<PAGE>
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, 2000
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)
(Address of principal executive Offices) 19100 South Harbor Drive
(Zip Code) Fort Bragg, California 95437
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 8,2000, there were 1,234,544 shares outstanding of common stock of
the issuer.
Traditional Small Business Disclosure Format (check one):
Yes \X\ No \ \
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements, Notes and Report of Independent Accountants......................... 3
Balance Sheet at June 30, 2000 and December 31, 1999................................................ 23-24
Statements of Income for the Three Months Ended June 30, 2000 and
June 30, 1999 and for the Six Months Ended June 30, 2000 and June 30, 1999........................ 25
Statements of Cash Flows for the Six Months Ended June 30, 2000 & June 30, 1999.................. 26
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................... 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 31
Item 2. Changes in Securities..................................................................... 31
Item 3. Defaults Upon Senior Securities........................................................... 31
Item 4. Submission of Matters to a vote of Security-Holders....................................... 31
Item 5. Other Information ....................................................................... 31
Item 6. Exhibits and Reports on Form 8-K.......................................................... 31
</TABLE>
2
<PAGE>
Thanksgiving Coffee Company, Inc.
For the Three and Six Month Periods
Ended June 30, 2000
With Report of Independent Accountants
3
<PAGE>
Thanksgiving Coffee Company, Inc.
For the Three and Six Month Periods
Ended June 30, 2000
Report
Report of Independent Accountants.............................. 1
Reviewed Financial Statements
Thanksgiving Coffee Company, Inc.
Balance Sheet.................................................. 2
Statement of Income............................................ 4
Statement of Accumulated Deficit............................... 5
Statement of Cash Flows........................................ 6
Notes to Financial statements.................................. 7
4
<PAGE>
Report of Independent Accountants
To the Board of Directors
Thanksgiving Coffee Company, Inc.
Fort Bragg, California
We have reviewed the accompanying balance sheet of Thanksgiving Coffee Company,
Inc., as of June 30, 2000, statement of accumulated deficit and cash flows for
the six month period then ended, and the related statement of income for the
three and six month periods ended, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Thanksgiving Coffee Company, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
SALLMANN, YANG & ALAMEDA
An Accountancy Corporation
Kathleen M. Alameda
Certified Public Accountant
August 11, 2000
5
<PAGE>
Thanksgiving Coffee Company, Inc.
Balance Sheet
June 30, 2000
Assets
Current assets
Cash and cash equivalents $ 54,430
Accounts Receivable 374,637
Note receivable-Griswold 10,000
Employee Receivable 707
Inventory 533,100
Prepaid expenses 106,530
-----------
Total current assets 1,079,404
Property and equipment
Property and equipment 2,278,486
Accumulated depreciation (1,502,592)
-----------
Total property and equipment 775,894
Other assets
Deposits and other assets 45,000
Note receivable-Griswold 12,028
Intangibles, net of amortization 242,492
Deferred tax asset 28,001
-----------
Total other assets 327,521
-----------
Total assets $ 2,182,819
===========
See accompanying notes and accountants' report.
6
<PAGE>
Thanksgiving Coffee Company, Inc.
Balance Sheet
June 30,2000
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 548,674
Notes payable-banks, current portion 529,719
Notes payable-other, current portion 37,996
Capital lease obligations, current portion 54,186
Accrued liabilities 36,644
Deferred income taxes 370
----------
Total current liabilities 1,207,589
Long term debt
Notes payable-banks 23,333
Notes payable-other 109,071
Notes payable-shareholders 24,919
Capital lease obligations 27,963
Total long term debt 185,286
Total liabilities 1,392,875
----------
Stockholders' equity
Common stock, no par value,
1,960,000 shares authorized,
1,237,384 shares issued,
1,234,544 shares outstanding 861,816
Additional paid in capital 24,600
Accumulated deficit (96,472)
----------
Total stockholders' equity 789,944
----------
Total liabilities and stockholders' equity $2,182,819
==========
See accompanying notes and accountants' report.
7
<PAGE>
Thanksgiving Coffee Company, Inc.
Statement of Income
<TABLE>
<CAPTION>
For the Three and Six Month Periods Ended
June 30, 2000
Current Year-to-Date
-----------------------
<S> <C> <C>
Income
Net Sales $1,363,672 $2,658,374
760,577 1,431,059
-----------------------
Gross Profit 603,095 1,227,315
Operating expenses
Selling, general, and administrative expenses 545,600 1,079,736
Depreciation and amortization 50,878 101,804
-----------------------
Total operating expenses 596,478 1,181,540
-----------------------
Operating (loss) income 6,617 45,775
Other income (expense)
Interest income 715 1,405
Interest expense (27,280) (56,265)
Miscellaneous income 267 439
CLUSA Grant Income 40,000 40,000
CLUSA Project Expense (33,371) (33,371)
-----------------------
Total other income (expense) (19,669) (47,792)
-----------------------
Loss before income taxes (13,052) (2,017)
Income tax expense (30) (830)
-----------------------
Net loss $ (13,052) (2,847)
=======================
Loss per share (basic) $ (0.0001) (0.002)
=======================
Loss per share (dilutive) $ (0.0001) (0.0002)
=======================
</TABLE>
See accompanying notes and accountants' reports.
