ 115
Current portion of long-term debt to related parties 19 20
Accounts payable 1,005 533
Construction accounts payable - 321
Accrued liabilities 566 262
Provision for store closures and restructuring 1,820 -
Income taxes payable - 47
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Total current liabilities 4,717 1,298
Deferred tax liability 86 86
Long-term debt and capital lease obligations 4,604 267
Long-term debt to related parties 145 159
Stockholders' equity:
Common stock, no par value; authorized,
50,000,000 shares; issued and outstanding,
3,261,085 and 3,237,432 shares 14,544 14,492
Stock subscription notes receivable (297) (281)
Retained earnings (deficit) (6,174) 391
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Total stockholders' equity 8,073 14,602
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Total liabilities and stockholders' equity $ 17,625 $ 16,412
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See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
--------------------------- -----------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Retail sales $ 5,868 $ 3,107 $ 13,827 $ 8,885
Wholesale and other 123 41 247 142
---------- ---------- ---------- ----------
Total revenues 5,991 3,148 14,074 9,027
Cost of sales and related
occupancy expenses 2,975 1,542 6,946 4,324
Store operating expenses 2,095 976 5,044 2,745
Other operating expenses 1 5 3 44
Depreciation and amortization 421 132 966 364
General and administrative
expenses 725 443 2,326 1,323
Provision for store closures
and restructuring - - 5,500 -
---------- ---------- ---------- ----------
Income (loss) from operations (226) 50 (6,711) 227
Other income, net 56 49 270 132
Interest expense (150) (22) (242) (65)
---------- ---------- ---------- ----------
Income (loss) before benefit
(provision) for income taxes (320) 77 (6,683) 294
Benefit (provision) for income
taxes - (30) 119 (113)
---------- ---------- ---------- ----------
Net income (loss) $ (320) $ 47 $ (6,564) $ 181
========== ========== ========== ==========
Earnings (loss) per share $ (0.10) $ 0.02 $ (2.02) $ 0.09
========== ========== ========== ==========
Shares used in computing
earnings (loss) per share 3,252,958 2,134,929 3,245,814 2,066,253
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COFFEE PEOPLE, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
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Sept 30, Sept 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,564) $ 181
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities -
Depreciation and amortization 966 364
Provision for store closures and
restructuring 4,974 -
Interest income on stock subscription (16) (18)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (104) (12)
(Increase) decrease in inventories (389) 66
(Increase) decrease in prepaid expenses (107) 5
(Increase) in income taxes receivable (129) -
Decrease (increase) in other current assets 94 (30)
Increase (decrease) in accounts payable 472 (231)
Increase in accrued liabilities 303 121
(Decrease) in income taxes payable (47) (2)
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Net cash (used in) provided by operating
activities (547) 444
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (5,990) (859)
Goodwill (6,012) -
Change in other assets (63) (38)
Construction accounts payable (321) -
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Net cash used in investing activities (12,386) (897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and capital lease obligations 6,000 -
Repayment of debt and capital lease obligations (461) (271)
Repayment of related party debt (25) (12)
Issuance of common stock, net 52 13,599
Proceeds from payment on stock subscription note - 84
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Net cash provided by financing activities 5,566 13,400
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,367) 12,947
CASH AND CASH EQUIVALENTS, beginning of period 10,274 260
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CASH AND CASH EQUIVALENTS, end of period $ 2,907 $ 13,207
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COFFEE PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 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. One of the Coffee Plantation stores was closed at the
end of August 1997, as anticipated, upon expiration of the store lease. The
Company also acquired Coffee Plantation's wholesale coffee bean business. The
Company financed $6,000,000 of the purchase price with a term loan from its
bank, payable in 60 fixed principal payments, plus interest (9% at September 30,
1997). In conjunction with the acquisition, the Company recorded goodwill of
approximately $6,012,000 which it is amortizing over a period of 15 years.
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 outside the Company's primary markets in
Oregon and Arizona. The Company wrote off the assets related to the seven
stores, which included approximately $3,045,000 in property and equipment,
$36,000 in prepaid expenses, 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.
NOTE 4: SUBSEQUENT EVENT: BUSINESS COMBINATION
On November 13, 1997, the Company entered into a definitive agreement
that provides for the combination of the Company with Gloria Jean's Inc., a
Delaware corporation and an indirect wholly owned subsidiary of The Second Cup
Ltd., a Toronto-based public company. Gloria Jean's is a specialty coffee retail
<PAGE>
company, currently with 272 stores, of which 240 are franchised stores. Gloria
Jean's also operates a coffee bean roasting facility in Castroville, California.
Pursuant to the agreement, Gloria Jean's will become a wholly owned
subsidiary of the Company, and the Company will issue to a subsidiary of The
Second Cup Ltd. approximately 7.5 million shares (subject to adjustment),
representing approximately 69.5 percent of the Company's outstanding common
stock post-transaction. The number of shares to be issued by the Company is
subject to adjustment based on the financial performance of both the Company and
Gloria Jean's Inc., during the period form July 1, 1997 to December 31, 1997.
