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UNITED STATES
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 December 12, 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)
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OREGON 93-1073218
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
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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 January 14, 1999, there were 10,762,757 shares of the registrant's Common
Stock outstanding.
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TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................... 5
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................. 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signature ................................................................. 16
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COFFEE PEOPLE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
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DECEMBER 12, JUNE 27,
1998 1998
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,224 $ 2,822
Accounts receivable, net 5,184 3,262
Inventories 4,304 4,052
Prepaid expenses and other assets 729 713
Deferred income taxes 2,681 2,621
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TOTAL CURRENT ASSETS 15,122 13,470
Property, plant and equipment, net 12,240 12,711
Goodwill, net 25,684 25,967
Other assets 119 113
Deferred income taxes 3,448 3,434
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TOTAL ASSETS $ 56,613 $ 55,695
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,238 $ 1,279
Current portion of capital lease obligations 130 --
Accounts payable 2,007 1,421
Payable to related party 465 984
Accrued liabilities 2,479 2,572
Provision for store closures 1,159 1,291
Franchisee deposits 563 459
Deferred franchise fee income 85 187
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TOTAL CURRENT LIABILITIES 8,126 8,193
Long-term debt 4,061 3,798
Capital lease obligations 792 --
Deferred rent expense 146 202
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 (350) (338)
Accumulated deficit (799) (790)
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TOTAL STOCKHOLDERS' EQUITY 43,488 43,502
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 56,613 $ 55,695
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COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
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Twelve Weeks Ended Twenty Four Weeks Ended
------------------------------- ------------------------------
December 12, December 13, December 12, December 13,
1998 1997 1998 1997
-------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
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REVENUES:
Franchise revenue $ 1,860 $ 1,781 $ 3,067 $ 2,995
Corporate store sales 7,767 2,415 14,863 4,132
Wholesale revenue 5,384 5,943 9,460 10,973
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Total revenues 15,011 10,139 27,390 18,100
EXPENSES:
Cost of goods sold 6,566 5,024 12,217 9,189
Store and other operating expenses 5,765 2,157 11,205 4,070
Depreciation and amortization 329 382 808 732
General and administrative expenses 1,152 780 2,210 1,529
Acquisition and integration expenses -- -- 799 --
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Total expenses 13,812 8,343 27,239 15,520
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Operating Income 1,199 1,796 151 2,580
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Interest and other income 23 59 56 139
Interest expense 133 -- 225 --
-------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 1,089 1,855 (18) 2,718
Provision (benefit) for income taxes 477 798 (9) 1,169
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NET INCOME (LOSS) $ 612 $ 1,057 $ (9) $ 1,549
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NET INCOME (LOSS) PER SHARE -
BASIC AND DILUTED $ 0.06 $ 0.14 $ (0.00) $ 0.21
============== ============= ============ =============
Weighted average common
shares - basic 10,755 7,461 10,753 7,461
Weighted average common and
common equivalent shares
outstanding - diluted 10,760 7,461 10,764 7,461
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COFFEE PEOPLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Twenty Four Weeks Ended
----------------------------------
December 12, December 13,
1998 1997
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Cash flows from operating activities:
Net income (loss) $ (9) $ 1,549
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 808 732
Provision for uncollectible accounts 120 --
Deferred income taxes (74) 680
Interest income on stock subscription notes receivable (12) --
Change in assets and liabilities, net of amounts acquired:
Accounts receivable (2,042) (4,241)
Receivable from/due to related party (519) 285
Inventories (252) (672)
Prepaid expenses and other assets (22) (8)
Accounts payable 586 19
Accrued liabilities (93) (891)
Accrual for store closures (132) (264)
Income taxes payable -- 489
Franchisee deposits 104 (14)
Deferred franchise fee income (102) (28)
Deferred rent expense (56) 5
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(1,695) (2,359)
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Cash flows from investing activities:
Purchase of property, plant and equipment (29) (1,223)
Proceeds from disposal of property, plant and equipment -- 98
Additions to goodwill (25) --
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(54) (1,125)
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Cash flows from financing activities:
Proceeds on issuance of shares 7 --
Stock redemption from Second Cup, Inc. (12) --
Borrowings under capital lease obligation 922 --
Payment on long-term debt (1,178) --
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1,151 --
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Decrease in cash and cash equivalents (598) (3,484)
Cash and cash equivalents, beginning of period 2,822 7,281
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Cash and cash equivalents, end of period 2,224 3,797
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Supplemental cash flow information
Interest 236 --
Cash paid for income taxes 7 --
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COFFEE PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
As of December 12, 1998 and June 28, 1998.
(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 December 12, 1998 presentation.
NOTE 2. INVENTORIES
Inventories consist of the following:
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December 12, June 27,
1998 1998
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(unaudited)
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Coffee:
Unroasted $ 1,513 $ 2,169
Roasted 569 368
Other merchandise held for sale 799 898
Supplies 1,423 617
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$ 4,304 $ 4,052
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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 has sold one store and has entered into non-binding letters of intent to
sell an additional six stores. There can be no assurance that the Company will
be successful at selling any of its remaining stores, including the stores
currently held under the non-binding letters of intent, or that it will be
successful in franchising new stores.
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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 December 12, 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. As of December 12, 1998,
the net book value of all store property, plant and equipment held for sale
totals $7,340,000.00. This amount is included in the net book value of property,
plant and equipment of $12,240,000.00 on the Consolidated Balance Sheet.
NOTE 4. SALE-LEASEBACK TRANSACTION
On November 24, 1998, the Company entered into a sale-leaseback transaction
involving equipment at twelve company-operated Gloria Jean's retail stores. The
$922,000 proceeds received by the Company from the lease transaction were used
for general corporate purposes and working capital. The interest rate on the
capital lease obligation is 10.5%. The capital lease assets are recorded in
property, plant and equipment. At the end of the lease term, the Company has an
option to purchase the equipment for the greater of fair market value or 10% of
the lessor's original cost, or renew the lease for an additional eight months.
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
("Coffee People Old") 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 to the
year-end used by Gloria Jean's. Because of the reverse merger accounting
treatment, the financial results for the twelve and twenty-four week periods
ended December 12, 1998 reflect the operations of the combined companies while
the financial results for the twelve and twenty-four week periods ended December
13, 1997 reflect the operations of Gloria Jean's only.
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As of December 12, 1998, the Company had 257 franchised and 25 company-operated
stores operating under the Gloria Jean's name in 37 states, one U.S. territory,
and six foreign countries, 26 company-operated stores operating under the Coffee
People name in Oregon, and one franchised and 14 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.
The Company previously announced plans to consolidate certain corporate
functions and to restructure Coffee People Old's operations. To date, most
Coffee People Old corporate employees have either been relocated to the
Company's Castroville, California headquarters or have been terminated.
Additionally, all coffee roasting is being performed at the Company's
Castroville roasting facility.