8
<PAGE>
Thanksgiving Coffee Company, Inc.
Statement of Accumulated Deficit
June 30, 2000
Accumulated deficit, beginning $ (93,625)
Net loss (2,847)
---------------
$ (96,472)
---------------
See accompanying notes and accountants' report.
9
<PAGE>
Thanksgiving Coffee Company, Inc.
Statement of Cash Flows
For the Six Month Period Ended June 30, 2000
Operating activities
Net loss $ (2,847)
Depreciation and amortization 113,290
Receivables 20,685
Inventories (45,821)
Prepaid expenses (49,380)
Deposits and other assets (2,660)
Accounts payable 141,751
Accrued liabilities (5,121)
------------
Net cash provided by operating activities 169,897
Investing activities
Purchases of equipment (60,410)
------------
Net cash used by investing activities (60,410)
Financing activities
Repayments of notes payable and capital leases (96,213)
------------
Net cash used by financing activities (96,213)
Net increase in cash 13,274
Cash at January 1, 2000 41,156
------------
Cash at June 30, 2000 54,430
============
See accompanying notes and accountants' report.
10
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
June 30, 2000
1. Summary of Significant Accounting Policies
Description of Business
Thanksgiving Coffee Company, Inc. (The Company), is a California 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. The Company sells sandwiches, pastries, coffee and tea through a bakery
located in Mendocino, California. During 1998 the company subleased a cafe
located in Fort Bragg, California. In 1997, the Company purchased and sold a
subsidiary, a wholesale purchaser and distributor of coffee beans, located in
Emeryville, California.
Basis of Presentation
The Company has prepared the financial statements on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
Company grants credit to customers in the retail and food service industries
throughout the country. Consequently, the Company's ability to collect the
amounts due from customers are affected by economic fluctuations in the retail
and food service industries.
Inventory
Inventory is stated at the lower of cost or market (first-in, first-out).
Property and Equipment
Property 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 five to thirty-nine years.
The portion of depreciation and amortization expenses related to production
facilities is included in cost of sales.
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.
11
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Property and Equipment (continued)
For income tax purposes, depreciation is computed using the accelerated cost
recovery system and the modified cost recovery system.
Trademarks and Tradenames
Trademarks and tradenames are being amortized on a straight-line basis over
forty (40) years. Total amortization expense for the six month period ended
June 30, 2000 is $64.
Investments in Consolidated Companies
On January 1, 1997, the Company acquired the assets and liabilities of
Sustainable Harvest, Inc., in a business combination accounted for as a
purchase. The Company subsequently sold the subsidiary at a loss of $29,471 on
November 1, 1997. The Company has a note receivable from the purchaser of
Sustainable Harvest reflected on the books as a result of the sale, with a
balance of $22,028 as of June 30, 2000 (See note 13, below).
On October 31, 1996, the Company acquired the assets of Mendocino Bakery, Inc.
in a business combination accounted for as a purchase.
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 six month period ended June 30, 2000.
Futures and Options Contracts
The Company occasionally enters into exchange traded coffee futures and options
contracts with the objective of minimizing cost risk due to market fluctuations.
The Company does not define 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 (unrealized gains and losses) are reported by
the Company in the period in which the change occurs and are included as a
component of stockholders' equity. Realized gains and losses are a component of
costs of goods sold.
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.
12
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
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 solicitation 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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. Accounts Receivable
Accounts receivable consist of the following:
Accounts receivable $ 378,996
Less: Allowance for doubtful accounts (4,359)
-----------
Accounts receivable, net $ 374,637
===========
The Company uses the allowance method for uncollectible accounts. Bad debt
expense for the six month period ended June 30, 2000 is $3,641. The adjustment
to the allowance account for the six month period ended June 30, 2000 is
$11,577.
3. Inventory
Inventory consists of the following:
Coffee
Unroasted $ 180,348
Roasted 137,054
Tea 20,766
Packaging, supplies and other merchandise held for sale 194,932
----------
Total inventory $ 533,100
==========
13
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
4. Property and Equipment
Property and equipment consists of the following:
Equipment and fixtures $ 1,212,202
Furniture and equipment 278,291
Leasehold improvements 374,184
Transportation equipment 72,312
Marketing equipment 38,430
Property held under capital leases 303,067
-----------
Total property and equipment 2,278,486
Accumulated depreciation (1,502,592)
-----------
Property and equipment, net $ 775,894
===========
Marketing equipment includes costs to develop a website for on-line sales and
promotion. The costs related to the website are being depreciated on the
straight-line method over three years.
Depreciation expense for the six month period ended June 30, 2000 is $104,870.