The closing of the transaction is subject to certain conditions,
including obtaining certain regulatory approvals and obtaining the approval of
the Company's shareholders. Shareholders representing over 50 percent of the
currently outstanding common stock of the Company have signed commitments to
vote in favor of the transaction. The transaction is expected to close as soon
as practicable after obtaining all necessary approvals.
<PAGE>
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
competition, acceptance of the Company's products and image outside of Oregon
and Arizona and other risks detailed in the Company's 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 September 30, 1997, the Company operated 45 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
was closed at the end of August 1997, as anticipated, upon expiration of the
store lease.
During the second quarter of 1997, 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.
<PAGE>
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.
As of October 31, 1997, the Company had closed one of the stores in
Chicago, Illinois, but is still making payments on the lease obligation. The
Company is endeavoring to sell the remaining six stores and, accordingly, has
not yet closed these stores.
After the closure or disposition of the seven stores outside Oregon and
Arizona, the Company will have a total of 39 stores -- 25 stores in Oregon and
14 in Arizona.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Total revenues increased 90.3% to $5,991,000 for the three
months ended September 30, 1997 from $3,148,000 for the same period in 1996.
Retail sales increased 88.9% to $5,868,000 for the 1997 period from $3,107,000
for the 1996 period. Revenues for the quarter represent sales made at the
Company's stores in Oregon and Arizona and do not include operating results of
the seven stores outside Oregon and Arizona which are slated for closure or
sale.
Comparable store sales for the 18 stores open for the three months
ended September 30, 1997 and 1996 declined 0.9% primarily due to lower
transaction volumes. Comparable store sales were adversely affected by a 16.7%
decline in sales at one of the Company's stores located in a shopping center
that is undergoing redevelopment.
Incremental sales from the Arizona stores acquired in the second
quarter contributed 75.6% of the increase and incremental sales from the seven
Oregon stores opened since September 30, 1996 accounted for the remainder of the
increase in retail sales for the three months ended September 30, 1997. One of
the stores in Arizona was closed during the quarter, as anticipated, upon the
expiration of its lease. Sales from this store represented 0.9% of total retail
sales.
Wholesale and other sales increased 200.0% to $123,000 for the three
months ended September 30, 1997 from $41,000 for the same period in 1996. The
increase was due to sales from the wholesale business acquired as part of the
Coffee Plantation acquisition. Sales from the Arizona wholesale business
accounted for $85,000 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 49.7% for the three months ended
<PAGE>
September 30, 1997 as compared to 49.0% for the same period in 1996. The primary
components were an increase of 0.3% in cost of sales and an increase of 0.4% in
occupancy costs. The increase in cost of sales as a percentage of total revenues
was due primarily to the effect of higher coffee prices. The increase in
occupancy expenses as a percentage of total revenues was due primarily to rent
expenses incurred at the Company's Arizona stores. The Arizona stores, acquired
in May 1997, have higher overall occupancy costs than the Company's Oregon
stores.
Store operating expenses as a percentage of retail sales increased to
35.7% for the three months ended September 30, 1997 from 31.4% for the same
period in 1996. The increase was due primarily to higher operating expenses
associated with the seven new stores opened in Oregon since September 30, 1996
and to higher labor and operating costs at the Coffee Plantation stores in
Arizona.
Depreciation and amortization as a percentage of total revenues
increased to 7.0% for the three months ended September 30, 1997 from 4.2% for
the same period in 1996, due primarily to the impact of higher costs for stores
opened and acquired since September 30, 1996. These stores carry higher
depreciation expense as a percentage of total revenues than stores opened prior
to 1996. The increase in 1997 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 $725,000 for the three
months ended September 30, 1997 from $443,000 for the same period in 1996, due
to higher overhead costs associated with the Company's growth in Oregon and
Arizona. As a percentage of total revenues, general and administrative expenses
decreased to 12.1% for the three months ended September 30, 1997 from 14.1% for
the same period in 1996.
Average store sales and store contribution margin. For the three months
ended September 30, 1997, the Company's 26 neighborhood and drive-through stores
open for the full period achieved average store sales of $169,000 and an average
store contribution margin of 13.5% compared to $196,000 and 19.0%, respectively,
for the 11 stores open during the full period of 1996. The decline in average
store sales was due to lower sales volumes at the seven Oregon stores opened in
the fourth quarter of 1996 and the first six months of 1997. The decline in
store contribution margins at the Company's neighborhood and drive-through
stores was due to higher operating expenses incurred at the seven Oregon stores
opened since September 30, 1996 and to higher operating expenses at the
Company's Coffee Plantation neighborhood units. The six airport stores and seven
kiosk stores open for the full period achieved average store sales of $109,000
and an average store contribution margin of 24.3%, respectively, compared to
$124,000 and 12.3% for the six airport units and one kiosk open for the full
period of 1996. The decrease in average store sales for the Company's airport
and kiosk stores was due to lower average sales volumes at the four kiosk and
two cart units located in Arizona. The increase in store contribution margins
from the Company's airport and kiosk units was due to higher unit contribution
margins at the kiosks and carts located in Arizona.
