<PAGE> 1
Securities And Exchange Commission
Washington, D.C. 20549
----------------------------------------------
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 19, 1998
[ ] 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
---------------------------------------------------
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.)
11480 Commercial Parkway, Castroville, CA 95012
(Address of Principal Executive Offices, including Zip Code)
(831) 633-4001
(Registrant's Telephone Number, including Area Code)
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 October 31, 1998, there were 10,754,889 shares of the registrant's Common
Stock outstanding.
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COFFEE PEOPLE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COFFEE PEOPLE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 19, June 27,
1998 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 843 $ 2,822
Accounts receivable, net 3,890 3,262
Inventories 4,886 4,052
Prepaid expenses and other assets 936 713
Deferred income taxes 3,008 2,621
-------- --------
Total current assets 13,563 13,470
Property, plant and equipment, net 12,611 12,711
Goodwill, net 25,837 25,967
Other assets 79 113
Deferred income taxes 3,529 3,434
-------- --------
Total assets $ 55,619 $ 55,695
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,267 $ 1,279
Accounts payable 2,706 1,421
Payable to related party 543 984
Accrued liabilities 2,805 2,572
Accrual for store closures 1,204 1,291
Franchise deposits 492 459
Deferred franchise fee income 165 187
-------- --------
Total current liabilities 9,182 8,193
Long-term debt, less current portion 3,343 3,798
Deferred rent expense 212 202
-------- --------
Total liabilities 12,737 12,193
-------- --------
Stockholders' equity:
Preferred stock, no par value; authorized
10,000,000 shares, none issued or outstanding -- --
Common stock, no par value; authorized,
50,000,000 shares; issued and outstanding
10,754,889 and 10,746,040 44,637 44,630
Stock subscription notes receivable (344) (338)
Accumulated deficit (1,411) (790)
-------- --------
Total stockholders' equity 42,882 43,502
-------- --------
Total liabilities and stockholders' equity $ 55,619 $ 55,695
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Twelve Weeks Ended
September 19, September 20,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Franchise revenue $ 1,207 $ 1,214
Corporate store sales 6,966 1,696
Wholesale revenue 4,076 5,030
------------ ----------
Total revenues 12,249 7,940
------------ ----------
Expenses:
Cost of goods sold 5,926 4,454
Store and other operating expenses 5,311 1,771
Depreciation and amortization 479 350
General and administrative expenses 782 581
Acquisition and integration expenses 799 --
------------ ----------
Total expenses 13,297 7,156
------------ ----------
Income (loss) from operations (1,048) 784
Interest income 33 79
Interest expense 92 --
------------ ----------
Income (loss) before income taxes (1,107) 863
Provision (benefit) for income taxes (486) 371
------------ ----------
Net income (loss) $ (621) $ 492
============ ==========
Net income (loss) per share - basic and diluted $ (0.06) $ 0.07
============ ==========
Shares used in computing net income (loss) per
share - basic and diluted 10,750,963 7,460,679
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
September 19, September 20,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (621) $ 492
Adjustments to reconcile net income
(loss)to net cash from operating
activities:
Depreciation and amortization 479 350
Deferred income taxes (482) 371
Interest income on stock subscription
notes receivable (6) --
Changes in assets and liabilities:
Accounts receivable (628) (1,903)
Inventories (834) 560
Prepaid expenses and other assets (189) (84)
Accounts payable 1,285 487
Payable to related party (441) --
Accrued and other liabilities 221 (430)
Accrual for store closures (87) --
Franchise deposits 33 (24)
------- -------
(1,270) (181)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (305) (1,202)
Proceeds from disposal of property, plant
and equipment 81 --
Additions to goodwill (25) --
------- -------
(249) (1,202)
------- -------
Cash flows from financing activities:
Proceeds on issuance of shares 7 --
Payments on long-term debt (467) --
------- -------
(460) --
------- -------
Decrease in cash and cash equivalents (1,979) (1,383)
Cash and cash equivalents, beginning of period 2,822 7,281
------- -------
Cash and cash equivalents, end of period $ 843 $ 5,898
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
COFFEE PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
For the 12 Weeks Ended September 19, 1998 and September 20, 1997
(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 only of normal recurring
adjustments, 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. The operating
results for interim periods are not necessarily indicative of results to be
expected for an entire year. The aforementioned statements should be read in
conjunction with the consolidated financial statements for the fiscal year ended
June 27, 1998, appearing in the Company's Annual Report on Form 10-K.
Certain reclassifications of prior period amounts have been made to conform with
the September 19, 1998 presentation.
NOTE 2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 19, June 27,
1998 1998
(Unaudited)
<S> <C> <C>
Coffee:
Unroasted $2,655 $2,169
Roasted 754 368
Other merchandise held for sale 1,049 898
Supplies 428 617
------ ------
$4,886 $4,052
====== ======
</TABLE>
NOTE 3. Franchising Strategy
On September 1, 1998, the Company announced that it was adopting a
franchising strategy in which it would offer existing Coffee People (Oregon) and
Coffee Plantation stores for sale to franchisees as well as offering new
franchise opportunities for these brands. As of the date of filing this Form
10-Q, the Company had not sold any of its existing Coffee People (Oregon) or
Coffee Plantation stores and had not entered into any letters of intent or
definitive agreements to do so nor had the Company entered into any letters of
intent or definitive agreements to
<PAGE> 7
sell new franchises for these brands. There can be no assurance that the Company
will be successful at selling any of its existing stores or that it will be
successful in franchising new stores.
As a result of the decision to hold all existing Coffee People (Oregon)
and Coffee Plantation stores for sale, depreciation on these stores was
suspended effective September 1, 1998. In addition, as of September 19, 1998,
the Coffee People (Oregon) and Coffee Plantation store assets are stated at the
lower of carrying value or fair market value less cost to sell.
<PAGE> 8
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 law 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 Company's ability to integrate the
Coffee People operations and to execute its franchising strategy; the Company's
ability to control costs associated with planned store closures; the price and
availability of green coffee; effects of competition; availability of additional
capital, changes in applicable government regulations, and other risks detailed
in the Company's Registration Statement on Form S-4 filed with the Securities
and Exchange Commission on April 24, 1998.