5. 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:
Goodwill $ 198,000
Leasehold value 67,000
Start-up costs 34,882
Organizational costs 28,565
Trademark 5,127
----------
Total intangible assets 333,574
Accumulated amortization - goodwill (18,613)
Accumulated amortization - other intangible assets (72,469)
----------
Intangible assets, net $ 242,492
==========
Goodwill, which represents the excess of the cost of purchased companies over
the fair value of the net assets at dates of acquisition, is being amortized on
the straight-line method over thirty-nine years.
Amortization expense for the six month period ended June 30, 2000 is $5,511.
14
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
6. Long Term Debt
Notes Payable as of March 31, 2000
Note payable to Wells Fargo Bank, payable in $ 509,719
monthly installments of $8,356 plus interest at
2.75% over prime rate beginning February 15, 2000,
final payment is due on January 15, 2001. The note
payable is collateralized by a security interest
of first priority in all accounts receivable,
inventory, equipment, fixtures and improvements.
Note payable to Wells Fargo Bank, payable in
monthly installments of $1,667 plus interest at 1% 43,334
over prime rate, final payment is due on August
15, 2002. The note is secured by all accounts
receivable, inventory, equipment, fixtures and
improvements.
Note payable to majority shareholders, Paul and
Joan Katzeff, payable in monthly installments of 24,919
interest only at 12%, with balance due on demand
after June 30, 1996. The shareholders have
subordinated this note to all notes payable
including Wells Fargo Bank as described above.
Deferred interest is $1890 at 6/30/00.
Note payable to Laoma Yaski for the purchase of 147,068
Mendocino Bakery, payable in monthly installments
of $4,249, including interest at 10%, secured by
property and equipment at the bakery, final
payment due in August 2003.
Note payable to Chase Manhattan Bank, payable in 14,023
monthly installments of $324, including interest
at 8.637%, secured by a vehicle, final payment due
in October 2004.
Obligations Under Capital Lease as of March 31,
2000
Note payable to Manifest Group, payable in monthly 6,856
installments of $1,030, including interest at
15.315%, secured by equipment, final payment due
in January 2001.
Note payable to Imperial Capital, payable in 5,556
monthly installments of $840, including interest
at 17.263%, secured by equipment, final payment
due in January 2001.
15
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
6. Long Term Debt (continued)
Obligations Under Capital Lease as of
March 31, 2000 (continued)
Note payable to Granite Financial, payable in monthly $ 12,446
installments of $1,139, including interest at 17.607%,
secured by equipment, final payment due in June 2001.
Note payable to First Sierra Computer Equipment, payable 23,024
in monthly installments of $1,297, including interest at
14.00%, secured by equipment, final payment due in
February 2002.
Note payable to Security Financial, payable in monthly 15,944
installments of $910, including interest at 15.529%,
secured by equipment, final payment due in February 2002.
Note payable to Centerpoint, payable in monthly installments 4,298
of $517, including interest at 19.225%, secured by equipment,
final payment due in March 2001.
Less current portion 807,187
Long term portion of notes payable and (621,901)
---------
capital leases $ 185,286
=========
16
<PAGE>
All of the above notes payable and capital leases with the exception of the
First Sierra Computer Equipment capital lease and Manifest Group lease, are
personally guaranteed by the Company's majority shareholders.
Interest paid for the six month period ended June 30, 2000 is $47,698.
Maturities of notes payable and capital leases are as follows:
2000 $ 120,083
2001 571,081
2002 64,959
2003 47,946
2004 3,118
Thereafter
$ 807,187
=========
Based on current borrowing rates, the fair value of the notes payable and
capital leases approximate their carrying amounts.
17
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
7. Income Taxes
The components of the provision for income taxes for the three and six month
periods ended June 30, 2000 is as follows:
Current Year-to-Date
___________________
State-current $ - $ 800
State-prior 30 30
___________________
Total $ 830 $ 830
===================
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's assets and liabilities. Deferred tax
liabilities recognized for taxable temporary differences are not material for
the six month period ended June 30, 2000. The Company has a California
manufacturer's credit carryforward of $24,043 which may be used to offset
California income taxes in the future.
The Company has net operating loss and contribution carryovers to offset future
income tax. If not used, these credits will expire as follows:
Federal
Years ending Net Operating
December 31 Contributions Loss Total
----------- ------------- ---------- -----
2000 $ 6,403 $ - $ 6,403
2001 9,029 - 9,029
2002 11,419 - 11,419
2003 11,289 - 11,289
2012 - 584,581 584,581
2013 - 128,576 128,576
-------- --------
$ 38,140 $713,157 $751,297
========== ======== ========
California
Years ending
December 31 Contributions Net Operating Loss Total
----------- -------------
2002 $ 1,091 $239,201 $ 240,292
2003 11,289 64,341 75,630
2004 14,863 - 14,863
---------- -------- ---------
$ 27,243 $303,542 $ 330,785
========== ======== =========
Income taxes paid for the six month period ended June 30, 2000 is $800.
18
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
8. Operating Leases
The Company leases its delivery fleet, other vehicles and some office equipment
under noncancellable operating leases with terms ranging from three to five
years.
