<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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.
(Name of small business issuer 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: (707) 964-0118
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
___________________ _________________________________
___________________ _________________________________
Securities registered under Section 12(g) of the Exchange Act:
________________________________________________________________
(Title of class)
________________________________________________________________
(Title of class)
<PAGE>
<PAGE>
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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 \ \
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10- KSB or any amendment to this
Form 10-KSB. \X\
State issuer's revenues for its most recent fiscal year: $5,536,095
State the aggregate market value of the voting and non-voting common
equity held by nonaffiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked prices
of such stock, as of a specified date within the past 60 days:
$1,200,851 as of February 29, 2000 (Due to limited amount of trading
during 1999, this is the average of four trades during the year.).
See Part II, Item 5, Market for Common Equity and Related Stockholder
Matters.
As of February 29, 2000, there were 1,234,544 shares outstanding of
common stock of the issuer.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents if incorporated by reference and the
Part of this Form 10-KSB into which the document is incorporated:
None.
INDEX
Page No.
PART I.
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II.
Item 5. Market for Common Equity and Related Stockholder
Matters
Item 6. Management's Discussion and Analysis or
Plan of Operation
Item 7. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
<PAGE>
<PAGE>
PART III.
Item 8. Directors and Executive Officers of the Registrant
Item 9. Executive Compensation
Item 10. Security Ownership of Management and Certain Others
Item 11. Certain Relationships and Related Transactions
Item 12. Exhibits and Reports on Form 8-K
Item 13. Financial Statements
<PAGE>
<PAGE>
PART I
ITEM 1 BUSINESS
FORWARD LOOKING INFORMATION
In addition to historical information, this Annual Report on Form
10-KSB contains forward-looking statements within the meaning of Section
27A of The Securities Act and Section 21E of The Securities Exchange
Act of 1934. Forward-looking statements are identified by words such
as "believe," "anticipate," "expect," "intend," "plan," "will,"
"may," and other similar expressions. 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, planned expansions into new
and existing markets and trends in the operations of Thanksgiving
Coffee Company, Inc. (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
forecasts 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 coffee 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-KSB.
GENERAL
For more than twenty-five years, the Company has purchased and
roasted high quality coffee beans and marketed them to the specialty
coffee market. The Company buys green coffee beans through six main
importers, including Sustainable Harvest, Inc. (a former subsidiary
of the Company). At the end of fiscal 1997, the Company sold
Sustainable Harvest and entered into an agreement to purchase beans
from Sustainable Harvest for five years commencing December 1997.
See "Green Bean Coffee Supply and Availability."
The Company was incorporated as a California corporation on May 10,
1982. Prior to that time, the Company was operated as a partnership.
The Company retails over 100 varieties of its coffee and tea through
its own distribution system in the Northern California market. In
<PAGE>
<PAGE>
other parts of the nation the Company distributes its products either
direct to retailers or through brokers and distributors. The Company
also markets directly to consumers through both the print and
electronic media. It publishes a mail order catalogue which features
most of the Company's coffee and tea products, in addition to
complementary products and accessories of third parties. The same
product offerings are made on the Company's web site on the internet.
The Company also markets its coffee and tea products in its retail
bakery (the "Bakery"), located in Mendocino, California.
In October 1996, the Company completed its offering of shares of
Common Stock. As of December 31, 1999, 1,305 non-affiliated
shareholders held shares of the Company's Common Stock which
represents approximately 20.7% of the outstanding shares.
PRODUCTS
COFFEE. The Company roasts a wide variety of whole bean caffeinated,
decaffeinated, flavored, blended and unblended coffees. With the
exception of its high-caffeinated coffees, the Company roasts only
high quality arabica beans with a focus on organic and shade grown
beans. Arabica beans are grown at high altitudes where the cooler
climate results in slow growth and usually higher quality. Packages
have been custom-designed for retailers' particular products. In
addition to its full line of classic specialty and estate coffees
from over 20 countries currently, the Company is producing custom
products for the American Birding Association under an exclusive
ten-year contract and private-label products for over 100 retail and
serving accounts in an effort to meet customers needs.
TEA. The Company's Royal Gardens Tea Company ("Royal Gardens")
division currently offers eleven traditional teas from China, India,
Sri Lanka and Japan.
COMPLEMENTARY PRODUCTS. The Company sells a wide variety of
complementary coffee and tea products and accessories, such as coffee
and espresso makers, grinders, thermal carafes, books,
T- shirts, mugs, CD's and chocolate covered espresso beans.
The Company sells its coffees and teas through a multi-channel
distribution network consisting of wholesale distribution operations,
a Company-owned Bakery and direct marketing operations. The Company
offers its complementary products through all of these channels of
distribution. Products are purchased from third party vendors
without contract and resold to its customers. The Company generally
provides its wholesale customers with brewing, grinding and related
equipment (leased from manufacturers) and product displays (designed
and manufactured by the Company) at no charge if predetermined sales
volumes are reached.
Of total fiscal 1999 revenues of $5,536,095, 84% were from roasting
coffee, 12.5% were from the bakery, 2.4% were from resale items, and
1.1% were from tea products.
<PAGE>
<PAGE>
COFFEE INDUSTRY
According to the Specialty Coffee Association, specialty coffee
retail sales exceed $2.1 billion and specialty coffee beverage sales
exceed $3.3 billion annually in a $17 billion coffee market in 1998.
Specialty coffee beverage retailers have been the fastest growing
distribution channel in the specialty coffee business. There is
expected to be 12,000 locations at the end of 1999 versus 6,000 units
just five years ago. Cross outlet competition is sharpening as away-
from-home consumption is growing through new or existing locations to
gain market share at the expense of at-home consumption which is
supermarkets and mass merchandisers.
Although total coffee consumption is flat, consumers are purchasing
more value added coffee products (i.e. specialty coffee drinks) which
is driving the market. Coffee consumers have been moving away from
price-based drinks to ones that focus in on product variety and
quality. This quality conscious purchasing trend has evolved coffee
from a beverage with commodity characteristics to one with cultural
and sensory ties.
In the 1970's, when Thanksgiving Coffee began to roast, there were
less than 100 roasters in the country with the large roasters
accounting for nearly all of the coffees consumed. Today, there are
1,200 specialty coffee roasters, each segmenting and fragmenting the
market, adopting to a wide variety of niche markets, focusing on
their ability to provide a wide range of coffee origins, freshly
roasted in the appropriate style to meet the specific needs of local
marketers.
There has been a trend of increased public awareness of the
environmental issues associated with clear cutting of rain forests to
provide land for sun-grown coffee. Recent changes in the coffee
industry have included:
1. The Specialty Coffee Association of America ("SCAA") has changed
its 14-year old mission statement to include the words: "social
responsibility," "environmental sensitivity," and "sustainability."
2. The international community of coffee producers has accepted the
goal of "sustainability" as the economic direction of choice. The
country of Nicaragua has embraced the policy of shade in its coffee
plantations as public policy.
3. A Third National Conference on Coffee and the Environment, which
is co-sponsored by the SCAA and the Smithsonian Migratory Bird
Center, will be held in San Francisco, California in April 2000.
4. Shade grown coffee and Fair Trade coffee now appears on the
"offer" lists of most coffee brokers and importers and is offered by
a majority of small to mid-size coffee roasters of specialty coffee.
<PAGE>
<PAGE>
5. Coffee producing countries, such as Costa Rica, have begun shade
replantings on their sun coffee farms to improve the quality of their
coffee beans and to benefit from premium prices paid for shade
coffee.
