Sacramento Natural Foods Cooperative Shareholder Disclosure … · 2016-10-19 · Preferred Shares: The cooperative is offering members the opportunity to purchase preferred non-voting

Sacramento Natural Foods Cooperative Shareholder Disclosure Document

Executive Summary

The Sacramento Natural Foods Cooperative is a consumer-owned natural foods grocery store, which is open to the public and is operated for the benefit of its member/owners. It was incorporated on September 25, 1973 and currently operates a 16,000 square foot grocery store in Sacramento, employing 195 people and selling a full range of natural and organic foods and other household items. The cooperative has shown a profit the previous five years. Its fiscal year ends in September on the last Sunday of the month.

The cooperative’s principal officers are as follows: Joel Erb, President; Chris Tucker and Ann Richardson, Vice-Presidents; Steven Maviglio, Secretary; and Chris Tucker Treasurer. The cooperative is making an offering of preferred non-voting stock for the primary purpose of raising capital to the relocation of its store, offices and classroom. The Offering

This offering is limited to current members of the cooperative in good standing, who are fully vested in their Membership Share. The securities are non-transferable and are only available for sale in California.

Description of Securities Offered General: The cooperative currently issues Membership shares, entitling

holders to one vote and to participate in patronage refunds when they are available. Membership shares do not offer any dividends. They are redeemable upon the withdrawal of an owner’s membership. The Co-op has up to one year from the date of withdrawal to redeem the value of an owner’s Membership share investment.

Preferred Shares: The cooperative is offering members the opportunity to

purchase preferred non-voting shares of stock. Ownership of these preferred shares will entitle members to any dividend declared by the Board of Directors, and these shares will have preference as compared to the Membership shares upon liquidation, but they have no other special rights or preferences. The Co-op will not distribute dividends if there is insufficient income or insufficient cash in a given year. Dividends are cumulative for years when a dividend is declared but not paid. These securities are more particularly described at Exhibit A: Resolution of the Board of Directors of Sacramento Natural Foods Cooperative.

How These Securities will be Offered and Sold

Purchaser Limitations: This offering is limited to Co-op members who are fully vested in their $300 Membership share. As defined in the Co-op’s Bylaws, Co-op members must be California residents. No member may hold, in aggregate, shares from this or any previous offering whose total value exceeds $100,000. As part of the transaction, purchasers must verify that they have read and understood the disclosure documents, specifically including the risk factors and that they acknowledge that their entire investment is at risk and that they may lose their entire investment. These securities will be sold by the Co-op to its fully vested members without the use of agents or brokers. Risk Factors The most significant risk factors for the cooperative and the investor are:

1. Competition: Currently the cooperative is the market leader within a 10 mile radius although it competes with a number of national grocery chains in that area. The closest natural food competitor, Whole Foods, had been located approximately 8 miles away. A new competitor – Sprouts Farmers Market – opened a store in May of 2012 at a location approximately 3 miles from the Co-op's store. In late September of 2013, Fresh Market opened a store on Fair Oaks Blvd, approximately 5 miles from the Co-op's store. That store was subsequently closed six months later. Trader Joe’s operates a store within 2 miles of the Co-op. In the past year, there also has been an increasing focus on the offering of natural and organic foods on the part of conventional supermarkets. In August of 2014, Whole Foods announced plans to open a 40,000 square foot store in Midtown Sacramento, approximately one mile away from the site where the Co-op plans to relocate. Current plans indicate that the new Whole Foods store would open sometime in the Spring of 2018, a little over one year and a half after the planned Co-op relocation.

2. Economic Conditions: The Cooperative has seen annual growth in sales/week as follows, even during the most recent economic downturn: Fiscal 2008: 7.44% Fiscal 2009: 2.80% Fiscal 2010: 6.55% Fiscal 2011: 6.01% Fiscal 2012: 6.10% Fiscal 2013: 7.44% Fiscal 2014: 4.90% Fiscal 2015: 4.22% Fiscal 2016: (through Period 9): 2.44% Its value proposition is based on quality products and not on low price. An economic downturn could make it susceptible to sales erosion.