Minimum annual lease payments due under these agreements are as follows:
2000 $ 46,130
2001 51,051
2002 14,557
2003 7,923
Thereafter 1,424
--------
$121,085
========
Total operating lease payments are $22,531 and $42,131 for the three and six
month periods ended June 30, 2000, respectively.
9. Common Stock
Number of
Shares Value
--------- --------
Balance, December 31, 1996 1,237,039 $874,666
Issuance of stock 345 150
Repurchase of stock (640) (2,000)
--------- --------
Balance, December 31, 1997 1,236,744 872,816
No activity
Balance, December 31, 1998 1,236,744 872,816
Repurchase of stock (2,200) 11,000)
--------- --------
No activity
Balance, June 30, 2000 1,234,544 $861,816
========= ========
981,000 shares originally issued are restricted.
19
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
10. Stock Option Purchase Plan
Under the terms of its stock option purchase plan (see note 13), options to
purchase shares of the Company's common stock are granted at a price of $5 per
share. Options may be exercised until December 31, 2000. Following is a
summary of transactions:
Shares Under Option
-------------------
Outstanding, beginning of year 20,000
Shares expired during the year -
Shares exercised during the year (3,000)
---------
Outstanding, as of June 30, 2000 17,000
=========
The above referenced exercised options did not result in the issuance of shares
of the Company's common stock; but rather, pursuant to the terms of an agreement
with the Company and one of its former officers, resulted in the Company's
payment to such officer of $9,750.
11. Long Term Lease
The Company leases its corporate headquarters, warehouse and waterfront
facilities from Paul and Joan Katzeff (the Company's majority shareholders). The
lease provides for monthly rental payments of $8,600 and the Company is
responsible for all real estate taxes, insurance and maintenance costs related
to the facilities. The lease provides for periodic cost of living increases
during the term of the lease, including the option periods. The Company
exercised the first of four five-year options on March 31, 1995. The lease was
extended on March 31, 2000 for one hundred and fifty-two days until August 31,
2000, and the Company intends to fully renew the lease at that time. There are
no deferred payments under the current agreement.
Any deferred amounts are due based upon available cash flow as determined by the
Company's management or upon demand of the Company's majority shareholders.
Rental expense under the above lease is $51,600. for the six month period ended
June 30, 2000. The Company has made substantial leasehold improvements (Note 4,
above) and intends along with its major shareholders to exercise all options
under the terms of this lease.
The Company leases a bakery establishment in Mendocino, California. The lease
provides for monthly rental payments of $3,115 (as of June 30, 2000) and the
lease term expires in September 30, 2010.
The Company originally leased a building in Fort Bragg to house a cafe business.
In February, 1998, the cafe was closed and the building subleased at its full
rental costs including periodic cost of living increases. The lease expires in
January, 2001. The current lease payment is $766.
20
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
11. Long Term Lease (continued)
Minimum future rental payments for all leases are as follows:
2000 $ 60,914
2001 and thereafter -
------
$ 60,914
===========
12. Related Party Transactions
The Company has an interest only note payable due on demand and a principal and
interest note payable to Paul and Joan Katzeff (the Company's majority
shareholders) at June 30, 2000 (See Note 6, above). The Company also leases
properties from its majority shareholders (See Note 11, above).
13. Commitments
Under the terms of an agreement with a former subsidiary sold in 1997, the
Company has the ability to purchase coffee beans each year for the next five
year ending December 31, 2002, at a predetermined price per pound over landed
coffee costs. If the coffee beans are not purchased , the former subsidiary can
defer its notes receivable payments to the Company into subsequent years
pursuant to the agreement (See Note 1, above).
The Company purchased a bakery from Laoma Yaski in 1996 for $350,000. The
Company agreed to pay an additional $25,000 to Laoma Yaski upon the seven year
anniversary of the purchase provided she does not own, manage or operate a
bakery within 250 miles of Mendocino, California.
Under the terms of an agreement with a past officer of the Company, the Company
may purchase options under the following terms:
Number
Of Shares Total
--------- -----
2000 1000 $3500
A remaining 16,000 options may be exercised or sold at any time at the
discretion of the past officer subject to the Company's first right of refusal
21
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
14. Contingent Liabilities
The Company is engaged in litigation initiated by a former employee, who is
seeking damages based upon claims of wrongful termination, breach of an
employment contract, break of fiduciary duty, fraudulent inducement and
accounting. The Company is vigorously defending this matter and is pursuing
related cross-claims. The ultimate outcome of this matter and the effect of an
adverse result, if any, cannot be determined at this time.
15. Future Potential Disposition
The Company is pursuing the sale of the Mendocino Bakery and has listed the
business with a real estate agent.
16. Non-Operating Business Project
During the period April 3, 2000 through August 31, 2001 the company entered into
an agreement with USAID-CLUSA Hurricane Mitch Cooperative to provide services to
assist and train in CLUSA's Agricultural Restoration and Economic Reactivation
Post Mitch Project.
22
<PAGE>
ITEM 2. COMPARATIVE FINANCIAL DATA
THANKSGIVING COFFEE COMPANY, INC.