OVERVIEW
Coffee People, Inc. ("Coffee People" or the "Company") is the second
largest specialty coffee retailer in the United States. On May 19, 1998, Coffee
People combined with Gloria Jean's Inc. ("Gloria Jean's") in a transaction (the
"merger") in which Coffee People acquired all of the outstanding common stock of
Gloria Jean's in exchange for the issuance of 7,460,679 shares of Coffee People
common stock to Second Cup USA Holdings Ltd. ("Second Cup"), a wholly owned
subsidiary of The Second Cup Ltd., giving Second Cup 69.5% ownership of the
combined company. Following completion of the merger, Coffee People relocated
its corporate offices from Beaverton, Oregon to Castroville, California, where
Gloria Jean's offices are located.
The transaction has been accounted for as a reverse merger in which
Gloria Jean's is treated as the accounting acquiror. As a result of this
accounting treatment, the historical financial statements of Gloria Jean's
became the historical financial statements of the combined company. Also
consistent with this accounting treatment, the fiscal year end for Coffee
People, Inc. was changed from December 31 to the last Saturday in June, to
conform with the year end used by Gloria Jean's. Because of the reverse
purchase accounting treatment, the financial results for the 12 weeks ended
September 19, 1998 reflect the operations of the combined companies while the
financial results for the 12 weeks ended September 20, 1997 reflect the
operations of Gloria Jean's only.
As of September 19, 1998, the Company had 247 franchised and 30
company-operated stores operating under the Gloria Jean's name in 36 states, one
U.S. territory, and six foreign countries, 25 company-operated stores operating
under the Coffee People name in Oregon, and 15 company-operated stores operating
under the Coffee Plantation name in Arizona. The Company also operates a coffee
roasting facility in Castroville, California.
Gloria Jean's retail outlets generally offer a full range of gourmet
coffees, hot and cold beverages, teas, and food, as well as a variety of related
gifts, supplies, equipment and accessories. Coffee People and Coffee Plantation
stores sell coffee beverages, coffee beans, cookies, pastries and coffee related
merchandise.
On October 27, 1998, the Company announced that it had engaged an
investment advisor to identify and evaluate alternatives to enhance
<PAGE> 9
shareholder value and that it was involved in discussions with several other
specialty coffee companies about possible strategic combinations. These
discussions are consistent with and in furtherance of the Company's strategy to
expand both by opening new stores in core markets and also through the selected
acquisition of other regional specialty coffee companies or stores. Strategic
alternatives could include mergers or acquisitions that result in dilution to
existing Coffee People shareholders or that result in changes to the Company's
organizational structure. There can be no assurance that the Company will be
successful in pursuing discussions with other companies or that it will be
successful in pursuing other strategic alternatives.
TWELVE WEEKS ENDED SEPTEMBER 19, 1998 COMPARED TO TWELVE WEEKS ENDED SEPTEMBER
20, 1997
REVENUES. Total revenues increased 54.3% to $12,249,000 for the twelve
week period ended September 19, 1998, from $7,940,000 for the same period in
1997. The increase in total revenues was due primarily to an increase in retail
sales from company-operated stores.
Retail sales at company-operated stores increased 310.7% to $6,966,000
for the fiscal 1999 twelve week period from $1,696,000 in the fiscal 1998 twelve
week period. The increase in retail sales was due primarily to sales of
$5,340,000 at the Company's Coffee People Oregon and Coffee Plantation stores
acquired on May 19, 1998.
Wholesale revenue consist primarily of sales of roasted coffee and other
products and supplies to franchisees. Wholesale revenue decreased 19.0% to
$4,076,000 for the twelve weeks ended September 19, 1998 from $5,030,000 for the
same twelve week period in fiscal 1998 primarily due to the seasonal timing of
product sales to franschisees. A higher volume of coffee and seasonal gift packs
were sold in the fiscal 1998 period than in the fiscal 1999 period. The Company
expects additional gift pack sales to occur in the second quarter of the current
fiscal year.
Franchise revenues consists primarily of initial franchise fees and
royalties received by the Company on sales made at each Gloria Jean's franchise
location. Franchise revenues decreased 0.6% to $1,207,000 for the twelve week
period ended September 19, 1998 from $1,214,000 for the same twelve week period
in fiscal 1998. The components of this decrease were a 34.7% decrease in
franchise fees to $145,000 in the fiscal 1999 period from $222,000 in the fiscal
1998 period and a 7.1% increase in royalties to $1,062,000 in the fiscal 1999
period from $992,000 in the fiscal 1998 period. The decrease in franchise fees
was due to a decrease in the number of new stores franchised during the fiscal
1999 period as compared to the number franchised in the fiscal 1998 period.
COSTS AND EXPENSES. Cost of goods sold increased 33.0% to $5,926,000 for
the twelve weeks ended September 19, 1998, from $4,454,000 in the same period of
fiscal 1998, due to increases associated with the increase in retail sales. Cost
of goods sold as a percentage of corporate store sales and wholesale revenue
decreased to 53.7% in
<PAGE> 10
the twelve week period ended September 19, 1998, from 66.2% in the twelve week
period ended September 20, 1997, due primarily to a more favorable cost
relationship associated with retail sales generated at the Company's Coffee
People (Oregon) and Coffee Plantation stores acquired on May 19, 1998. Product
costs as a percentage of retail sales are lower at Coffee People (Oregon) and
Coffee Plantation stores than at Gloria Jean's company-operated stores due to
differences in the product mix.
Store and other operating expenses increased 199.9% to $5,311,000 in the
twelve week period ended September 19, 1998, from $1,771,000 in the same period
of fiscal 1998 primarily as a result of increased store operating expenses at
Gloria Jean's company-operated stores, store operating expenses attributable to
the Coffee People (Oregon) and Coffee Plantation stores acquired on May 19,
1998, and increased franchise administration expenses necessary to support the
planned growth in the franchise business. As a percentage of total revenues,
store and other operating expenses increased to 43.4% in the fiscal 1999 twelve
week period from 22.3% in the fiscal 1998 twelve week period.
