<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 Sept 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 November 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 \ \
1
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements, Notes and Report of Independent Accountants... 3
Balance Sheet at September 30, 2000 and December 31, 1999.................... 23-24
Statements of Income for the Three Months Ended September 30, 2000 and
September 30, 1999 and for the Nine Months Ended September 30, 2000 and
September 30, 1999......................................................... 25
Statements of Cash Flows for the Nine Months Ended September 30, 2000 &
September 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 Nine Month Periods
Ended September 30, 2000
With Report of Independent Accountants
3
<PAGE>
Thanksgiving Coffee Company, Inc.
Report
Report of Independent Accountants........................................ 5
Reviewed Financial Statements
Thanksgiving Coffee Company, Inc.
Balance Sheet............................................................ 6-7
Statement of Income...................................................... 8
Statement of Accumulated Deficit......................................... 9
Statement of Cash Flows.................................................. 10
Notes to Financial statements............................................ 11
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 September 30, 2000, statement of accumulated deficit and cash flows
for the nine month period then ended, and the related statement of income for
the three and nine 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
November 6, 2000
5
<PAGE>
Thanksgiving Coffee Company, Inc.
Balance Sheet
September 30, 2000
Assets
Current assets
Cash and cash equivalents $ 90,561
Accounts Receivable 378,225
Note receivable-Griswold 10,000
Employee Receivable 1,461
Inventory 499,449
Prepaid expenses 86,678
-----------
Total current assets 1,066,374
Property and equipment
Property and equipment 2,302,001
Accumulated depreciation (1,555,147)
-----------
Total property and equipment 746,854
Other assets
Deposits and other assets 42,106
Note receivable-Griswold 12,028
Intangibles, net of amortization 238,283
Deferred tax asset 28,001
-----------
Total other assets 320,418
Total assets $ 2,133,646
===========
See accompanying notes and accountants' report.
6
<PAGE>
Thanksgiving Coffee Company, Inc.
Balance Sheet
September 30, 2000
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 492,245
Accrued liabilities 63,794
Notes payable-banks, current portion 504,651
Notes payable-other, current portion 38,954
Notes payable-shareholder, current portion 0
Capital lease obligations, current portion 45,616
-----------
Total current liabilities 1,145,260
Long term debt
Notes payable-banks 18,334
Notes payable-other 98,966
Notes payable-shareholder 24,919
Capital lease obligations 21,144
-----------
Total long term liabilities 163,363
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 (61,393)
-----------
Total stockholders' equity 825,023
Total liabilities and stockholders' equity $ 2,133,646
===========
See accompanying notes and accountants' report.
7
<PAGE>
Thanksgiving Coffee Company, Inc.
Statement of Income
<TABLE>
<CAPTION>
Three months Nine months
ended ended
Sept 30, 2000 Sept 30, 2000
------------- -------------
<S> <C> <C>
Net Sales $ 1,353,905 $ 4,012,279
Cost of sales 689,703 2,120,762
----------- -----------
Gross Profit 664,202 1,891,517
Operating expenses
Selling, general, and administrative expenses 570,495 1,650,233
Depreciation and amortization 50,708 152,512
----------- -----------
Total operating expenses 621,203 1,802,744
Operating income 42,999 88,774
Other income (expense)
Interest income 1,652 2,091
Interest (expense) (22,162) (78,427)
Miscellaneous income (expense) (7,462) (6,057)
CLUSA Grant Income 40,000 80,000
CLUSA Project (expense) (19,947) (53,318)
----------- -----------
Total other income (expense) (7,919) (55,711)
Profit before income taxes 35,080 33,063
Income tax expense 0 831
----------- -----------
Net income $ 35,080 $ 32,232
=========== ===========
Earnings per common share - basic $ 0.0284 $ 0.0261
Earnings per common share - dilutive $ 0.0280 $ 0.0257
</TABLE>
See accompanying notes and accountants' reports.
8
<PAGE>
Thanksgiving Coffee Company, Inc.
Statement of Accumulated Deficit
September 30, 2000
Accumulated deficit, beginning, December 31, 1999 $ (93,625)
Net income, nine months ended September 30, 2000 32,232
----------
Accumulated deficit, September 30, 2000 $ (61,393)
==========
See accompanying notes and accountants' report.
9
<PAGE>
Thanksgiving Coffee Company, Inc.