Interest Expense. Interest expense as a percentage of total revenues
increased to 2.5% for the three months ended September 30, 1997 from 0.7% for
the same period in 1996, as a result of interest incurred on the bank loan
obtained to finance in part the Coffee Plantation acquisition in May 1997.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Total revenues increased 55.9% to $14,074,000 for the nine
months ended September 30, 1997 from $9,027,000 for the same period in 1996.
Retail sales increased 55.6% to $13,827,000 for the period from $8,885,000 in
1996. Revenues for the nine month period include sales through June 30, 1997 for
the seven stores outside Oregon and Arizona which are slated for closure or
sale. Retail sales for these seven stores represented 3.4% of total retail
sales.
Comparable stores sales for the 18 stores open for the full nine month
periods ended September 30, 1997 and 1996 increased 1.5% due to price increases
effected in September 1996 and July 1997, which increases were partially offset
by lower transaction volumes. Comparable store sales for the period were
adversely affected by a 13.8% 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 represented 2.7% of the overall
increase in retail sales. Incremental sales from the Arizona stores acquired in
the second quarter contributed 61.5% of the increase and incremental sales from
the seven Oregon stores opened since September 30, 1996, accounted for the
remainder of the increase in retail sales for the three months ended September
30, 1997. One store in Oregon was closed in April and one store in Arizona was
closed, as anticipated, at the end of August upon expiration of leases. Sales
from these stores represented 1.2% of total retail sales during the nine month
period.
Wholesale and other sales increased 73.9% to $247,000 for the nine
months ended September 30, 1997 from $142,000 for the same period in 1996. The
increase was due to sales from the wholesale business acquired as part of the
Coffee Plantation acquisition. Sales from the Arizona wholesale business
accounted for $139,000 of total wholesale and other sales for the nine months.
The overall increase was offset by a decrease in the Company's Oregon wholesale
business due to the Company's decision in 1996 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 49.4% for the nine months ended
September 30, 1997 from 47.9% for the same period in 1996. The primary
components were an increase in cost of sales of 0.6% and an increase in
occupancy expenses of 0.9%. The increase in cost of sales as a percentage of
sales was due primarily to the effect of higher coffee prices in 1997 and 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. The increase in occupancy expenses as a percentage of total
revenues was due primarily to rent expenses incurred at the Company's Arizona
stores. The Arizona stores, acquired in May 1997, have higher overall occupancy
costs than the Company's Oregon stores.
Store operating expenses as a percentage of retail sales increased to
36.5% for the nine months ended September 30, 1997 from 30.9% for the same
period in 1996. The increase was due primarily to higher operating expenses
associated with new stores opened or acquired since September 30, 1996.
<PAGE>
Depreciation and amortization as a percentage of total revenues
increased to 6.9% for the nine months ended September 30, 1997 from 4.0% for the
same period in 1996, due to the impact of higher costs for stores opened and
acquired since September 30, 1996. These stores carry higher depreciation
expense as a percentage of total revenues than stores opened prior to 1996. The
increase in 1997 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 16.5% for the nine months ended September 30, 1997 compared to
14.7% for the same period in 1996, due primarily to higher overhead costs
associated with the Company's growth in Oregon and Arizona as well as overhead
costs through June 30, 1997 associated with the operation of the stores now
slated for closure or sale in California, Colorado and Illinois.
Average store sales and store contribution margin. For the nine months
ended September 30, 1997, the Company's 12 neighborhood and drive-through stores
open for the full period achieved average store sales of $542,000 and an average
store contribution margin of 19.0% compared to $574,000 and 20.7%, respectively,
for 1996. The decrease in average store sales was due primarily to the lower
sales volume achieved at the Oregon store opened in fourth quarter of 1996. The
decrease in contribution margin was due to higher operating expenses at these
stores. The Company's airport and kiosk stores open for the full period achieved
average store sales of $364,000 and an average store contribution margin of
16.5%, as compared to $332,000 and 11.1%, 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 higher average transaction
amounts attributable to the price increase effected in September 1996 on coffee
beverages. The increased contribution margin was primarily due to labor
efficiencies and product cost savings at the airport stores.
Interest Expense. Interest expense as a percentage of total revenues
increased to 1.7% for the nine months ended September 30, 1997 from 0.7% for the
same period in 1996, as a result of interest incurred on the bank loan obtained
to finance in part 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
these efforts, such cash outlays could continue for an indeterminate period
during the term of the store leases. As of October 31, 1997, the Company had
closed one of the stores in Chicago, Illinois, but is still making payments on
the lease obligation. The Company is endeavoring to sell the remaining six
stores and, accordingly, has not yet closed these stores.
<PAGE>
The Company has suspended its plans to open or acquire new stores,
pending the disposition of its stores outside its core Oregon and Arizona
markets, although the Company has committed to build an additional unit at
Portland International Airport during the second quarter of 1998. The Company
may resume other new store development or acquisitions if circumstances warrant.
As of September 30, 1997 the Company had $2,907,000 in cash and
equivalents.