3. Outgrowing its Facilities: The Cooperative currently transacts annual sales trending at over $33.9 million in a 16,000 square foot facility, which is overcrowded and has limited parking (54 spaces). The lease on its store facility expires in October of 2017. The Co-op also occupies space in four other buildings that are used for offices, meeting rooms and its Community Learning Center. In total, these off-site spaces amount to an additional 8,000 square feet. The Cooperative’s current physical space is inadequate to meet the demands of its members for both parking and shelf space. For these reasons the Co-op plans to move to a larger facility that is located within two and a half blocks of its current store. This move will require a significant investment of cash reserves and will involve additional borrowing to finance the project. It may also involve the risk that future sales volumes would be inadequate to service debt and/or to support operating expenses. Management’s financial planning has taken this into consideration.

Business and Properties General Description of the Business The Cooperative operates a natural foods grocery store open seven days a week from 7 AM until 10 PM. It serves over 3, 050 customers per day and employs 195 people (125 of whom are members of Teamsters Local 150). Its specializes in locally-sourced fresh produce, all of it certified organically grown, and also carries a full line of natural groceries, meats, seafood, wines, beers, cheeses, body care products, and nutritional supplements and also operates a full service in-store deli. The Cooperative is owned by more than 11,000 of its customers who each purchase a refundable $300 Membership Share as a condition of membership. Ownership of the Membership Share entitles the owner to one vote in Co-op affairs and to financial benefits that include ongoing discounts on purchases made at the Co-p as well as patronage refunds when profits warrant the latter. The cooperative has been in business since 1973 and at its current location since 1988. It procures the products that it sells from a number of distributors and local farmers. It also produces in-house approximately 95% of the foods that it serves in its in-store deli.

Company History and Organization The Co-op began in the early 1970’s as a buying club organized by a small group of Sacramento residents who were seeking natural and organic foods that were at the time unavailable through traditional grocery outlets. In time the group grew and opened a small storefront and incorporated as the Sacramento Natural Foods Cooperative, Inc. in 1973. In the 1980’s the Co-op operated out of a 2,500 square foot storefront and had sales in the $1.5 million range. In 1988 it moved to its present location, a 16,000 square foot facility. Sales continued to grow, reaching $11million/year by 1998. At that time a major store renovation was undertaken, after which sales growth accelerated, reaching $19 million/year by 2005. In 2005 the Co-op opened a second store in Elk Grove California, 10 miles south of its Sacramento store. Sales at that store never reached projections, resulting in significant financial losses. The store was closed in January of 2007 after one

and a half years in operation. In March of 2007 the lease on the Elk Grove facility was turned over to the Grocery Outlet chain and the fixtures and equipment in the store were auctioned off. At that point, the Co-op’s balance sheet reached its nadir, with Net Worth dropping to minus $2.4 million. Since the closing of the Elk Grove store, sales at the Sacramento store have grown steadily to their current level, trending at over $33.9 million/year. At the same time Net Income has been consistently strong, resulting in a recovery of Net Worth, which stood at $7,345,115 at the end of Period 9 of Fiscal 2016. Other than the Membership Shares, which all members are required to purchase, the Co-op had never issued any other stock. In March of 2013 if made an initial offering of $1.5 Million worth of preferred shares. The offering sold out quickly and in October of 2015 it made a second offering of $3 Million worth of preferred shares. As of June 26 30, 2016 $2,298,050 worth of those shares had been purchased. The Co-op is independently owned by its members and has no affiliates. Management Officers and Directors: A seven-person Board of Directors is elected by the owners and in turn the Board elects its officers (President, Vice President, Secretary and Treasurer). Every year two Director seats are filled by vote of the membership of the cooperative, and every third year three seats are filled by vote of the membership of the cooperative to maintain a total of seven directors on the Board. The current officers’ and directors’ CVs are attached at Exhibit B. The position of director is minimally compensated, with total compensation for all board members, including officers, averaging $10,000 per year. Key Persons: In addition to the Board of Directors, the cooperative is managed by a full time General Manager, Paul Cultrera and a Financial Manager, Angela Borowski. Their CVs are attached at Exhibit B. Arrangements with Officers, Directors and Key Persons The General Manager’s Employment Agreement is negotiated annually, effective every November 1. This agreement includes Nondisclosure, Non-Solicitation of Employees and Non-Competition Agreements. The General Manager is required to have a succession plan in place, insuring that there will be a person ready to step into his role in the case of sudden death or disability. The Co-op has a $500,000 key person policy that covers it in the case of the General Manager’s death. The current General Manager will retire when his Employment Agreement expires on October 31, 2016, and the Co-op’s Board of Directors will have his successor in place before that date.