Depreciation and amortization increased 36.9% to $479,000 in the twelve
week period ended September 19, 1998 from $350,000 in the twelve week period
ended September 20, 1997, due to depreciation and amortization expense
associated with the Coffee People (Oregon) and Coffee Plantation stores acquired
in May 1998 which was offset by a reduction in depreciation on Gloria Jean's
company-operated stores. Depreciation on Gloria Jean's company-operated stores
was suspended at the end of fiscal year 1998 when the Company decided to
actively market all of these stores to franchisees. On September 1, 1998, the
Company announced that it was adopting a franchising strategy in which it would
offer existing Coffee People (Oregon) and Coffee Plantation stores for sale to
franchisees as well as offering new franchise opportunities for these brands. As
a result of this decision, depreciation of Coffee People (Oregon) and Coffee
Plantation stores was suspended effective September 1, 1998. As a percentage of
total revenues, depreciation and amortization expense decreased to 3.9% for the
twelve-week period ended September 19, 1998 from 4.4% in the same twelve-week
period of fiscal 1998.
General and administrative expenses increased 34.6% to $782,000 in the
twelve-week period ended September 19, 1998 from $581,000 in the same period of
fiscal 1998 primarily as a result of general and administrative infrastructure
acquired as part of the Coffee People acquisition completed in May 1998. As a
percentage of total revenues, general and administrative expenses decreased to
6.4% in the fiscal 1999 twelve-week period from 7.3% in the fiscal 1998
twelve-week period as a result of revenues increasing by a greater percentage
than the percentage increase in general and administrative overhead.
Acquisition and integration expenses of $799,000 consist of costs
associated with integrating Coffee People operations and a portion of costs
associated with exiting Coffee People activities, including
<PAGE> 11
relocating and terminating Coffee People employees and reflects all remaining
expenses associated with integrating the operations of the two companies.
INTEREST INCOME. Interest income as a percentage of total revenues
decreased to 0.3% for the twelve week period ended September 19, 1998 from 1.0%
for the same period in fiscal 1998, due to the overall increase in revenues and
a reduction in cash balances available for short-term investment in
interest-bearing instruments.
INTEREST EXPENSE. Interest expense as a percentage of total revenues
increased to 0.8% for the twelve week period ended September 19, 1998 from 0.0%
for the same period in fiscal 1998, as a result of interest incurred on
long-term debt obligations acquired as part of the Coffee People acquisition on
May 19, 1998.
INCOME TAXES. The benefit for income taxes was $486,000 for the twelve
week period ended September 19, 1998, compared to a provision for income taxes
of $371,000 for the same period in fiscal 1998. The effective tax rates of 43.9%
for the twelve week period ended September 19, 1998 and 43.0% for the twelve
week period ended September 20, 1997, result from federal and state income taxes
and nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
As of September 19, 1998, all seven of the Coffee People (Oregon) stores
located outside of Oregon that Coffee People had identified for closure or
disposition in its quarter ended June 30, 1997, had been closed. Of these
stores, three had been sold and their store leases assigned and one store lease
had been terminated by agreement. Of the eight Gloria Jean's stores identified
for disposal during fiscal year 1997 five were disposed of during fiscal year
1998 pursuant to the lease termination agreements. Of the three remaining Gloria
Jean's stores, one was disposed of after June 27, 1998 pursuant to a lease
termination agreement and two remain open. The Company continues to make
payments on the lease obligations for the three remaining Coffee People stores
and for the two remaining Gloria Jean's stores. The Company will continue to
make cash outlays for these stores for such items as rent, utilities and
insurance until such time as it is able to sell the stores or until it can
negotiate satisfactory arrangements with landlords for re-leasing the store
premises or for otherwise terminating the leases. Such costs are charged against
the accrual for store closures. There can be no assurance that the Company will
be successful at selling these 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. The Company is working
with local real estate brokers to market, re-lease or sublease these stores. The
lease terms for these stores range from two and one-half to nine years with
expiration dates ranging from January 2001 through May 2007. Minimum future
rental payments as of September 19, 1998 under the five leases total $1,362,000.
<PAGE> 12
As of September 19, 1998, the Company had $843,000 in cash and
equivalents.
The Company had working capital of $4,381,000 as of September 19, 1998,
as compared to working capital of $5,277,000 at June 27, 1998.
For the twelve week period ended September 19, 1998, cash used by
operating activities was $1,270,000, as compared to cash used by operating
activities of $181,000 for the same period in fiscal 1998.
For the twelve week periods ended September 19, 1998 and September 20,
1997, net cash used in investing activities was $249,000 and $1,202,000,
respectively, primarily as a result of the purchase of property, plant and
equipment.
For the twelve week period ended September 19, 1998, the Company had net
cash used by financing activities of $460,000 primarily as a result of principal
payments on long-term debt. For the twelve week period ended September 20, 1997,
the Company had neither cash used nor generated by financing activities.
The Company has a line of credit with one of its primary banks providing
for borrowings through August 1, 1999 of up to $500,000. Borrowings bear
interest at the rate of 0.5% over the bank's prime rate (9.0% as of September
19, 1998) and are secured by substantially all of Coffee People's assets,
including accounts receivable, inventories, trade fixtures and equipment. As of
September 19, 1998, there were no borrowings outstanding under the line of
credit; however, $73,000 of the line was reserved for a letter of credit dated
September 1998. At September 19, 1998, the Company was not in compliance with a
loan agreement covenant that requires the Company to maintain a current ratio of
1.50. The Company's current ratio was 1.48. The bank waived the compliance
requirement on a one-time basis. Management expects to bring the current ratio
into compliance by the next quarterly compliance reporting date.
Contemporaneously with the closing of the merger with Gloria Jean's,
Coffee People entered into a loan agreement with The Second Cup Ltd. which
provides for a credit facility of up to $4,000,000 over a five year term. The
facility expires May 19, 2003. The interest rate for amounts drawn under the
line is 11.5%. As of September 19, 1998, no amounts had been borrowed under the
credit facility.
Coffee People believes that anticipated cash flow from operations and
existing cash and bank debt will be sufficient to meet Coffee People's cash
requirements through the end of the next twelve months.
<PAGE> 13
SEASONALITY
The Company's business is subject to seasonal fluctuations, due to
seasonal changes and general economic conditions, among other factors.