MARKETING STRATEGY
The Company's sales and marketing efforts are currently organized in
four different segments:
1. Wholesale, direct delivery - This segment includes customers in
northern California counties contiguous to the Company plant in Fort
Bragg, California, and is serviced by Company trucks. The Company
owns or leases trucks and delivers coffee within a 200 mile radius of
Fort Bragg.
2. Wholesale, delivery by other means - This segment includes
accounts which are serviced by UPS or other common carriers.
Delivery is made to over 500 accounts which span all 50 states of the
United States. This segment is either handled direct, via broker or
by a distributor.
3. Direct Marketing - This segment includes accounts serviced
through catalogue or online programs.
4. Retail - This segment consists of sales through the Company's
Bakery. However, the Company is currently pursuing the sale of the
Bakery with a real estate agent (see Item 2 Property).
During fiscal 1999, the Company continued its shift in its blend of
product sales to focus on customer packaged products to niche
markets. The Company's plan for fiscal 1999 was based on the
continued growth of Song Bird Coffee sales to the marketplace. The
Company has embarked on a campaign to market coffees to bird lovers
under an exclusive ten-year agreement with the American Birding
Association to produce and market Song Bird Coffee worldwide. Song
Bird Coffee is a registered trademark of the American Birding
Association, one of America's most active and prestigious birding
membership associations with over 20,000 members.
The Company's strategy of "repositioning" its coffee products by
targeting bird lovers instead of coffee lovers is predicated on the
fact that migratory birds are in population decline due to loss of
habitat, which results from the clearing of shade tree canopy to
allow coffee to grow in the sun. The Smithsonian Migratory Bird
Center's landmark 1996 study reported that as much as 60% of the
migratory bird population of North America has disappeared since
1972, and traced this disappearance to the reduction of forest
habitat in Central and South America caused by the "technification"
of coffee agriculture. The Company's environmental concerns have
meshed perfectly with the birding community, and the Company's
marketing efforts have been extremely successful to date. In 1999,
the Company opened 157 new bird store accounts which retail Song Bird
Coffee for a total of 285 accounts.
<PAGE>
<PAGE>
In fiscal 1997, the Company pioneered the sale of the Song Bird
Coffee in bird stores, home and garden centers and drug stores. It
also began to offer Song Bird Coffee through more traditional retail
venues such as supermarkets, restaurants and cafes, and in its direct
marketing catalogue. This effort is intended to increase the
awareness of the coffee drinking public and the birding community
that production of sun grown coffee on previously forested lands was
a major factor in the deterioration of the world's rain forests and
habitat of migratory song birds. By educating consumers through
packaging and special venue sales, such as bird stores, the Company's
aim is the creation of a strong market for shade grown coffees which
preserves bird habitat. Support by consumers could influence coffee
farms to replant limited or natural shade, and thus, help stop the
destruction of the environment before additional losses occur in the
song bird population.
The Company believes that its relationship with the American Birding
Association and its marketing of Song Bird Coffee have distinguished
the Company's role and image in the marketplace. The devotion of
more of the Company's resources to the production of Song Bird Coffee
and an increased public awareness of the environmental effects of
coffee growing has resulted in a corresponding increase in the sales
of the Company's packaged and bulk roasted shade grown and organic
coffee varieties, from approximately 30% of sales in fiscal 1996, to
just over 33% of sales in 1997, to 40% in 1998, to over 46% in 1999.
Song Bird Coffee sales have grown to represent 6% of the Company's
packaged and bulk roasted coffee sales in fiscal 1997, 10% in 1998,
and 12% in fiscal 1999. Song Bird Coffee was not sold in fiscal
1996.
SOCIAL RESPONSIBILITY
It has been the philosophy of the Company to not only provide an
excellent cup of quality coffee but also procure, roast, package and
market its products in a fair manner to all its customers and
suppliers. The Company's motto, "Not Just a Cup, but a Just Cup,"
reflects the Company's commitment to local coffee growers in
developing nations
The clear cutting of the rain forests to provide land for sun-grown
coffee has destroyed the habitat of neo-tropical song birds. The
Company provides a $0.15 rebate for every Song Bird coffee package
and every pound of bulk Song Bird coffee sold to the American Birding
Association (the "ABA") which supports the promotion of public
awareness of this destruction.
The Company also contributes coffee, money and employee time to a
number of causes aligned with its commitment to social and
environmental responsibility.
COMPETITION
The specialty coffee market is highly competitive, and the Company
competes against all sellers of specialty coffee. At the wholesale
<PAGE>
<PAGE>
level, the Company competes with several nationally known premium
coffee brands, such as Proctor & Gamble's Millstone label and
Nestle's Nescafe label, as well as other lesser known brands and
store brands. The Company also competes regionally in Northern
California with small regional specialty roasters for retail shelf
space and with large regional roasters for food service trade. In
the direct mail area, the Company competes with established suppliers
such as Gevalia, a division of General Foods Corporation, as well as
with other direct mail companies, including Starbuck's, a leading
independent specialty coffee retailer and wholesaler.
There are other eco friendly coffee companies such as Equal Exchange,
Counter Culture, Cafe Mam and other coffee companies that have
environmental coffees in their lines such as Green Mountain and
Boyd's.
The Company competes primarily on the basis of the quality of its
products, its graphics, and its social and environmental
philosophies. Many of the Company's competitors are larger than the
Company and have significantly greater financial, marketing and other
resources than the Company, and there can be no assurance that it
will be able to compete or maintain or expand sales successfully in
the future.
The Company attempts to cooperate with retailers in introducing what
it believes are novel products which face little or no competition
and to place its products in markets where such products have not
previously been sold. For example, Song Bird Coffee is marketed in
stores where bird lovers purchase birdseed and bird houses. In
addition we have similar programs with Wyland and Fair Traded
coffees. The Company calls this strategy "repositioning". See
"Marketing Strategy."
Similarly, the Company sells organic and shade grown coffee to
organizations that relate to social and environmental issues. In
fiscal 1999, the Company's coffee products were served and sold by
prestigious environmental organizations such as The National
Aquarium, Monterey Bay Aquarium, the Cape May Bird Observatory and by
several other national institutions.
The Company cannot guarantee successful competition against other
coffee companies. The Company believes its focus on repositioning
and partnering has enabled it to find a niche in the coffee market,
however there can be no assurance that the Company's marketing
efforts will be successful.
The Company also experiences competition in connection with sale of
tea. The Company's product generally is sold in specialty retailers
and gift shops where there is competition from a variety of companies
such as Tazo, Republic of Tea, Stash and Bigelow. The Company
competes primarily on the basis of the quality of the tea, and the
packaging. While the Company believes it competes favorably with
respect to these factors, many of the Company's competitors are
<PAGE>
<PAGE>
larger than the Company and have significantly greater financial,
marketing and other resources than the Company, and there can be no
assurance that it will be able to compete or maintain or expand sales
successfully in the future.
The Company also provides complimentary products primarily to its
wholesale serving accounts that are ancillary to the coffee business
but are necessary to serve coffee. These items include chocolate,
syrups, coffee cups, equipment cleaner and the like. These items are
provided as a convenience for those accounts and assist in increasing
revenue per stop for the Company's distribution system. The Company
also sells these items in their direct marketing division. The
Company experiences competition in the sale of these ancillary items
from manufacturers or other distributors such as foodservice
distributors. There can be no assurance that the Company will be
able to compete or maintain or expand sales of these products
successfully in the future.
GREEN BEAN COFFEE SUPPLY AND AVAILABILITY
The Company purchases green beans from a number of importers as well
as from farmer representatives and small producer cooperatives.