Management Relationships and Transactions There are no family relationships between any Officer, Director or Key Person.

The Co-op will not use any offering proceeds to acquire assets from any Officer, Director or Key Person, or from any associate of any of them. The offering proceeds will not be used to reimburse any Officer, Director, or Key Person for any services already rendered, assets previously transferred, or moneys loaned or advanced.

The Co-op has not made any loans to any Officer, Director or Key Person and will

not make any such loans. The Co-op does not transact any business with any Officer, Director or Key Person. No Officer, Director or Key Person has guaranteed or co-signed any of the Co-operative’s bank debt or other obligations. Suppliers The Cooperative is a member in the National Cooperative Grocers through which the Co-op is a party to a national buying contract with United National Foods (the nation’s largest distributor of natural foods and products) on behalf of the cooperative and 140 other cooperatives. The contract allows the Cooperative to purchase approximately 45% of the products that it sells on an advantageous cost-plus basis. Through this group buying power the cooperative is not, and will not be, dependent on a limited number of suppliers. Customer Sales and Orders

For the fiscal year ending 9/27/2015, the Cooperative had sales in the amount of $32,700,726. An average basket size at the cooperative during that period was $29.71. Current fiscal year sales are trending at $33.9 Million, with average basket size at $30.57. There are no individual customers which account for a major portion of the cooperative’s sales. The Cooperative’s sales show a regular if slight cycle with sales slowing down in the summer quarter and then building up from the autumn quarter and peaking in the spring quarter. Over the past two years, year to year sales/week gains have been running in the 2.44 – 4.22% range. Competition Approximately 60% of the Cooperative’s sales come from within a five mile radius of the store. This area comprises metropolitan Sacramento. The balance of the cooperative’s sales comes primarily from within an additional 15 mile radius.

The Cooperative’s principal direct competitor is Whole Foods. Whole Foods operates over 200 stores nationwide and is the recognized natural foods retailing leader. It operates one store approximately 8 miles away from the Co-op and two others, each approximately 20 miles away. A second competitor is Raley’s, a locally owned conventional supermarket chain with over 50 stores and a reasonable representation in the natural/organic foods category. Another competitor is Trader Joe’s, a national chain with over 200 stores that competes strongly on price. Its closest store to the Co-op is 1.5 miles away. When it opened in 2003, the Co-op experienced minimal sales losses. Another, less significant competitor is Nugget, a locally owned grocery chain with half a dozen stores in the Sacramento area and with a selection of natural and organic foods. Its closest store to the Co-op is approximately 4 miles away. Sprouts (formerly Sunflower Famers Market), a national chain of natural food stores that competes primarily on price, opened a store in the Land Park section of Sacramento in May of 2012. This store is located approximately three miles from the Co-op. The Co-op currently obtains approximately 14% of its sales from the neighborhoods in the vicinity of the new Sprouts store. Fresh Market, another national chain that offers natural and organic foods opened