Historically, net sales from Coffee People (Oregon) stores have been highest
during the first and fourth fiscal quarters, which include the spring and summer
months. Historically, Gloria Jean's highest sales and earnings have occurred in
the second and third fiscal quarters. In addition, quarterly results have, and
in the future are likely to be, substantially affected by the timing of new
store openings. Because of the seasonality of Gloria Jean's business and the
impact of new store openings, results for any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year and cannot
be used to indicate financial performance for an entire year.
YEAR 2000
The "Year 2000 Problem" refers to the possible failure of many computer
systems that may arise as a result of many existing computer programs using only
the last two digits to refer to a year. The Company has undertaken an initial
review of the potential effects on it of the Year 2000 problem. These potential
problems are being addressed on a system-by-system basis.
The Company has determined that its general accounting system (which
includes invoicing, accounts receivable and inventory control) must be upgraded
to make the system Year 2000 compliant. The Company estimates that the cost of
upgrading the accounting system will be approximately $10,000 and that the
upgrade will be completed before the end of the current calendar year. As of
September 19, 1998, the Company had expended approximately $5,000 to remedy this
problem.
The Company is continuing to review its information technology ("IT")
hardware and software, including personal computers, application and network
software for Year 2000 compliance readiness. The review process entails
evaluation of hardware/software and testing. The Company believes its IT review
will be completed by the end of the current year. While the review process is
ongoing, the Company believes that the cost to bring its IT systems into Year
2000 compliance will be under $50,000 and it does not foresee any material
difficulties with completing the necessary changes prior to January 1, 2000.
The Company expects that its review of non-IT systems (including voice
communications and security) will be completed before the end of the current
calendar year. The estimated costs to remedy non-IT systems is not expected to
be material.
The Company expects that the source of funds for evaluation and
remediation of Year 2000 compliance issues will be cash flows from operations.
The Company believes that its most significant internal risk posed by
the Year 2000 Problem is the possibility of a failure of its accounting system.
If the accounting system were to fail, the Company
<PAGE> 14
would have to implement manual processes, which may slow the timeliness of
information needed to manage the business. As discussed above, the Company plans
to avoid this risk by upgrading its accounting systems; however, there can be no
assurance that such actions will avoid problems that may arise.
The third parties whose Year 2000 problems could have the greatest
effect on the Company are believed by the Company to be banks that maintain the
Company's depository accounts and credit card processing systems, the company
that processes the Company's payroll and which maintains the Company's human
resource databases, and companies that supply or distribute coffee beans and
other goods. The Company has not confirmed the state of Year 2000 readiness of
these parties.
The Company has not yet established a "contingency plan" to address
potential Year 2000 problems and is currently considering the extent to which it
will develop a formal contingency plan.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. The supply and price of green coffee beans is
subject to significant volatility, generally caused by multiple factors beyond
the Company's control, including weather, political and economic conditions in
coffee producing countries, and other supply-related matters. Because the
Company's coffee roasting operation supplies products to franchisees on a
cost-plus basis, the Company believes that its gross profit on wholesale sales
is generally insulated from the risk of volatility in prices of green coffee
beans, except to the extent that such fluctuation affects the demand for
specialty coffee. Company-operated stores are not so similarly insulated. In
addition, other factors may affect gross profit, such as production efficiencies
or inefficiencies (including roasting shrinkage) and write-offs of excess coffee
inventories. During fiscal year 1997, worldwide coffee prices increased
significantly.
In order to avoid speculation on spot coffee prices, the Company
typically undertakes to lock in the cost of a portion of its future coffee
purchases by entering into contracts to purchase green coffee over future
periods at fixed prices, or at future prices to be determined within one to 12
months from the time of the actual purchase. At September 19, 1998, these
purchase commitments totaled approximately $3,210,000 for approximately
2,550,000 pounds of green coffee at an average contract cost per pound of $1.26.
These commitments together with existing inventory represent approximately 108%
of the Company's estimated coffee requirements through September 18, 1999.
Because of the significant decline in worldwide coffee prices from their 1997
highs, these commitments are not currently favorable to market at September 19,
1998.
The Company does not use commodity based financial instruments to hedge
coffee purchases.
Financial Market Risk. The Company does not maintain a substantial
investment portfolio. However, it does have arrangements
<PAGE> 15
with its primary bank to invest monies on deposit in overnight repurchase
agreements and in other marketable short-term securities with maturities of
generally less than 90 days. Based upon the current portfolio, a 100 basis point
move in short-term interest rates would not have a material effect on the
Company's financial condition or results of operations.
The Company's principal market risk with respect to its financial debt
instruments is to changes in the prime rate charged by major banks in the United
States and to other benchmark rates to which interest rates under the Company's
loan agreements may be tied. In June 1998, the Company elected to have
$4,400,000 of its term loan with Bank of America bear interest at 2.25% over the
Interbank Offered Rate ("IBOR rate"), an offshore rate used by the Bank that is
similar to the London Interbank Offered Rate (LIBOR rate). As a result of this
election, the interest rate on $4,400,000 of the Company's term loan was reduced
from the 9% floating rate (0.5% over the bank's prime rate of 8.5%) to 7.9375%
(2.25% over the IBOR rate of 5.6875%). Under the current arrangement, this rate
will be adjusted each 90 days. On September 9, 1998, the Company elected to have
the interest rate on $4,100,000 of its term loan continue to be referenced to
the IBOR rate. The rate on the $4,100,000 balance has been fixed at 7.8125%
through December 8, 1998. At September 19, 1998, a 100 basis point increase in
the IBOR rate would result in additional interest expense of $41,000 on an
annualized basis. A return to the 9% floating rate tied to the prime rate (8.5%
at September 19, 1998) would have a similar impact on the Company's results of
operations.
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant and a plaintiff in various lawsuits from time
to time. No legal proceedings are in progress or pending against the Company,
other than proceedings set forth below or proceedings incidental to carrying on
its business and operations in the ordinary course which, individually or in the
aggregate, are not material to the Company.
Security Trust Company v. Gloria Jean's Gourmet Coffees Corporation. The
claimant filed a claim in the Superior Court of the State of California, County
of Contra Costa, asking for unpaid rent and late charges for a Gloria Jean's
store in Richmond, California vacated by the Company. Gloria Jean's has
requested that the landlord mitigate damages caused by early termination of the
lease by seeking to relet the premises. Unpaid rent plus rent through the
remainder of the original lease term would be approximately $175,000. Management
does not believe the outcome of this litigation will have a material adverse
effect on the Company.