Although most coffee trades in the worldwide commodities markets,
coffee of the quality sought by the Company tends to trade on a
negotiated basis at a substantial premium or "differential" above
commodity coffee pricing, depending upon the supply and demand at the
time of purchase. Supply and price can be affected by multiple
factors, such as weather, politics and economics in the producing
countries.
In addition, in its attempt to reduce the cost risk resulting from
market fluctuations in the cost of coffee beans, the Company, or its
brokers on its behalf, does purchase coffee contracts when it is not
able to enter into coffee purchase commitments. Changes in the
market value of option contracts are reported by the Company in the
period in which the change occurs and are included as part of cost of
sales.
The Company has a long term contract to purchase green beans from one
of its importers, Sustainable Harvest. See Item 11, Certain
Relationships and Related Transactions.
The Company believes its long-term relationships with coffee bean
brokers, including Sustainable Harvest, provide adequate sources of
supply of high-quality green beans to meet its needs for the
foreseeable future. However, a worldwide supply shortage of the high
quality arabica coffees the Company purchases, and a shortage of
organic and shade grown beans in particular, could have an adverse
impact on the Company.
Supplies of tea are secured from traditional sources which are
readily available in the marketplace.
<PAGE>
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The Company renegotiated its line of credit with Wells Fargo Bank in
January 1999 to a note payable with the first year payments based on
a ten-year amortization schedule and the second year payments based
on an eight year amortization schedule and a balloon payment due at
the end of the second year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources." This loan is due January 15, 2001 with the
balloon payment of $441,200 at that time. The Company is currently
discussing the refinancing of the balloon payment. In the event that
the company is unable to renegotiate this balloon payment before it
becomes due, the Company's business could be adversely affected. It
is also negotiating with Wells Fargo to refinance its leases,
establish a capital equipment line and develop a working capital
line. The Company currently has no working capital line and is using
cash and operating revenues to fund its business. See "Management's
Discussion and Analysis of Financial Conditions - Results of
Operations Liquidity and Capital Resources."
The Company has been pursuing the sale of its bakery operations in
Mendocino. It has listed it with a real estate agent. The Company
does not deem it a fit with its wholesale operations. However, it is
a major retailer of its coffee in the town and intends to continue to
operate the business including the renewing of the 10 year extension
of the lease until it can find a buyer who will continue to use the
Company's coffee products exclusively after the sale. There is no
guarantee that the Company will be able to sell the bakery.
CUSTOMERS
In fiscal 1999, no customer accounted for more than 10% of the
Company's revenue from coffee sales. However, significant reduction
in sales to any of the Company's principal customers, or the loss of
one or more major customers, may have an adverse impact on the
Company. See "Management's Discussion and Analysis of Financial
Conditions - 1999 Compared to 1998."
INTELLECTUAL PROPERTY
The Company holds various federal registrations in the United States
for the following trademarks and service marks: Thanksgiving Coffee
Company, Royal Gardens Tea Company, Pony Express, Time Bandits, Grand
Slam Coffee, "Not Just a Cup...But a Just Cup," "Many Beans are
Picked, Few are Chosen," Mayan Harvest, and Inca Harvest. From time
to time, federal trademark and service mark registrations must be
renewed. The Company also has several applications pending for
registration of additional trademarks and service marks including the
Zapotec Powerline mark. The Company does not hold any patents.
GOVERNMENT REGULATION
The Company's roasting plant has been certified wholly organic by the
Organic Crop Improvement Association (OCIA). The OCIA has also
<PAGE>
<PAGE>
certified the organic practices of several farms from which the
Company receives green beans. The certification criteria of the
OCIA, an independent organization, meet the standards promulgated
under the Organic Foods Production Act of 1990 (OFPA).
The Company believes that new federal regulations strengthening the
definitions, the treatment and the labeling of organic and natural
products will not adversely affect the Company because it already
adheres to OCIA standards that are as stringent as the new
regulations.
EMPLOYEES
As of December 31, 1999, the Company had approximately fifty-four
full-time employees and eleven part-time employees. None of the
Company's employees are covered by a collective bargaining agreement.
The Company has never suffered a work stoppage due to adverse labor
conditions with its employees. The Company believes that it
maintains good relations with its employees.
ITEM 2 PROPERTY
The executive offices of the Company occupy approximately 14,500
square feet at 19100 South Noyo Harbor Drive, Fort Bragg, California
95437, which also includes a warehouse and the capacity for
manufacturing operations. The Company leases an additional 1,626
square feet of storage space on the Fort Bragg waterfront. These
facilities are currently being leased for a five-year term expiring
March 31, 2000, at a rate of approximately $8,500 per month in fiscal
1997 and $8,600 per month in fiscal 1998 and fiscal 1999, from
affiliates of the Company, Joan and Paul Katzeff, who are founders,
principal shareholders, officers and directors of the Company. The
Company has exercised an option to extend the lease for one five-year
period at the same rate of $8,600 per month. The Company believes
this lease represents an arms-length rate and arms-length terms for
comparable space in the Fort Bragg area and intends to extend the
lease. See Item 12, "Certain Relationships and Related
Transactions."
The Company's Bakery in Mendocino is approximately 1,617 square feet
and is leased from an unaffiliated third party. The Company
currently pays rent of approximately $2,875 per month for the Bakery
pursuant to a ten-year lease that commenced on October 1, 1990.
Although the Company plans to sell the bakery, the bakery will
exercise its option to extend its lease through September 30, 2010 as
they are a major customer of the Company in Mendocino.
The Company believes that its current facilities are adequate for its
current and expected operations, and that suitable additional space
will be available in the Fort Bragg area when and if additional space
is required. The Company owns no real property.
<PAGE>
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
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 has pursued related cross-claims. The ultimate outcome of
this matter and the effect of an adverse result, if any, cannot be
determined at this time.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ending December 31, 1999.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Trades in the Company's Common Stock are made through Mutual
Securities, Inc., ("Mutual Securities") in Ukiah, California, an
order matching service. No established trading market exists for the
Company's Common Stock. The Company's Common Stock is not listed on
any exchange nor the NASDAQ system. The Company is seeking a listing
on an exchange.
During fiscal 1999, the Company was aware of only four trades of the
Company's Common Stock totaling 2,350 shares of Common Stock. All
transactions were individually negotiated between the buyer and
seller through Mutual Securities as intermediary. The average price
of these transactions per Mutual Securities was $4.74 for all of
fiscal 1999. The first three trades were for 2,200 shares at $5.00
per share and took place in the first three quarters. The final
trade for 150 shares took place in the last quarter and was for $1.00
per share.
The Company has not declared nor paid any cash dividend since its
inception. The Company intends to retain all earnings for use in its
business and therefore does not anticipate paying any cash dividends
in the near future. The Company's bank credit agreement prohibits
the payment of cash dividends without the bank's consent.
As of December 31, 1999, there were 1,308 holders of record of the
Common Stock.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of financial condition and results of
operations should be read in conjunction with the Company's audited
<PAGE>
<PAGE>
financial statements and notes thereto appearing elsewhere in this
Form 10-KSB.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
REVENUES. Total revenues decreased $117,262 or 2.1% to $5,536,095
for fiscal 1999 compared to $5,653,357 for fiscal 1998. This
decrease was a result of a customer in Michigan changing his espresso
bean purchases to a local supplier and a distributor in California
changing coffee companies. This decline of $175,000 was offset by
increases in the Song Bird program as over 157 new accounts were
added. In addition, the Company has created a new position, national
sales manager, which it feels will stem the flow of losing accounts
to other companies. Bakery sales also increased by $13,900.
GROSS MARGIN. Gross margin (gross profit as a percentage of net
sales) increased to 44.6% in fiscal 1999 from 41.29% in fiscal 1998.