a store in September of 2013 at a site approximately 5 miles from the Co-op’s store. The Co-op currently obtains approximately 8% of its sales from the neighborhoods in the vicinity of the new Fresh Market store. However, since the opening of the Sprouts and Fresh Market stores the Co-op experienced no discernible negative effect on its sales volume or sales growth trends from the areas around those stores. Six months after opening, the Fresh Market store was closed. In August of 2014, Whole Foods announced plans to open a 40,000 square foot store in Midtown Sacramento, approximately one mile away from the site where the Co-op plans to relocate. Current plans indicate that the new Whole Foods store would open sometime in the spring of 2018, a little over one year and a half after the planned Co-op relocation. Judged on results experienced by other similarly sized co-ops that have had a Whole Foods open near their stores, the Co-op expects its sales to drop off by as much as 14% for a period of six months after the opening of the Midtown Whole Foods, and then to return to their previous level twelve to fourteen months after the opening of the Whole Foods store. These assumptions have been built into the Co-op’s relocation project pro forma. It is important to note that none of the other co-ops that were analyzed had the advantage that the Co-op has of being able to open a brand new store before Whole Foods entered their market area. The Cooperative competes primarily by providing service that exceeds its customers’ expectations rather than on price alone. The fact that it is owned by its customers creates a different relationship than is commonly found in privately or corporately owned grocery stores. The Cooperative also places a strong emphasis on education about the products that it sells, running an extensive in-store demo program, its Community Learning Center that offers classes on a variety of topics and reaches over 400 people per month, and by publishing an informative quarterly newsletter called The Fork and by maintaining an active web site and social media presence. The Cooperative differentiates itself by being owned by its customers, and being committed to supporting local organic agriculture. Since 2000, it has only sold certified organically grown products in its Produce department, being a pioneer in that regard. In 2015 it received status as an Certified Organic Retailer under the California Certified Organic Farmers certification program. It also partners with other local groups in the community, e.g. an urban organic farm, a local food bank, and by focusing on education as described above. In 2012, the Co-op launched its Community Kitchen program, through which it offers classes free of charge to clients of a number of local organizations that serve people with limited incomes. These classes focus on basic nutrition and cooking skills. Through its Community Discount Program, the Co-op offers a 10% discount on all goods purchased to anyone whose income levels qualify them as participants in a long list of income assistance program (e.g. CalFresh/Food Stamps, WIC, SSI, Unemployment Insurance, Medi-Cal etc.). During Fiscal 2015, Community Discount Program participants earned over $281,000 in discounts on their Co-op purchases, and accounted for 8.60% of the Coop’s sales. Currently Community Discount participant sales represent 8.90% of store sales.

In late 2015 the Co-op rolled out a program called Essentials which offers its customers a selection of items across all of its departments at significantly reduced price points. These items are selected with an eye toward making “healthy food available to

everyone” The program is backed up with recipes, in-store demos and cooking classes in the Co-op’s Community Learning Center.

Marketing For years the Co-op has concentrated its marketing efforts on educating its customers regarding the value of knowing where their food comes from, who grows it and how it is grown. It emphasizes its strong relationships with a community of local farmers and producers, and also emphasizes the unique economic structure of a cooperative that is based upon ownership by the people who use it. The Co-op also operates a Community Learning Center that runs a full schedule of classes on subjects such as cooking, nutrition, gardening, etc. that complement the Co-op’s brand. It expects to continue to communicate those messages in the coming 12 months, and with its new facility will be in a position to expand those efforts. These marketing activities have always been funded out of operating cash flows and the Cooperative intends to fund them out of operating cash flows in the future as well. The Co-op also markets itself via its website (www.sacfood.coop); via communications to the over 6,300 subscribers to its email list; via its Facebook page (over 15,800 active fans); and its Twitter feed (over 2,800 followers), and publishes its newsletter – The Fork – on a quarterly basis, with a production run of 18,000 copies. Coinciding with the store relocation, the Co-op will increase its use of traditional media advertising. In the lead-up to the opening of its relocated store, the Co-op has contracted with local PR/advertising agency 3Fold to assist it in developing its marketing campaign prior to and following upon the store’s opening. Employees The Co-op employs 195 employees. Of these, 125 are unionized clerks. Another 25 are middle managers, 7 are senior managers and the remaining 38 are engaged in administrative/marketing positions. The Cooperative does not anticipate any significant changes in the number of employees until the opening of its relocated store. At that time it anticipates adding between 40 and 60 new employees. The Co-op’s clerks are members of Teamsters Local 150. The Co-op has had a solid working relationship with the union and its stewards, having successfully negotiated pay and benefit reductions when they were needed due to financial difficulties that the Co-op experienced from 2005 - 2007 when a newly-opened branch store in Elk Grove underperformed. Since then, productive negotiations each year have resulted in restoration of lost wage rates. The Co-op provides the following benefits:

• Health/dental/vision insurance • Paid Time Off • A 15% discount on all purchases • An additional 20% discount on purchases of product in case quantities,

• Gain sharing - a system that distributes to employees the savings achieved when actual payroll costs as a percentage of sales come in under the budgeted amount -for all non-management employees.

• Quarterly bonus plans for all management employees • 401K plan with matching contributions for all employees

Properties

The Co-op leases the following properties: • Its store facility at 1900 Alhambra Blvd, Sacramento • Administrative offices at 1919 Alhambra Blvd, Sacramento • Additional offices at 3000 S Street, Sacramento • A building that houses its Community Learning Center and its Education and

Communication/Design departments’ offices at 1914 Alhambra Blvd, Sacramento • An area that includes additional parking and an outdoor employee break area.

