U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 33-960-70-LA
THANKSGIVING COFFEE COMPANY, INC.
(Exact name of small business issuer
as specified in its charter)
California 94-2823626
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
19100 South Harbor Drive
Fort Bragg, California 95437
(Address of principal executive officers) (Zip Code)
Issuer's telephone number, including area code: (707) 964-0118
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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 August 11, 1997, there were issued and outstanding
1,236,744 shares of common stock of the issuer.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at June 30,
1997 and December 31, 1996 . . . . . . . 1
Consolidated Statements of Income for the
Three Months Ended June 30, 1997 and
June 30, 1996 and for the Six Months
Ended June 30, 1997 and June 30, 1996 . . 3
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1997 and
June 30, 1996 . . . . . . . . . . . . . . 4
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . 9
Item 3. Defaults upon Senior Securities . . . . . 9
Item 4. Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . 9<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Balance Sheets (Unaudited)
ASSETS
June 30, 1997 December 31, 1996
_____________ _________________
CURRENT ASSETS
Cash $241,937 $399,038
Accounts Receivable 517,394 296,006
Employee Receivable 8,944 6,031
Inventory 852,218 486,797
Commodities Options
Account 85,741 0
Other Receivables &
Prepaids 190,307 158,664
__________ __________
Total Current Assets 1,896,540 1,346,536
PROPERTY AND EQUIPMENT
Property Fixtures &
Equipment 1,996,592 1,806,155
Accumulated Depreciation (965,351) (891,205)
__________ __________
Total Property &
Equipment 1,031,241 914,950
OTHER ASSETS
Deposits And Other Assets 40,186 30,585
Deferred Futures Contract 0 0
Intangibles, Net Of
Amortization 286,998 293,111
__________ __________
Total Other Assets 327,184 323,696
__________ __________
Total Assets $3,254,965 $2,585,182
=========== ===========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Balance Sheets (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1997 Dec. 31, 1996
_____________ _____________
CURRENT LIABILITIES
Accounts Payable $428,332 $206,417
Notes Payable - Banks 593,679 50,000
Notes Payable - Shareholder 25,312 31,038
Accrued Liabilities 85,607 52,952
Current Portion of Long Term
Debt 172,452 91,414
_________ _________
Total Current Liabilities 1,305,382 431,821
LONG TERM DEBT
Notes Payable 527,626 515,080
_________ _________
Total Long-Term Debt 527,626 515,080
OTHER LIABILITIES
Deferred Options Contract 0 0
Deferred Income Taxes 52,932 51,429
_________ _________
Total Other Liabilities 52,932 51,429
_________ _________
Total Liabilities 1,885,940 998,330
STOCKHOLDERS' EQUITY
Common Stock - No Par Value
1,960,000 Shares
Authorized;
1,236,744 Shares Issued
And Outstanding At
June 30, 1997 872,829 874,666
Additional Paid-In Capital 24,600 24,600
Retained Earnings 471,597 687,586
_________ _________
Total Stockholders' Equity 1,369,025 1,586,852
_________ _________
Total Liabilities And
Stockholders' Equity $3,254,965 $2,585,182
========== ==========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Statements Of Income (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
__________________ ________________
1997 1996 1997 1996
Net Sales $1,910,385 $1,044,627 $2,983,806 $2,078,656
Cost of Sales 1,071,589 523,481 1,512,096 1,123,915
__________ __________ __________ __________
Gross Profit 838,796 521,146 1,471,709 954,741
OPERATING EXPENSES
Selling, General &
Administrative 763,402 399,234 1,493,640 783,039
Depreciation & 45,608 23,058 72,878 45,143
Amortization _________ __________ __________ __________
Total Operating 809,010 422,292 1,566,517 828,182
Expenses _________ __________ __________ __________
Operating Income 29,786 98,854 (94,808) 126,559
OTHER INCOME (EXPENSE)
Interest Income 1,082 844 2,978 1,752
Interest Expense (42,470) (23,628) (56,529) (43,231)
Miscellaneous Income 868 611 2,668 877
_________ __________ __________ __________
Total Other Income
(Expense) (40,520) (22,173) (50,883) (40,602)
_________ __________ __________ __________
Income Before Taxes (10,734) 76,681 (145,691) 85,957
Taxes Paid (Due) 0 27,715 0 29,840
_________ __________ __________ __________
Net Income (Loss) $ (10,734) $ 48,966 $(145,691) $ 56,117
========= ======== ========= =========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Statements Of Cash Flow (Unaudited)
Six Months Ended
June 30
__________________
1997 1996
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES
Net Income (Loss) $(145,691) $ 56,117
Non Cash Items Included In Net
Income (Loss)
Depreciation & Amortization 72,878 45,143
(Increase) Decrease In:
Short Term Investments - -
Receivables (224,300) 59,941
Inventory (365,421) 41,390
Commodities Options Account (85,741) 65
Prepaid Expenses (31,644) (13,134)
Deposits - -
Deferred Futures Contract - -
Increase (Decrease) In:
Accounts Payable 221,915 (42,640)
Accrued Liabilities 34,158 6,970
Deferred Options Contract - -
Short Term Borrowing 543,679 -
_______ _______
Net Cash Provided By 19,833 153,852