Gross margins increased mainly due to lower bean costs in the core
coffee company and improved efficiency. The Bakery margins improved
due to increased sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $134,500 or 6.1% from $2,191,298
in fiscal 1998 to $2,056,774 in fiscal 1999. As a percentage of
total sales, selling, general and administrative expenses decreased
from 38.8% in 1998 to 37.2% in fiscal 1999. Of the $134,500
decrease, approximately $39,100 reflects the reduction of bad debt
expense, $35,700 decrease in payroll related expenses, $31,900
decrease in mail order brochures expense, $26,800 reflects the
decrease of expenses related to legal, accounting and $13,200
reduction in shows expense. The Company expects selling, general and
administrative expenses to increase next year as it has added
management in route sales, a delivery supervisor and a brewer and
grinder repair position.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses as a percentage of total sales increased to 3.3% in fiscal
1999 from 3.1% in fiscal 1998, due primarily to depreciation for
additional equipment and to lower sales in fiscal 1999.
OTHER INCOME. Miscellaneous income of $1,459 in fiscal 1999 is flat
compared to $1,452 in fiscal 1998.
INTEREST EXPENSE. Interest expense was slightly higher in fiscal
1999 at $117,205 compared to $117,089 in fiscal 1998. Interest
expense as a percentage of total sales remained the same at 2.1% for
fiscal 1999 and 2.1% for the same time period in fiscal 1998.
INCOME TAX EXPENSE. As a result of 1999 net income before taxes of
$119,273, the Company paid $800 in current state minimum taxes.
Additionally, the Company paid $800 for an adjustment to prior year
state minimum taxes. Due to temporary differences between the
<PAGE>
<PAGE>
financial and tax basis of the Company's assets and liabilities, the
Company also recognized deferred income tax expense of $6,531 related
to federal differences and $6,778 for state. The total income tax
expense for the period ending December 31, 1999 was $14,909.
NET INCOME. As a result of the foregoing, the net income for fiscal
1999 amounted to $104,364 or 1.9% of total sales compared to a net
loss of $82,707 or -1.5% of total sales in fiscal 1998.
1998 COMPARED TO 1997
REVENUES. Total revenues decreased $568,781 or 9.1% to $5,653,357
for fiscal 1998 compared to $6,222,138 for fiscal 1997. Of this
decrease, approximately $80,000 was due to the closing of the
Company's Cafe in February 1998, and, therefore, no sales for the
Cafe were recorded thereafter, approximately $700,000 was due to the
absence of Sustainable Harvest sales, which were not included since
Sustainable was sold on December 31, 1997, and $50,000 was due to a
decrease in direct marketing sales over comparable sales in fiscal
1997. This decrease in revenues was offset by a $200,000 increase in
wholesale sales and $70,000 increase in Bakery sales.
GROSS MARGIN. Gross margin (gross profit as a percentage of net
sales) increased to 41.2% in fiscal 1998 from 38.9% in fiscal 1997.
Gross margins increased mainly due to higher selling prices and lower
bean costs in the core coffee company. The Bakery margins improved
due to lower labor costs. Management expects an increase in gross
margins in the first half of fiscal 1999 as compared to fiscal 1998
due to the availability of lower cost green beans for which the
Company has already contracted.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $727,200 or 24.9% from
$2,918,498 in fiscal 1997 to $2,191,298 in fiscal 1998. As a
percentage of total sales, selling, general and administrative
expenses decreased from 46.9% in 1997 to 38.8% in fiscal 1998. Of
the $727,200 decrease, approximately $150,000 reflects the reduction
of personnel, approximately $350,000 reflects overhead decrease
attributable to the Company's restructuring of retail and green bean
operations, approximately $150,000 reflects lower mail order costs
and approximately $68,000 reflects the decrease of expenses related
to legal, accounting and shareholder related expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses as a percentage of total sales increased to 3.1% in fiscal
1998 from 2.7% in fiscal 1997, due primarily to depreciation for
additional equipment related and to lower sales in fiscal 1998.
OTHER INCOME. Miscellaneous income of $1,452 in fiscal 1998 and
$17,704 in fiscal 1997 relates to a variety of immaterial
transactions.
<PAGE>
<PAGE>
LOSS ON SALE OF SUBSIDIARY. The sale of Sustainable Harvest in
fiscal 1997 resulted in a loss of $29,471.
INTEREST EXPENSE. Interest expense declined $15,577 or 11.7% from
$132,666 in fiscal 1997 to $117,089 in fiscal 1998. Interest expense
as a percentage of total sales remained the same at 2.1% for fiscal
1998 and 2.1% for the same time period in fiscal 1997.
INCOME TAX BENEFIT. In 1998, the Company realized a non- recurring
timing difference between book and tax depreciation and amortization
of $72,239 which resulted from tax loss carry- forwards.
NET LOSS. As a result of the foregoing, the net loss for fiscal 1998
amounted to $82,707 or 1.5% of total sales compared to a net loss of
$802,869 or 12.9% of total sales in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of December 31, 1999 was $301,341 as compared to
working capital of $370,217 as of December 31, 1998. This decrease
of $70,000 was a result of a reduction of cash of $48,000,
reclassification of deferred taxes to a long term asset from short
term last year because of timing differences between book and tax
depreciation not being recognized in the next twelve months coupled
with an increase in prepaid expenses from mailing expense for mail
order spent in fiscal 1999 to benefit future periods not spent in
fiscal 1998. The drop in cash was a direct result of a larger pay
down of debt in fiscal 1999 ($205,651 in fiscal 1999 compared to
$154,804 in fiscal 1998) and higher capital expenditures of $123,448
compared to $73,993 in fiscal 1998 offset by operations generating
$60,000 more in cash for fiscal 1999 ($268,277 in fiscal 1999
compared to $207,308 in fiscal 1998).
Cash used in investing activities in 1999 was $125,898 and consisted
of three vehicles for approximately $50,000, $27,000 in web page and
e-commerce store expenditures and the remaining $50,000 for brewers,
grinders and fixtures for new retail and food service customers.
This compares to cash used of $72,135 in fiscal 1998.
Net cash used by financing activities in fiscal 1999 was $190,898
versus $92,320 in fiscal 1998. Repayments of : notes payable to
Wells Fargo on two term notes was $75,000, two term notes payable to
the major shareholders from prior years totaled $33,000 and the note
to Laoma Yaski for $33,000 for the purchase of the bakery. See
Auditors Report, Notes to Financial Statements, Note 6.
In January of 1999 the Company refinanced a revolving line of credit
to a two year term note. In January 2001 the final payment on this
note of $441,200 is due. In the event that the Company is unable to
renegotiate this balloon payment before it comes due, the Company's
business would be adversely affected. See "Part I - Description of
Business Summary of Recent Developments" and Auditors Report, Notes
to Financials Statements, Note 6.
<PAGE>
<PAGE>
The Company's debt at December 31, 1999 was $903,401 for all term
debt and obligations under capital leases, down by $190,000 from
$1,093,299 due at December 31, 1998. Of the total, $241,216 is due
in fiscal 2001.
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 continue its
trend to profitable operations. 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
adversely affected.
The Company anticipates that its existing capital resources and cash
generated from operations will be sufficient to meet its cash
requirement for the next 12 months at its anticipated level of
operations.
YEAR 2000
Many computer systems and software applications were expected to
experience problems handling dates beyond the year 1999. Computer
systems and other equipment with embedded chips or processors have
historically used two digits, rather than four, to define a specific
year. Many parties anticipated that these systems would be unable to
determine whether the digits "00" referred to the year 1900 or 2000
and that this could result in system failures or miscalculations. It
was also thought that this could potentially cause disruptions to the
Company's various activities and operations.
