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 March 31, 1998
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 May 13, 1998, there were issued and outstanding
1,236,744 shares of common stock of the issuer.
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Balance Sheet at March 31, 1998 and
December 31, 1997 . . . . . . . . . . . . 1
Statements of Income for the Three Months
Ended March 31, 1998 and March 31, 1997 . 3
Statements of Cash Flows for the Three
Months Ended March 31, 1998 and March 31,
1997 . . . . . . . . . . . . . . . . . . 4
Notes to 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 . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . 10
Item 4. Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . 10
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Balance Sheet
ASSETS
March 31, 1998 December 31, 1997
(unaudited) (audited)
CURRENT ASSETS
Cash $133,256 $46,872
Short Term Investments 5,805 31,519
Accounts Receivable 381,570 417,221
Employee Receivable 5,610 6,041
Inventory 409,286 513,303
Other Receivables &
Prepaids 168,358 237,354
__________ __________
Total Current
Assets 1,103,885 1,252,310
PROPERTY AND EQUIPMENT
Property Fixtures &
Equipment 2,057,991 2,045,464
Accumulated Depreciation (1,088,682) (1,049,873)
__________ __________
Total Property &
Equipment 969,309 995,591
OTHER ASSETS
Deposits And Other
Assets 76,858 67,356
Intangibles, Net Of
Amortization 271,868 281,192
__________ __________
Total Other Assets 348,726 348,548
__________ __________
Total Assets $2,421,920 $2,596,449
========== ==========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1998 December 31,1997
(unaudited) (audited)
CURRENT LIABILITIES
Accounts Payable $522,925 $426,810
Notes Payable - Banks 621,636 621,636
Loan Payable - Shareholder 51,795 24,625
Accrued Liabilities 103,023 74,724
Current Portion of Long- 115,000 108,459
Term Debt __________ __________
Total Current
Liabilities 1,414,379 1,256,254
LONG-TERM LIABILITIES
Notes Payable - Long-Term 390,496 429,044
Notes Payable - Shareholder 12,707 58,827
__________ __________
Total Long-Term Debt 403,203 487,871
OTHER LIABILITIES
Deferred Income Taxes 66,535 66,535
__________ __________
Total Other Liabilities 66,535 66,535
__________ __________
Total Liabilities 1,884,117 1,810,660
STOCKHOLDERS' EQUITY
Common Stock - No Par Value
1,960,000 Shares
Authorized;
1,236,744 Shares Issued
And Outstanding At
March 31, 1998 872,816 872,816
Additional Paid-In Capital 24,600 24,600
Unrealized Gain on
Investments 0 3,656
Retained Earnings (359,613) (115,283)
__________ __________
Total Stockholders'
Equity 537,803 785,789
__________ __________
Total Liabilities And
Equity $2,421,920 $2,596,449
========== ==========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Statements Of Income (Unaudited)
Three Months Ended
March 31, 1998 March 31, 1997
Net Sales $1,348,033 $1,512,618
Cost Of Sales 859,450 771,207
__________ __________
Gross Profit 488,583 741,411
OPERATING EXPENSES
Selling, General &
Administration 650,863 687,394
Depreciation &
Amortization 42,660 27,308
__________ __________
Total Operating
Expenses 693,523 714,702
__________ __________
Operating Income (Loss) (204,940) 26,709
OTHER INCOME (EXPENSE)
Interest Income 0 1,832
Interest Expense (32,475) (14,059)
Miscellaneous Income (7,077) 292
__________ __________
Total Other Income
(Expense) (39,552) (11,935)
__________ __________
Income (Loss) Before
Taxes (244,492) 14,774
__________ __________
Taxes 162 0
Net Income (Loss) $ (244,330) $ 14,774
========== ==========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Statements Of Cash Flow (Unaudited)
Three Months Ended
March 31, 1998 March 31, 1997
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $ (244,330) $ 14,774
Non Cash Items Included Net
Loss
Depreciation &
Amortization 46,302 44,498
(Increase) Decrease In:
Short Term
Investments 25,714 (105,275)
Receivables 33,082 (164,293)
Inventory 104,017 (58,547)
Deferred Futures
Contracts 0 (9,131)
Prepaid Expenses/
Other Receivables 65,278 38,406
Deposits/Other Assets (9,501) 410
Increase (Decrease) In:
Accounts Payable 96,115 234,657
Accrued Liabilities 28,299 (2,440)
Deferred Options
Contract 0 7,219
__________ _________
Net Cash Provided By
Operating Activities 144,976 278
__________ _________
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase Of Equipment (22,528) (41,035)
Purchase Of Intangible
Assets (0) (500)
Unrealized Gain (Loss) on
Investments (3,656) 0
Increase In Stock Offering
Costs (0) (1,837)
__________ _________
Net Cash Used By Investing
Activities (26,184) (43,372)