Statement of Cash Flows
For the Nine Month Period Ended September 30, 2000
Operating activities
Net income $ 32,232
Depreciation and amortization 170,054
Receivables 16,758
Inventories (12,170)
Prepaid expenses (11,944)
Deposits and other assets (17,766)
Accounts payable 85,322
Accrued liabilities 21,659
---------
Net cash provided by operating activities 284,145
Investing activities
Purchases of equipment (83,925)
---------
Net cash used by investing activities (83,925)
Financing activities
Repayments of notes payable and capital leases (150,815)
---------
Net cash used by financing activities $(150,815)
Net increase in cash $ 49,405
Cash at January 1, 2000 41,156
---------
Cash at September 30, 2000 $ 90,561
=========
See accompanying notes and accountants' report.
10
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
September 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.
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 nine month period ended
September 30, 2000 is $96.
Investments in Consolidated Companies
On November 1, 1977, the Company sold the Sustainable Harvest, Inc. subsidiary.
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
September 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. The company is pursuing
the sale of the Mendocino Bakery and has listed the business with a real estate
agent.
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 nine month period ended September 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. The Company does not have in place any futures or options
contracts at this time.
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 $ 383,265
Less: Allowance for doubtful accounts (5,040)
----------
Accounts receivable, net $ 378,225
==========
The Company uses the allowance method for uncollectible accounts. Bad debt
expense for the nine month period ended September 30, 2000 is $5,502. The
adjustments to the allowance account for the nine month period ended September
30, 2000 equaled $10,896.
3. Inventory
Inventory consists of the following:
Coffee
Unroasted $ 142,228
Roasted 130,550
Tea 23,445
Packaging, supplies and other merchandise held for sale 203,226
-----------
Total inventory $ 499,449
===========
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 $ 1,217,491
Furniture and equipment 279,018
Leasehold improvements 374,184
Transportation equipment 72,312
Marketing equipment 55,930
Property held under capital leases 303,066
-----------
Total property and equipment 2,302,001
Accumulated depreciation (1,555,147)
-----------
Property and equipment, net $ 746,854
===========
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 nine month period ended September 30, 2000 is
$157,425.
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 (19,882)
Accumulated amortization - other intangible assets (75,409)
-----------
Intangible assets, net $ 238,283
===========
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 nine month period ended September 30, 2000 is
$12,630.
14
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
6. Long Term Debt
Notes Payable as of September 30, 2000
Note payable to Wells Fargo Bank, payable in 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. $ 484,651
Note payable to Wells Fargo Bank, payable in monthly
installments of $1,667 plus interest at 1% over prime
rate, final payment is due on August 15, 2002. The
note is secured by all accounts receivable, inventory,
equipment, fixtures and improvements. 38,333
Note payable to majority shareholders, Paul 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. Deferred interest is $2,430 at
September 30, 2000. 24,919
Note payable to Laoma Yaski 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. 137,921
Note payable to Chase Manhattan Bank, payable in
monthly installments of $324, including interest at
8.637%, secured by a vehicle, final payment due in
October 2004. 13,348
Obligations Under Capital Lease as of September 30, 2000
Note payable to Manifest Group, payable in monthly
installments of $1,030, including interest at 15.315%,
secured by equipment, final payment due in January 2001. 3,992
Note payable to Imperial Capital, payable in monthly
installments of $840, including interest at 17.263%,
secured by equipment, final payment due in January 2001. 3,243
15
<PAGE>
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
6. Long Term Debt (continued)
Obligations Under Capital Lease as of September 30, 2000
(continued)
Note payable to Granite Financial, payable in monthly
installments of $1,139,including interest at 17.607%,
secured by equipment, final payment due in June 2001. $ 9,536
Note payable to First Sierra Computer Equipment,
payable in monthly installments of $1,297, including
interest at 14.00%, secured by equipment, final payment
due in February 2002. 19,901
Note payable to Security Financial, payable in
monthly installments of $910, including interest at
15.529%, secured by equipment, final payment due in
February 2002. 13,807
Note payable to Centerpoint, payable in monthly
installments of $517, including interest at 19.225%,
secured by equipment, final payment due in March 2001. 2,934
Subtotal ---------
Less current portion 752,585
Long term portion of notes payable and capital leases (589,221)
---------
$ 163,363
=========
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 nine month period ended September 30, 2000 is $70,075.
Maturities of notes payable and capital leases are as follows:
2000 $ 55,453
2001 581,108
2002 64,960
2003 47,946
2004 3,118
Thereafter
$ 752,585
==========
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 nine month
periods ended September 30, 2000 is as follows:
Current Year-to-Date
---------------------------
State-current $ - $ 800
State-prior - $ 31
---------------------------
Total $ - $ 831
===========================
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 nine month period ended September 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 Net Operating
December 31 Contributions 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 nine month period ended September 30, 2000 is $831.