KKW Enterprises, Inc. v. Gloria Jean's Gourmet Coffee Franchising Corp.
On or about May 7, 1998, plaintiff filed a complaint against Franchising Corp.
in the Superior Court of the State of Rhode Island for Providence County
alleging that Franchising Corp. by making certain misrepresentations
fraudulently induced plaintiff to enter into franchise agreements for Gloria
Jean's stores. Plaintiff seeks damages for the losses it purportedly incurred in
obtaining and operating its Gloria Jean's stores and recission of its two
remaining franchise agreements. On Franchising Corp.'s motion, the case was
removed to the United States District Court for the District of Rhode Island.
Franchising Corp. has filed a Demand for Arbitration with the Chicago office of
the American Arbitration Association, seeking a declaration that Franchising
Corp. has no liability for the claims asserted and has demanded that plaintiff
submit the claims pending in the District Court to arbitration in accordance
with the franchising agreements. This case is still in the early stages of
litigation and there can be no assurance that a favorable outcome will be
obtained or that if the matter were resolved in favor of the plaintiff there
would not be a material adverse effect on the Company.
Sugai Products, Inc. v. Kona Kai Farms, Inc., Regton Companies, Inc.,
Starbucks Corp., Peet's Coffee and Tea, Inc., Gloria Jean's Gourmet Coffees
Corp. (the "Kona litigation"). On January 9, 1997, the plaintiffs filed a
putative class action against the defendants alleging violation of the Lanham
Act, the Hawaii Uniform Deceptive Trade Practices Act and the Hawaii Unfair
Trade Practices Act. The plaintiffs, who purport to represent a class of Kona
coffee growers, wholesalers and retailers, allege that the defendants sold
coffee beans grown in Central America under the false label "Kona coffee" and
seek an injunction, unspecified damages, attorneys' fees and costs. In March,
Gourmet Coffees Corp. and certain other defendants moved to dismiss the
complaint or, in the alternative, for a more definitive statement of the
<PAGE> 17
claim. The plaintiffs filed a motion for class certification in July 1997. In
January 1998, the United States District Court for the District of Hawaii denied
class certification.
In July of this year, Gloria Jean's and Brothers Gourmet Coffees agreed
on present and future indemnification in connection with the settlement of the
escrow account established pursuant to The Second Cup's purchase of Gloria
Jean's stock from Brothers. As consideration for the settlement, Gloria Jean's
has released Brothers from further liability for all pending and future legal
proceedings. Brothers has agreed to continued indemnification of Gloria Jean's
in connection with the Kona litigation as it relates to the period ended
November 9, 1995 and for amounts owed on California and Illinois sales tax
audits, currently under way, in excess of $130,000. On August 27, 1998, Brothers
filed a voluntary petition for relief under Chapter 11 of Title 11 of the United
States Code with the United States Bankruptcy Court for the District of
Delaware. The Company intends to take all legal measures to protect any claims
it may have against Brothers.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Registrant's Restated Articles of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form SB-2, effective
September 25, 1996 (Registration No. 333- 5376-LA)).
3.2 Registrants' Bylaws, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form SB-2, effective September 25, 1996
(Registration No. 333-5376-LA)).
10.1 Business Loan Agreement with Bank of America, dated July
30, 1998.
10.2 Amendment No. 1 to Business Loan Agreement with Bank of
America, dated July 31, 1998.
27 Financial Data Schedule
(b) Report on Form 8-K
The Registrant filed one Current Report during the quarter ended
September 19, 1998.
A Current Report on Form 8-K dated September 16, 1998 was filed
to report under Item 8 a change in the Registrant's fiscal year from December 31
to the last Saturday in June of each year.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Coffee People, Inc.
/s/ Mark J. Archer
-----------------------------------------
Mark J. Archer
Executive Vice President,
Chief Financial Officer and Secretary
Signing on behalf of the registrant and
as principal financial officer
<PAGE> 1
EXHIBIT 10.1
[LOGO] BANK OF AMERICA NT & SA BUSINESS LOAN AGREEMENT
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This Agreement dated as of July 30, 1998 is between Bank of America NT & SA
(the "Bank") and Coffee People, Inc. (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility No. 1 Commitment") is Five Hundred Thousand Dollars
($500,000).
(b) This is a revolving line of credit with a within line facility for
standby letters of credit. During the availability period, the Borrower
may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit plus the outstanding amounts of any standby
letter(s) of credit to exceed the Facility No. 1 Commitment.
1.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and
August 1, 1999 (The "Facility No. 1 Expiration Date") unless the
Borrower is in default.
1.3 INTEREST RATE.
(a) The interest rate is the Reference Rate plus .50 percentage points.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by Bank as its Reference Rate. The Reference Rate is set based
on various factors, including Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at,
above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in
the public announcement of a change in the Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on July 1, 1998, and then monthly
thereafter until payment in full of any principal outstanding under
this line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than
the Facility No. 1 Expiration Date.
1.5 LETTERS OF CREDIT. This line of credit may be used for financing:
(i) standby letters of credit with a maximum maturity of 365 days
but not to extend beyond the Facility No. 1 Expiration Date.
(ii) the amount of outstanding letters of credit, including amounts
drawn on letters of credit and not yet reimbursed, may not
exceed at any one time One Hundred Thousand Dollars ($100,000).
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<PAGE> 2
The Borrower agrees:
(a) any sum owed to the Bank under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described elsewhere
in this Agreement.
(b) if there is a default under this Agreement, to immediately prepay and make
the bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable
to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing and processing letters of credit for the
Borrower.
2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS
2.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the Borrower a
term loan in the original principal amount of Two Hundred Seven Thousand
Dollars ($207,000). This term loan is currently subject to the terms and
conditions of Facility No. 2 of the Business Loan Agreement dated September
4, 1996, as amended. As of the date of this Agreement, the term loan shall be
deemed to be outstanding under Facility No. 2 of this Agreement, and shall be
subject to all the terms and conditions stated in this Agreement.
2.2 INTEREST RATE. The interest rate is fixed at 9.00 percent.
2.3 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on July 1, 1998, and
then monthly thereafter and upon payment in full of the principal of the
loan.
