SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
__________________________________
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
THANKSGIVING COFFEE COMPANY, INC.
(Exact name of registrant as specified in its charter)
California 33-960-70-LA 94-2823626
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation or Number)
organization)
19100 South Harbor Drive
Fort Bragg, California 95437
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(707) 964-0118
(Former name, former address and former fiscal year,
if changed since last report.)
-1-<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
-- Not Applicable --
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
-- Not Applicable --
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
-- Not Applicable --
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
-- Not Applicable --
ITEM 5. OTHER EVENTS
Registrant's audited financial statements at and for the years
ending December 31, 1996 and 1995 are included in this Form 8-K
as Exhibit 27.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
-- Not Applicable --
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
-- Not Applicable --
(b) Pro Forma Financial Information.
-- Not Applicable --
(c) Exhibits:
27 Financial Statements for Years Ending December 31,
1996 and 1995
-2-<PAGE>
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 hereunto duly authorized.
THANKSGIVING COFFEE COMPANY, INC.
/s/ Joan Katzeff
____________________________
Joan Katzeff
President
Date: May 15, 1997<PAGE>
Exhibit 27
THANKSGIVING COFFEE COMPANY, INC.
Financial Statements for Years Ending
December 31, 1996 and 1995
To The Board of Directors
Thanksgiving Coffee Company, Inc.
Fort Bragg, California
We have audited the accompanying balance sheets of Thanksgiving
Coffee Company, Inc. as of December 31, 1996 and 1995 and the related
statements of income, retained earnings and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all
material respects, the financial position of Thanksgiving Coffee
Company, Inc. as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
SALLMANN, YANG & ALAMEDA
An Accountancy Corporation
/s/ Percy S. Yang C.P.A.
___________________________
Percy S. Yang
Certified Public Accountant
March 12, 1997
-4-<PAGE>
THANKSGIVING COFFEE COMPANY
BALANCE SHEETS
ALL DIVISIONS
DECEMBER 31, 1996 and 1995
ASSETS
CURRENT YEAR PRIOR YEAR
CURRENT ASSETS
CASH $ 399,037 $ 128,259
SHORT TERM INVESTMENTS 0 4,094
ACCOUNTS RECEIVABLE 296,006 415,541
NOTE RECEIVABLE 41,735 0
EMPLOYEE RECEIVABLE 6,031 1,571
INVENTORY 486,797 484,304
PREPAID EXPENSES 116,929 59,839
____________ ____________
TOTAL CURRENT ASSETS 1,346,536 1,093,608
PROPERTY AND EQUIPMENT
PROPERTY FIXTURES & EQUIPMENT 1,806,155 1,475,774
ACCUMULATED DEPRECIATION (891,205) (774,338)
____________ ____________
TOTAL PROPERTY AND EQUIPMENT 914,950 701,437
OTHER ASSETS
DEPOSITS AND OTHER ASSETS 30,585 33,049
NOTES RECEIVABLE - SHAREHOLDER 0 6,231
INTANGIBLES, NET OF AMORTIZATION 293,111 900
____________ ____________
TOTAL OTHER ASSETS 323,696 40,180
____________ ____________
TOTAL ASSETS $ 2,585,182 $ 1,835,224
============ ============
SEE ACCOMPANYING NOTES AND AUDITOR'S REPORT
-5-<PAGE>
THANKSGIVING COFFEE COMPANY
BALANCE SHEETS
ALL DIVISIONS
DECEMBER 31, 1996 and 1995
LIABILITIES AND EQUITY
CURRENT YEAR PRIOR YEAR
CURRENT ASSETS
ACCOUNTS PAYABLE $ 206,417 $ 466,422
NOTES PAYABLE - BANKS 50,000 398,669
NOTES PAYABLE - SHAREHOLDER 31,038 0
CURRENT PORTION OF L.T. DEBT 91,414 146,318
ACCRUED LIABILITIES 52,952 67,772
TOTAL CURRENT LIABILITIES 431,821 1,079,180
____________ ____________
LONG-TERM DEBT
NOTES PAYABLE 438,000 174,788
NOTES PAYABLE - SHAREHOLDER 77,080 (774,338)
____________ ____________
TOTAL LONG-TERM DEBT 515,080 174,788
OTHER LIABILITIES
DEFERRED INCOME TAXES 51,429 57,983