The Company had a working capital deficit of $715,000 as of September
30, 1997 as compared to positive working capital of $9,472,000 at December 31,
1996.
For the nine months ended September 30, 1997, cash used by operating
activities was $547,000, as compared to cash provided by operating activities of
$444,000 for the nine months ended September 30, 1996.
For the nine months ended September 30, 1997 the Company had net cash
provided by financing activities of $5,566,000 primarily as a result of the
$6,000,000 bank loan obtained to finance the acquisition of the Coffee
Plantation stores in May 1997. For the nine months ended September 30, 1996, net
cash provided by financing activities totaled $13,400,000 primarily as a result
of net proceeds of $9,717,000 received from the Company's initial public
offering in September 1996 and from 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 (8.5% as of September
30, 1997) and are secured by substantially all of the Company's assets,
including accounts receivable, inventories, trade fixtures and equipment. As of
September 30, 1997, there were no borrowings outstanding under the line of
credit; however, $100,000 of the line was reserved for a letter of credit dated
August 1, 1997.
As a result of the $5,500,000 charge 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 obtained to finance in part the Coffee Plantation acquisition, and to
another term loan with a balance as of September 30, 1997, of $63,250. 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 September 30,
1997, the company was in compliance with such terms.
For the nine months ended September 30, 1997 and 1996, net cash used in
investing activities was $12,386,000 and $897,000 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 for new retail stores. The Company currently anticipates that any
significant capital expenditures for the remainder of 1997 and early 1998 will
be curtailed pending activities related to the disposition or closure of the
seven stores outside of Oregon and Arizona.
<PAGE>
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 1998.
SUBSEQUENT EVENT
- ----------------
On November 13, 1997, the Company entered into a definitive agreement
that provides for the combination of the Company with Gloria Jean's Inc., a
Delaware corporation and an indirect wholly owned subsidiary of The Second Cup
Ltd., a Toronto-based public company (the "Gloria Jean's Transaction"). Gloria
Jean's is a specialty coffee retail company, currently with 272 stores, of which
240 are franchised stores. Gloria Jean's also operates a coffee bean roasting
facility in Castroville, California.
Pursuant to the agreement, Gloria Jean's will become a wholly owned
subsidiary of the Company, and the Company will issue to a subsidiary of The
Second Cup Ltd. approximately 7.5 million shares (subject to adjustment),
representing approximately 69.5 percent of the Company's outstanding common
stock post-transaction. The number of shares to be issued by the Company is
subject to adjustment based on the financial results of both the Company and
Gloria Jean's Inc., during the period form July 1, 1997 to December 31, 1997.
The closing of the transaction is subject to certain conditions,
including obtaining certain regulatory approvals and obtaining the approval of
the Company's shareholders. Shareholders representing over 50 percent of the
currently outstanding common stock of the Company have signed commitments to
vote in favor of the transaction. The transaction is expected to close as soon
as practicable after obtaining all necessary approvals.
NASDAQ LISTING; STORE CLOSURES;
COFFEE PRICES AND OTHER EXPENSES AND RISKS
- -------------------------------------------
Nasdaq Listing. On August 25, 1997, Nasdaq adopted new quantitative
requirements for initial and continued listing of securities on the Nasdaq
National Market System ("NMS"). On September 8, 1997, the Company received
notification from Nasdaq that it is not in compliance with the revised
requirements for continued NMS listing. The letter informed the Company that if
it does not comply with the amended listing requirements by February 23, 1998,
Nasdaq will take steps to delist the Company's common stock from the NMS. As of
the date of this Report, the Company is not in compliance with certain of the
NMS listing requirements, including that the Company have at least $4,000,000 in
net tangible assets.
The Company anticipates that upon the closing of the Gloria Jean's
Transaction, it will be in compliance with the continued listing requirements.
However, there can be no assurance that such transaction will be consummated
prior to Nasdaq's compliance deadline, and there can be no assurance that Nasdaq
will delay any delisting action pending the closing of the Gloria Jean's
Transaction. Moreover, due to the structure of the Gloria Jean's Transaction,
Nasdaq may require the post-transaction combined company to comply with the NMS
initial listing standards, which are substantially higher than the continued
listing standards. As of this time, it is uncertain whether Nasdaq will require
<PAGE>
compliance with the initial listing standards and whether the combined companies
would meet such standards, if required. Delisting from the NMS could have an
adverse effect on the market price and liquidity of the Company's common stock.
The Company believes that delisting from the NMS due to failure to meet
the listing standards would result in the Company's common stock being listed on
the Nasdaq SmallCap Market. There can be no assurance, however, that upon
delisting from the NMS, the Company's common stock would immediately be listed
on the SmallCap Market. Any delay in listing would have an adverse effect on the
liquidity and possibly the market price of the Company's common stock.
Store Closures. 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 affect of the Company's operations in Oregon and
Arizona.
Coffee Prices. 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 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.