__________ _________
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Statements Of Cash Flow (Unaudited) (continued)
Three Months Ended
March 31, 1998 March 31, 1997
CASH FLOWS FROM FINANCING
ACTIVITIES
Decrease In Notes Receivable 0 41,735
(Repayment) Proceeds Of
Notes Payable (32,408) (144,633)
__________ _________
Net Cash Used By
Financing Activities (32,408) (102,898)
__________ _________
Net Increase (Decrease) In 86,384 (145,992)
Cash
Cash, As Of January 1, 1998 46,872 399,037
And 1997 __________ _________
Cash, As Of March 31, 1998
And 1997 $ 133,256 $ 253,045
========== =========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Notes to Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying audited and 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). Because
the Company's sales have fluctuated significantly from quarter to
quarter due to the holiday season and due to a variety of other
factors, the results of operations for the three months ended
March 31, 1998 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, 1997 and 1996, which are included in the Company's
Form 10-K for the year ended December 31, 1997 filed on March 31,
1998.
At March 31, 1998 there were total borrowings of $1,191,634,
including $601,636 outstanding under the Company's line of credit
agreement. The Company's line of credit agreement is due to
expire on August 10, 1998.
<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 certain 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, inability to secure adequate capital to fund its
operating losses and working capital requirements, inability to
successfully implement its business plan, and other risks
identified in the Company's Form 10-K for the year ended December
31, 1997.
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.
In the three months ended March 31, 1998 the Company closed its
retail coffee shop in Fort Bragg, California, which had
previously marketed the Company's coffee and tea products. The
coffee shop did not meet management's performance expectations
and was sublet to an [unrelated] third-party as of May 8, 1998.
The sublessee operates a cafe which sells the Company's coffee
products.
In 1997, the Company embarked on a campaign to market coffees to
bird lovers under an exclusive five-year agreement with the
American Birding Association to produce and market Song Bird
Coffee (TM) worldwide.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1998 were
$1,348,033, a decrease of 11% from net sales of $1,512,618 for
the three months ended March 31, 1997. This decrease in net
sales was primarily due to the fact that net sales for the three
months ended March 31, 1997 includes $167,218 in bean sales by
the Company's former green bean subsidiary, Sustainable Harvest,
Inc. ("Sustainable Harvest"). Net sales for the three months
ended March 31, 1998 do not include any such bean sales as
Sustainable Harvest was sold by the Company on December 31, 1997.
Gross margin (gross profit as a percentage of net sales) declined
from 49% for the three months ended March 31, 1997 to 36% in the
same period of 1998. This decrease is the result of an absence
of gross margin contributions by the Company's former Sustainable
Harvest subsidiary in the three months ended March 31, 1998 due
to the sale of the Sustainable Harvest on December 31, 1997; of
an accounting change effective October 1, 1997 to record labor
expenses for the Company's retail bakery (the "Bakery") as part
of cost of sales, rather than as part of selling, general and
<PAGE>
administrative expenses; and the absence in the three months
ended March 31, 1998 of approximately $63,000 in commodity gains
which were posted and decreased cost of sales for the same period
in 1997. The Company's core gross margins (exclusive of revenues
from the Cafe, which was closed at the end of February 1998,
Sustainable Harvest, which was sold as of December 31, 1997, and
the Bakery) declined from 47% for the three months ended
March 31, 1997 to 40% in the same period of 1998, due primarily
to higher costs of certain specialty green beans (including
organic, shade grown, Asian and African beans). Management
expects that gross margins will increase in the three months
ended June 30, 1998 and September 30, 1998, as compared to gross
margin in the three months ended March 31, 1998, due to the
availability of lower-cost green beans for which the Company has
already contracted, as well as unit price increases in organic,
shade grown and other selected varieties of coffees. However,
there can be no assurance that the Company will be successful in
implementing price increases without losses in sales volume or
gross margin.