____________ ____________
TOTAL OTHER LIABILITIES 51,429 57,983
____________ ____________
TOTAL LIABILITIES 998,330 1,311,951
____________ ____________
STOCKHOLDERS' EQUITY
COMMON STOCK - NO PAR VALUE
1,960,000 SHARES AUTHORIZED,
1,237,039 SHARES ISSUED AND
OUTSTANDING 774,666 37,181
ADDITIONAL PAID IN CAPITAL 24,600 24,600
PREPAID STOCK OFFERING COSTS 0 (201,556)
UNREALIZED GAIN ON INVESTMENT 0 962
RETAINED EARNINGS 687,586 662,086
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 1,586,852 523,273
____________ ____________
TOTAL LIABILITIES AND EQUITY $ 2,585,182 $ 1,835,224
============ ============
SEE ACCOMPANYING NOTES AND AUDITOR'S REPORT
-6-<PAGE>
THANKSGIVING COFFEE COMPANY
INCOME STATEMENTS
ALL DIVISIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
YEAR-TO- Y-T-T-LST-
DATE Y-T-D- YR Y-T-D-LY
AMOUNT RATIO AMOUNT RATIO
NET SALES $4,323,481 105.16 $4,111,224 115.03
COST OF SALES 2,337,648 56.86 2,496,296 69.85
_________ ______ _________ ______
GROSS PROFIT 1,985,833 48.30 1,614,928 45.18
OPERATING EXPENSES
SELLING, GENERAL &
ADMINISTRATION EXPENSES 1,810,684 44.04 1,540,006 43.09
DEPRECIATION AND AMORTIZATION 104,948 2.55 87,545 2.45
_________ ______ _________ ______
TOTAL OPERATING EXPENSES 1,915,632 46.59 1,627,551 45.54
_________ ______ _________ ______
OPERATING INCOME (LOSS) 70,201 1.71 (12,623) (.36)
OTHER INCOME (EXPENSES)
INTEREST INCOME 10,080 .25 8,447 .24
INTEREST EXPENSE (77,658) (1.89) (78,974) (2.21)
LOSS ON DALE OF ASSETS (394) (.01) (313) (.01)
MISCELLANEOUS INCOME 5,796 .14 15,402 .43
_________ ______ _________ ______
TOTAL OTHER INCOME (EXPENSE) (62,175) (1.51) (55,438) (1.55)
_________ ______ _________ ______
INCOME BEFORE TAXES 8,026 .20 (68,062) (1.91)
INCOME TAXES 17,474 .43 3,999 .11
_________ ______ _________ ______
NET INCOME (LOSS) $ 25,500 .63 $ (64,063) (1.80)
========== ====== ========= ======
SEE ACCOMPANYING NOTES AND AUDITOR'S REPORT
-7-<PAGE>
STATEMENT OF
RETAINED EARNINGS
ALL DIVISIONS
DECEMBER 31, 1996 and 1995
RETAINED EARNINGS
RETAINED EARNINGS, BEGINNING $ 662,086 $ 726,149
NET INCOME (LOSS) 25,500 (64,063)
____________ ____________
RETAINED EARNINGS, ENDING $ 687,586 $ 662,086
============ ============
SEE ACCOMPANYING NOTES AND AUDITOR'S REPORT
-8-<PAGE>
THANKSGIVING COFFEE COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
CURRENT YEAR PRIOR YEAR
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 25,500 $ (64,063)
NON CASH ITEMS INCLUDED NET LOSS
DEPRECIATION & AMORTIZATION 126,761 108,115
LOSS ON DISPOSAL OF ASSETS 394 314
(INCREASE) DECREASE IN:
RECEIVABLES 11,5075 8,445
SHORT TERM INVESTMENTS 4,094 3,941
INVENTORY (2,493) (56,181)
PREPAID EXPENSES (57,090) (33,240)
DEPOSITS 2,464 1,742
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE (260,005) 189,229
ACCRUED LIABILITIES (14,820) 18,468
INCOME TAXES PAYABLE -- (5,800)
DEFERRED INCOME TAXES (6,554) 202,629
__________ __________
NET CASH (USED PROVIDED BY (66,674) 202,629
OPERATING ACTIVITIES __________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
DECREASE IN SHAREHOLDER RECEIVABLE 6,231 18,310
PURCHASE OF EQUIPMENT (333,297) (117,701)
PROCEEDS FROM SALE OF EQUIPMENT 300 --
PURCHASE OF INTANGIBLE ASSETS (299,882) --
INCREASE IN PREPAID STOCK OFFERING COSTS (234,404) (201,556)
PROCEEDS FROM SALE OF COMMON STOCK 1,273,445 --
UNREALIZED (LOSS) GAIN ON INVESTMENTS (962) 962
_________ __________
NET CASH PROVIDED (USED) BY 411,431 (299,985)
INVESTING ACTIVITIES _________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
INCREASE IN NOTES RECEIVABLE (41,736) --
PROCEEDS FROM BORROWING 454,375 71,182
REPAYMENT OF NOTES PAYABLE (486,618) (52,016)
_________ __________
NET CASH (USED) PROVIDED BY (73,979) 19,166
FINANCING ACTIVITIES _________ __________
NET INCREASE (DECREASE) IN CASH 270,778 (78,190)