Since then, coffee prices have moderated somewhat, with green prices declining
to a level in the $1.50 to $1.60 range. 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. Though the price of green coffee has declined from its highs, the
current market price for green coffee is substantially higher than existed prior
to December 1996. Moreover, much of the coffee inventory purchased by the
Company was purchased at prices higher than market prices now if effect. The
Company is incurring higher coffee costs as a result. 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 long-term impact, if any, this
price increase will have on transaction volumes, although the Company has
experienced a decline in transaction volumes at its Oregon stores during the
third quarter. 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.
Minimum Wage Increase. On November 5, 1996, Oregon voters passed a
ballot initiative which will raise the state minimum wage over a three-year
period from $4.75 per hour to $6.50 per hour. Prior to 1997 the Company paid all
employees, other than newly hired employees participating in a 20-hour training
program, above the minimum wage in effect in 1997. In compliance with this
initiative the Company pays all employees at or above the minimum wage in effect
in 1997. The next increase in the state minimum wage occurs on January 1, 1998,
when the minimum wage increases from $5.50 per hour to $6.00 per hour. It is
uncertain what impact, if any, the minimum wage increase will have on the
Company's operating results in 1998 and beyond.
<PAGE>
Other Risks. 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, 1996.
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 2. Changes in Securities and Use of Proceeds
The following is information relating to the Company's underwritten public
offering of common stock, which offering closed on September 30, 1996. Reference
is made to the Company's Report of Sales of Securities and Use of Proceeds
Therefrom on From SR, filed with the Commission on January 10, 1997, as amended
on July 10, 1997.
The Company's public offering of common Stock was made pursuant to its
Registration Statement on From SB-2, effective September 25, 1996, Registration
No. 333-5376-LA.
Total net offering proceeds after total offering expenses was $9,715,114.
Net offering proceeds were applied, based on a reasonable estimate, as follows:
Construction of plant, building
and facilities.................................$5,936,886
Purchase and installation of
machinery and equipment ....................... 858,000
Purchase of real estate............................. 404,280
Acquisition of other business....................... 2,515,948
None of such payments were made to directors, officers, general partners of the
Company or their associates, or to persons owning ten (10) percent or more of
any class of equity securities of the Company, or to affiliates of the Company.
All of such payments were direct or indirect payments to others.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Engagement letter with Black & Company, Inc.,
dated August 7, 1997
10.2 Amendment No. 3 to Business Loan Agreement with
Bank of America, dated August 12, 1997
10.3 Amendment No. 4 to Business Loan Agreement with
Bank of America, dated October 10, 1997
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed three Current Reports on Form 8-K during
the quarter ended September 30, 1997.
A Current Report on Form 8-K dated July 31, 1997, was filed on
August 4, 1997, to report under Item 5 the Company's announcement, on July 31,
1997, of its second quarter earnings and its announcement of a $5.5 million
charge to provide for store closures and restructuring.
A Current Report on Form 8-K/A dated May 21, 1997, was filed
on August 4, 1997, to amend the Current Report dated May 21, 1997, to report
under Item 2 the closing of the Coffee Plantation acquisition.
A Current Report on Form 8-K dated August 15, 1997, was filed
to report under Item 5 the resignation of Steven P. Crantz as Vice President of
Development
<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.
Date: November 13,1997 /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
- ------- ----
10.1 Engagement letter with Black & Company, Inc., dated 20
August 7, 1997
10.2 Amendment No. 3 to Business Loan Agreement with Bank
of America, dated August 12, 1997 25
10.3 Amendment No. 4 to Business Loan Agreement with Bank 26
of America, dated October 10, 1997
11 Statement Regarding Share Earnings 29
27 Financial Data Schedule 30
[LOGO]
BLACK & COMPANY
August 7, 1997
Mr. Taylor Devine, President & CEO
Mr. Ken Ross, CFO
Coffee People, Inc.
15100 SW Koll Parkway, Suite J
Beaverton, OR 97006
CONFIDENTIAL
Dear Taylor and Ken:
Confirming our recent conversation, Black & Company, Inc. ("Black" or "the
Advisor") would be pleased to act as financial advisor to Coffee People, Inc.
("Coffee People" or the "Company") in connection with the evaluation of Coffee
People's strategic financing alternatives and acquisition strategy. Among the
financing alternatives that will be evaluated are financing in the public,
private and corporate markets and real estate financing vehicles. This financial
advisory assignment will have two stages: an Advisory Stage and an
Implementation Stage.
ADVISORY STAGE
During the Advisory Stage, Black will:
1. Study and evaluate the Company's business prospects as part of their
due diligence;
2. Assist the Company in evaluating its strategic financing
alternatives, including public, private and corporate financings
and real estate financing vehicles;
3. Advise the Company as to a range of values which might be
achieved for such strategic alternatives given today's market
environment, and the likely structure of a Transaction;
4. Review the Company's options for possible future public
offerings, with Black acting as a manager or co-manager;
<PAGE>
5. Regarding mergers and acquisitions, we will develop the most
promising ideas from the list of companies we discussed with you
on June 12, 1997, as well as other opportunities that may arise;
and
6. If requested, make presentations to the Board of Directors of
Coffee People.