Selling, general and administrative expenses decreased 5%, from
$687,394 (45% of net sales) in the three months ended March 31,
1997 to $650,863 (48% of net sales) for the three months ended
March 31, 1998. The decrease in selling, general and
administration expense reflects the result of an accounting
change effective October 1, 1997 to record labor expenses for the
Bakery as part of cost of sales, rather than as part of selling,
general and administrative expenses, offset in part by a 14%
increase in the core selling, general and administrative expenses
(exclusive of such expenses for the Cafe and the Bakery), which
reflects higher mail order sales costs, new product development
expenses, increased depreciation expenses and severance costs
associated with the layoff of five employees.
Interest expense increased from $14,059 for the three months
ended March 31, 1997 to $32,475 for the three months ended March
31, 1998, as a result of increased borrowing to finance the
Company's operations. Interest expense as a percentage of net
sales increased from 0.9% for the three months ended March 31,
1997 to 2.4% for the three months ended March 31, 1998.
Because the Company incurred a loss for the three months ended
March 31, 1998, it did not incur any tax expense. The Company
received a non-recurring tax refund of $162 during the three
months ended March 31, 1998 for overpayment in prior periods.
As a result of the foregoing factors, the Company incurred a net
loss of $244,492 for the three months ended March 31, 1998
compared with net income of $14,774 for the three months ended
March 31, 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had a working capital deficiency
of $310,494. Net cash provided by operating activities was
$144,976 for the three months ended March 31, 1998, compared to
$278 for the three months ended March 31, 1997. The increase in
net cash provided by operating activities was primarily due a
decrease in inventory and an increase in accounts payable.
Inventory decreased by $104,017, primarily as a result of planned
inventory control and management consistent with the Company's
budget for 1998, and accounts payable increased by $96,115 during
the three months ended March 31, 1998. In the corresponding
period in 1997, inventory and accounts payable increased by
$58,547 and $234,657, respectively.
Net cash used in investing activities, which primarily consists
of expenditures for equipment to service new accounts and sales
growth, was $22,527 for the three months ended March 31, 1998 as
compared to $47,035 during the same period last year. This
decrease is primarily attributable to a decrease in equipment
expenditures, in accordance with management's budget and business
plan.
The Company maintains a revolving line of credit of up to
$650,000. Borrowings under the line of credit are secured by the
Company's accounts receivable, inventory, equipment, fixtures and
improvements. The terms of this facility contain certain
limitations and covenant restrictions, including limits on the
incurrence of additional indebtedness, which if violated could be
used as a basis for termination of the agreement. Under the
credit agreement, the lender has no obligation to make advances
if, among other things, there has been a material adverse change
in the Company's financial condition. There were total
borrowings of $1,191,634, including $601,636 outstanding under
the credit agreement, as of March 31, 1998. The credit agreement
will expire on August 10, 1998, and there can be no assurance
that the Company will continue to make advances or that the
Company will be able to extend the agreement or negotiate a new
line of credit agreement if its financial condition does not
improve.
The Company is dependent on successfully executing its business
plan to achieve profitable operations, obtaining additional
sources of borrowings (including normal trade credit), and
securing favorable financing arrangements (including lease
financing) to finance its immediate working capital needs. There
can be no assurance that the Company will be successful in this
regard. If the Company is not able to renew or replace its
credit agreement on comparable terms or at all, the Company may
be unable to fund its working capital requirements and the
Company's business could be materially and adversely affected.
<PAGE>
The seasonal increase in sales in the last quarter historically
creates a high use of cash and a build-up in inventories in the
third quarter, 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
10.9 Consulting Agreement between the Company
and Global Insights, effective as of
January 1, 1998.
10.10 Consulting Agreement between the Company
and Global Insights, dated January 26,
1998.
27.1 Financial Data Schedule (electronic only).
b. Forms 8-K
No reports on Form 8-K were filed during the period
from January 1, 1998 through March 31, 1998.
<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 Officer May 15, 1998
________________________
Paul Katzeff
/s/ Joan Katzeff President May 15, 1998
________________________
Joan Katzeff
<PAGE>
EXHIBIT INDEX
10.9 Consulting Agreement between the Company and Global
Insights, effective as of January 1, 1998.
10.10 Consulting Agreement between the Company and Global
Insights, dated January 26, 1998.
27.1 Financial Data Schedule (electronic only).
<PAGE>
Exhibit 10.9
AGREEMENT
Global Insights and Thanksgiving Coffee
This agreement is entered into effective as of 1/1/98 between
Global Insights and Thanksgiving Coffee Company Inc.
* The basic agreement covers the same tasks to be performed by
Global Insights as identified by Paul and Joan in the
Thanksgiving proposal of December 26, 1997.