Operating Activities _______ _______
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase Of Equipment (189,169) (93,053)
Purchase Of Intangible Assets 6,113 6,520
Increase In Stock Offering
Costs 0 (167,368)
Adjustment to Retained Earnings (72,135) 0
_______ _______
Net Cash Used By Investing (255,191) (253,901)
Activities _______ _______
CASH FLOWS FROM FINANCING
ACTIVITIES
Decrease In Notes Receivable (9,601) 0
(Repayment) Proceeds Of Notes 87,858 115,583
Payable _______ _______
Net Cash (Used) Provided By 78,257 115,583
Financing Activities _______ _______
Net Increase (Decrease) In Cash (157,101) 15,534
Cash, As Of January 1, 1997 And 399,038 128,260
1996 _______ _______
Cash, As Of June 30, 1997 And $ 241,937 $ 143,794
1996 ========= =========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and reflect all adjustments necessary for a fair
presentation of the information reported (which consist only of
normal recurring adjustments). Historically, fourth quarter
sales have accounted for 28% to 35% of the Company's yearly net
sales and the fourth quarter is the most profitable quarter; in
contrast, the Company historically has generally experienced net
losses during the first and second quarters of the year. Because
of the seasonality of the Company's business, the results of
operations for the three months and six months ended June 30,
1997 are not necessarily indicative of the results to be expected
for the full year. The consolidated financial statements should
be read in conjunction with the financial statements, including
notes thereto, for the fiscal years ended December 31, 1996 and
1995, which are included in the Company's Form 8-K filed on
May 15, 1997.
At June 30, 1997, there were total borrowings of $1,319,000,
including $593,679 outstanding under the Company's line of credit
agreement. The Company was in compliance with or had received
waivers from each of the covenants required by the agreement for
the quarter ended June 30, 1997.
Revenue and net income for the three months ended March 31, 1997
have been restated and included in the six months ended June 30,
1997 to reflect the correction of a bookkeeping adjustment
associated with the Company's Sustainable Harvest subsidiary.<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10-QSB contains certain forward looking statements,
which are subject to risks and uncertainties, including but not
limited to fluctuations in the availability and costs of green
coffee beans, availability and sufficiency of trade credit and
other financing sources, competition in the Company's businesses,
delivery disruptions associated with labor disputes, and other
risks identified in the Company's Prospectus dated October 10,
1995.
On October 10, 1996, the Company completed its public offering of
common stock. 235,744 shares were sold for an aggregate of
$1,178,720. The Company currently has 1,236,744 shares issued
and outstanding, and 1,312 shareholders of record.
In the quarter ended March 31, 1997 the Company commenced
operations of its Sustainable Harvest subsidiary, which imports
green coffee beans for the Company's use and for resale to other
roasters.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared With Three Months Ended
June 30, 1996
Net sales for the three months ended June 30, 1997 were
$1,910,385, an increase of 83% over net sales of $1,044,627 for
the three months ended June 30, 1996. This increase was
primarily due to sales by the Company's Sustainable Harvest
subsidiary and the Company's cafe and bakery, which did not exist
in the comparable period in 1996, and to a 16% increase in
wholesale and direct consumer sales over comparable sales in the
same period of 1996.
Gross margin (gross profit as a percentage of net sales) declined
from 50% for the six months ended June 30, 1997 to 44% in the
same period of 1997. This decline in gross margin was primarily
a result of the increased proportion of sales represented by
relatively lower-margin sales of green coffee beans, offset in
part by lower green bean costs to the Company and the operations
of the Company's cafe and bakery.
Selling, general and administrative expenses increased 91%, from
$399,234 (38% of net sales) in the three months ended June 30,
1996 to $763,402 (40% of net sales) in the three months ended
June 30, 1997. The increase in selling, general and
administrative expenses reflects the hiring of additional
management personnel following the completion of the offering in
the fall of 1996, overhead attributable to the Company's new
retail operations, increased promotional activity in support of
the Company's major fall marketing efforts, higher mail order
sales costs, and new product development expenses.<PAGE>
Interest expense increased 79%, from $23,628 for the three months
ended June 30, 1996 to $42,470 for the three months ended June
30, 1997, as a result of increased borrowing to finance the
acquisition of beans. Interest expense represented approximately
2.2% of net sales in both periods.
As a result of the foregoing factors, the Company incurred a net
loss of $10,734 for the three months ended June 30, 1997 compared
with net income of $48,966 for the three months ended June 30,
1996.