IMPLEMENTATION STAGE
If, based on the results of the Advisory Stage, the Board of Directors of Coffee
People should decide to pursue a Transaction, Black shall proceed to the
Implementation Stage. In this stage, Black will:
1. Advise Coffee People with regard to the structure and terms of
any Transaction which might be realized in the current market
environment;
2. Assist Coffee People in identifying and evaluating prospective
qualified private investors, corporate investors and prospective
candidates for merger or acquisition (the "List"). The Company
shall inform Black of all corporate opportunities including
prospective acquisitions, mergers and investment proposals for
equity or convertible securities of the Company, and these
opportunities will be placed on the List unless the Company gives
good and substantial reason for their exclusion. Black will not
unreasonably object to such exclusions. In the event of any
disagreement, the Company, in its sole discretion, shall determine
whether such opportunity shall be placed on the List.
3. Work with Coffee People to prepare any necessary material
concerning the Company to be given to prospective investors;
4. Assist in negotiations to obtain price and other material terms
for the proposed financing that are most favorable to the Company;
5. At the request of the Board of Directors of the Company, render
an opinion (an "Opinion") as to the fairness of the Transaction
from a financial point of view for the Company's shareholders.
It is understood that any opinion shall be in such a form as the
Advisors shall determine and that the Opinion will be prepared
solely for the confidential use of the Board of Directors of the
entity to which it is rendered and will not be reproduced,
summarized, described, referred to or given to any other person or
otherwise made public without the Advisor's prior written consent.
If any such Opinion is included in a proxy statement to be mailed
to the Company's stockholders in connection with the Transaction,
the Opinion will be reproduced in such proxy statement in full,
<PAGE>
and any description of or reference to the Advisors or summary of
the Opinion in such proxy statement will be in a form acceptable
to the Advisors and their counsel.
6. Advise on such other terms and conditions and any other actions
necessary to consummate the Transaction.
If the Company decides to pursue a public offering in this stage, the
Advisors will:
1. Advise the Company with regard to the structure and terms of a
public offering which might be realized in the current market
environment;
2. Assist the Company in planning public equity offerings; and
3. Manage any public equity offerings, including preparation of
prospectus, filing documents, and roadshow materials, managing the
underwriting syndicate, organizing a roadshow to present the
Company to qualified investors, selling the stock, managing the
books and records concerning the public offering, making a market
in the stock, and providing in-depth research coverage.
If Coffee People decides to pursue a sale of all or part of the Company's stock
or assets, or acquire a third party in this stage, Black will:
1. Advise Coffee People with regard to the structure and terms of
any Transaction which might be realized in the current market
environment;
2. Assist in negotiations to obtain price and other material terms for
the proposed Transaction favorable to the Company;
3. Assist Coffee People in developing the List of parties which may
be interested in acquiring the Company or a portion of its assets;
4. Advise Coffee People on the reasonableness of the terms in any
Letter(s) of Intent for a Transaction and on any other terms which
should be included, and assist in negotiating such a Letter(s) of
Intent that is mutually satisfactory to the Company and the
potential acquirer and/or merger partner or acquisition candidate;
and
5. Work with Coffee People and its corporate counsel to negotiate a
definitive agreement and other related documentation to fairly and
favorably reflect the agreed material terms and, at the request of
the Board of Directors of Coffee People, render an opinion as the
fairness of the Transaction from a financial point of view for its
shareholders.
<PAGE>
COMPENSATION
During both the Advisory Stage and the Implementation Stage, Coffee People will
reimburse Black for all reasonable out-of-pocket expenses, not to exceed $500 in
any month without written approval of the Company, including fees of counsel if
approved in writing in advance by the Company. These out-of-pocket expenses will
be payable to Black upon request. There will be no additional fee for services
provided by Black to the Company during the Advisory Stage of this assignment.
Should the Company raise funds by issuing securities to one or more third
parties in one or more private placement(s) or minority equity corporate
partnering Transactions during the term of this Agreement, or with entities
named on the List within six (6) months of the termination of this Agreement,
Black will receive a Transaction Fee equal to six percent (6%) of the first $10
million of Aggregate Consideration to Coffee People plus two percent (2%) of
Aggregate Consideration in excess of $10 million. In addition, the Advisor shall
receive a ten percent (10%) Warrant of the Aggregate Consideration at a price
equal to 120% of the price per share paid to the Company in the private
placement or corporate partner Transaction. The Warrant will be exercisable
beginning one year from the date of issuance and expire in ten (10) years. Such
Warrant will be callable by the Company at 140% of the strike price on terms
similar to the warrant issued in connection with the Company's initial public
offering.
Should Coffee People enter into a Transaction or Transactions approved by the
Board of Directors or not actively opposed by the Board of Directors which
result in more than fifty percent (50%) of the Company's stock or assets being
held by a third party, Black will receive a Transaction Fee equal to three
percent (3%) of the first $10 million of Aggregate Consideration received by the
Company and/or its shareholders, plus two percent (2%) of the next $10 million
of Aggregate Consideration, plus one and one-half percent (1.5%) of the
Aggregate Consideration in excess of $20 million.