(b) The Borrower will repay principal in 2 successive monthly installments of
Five Thousand Seven Hundred Fifty Dollars ($5,750) starting July 1, 1998.
On August 1, 1998, the Borrower will repay the remaining principal
balance plus any interest then due.
(c) The Borrower may repay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under the Facility No. 2 Commitment.
3. FACILITY NO. 3: TERM LOAN AMOUNT AND TERMS
3.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the Borrower
a term loan in the original principal amount of Six Million Dollars
($6,000,000). This term loan is currently subject to the terms and conditions
of Facility No. 3 of the Business Loan Agreement dated September 4, 1996, as
amended. As of the date of this Agreement, the term loan shall be deemed to be
outstanding under Facility No. 3 of this Agreement, and shall be subject to
all the terms and conditions stated in this Agreement.
3.2 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as detailed below, the
interest rate is the Reference Rate plus .50 percentage points.
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<PAGE> 3
3.3 REPAYMENT TERMS.
(a) The Borrower will pay interest on the July 1, 1998, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay principal in 47 successive equal monthly
installments starting July 1, 1998. On May 1, 2002, the Borrower will
repay the remaining principal balance plus any interest then due.
(c) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under this Agreement.
3.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the loan bear
interest at the rate(s) described below during an interest period agreed to by
the Bank and the Borrower. Each interest rate is a rate per year. Interest will
be paid on the last day of each interest period, and on the first day each
month during the interest period. At the end of any interest period, the
interest rate will revert to the rate based on the Reference Rate, unless the
Borrower has designated another optional interest rate for the portion.
3.5 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Long Term Rate, subject to
the following requirements:
(a) The interest period during which the Long Term Rate will be in effect will
be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(d) Any portion of the principal balance of the loan already bearing interest
at the Long Term Rate will not be converted to a different rate during its
interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part in
the minimum amount of Five Hundred Thousand Dollars ($500,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking
days in advance of the prepayment. All prepayments of principal on the
Long Term Rate portion will be applied on the most remote principal
installment or installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by payment of all
accrued interest on the amount of the prepayment and the prepayment fee
described below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would have
accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue
for that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using the following
rate:
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<PAGE> 4
(A) If the Original Payment Date is more than 5 years after the date
of prepayment: the Treasury Rate plus one-quarter of one
percentage point;
(B) If the Original Payment Date is 5 years or less after the date
of prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date
of prepayment by the rate used in (ii) above. The sum of the
discounted monthly differences is the prepayment fee for that
Prepaid Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by
the Bank.
"Money Market Rate" means the fixed interest rate per annum which the Bank
determines could be obtained by reinvesting a specified Prepaid
Installment in the Money Market from the date of prepayment through the
Original Payment Date.
"Original Payment Dates" mean the dates on which principal of the Long Term
Rate portion would have been paid if there had been no prepayment. If a
portion of the principal would have been paid later than the end of the
interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal of the
Long Term Rate portion which would have been paid on a single Original
Payment Date.
"Treasury Rate" means the interest rate yield for U.S. Government Treasury
Securities which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in such securities from the date of
prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect the
compounding, accrual basis, or other costs of the Long Term Rate portion.
Each of the rates is the Bank's estimate only and the Bank is under no
obligation to actually reinvest any prepayment. The rates will be based on
information from either the Telerate or Reuters information services, The
Wall Street Journal, or other information sources the Bank deems
appropriate.
3.6 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Offshore Rate, subject
to the following requirements:
(a) The "Offshore Rate" means the interest rate the Bank and the Borrower
agree will apply to the portion during the applicable interest period.
(b) The interest period during which the Offshore Rate will be in effect will
be no shorter than 30 days and no longer than one year. The last day of
the interest period will be determined by the Bank using the practices of
the offshore dollar inter-bank market.
(c) Each Offshore Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(d) The Borrower may not elect an Offshore Rate with respect to any portion of
the principal balance of the loan which is scheduled to be repaid before
the last day of the applicable interest period.
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<PAGE> 5
(e) Any portion of the principal balance of the loan already bearing interest
at the Offshore Rate will not be converted to a different rate during its
interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to the
amount (if any) by which:
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest
periods, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar market
for a period starting on the date on which it was prepaid and
ending on the last day of the interest period for such portion.
(g) The bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to
the interest period, of an Offshore Rate portion are not available
in the offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
4. EXPENSES
4.1 REIMBURSEMENT COSTS.
(a) The Borrower agrees to reimburse the Bank for any expenses it incurs in
the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
(b) The Borrower agrees to reimburse the Bank for the cost of periodic audits
and appraisal of the real and personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require. The
audits and appraisals may be performed by employees of the Bank or by
independent appraisers.
5. COLLATERAL
5.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will
own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other present
and future obligations of the Borrower to the Bank (excluding any consumer
credit covered by the Federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Machinery, and equipment.
(b) Inventory.
(c) Receivables.
(d) Patents, trademarks and other general intangibles.
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<PAGE> 6
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 REQUEST FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
6.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments,
or for the designation of optional interest rates given by the
individual signer(s) of this Agreement, or a person or persons
authorized by the signer(s) of this Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 21164-04338, or such other accounts with the
Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) for, from and against all liability, loss, and
costs in connection with any act resulting from telephone instructions
it reasonably believes are made by a signer of this Agreement or a
person authorized by a signer. This indemnity and excuse will survive
this Agreement's termination.
6.4 DIRECT DEBIT (PRE-BILLING)
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 21164-04338 (the "Designated Account") on the date each
payment of principal and interest and any fees from the Borrower
becomes due (the "Due Date"). If the Due Date is not a banking day, the
Designated Account will be debited on the next banking day.
(b) Approximately 5 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date
(the "Billed Amount"). The calculation will be made on the assumption
that no new extensions of credit or payments will be made between the
date of the billing statement and the Due Date, and that there will be
no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount of principal due and interest accrued
(collectively, the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by
the amount of the discrepancy. The Borrower will not be in
default by reason of any such discrepancy.
