UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 2003
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 number 000-26829
Tully’s Coffee Corporation
(Exact Name of Registrant as Specified in its Charter)
| Washington | 91-1557436 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 3100 Airport Way South Seattle, Washington |
98134 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (206) 233-2070
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of The Exchange Act) Yes ¨ No x
As of January 31, 2004, 16,469,187 shares of common stock, no par value, were outstanding.
1
TULLY’S COFFEE CORPORATION
Form 10-Q
For the Quarterly Period Ended December 28, 2003
| Page No. | ||||
| 3 | ||||
| PART I | FINANCIAL INFORMATION |
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| Item 1 |
4 | |||
| Condensed Consolidated Balance Sheets at December 28, 2003 and March 30, 2003 |
4 | |||
| 5 | ||||
| 6 | ||||
| 7 | ||||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3 |
30 | |||
| Item 4 |
30 | |||
| PART II | OTHER INFORMATION |
|||
| Item 1 |
31 | |||
| Item 2 |
31 | |||
| Item 6 |
31 | |||
| 33 | ||||
2
Unless the context requires otherwise, as used in this report “Tully’s,” “Company,” “we,” “our” and “us” means Tully’s Coffee Corporation.
A Warning About Forward-Looking Statements
We make forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our operations and financial condition, plans, objectives and performance. Additionally, when we use the words “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we are making forward-looking statements. Many possible events or factors could affect our future financial results and performance. The forward-looking statements are not guarantees of future performance and results or performance may differ materially from those expressed in our forward-looking statements. Information regarding factors that could cause our actual results to differ materially from our expectations is included in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Our Future Results.”
You should not place undue reliance on any of these forward-looking statements. Except to the extent required by the federal securities laws, we do not intend to update or revise the forward-looking statements contained in this report.
3
PART I. FINANCIAL INFORMATION
TULLY’S COFFEE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 28, 2003 |
March 30, 2003 |
|||||||
| (unaudited) | ||||||||
| (dollars in thousands, except share data) | ||||||||
| Assets | ||||||||
| Current assets |
||||||||
| Cash |
$ | 1,474 | $ | 993 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $117 and $173 at December 28, 2003 and March 30, 2003, respectively |
1,025 | 1,239 | ||||||
| Inventories |
2,306 | 2,417 | ||||||
| Prepaid expenses and other current assets |
713 | 668 | ||||||
| Total current assets |
5,518 | 5,317 | ||||||
| Property and equipment, net |
14,904 | 17,079 | ||||||
| Goodwill, net |
523 | 523 | ||||||
| Other intangible assets, net |
935 | 994 | ||||||
| Other assets |
623 | 678 | ||||||
| Total assets |
$ | 22,503 | $ | 24,591 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities |
||||||||
| Accounts payable |
$ | 2,149 | $ | 2,389 | ||||
| Accrued liabilities |
3,425 | 3,034 | ||||||
| Current portion of long-term debt and capital lease obligations |
2,749 | 561 | ||||||
| Deferred licensing revenue |
2,267 | 1,838 | ||||||
| Total current liabilities |
10,590 | 7,822 | ||||||
| Long-term debt, net of current portion |
893 | 3,106 | ||||||
| Capital lease obligations, net of current portion |
364 | 360 | ||||||
| Deferred lease costs |
1,408 | 1,507 | ||||||
| Convertible promissory note, net of discount |
2,902 | 2,816 | ||||||
| Deferred licensing revenue, net of current portion |
10,719 | 12,169 | ||||||
| Total liabilities |
26,876 | 27,780 | ||||||
| Stockholders’ deficit |
||||||||
| Series A Convertible Preferred stock, no par value; 17,500,000 shares authorized, 15,378,264 shares issued and outstanding with a stated value of $2.50 per share and a liquidation preference of $38,446 at December 28, 2003 and March 30, 2003 |
34,483 | 34,483 | ||||||
| Common stock, no par value; 120,000,000 shares authorized; 16,469,187 and 16,320,613 shares issued and outstanding at December 28, 2003 and March 30, 2003, respectively, with a liquidation preference of $37,056 (December 28, 2003) and $36,721 (March 30, 2003) |
9,279 | 9,272 | ||||||