Should the Company acquire the stock or assets of a third party, the Advisor
will receive a Transaction Fee of two and one-half percent (2.5%) of the first
$10 million of Aggregate Consideration in such a Transaction or Transactions,
plus two percent (2%) of the next $10 million of Aggregate Consideration, plus
one and one-half percent (1.5%) of the Aggregate Consideration in excess of $20
million.
The Advisor will be entitled to the Transaction Fees referred to above with
respect to any Transaction that occurs during the term of this Agreement, or
within six (6) months following the termination of this Agreement with any third
party identified by the Advisor and named on the List.
If Coffee People completes any public offerings of securities, Black will manage
or co-manage the public offering(s) receiving the usual and customary
underwriting fees, at least equal to those received by any co-manager of the
offering.
<PAGE>
If an Opinion is rendered at the request of the Company's Board of Directors,
the Advisors will receive, in addition to the Transaction Fees indicated herein,
an additional fee of $100,000 for Transactions under $10 million, $200,000 for
Transactions in excess of $20 million involving a change of control and $150,000
for Transactions between $10 million and $20 million, which shall be due upon
delivery of such Opinion(s) and payable before or on the date of Closing of the
Transaction(s) described herein or immediately upon the Company's determination
that such closing is unlikely to occur.
Aggregate Consideration is defined as cash and/or securities received by or paid
by Coffee People and/or its shareholders. Consideration will include debt and
other non-operating liabilities assumed by the Company or a third party. If, and
to the extent that the consideration in a Transaction is cash or securities, any
Transaction Fees shall be paid as and when the cash and securities are received
or paid by the Company and/or its shareholders.
INDEMNIFICATION
Coffee People agrees to indemnify Black as set forth in a separate letter
agreement between Black and the Company.
TERM
Unless otherwise extended, the duration of this agreement is two (2) years. This
engagement may be terminated at any time upon thirty (30) days notice by either
the Company or the Advisor. No such termination will affect the Company's
obligation to pay expenses incurred prior to such termination or to indemnify as
herein provided. Black shall be entitled to the Transaction Fee referred to
above in respect to any private placement, corporate partnering Transaction or
Transactions with third party(ies) on the List which occurs within six (6)
months of such termination if the termination notice was made by Coffee People
or within six (6) months of the end of this Agreement.
The team assigned by Black for this assignment will include Bruce Alexander,
President and CEO; Laura Black, Managing Director, Corporate Finance; Fred
Roehm, Financial Analyst and Shawn Willard, Research Analyst. We look forward to
working with you on this assignment. Please confirm that the foregoing is in
accordance with Coffee People's understanding by signing and returning this
letter to me at your earliest convenience.
Best regards, Accepted & Agreed:
BLACK & COMPANY, INC. COFFEE PEOPLE, INC.
by: /s/ Laura Black by: : /s/ Taylor Devine
- --------------------------------- --------------------------------
Laura Black Taylor Devine
Managing Director President & CEO
Corporate Finance
Date: August 11, 1997 Date: 25 August 1997
- --------------------------------- --------------------------------
[Logo]
Bank of America
August 12, 1997
Commercial Banking
Mr. Ken Ross
Chief Financial Officer
Coffee People, Inc.
15100 S.W. Koll Parkway, Suite J
Beaverton, OR 97006
Dear Mr. Ross:
This letter is to acknowledge that Coffee People, Inc. ("Borrower") has breached
Paragraphs 8.3, 8.3A, 8.4 and 9.12 of its Business Loan Agreement dated
September 4, 1996 ("Agreement") , between Borrower and Bank of America NT&SA
("Bank").
Paragraph 8.3 of the Agreement requires the Borrower maintain a minimum Current
Ratio of 1.25:1. As of June 30, 1997, the Borrower reported a Current Ratio of
0.96:1.
Paragraph 8.3A of the Agreement requires the Borrower maintain a maximum ratio
of Total Liabilities to Tangible Net Worth of 1.50:1. As of June 30, 1997, the
Borrower reported a ratio of 4.41:1.
Paragraph 8.4 of the Agreement requires the Borrower maintain a minimum Cash
Flow Ratio of 2.00:1. As of June 30, 1997, the Borrower reported negative Cash
Flow of $791,000.
Paragraph 9.12 of the Agreement requires the Borrower not incur a Material
Adverse Change in the Borrower's financial position. As of June 30, 1997, the
Borrower reported a Material Adverse Change in the form of a $5,500,000
extraordinary charge to earnings for store closures and related restructuring.
The Bank waives compliance with the breached covenants through June 30, 1997,
upon the following conditions:
The Borrower maintain a Minimum Cash Balance of $2,400,000 as reported on
the Borrower's financial statements.
The Borrower will provide year to date information detailing individual
store revenues and earnings.
The Borrower will provide to the Bank monthly company prepared
interim financial statements.
As of August 12, 1997, the Borrower has met the above conditions.
This waiver applies only to the breached covenants. This waiver does not apply
to any other breach that may now exist or may occur after the date of this
waiver with respect to the breached covenant or any other term, condition, or
covenant of the Agreement. All other terms and conditions of the Agreement
remain unchanged.