On October 27, 1998, the Company announced that it had engaged an investment
advisor to identify and evaluate alternatives to enhance 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 DECEMBER 12, 1998 COMPARED TO TWELVE WEEKS ENDED DECEMBER 13,
1997
REVENUES. Total revenues increased 48.1% to $15,011,000 for the twelve week
period ended December 12, 1998, from $10,139,000 for the same period in fiscal
1998. 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 221.6% to $7,767,000 for the
fiscal 1999 twelve week period from $2,415,000 in the fiscal 1998 twelve week
period. The increase in retail sales was due primarily to sales of $5,702,000 at
the Company's Coffee People (Oregon) and Coffee Plantation stores acquired on
May 19, 1998.
Wholesale revenue consists primarily of sales of roasted coffee and other
products and supplies to franchisees. Wholesale revenue decreased 9.4% to
$5,384,000 for the twelve weeks ended December 12, 1998 from $5,943,000 for the
same twelve week period in fiscal 1998. The decrease was primarily due to
decreased sales to franchised stores as a result of lower sales volume.
Franchise revenue consists primarily of initial franchise fees and royalties
received by the Company on sales made at each Gloria Jean's and Coffee
Plantation franchise location. Franchise revenues increased 4.4% to $1,860,000
for the twelve week period ended December 12, 1998 from $1,781,000 for the same
twelve week period in fiscal 1998. The reason for this increase was primarily
the addition of a Coffee Plantation initial franchise fee and royalties of
$52,000. This
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was offset slightly by a 0.7% decrease in domestic royalties of $1,550,000 in
the twelve week period ended December 12, 1998 compared to $1,562,000 for the
same period in fiscal 1998. The decrease in domestic royalties was due to lower
comparable store sales and fewer franchised stores.
COSTS AND EXPENSES. Cost of goods sold increased 30.7% to $6,566,000 for the
twelve weeks ended December 12, 1998, from $5,024,000 in the same period of
fiscal 1998, due to increases associated with the increase in retail sales
attributed to the Coffee People (Oregon) and Coffee Plantation stores acquired
on May 19, 1998. Cost of goods sold as a percentage of corporate store sales and
wholesale revenue decreased to 49.9% in the twelve week period ended December
12, 1998, from 60.1% in the twelve week period ended December 13, 1997. The
decrease was 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 167.3% to $5,765,000 in the twelve
week period ended December 12, 1998, from $2,157,000 in the same period of
fiscal 1998. The increase was due primarily to store operating expenses
attributed to the Coffee People (Oregon) and Coffee Plantation stores acquired
on May 19, 1998, increased store operating expenses at Gloria Jean's
company-operated stores, 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
38.4% in the fiscal 1999 twelve week period from 21.3% in the fiscal 1998 twelve
week period.
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. Additionally, depreciation on Gloria Jean's company-operated
stores was suspended at the end of fiscal year 1998 in recognition of this
strategy. Therefore, primarily as a result of this strategy, depreciation and
amortization, as a percentage of revenues, decreased to 2.2% for the twelve-week
period ended December 12, 1998 from 3.8% in the same twelve-week period of
fiscal 1998. For the twelve-week period ended December 12, 1998, depreciation
and amortization expense decreased to $329,000 compared to $382,000 in the same
period in fiscal 1998. The decrease in depreciation was due primarily to the
suspension of depreciation at the Gloria Jean's company-operated stores.
General and administrative expenses increased 47.7% to $1,152,000 in the
twelve-week period ended December 12, 1998 from $780,000 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 remained
constant at 7.7% in the fiscal 1999 twelve-week period compared to the same
period in fiscal 1998.
INTEREST INCOME. Interest income as a percentage of total revenues decreased to
0.2% for the twelve week period ended December 12, 1998 from 0.6% 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.
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INTEREST EXPENSE. Interest expense as a percentage of total revenues increased
to 0.9% for the twelve week period ended December 12, 1998 from 0.0% for the
same period in fiscal 1998. The increase is as a result of interest incurred on
long-term debt obligations acquired as part of the Coffee People acquisition on
May 19, 1998, and additional borrowings under its line of credit and bank debt
facilities.
INCOME TAXES. The provision for income taxes was $477,000 for the twelve week
period ended December 12, 1998, compared to $798,000 for the same period in
fiscal 1998. The effective tax rates of 43.8% for the twelve week period ended
December 12, 1998 and 43.0% for the twelve week period ended December 13, 1997,
result from federal and state income taxes and nondeductible goodwill
amortization.
TWENTY-FOUR WEEKS ENDED DECEMBER 12, 1998 COMPARED TO TWENTY-FOUR WEEKS ENDED
DECEMBER 13, 1997
REVENUES. Total revenues increased 51.3% to $27,390,000 for the twenty-four week
period ended December 12, 1998, from $18,100,000 for the same period in fiscal
1998. The increase in total revenues was due primarily to an increase in retail
sales from company-operated stores, offset by a decrease in wholesale revenue.
Retail sales at company-operated stores increased 259.7% to $14,863,000 for the
fiscal 1999 twenty-four week period from $4,132,000 in the fiscal 1998
twenty-four week period. The increase in retail sales was due primarily to sales
of $11,135,000 at the Company's Coffee People Oregon and Coffee Plantation
stores acquired on May 19, 1998.
Wholesale revenue consists primarily of sales of roasted coffee and other
products and supplies to franchisees. Wholesale revenue decreased 13.8% to
$9,460,000 for the twenty-four weeks ended December 12, 1998 from $10,973,000
for the same twenty-four week period in fiscal 1998. The decrease was primarily
due to decreased sales to franchise stores as a result of lower sales volume and
a decrease in the amount of Christmas holiday gift packs produced and indirectly
sold to franchisees during the twenty-four week period ended December 12, 1998
compared to the same period in fiscal 1998.
Franchise revenue consists primarily of initial franchise fees and royalties
received by the Company on sales made at each franchise location. Franchise
revenue increased 2.4% to $3,067,000 for the twenty-four week period ended
December 12, 1998 from $2,995,000 for the same twenty-four week period in fiscal
1998. The components of this increase were the addition of a Coffee Plantation
initial franchise fee and royalties of $52,000 and a 2.3% increase in royalties.
Royalty revenues increased from $2,555,000 to $2,614,000 due primarily to the
addition of 8 international stores, offset by a decrease of 6 domestic stores.
This was offset slightly by a decrease in franchise fees which were $401,000 in
the twenty-four week period ended December 12, 1998 compared to $441,000 for the
same period in fiscal 1998. The decrease in franchise fees was due to a decrease
of two new franchised stores during the twenty-four week period of fiscal year
1999 compared to fiscal year 1998.
COSTS AND EXPENSES. Cost of goods sold increased 33.0% to $12,217,000 for the
twenty-four weeks ended December 12, 1998, from $9,189,000 in the same period of
fiscal 1998, due to increases associated with the increase in retail sales
attributed to the Coffee People (Oregon) and Coffee Plantation stores acquired
on May 19, 1998. Cost of goods sold as a percentage of corporate store sales and
wholesale revenue decreased to 50.2% in the twenty-four week period ended
December 12, 1998, from 60.8% in the twenty-four week period ended December 13,
1997. The decrease was due primarily to a more favorable cost relationship
associated with retail
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sales generated at the Company's Coffee People (Oregon) and Coffee Plantation
stores acquired on May 19, 1998.