The Company has not experienced any disruptions to its operations
from the Year 2000 date change. The Company will continue to monitor
its systems and operations until it is reasonably assured that no
significant business interruptions will occur as a result of the Year
2000 date change. The Company is not aware of any significant Year
2000 related disruptions impacting the Company's customers,
suppliers, contractors, financial institutions and other third
parties with whom the Company does business. To date, the Company
charged to expense or capitalized, as appropriate, approximately
$14,500 in effecting Year 2000 compliance and expects any remaining
costs in effecting such compliance will not be material.
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 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.
<PAGE>
<PAGE>
Furthermore, past seasonal patterns are not necessarily indicative of
future results. The Company's future results of operations and
earnings could also 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 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 losses 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, civil unrest in countries
that 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, office, 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.
Information in response to this item is set forth in the Financial
Statements beginning on page F-1 of this filing.
ITEM 7 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
<PAGE>
PART III
ITEM 8 DIRECTORS AND EXECUTIVE OFFICERS
The directors, nominees, key employees and executive officers of the
Company and their ages as of the date of this Form 10-KSB are as
follows:
Name Age Position with the Company
Paul Katzeff 62 Chief Executive Officer & Director
Joan Katzeff 51 President and Director
Roy Doughty 50 Director
Larry Leigon 52 Director
Paul Katzeff, a co-founder of the Company, has served as Roastmaster,
Chief Executive Officer and a Director since its incorporation on
May 10, 1982. Mr. Katzeff is a co-founder of the Specialty Coffee
Association of America (S.C.A.A.) and served as its Chairman in 1985.
He has served as an elected Board member of the S.C.A.A. since 1994,
and served as Chairman of the Environmental Committee of the Board in
1994. Mr. Katzeff co-chaired the Second Annual Sustainable Coffee
Conference held in April of 1998 and is an advisory Board member of
Coffee Kids, a non-profit organization concerned with social and
environmental issues as they relate to the coffee industry.
Mr. Katzeff will be S.C.A.A. President in the year 2000. Mr. Katzeff
and Mrs. Katzeff are husband and wife. Mr. Katzeff holds a Bachelors
degree in Agriculture from Cornell University and a Masters degree in
Social Work from Adelphi University.
Joan Katzeff, a co-founder of the Company, has served as President,
Chief Financial Officer and a Director of the Company since its
incorporation on May 10, 1982. Her experience in the Company's early
years included production, delivery and bookkeeping. Mrs. Katzeff
now has planning and administrative responsibilities in operations,
marketing and public relations. In addition, Mrs. Katzeff has
responsibility for managing the Mendocino Bakery.
Roy Doughty has served as a Director of the Company since September
1997, and as an outside consultant to the Company since February
1994. Since 1992, Mr. Doughty has served as a Principal of Global
Insights, a consulting firm devoted to assisting value- centered
businesses. He was the co-founder of the Spirituality and Worklife
Project and has created and delivered programs for the Center for
Ethics and Social Policy, the Center for Eco- literacy, the
California School of Integral Studies, the California School of
Professional Psychology and the Social Investment Forum.
Larry Leigon has served as a Director of the Company since September
1997, and as an outside consultant to the Company since February
1994. Since November 1993, he has served as a Principal of Global
<PAGE>
<PAGE>
Insights. From 1985 to 1993, Mr. Leigon was the president of Ariel
Winery, the world's first exclusive non-alcoholic winery. His
experience at Ariel included creating a whole new category of
product, taking it from research and development to worldwide
distribution in 20 countries. He is listed in Who's Who in Leading
American Executives and is also cited in The Successful Business
Plan: Secrets and Strategies of the PSI's Business Library.
The authorized number of directors is five. Currently there are four
directors and one vacancy. All directors will hold office until the
next annual meeting of shareholders and until their successors have
been elected and qualified, unless they earlier resign or are removed
from office. Committees of the Board may be appointed by resolution
passed by a majority of the directors. The Company does not
presently have any standing audit, nominating or compensation
committee, or any committee performing similar functions. The
executive officers of the Company are elected annually by the Board
of Directors and serve at the discretion of the Board.
ITEM 9 EXECUTIVE COMPENSATION
The following table provides certain information concerning the
compensation paid to the Company's Chief Executive for fiscal 1997,
1998 and 1999. All other Named Executive Officers received less than
$100,000 in fiscal 1999.
SUMMARY COMPENSATION TABLE
Name and Principal Year Salary Bonus Underlying Securities
Position ($) ($) Options
Paul Katzeff 1999 $75,000 - - -
Chief Executive
Officer 1998 $75,000 - - -
and Director 1997 $75,000 - - -
Joan Katzeff 1999 $75,000 - - -
President and 1988 $75,000 - - -
Director 1997 $75,000 - - -
STOCK OPTION GRANTS
The Company did not grant stock options to any of the Named Executive
Officers during fiscal 1999.
COMPENSATION OF DIRECTORS
Members of the Board of Directors do not receive compensation for
service on the Board.
<PAGE>
<PAGE>
ITEM 10 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of December 31,
1999, (i) by each person (or group of affiliated persons) who is
known by the Company to own beneficially more than five per cent of
the Company's Common Stock, (ii) by each of the named executive
officers, (iii) by each of the Company's directors and nominees, and
(iv) by all directors and executive officers as a group. The Company
believes that the person and entities named in the table have sole
voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
Name and Address of Shares Percentage
Beneficial Owner Beneficially
Owned
Joan and Paul Katzeff(1) 979,000(1) 79.3%
(Joan Katzeff, President)
(Paul Katzeff, CEO)
c/o Thanksgiving Coffee Co., Inc.
POB 1918
Fort Bragg, CA 95437
Roy Doughty 200 0.02%
Director
c/o Thanksgiving Coffee Co., Inc.
POB 1918
Fort Bragg, CA 95437
Larry Leigon 0 0.00%
Director
c/o Thanksgiving Coffee Co., Inc.
POB 1918
Fort Bragg, CA 95437
All directors and executive officers
as a group (4 persons) 979,200(1) 79.5%
(1) Shares are originally issued, restricted and jointly owned by
Joan Katzeff and Paul Katzeff.
ITEM 11 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1997, the Company sold all outstanding shares of its
wholly-owned subsidiary, Sustainable Harvest, to Mr. David Griswold,
a former employee of the division. Under the terms of the agreement,
the Company is required to purchase a certain quantity of green
coffee beans per year for a five-year period commencing December 31,
1997, at a fixed mark-up over "landed coffee costs."
<PAGE>
<PAGE>
The Company leases its corporate headquarters, warehouse and
waterfront facilities from Joan and Paul Katzeff, who are affiliates
of the Company (the "Katzeffs"). The lease provided for monthly
payments of $8,600 in fiscal 1999, and the Company is responsible for
all real estate taxes, insurance and maintenance costs related to the
facilities. See Note 12 of "Notes to Financial Statements."
Global Insights, of which Mr. Doughty, a director of the Company, is
a principal, is party to a one-year consulting agreement that
commenced January 1, 2000 for the provision of specific business
functions including a provision of shareholder relation services for
$18,000 per year. Global Insights received an aggregate of $72,000
during fiscal 1999 for similar services.
The Company carries insurance indemnifying its directors and certain
officers and certain employees against certain liabilities by reason
of their status or service as directors or officers or employees of
the Company. See Item 10, "Executive Compensation - Indemnification
Matter."
The Company had two notes payable to its major shareholders, Paul
Katzeff, CEO and Joan Katzeff, President. At December 31, 1998, the
balances were $52,000 and $5,877. During the year payments of
principle and interest were made on the notes and at December 31,
1999, the balances on one note was $24,919. The other note had been
paid off. The Katzeff's have subordinated the note to all notes
payable including Wells Fargo. See Auditors Report, Notes to
Financial Statements, Note 6 and Note 12.