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 $ 24,833
2001 63,990
2002 20,634
2003 7,251
Thereafter 0
$ 116,708
==========
Total operating lease payments are $31,780 and $98,744 for the three and nine
month periods ended September 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, September 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 until August 31, 2000 and then again on August 30,
2000 extended to December 31, 2000. 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 $77,400 for the nine month period ended
September 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 $3,000 (as of September 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 $ 37,100
2001 and thereafter 351,000
---------
$ 388,100
=========
12. Related Party Transactions
At September 30, 2000, 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) (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
--------- -----
Fiscal Year 2000 1,000 $3,500
A remaining 16,000 options may be exercised or sold at any time at the
discretion of a former 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. 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.
BALANCE SHEET
----------------------------------------------------------------
Balance Sheet
----------------------------------------------------------------
Unaudited Audited
----------------------------------------------------------------
9/30/00 12/31/99
----------------------------------------------------------------
ASSETS
----------------------------------------------------------------
Cash $ 90,561 $ 41,156
----------------------------------------------------------------
Accounts receivable 378,225 394,983
----------------------------------------------------------------
Employee receivable 1,461 1,046
----------------------------------------------------------------
Note Rec - Griswold 10,000 10,000
----------------------------------------------------------------
Inventory 499,449 487,279
----------------------------------------------------------------
Prepaid Expenses 86,678 57,150
----------------------------------------------------------------
CURRENT ASSETS 1,066,374 991,614
----------------------------------------------------------------
----------------------------------------------------------------
Property and equipment 2,302,001 2,218,076
----------------------------------------------------------------
Accum. Depreciation (1,555,147) (1,397,723)
------------ -----------
----------------------------------------------------------------
Net property and equipment 746,854 820,353
----------------------------------------------------------------
----------------------------------------------------------------
Deposits and other assets 42,106 42,340
----------------------------------------------------------------
Note Rec - Griswold 12,028 12,028
----------------------------------------------------------------
Deferred tax asset 28,001 28,001
----------------------------------------------------------------
Intangibles 333,574 333,574
----------------------------------------------------------------
Accum Amortization (95,291) (82,661)
----------- -----------
----------------------------------------------------------------
Net intangibles 238,283 250,913
----------------------------------------------------------------
----------------------------------------------------------------
TOTAL ASSETS $ 2,133,646 $ 2,145,249
=========== ===========
----------------------------------------------------------------
23
<PAGE>
--------------------------------------------------------------------------
Unaudited Audited
9/30/2000 12/31/1999
--------- ----------
-------------------------------------------------------------------------------
LIABILITIES & EQUITY
-------------------------------------------------------------------------------
Accounts payable 492,245 406,923
-------------------------------------------------------------------------------
Accrued liabilities 63,794 41,765
-------------------------------------------------------------------------------
Deferred income taxes 370 370
-------------------------------------------------------------------------------
Notes payable-banks, current portion 504,651 116,930
-------------------------------------------------------------------------------
Notes payable-other, current portion 38,954 24,918
-------------------------------------------------------------------------------
Notes payable-shareholders, current portion 0 38,821
-------------------------------------------------------------------------------
Capital lease obligations, current portion 45,616 60,546
----------- -----------
-------------------------------------------------------------------------------
CURRENT LIABILITIES 1,145,260 690,273
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Notes payable, Wells Fargo 18,334 624,091
-------------------------------------------------------------------------------
Note payable, other 123,885 0
-------------------------------------------------------------------------------
Capitalized Leases 21,144 38,094
----------- -----------
-------------------------------------------------------------------------------
LT LIABILITIES 163,363 662,185
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Common stock 861,816 861,816
-------------------------------------------------------------------------------
Addl paid in capital 24,600 24,600