<TABLE>
<CAPTION>
BALANCE SHEET
-----------------------------------------------------------------------------------------
Balance Sheet
-----------------------------------------------------------------------------------------
as of June 30, 2000 Unaudited Audited
-----------------------------------------------------------------------------------------
6/30/00 12/31/99
-----------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 54,430 $ 41,156
-----------------------------------------------------------------------------------------
Accounts receivable 374,637 394,983
-----------------------------------------------------------------------------------------
Employee receivable 707 1,046
-----------------------------------------------------------------------------------------
Note Rec - Griswold 10,000 10,000
-----------------------------------------------------------------------------------------
Inventory 533,100 487,279
-----------------------------------------------------------------------------------------
Commodities/futures 0 0
-----------------------------------------------------------------------------------------
Intercompany AR 0 0
-----------------------------------------------------------------------------------------
Prepaid Expenses 106,530 57,150
-----------------------------------------------------------------------------------------
CURRENT ASSETS 1,079,404 991,614
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Property and equipment 2,278,486 2,218,076
-----------------------------------------------------------------------------------------
Accum. Depreciation (1,502,592) (1,397,723)
-----------------------------------------------------------------------------------------
Deferred futures contract 0 0
-----------------------------------------------------------------------------------------
Deposits and other assets 45,000 42,340
-----------------------------------------------------------------------------------------
Note Rec - Griswold 12,028 12,028
-----------------------------------------------------------------------------------------
Deferred tax asset 28,001 28,001
-----------------------------------------------------------------------------------------
Intangibles 305,009 305,009
-----------------------------------------------------------------------------------------
Accum Amortization (62,517) (54,096)
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,182,819 $ 2,145,249
---------------------------------------------============================================
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
------------------------------------======================================
--------------------------------------------------------------------------
LIABILITIES & EQUITY
--------------------------------------------------------------------------
<S> <C> <C>
Accounts payable 548,674 406,923
--------------------------------------------------------------------------
Inter company AP 0 0
--------------------------------------------------------------------------
Accrued liabilities 36,644 41,765
--------------------------------------------------------------------------
Deferred income taxes 370 370
--------------------------------------------------------------------------
Notes payable-banks, current 529,719 116,930
portion
--------------------------------------------------------------------------
Notes payable-other, current 37,996 24,918
portion
--------------------------------------------------------------------------
Notes payable-shareholders, 0 38,821
current portion
--------------------------------------------------------------------------
Capital lease obligations, current 54,186 60,546
portion
--------------------------------------------------------------------------
CURRENT LIABILITIES 1,207,589 690,273
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Notes payable, Wells Fargo 23,333 624,091
--------------------------------------------------------------------------
Note payable, shareholder 24,919 0
--------------------------------------------------------------------------
Capitalized Leases 27,963 38,094
--------------------------------------------------------------------------
Note payable, other 109071 0
--------------------------------------------------------------------------
LT LIABILITIES 185,286 662,185
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Common stock 861,816 861,816
--------------------------------------------------------------------------
Addl paid in capital 24,600 24,600
--------------------------------------------------------------------------
Retained earnings (96,472) (93,625)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL EQUITY 789,944 792,791
--------------------------------------------------------------------------
TOTAL LIAB AND EQUITY $ 2,182,819 $ 2,145,249
-----------------------------------=======================================
</TABLE>
24
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Income
Net sales 1,363,672 1,333,859 2,658,374 2,602,051
Cost of sales 760,577 724,124 1,431,059 1,447,403
Gross profit 603,095 609,735 1,227,315 1,154,648
Operating
expenses
Selling, 545,600 514,762 1,079,736 967,681
general and
administrative expenses
Depreciation 50,878 46,265 101,804 90,338
and amortization
Total operating 596,478 561,027 1,181,540 1,058,019
expenses
Operating income 6,617 48,708 45,775 96,629
Other income
(expense)
Interest 715 365 439 1,327
income
Miscellaneous 267 (2,116) 1,405 (4,292)
income
Interest (27,280) (30,634) (56,265) (60,645)
expense
Colusa Income 6,629 6,629
(Expense)
Total other (19,669) (32,385) (47,792) (63,610)
income
(expense)
Loss before (13,052) 0 (2,,017) 0
income tax
Net income tax 30 0 (830) 0
Net (13,082) 16,323 (2,847) 33,019
Income/(Loss)
</TABLE>
25
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
STATEMENTS OF CASH FLOW
Thanksgiving Coffee Company, Inc.