Store and other operating expenses increased 175.3% to $11,205,000 in the
twenty-four week period ended December 12, 1998, from $4,070,000 in the same
period of fiscal 1998. The increase was due primarily to store operating
expenses attributable to the Coffee People (Oregon) and Coffee Plantation stores
acquired on May 19, 1998, increased store operating expenses at Gloria Jean's
company-operated stores, 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
40.9% in the fiscal 1999 twenty-four week period from 22.5% in the fiscal 1998
twenty-four week period.
Depreciation and amortization increased 10.4% to $808,000 in the twenty-four
week period ended December 12, 1998 from $732,000 in the twenty-four week period
ended December 13, 1997. Depreciation increased primarily due to an increase in
goodwill amortization resulting from the reverse merger with Gloria Jean's. As a
percentage of total revenues, depreciation and amortization expense decreased to
2.9% for the twenty-four week period ended December 12, 1998 from 4.0% in the
same twenty-four week period of fiscal 1998. The decrease in depreciation was
due primarily to the suspension of depreciation at the Gloria Jean's
company-operated stores.
General and administrative expenses increased 44.5% to $2,210,000 in the
twenty-four week period ended December 12, 1998 from $1,529,000 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
remained relatively constant at 8.1% in the fiscal 1999 twenty-four week period
compared to 8.4% for the same period in fiscal 1998.
Acquisition and integration expenses of $799,000 in the fiscal 1999 twenty-four
week period consist of one-time costs associated with integrating Coffee People
operations and a portion of costs associated with exiting certain Coffee People
activities, including relocating and/or terminating Coffee People's employees at
the Portland headquarters and franchising Coffee People (Oregon) and Coffee
Plantation retail stores.
INTEREST INCOME. Interest income as a percentage of total revenues decreased to
0.2% for the twenty-four week period ended December 12, 1998 from 0.8% 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 twenty-four week period ended December 12, 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 $9,000 for the twenty-four week
period ended December 12, 1998, compared to a provision for income taxes of
$1,169,000 for the same period in fiscal 1998. The effective tax rates of 50.0%
for the twenty-four week period ended December 12, 1998 and 43.0% for the
twenty-four week period ended December 13, 1997, result from federal and state
income taxes and nondeductible goodwill amortization.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 12, 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. The Company identified eight Gloria Jean's stores for
disposal during fiscal year 1997. Five were disposed of during fiscal year 1998
pursuant to 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
December 12, 1998 under the five leases total $1,317,000.
As of December 12, 1998, the Company had $2,224,000 in cash and equivalents.
The Company had working capital of $6,996,000 as of December 12, 1998, as
compared to working capital of $5,277,000 at June 27, 1998.
For the twenty-four week period ended December 12, 1998, cash used by operating
activities was $1,695,000, as compared to cash used by operating activities of
$2,259,000 for the same period in fiscal 1998.
For the twenty-four week periods ended December 12, 1998 and December 13, 1997,
net cash used in investing activities was $54,000 and $1,125,000, respectively,
primarily as a result of the purchase of property, plant and equipment.
For the twenty-four week period ended December 12, 1998, the Company had net
cash provided by financing activities of $1,151,000, primarily as a result of
borrowings under long-term debt in the amount of $1,400,000, offset by principal
payments on long-term debt in the amount of $1,178,000. For the twenty-four week
period ended December 13, 1997, the Company had neither cash used or 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 reference rate (7.75% as of December 12, 1998)
and are secured by substantially all of Coffee People assets, including accounts
receivable, inventories, trade fixtures and equipment. As of December 12, 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.
10
<PAGE> 13
Contemporaneously with the closing of the Merger, 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 December 12,
1998, the Company had borrowed $1,000,000 under this agreement.
On November 24, 1998, the Company entered into a sale-leaseback transaction
involving equipment at twelve company-operated Gloria Jean's retail stores. The
$922,000 proceeds received by the Company from the lease transaction were used
for general corporate purposes and working capital. The interest rate on the
capital lease obligation is 10.5%. The capital lease assets are recorded in
property, plant and equipment. At the end of the lease term, the Company has an
option to purchase the equipment for the greater of fair market value or 10% of
the lessor's original cost, or renew the lease for an additional eight months.
Coffee People believes that anticipated cash flow from operations, existing cash
and bank debt and the credit facility will be sufficient to meet its cash
requirements through the end of the next twelve months.
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 which include the peak holiday shopping months.
Coffee Plantation sales are also seasonal with higher sales and earnings
occurring in the second and third fiscal quarters when the weather is cooler and
more favorable to drinking hot beverages. 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 fiscal year. As of December 12, 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 fiscal year. While the review
11
<PAGE> 14
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
fiscal year. The estimated cost 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 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 is in the process of confirming the state of Year 2000 readiness of
these parties. It is anticipated the Company will complete this process prior to
the end of the fiscal year.
The Company is in the process of developing a "contingency plan" to address
potential Year 2000 problems. The contingency plan is anticipated to be
completed prior to the end of the fiscal year.
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 December 12, 1998, these purchase commitments
totaled approximately $2,630,000 for approximately 2,190,000 pounds of green
coffee, at an average contract cost per pound of $1.20. These commitments
together with existing inventory represent approximately 96% of the Company's
estimated coffee requirements through
12
<PAGE> 15
December 11, 1999. These commitments are not currently favorable to market at
December 12, 1998 as the current market price for a pound of green coffee is
approximately $1.15 per pound. 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 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 a portion
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). Under the current arrangement,
this rate will be adjusted periodically. On December 8, 1998, the Company
elected to have the interest rate on $3,000,000 of its term loan continue to be
referenced to the IBOR rate. The rate on $2,000,000 and $1,000,000 has been
fixed at 7.5625% and 7.25%, respectively, through February 8, 1999. The rate on
the remaining balance of $1,100,000 is 8.25% (0.5% over the bank's prime rate of
7.75% as of December 12, 1998). At December 12, 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 8.25% floating rate tied to the prime rate
(7.75% at December 12, 1998) would have a similar impact on the Company's
results of operations.
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.
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 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.
Yamane Enterprises, et al. 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 or
13
<PAGE> 16
about October 23, 1998, the plaintiffs filed an action virtually identical to
the action described above in the Sugai Products case. Defendants, including
Gloria Jean's have moved to consolidate this action with the Sugai Products
case. The motion is presently pending.
Patrick, et al., 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"). In an action filed in the Superior Court of the State of
California, County of San Diego, four named plaintiffs, on behalf of themselves
and the general public, has sued Gloria Jean's and numerous other retail and
non-retail defendants alleging violations of California Business and Professions
Code and common law unfair business practices, arising out of the alleged sale
of Panamanian coffee as Kona coffee.
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.
Charles Walker, Phyllis Jean Walker, Buckeye's Best Bean Corp. d/b/a Gloria
Jean's Gourmet Coffee v. Gloria Jean's Gourmet Coffees Franchising Corp. et al.