CASH, AS OF JANUARY 1, 1996 AND 1995 128,259 206,449
_________ __________
CASH, AS OF DECEMBER 31, 1996 AND 1995 $ 399,037 $ 128,259
========== ==========
SEE ACCOMPANYING NOTES AND AUDITOR'S REPORT
-9-<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. Summary of Significant Accounting Policies
Description of Business
Thanksgiving Coffee Company, Inc. (The Company), is a
corporation that purchases and roasts high-quality whole bean
coffees and sells them to restaurants, grocery stores and other
retail outlets. These products are sold primarily through its
own distribution network in the Northern California area.
Distributors and retailers do not have the right to return
products. Additionally, the Company produces and sells a line
of high-quality tea products under the trademark of Royal
Gardens Tea Company. The Company also sells coffee, tea and
related specialty products through mail order on a national
basis. In 1996, the Company purchased two divisions, a cafe and
a bakery located in Mendocino, which sell pastries, sandwiches,
coffee and assorted beverages.
Basis of Presentation
The Company has prepared the financial statements on the accrual
basis of accounting and in accordance with generally accepted
accounting principles. The Company grants credit to customers
in the retail industry throughout the country. Consequently,
the Company s ability to collect the amounts due from customers
is affected by economic fluctuations in the retail industry.
Inventories
Inventories are stated at the lower of cost (first-in, first-
out) or market.
Property and Equipment
Property fixtures and equipment are carried at cost less
accumulated depreciation. Depreciation is provided on the
straight-line and 150% declining balance methods over estimated
useful lives generally ranging from five to twelve years.
Leasehold improvements are carried at cost and are amortized
over the shorter of their estimated useful lives or the related
lease term (including options), generally ranging from ten to
thirty-one years.
The portion of depreciation and amortization expenses related to
production facilities is included in "cost of sales".
-10-<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. Summary of Significant Accounting Policies (continued)
Property and Equipment (continued)
Expenditures for major renewals that extend useful lives of
property, fixtures and improvements are capitalized.
Expenditures for maintenance and repairs are charged to expense
as incurred.
For income tax purposes, depreciation is computed using the
accelerated cost recovery system and the modified cost recovery
system.
Investments in Unconsolidated Companies
On October 31, 1996, the Company acquired the assets of
Mendocino Bakery, Inc. in a business combination accounted for
as a purchase.
The results of operations of the bakery are included in the
accompanying financial statements since the date of
acquisition.
Profit Sharing Plan
The Company has a profit sharing plan covering substantially all
of its employees. Benefits are based upon years of service and
the employee's compensation during the employment period. No
contributions to the profit sharing plan were made for the
calendar years ended December 31, 1996 and 1995.
Futures Contracts
The Company may, from time to time, enter into exchange traded
coffee futures contracts with the objective of minimizing cost
risk due to market fluctuations. The Company does not designate
futures contracts as a hedge as it applies to accounting
principles and practices designated in Statement of Financial
Accounting Standards No. 80, Accounting for Futures Contracts.
Accordingly, changes in the market value of futures contracts
are reported by the Company in the period in which the change
occurs and are included as part of inventory cost.