| Series B Convertible Preferred stock, no par value; 8,000,000 shares authorized, 4,990,709 shares issued and outstanding with a stated value of $2.50 per share and a liquidation preference of $12,477 at December 28, 2003 and March 30, 2003 |
11,066 | 11,066 | ||||||
| Deferred stock compensation |
(84 | ) | (161 | ) | ||||
| Additional paid-in capital |
27,606 | 27,435 | ||||||
| Accumulated deficit |
(86,723 | ) | (85,284 | ) | ||||
| Total stockholders’ deficit |
(4,373 | ) | (3,189 | ) | ||||
| Total liabilities and stockholders’ deficit |
$ | 22,503 | $ | 24,591 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TULLY’S COFFEE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
| Thirteen Week Periods Ended |
Thirty-nine Week Periods Ended |
|||||||||||||||
| December 28, 2003 |
December 29, 2002 |
December 28, 2003 |
December 29, 2002 |
|||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Net sales |
$ | 12,790 | $ | 13,037 | $ | 38,965 | $ | 38,927 | ||||||||
| Cost of goods sold and related occupancy expenses |
5,707 | 5,990 | 17,496 | 18,034 | ||||||||||||
| Store operating expenses |
4,151 | 4,216 | 12,728 | 12,943 | ||||||||||||
| Other operating expenses |
540 | 533 | 1,434 | 1,390 | ||||||||||||
| Marketing, general and administrative costs |
1,632 | 2,244 | 5,342 | 7,457 | ||||||||||||
| Depreciation and amortization |
858 | 884 | 2,706 | 2,991 | ||||||||||||
| Store closure and lease termination costs |
29 | — | 174 | — | ||||||||||||
| Operating loss |
(127 | ) | (830 | ) | (915 | ) | (3,888 | ) | ||||||||
| Other income (expense) |
||||||||||||||||
| Interest expense |
(124 | ) | (191 | ) | (378 | ) | (536 | ) | ||||||||
| Gain on sale of investments |
— | — | — | 14 | ||||||||||||
| Interest and other income |
28 | 7 | 74 | 521 | ||||||||||||
| Loan guarantee fee expense |
(64 | ) | (29 | ) | (196 | ) | (29 | ) | ||||||||
| Total other income (expense) |
(160 | ) | (213 | ) | (500 | ) | (30 | ) | ||||||||
| Loss before income taxes and cumulative effect of change in accounting principle |
(287 | ) | (1,043 | ) | (1,415 | ) | (3,918 | ) | ||||||||
| Income taxes |
(11 | ) | (1 | ) | (24 | ) | (23 | ) | ||||||||
| Loss before cumulative effect of change in accounting principle |
(298 | ) | (1,044 | ) | (1,439 | ) | (3,941 | ) | ||||||||
| Cumulative effect of change in accounting principle |
— | — | — | (3,018 | ) | |||||||||||
| Net loss |
$ | (298 | ) | $ | (1,044 | ) | $ | (1,439 | ) | $ | (6,959 | ) | ||||
| Net loss per share – basic and diluted |
||||||||||||||||
| Loss before cumulative effect of change in accounting principle |
$ | (0.02 | ) | $ | (0.06 | ) | $ | (0.09 | ) | $ | (0.24 | ) | ||||
| Cumulative effect of change in accounting principle |
— | — | — | (0.18 | ) | |||||||||||
| Net loss per share – basic and diluted |
$ | (0.02 | ) | $ | (0.06 | ) | $ | (0.09 | ) | $ | (0.42 | ) | ||||
| Weighted average shares used in computing basic and diluted net loss per share |
16,469 | 16,409 | 16,442 | 16,367 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TULLY’S COFFEE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| Thirty-nine Week Periods Ended |
||||||||
| December 28, 2003 |
December 29, 2002 |
|||||||
| (unaudited) | (unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (1,439 | ) | $ | (6,959 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Cumulative effect of change in accounting principle |
— | 3,018 | ||||||
| Depreciation and amortization |
2,706 | 2,991 | ||||||
| Store closure and lease termination costs |
174 | — | ||||||
| Non-cash interest expense |
86 | 329 | ||||||
| Employee stock option compensation expense |
75 | 59 | ||||||
| Non-cash loan guarantee fee expense |
196 | 29 | ||||||
| Provision for doubtful accounts |
64 | 75 | ||||||
| Gain on sale of investments |
— | (14 | ) | |||||
| Gain on sale of property and equipment |
(10 | ) | — | |||||
| Recognition of deferred licensing revenues |
(1,521 | ) | (1,533 | ) | ||||
| Changes in assets and liabilities |
||||||||
| Accounts receivable |
151 | (603 | ) | |||||
| Inventories |
91 | (363 | ) | |||||
| Prepaid expenses and other assets |
9 | (156 | ) | |||||
| Accounts payable |
(240 | ) | (164 | ) | ||||
| Accrued liabilities |
196 | (2 | ) | |||||
| Proceeds from deferred licensing revenues |
500 | — | ||||||
| Deferred lease costs |
(98 | ) | 35 | |||||
| Net cash provided by (used in) operating activities |
940 | (3,258 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment |
(230 | ) | ||||||