On or about December 9, 1998, Charles Walker, Phyllis Jean Walker and Buckeye's
Best Bean Corp. (the "Walkers") filed a Demand for Arbitration in Cincinnati,
Ohio against the Company alleging common law fraud, negligent misrepresentation,
violations of the Ohio Business Opportunity Purchasers Protection Act,
violations of the Illinois Franchise Act and breach of contract. The Walkers
also asserted claims for unjust enrichment and punitive damages. These claims
all allegedly arise from the Company's sale of a former Company store to the
Walkers in or around May of 1995. The Walkers are seeking damages in excess of
$500,000.00. The parties agreed to transfer the arbitration to Chicago, Illinois
pursuant to the terms of the parties' Arbitration Agreement. On or about
December 18, 1998, the Walkers filed an Amended Demand for Arbitration
containing similar allegations to the first and demanding the same relief.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of Coffee People, Inc. on November 24,
1998, the stockholders voted on three proposals. The first was a proposal to
elect Michael Bregman, Alton McEwen, Douglas L. Ayer, Robert M. Haft, Gary
Talboy, and Kathy A. Welsh as directors of Coffee People, Inc. The following
table sets forth the votes in such election:
14
<PAGE> 17
<TABLE>
<CAPTION>
Percent Percent
For Voted Withheld Voted
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Michael Bregman 8,061,035 98.84 94,701 1.16
Alton McMcEwen 8,061,035 98.84 94,701 1.16
Douglas L. Ayer 8,048,912 98.69 106,824 1.31
Robert M. Haft 8,046,735 98.66 109,001 1.34
Gary Talboy 8,061,035 98.84 94,701 1.16
Kathy A. Welsh 8,049,835 98.70 105,901 1.30
</TABLE>
The shareholders voted on a proposal to change the state of incorporation from
Oregon to Delaware. The following table sets forth the votes in such election:
<TABLE>
<CAPTION>
Percentage of
Votes Outstanding
--------- -------------
<S> <C> <C>
For 8,055,750 74.90
Against 99,166 0.92
Abstain 820 0.01
Broker non-votes 0 0.00
Other unvoted 2,599,153 24.17
</TABLE>
The shareholders also voted on a proposal to amend the 1998 stock incentive
plan. The following table sets forth the votes in such election:
<TABLE>
<CAPTION>
Percentage of
Votes Outstanding
--------- -------------
<S> <C> <C>
For 7,759,831 72.15
Against 392,730 3.65
Abstain 3,175 0.03
Broker non-votes 0 0.00
Other unvoted 2,599,153 24.17
</TABLE>
All nominees were elected by a majority of shareholders. Additionally, the
proposal to change the state of incorporation from Oregon to Delaware and the
proposal to amend the 1998 stock incentive plan were approved by a majority of
shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.27 Lease Agreement, dated November 24, 1998, between Gloria Jean's, Inc., and
Total Lease Concepts.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
15
<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 Dated: January 26, 1999
- -----------------------------------------
Mark J. Archer
Executive Vice President,
Chief Financial Officer and Secretary
Signing on behalf of the registrant and
as principal financial officer
16
<PAGE> 1
EXHIBIT 10.27
FORM OF LEASE AGREEMENT BETWEEN GLORIA JEAN'S, INC.
AND TOTAL LEASE CONCEPTS
TOTAL LEASE CONCEPTS
255 FALLBROOK, SUITE 104
FRESNO, CA 93711
(209) 261-1900
FULL LEGAL NAME AND ADDRESS OF LESSEE
GLORIA JEAN'S, INC.
11480 COMMERCIAL PARKWAY
CASTROVILLE, CA 95012
SUPPLIER OF EQUIPMENT (COMPLETE ADDRESS)
GLORIA JEAN'S, INC.
DESCRIPTION OF EQUIPMENT OWNED BY LESSOR
SEE SCHEDULE "A" ATTACHED HERETO AND MADE A PART HEREOF
EQUIPMENT LOCATION (IF OTHER THAN ABOVE)
Rental Term
Monthly Payments (Plus Sales / Use Tax)
Advance Rentals Payable at the Signing of Lease
$
Amount represents the first month and last ________ month's rent.
RENT COMMENCEMENT DATE:
TERMS AND CONDITIONS OF LEASE
1. LEASE: LESSOR'S RIGHT TO TERMINATE. Lessor hereby leases to Lessee, and
Lessee hereby leases from Lessor, the equipment described above or on any
schedule attached hereto (the "Schedule(s)") (the equipment with all
replacement parts, repairs, additions and accessories in herein called the
"Equipment") on the terms and conditions as set forth on this Lease and any
Schedule(s) referred to as the "Lease"). Lessee hereby authorizes Lessor to
order the Equipment from the Vendor and arrange for delivery to Lessee at
Lessee's expense. Lessee authorizes Lessor to insert in the Lease, when
determined, the Rent Commencement Date, the serial numbers and other
identification data of the Equipment, and other omitted factual matters. In
the event the Equipment is not delivered to Lessee within 30 days of the
date Lessor orders the Equipment, Lessor may cancel this Lease and any
obligation to Lessee hereunder.
2. NO WARRANTIES BY LESSOR. LESSOR , NEITHER BEING THE MANUFACTURER OF, NOR A
DEALER IN, THE EQUIPMENT, MAKES NO WARRANTY TO ANYONE, AS TO ANY MATTER
WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE FITNESS,
MERCHANTABILITY, DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER
ASPECT OF THE
1
<PAGE> 2
EQUIPMENT OR
ITS MATERIAL OR WORKMANSHIP OR THE TAX OR ACCOUNTING TREATMENT OF THE
LEASE. LESSOR DISCLAIMS ANY LIABILITY FOR LOSS, DAMAGE, OR INJURY TO LESSEE
THIRD PARTIES AS A RESULT OF ANY DEFECTS, LATENT OR OTHERWISE, IN THE
EQUIPMENT. LESSOR SHALL HAVE NO OBLIGATION TO MAINTAIN, INSTALL, TEST,
ADJUST OR SERVICE THE EQUIPMENT. LESSOR SHALL NOT BE LIABLE FOR ANY
INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES HOWSOEVER ARISING. IF THE
EQUIPMENT IS UNSATISFACTORY FOR ANY REASON, LESSEE SHALL MAKE CLAIM ON
ACCOUNT THEREOF SOLELY AGAINST THE MANUFACTURER AND/OR THE VENDOR AND SHALL
NEVERTHELESS PAY LESSOR ALL RENT AND OTHER MONIES PAYABLE HEREUNDER. LESSOR
NEITHER THE MANUFACTURER, DISTRIBUTOR, NOR SUPPLIER OF THE EQUIPMENT, HAS
NOT SELECTED IT, AND HAS NO CONTROL OVER OR KNOWLEDGE OF OR FAMILIARITY
WITH THE CONDITION, CAPACITY, FUNCTIONS OR OTHER CHARACTERISTICS OF THE
EQUIPMENT. Lessor hereby assigns to Lessee, solely for the purpose of
prosecuting a claim, all rights which Lessor may have against the
manufacturer or Vendor for breach of warranty or other representation
respecting the Equipment. THE PARTIES HAVE SPECIFICALLY NEGOTIATED AND
AGREED TO THIS PARAGRAPH 2. By ______________________
3. NON-CANCELABLE LEASE. THE LEASE CANNOT BE CANCELLED BY LESSEE DURING THE
TERM HEREOF. Lessee's obligations under the Lease including, without
limitation, the obligation to pay rent, are absolute and unconditional and
shall continue without any claim, set-off, counterclaim, reduction or
abatement of any kind whatsoever and regardless of any disability of Lessee
to use the Equipment or any part thereof because of any reason whatsoever.