Sincerely,
/s/ Gregg Christoffersen
- ----------------------------
Gregg Christoffersen
Credit Manager
[LOGO] Bank of America Amendments to Documents
- --------------------------------------------------------------------------------
AMENDMENT NO. 4 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 4 (the "Amendment") dated as of October 10, 1997,
is between Bank of America NT & SA (the "Bank") and Coffee People, Inc. (the
"Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of September 4, 1996, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 A new Subparagraph 8.2(d) is hereby added to the Agreement
to read in its entirety as follows:
8.2(d) A detailed individual store earnings report within 45
days after the end of each fiscal quarter.
2.2 In Paragraph 8.3 of the Agreement the ratio ".75:1.0" is
substituted for the ratio "1.25:1.0".
2.3 Paragraph 8.3A of the Agreement is amended in its entirety
as follows:
8.3A TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain
for each quarterly accounting period, a ratio of total
liabilities to tangible net worth not exceeding the
levels indicated for each period specified below:
Period Ratio
------ -----
For September 30, 1997 4.5:1.0
From December 31, 1997
<PAGE>
through March 31, 1998 4.0:1.0
Period Ratio
------ -----
From June 30, 1998
through September 30, 1998 3.0:1.0
From December 31, 1998
through September 30, 1999 2.5:1.0
From December 31, 1999
and thereafter 2.0:1.0
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
2.4 Paragraph 8.4 of the Agreement is amended in its entirety
as follows:
8.4 CASH FLOW RATIO. To maintain for each quarterly
accounting period, a cash flow ratio of at least 2.0:1.0.
"Cash flow ratio" means the ratio of cash flow to
the current portion of long term debt.
"Cash flow" is defined as net income, excluding all
extraordinary charges and/or recoveries associated with
the closure of seven retail stores announced with the
Borrower's June 30, 1997 financial statement, plus
depreciation and amortization, less non-financed capital
expenditures, plus the cash and cash equivalents balance
as of the last day of the most recent quarterly
accounting period.
This ratio will be calculated at the end of each fiscal
quarter, using the result of that quarter and each of the
three immediately preceding quarters. The current portion
of long term debt will be measured as of the last day of
the most recent quarterly accounting period.
2.5 A new Paragraph 8.7A is hereby added to the Agreement to
read in its entirety as follows:
8.7A CHANGE IN OWNERSHIP. Not to cause, permit or
suffer any change, direct or indirect, in the
Borrower's capital ownership that would allow an
outside entity or current minority owner to obtain
a controlling interest in the Borrower.
2.6 A new Paragraph 8.7B is hereby added to the Agreement to
read in its entirety as follows:
8.7B CHANGE IN MANAGEMENT. Not to cause, permit, or
suffer any material changes in the Borrower's
Board of Directors or senior management without
the Bank's prior written consent.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of
the terms and conditions of the Agreement shall remain in full force and effect.
<PAGE>
This Amendment is executed as of the date stated at the beginning of this
Amendment.
Bank of America NT & SA Coffee People, Inc.
X /s/ Sharon Capizzo X /s/ Kenneth B. Ross
- ------------------------------- ----------------------------------
By: Sharon Capizzo By: Kenneth B. Ross
Title: Vice President Title: Chief Financial Officer
COFFEE PEOPLE, INC.
<TABLE>
CALCULATIONS OF EARNINGS PER SHARE
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding
for the period 3,252,958 2,069,505 3,245,814 2,000,652
Dilutive common
stock options using
the treasury stock
method - 65,424 - 65,601
---------- ---------- ----------- ----------
Total shares used
for per share
calculations 3,252,958 2,134,929 3,245,814 2,066,253
========== ========== =========== ==========
Net income (loss) $( 320,000) $ 47,000 $(6,564,000) $ 181,000
========== ========== =========== ==========
Earnings(loss)
per share $ (0.10) $ 0.02 $ (2.02) $ 0.09
========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COFFEE
PEOPLE, INC. QUARTERLY 1997 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,907
<SECURITIES> 0
<RECEIVABLES> 130
<ALLOWANCES> 0
<INVENTORY> 594
<CURRENT-ASSETS> 4,002
<PP&E> 9,658
<DEPRECIATION> 2,032
<TOTAL-ASSETS> 17,625
<CURRENT-LIABILITIES> 4,717
<BONDS> 0
0
0
<COMMON> 14,544
<OTHER-SE> (297)
<TOTAL-LIABILITY-AND-EQUITY> 17,625
<SALES> 14,074
<TOTAL-REVENUES> 14,074
<CGS> 6,946
<TOTAL-COSTS> 6,946
<OTHER-EXPENSES> 8,339
<LOSS-PROVISION> 5,500
<INTEREST-EXPENSE> (242)
<INCOME-PRETAX> (6,683)
<INCOME-TAX> (119)
<INCOME-CONTINUING> (6,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,564)
<EPS-PRIMARY> (2.02)
<EPS-DILUTED> (2.02)
</TABLE>