The Co-op owns a property at 3023 T Street, Sacramento consisting of a garage and apartment that are used for storage and office space along with a residential duplex that is rented to tenants. The Co-op’s current retail facility is undersized and its offices are spread over four separate buildings. At over $2,830 per retail square foot the Co-op’s annual sales/square foot are roughly five times the national average for a grocery store. The Co-op has secured a site two blocks away on the block between R and S and 28th and 29th Streets, where it will relocate all of its retail, office and classroom operations. It has negotiated a 20 year lease with four five-year renewal options on that site. The new store will consist of 26,000 square feet of retail/warehouse and kitchen space (compared to the current store’s 16,000 square feet). It will also feature a 16,000 square foot mezzanine where offices, classrooms, meeting and dining areas will be located. In addition, there will be 119 parking spaces at the new site (with an additional 180 spaces avaible on nights and weekends in an adjacent garage) compared to the 54 at the current site. The lack of adequate parking has consistently been mentioned as a barrier for customers shopping at the current store. The move to the site is planned for late summer of 2016. Research and Development

In the past two years the Co-op has invested resources focused on the development of its Information Technology operations. This has primarily taken the form of restructuring its website, internal software systems and in the purchase and installation of a new Point of Sale system. The Co-op plans to continue to make these annual investments in IT functions to stay in step with the industry trend toward greater use of electronic/online communication and social media. The Co-op is also preparing to use the services of Instacart, an online grocery home delivery service, which will allow it to offer home delivery to its customers. Governmental Regulation

The Co-op’s business, products, services and properties are not subject to material regulation by any governmental agency. However, it is required to have operating

licenses and a restricted beer/wine license. Beer and wine sales account for less than 3.0% of total store sales. Loss of that license would thereby result in a loss of just over $1,000,000 in annual sales. That amount would be mitigated by the reduced wages paid to employees in the Beer/Wine department and the freeing up of space now used for those sales to be used for the sale of other products. Loss of its business license would of course result in the closing of the business. However, the chances of losing that license are extremely remote.

Use of Proceeds Proceeds from the preferred share offering will be used to finance the store relocation, primarily capital improvements in the new facility. All costs associated with the offering, such as legal expenses, accounting expenses and advertising will be paid out of the cooperative’s current overhead.

There is no minimum amount of proceeds that must be raised before the Co-op

uses any of the proceeds of this offering.

Selected Financial Information

The following table summarizes certain financial information from the Cooperative’s Fiscal 2013, 2014 and 2015 audited financial statements. Share purchasers should read this table in conjunction with the Cooperative’s financial statements attached hereto as Exhibit C. SELECTED FINANCIAL DATA STATEMENT OF OPERATIONS

Year Ending

9/27/15

% of Sales

Year Ending

9/28/14

% of Sales

Year Ending

9/29/13

% of Sales

Sales $32,700,726 100.00% $31,376,131 100.00% $29,911,738 100.00% Cost of Goods $19,975,404 61.09% $18,818,400 59.98% $17,910,652 59.88% Gross Margin $12,725,322 38.91% $12,557,731 40.02% $12,001,086 40.12% Operating Expense

$11,682,268 35.72% $11,336,838 36.13% $10,672,760 35.68%

Operating Income

$1,176,559 3.60% $1,220,893 3.89% $1,328,326 4.44%

Interest Expense

$0 0.00% $0 0.00% $97 0.00%

Depreciation & Amortization

$133,505 0.41% $148,435 0.47% $155,594 0.52%

Other Income $312,576 0.96% $262,289 0.84% $203,803 0.68% Other Expense $2,188 0.01% $8,709 0.03% Owner Discounts

$467,706 1.43% $433,215 1.38% $408,192 1.36%

Patronage Refund

$0 0.00% $100,000 0.32% $100,000 0.33%

Pre-Tax Income

$877,236 2.68% $799,344 2.55% $859,837 2.87%

Balance Sheet Data:

Working Capital

$3,875,600 $2,261,203 $1,891,989

Total Assets $8,209,162 $7,137,251 $6,218,138 Long Term Liabilities

$0 $0 $0

Total Liabilities

$2,137,080 $1,681,170 $1,667,701

Net Worth $6,072,181 $5,456,081 $4,550,437 CAPITALIZATION as of 9/27/2015 and 6/26/2016 The following table sets forth the Cooperative’s capitalization as of 9/27/2015 as reflected in the audit that was completed in January of 2016, and as of 6/26/2016 based on internally produced statements:

Owner’s Equity:

9/27/2015

6/26/2016

Maximum

Membership Shares ($300 per share)

$2,716,978 $2,887,681 $300,000,000

Preferred Shares Series B ($50/share)

$75,000 $88,550 $200,000

Preferred Shares Series C ($500/sahre)

$675,000 $874,000 $1,550,000

Preferred Shares Series D ($500/share)

$750,000 $1,335,500 $2,750,000

Total Capitalization $4,216,978 $5,185,731 $304,500,000 Outstanding Securities

At the end of Fiscal 2015, Co-op owners had invested $2,716,978 in Membership shares. These shares, according to the Articles of Incorporation and Bylaws have voting rights and rights to patronage refunds when they are available, but they have no dividend rights. In addition, Co-op owners had invested $1,500,000 in non-voting Preferred Shares, as described in the chart above. Through 6/28/2016 Co-op owner investment in membership shares had risen to $2,887,681, and non-voting Preferred Share investment reached $2,298,050. Management’s Discussion and Analysis of Certain Relevant Factors

The Cooperative does not have and does not anticipate having any cash flow or liquidity problems in the next 12 months. It is not in default on any note, loan, lease or

other indebtedness or financing arrangement. None of its trade payables is more than 90 days old. It is not subject to any unsatisfied judgments, liens or settlement obligations. Its financial statements do not show any losses from operations.

The Co-op posted positive net income up until the opening of its new store in June of 2005. From that time until the closing of the store in January of 2007 the Co-op overall ran at a loss due to operating losses at the new store while the Sacramento store maintained its profitable operations. The Co-op has returned to profitability in every month since the closing of the Elk Grove store.

Management does not judge there to be changes in the underlying economics of the Co-op which will have a significant impact upon the Co-op's results of operation leading up to the sore relocation (tentatively scheduled for late summer, 2016). Upon opening of the relocated store, the Co-op expects to post losses, primarily due to the costs of the relocation project and the depreciation of the associated tenant improvements and store equipment. Management expects annual sales growth to be in the 2.50% rate until the relocated store is opened. Management expects to see a drop-off in sales volumes of up to 14% when the new Midtown Whole Foods store opens, and expects decreases in sales to persist for approximately one year after that event. Management will deal with the impact of any eventual decrease in sales by monitoring labor hours and adjusting as needed while at the same time attempting to protect its employees from significant disruptions.

The Co-op meets it current cash requirements out of operating cash flows. Through Period 9 of Fiscal 2016 it has operated regularly with an average of 27 days of available operating cash in its operating account. In December of 2012 the Co-op refinanced a balloon payment that was due to close out a loan that it took from the National Cooperative Bank to finance the Elk Grove store. The Co-op retired the remaining balance on that loan on June 5, 2012. The Co-op has entered into an agreement to borrow up to $3.4 million from Five Star Bank to partially finance its store/office relocation. It took its first draw on those funds in July of 2016. Management projects that after an initial run on cash reserves brought on by the financing of the tenant improvements and fixturization of the relocated store that the Co-op’s cash position will rebound and remain in the range of 10 days of cash that it sets as its operating goal. Certain Legal Proceedings Insolvency There have been no petitions for bankruptcy, receivership, or a similar insolvency proceedings filed by or against any Officer, Director, or key person within the past five years; either in an individual capacity or in his/her management capacity of any business. Criminal Proceedings No Officer, Director or key person has been named as the subject of a pending criminal proceeding or been convicted in a criminal proceeding, excluding traffic violations or other minor offenses.

Civil Proceedings No Officer, Director, or key person is currently the subject of any pending civil action, or has been the subject of a court order, judgment or decree in the last five years related to his or her involvement in any type of business, securities, or banking activity.

There is no threatened litigation or administrative action which would have any material effect on the Co-op’s business, financial condition, or operations.