ITEM 12 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of the Company.+
3.2 Bylaws of the Company.+
3.2.1 Amendment No. 1 to Bylaws of the Company, dated June 3,
1996.++
10.1 Business Loan Agreement dated as of September 5, 1995 by
and between the Company and Wells Fargo Bank, N.A., as
amended on August 11,1997.+++
10.2 Lease agreements for the Company's Fort Bragg facilities.++++
10.2.1 Extension of Term and Further Amendment to Lease Agreement
dated April 1, 1992.+++++
10.2.2 Further Amendment to Lease Agreement dated July 1, 1992.+
10.2.3 Third Amendment to Lease Agreement dated July 1, 1994.+
10.2.4 Exercise Option to Extend Lease Agreement April 1, 1995.+
10.3 Lease Agreement for the Company's Bakery in Mendocino.++++
10.4 Sample Coffee Purchase Agreement.+
10.5 Promissory Note issued by the Company to Joan and Paul Katzeff
dated as of April 17, 1996.++++
10.6 Promissory Note issued by the Company to Joan and Paul Katzeff
dated as of December 30, 1990.++++
<PAGE>
<PAGE>
10.7 Stock Purchase Agreement between the Company, Sustainable
Harvest, Inc. and David Griswold as of December 31, 1997.! !!
10.8 Summary Plan Description of the Company's Profit Sharing
Plan.! +++++
10.9 Business Loan Agreement dated as of August 13, 1997 by and
between the Company and Wells Fargo Bank, N.A.+++++
10.10 Business Loan Agreement dated as of January 6, 1999 by and
between the Company and Wells Fargo Bank, N.A.
10.11 Non-exclusive License Agreement dated as of July 14, 1998
by and between the Company and Wyland International, LLC.!!!
24.1 Consent of Sallmann, Yang & Alameda.
27.1 Financial Data Schedule.
(b) Reports on 8-K
None.______________________________________________
. Incorporated by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No 33-96070-LA).
++ Incorporated by reference to the exhibits to the Company's
Form 10-QSB for the quarter ended March 31, 1998.
+++ Incorporated by reference to the exhibits to the Company's
Form 10-QSB for the quarter ended June 30,1998.
++++ Incorporated by reference to the exhibits to the Company's
Form 10-QSB for the quarter ended September 30, 1998.
+++++Incorporated by reference to the exhibits to the Company's
Form 10-KSB for the year ended December 31, 1998.
! Incorporated by reference to the exhibits to the Company's
Form 10-KSB for the year ended December 31, 1998.
!! Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Securities and Exchange
Commission pursuant to a Confidential Treatment Request under
Rule 24-b2 of the Securities Exchange Act of 1934, as amended,
filed on March 31, 1998 which was subsequently granted.
!!! Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Securities and Exchange
Commission pursuant to a Confidential Treatment Request under
Rule 24-b2 of the Securities Exchange Act of 1934, as amended,
filed on March 31, 1999.
In accordance with Section 13 or 15(d) 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 March 30, 2000
________________ (Principal Executive Officer)
Paul Katzeff and Director
<PAGE>
<PAGE>
/s/ Joan Katzeff President, Chief Financial Officer March 30, 2000
________________ (Principal Financial Officer)
Joan Katzeff and Director
/s/ Roy Doughty Director March 30, 2000
________________
Roy Doughty
/s/ Larry Leigon Director March 30, 2000
________________
Larry Leigon
<PAGE>
<PAGE>
ITEM 13 FINANCIAL STATEMENTS
To The Board of Directors
Thanksgiving Coffee Company, Inc.
Fort Bragg, California
We have audited the accompanying balance sheets of Thanksgiving
Coffee Company, Inc. (a California Corporation) as of December 31,
1999 and 1998 and the related statements of income, retained earnings
and cash flows for each of the three years ended December 31, 1999,
1998, and 1997. 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. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years then ended
December 31, 1999, 1998 and 1997, in conformity with generally
accepted accounting principles.
SALLMANN, YANG & ALAMEDA
An Accountancy Corporation
Kathleen M. Alameda
Certified Public Accountant
March 9, 2000
<PAGE>
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
ASSETS
CURRENT ASSETS 1999 1998
CASH $ 41,156 $ 89,725
SHORT TERM INVESTMENTS - -
ACCOUNTS RECEIVABLE 394,983 412,634
NOTE RECEIVABLE - GRISWOLD 10,000 10,000
EMPLOYEE RECEIVABLE 1,046 1,968
SHAREHOLDER RECEIVABLE - 2,105
INVENTORY 487,279 473,718
PREPAID EXPENSES 57,150 39,016
DEFERRED TAX ASSET - 40,940
_________ _________
TOTAL CURRENT ASSETS 991,614 1,070,106
_________ _________
PROPERTY AND EQUIPMENT 2,218,076 2,097,013
ACCUMULATED DEPRECIATION (1,397,723) (1,210,609)
_________ _________
TOTAL PROPERTY AND EQUIPMENT 820,353 886,404
_________ _________
OTHER ASSETS
DEPOSITS AND OTHER ASSETS 42,340 41,291
NOTE RECEIVABLE - GRISWOLD 12,028 22,028
INTANGIBLES LESS AMORTIZATION 250,913 264,480
DEFERRED TAX ASSET 28,001 -
_________ _________
TOTAL OTHER ASSETS 333,282 327,799
_________ _________
TOTAL ASSETS $2,145,249 $2,284,309
========= =========
<PAGE>
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES 1999 1998
ACCOUNTS PAYABLE $ 406,923 $ 454,247
NOTES PAYABLE - BANKS 116,930 75,150
NOTES PAYABLE - SHAREHOLDER 38,821 32,724
CURRENT PORTION OF NOTES PAYABLE 24,918 35,876
CAPITAL LEASE OBLIGATIONS CURRENT 60,546 64,556
ACCRUED LIABILITIES 41,765 37,336
DEFERRED INCOME TAXES 370 -
__________ __________
TOTAL CURRENT LIABILITIES 690,273 699,889
__________ __________
LONG-TERM DEBT
NOTES PAYABLE 624,091 764,353
NOTES PAYABLE - SHAREHOLDER _ 22,000
CAPITAL LEASE OBLIGATIONS 58,094 98,640
__________ __________
TOTAL LONG TERM DEBT 662,185 884,993
__________ __________
TOTAL LIABILITIES 1,352,458 1,584,882
__________ __________
STOCKHOLDERS' EQUITY
COMMON STOCK - NO PAR VALUE
1,960,000 SHARES AUTHORIZED,
1,237,384 SHARES ISSUED, AND
1,234,544 SHARES OUTSTANDING 861,816 872,816
ADDITIONAL PAID IN CAPITAL 24,600 24,600
RETAINED EARNINGS ( 93,625) (197,989)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 792,791 699,427
__________ __________
TOTAL LIABILITIES AND EQUITY $ 2,145,249 $ 2,284,309
========== ==========
<PAGE>
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
INCOME
NET SALES $ 5,536,095 $ 5,653,357 $ 6,222,138
COST OF SALES 3,066,073 3,326,747 3,800,149
_________ _________ _________
GROSS PROFIT 2,470,022 2,326,610 2,421,989
_________ _________ _________
OPERATING EXPENSES
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,056,774 2,191,298 2,918,497
DEPRECIATION AND
AMORTIZATION 182,965 174,910 165,404
_________ _________ _________
TOTAL OPERATING
EXPENSES 2,239,739 2,366,208 3,083,901
_________ _________ _________
OPERATING (LOSS)
INCOME 230,283 (39,598) (661,912)
_________ _________ _________
OTHER INCOME (EXPENSE)
INTEREST INCOME 5,550 1,172 5,357
INTEREST EXPENSE (117,205) (117,089) (132,666)
GAIN (LOSS) ON SALE
OF ASSET (814) (83) 11,785
LOSS ON SALE OF SUBSIDIARY - - (29,471)