4. TERM AND RENT. The Lease will be effective when accepted by Lessor and
shall continue for the term stated in the Lease and thereafter until all of
the obligations of the Lessee under the Lease are fully paid and performed.
The Monthly Payments shall commence on the first date that any of the
Equipment is delivered to Lessee or Lessee's agent (the "Rent Commencement
Date"). Advance rentals shall not be refundable if the Rent Commencement
Date not occur for any reason. Installments of rent shall be payable
monthly in advance as stated in the Lease, the first such installment being
due on the Rent Commencement Date, or such later date as Lessor designates
in writing, and subsequent payments shall be due on the same day of each
successive month for the Rental Term. All payments shall be made to lessor
at the address set forth herein or such other address as Lessor may in
writing designate. Time is of the essence with respect to all payments due
and all other obligations of Lessee under the Lease.
5. TITLE: QUIET ENJOYMENT. Title to the Equipment shall at all times be vested
in Lessor. All documents of a title and evidence of delivery shall be
delivered to Lessor. Lessee authorizes Lessor, at Lessee's expense, to
cause the Lease, or any statement or other instrument in respect to the
Lease showing the interest of Lessor in the Equipment, including Uniform
Commercial Code Financing Statements, to be filed or recorded, and grants
Lessor the right to sign Lessee's name thereto. Lessee agrees to execute or
procure for Lessor such estoppel certificates, landlord's or mortgagee's
waivers or other documents as Lessor may request to confirm or perfect
Lessor's rights hereunder or to otherwise effectuate the intents of the
Lease. Lessee agrees to pay or reimburse Lessor for any filing, recording
or stamp fees or taxes arising from the filing or recording of any such
instrument or statement. Lessee shall, at its expense, protect and defend
Lessor's title against all persons claiming against or through Lessee, keep
the Equipment free from legal process encumbrance, give Lessor immediate
notice thereof and shall indemnify Lessor from any loss caused tbereby. So
long
2
<PAGE> 3
as Lessee is not in default under the Lease, Lessee shall quietly use and
enjoy the Equipment, subject to the terms of the Lease.
(SEE REVERSE SIDE FOR ADDITIONAL TERMS AND CONDITIONS WHICH ARE PART
OF THE LEASE)
READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY
BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL
PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY
CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
LESSEE: GLORIA JEAN'S, INC.
By: MARK ARCHER, CFO
Date: 11/24/98
Notary:
LESSOR:
By: Dave Wesolowski, CFO
Date: 11/24/98
Witness:
6. ASSIGNMENT: WAIVER OF DEFENSES. LESSOR MAY, WITHOUT NOTICE TO OR CONSENT BY
LESSEE, ASSIGN THE LEASE, ANY RENTALS, OR ANY OTHER SUMS DUE OR TO BECOME
DUE UNDER THE LEASE, OR TRANSFER OR GRANT A SECURITY INTEREST IN ANY OF THE
EQUIPMENT, AND IN SUCH EVENTS LESSOR'S ASSIGNEE OR SECURED PARTY SHALL HAVE
ALL OF THE RIGHTS, POWERS, PRIVILEGES AND REMEDIES OF LESSOR HEREUNDER. NO
ASSIGNEE SHALL BE BOUND TO PERFORM ANY DUTY, COVENANT, CONDITION OR
WARRANTY OF LESSOR. LESSEE AGREES NOT TO RAISE ANY CLAIM OR DEFENSE WHICH
LESSEE OR WRITTEN NOTICE OF AN ASSIGNMENT FROM LESSOR OR FROM LESSOR'S
ASSIGNEE, ALL RENT AND OTHER AMOUNTS WHICH ARE THEN AND THEREAFTER DUE
UNDER THE LEASE SHALL BE PAID TO SUCH ASSIGNEE AT THE PLACE OF PAYMENT
DESIGNATED IN SUCH NOTICE. LESSEE SHALL NOT ASSIGN THE LEASES OR ANY
INTEREST IN THE LEASE OR IN THE EQUIPMENT WITHOUT LESSOR'S PRIOR WRITTEN
CONSENT. ANY PURPORTED ASSIGNMENT OR SUBLEASE BY LESSEE WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR SHALL BE VOID.
7. FINANCE LEASE. Lessor and Lessee agree that this Lease is a Finance Lease
as that term is defined in Article 2A of the Uniform Commercial Code.
Lessee acknowledges that Lessor has appraised Lessee of the identity of the
equipment supplier. Lessor has appraised Lessee of the identity of the
equipment supplier. Lessor hereby notifies Lessee that Lessee may have
rights pursuant to the contract with the supplier and the Lessee may
contact the supplier for a description of any rights or warranties that
Lessee may have under this contract. Lessee hereby waives any and all
rights and remedies granted Lessee by Sections 508 through 522 of Article
2A of the Uniform Commercial Code including, by way of example only and not
as a limitation, the right to repudiate the Lease and reject the Equipment;
the right to cancel the Lease; the right to revoke acceptance of the
Equipment; the right to grant a security interest in the Equipment in
Lessee's possession and control for any reason; the right to recover
3
<PAGE> 4
damages thereunder for any breach of warranty or for any other reason; the
right to recover damages thereunder for any breach of warranty or for any
other reason deduct all or any part of the claimed damages resulting from
Lessor's default, if any, under this Lease; the right to accept partial
delivery of Equipment; the right to cover by making any purchase or leases
of or contract to purchase or lease equipment in substitution for those due
from Lessor; the right to recover any general, special, incidental or
consequential damages, for any reason whatsoever; and the right to specific
performance, replevin, detinue, sequestration, claim and delivery and the
like for the Equipment.
8. CARE, USE AND LOCATION. Lessee shall: maintain the Equipment in good
operating condition, repair and appearance, and protect it from
deterioration other than normal wear and tear; use the Equipment in the
regular course of its business, within its normal operating capacity,
without abuse; comply with all laws, ordinances, regulations, requirements
and rules with respect to the use, maintenance and operation of the
Equipment; use the Equipment solely for business purposes; not make any
modification, alteration or addition to the Equipment without the written
consent of Lessor, which shall not be unreasonably withheld; not affix the
Equipment (which shall remain personal property at all times regardless of
how attached or installed) to realty so as to change its nature to real
property or a fixture; and keep the Equipment at the location shown herein,
and not remove the Equipment without the written consent of Lessor, which
shall not be unreasonably withheld.
9. TAXES. Lessee intends the rental payments hereunder to be net to Lessor,
and Lessee agrees to pay all sales, use, excise, personal property, stamp,
documentary and ad valorem taxes, license and registration fees,
assessments, fines, penalties and similar charges imposed on the ownership,
possession or use of the Equipment during the term of the Lease, and all
taxes imposed on Lessor Lessee (except Lessor's Federal or State net income
taxes) with respect to the rental payments hereunder or the Equipment, and
shall reimburse Lessor upon demand for any taxes paid or advanced by
Lessor, Lessee shall file all personal property tax returns with respect to
the Equipment, and pay all taxes due thereon.