Compensated Absences
Employees of the Company are entitled to paid vacation, paid
sick days and personal days off, depending on job
classification, length of service and other factors. It is
impracticable and immaterial to estimate the amount of
compensation for future absences, and accordingly, no liability
has been recorded in the accompanying financial statements. The
Company s policy is to recognize the costs of compensated
absences when actually paid to employees.<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. Summary of Significant Accounting Policies (continued)
Advertising
The Company expenses costs of advertising the first time the
advertising takes place, except direct-response advertising,
which is capitalized and amortized over its expected period of
future benefits. Direct-response advertising consists primarily
of mail order catalog costs, typically mailed to customers who
have specifically responded to this type of advertising. The
mail order department documents whether orders come from
catalogs or other sources when processing orders. Catalog costs
are amortized over the period from the catalog mailing until the
next catalog is issued. The amounts reported as an asset for
such advertising costs in the accompanying financial statements
are immaterial.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Note 2. Change in Taxable Year
In 1995, the Company applied for and received permission to
change from a fiscal year ending March 31st to a calendar year.
As a result, a short period tax return for the nine months ended
December 31, 1995 was filed. Amounts from January 1, 1995
through March 31, 1995 were already reported in the fiscal year
1994 tax return.
Note 3. Accounts Receivable
Accounts receivable consist of the following:
Current Year Prior Year
Accounts receivable $ 306,506 $ 424,041
Less: Allowance for
doubtful accounts (10,500) (8,500)
--------- ---------
Accounts receivable, net $ 296,006 $ 415,541
========= ========= <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 3. Accounts Receivable (continued)
The Company uses the reserve method for uncollectible accounts.
Bad debt expense for the years ended December 31, 1996 and 1995
was $56,190 and $18,747, respectively.
Note 4. Inventory
Inventory consists of the following:
Current Year Prior Year
Coffee:
Unroasted $ 179,691 $ 208,282
Roasted 133,070 121,968
Tea 32,405 16,125
Packaging, supplies and other
merchandise held for sale 141,631 137,929
--------- ---------
Total inventory $ 486,797 $ 484,304
========= =========
At December 31, 1996 and 1995, the Company had fixed price
inventory purchase commitments totaling approximately $0 and
$278,350, respectively.
Note 5. Property and Equipment
Property, fixtures equipment consists of the following:
Current Year Prior Year
Equipment and fixtures $1,036,180 $ 887,569
Furniture and equipment 191,125 183,294
Leasehold improvements 347,593 284,614
Transportation equipment 47,714 47,543
Property held under capital
leases 183,543 72,754
---------- ----------
Total property and equipment 1,806,155 1,475,774
Less: accumulated depre-
ciation (891,205) (774,338)
---------- ----------
Net property and equipment $ 914,950 $ 701,437
========== ========== <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 6. Intangible Assets
Intangible assets represent the costs associated with the
acquired divisions over the fair value of their net assets at
date of acquisition. The detail of the intangible assets are as
follows:
Current Year Prior Year
Goodwill $ 198,000 $ -
Leasehold value 67,000 -
Start-up costs 34,882 -
Organizational costs 28,565 28,565
Trademark 900 900
--------- ---------
Total intangible assets 329,347 29,465
Less: accumulated
amortization (36,236) (28,565)
--------- ---------
Net intangible assets $ 293,111 $ 900
========= =========
Note 7. Notes Payable and Long-Term Debt
Current Year Prior Year
Notes Payable - Banks
Revolving bank line of credit
with interest payable monthly
at prime with Wells Fargo
Bank. Expires June 10, 1997
and September 10, 1996,
respectively. Interest rate
is 9.25% and 9.25%, respec-
tively. For 1996 and 1995
the maximum principal amount
is $650,000 and $450,000,
respectively. The line of
credit is collateralized by
a security interest of first
priority in all accounts
receivable, inventory, equip-
ment, fixtures and improve-
ments. $ - $ 398,669 <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 7. Notes Payable and Long-Term Debt (continued)
Current Year Prior Year
Notes Payable - Banks
Note payable to Wells Fargo
Bank, payable in monthly
installments of $4,167
plus interest at 1.50% over
prime rate (9.75%). Final
payment is due on July 15,
1999. The note is secured
by all accounts receivable,
inventories, equipment,
fixtures and improvements. $ 129,167 $ 179,167
Note payable to majority
shareholders, Paul and Joan
Katzeff, payable in monthly
installments of interest only
at 12%, or $800 monthly, with
balance due on demand after
June 30, 1996. The share-
holders have subordinated
this note to all notes pay-
able including Wells Fargo
Bank in 1996 and 1995 as
described above. 80,000 80,000
Note payable to majority
shareholders Paul and Joan
Katzeff, payable in quarterly
installments of $3,217 in-
cluding interest at 10%, with
balance due on July 17, 1999.