-------------------------------------------------------------------------------
Retained earnings (61,393) (93,625)
----------- -----------
-------------------------------------------------------------------------------
TOTAL EQUITY 825,023 792,791
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL LIAB AND EQUITY $ 2,133,646 $ 2,145,249
=========== ===========
-------------------------------------------------------------------------------
24
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sep 30 Sep 30 Sep 30 Sep 30
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income
Net sales 1,353,905 1,451,989 4,012,279 4,054,040
Cost of sales 689,703 792,622 2,120,762 2,240,025
--------- --------- --------- ---------
Gross profit 664,202 659,367 1,891,517 1,814,015
Operating expenses
Selling, general and administrative expenses 570,495 519,518 1,650,233 1,487,199
Depreciation and amortization 50,708 49,604 152,512 139,942
--------- --------- --------- ---------
Total operating expenses 621,203 569,122 1,802,744 1,627,141
Operating income 42,999 90,246 88,774 186,874
Other income (expense)
Interest income 1,652 979 2,091 2306
Miscellaneous income (expense) (7,462) (2,055) (6,057) (6,346)
Interest (expense) (22,162) (29,807) (78,427) (90,452)
Colusa Income (expense) 20,053 -- 26,682 --
--------- --------- --------- ---------
Total other income (expense) (7,920) (30,883) (55,711) (94,492)
Gain before income tax 35,079 59,363 33,063 92,382
Income tax expense (credit) 0 866 831 866
--------- --------- --------- ---------
Net Income 35,079 58,497 32,232 91,516
========= ========= ========= =========
</TABLE>
25
<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9/30/00 9/30/99
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 32,232 $ 91,516
Non Cash Items Included in Net Income:
Depreciation & Amortization 170,054 156,162
(Increase) Decrease In:
Receivables 16,758 19,885
Inventory (12,170) 75,902
Prepaid Expense (11,944) (24,339)
Deposits/Other (17,766) (3,809)
Increase (Decrease) In:
Accounts Payable 85,322 (112,831)
Accrued Liabilities 21,659 58
---------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 284,145 202,544
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (83,925) (123,546)
Purchase of Intangible Assets 0 (3,250)
Repurchase of Common Stock 0 (11,198)
---------------------------------
NET CASH USED BY INVESTING ACTIVITIES (83,925) (137,994)
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayment) Proceeds of Notes Payable (150,815) (109,056)
(Increase) Decrease of Notes Receivable 0 0
---------------------------------
NET CASH USED BY FINANCING ACTIVITIES $(150,815) $(109,056)
NET INCREASE (DECREASE) IN CASH $ 49,405 $ (44,506)
CASH AT 1/1/00 AND 1/1/99 41,156 89,725
---------------------------------
CASH AT 9/30/00 AND 9/30/99 $ 90,561 $ 45,219
=================================
</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 September 30, 2000 Compared With Three Months Ended September
30, 1999
Consolidated Increase (Decrease)
------------ -------------------
Net Sales $ (98,084)
Cost of Sales $ (102,919)
Gross Margin 3.65%
Selling, G&A Expense $ 50,977
Depreciation & Amortization $ 1,104
Interest Expense $ (7,645)
Net Income $ (23,418)
Consolidated net sales for the three months ended September 30, 2000 were
$1,353,905, down 7% when compared with net sales of $1,451,989 for the same
period in fiscal 1999.
Distribution revenues (e.g., revenues generated on our own truck distribution)
declined by $80,000 or 6% in the three month period ended September 30, 2000
when compared to the same period in fiscal 1999. This decline results from loss
of a sub distributor who sold the Company's smoothie drink mix in Sonoma County;
the partial loss in sales from a major customer who added its own roasting
capabilities in house; a loss in business do to attrition in a territory where a
salesman has not been replaced; a $15,000 one time sale to a customer last year;
and flat or slightly declining revenues in the other territories. National
revenues (e.g., revenues not derived by mail order and direct truck
distribution) declined by approximately $6,000 or 1.7% in the three month period
ended September 30, 2000 when compared to same period fiscal 1999 because of a
loss of two customers who transferred their business to local roasters partially
offset by increased sales of the Song Bird line (which is a line of shade grown
coffees). Mail order revenues (e.g., revenues generated from product sold
directly to the consumer either through print media or the internet) declined
nearly $14,000 or 13% in the three month period ending September 30, 2000 when
compared to the same period in fiscal 1999.
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, offset by
increased internet sales of $9,000 (representing a 30% increase over the same
period in Fiscal 1999). With respect to its mail order business, the Company has
shifted its emphasis to Internet sales and increased its expenditures for
development of its Internet site and store.
Sales attributable to operations of the Company's bakery grew 2.8%, or nearly
$6,000, in the three month period ended September 30, 2000 over the same period
in 1999 reflecting better volume in 2000.
Consolidated cost of sales decreased from $792,622 in the third quarter of 1999
to $689,703 in the same period of 2000 (a 13% decline) due to a decrease in
green bean costs.