10. INDEMNITY. Lessee agrees to indemnify and save Lessor, its agents,
servants, successors, and assigns harmless from any and all liability,
damage or loss, including reasonable attorney's fees, arising out of the
ownership, selection, possession, operation, control, use, condition,
maintenance, delivery and return of the Equipment. Lessee's indemnities and
obligations shall continue in full force and effect notwithstanding the
termination of the Lease.
11. RISK OF LOSS. Lessee shall bear all risks of loss of and damage to the
Equipment from any cause. The occurrence of such loss or damage shall not
relieve Lessee of any obligation hereunder. In the event of loss or damage,
Lessee, at Lessor's option, shall: (a)place the damaged Equipment in good
repair, condition and working order; or (b)replace lost or damaged
Equipment with new equipment of the same type and model and deliver to
Lessor documentation vesting clear title to Lessor; or (c)pay to Lessor the
present value as of the date of loss of both the unpaid balance of the
aggregate rent reserved under the Lease and the value of the Lessor's
residual interest in the Equipment at the expiration of the lease, computed
at six percent (6%) per annum.
12. INSURANCE. Lessee shall, at Lessee's sole cost and expense, keep the
Equipment insured against all risks of loss or damage from every cause
whatsoever for not less than the term, public liability insurance, covering
both personal injury and property damage arising out of or in connection
with the use or operation of the Equipment. All insurance shall be in such
form and for such amounts, and issued by such companies, as shall be
acceptable to Lessor and shall name Lessor and Lessor's assignee or secured
party as loss payees with respect to the casually coverage and as
additional insured with respect to the public liability coverage and shall
provide that the insurer will give Lessor and Lessor's assignee at least
thirty days' prior written notice of the effective date of any alteration
or cancellation of such policy. Lessee shall, upon Lessor's request,
deliver to Lessor satisfactory evidence of the required insurance
4
<PAGE> 5
coverage. If Lessee does not provide evidence of property insurance
acceptable to Lessor, Lessor may but will not be required to, buy such
insurance and add the cost, including any customary charges or fees
associated with the placement, maintenance or service of such insurance
(collectively, "Insurance Charge"), to the Lease Payment amount due from
Lessee. Insurance proceeds as a result of loss or damage to any of the
Equipment shall be applied to satisfy Lessee's obligation set forth in
Paragraph 11 hereof. Lessee irrevocably appoints Lessor as Lessee's
attorney-in -fact to make a claim for, receive payment of and execute and
endorse all documents, checks or drafts received in payment for loss or
damage under any such insurance policy.
13. FINANCIAL STATEMENTS. If requested by Lessor, Lessee agrees to deliver to
Lessor annual and interim financial statements.
14. DEFAULT. Each of the following events is an "Event of Default":
(a)Lessee's failure to pay, when due, any rent or any other payment
hereunder; or (b)Lessee's failure to pay, when due, any indebtedness of
Lessee to Lessor arising independently of this Lease and such failure shall
continue for five days; or (c)Lessee's failure to perform any of the other
terms, convenants or conditions of this Lease and such failure shall
continue for ten days after written notice; or (d)any representation,
warranty or statements made by Lessee or any guarantor of this Lease
("Guarantor"), whether contained in the Lease or in any guaranty,
application, financial statement or other document delivered to Lessor in
connection with the Lease, shall be untrue in any material respect; or
(e)Lessee becomes insolvent or makes an assignment for the benefit of
creditors; or (f)a receiver, trustee, conservator or liquidator of Lessee
of all or a substantial part of Lessee's assets is appointed with or
without the application or consent of Lessee; or (g)a petition is filed by
or against Lessee under the Bankruptcy Code or under any other insolvency
law or laws providing for the relief of debtors.
15. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter, Lessor may, with or without terminating this Lease, in its sole
discretion, do any one or more of the following: (a)immediately retake
possession of its Equipment without any court order or other process of
law, and for such purpose, Lessor may enter upon any premises where said
Equipment may be, or may remove the same therefrom with or without notice
of its intention to do same, without being liable to any suit, action or
other proceeding by the Lessee; (b)upon notice to Lessee terminate this
Lease and all Lease Schedules executed pursuant thereto; (c)upon the
occurrence of any Event of Default or anytime there after, or if Lessor
decides, in its sole discretion, not to take possession of the Equipment,
Lessor continues to be the owner of the Equipment and may, but is not
obligated to, dispose of the Equipment by sale or otherwise, all of which
determinations may be made by Lessor in its absolute discretion and for its
own account; (d)declare immediately due any payable all sums due and to
become due hereunder for the full term of the Lease (including any renewal
or purchase options which Lessee has contracted to pay.); (e)if this Lease
provides for a Stipulated Loss Value of the Equipment with or without
terminating this Lease, recover the Stipulated Loss Value of the Equipment
as of the rent payment date immediately preceding Lessee's date of default
plus all commercially reasonable costs and expense incurred by Lessor in a
repossession, recovery, storage, repair, sale, re-lease, or other
disposition of the Equipment, including reasonable attorneys' fees and
costs incurred in connection therewith or otherwise resulting from Lessee's
default; (f)if this Lease does not provide for a Stipulated Loss Value of
the Equipment or if the Stipulated Loss Value of the Equipment is not
allowed under applicable law, with or without terminating this Lease,
recover from Lessee damages, not as a penalty, but herein liquidated for
all purposes and in an amount equal to the sum of (I)any accrued and unpaid
rent as of the date of entry of judgment in favor of Lessor plus interest
at the rate of fifteen percent per annum or the maximum rate provided by
state law; (II)the present value of all future rentals reserved in the
Lease and contracted to be paid over the
5
<PAGE> 6
unexpired term of the Lease discounted at a rate equal to the discount rate
of the Federal Reserve Bank of Kansas City as of the date of entry of
judgement in favor of Lessor plus one percent; (III)all commercially
reasonable costs incurred by Lessor in any repossession, recovery, storage,
repair, sale, re-lease, or other disposition of the Equipment including
reasonable attorneys' fees and costs incurred in connection therewith or
otherwise resulting from Lesse's default; (IV)estimated residual value of
the Equipment as of the expiration of this Lease or any renewal thereof;
and (V)any indemnity, if then determinable, plus interest at fifteen
percent per annum; (g)in its sole discretion, re-lease or sell any or all
of the Equipment at a public or private sale on such terms and notice as
Lessor shall deem reasonable and recover from Lessee damages, not as a
penalty, but herein liquidated for all purposes and in an amount equal to
the sum of (I)any accrued and unpaid rent as of the later of (A)the date of
default , (B)the date that Lessor has obtained possession of the Equipment
or such other date as Lessee has made an effective tender of possession of
the Equipment back to Lessor ("Default Date"); plus rent (at the rate
provided for in this Lease and any Lease Schedule) for the additional
period (but in no event longer two months that it takes Lessor to resell or
re-let all of the Equipment, plus interest at the rate of fifteen percent
per annum, or the maximum rate provided by state law; (II)the present value