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<PAGE> 7
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount of
the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The
Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
6.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Oregon and banks are open for business in California. All payments
and disbursements which would be due on a day which is not a banking day will
be due on the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
6.6 TAXES. The Borrower will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes or charges on any
payments made by the Borrower, the Borrower will pay the taxes or charges. Upon
request by the Bank, the Borrower will confirm that it has paid the taxes by
giving the Bank official tax receipts (or notarized copies) within 30 days
after the due date. However, the Borrower will not pay the Bank's net income
taxes.
6.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request
or requirement of a regulatory agency. The costs and losses will be allocated
to the loan in a manner determined by the Bank, using any reasonable method.
The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
6.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher
fee than if a 365-day year is used.
6.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Reference Rate plus .50 percentage points.
This may result in compounding of interest.
6.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.0 percentage points
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any event of default.
7. CONDITIONS
The Bank must receive the following items, in form and content acceptable to
the Bank, before it is required to extend any credit to the Borrower under this
Agreement:
7.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower and each guarantor or subordinating creditor of this Agreement and
any instrument or agreement required under this Agreement have been duly
authorized.
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-7-
<PAGE> 8
7.2 SECURITY AGREEMENT. Signed original security agreements, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
7.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor
of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
7.4 GUARANTIES. Guaranties signed by Gloria Jeans, Inc., Edglo Enterprises,
Inc., Gloria Jean's Gourmet Coffees Corp., and Gloria Jean's Gourmet Coffees
Franchising Corp., each in the amount of Five Million Four Hundred Thousand
dollars ($5,400,000).
7.5 SUBORDINATION AGREEMENTS. Subordination agreements in favor of the Bank
signed by The Second Cup Ltd. for any facility provided by The Second Cup Ltd.
to Borrower as allowed under Paragraph 9.6(f).
7.6 INTERCREDITOR AGREEMENT. An intercreditor agreement between the Bank and
Gary Talboy establishing the Bank's lien priority.
7.7 OTHER ITEMS. Any other items that the Bank reasonably requires.
8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation:
8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
8.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed
and delivered, will be similarly legal, valid and binding and enforceable.
8.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in existence and in good standing, and, where required, in
compliance with fictitious name statutes.
8.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
8.6 FINANCIAL INFORMATION. All financial and other information that has been
or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's and any guarantor's financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower or any guarantor which, if lost, would impair
the Borrower's financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank.
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<PAGE> 9
8.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
8.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict with the right
of others.
8.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
8.11 INCOME TAX RETURNS. Neither the Borrower has no Knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
8.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
8.13 YEAR 2000 COMPLIANCE. The Borrower has conducted a comprehensive review
and assessment of the Borrower's and each guarantor's computer applications and
made inquiry of the Borrower's key suppliers, vendors and customers with
respect to the "year 2000 problem" (that is, the risk that computer
applications may not be able to properly perform date-sensitive functions after
December 31, 1999) and, based on that review and inquiry, the Borrower does not
believe the year 2000 problem will result in a material adverse change in the
Borrower's business condition (financial or otherwise), operations, properties
or prospects, or ability to repay the credit.
9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
9.1 USE OF PROCEEDS.
(a) FACILITY NO. 1. To use the proceeds of the credit only for working
capital.
(b) FACILITY NO. 2. To use the proceeds of the credit only to pay off an
existing shareholder loan.
(c) FACILITY NO. 3. To use the proceeds of the credit only for the
acquisition of the Coffee Plantation chain in Arizona.
9.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time
to time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to the Bank. The statements
shall be prepared on a consolidating and consolidated basis and shall be
accompanied by a certificate of compliance in form and content acceptable
to the Bank.
(b) Within 45 days of the period's end, the Borrower's consolidating and
consolidated quarterly financial statements accompanied by a certificate
of compliance in form and content acceptable to the Bank. These financial
statements may be Borrower prepared.
(c) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial forecast for the current fiscal year.
-9-
<PAGE> 10
9.3 CURRENT RATIO. To maintain a ratio of current assets to current
liabilities of at least 1.50:1.0.
9.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain a ratio of total
liabilities to tangible net worth not exceeding 1.0:1.0.
"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 expense, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
9.5 EBITDA TO DEBT SERVICE RATIO. To maintain a ratio of EBITDA to Debt
Service of at least 3.00:1.0 on a quarterly basis beginning with the Borrower's
third fiscal quarter of its 1999 fiscal year.
"EBITDA" is defined as Earnings Before Interest, Taxes, Depreciation and
Amortization.
"Debt Service" is defined as the current portion of long term debt (from all
debt sources) as of the last day of the period being measured, plus interest
expense from the current quarter and each of the 3 immediately preceding
quarters, except for the initial calculation.
Beginning with Borrower's third fiscal quarter of 1999, this ratio will
initially be calculated by using the independent sums of EBITDA and interest
expense as of that quarter and the prior two quarters, with each multiplied by
1.33. Each quarter thereafter, this ratio will be calculated at the end of each
fiscal quarter, using the results of that quarter and each of the 3 immediately
preceding quarters on a rolling 4 quarter basis.
9.6 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank and its affiliates), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and lines of credit in existence on the date of this Agreement
disclosed in writing to the Bank in the Borrower's financial statement
dated December 31, 1997, and in Gloria Jean's Inc.'s consolidated
financial statements as of December 31, 1997.
(e) Additional debts for the acquisition of fixed or capital assets, to the
extent permitted elsewhere in this Agreement.
(f) Additional debts for business purposes provided by majority owner, The
Second Cup Ltd., to be subordinated to the Bank's debt, which is not to
exceed a total principal amount of Four Million Dollars ($4,000,000)
outstanding at any one time.
9.7 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank and its
affiliates.
(b) Liens for taxes not yet due.
-10-
<PAGE> 11
(c) Liens outstanding on the date of this Agreement disclosed in writing to the
Bank.
(d) Additional purchase money security interests in personal or real property
acquired after the date of this Agreement.
9.8 CAPITAL EXPENDITURES. Not to spend or incur obligations for more than Five
Million Dollars ($5,000,000) in any single fiscal year to acquire fixed or
capital assets excluding all acquisition related capital expenditures financed
through long term sources or through non-cash transactions.
9.9 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.
9.10 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw any
additional advances on its revolving line of credit, for a period of at least
30 consecutive days in each line-year. "Line-year" means the period between
August 2, 1997, and August 1, 1998, and each subsequent one-year period (if
any).