27
<PAGE>
Consolidated gross margin (gross profit as a percentage of net sales) increased
to 49.1% for the three month period ending September 30, 2000 from 45.4% for the
three months ended June 30, 1999. This increase was a result of lower green bean
costs as stated above and an increase in pricing for the Swiss Water Processed
decafs which are now featured in twelve ounce containers; however, the increases
in fuel, salaries and packaging continued during the third quarter of 2000. We
anticipate that the higher costs will negatively affect gross margin in the
fourth quarter of 2000.
Consolidated selling, general and administrative expenses were $570,495 for the
period ending September 30, 2000, a 10% increase over the $519,518 in selling,
general and administrative expenses for three months ended September 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 maintenance person to
repair its brewers and grinders. The Company also added an environmental and
social responsibility manager to staff in the first quarter of 2000.
Depreciation and amortization expenses were $50,708 for the period ending
September 30, 2000, a 2.2% increase over expenses of $49,604 for the three
months ended September 30, 1999. During fiscal year 2000, there was an increase
in fixed assets including web store and site design, upgrade of computer
hardware and software, move of the air compressors in the plant and some minor
purchases of brewing and grinding equipment.
Interest expense decreased to $22,162 for the three months ended September 30,
2000 a 25.7% decline from the $29,807 for the same period in fiscal 1999. This
was a result of a decline in total borrowings at September 30, 2000 to $752,584
from $982,276 at September 30, 1999. Interest expense as a percentage of net
sales decreased to 1.6% for the three months ended September 30, 2000 from 2.1%
for the three months ended September 30, 1999.
During the second quarter of fiscal 2000, the Company entered into an agreement
with CLUSA, 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. For the quarter, the Company has accrued $40,000 in income and has
had $19,947 in expenses. The project is expected to take approximately eighteen
months to complete.
As a result of the foregoing factors, the Company had a consolidated net gain of
$35,079 for the three months ended September 30, 2000, a 29% drop when compared
with the Company's net gain of $58,497 for the three months ended September 30,
1999. Because of the decline in sales and the increased cost of fuel, labor and
packaging, there can be no assurances that the Company will be profitable in any
future period.
Nine Months Ended September 30, 2000 Compared With Nine Months Ended September
30, 1999
Consolidated Increase (Decrease)
------------ ------------------
Net Sales $ (41,761)
Cost of Sales $ (119,263)
Gross Margin 2.4%
Selling, G&A Expense $ 163,034
Depreciation & Amortization $ 12,570
Interest Expense $ (12,025)
Net Income $ (59,284)
Consolidated net sales for the nine months ended September 30, 2000 were
$4,012,279, a 1% decline from net sales of $4,054,040 for the same period in
fiscal 1999.
The Company's coffee sales decreased nearly 2% for the nine months ended
September 30, 2000 compared to the same period in fiscal 1999. While national
revenues and mail order revenues have declined by approximately $62,000 or 6%
and $27,000 or 8.3% respectively, distribution revenues increased by
approximately $31,000 or 1.4% in the nine month period ending September 30, 2000
compared to the same period in 1999. The improvement in the distribution
revenues has come as a result of staffing additions that were made earlier in
the year. However, as noted above, there has been an erosion in the Company's
distribution revenues during the third quarter that must be halted or
performance in this sector of the company's business could fall further in the
fourth quarter.
The decrease in mail order revenue reflects the lack of mailings to grow the
customer list; however, the Company has shifted its emphasis to Internet sales.
Most of its spending has been for the Internet site and Internet store. Revenues
on the web are up approximately $22,000 for the first nine months of 2000,
compared to the same period in 1999, a 59% increase. National
28
<PAGE>
revenues declined in Fiscal 2000 because of the loss of two customers to local
roasters partially offset by the growth in the Song Bird program as noted above.
The bakery sales grew 3.2% or nearly $17,000 during the first nine months ended
September 30, 2000 compared to the same period in 1999 reflecting better volume
in 2000.
Consolidated cost of sales have declined to $2,120,762 for the first nine months
ended September 30, 2000 a 5% decline compared to $2,240,025 for the same period
in fiscal 1999. This decline was primarily a result of lower bean costs, offset
by increased fuel, salary and packaging costs. We anticipate that these higher
costs will negatively affect cost of sales in the fourth quarter of 2000.
Consolidated gross margin (gross profit as a percentage of net sales) increased
to 47.1% for the nine month period ending September 30, 2000 from 44.8% for the
nine months ended September 30, 1999.