CASUALTY LOSS - - (746)
MISCELLANEOUS INCOME 1,459 1,452 17,704
_________ _________ _________
TOTAL OTHER INCOME
(EXPENSE) (111,010) (114,548) (128,037)
_________ _________ _________
(LOSS) INCOME BEFORE
INCOME TAXES 119,273 (154,146) (789,949)
INCOME TAX BENEFIT (EXPENSE) (14,909) 71,439 (12,919)
_________ _________ _________
NET INCOME (LOSS) $ 104,364 $ (82,707) $ (802,868)
========== ========== ==========
EPS (BASIC) $ 0.08 $ (0.07) $ (0.65)
========== ========== ==========
<PAGE>
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT
DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
ACCUMULATED DEFICIT, BEGINNING $ (197,989) $ (115,282) $ 687,586
NET INCOME (LOSS) 104,364 (82,707) (802,868)
_________ _________ _________
ACCUMULATED DEFICIT, ENDING $ ( 93,625) $ (197,989) $ (115,282)
========= ========= =========
<PAGE>
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CASH FLOWS FROM OPERATING 1999 1998 1997
ACTIVITIES:
NET (LOSS) INCOME $ 104,364 $ (82,707) $ (802,868)
NON CASH ITEMS INCLUDED IN NET
(LOSS) INCOME
DEPRECIATION AND AMORTIZATION 207,702 194,295 177,848
GAIN (LOSS) ON SALE OF ASSETS 814 83 ( 11,785)
CHANGES IN OPERATING ASSETS AND
LIABILITIES
SHORT TERM INVESTMENTS - 31,519 ( 31,519)
RECEIVABLES 20,677 6,555 (121,225)
INVENTORY ( 13,561) 39,585 ( 26,506)
PREPAID EXPENSES ( 18,134) 105,969 ( 63,453)
DEPOSITS AND OTHER ASSETS ( 1,049) ( 5,962) ( 4,744)
ACCOUNTS PAYABLE ( 47,324) 27,436 220,394
ACCRUED LIABILITIES 4,429 ( 37,388) 21,772
DEFERRED INCOME TAXES 13,309 ( 72,077) 15,106
________ ________ ________
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES 268,227 207,308 (626,980)
________ ________ ________
CASH FLOWS FROM INVESTING
ACTIVITIES:
PURCHASE OF EQUIPMENT (123,448) ( 73,993) (251,994)
PROCEEDS FROM SALE OF EQUIPMENT 800 5,514 22,000
PURCHASE OF INTANGIBLE ASSETS ( 3,250) - ( 4,791)
UNREALIZED GAIN (LOSS) ON - ( 3,656) 3,656
INVESTMENTS ________ ________ ________
NET CASH (USED) PROVIDED BY
INVESTING ACTIVITIES (125,898) ( 72,135) (231,129)
________ ________ ________
CASH FLOWS FROM FINANCING
ACTIVITIES:
INCREASE IN NOTES RECEIVABLE - - ( 89,000)
PAYMENTS FROM NOTES RECEIVABLE 10,000 56,972 41,735
PROCEEDS FROM NOTES PAYABLE 15,753 5,512 719,901
REPAYMENT OF NOTES PAYABLE (205,651) (154,804) (164,842)
<PAGE>
<PAGE>
PROCEEDS FROM SALE OF COMMON 1999 1998 1997
STOCK - - 150
REPURCHASE OF COMMON STOCK ( 11,000) - ( 2,000)
________ ________ ________
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (190,898) ( 92,320) 505,944
NET (DECREASE) INCREASE IN CASH ( 48,569) 42,853 (352,165)
CASH AT BEGINNING OF YEAR 89,725 46,872 399,037
CASH AT END OF YEAR $ 41,156 $ 89,725 $ 46,872
<PAGE>
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
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.
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.
INVENTORIES
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.
<PAGE>
<PAGE>
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
bases over forty (40) years. Total amortization expense for the
years ended December 31, 1999, 1998, and 1997 was $105, $0, and $0,
respectively.
INVESTMENTS IN UNCONSOLIDATED 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 reflected on the books as a result of the sale, with a
balance of $22,028 as of December 31, 1999. The results of
operations of Sustainable Harvest are included in the 1997
accompanying financial statements.
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 years
ended December 31, 1999, 1998 and 1997.
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.
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
<PAGE>
<PAGE>
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:
1999 1998
_________________________
Accounts receivable $ 410,919 $ 435,676
Less: Allowance for doubtful accounts (15,936) ( 23,042)
_________________________
Accounts receivable, net $ 394,983 $ 412,634
=========================
The Company uses the allowance method for uncollectible accounts. Bad
debt expense for the years ended December 31, 1999, 1998 and 1997 was
$11,221, $37,412, and $14,226 respectively. Bad debt recovery for
the year ended December 31, 1999 was $4,740. The adjustment to the
allowance account for the year ended December 31, 1999 was ($8,245).
3. Inventory
Inventory consists of the following:
1999 1998
_________________________
Coffee
Unroasted $ 169,958 $ 174,284
Roasted 114,414 181,096
Tea 19,502 22,527
Packaging, supplies and other
merchandise held for sale 183,405 95,811
_________________________
Total inventory $ 487,279 $ 473,718
=========================
<PAGE>
<PAGE>
4. Property and Equipment
Property and equipment consists of the following:
1999 1998
__________________________
Equipment and fixtures $ 1,189,910 $ 1,176,558
Furniture and equipment 268,601 212,479
Leasehold improvements 366,351 363,075
Transportation equipment 67,147 41,323
Marketing equipment 23,000 -
Property held under capital leases 303,067 303,578
__________________________
Total property and equipment 2,218,076 2,097,013
Accumulated depreciation (1,397,723) (1,210,609)
__________________________
Property and equipment, net $ 820,353 $ 886,404
==========================
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 as of December 31, 1999, 1998 and 1997 was
$187,885, $177,593, and $194,599, respectively.
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:
1999 1998
___________________________
Goodwill $ 198,000 $ 198,000
Leasehold value 67,000 67,000
Start-up costs 34,882 34,882
Organizational costs 28,565 28,565
Trademark 5,127 1,877
___________________________
Total intangible assets 333,574 330,324
Accumulated amortization - goodwill (16,075) (10,999)
Accumulated amortization - other
intangible assets (66,586) (54,845)
___________________________
Intangible assets, net $ 250,913 $ 264,480
===========================
Amortization expense as of December 31, 1999, 1998 and 1997 was
$16,817, $16,712, $26,171, respectively.
<PAGE>
<PAGE>
6. Long-Term Debt
1998 1997
Notes Payable
Note payable to Wells Fargo Bank $546,485 $601,636
Monthly installments of $5,014 plus interest
at 2.75% over prime rate beginning February
15, 1999, (11.25% at December 31, 1999),
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 53,334 73,174
Payable in monthly installments of $1,667
plus interest at 1% over prime rate (9.50%
at December 31, 1999), 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 24,919 52,000
and Joan Katzeff
Payable in monthly installments of 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.
Note payable to majority shareholders, Paul - 5,877
and Joan Katzeff
Payable in quarterly installments of $3,229
including interest at 10%, with Balance due
on July 17, 1999. The shareholders have
subordinated this note to all notes payable
including Wells Fargo Bank as described
above.