Six Months Ended June 30, 1997 Compared With Six Months Ended
June 30, 1996
Net sales for the six months ended June 30, 1997 were $2,983,806,
an increase of 44% over net sales of $2,078,656 for the six
months ended June 30, 1996. This increase was primarily due to
sales by the Company's Sustainable Harvest subsidiary, and the
Company's cafe and bakery, which did not exist in the comparable
period in 1996, and to a 8% increase in net sales in wholesale
and direct consumer sales during the six months ended June 30,
1997 compared to the same period of 1996.
Gross margin (gross profit as a percentage of net sales)
increased from 46% for the six months ended June 30, 1996 to 49%
for the six months ended June 30, 1997. This increase was a
result of reduced green bean costs for the Company, offset in
part by the increased proportion of sales represented by
relatively lower-margin sales of green coffee beans.
Selling, general and administrative expenses increased 91%, from
$783,039 (38% of net sales) in the six months ended June 30, 1996
to $1,493,640 (50% of net sales) in the six months ended June 30,
1997. The increase in selling, general and administrative
expenses reflects the hiring of additional management personnel
following the completion of the offering in the fall of 1996,
overhead attributable to the Company's new retail operations,
increased promotional activity in support of the Company's major
fall marketing efforts, higher mail order sales costs, and new
product development expenses.
As a result of the foregoing factors, the Company incurred a net
loss of $145,691 for the six months ended June 30, 1997 compared
with net income of $56,117 for the six months ended June 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $591,158.
Net cash provided by operating activities was $19,833 for the six
months ended June 30, 1997, compared to $153,852 for the six
months ended June 30, 1996. The decrease in net cash provided by
operating activities was primarily due to a seasonal increase in<PAGE>
cash used in the green bean division and to increased accounts
receivable associated with increased sales in all divisions.
Net cash used in investing activities, which primarily consists
of expenditures for equipment, was $255,191 for the six months
ended June 30, 1997 as compared to $253,901 during the same
period last year.
The Company maintains a revolving line of credit of up to
$650,000. The credit agreement contains restrictive loan
covenants which if violated could be used as a basis for
termination of the agreement. For the six months ended June 30,
1997, the Company was in compliance with or had received waivers
for each of these covenants. There were total borrowings of
$1,319,000, including $593,679 outstanding under the credit
agreement at June 30, 1997. The credit agreement expired on
August 10, 1997 but the Company expects to be able to extend the
agreement until August 10, 1998.
The Company expects to be able to fund its working capital
requirements and expansion plans with a combination of cash flows
from operations, normal trade credit, financing arrangements and
continued use of lease financing. If the Company is not able to
renew or replace its credit agreement on comparable terms or at
all, the Company's liquidity and results of operations could be
adversely affected.
The seasonal availability of green bean coffee in the first two
quarters of the year and increased sales in the last quarter
historically creates a high use of cash and a build-up in
inventories in the first two quarters, with a corresponding
decrease in inventory and increase in cash in the last quarter.
Past seasonal patterns are not necessarily indicative of future
results. There can be no assurance that sales will increase in
future quarters. <PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- Not Applicable -
ITEM 2. CHANGES IN SECURITIES
- Not Applicable -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- Not Applicable -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- Not Applicable -
ITEM 5. OTHER INFORMATION
- Not Applicable -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.i. Amendment to Bylaws of the Company, dated June 3,
1996.
b. Forms 8-K.
On May 15, 1997, the Company filed a Form 8-K,
reporting under Item 5 the following financial
statements: Audited Financial Statements and
Accompanying Notes for the Company for the fiscal years
ended December 31, 1996 and 1995.<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THANKSGIVING COFFEE COMPANY, INC.
Name Title Date
/s/ Paul Katzeff Chief Executive August 14, 1997
__________________ Officer
Paul Katzeff
/s/ Joan Katzeff President August 14, 1997
__________________
Joan Katzeff<PAGE>
EXHIBIT INDEX
3.i. Amendment to Bylaws of the Company, dated June 3, 1996.<PAGE>
Exhibit 3.i.
Amendment to Bylaws of the Company, dated June 3, 1996
An amendment to the Bylaws of the Company was duly adopted by
valid action of the Directors and Shareholders by unanimous
consent on June 3, 1996, such that Article II, Section 2 of the
Bylaws of the Company is amended in its entirety to read as
follows:
Number of Directors. The authorized number of Directors
shall be not less than 3, nor more than 5, until changed
by amendment of the Bylaws, duly adopted by the
Shareholders, amending this Section 2. The exact number
of Directors shall be fixed, within the limits specified,
by amendment of the next sentence, duly adopted either by
the Board of Directors or by the Shareholders, but need
not be adopted by both. The exact number of Directors
shall be 4 until changed, as provided in this Section 2.<PAGE>