The Company's coffee gross margins increased from 48.0% for the nine months
ended September 30, 1999 to 49.5% in the same period of fiscal 2000. This
increase was due to the average cost of green beans decreasing from $1.75 per
pound over the nine month period ending September 30, 1999 compared to $1.61 per
pound over the same period in 2000. It also reflects higher pricing for its
Swiss water process decafs that have been introduced in a twelve ounce
container.
Consolidated selling, general and administrative expenses were $1,650,233 for
the nine months ending September 30, 2000, a 9.3% increase over the $1,487,199
for nine months ended September 30, 1999. This increase in selling, general and
administration expenses was due, as described above, to additional staffing
expenses.
Depreciation and amortization expense increased to $152,512 for the nine months
ended September 30, 2000, a 9% increase from $139,942 for the nine months ended
September 30, 1999. This was a result of the purchase of additional fixed assets
including web store and site design, upgrade of computer hardware and software,
moving of the air compressors in the plant and some minor purchases of brewers
and grinders.
Interest expense was $78,427 for the nine months ended September 30, 2000, a
decrease of 13.3% from $90,452 for the nine months ended September 30, 1999.
This was a result of a decrease in total borrowings to $752,584 at September 30,
2000 from $984,242 at September 30, 1999. Interest expense as a percentage of
net sales decreased to 2.0% for the nine months ended September 30, 2000 from
2.2% for the nine months ended September 30, 1999.
As a consequence of a decline in sales and increased operating costs, (including
fuel, salaries and packaging), the Company incurred a consolidated net gain of
only $38,516 for the nine months ended September 30, 2000, compared with a net
gain of $91,516 for the nine months ended September 30, 1999. Because of the
decline in revenue in the third quarter and the increases in costs of fuel and
labor, there can be no assurances that the Company will be profitable in any
future period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 the Company had negative working capital of $78,886. This
change in working capital is a result of the reclassification of the balloon
payment of approximately $484,651 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 financial institutions to
refinance the balloon payment in addition to acquiring a working capital line of
credit.
Net cash provided by operating activities was $284,145 for the nine months ended
September 30, 2000 compared to $202,544 provided by operating activities for the
nine months ended September 30, 1999. The increase in net cash provided by
operating activities was primarily due to increases in accounts payable and
depreciation and amortization of $85,322 and $170,054 respectively. Increases in
fixed assets were a result of acquisitions noted above. Higher accounts payable
was a result of higher inventories in preparation for the holiday season. These
increases were partially offset by increases in prepaid expenses and inventories
of $11,944 and $12,170, respectively.
Net cash used by investing activities was $83,925 comprised primarily of
Internet WEB design for the site and the store, computer hardware and software
upgrades, move of the air compressors in the plant and minor grinders, brewers,
and fixtures purchased during nine month period ending September 30, 2000
compared to net cash used by investing activities of $137,994 for the same
period in 1999 including repurchase of common stock for $11,198.
29
<PAGE>
Included in net cash used by financing activities during the nine months ended
September 30, 2000 was $150,815 net repayment of notes payables and capital
leases compared to $109,056 in the same period for fiscal 1999 for note
repayments. The higher repayment of debt was a result of the accelerated payment
schedule of the Wells Fargo note.
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 $484,651. The loan
terms contain certain limitations and covenant restrictions, including limits on
the incurrence of additional indebtedness.
At September 30, 2000, the Company had total borrowings of $752,585, including
$522,985 outstanding to Wells Fargo Bank. The Company's accounts receivable,
inventory, equipment, fixtures and improvements secure the borrowings.
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 and may not be sufficient
for the next three months if Wells Fargo should call the balloon loan. 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 $484,651, 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.
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.
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
At the Company's annual meeting held in Fort Bragg at 10:00 a.m. on October 20,
2000, the Company submitted for a vote of security holders the reelection of all
four members of the board of directors and ratification of Sallman, Yang and
Alameda as independent public accountants. Below is a summary of the results.
Proposal No.1 Election of four Directors
Name Shares for Against/Withheld Abstain
Paul Katzeff 983,582 0 0
Joan Katzeff 983,582 0 0
Larry Leigon 983,582 0 0
Roy Doughty 983,582 0 0
Proposal No. 2 Ratification of Sallman, Yang and Alameda An Accountancy
corporation, as Independent Public Accountants for the Company
983,582 0 0
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
31
<PAGE>
No reports on Form 8-K were filed during the period from July 1, 2000 through
September 30, 2000
32
<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 November 14, 2000
----------------
Paul Katzeff
/s/ Joan Katzeff President November 14, 2000
----------------
Joan Katzeff