* To develop the open book communications as outlined on pages
6,7,8 of Global Insights proposal
* Review accounting functions
* Negotiate bank loans and other financial agreements
* Establish criteria for a social and environmental audit
* Review SEC filings
The base contract will be paid in the following manner:
January $ 6,000
February 5,000
March 4,000
April 3,000
May 3,000
June 3,000
July 3,000
August 3,000
September 3,000
October 1,000
November 1,000
December 1,000
Additional action areas shall be contracted on a project or
hourly basis as required after the first quarter of 1998 at a
rate of $150 per hour. These items are:
* Preparing the annual report
* Preparing for the annual meeting
* Preparing and/or executing a second public offering
* Setting up a foundation
* Review 1997 audit
* Negotiate compensation agreements
* Negotiate strategic alliances or purchases of other
companies<PAGE>
Executed on the dates set forth below
Global Insights
Date Jan. 5, 1998 By /s/ Larry Leigon
Larry Legion
Jan. 5, 1998 By /s/ Roy Doughty
Roy Doughty
Thanksgiving Coffee, Inc.
Date Jan. 6, 1998 By /s/ Paul Katzeff
Paul Katzeff
Jan. 6, 1998 By /s/ Joan Katzeff
Joan Katzeff<PAGE>
Exhibit 10.10
AGREEMENT
Global Insights and Thanksgiving Coffee
This document outlines the agreement between Thanksgiving Coffee
Company and Global Insights with respect to Shareholder
Relations.
TASKS
* Take calls from stockholders, fulfill their information
requests and survey them regarding the above items if
appropriate
* Update computer file on address changes, stock buys and
sells, etc.
* Notify transfer company of all changes
* Interact with mail order on changes
* Work with matching service regarding stockholder relations,
buys and sells
* Work with the SEC attorney (when necessary and cost-
effective)
* Contribute to and edit letters to stockholders (We recommend
that the clerical function of typesetting, copying,
printing, and mailing be done in-house perhaps by Carol
Green.)
* Coordinate with Controller and Chief Operating Officer on
quarterly SEC stockholder filings
* Use stockholder feedback for annual report and annual
meeting
* Work with TCC to solicit web site and e-mail interfaces
* Work with top management to create special events or
products for stockholders
LOGISTICS
* Transfer computer files on the stockholders to one or both
of our computers
* Develop a method for the transfer of phone calls
* Develop a method for inventorying stockholder information
kits and mail-outs, either from the Bay Area or from Fort
Bragg from our instructions
COSTS, INDEMNIFICATION, TERM
Costs will be $1500 per month, plus postage, phone, other
normally occurring administrative expenses, plus logistical costs
if any. Costs will cover all work up to 30 hours per month. In
the first two months of the contract, work done beyond 30 hours
will be billed at $75 per hour, while both parties assess the
scope of the job and the necessity for additional hourly billings
beyond the $1500 per month flat fee. Work includes above tasks,
but not annual meeting preparations or annual report work covered<PAGE>
under the terms of our regular agreement.
As it does not, TCC will provide all insurance for
indemnification of our actions as TCC representatives to
stockholders.
Term of this contract will be from February 1st, 1998 to December
31st, 1998. Invoicing will be done on the 1st of the month for
the prior month s work and is due by the 10th of the month.
Agreement completed by the signatures below.
Thanksgiving Coffee Company
Joan Katzeff /s/ Joan Katzeff Date 1/26/98
Paul Katzeff /s/ Paul Katzeff Date 1/26/98
Global Insights
Roy Doughty /s/ Roy Doughty Date 1/26/98
Larry Leigon /s/ Larry Leigon Date 1/26/98<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME, WHICH ARE
INCLUDED IN THE COMPANY'S FORM 10-QSB FILED HEREWITH, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 133
<SECURITIES> 6
<RECEIVABLES> 409
<ALLOWANCES> (22)
<INVENTORY> 409
<CURRENT-ASSETS> 1,104
<PP&E> 2,058
<DEPRECIATION> (1,089)
<TOTAL-ASSETS> 2,422
<CURRENT-LIABILITIES> 1,414
<BONDS> 403
0
0
<COMMON> 873
<OTHER-SE> (335)
<TOTAL-LIABILITY-AND-EQUITY> 2,422
<SALES> 1,348
<TOTAL-REVENUES> 1,348
<CGS> 859
<TOTAL-COSTS> 859
<OTHER-EXPENSES> 694
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (244)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