Consolidation of Subsidiary Financial Statements
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
6/30/00 6/30/99
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (2,847) $ 33,019
Non Cash Items Included in Net Income (Loss):
Depreciation & Amortization 113,290 101,098
(Increase) Decrease In:
Receivables 20,685 62,236
Inventory (45,821) 13,288
Commodities Options Account 0 0
Prepaid Expense (49,380) (60,465)
Deposits/Other (2,660) (1,050)
Increase (Decrease) In:
Accounts Payable 141,751 14,503
Accrued Liabilities (5,121) (15,336)
Deferred Income Taxes 0 0
------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 169,897 147,293
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (60,410) (75,439)
Purchase of Intangible Assets 0 0
Repurchase of Common Stock 0 (11,198)
Unrealized Gain (Loss) on Investments 0 0
------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (60,410) (86,637)
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayment) Proceeds of Notes Payable (96,213) (85,861)
(Increase) Decrease of Notes Receivable 0 0
------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (96,213) (85,861)
NET INCREASE (DECREASE) IN CASH 13,274 (25,205)
CASH AT 1/1/00 AND 1/1/99 41,156 89,725
------------------------------------------
CASH AT 6/30/00 AND 6/30/99 54,430 64,520
==========================================
</TABLE>
26
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-QSB
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act
of 1934 as amended. Words such as "believe," "anticipate," "expect," "intend,"
"plan," "will," "may," and other similar expressions identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. These statements relate to, among other things, trends in the
operations of the Company. Any such statements should be considered in light of
various risks and uncertainties that could cause results to differ materially
from expectations, estimates or forecast expressed. The various risks and
uncertainties include, but are not limited to: changes in general economic
conditions, changes in business conditions in the coffee industry, fluctuations
in consumer demand for coffee products and in the availability and costs of
green beans, increased competition within the Company's businesses, variances
from budgeted sales mix and growth rate, consumer acceptance of the Company's
new products, inability to secure adequate capital to fund its operating
expenses and working capital requirements, inability to hire, train and retain
qualified personnel, concentration of production and sales in Northern
California, the loss of one or more major customers, inability to successfully
implement its business plan, natural disasters, civil unrest in countries which
produce coffee and tea, weather and other risks identified herein. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date of this 10-QSB.
Three Months Ended June 30, 2000 Compared With Three Months Ended June 30, 1999
Consolidated Increase (Decrease)
------------ -------------------
Net Sales $ 29,813
Cost of Sales $ 36,453
Gross Margin (1.5%)
Selling, G&A Expense $ 30,838
Depreciation & Amortization $ 4,613
Interest Expense ($ 3,354)
Net Income/(Loss) ($ 29,405)
Consolidated net sales for the three months ended June 30, 2000 were $1,363,672,
or up 2% when compared with net sales of $1,333,859 for the same period in
fiscal 1999.
The Company's aggregate coffee sales for the three months ended June 30, 2000
compared to the same period in fiscal 1999 were substantially similar. While
national revenues (eg. Revenues not derived by mail order and direct truck
distribution) and mail order revenues declined by approximately $15,000,
distribution sales increased by approximately $40,000 in the three month period
ending June 30, 2000 compared to the same period in 1999. The decrease in
national revenues is attributed to two customers who transferred their business
to local roasters. The improvement in distribution sales has come as a result of
staffing additions that were made earlier in the year. Although management
anticipates this growth will continue, there can be no assurances that such
growth can be sustained and current revenues could decline.
The decrease in revenue for mail order reflects the lack of spending on new
mailings to grow the mailing list and attrition of the current list. The Company
has shifted its emphasis to Internet sales and increased its expenditures for
development of its Internet site and store. This shift has been made to continue
the Company's mission to preserve natural resources by potentially reducing the
number of catalogues it produces and to participate in the growing interest in
web purchases. As a result, web sales increased by $12,500 for the second
quarter of 2000 over the same period in 1999.
Sales attributable to operations of the Company's bakery grew 2.9%, or nearly
$4,000, during the second quarter of 2000 compared to the same period in 1999
reflecting better volume in 2000.
Cost of sales increased from $724,124 in 1999 to $760,577 in 2,000 growing
faster than sales because of increases in the cost of energy, labor and
packaging. These costs accounted for the major portion of the increase.
Consolidated gross margin (gross profit as a percentage of net sales) decreased
to 44.2% for the three month period ending
27
<PAGE>
June 30, 2000 from 45.7% for the three months ended June 30, 1999. This decline
was a result of higher cost of sales as described above.
Consolidated selling, general and administrative expenses were $545,600 for the
period ending June 30, 2000, a 6.3% increase over the $514,762 for three months
ended June 30, 1999. This increase in selling, general and administrative
expenses was due primarily to additional staffing expenses. In late 1999, the
sales department added a new salesperson, a sales manager, driver supervisor and
a repair person to repair its brewers and grinders. The Company also added an
environmental and social manager to staff in the first quarter.
Depreciation and amortization expense increased 10.0% from $46,265 for the three
months ended June 30, 1999 to $50,879 for the same period in 2000 as a result of
the purchase of additional fixed assets. The increase in fixed assets was a
result of web store and site design, upgrade of computer hardware and software
and brewing and grinding equipment for the field.
Interest expense decreased 10.9% from $30,634 for the three months ended June
30, 1999 to $27,280 for the same period in fiscal 2000, as a result of a
decrease in total borrowings from June 30, 1999 of $1,020,253 to $807,187 at
June 30, 2000. Interest expense as a percentage of net sales decreased to 2%
for the three months ended June 30, 2000 from 2.3% for the three months ended
June 30, 1999.