of all future rentals reserved in the Lease and contracted to be paid over
the unexpired term of the Lease discounted at a rate equal to the discount
rate of the Federal Reserve Bank of Kansas City as of the Default Date plus
one percent; (III)all commercially reasonable costs and expense incurred by
Lessor in any repossession, recovery, storage, repair, sale, re-lease or
other disposition of the Equipment including reasonable attorneys' fees and
costs incurred in connection with or otherwise resulting from the Lessee's
default; (IV)estimated residual value of the Equipment as of the expiration
of this Lease or any renewal thereof; and (V)any indemnity, if then
determinable, plus interest at fifteen percent per annum LESS the amount
received by Lessor upon such public or private sale re-lease of such items
of Equipment, if any; (h)exercise any other right or remedy which may be
available to it under the Uniform Commercial Code or any other applicable
law; (I)a termination hereunder shall occur only upon notice by Lessor and
only as to such items of Equipment as Lessor specifically elects to
terminate and this Lease is deemed at any time to be one intended as
security, Lessee agrees that the equipment shall secure, in addition to the
indebtedness set forth herein, indebtedness at any time owning by Lessee to
Lessor. No remedy referred to in this paragraph is intended to be
exclusive, but shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor at law or in equity. No
express or implied waiver by Lessor or any default shall constitute a
waiver of any other default by Lessee or a waiver of any of Lessor's
rights. If Lessee fails to comply with any provision of the Lease, Lessor
shall have the right, but not the obligation, to affect compliance on
behalf to Lessee upon ten (10) days prior written notice to Lessee. In such
event all monies expended by Lessor, and all expenses of Lessor in
effecting such compliance, shall be deemed to be additional rent, and shall
be paid by Lessee to Lessor at the time of the next monthly payment. Lessee
shall also be liable for and shall pay to Lessor (a) all expenses incurred
by Lessor in connection with the enforcement of any of Lessor's remedies,
(b) Lessor's reasonable attorney's fees and expenses, and (c) interest on
all sums due Lessor from the date when the sums become due until paid, at
the rate of one and one-half (11/2%) percent per month but only to the
extent permitted by law. When any payment is not made by Lessee when due,
Lessee agrees to pay to Lessor, not later than one month thereafter, in
addition to all amounts payable by Lessee as a result of the exercise of
any of the remedies provided in the Lease, an amount calculated at the
exercise of any of the remedies provided in the Lease, an amount calculated
at the rate of 10 cents per one dollar of each such delayed payment, as an
administrative fee to offset Lessor's collection costs, but only to the
extent permitted by law.
6
<PAGE> 7
All remedies of Lessor are cumulative, are in addition to any other
remedies provided for by law, and may, to the extent permitted by law, be
exercised concurrently. The exercise of any one remedy shall not be deemed
an election of such remedy or preclude the exercise of any other remedy. No
failure on the part of Lessor to exercise and no delay in exercising, any
right or remedy shall operate as a waiver thereof or modify the terms of
the Lease. In no event shall Lessor's recovery exceed the maximum recovery
permitted by law.
16. REDELIVERY OF EQUIPMENT. Upon the expiration or earlier termination of the
Lease, Lessee shall return the Equipment, freight prepaid, to Lessor in
good repair, condition and working order, in a manner and to a location
designated by Lessor. If upon such expiration or termination, Lessee does
not immediately return the Equipment to Lessor, the Equipment shall
continue to be held and leased hereunder, and the Lease shall thereupon be
extended from month to month at the same monthly rent, on a month to month
basis, subject to the right of either Lessee or Lessor to terminate the
Lease upon thirty (30) days' written notice, whereupon Lessee shall
forthwith deliver the Equipment to Lessor as provided in this Paragraph.
17. ENTIRE AGREEMENT: CHANGES. The Lease contains the entire agreement
between the parties and may not be altered, amended, modified, terminated
or otherwise changed except in writing and signed by an executive officer
of Lessor and Lessee.
18. NOTICE. All notices under the Lease shall be sufficient if given personally
or mailed to the party intended at its respective address set forth herein,
or at such other address as said party may provide in writing from time to
time. Any such notice mailed to said address shall be effective when
deposited in the United States mail, duly addressed, postage prepaid.
19. BINDING EFFECT. The Lease shall inure to the benefit of, and be binding
upon, the parties and their respective personal representatives, successors
and assigns. Lessor and Lessee intend the Lease to be a valid and
subsisting legal instrument, and agree that no provision of the Lease which
may be deemed unenforceable shall in any way invalidate any other provision
or provisions of the Lease, all of which shall remain in full force and
effect.
20. ARBITRATION. Lessor and Lessee agree that any dispute arising from this
Lease will be submitted to binding arbitration with the American
Arbitration Association in accordance with its rules.
Arbitration will take place in Des Moines, Iowa.
21. MISCELLANEOUS. The Lessee hereby appoints Lessor as its true and lawful
attorney to prepare, execute and file any financing statements or other
documents and/or instruments to protect Lessor's interest in the property
set forth herein. In such a situation, the Lessee does hereby declare such
financing statement, document, and/or instrument signed by Lessor as its
said attorney shall have the same force and effect as if signed by the
Lessee himself, and shall be binding upon his heirs and assigns forever.
Photocopies of this executed document will have the same force and effect
as original executed copies.
22. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS; WAIVER OF JURY
TRIAL. THE LEASE SHALL BE GOVERED BY THE LAWS OF THE STATE OF IOWA. LESSEE
HEREBY CONSENTS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT, LOCATED
IN POLK COUNTY, IOWA, WITH RESPECT TO ANY ACTION COMMENCED HEREUNDER.
NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE LESSOR FROM COMMENCING ANY
ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF, LESSEE AGREES
THAT SERVICE OF PROCESS IN ANY ACTION SHALL BE SUFFICIENT IF MADE BY FIRST
CLASS, CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF LESSEE
HEREUNDER TO THE EXTENT PERMITTED BY LAW, LESSEE WAIVES TRIAL BY JURY IN
ANY ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LEASE, OR THE
TRANSACTIONS CONTEMPLATED HEREIN.
7
<PAGE> 8
SCHEDULE "A"
Schedule referred to in and made part of lease agreement number #__________ and
dated __________ between __________and TLC, LLC.
QUANTITY DESCRIPTION
COLLATERAL INCLUDES A 1ST LIEN ON ALL BUSINESS ASSETS INCLUDING, BUT NOT LIMITED
TO THE FOLLOWING:
<TABLE>
<CAPTION>
EQUIPMENT QTY. BRAND SERIAL #
--------- ---- ----- --------
<S> <C> <C> <C>
1. ESPRESSO FAEMA E87-2 93050564360
2. GRINDER(S) ESPRESSO FAEMA
3. BREW SYSTEM BUNN 95091203/95081706
4. CARAFES
5. GRINDER(S) GREW BUNN
6. ICE MACHINE SCOTTSMAN 614220
7. RERIGERATOR SILVERKING SAL558
8. BEVERAGE DISPENSER JET SPRAY/CATHCO 10064/274A2634
9. SCALES
10. PASTRY CASE
11. POS SYSTEM SDCR/CASIO
12. MENU BOARDS
13. FREEZER
14. BLENDERS
</TABLE>
Lessee hereby appoints TLC as its true and lawful attorney to prepare, execute
and file any financing statements or other documents and/or instruments protect
TLC's interest in the property set forth herein. In such a situation, the Lessee
does hereby declare such financing statement, document and/or instrument signed
by TLC as its said attorney shall have the same force and effect as if signed by
the Lessee himself, and shall be binding upon his heirs and assigns forever.