The shareholders have sub-
ordinated this note to all
notes payable including Wells
Fargo Bank as described
above. 28,118 -
Note payable to Laoma Bryant
for the purchase of Mendocino
Bakery, payable in monthly
installments of $6,594 in
1996, including interest at
10%, secured by property and
equipment at the bakery, final
payment due in August 2003. 295,604 - <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 7. Notes Payable and Long-Term Debt (continued)
Current Year Prior Year
Obligations Under Capital Lease
Note payable to Nations Credit,
formerly Greyrock Capital Group,
payable in monthly install-
ments of $833, including in-
terest at 16.2%, secured by
equipment, final payment due
in January 2000. $ 24,681 $ 30,186
Note payable to Colonial Pac-
ific, payable in monthly
installments of $313, in-
cluding interest at 17.4%,
secured by equipment, final
payment due in November 1998. 6,249 8,685
Note payable to Commerce
Security Bank, formerly E.P.I.
Leasing, payable in monthly
installments of $591, including
interest at 17.4%, secured by
equipment, final payment due
in February 1998. 7,554 12,834
Note payable to Commerce
Security Bank, formerly
E.P.I. Leasing, payable in
monthly installments of $401,
including interest at 19.4%,
secured by equipment, final
payment due in September 1998. 7,149 10,234
Note payable to Manifest Group,
payable in monthly installments
of $1,030, including interest
at 15.315%, secured by equip-
ment, final payment due in
January 2001. 37,352 -
Note payable to Imperial Capital,
payable in monthly installments
of $840, including interest at
17.263%, secured by equipment,
final payment due in January
2001. 29,392 - <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 7. Notes Payable and Long-Term Debt (continued)
Current Year Prior Year
Obligations Under Capital Lease
Note payable to Granite Finan-
cial, payable in monthly
installments of $1,139 in-
cluding interest at 17.6%,
secured by equipment, final
payment due in June 2001. $ 42,266 $ -
--------- ---------
687,532 719,775
Less current portion (172,452) (544,987)
--------- ---------
Total long-term debt $ 515,080 $ 174,788
========= =========
All of the above notes payable are personally guaranteed by the
Company's majority shareholders.
Interest paid as of December 31, 1996 and 1995 was $77,658 and
$78,974, respectively.
Maturities of long-term debt are as follows:
1997 $ 172,456
1998 210,966
1999 103,766
2000 70,229
2001 130,116
---------
$ 687,532
=========
Note 8. Income Taxes
The components of the provision for income taxes for the years
ended December 31, 1996 and 1995 are as follows:
Current Year Prior Year
Federal - current $ 1,016 $ (9,239)
Federal - deferred (10,739) 10,505
State - current 800 800
State - deferred (8,551) (6,065)
-------- --------
Total tax $(17,474) $ (3,999)
======== ======== <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 8. Income Taxes (continued)
Accordingly, the Company computes income taxes using the asset
and liability method under which deferred income taxes are
provided for temporary differences between the financial basis
of the Company assets and liabilities. At the end of 1996,
deferred tax liabilities recognized for taxable temporary
differences total $51,429. Deferred tax assets recognized for
deductible temporary differences and loss carryforwards total
$32,412. The Company has a federal contribution carryforward of
$28,365, expiring in 5 years, which may be used to offset
taxable income in the future. The Company has a California
manufacturer s credit carryforward of $19,355 which may be used
to offset California income taxes in the future.
Income taxes paid as of December 31, 1996 and 1995 were $11,063
and $800, respectively.
Note 9. Operating Leases
The Company leases its delivery fleet, other vehicles and some
office equipment under five year non-cancelable operating
leases.
Minimum annual lease payments due under these agreements are as
follows:
1997 $ 23,218
1998 18,336
1999 7,587
---------
$ 49,141
=========
Total annual lease payments were $28,632 and $38,089 for 1996
and 1995, respectively.<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 10. Common Stock
Number of No Par
Shares Value
Balance, January 1, 1995 981,000 37,181
Issuance of stock - -
--------- ---------
Balance, December 31, 1995 981,000 37,181
Issuance of stock 256,039 837,485
--------- ---------
Balance, December 31, 1996 1,237,039 874,666
========= =========
Note: 981,000 shares originally issued are restricted.