9.11 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Hundred Fifty Thousand Dollars ($250,000) against the
Borrower or any guarantor.
(b) any substantial dispute between the Borrower or any guarantor and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's condition or operations.
(e) any change in the Borrower's or any guarantor's name, address or legal
structure.
9.12 BOOKS AND RECORDS. To maintain adequate books and records.
9.13 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
9.14 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
9.15 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
9.16 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
9.17 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect
its security interests and liens.
9.18 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
-11-
<PAGE> 12
9.19 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss
of use and occupancy) to any of the Borrower's properties, public
liability insurance including coverage for contractual liability, product
liability and workers' compensation, and any other insurance which is
usual for the Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.20 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's or any guarantor's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets.
(e) acquire or purchase a business or its assets, or any combination thereof,
amounting to more than Five Million Dollars ($5,000,000).
(f) sell or otherwise dispose of any assets for less than fair market value,
or enter into any sale and leaseback agreement covering any of its fixed
or capital assets.
(g) make any payments other than regular scheduled monthly payments on the
indebtedness evidenced by a promissory note dated January 4, 1993, in the
original principal amount of $245,000 between Borrower as debtor and Gary
Talboy as creditor.
10. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement will
automatically become due immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
10.2 NON-COMPLIANCE. The Borrower or any guarantor fails to meet the conditions
of, or fails to perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
-12-
<PAGE> 13
(c) any other agreement by Borrower or any guarantor has with the Bank or any
affiliate of the Bank.
10.3 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower or any guarantor has obtained from anyone else or which
the Borrower or any guarantor has guaranteed.
10.4 LIEN PRIORITY. The bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
10.5 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
10.6 BANKRUPTCY. The Borrower or any guarantor files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower or any guarantor, or the
Borrower or any guarantor makes a general assignment for the benefit of
creditors.
10.7 RECEIVERS. A receiver or similar official is appointed for the Borrower's
or any guarantor's business, or the business is terminated.
10.8 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower or any guarantor in an aggregate amount of Two
Hundred Fifty Thousand Dollars ($250,000) or more in excess of any insurance
coverage.
10.9 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower or any guarantor, or the Borrower or any guarantor enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) or more in
excess of any insurance coverage.
10.10 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's or any guarantor's
financial condition or ability to repay.
10.11 DEFAULT UNDER GUARANTY OR SUBORDINATION AGREEMENT. Any guaranty,
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
10.12 MATERIAL ADVERSE CHANGE. A material adverse change occurs, or is
reasonably likely to occur, in the Borrower's or any guarantor's business
condition (financial or otherwise), operations, properties or prospects, or
ability to repay the credit.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applies.
11.2 OREGON LAW. This Agreement is governed by Oregon law.
11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrower.
- 13 -
<PAGE> 14
11.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for
injury to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by Oregon law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) a provisional or interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for provisional, interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
- --------------------------------------------------------------------------------
-14-
<PAGE> 15
11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
11.6 COSTS. If the Bank incurs any expenses in connection with enforcing this
Agreement or administering this Agreement (including in connection with
extending, amending, renewing or modifying this Agreement), or if the Bank takes
collection action under this Agreement, it is entitled to costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
11.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator
(and not by a jury). Such costs and attorneys' fees shall include, without
limitation, those incurred on any appeal, as determined by the appellate court,
and any anticipated costs and attorneys' fees to pursue or collect any
judgement.
11.8 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.9 EXCHANGE OF INFORMATION. The Borrower agrees that the Bank may exchange
financial information about the Borrower with BankAmerica Corporation affiliates
and other related entities.
11.10 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and
the Borrower may specify from time to time in writing.
11.11 HEADINGS. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
11.12 WRITTEN AGREEMENTS. Under Oregon Law, most agreements, promises and
commitments made by the Bank after October 3, 1989, concerning loans and other
credit extensions which are not for personal, family or household purposes or
secured solely by the borrower's residence must be in writing, express
consideration and be signed by that Bank to be enforceable.
- --------------------------------------------------------------------------------
-15-
<PAGE> 16
This Agreement is executed as of the date stated at the top of the first page.
[BofA LOGO]
BANK OF AMERICA NT & SA COFFEE PEOPLE, INC.
X /s/ ED KLOSS X /s/ MARK J. ARCHER
----------------------------------- -------------------------------------
By: Ed Kloss By: Mark J. Archer
Title: Vice President Title: Executive Vice President and CFO
Address where notices to the Bank Address where notices to the Bank
are to be sent: are to be sent:
Oregon Commercial Banking Office #2089 11480 Commercial Parkway
PO Box 6400 Castroville, California 95012
Portland, Oregon 97228
- --------------------------------------------------------------------------------
-16-
<PAGE> 1
EXHIBIT 10.2
================================================================================
[LOGO] Bank of America AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of July 31, 1998, 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 July 30, 1998 (the "Agreement").
B. The Bank and the Borrower desire to 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 intended as follows:
2.1 In Paragraph 1.2 of the Agreement, the date "August 1, 1999" is
substituted for the date "August 1, 1998".
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.
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/ ED KLOSS X /s/ MARK J. ARCHER
----------------------------------- -------------------------------------
By: Ed Kloss By: Mark J. Archer
Title: Vice President Title: Executive Vice President and CFO
- --------------------------------------------------------------------------------
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COFFEE
PEOPLE, INC. QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> SEP-19-1998
<CASH> 843
<SECURITIES> 0
<RECEIVABLES> 4,961
<ALLOWANCES> 1,071
<INVENTORY> 4,886
<CURRENT-ASSETS> 13,563
<PP&E> 17,474
<DEPRECIATION> 4,863
<TOTAL-ASSETS> 55,619
<CURRENT-LIABILITIES> 9,182
<BONDS> 0
0
0
<COMMON> 44,637
<OTHER-SE> (344)
<TOTAL-LIABILITY-AND-EQUITY> 55,619
<SALES> 11,042
<TOTAL-REVENUES> 12,249
<CGS> 5,926
<TOTAL-COSTS> 5,926
<OTHER-EXPENSES> 7,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (92)
<INCOME-PRETAX> (1,107)
<INCOME-TAX> 486
<INCOME-CONTINUING> (621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (621)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