Photocopies of this executed document will have the same force and effect as
original executed copies.
TLC, LLC LESSEE: GLORIA JEAN'S, INC.
_____________________________ BY:_____________________________
NAME/TITLE:_________________ NAME/TITLE:___________________
PURCHASE OPTION
8
<PAGE> 9
LEASE# ____________________________ between TLC, LLC Lessor and
______________________________ Lessee.
Provided the Lease has not terminated early and no event of default under the
Lease has occurred and is continuing, THE LESSEE MUST AT THE END OF THE ORIGINAL
TERM EXERCISE ONE OF THE FOLLOWING OPTIONS:
BUY: Purchase the Equipment for its fair market value which shall be at least
10% of Lessor's original cost of the Equipment.
OR
RENEW: Renew the Lease under the original terms and conditions for a minimum
period of eight (8) months. At the expiration of such renewal period this Lease
shall automatically renew on a month to month basis unless Lessee notifies
Lessor in writing of its intent either to purchase the equipment for a price to
be agreed upon by the Lessor and Lessee or return the Equipment to Lessor.
Failure to notify Lessor of which option is to be exercised shall constitute
exercise of the renewal option.
The options provided for in this Agreement supersede all other options contained
in the original Equipment Lease Agreement.
<TABLE>
<S> <C>
TLC, LLC GLORIA JEAN'S, INC.
Lessor Lessee
- ----------------------------- ------------------------------
BY BY
- ----------------------------- ------------------------------
NAME/TITLE NAME/TITLE
- ----------------------------- ------------------------------
DATE DATE
</TABLE>
9
<PAGE> 10
PRO-RATE
DISCLOSURE
LESSEE: __________________________
LEASE#: __________________________
DATE : __________________________
TLC, LLC will be billing pro-rate from the start date of the lease to the
payment due date. The amount per day is $ _________ and payment is due in our
office 10 days after the billing date.
ACKNOWLEDGED:
- -----------------------------------
NAME/TITLE: ______________________
10
<PAGE> 11
EXHIBIT "A" TO TLC LEASE #__________ BETWEEN GLORIA JEAN'S INC, AND TOTAL LEASE
CONCEPTS WITH COFFEE PEOPLE, INC. AS CORPORATE GUARANTOR.
By signature below all parties understand and agree that the following changes
to the lease documents are for the benefit of the Lessee, Gloria Jean's, Inc.
and the Corporate Guarantor, Coffee People, Inc. only and that upon assumption
of the lease by a third party this exhibit becomes null and void. The party
assuming the lease will be subject to all terms and conditions on the lease
documents and none of the changes represented on this exhibit.
Change #1: Paragraph 20 of the LEASE AGREEMENT "Arbitration". The word "Des
Moines, Iowa" will be replaced with "Los Angeles, California".
Change #2: Paragraph 6 of the LEASE AGREEMENT "Assignment:. After the word
"shall: in the last sentence insert "which consent shall not be unreasonably
withheld," and after the words "shall be void." Insert "Upon approval by Lessor
of any proposed assignment by Lessee of its obligations under this Lease and
related agreements and assumption of those obligations by the assignee, Lessee
shall be fully and forever release from any further obligation with respect
thereto. Although it is understood that under certain circumstances, an
assignment may be requested by Gloria Jean's, Inc. and allowed by the Lessor
which does not release Gloria Jean's or it's Corporate Guarantor from liability
under the Lease or Guarantee".
Change #3: Add the following paragraph (Paragraph 11) to the "CONTINUING CROSS
- -COLLATERALIZATION AGREEMENT: "Upon approval by Lessor of any proposed
assignment by Lessee of its obligations under any Lease and related agreements
and assumption of those obligations by the assignee pursuant to the terms of the
Lease, Lessee shall be fully and forever released from any further obligations
with respect thereto, and this Continuing Cross-Collateralization Agreement
shall terminate with respect to the Equipment subject to the assigned Lease, so
that neither Lessee nor any equipment or other assets of Lessee securing any
obligations of Lessee to Lessor will be obligated for, or directly or indirectly
secure, any obligations of the assignee or the Equipment subject to the assigned
lease be obligated for or secure any of the other obligations of the Lessee to
Lessor".
Change #4: Add the following paragraph to the "GUARANTY ON LEASE" document:
"Upon approval by Lessor of any proposed assignment by Lessee of its obligations
under any Lease and related agreements and assumption of those obligation by the
assignee pursuant to the terms of the Lease, Lessee and Guarantor shall be fully
and forever released from any further obligations with respect thereto".
Change #5: The following changes to the "PURCHASE OPTION" document shall apply:
1. In the second sentence of the first paragraph substitute the word
"may" for the existing word "must".
11
<PAGE> 12
2. Remove the fourth and fifth paragraphs.
Change #6: The following change applies to the "GUARANTY ON LEASE" document:
Change paragraph #5 to read simply "The obligations of Guarantor hereunder are
independent of the obligations of Lessee".
Change #7: Paragraph 8 of the "LEASE AGREEMENT" document. In the sixth sentence
change to read "...not make any "material" modification, ..."
Change #8: Paragraph 14 of the "LEASE AGREEMENT" document. In the fourth
sentence change to read "...failure to "materially" perform..."
Change #9: Paragraph 22 of the "LEASE AGREEMENT' document. In the third sentence
change to read "...TO THE "NON-EXCLUSIVE" JURISDICTION..."
LESSEE: CORPORATE GUARANTOR:
GLORIA JEAN'S, INC. COFFEE PEOPLE, INC.
By:____________________ By:____________________
LESSOR:
TOTAL LEASE CONCEPTS
By:____________________
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000925908
<NAME> COFFEE PEOPLE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> SEP-20-1998
<PERIOD-END> DEC-12-1998
<CASH> 2,224
<SECURITIES> 0
<RECEIVABLES> 5,184
<ALLOWANCES> 0
<INVENTORY> 4,304
<CURRENT-ASSETS> 15,122
<PP&E> 12,240
<DEPRECIATION> 4,832
<TOTAL-ASSETS> 56,613
<CURRENT-LIABILITIES> 8,126
<BONDS> 0
0
0
<COMMON> 44,637
<OTHER-SE> (350)
<TOTAL-LIABILITY-AND-EQUITY> 56,613
<SALES> 15,011
<TOTAL-REVENUES> 15,011
<CGS> 6,566
<TOTAL-COSTS> 13,812
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 1,089
<INCOME-TAX> 477
<INCOME-CONTINUING> 612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 612
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