Note payable to Laoma Yaski 164,693 197,418
For the purchase of 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 15,330 -
Payable in monthly installments of $324,
including interest at 8.637%. Secured by a
vehicle, final payment is due in October
2004.
<PAGE>
<PAGE>
Obligations Under Capital Lease
Note payable to Textron Leasing 1,716 10,628
Payable in monthly installments of $832,
including interest at 16.17%, secured by
equipment, final payment due in February
2000.
Note payable to Manifest Group 12,266 21,928
Payable in monthly installments of $1,030,
including interest at 15.315%, secured by
equipment, final payment due in January
2001.
Note payable to Imperial Capital 9,895 17,534
Payable in monthly installments of $840,
including interest at 17.263%, secured by
equipment, final payment due in January
2001.
Note payable to Granite Financial 17,899 27,475
Payable in monthly installments of $1,139,
including interest at 17.607%, secured by
equipment, final payment due in June 2001.
Note payable to Imperial Bakery/Cafe - 2,811
Payable in monthly installments of $259,
including interest at 19.001%, secured by
equipment, final payment due in December
1999.
Note payable to First Sierra Computer 28,952 39,639
Equipment
Payable 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 19,982 27,178
Payable in monthly installments of $910,
including interest at 15.529%, secured by
equipment, final payment due in February
2002.
Note payable to Centerpoint 6,842 11,255
Payable in monthly installments of $517,
including interest at 19.225%, secured by
equipment, final payment due in March 2001.
<PAGE>
<PAGE>
Note payable to Hansel Leasing 1,088 4,746
Payable in monthly installments of $380,
including interest at 28.510%, secured by a
vehicle, final payment due in March 2000.
_________ _________
$ 903,401 $1,093,299
Less Current Portion ( 241,216) (208,306)
_________ _________
Long term portion of notes payable and
capital leases $ 662,185 $ 884,993
========= =========
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 three years ended December 31, 1999, 1998 and
1997 was $117,205, $122,479 and $132,666, respectively.
Maturities of notes payable and capital leases are as follows:
2000 $ 241,216
2001 546,162
2002 64,959
2003 47,946
2004 3,118
Thereafter -
$ 903,401
Based on current borrowing rates, the fair value of the notes payable
and capital leases approximate their carrying amounts.
7. Income Taxes
The components of the provision for income taxes for the years ended
December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
Federal-current $ - $ - $ -
Federal-deferred 6,531 (55,954) 3,380
State-current 800 800 800
State-prior 800 - -
State-deferred 6,778 (16,285) 8,739
_________ __________ _________
Total income taxes $ 14,909 $ (71,439) $ 12,919
========= ========== =========
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. As of December 31, 1999 and 1998, deferred tax assets
recognized for deductible temporary differences and loss
<PAGE>
<PAGE>
carryforwards total $45,878 and $40,940, respectively. Deferred tax
liabilities recognized for taxable temporary differences total $8,681
and $0, respectively. 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 Contributions Net Operating Total
December 31 Loss
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 Contributions Net Operating Total
December 31 Loss
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 years ended December 31, 1999, 1998, and
1997 were $1,600, $800 and $0, respectively.
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 $ 95,983
2001 57,462
2002 19,984
2003 5,201
Thereafter -
________
$ 178,630
<PAGE>
<PAGE>
Total annual operating lease payments were $102,018, $69,400 and
$49,472 as of December 31, 1999, 1998 and 1997, respectively.
9. Common Stock
Number of No Par
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)
_________ _________
Balance, December 31, 1999 1,234,544 $ 861,816
========= =========
981,000 shares originally issued are restricted.
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 the year
2000. Following is a summary of transactions:
Shares Under Option
1999 1998
____________________
Outstanding, beginning of year 20,000 23,000
Shares expired during the year - 3,000
Shares exercised during the year - (3,000)
____________________
Outstanding, end of year 20,000 20,000
====================
The related compensation expense for the years ended December 31,
1999, 1998 and 1997 is $0, $6,750 and $16,750, respectively.
The Company repurchased 3,000 options in January 2000 for $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
<PAGE>
<PAGE>
term of the lease, including the option periods. The Company
exercised the first of four five-year options on March 31, 1995.
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 was $103,200, $103,000 and $102,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. The Company has made
substantial leasehold improvements (Note 4) and intends 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 $3,000 (as of July
1, 1999) and the lease term expires in September 2000.
The Company leases retail space in Fort Bragg, California used as an
espresso bar/cafe. The lease provides for monthly rental payments of
$730, and the lease expires in January 2001, with an option to renew
for another five years. The lease also provides for periodic cost of
living increases during the term of the lease, including the option
periods. In February 1998, the cafe business was terminated and the
facility was subleased.
Minimum future rental payments for all leases are as follows:
2000 $ 61,998
2001 767
2002 and thereafter -
__________
$ 62,765
==========
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 December 31, 1999, 1998 and 1997
(See Note 6, above). The Company also leases properties from its
majority shareholders (See Note 11, above).
The summary of these related-party transactions for the years ended
December 31, 1999, 1998 and 1997 follows:
1999 1998 1997
_______________________________________
Interest expense $ 4,529 $ 7,899 $ 11,343
Rent expense $ 103,200 $ 103,000 $ 102,000
13. Commitments
Under the terms of an agreement with the subsidiary sold in 1997, the
Company is required to purchase coffee beans each year for the next
five years ending December 31, 2002 at a predetermined price per
pound over landed coffee costs.
<PAGE>
<PAGE>
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
___________________________
1999 3,000 $ 9,750
2000 1,000 $ 3,500
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.
As indicated in Note 10, the 1999 options were purchased by the
Company in January 2000.
14. Impact of the Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal
business activities.
The Company has completed an assessment and modified or replaced some
portions of their equipment so that their computer systems will
function properly with respect to dates in the year 2000 and
thereafter. The total Year 2000 project cost was estimated at
approximately $14,000. To date, the Company has incurred $14,500 in
expenses related to the Year 2000 issue.
The project was completed by December 31, 1999, which was prior to
any anticipated impact on its operating systems. The Company
believes that with the modifications to existing hardware and
conversions to upgrade software, the Year 2000 issue will not pose
significant operation problems for its computer systems.
To date, no events related to the year 2000 issue have occurred.
15. 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
<PAGE>
<PAGE>
matter and has pursued related cross-claims. The ultimate outcome of
this matter and the effect of an adverse result, if any, cannot be
determined at this time.
The Company is also engaged in a complaint regarding the pending
trademark with the U.S. Trademark Trial and Appeal Board. The
Company has not yet filed a response to the initial complaint. The
ultimate outcome of this matter and the effect of an adverse result
cannot be determined at this time.
16. Subsequent Events
The Company is actively pursuing the sale of the Bakery and has
listed the business with a real estate agent.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME, WHICH ARE INCLUDED IN THE
COMPANY'S FORM 10-KSB FILED HEREWITH, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 411
<ALLOWANCES> (16)
<INVENTORY> 487
<CURRENT-ASSETS> 992
<PP&E> 2,218
<DEPRECIATION> (1,398)
<TOTAL-ASSETS> 2,145
<CURRENT-LIABILITIES> 690
<BONDS> 0
0
0
<COMMON> 862
<OTHER-SE> 25
<TOTAL-LIABILITY-AND-EQUITY> 2,145
<SALES> 5,536
<TOTAL-REVENUES> 5,536
<CGS> 3,066
<TOTAL-COSTS> 3,066
<OTHER-EXPENSES> 2,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 119
<INCOME-TAX> 15
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