During the second quarter of fiscal 2000, the Company entered into an agreement
with COLUSA, a not for profit technical assistance organization in Nicaragua to
place ten tasting rooms on farms of co-ops. The project is funded by USAID.
The Company's role is to provide technical assistance, equipment and supplies
for the project. To date the Company has accrued $40,000 in income and has had
$33,371 in expenses. The project is expected to take approximately eighteen
months to complete.
As a result of the foregoing factors, the Company incurred a consolidated net
loss of $13,082 for the three months ended June 30, 2000 compared with a net
profit of $16,323 for the three months ended June 30, 1999. Management
anticipates sustaining further losses in the next quarter until it can implement
price increases to offset the higher cost of sales especially in the Swiss Water
Processed Decafs and makes changes in staffing to lower operating expenses.
There can be no assurances that the price increases can be implemented and/or
staffing changes made ; and even if such price increases or staffing changes are
made, there are no assurances that the Company will be profitable in any future
period.
Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999
Consolidated Increase (Decrease)
------------ -------------------
Net Sales $ 56,323
Cost of Sales ($ 16,344)
Gross Margin 1.8%
Selling, G&A Expense $112,055
Depreciation & Amortization $ 11,466
Interest Expense ($ 4,380)
Net Income/(Loss) ($ 35,866)
Consolidated net sales for the six months ended June 30, 2000 were $2,658,374, a
2% increase over net sales of $2,602,051 for the same period in fiscal 1999.
The Company's coffee sales increased nearly 1% for the six months ended June 30,
2000 compared to the same period in fiscal 1999. While national revenues and
mail order have declined by approximately $57,000 and $12,000 respectively,
distribution sales revenues increased by approximately $114,000 in the six month
period ending June 30, 2000 compared to the same period in 1999. The
improvement in the local distribution has come as a result of staffing additions
that were made earlier in the year. Although management anticipates this growth
will continue, there can be no assurance that such growth can be sustained and
current revenues may decline.
The decrease in mail order revenue reflects the lack of mailings to grow the
customer list. The Company has shifted its emphasis to Internet sales. Most of
its spending has been for the Internet site and Internet store. This shift has
been made to further the company's mission of preserving the environment by
potentially reducing the amount of catalogues produced and to participate in the
growing interest of buying on the web. Revenues on the web are up
approximately $50,000 for the first six months of 2000, compared to the same
period in 1999.
28
<PAGE>
The bakery sales grew 3.5% or nearly $11,000 during the first six months of 2000
compared to the same period in 1999 reflecting good volume in 2000.
Cost of sales have declined from $1,447,403 for the first six months of 1999 to
$1,431,059 compared to the same period in 2000 primarily on lower bean costs.
Increases in the second quarter in fuel, salaries and packaging have
substantially eroded the improvements. We anticipate that these higher costs
will negatively affect cost of sales in the third and fourth quarter of 2000.
Consolidated gross margin (gross profit as a percentage of net sales) increased
to 46.2% for the six month period ending June 30, 2000 from 44.4% for the six
months ended June 30, 1999.
The Company's coffee gross margins increased from 47.2% for the six months ended
June 30, 1999 to 49.8% in the same period of fiscal 2000. This increase was due
to the average cost of green beans decreasing from $1.84 per pound over the six
month period ending June 30, 1999 compared to $1.71 per pound over the same
period in 2000.
Consolidated selling, general and administrative expenses were $1,079,736 for
the six months period ending June 30, 2000; a 11.5% increase over the $967,681
for six months ended June 30, 1999. This increase in selling, general and
administration expenses was due, as described previously, to additional staffing
expenses.
Depreciation and amortization expense increased 12.7% from $90,338 for the six
months ended June 30, 1999 to $101,804 for the same period in 2000 as a result
of the purchase of additional fixed assets. The increase in fixed assets was a
result of web store and site design, upgrade of computer hardware and software
and some purchase of brewers and grinders.
Interest expense decreased 7.2% from $60,645 for the six months ended June 30,
1999 to $56,265 for the same period in fiscal 2000, as a result of a decrease in
total borrowings from $1,020,253 at June 30, 1999 to $807,187 at June 30, 2000.
Interest expense as a percentage of net sales decreased to 2.1% for the six
months ended June 30, 2000 from 2.3% for the six months ended June 30, 1999.
As a result of the flat sales and increasing cost of goods and higher labor
costs, the Company incurred a consolidated net loss of $2,847 for the six months
ended June 30, 2000, compared with a net profit of $33,019 for the six months
ended June 30, 1999. Management anticipates sustaining further losses in the
next quarter until it can implement price increases to offset higher cost of
sales especially in its Swiss Water Processed Decafs and makes changes in its
staffing to lower operating costs. There can be no assurances that the price
increases can be made and/or staff changes implemented; and if such price
increases and staffing changes made, there are no assurances that the company
will be profitable in any future period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 the Company had negative working capital of $128,185. This
change in working capital is a result of the reclassification of the balloon
payment of approximately $459,583 due under the Wells Fargo note.. This
obligation is now listed as current because it is due within twelve months (See
footnote 6). The Company has been working with a number of financial
institutions to refinance the balloon payment in addition to acquiring a working
capital line of credit.