Note 11. Stock Option Plan
Under the terms of its stock option plan, options to purchase
shares of the Company s common stock are granted at a price of
$5 per share. Options may be exercised until the year 2000.
Following is a summary of transactions:
Shares Under Option
Current Year Prior Year
Outstanding, beginning of
year 32,000 32,000
Canceled during the year (6,000) ( - )
------ ------
Outstanding, end of year 26,000 32,000
====== ======
The related compensation expense is $13,500 for 1996.
Note 12. Long-Term Lease
The Company leases its corporate headquarters, warehouse and
waterfront facilities from the Company's majority shareholders.
The lease provides for monthly rental payments of $6,000 and the
Company is also responsible for all real estate taxes, insurance
and maintenance costs related to the facilities. The lease also
provides for periodic cost of living increases during the term
of the lease, including the option periods. The current lease
expired on March 31, 1995 but the Company exercised the first of
four five year options. The new rent effective as <PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 12. Long-Term Lease (continued)
of March 31, 1995 was adjusted to $8,500 per month,
respectively. The Company has the option of paying $6,500 of
the $8,500 per month and deferring the balance with 7%
interest.
Any deferred amounts are due based upon available cash flow as
determined by the Company's management or upon demand of the
majority shareholders, which shall not be made before January 1,
1997 or upon termination of the lease, which ever occurs first.
Rental expense under the above lease was $102,000 and $94,500 in
1996 and 1995, respectively.
Minimum future rental payments under the lease originally dated
December 31, 1996 with consideration for the extension on March
31, 1995 are as follows:
1997 $ 139,260
1998 139,260
1999 139,260
2000 62,760
2001 29,230
Thereafter 249,375
---------
$ 759,145
=========
The Company has made substantial leasehold improvements (note 5)
and intends to exercise all options under the terms of this
lease.
The Company leases a building used as an espresso bar/cafe in
Fort Bragg. The lease provides for monthly rental payments of
$730. The lease also provides for periodic cost of living
increases during the term of the lease, including the option
periods.
The Company leases a restaurant establishment in Mendocino. The
lease provides for monthly rental payments of $2,375.
The Company's obligation under capital leases have been included
in assets and liabilities in the financial statements.<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 13. Cost of Sales
Cost of sales was 56.86% for the period ending December 31,
1996, representing a 13% decrease from the prior year. This was
a result of prior years substantial escalation of green coffee
commodity prices due to adverse growing conditions in coffee-
producing countries and Commodity market speculation reduced the
availability of coffee supplies. The Company had existing
contracts through February 1996 for coffee beans at these higher
prices. After that date the Company purchased coffees at the
applicable current market price.
Note 14. Related-Party Transactions
The Company has interest-only notes payable on demand to each of
the stockholders at December 31, 1996 and 1995 (See note 7,
above). The Company also leases properties from its
stockholders (See Note 12, above).
The summary of these related-party transactions for the years
ended December 31, 1996 and 1995 follows:
Current Year Prior Year
Interest Expense $ 11,858 $ 11,858
Rent Expense $102,000 $102,000
Note 15. Earnings Per Share
Earnings per share amounts are based on the weighted average
number of common stock shares outstanding. There were no common
stock equivalents to be considered. Earnings per share for the
years ended December 31, 1996 and 1995 was $.02 and $(.07).
Note 16. Commitments
The Company purchased a bakery from Laoma Bryant in 1996 for
$350,000. A payment of $50,000 was paid in 1996. The Company
also signed a note for the remaining purchase price. (See Note
7). Upon the 7 year anniversary of the purchase, the Company
agreed to pay an additional $25,000 to Laoma Bryant provided she
does not own, manage or operate a bakery within 250 miles of
Mendocino, California.<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
Note 16. Commitments
Under the terms of an agreement with the Company s past officer,
the Company is required to purchase 10,000 options under the
following terms:
No. Of Shares Total
1997 3,000 $ 8,250
1998 3,000 9,000
1999 3,000 9,750
2000 3,000 3,500
The remaining 16,000 options can be exercised or sold at any time
at the discretion of the past officer subject to the Company s
first right of refusal.<PAGE>