Net cash provided by operating activities was $169,897 for the three months
ended June 30, 2000 compared to $147,293 provided by operating activities for
the three months ended June 30, 1999. The increase in net cash provided by
operating activities was primarily due to increases in accounts payable and
depreciation of $141,751 and $113,290 respectively. These increases were offset
by increases in prepaid expenses and inventories of $49,380 and $45,821,
respectively. Increases in prepaid expenses were a result of classifying
amounts from the CLUSA contract in this section, amounting to nearly $40,000.
Increases in inventories were a result of a shipment of green beans coming at
the end of the month and an increase in other manufactured goods inventory of
$10,000. The increase in accounts payable was a result of the truck load of
inventory arriving on the last day of the period and slower payable cycle with
agreement of its green bean vendors.
Net cash used by investing activities was $60,410 comprised primarily of
internet WEB design for the site and the store, computer hardware and software
upgrades and grinders brewers, and fixtures purchased during six month period
ending June 30, 2000 compared to net cash used by investing activities of
$86,637 for the same period in 1999.
Included in net cash used by financing activities during the three months ended
June 30, 2000 was $96,213 net repayment of notes payables and capital leases
compared to $85,861 in the same period for fiscal 1999 for note repayments and
repurchase of stock. The higher repayment of debt was a result of the
accelerated payment schedule of the Wells Fargo note. The drop in cash was a
result of higher debt service payments.
29
<PAGE>
The Company maintained a revolving line of credit of up to $650,000 with Wells
Fargo in Fiscal 1998. In January, 1999, this agreement was renegotiated and
replaced with a two year note payable in the principal amount of $601,636 and a
final balloon payment due and payable January 15, 2001 of $459,583. The loan
terms contain certain limitations and covenant restrictions, including limits on
the incurrence of additional indebtedness.
At June 30, 1999, the Company had total borrowings of $807,187, including
$553,053 outstanding to Wells Fargo Bank. The borrowings are secured by the
Company's accounts receivable, inventory, equipment, fixtures and improvements.
The Company anticipates that its existing capital resources and cash generated
from operations will not be sufficient to meet its cash requirements for the
next 12 months at its anticipated level of operations. The Company is
currently negotiating with several financial institutions to refinance its debt
with Wells Fargo. If the Company cannot refinance its balloon note of $459,583,
due January 2001, its operations would be severely threatened. There can be no
assurances that the balloon payment can be refinanced or that if refinanced the
rates charged would be favorable to continued operations. If the debt is not
refinanced, the Company would experience a material adverse effect on its
operations.
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 meet its credit obligations the Company's business could be
materially and adversely affected.
SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE
The Company's business is seasonal in nature. 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 and increase in the first two quarters with a corresponding decrease
in inventory and increase in cash in the last quarter. Because of the
seasonality of the Company's business, results for any quarter are not
necessarily indicative of the results that may be achieved for the full fiscal
year. Furthermore, past seasonal patterns are not necessarily indicative of
future results. The Company's future results of operations and earnings could be
significantly affected by other factors, such as changes in general economic
conditions, changes in business conditions in the coffee industry, fluctuations
in consumer demand for coffee products and in the availability and costs of
green coffee beans, increased competition with the Company's businesses,
variances from budgeted sales mix and growth rate, consumer acceptance of the
Company's new products, inability to secure adequate capital to fund its
operations and working capital requirements, inability to hire, train and retain
qualified personnel, concentration of production and sales in Northern
California, the loss of one or more major customers, inability to produce coffee
and tea, weather and other natural disasters. There can be no assurance that
sales will increase in future quarters.
INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company may indemnify its directors,
officers, employees and other agents to the fullest extent permitted by
California law. The Company believes that indemnification under its Bylaws also
permits the Company to secure insurance on behalf of any officer, director,
employee or other agent for any liability arising out of his or her actions in
such capacity, regardless of whether California law would permit
indemnification. The Company maintains such liability insurance for its
directors and certain officers and employees.
At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification would be
required or permitted. The Company is not aware of any pending or threatened
litigation or proceeding that might result in a claim for such indemnification.
SUMMARY OF RECENT DEVELOPMENTS
30
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is engaged in litigation with a former employee who is seeking
damages based upon claims of wrongful termination, breach of an employment
contract, break of fiduciary duty, fraudulent inducement and accounting. This
action was filed in the Mendocino County Superior Court on May 18, 1999. The
Company is vigorously defending this matter and is pursuing related cross-
claims. Damages in an unspecified amount have been alleged. The ultimate
outcome of this matter and the effect on an adverse result, if any, cannot be
determined at this time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- 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
27.1 Financial Data Schedule (electronic only).
b. Form 8-K
No reports on Form 8-K were filed during the period from April 1, 2000 through
June 30, 2000
31
<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 August 17, 2000
----------------
Paul Katzeff
/s/ Joan Katzeff President August 17, 2000
----------------
Joan Katzeff
32