Administrative Proceedings No Officer, Director, or key person is the subject of a threatened or pending administrative proceeding related to his or her involvement in any type of business, securities, or banking activity. No government agency, administrative agency, or administrative court has imposed an administrative finding, order, decree, or sanction against any Officer, Director, or key person in the last five years as a result of his or her involvement in any type of business, securities, or banking activity. Self-Regulatory Proceedings No self-regulatory agency imposed a sanction against any Officer, Director, or key person in the last five years as a result of his or her involvement in any type of business, securities, or banking activity. No Officer, Director, or key person is the subject of a threatened or pending self-regulatory organization proceeding related to his or her involvement in any type of business, securities, or banking activity.

ADDITIONAL INFORMATION

Security holders will receive an annual account statement indicating the number and value of their shares and any accumulated dividends. In addition, holders will receive an annual 1099-Div form. All Co-op members receive the Co-op’s annual report and have access to annual audits, at the close of the cooperative’s fiscal year on the last Sunday of September. Audited statements for Fiscal Years 2014 and 2015 are attached at Exhibit C.

Exhibit A

Resolutions of the Board of Directors of

Sacramento Natural Foods Cooperative, Inc.

WHEREAS, Sacramento Natural Foods Cooperative is authorized in its Articles of Incorporation to issue a total of 4,000,000 shares of capital stock, of which 1,000,000 shares are common stock, known as “membership shares” and 3,000,000 shares are preferred non-voting stock; and

WHEREAS, the Sacramento Natural Foods Cooperative previously received a permit from the California Commissioner of Corporations, now the California Department of Business Oversight, authorizing the cooperative to sell a total of 4,350 shares of preferred non-voting shares and the Sacramento Natural Foods Cooperative has sold all of the shares authorized pursuant to that permit; and WHEREAS, the Sacramento Natural Foods Cooperative received a second permit from the California Department of Business Oversight (previously the Commissioner of Corporations) to sell an additional 8,250 shares of preferred non-voting shares and the Cooperative has not sold all of those shares; and WHEREAS, the Board of Directors of the Sacramento Natural Foods Cooperative, in consultation with its finance committee, accountant and financial officers, believe it to be in the best interest of the cooperative to issue and sell additional preferred shares, as follows:

1. The cooperative will issue and sell additional shares, beyond those sold as of June 21, 2016 to total 8,250 preferred non-voting shares of its capital stock to its fully vested members. These preferred non-voting shares are priced as follows: $50.00 per share for 2,500 total Series B shares; and $500.00 per share for 1,750 total Series C shares; and $500.00 per share for 4,000 total Series D shares provided, however, that no single member may own more than $100,000 total value of all shares.

2. Series B shares shall have no minimum retention period and may be redeemed at the option of the holder or the cooperative at any time. Provided, however, that the Cooperative shall have up to one year to from the date that the member gives the Secretary of the Cooperative written notice of redemption, or the cooperative provides the member with notice of redemption, to pay for the redeemed shares. Series B shares shall have a 1.0% annual dividend rate.

3. Series C and D shares shall have a minimum retention period during which period the shares may not be redeemed by either the member or the cooperative. The minimum retention period for Series C shares shall be 4 years. The minimum retention period for Series D shares shall be 5 years. Following the minimum retention period the member or the cooperative may elect to redeem the shares and the cooperative shall have up to one year to pay for the redeeming member’s shares from the date the member gives the Secretary of the Cooperative written notice of redemption or the cooperative provides the member with notice of redemption. The redemption price shall be the original purchase price plus any accrued but unpaid dividends.

Series C shares shall have 2.5% annual dividend rate and Series D shares shall have a 3.0% annual dividend rate.

4. Dividends are payable out of net earnings, and shall be determined as of the close of the cooperative’s fiscal year and paid to those members of record on the last day of the cooperative’s fiscal year. The dividends shall be declared following the board of directors’ receipt and review of the cooperative’s annual audit. Unpaid declared dividends shall be cumulative.

5. The following charts list the number and dollar value of Membership and Preferred Shares held by Co-op owners as of the record date of August 4, 2015, and as of June 21, 2016:

Shares

Date

Membership

#

B #

C#

D #

8/4/2015 11,248 820 1,345 1,505 6/21/2016 11,150 1,771 1,748 2,638

Shares

Date

Membership

$

B $

C $

D $

8/4/2015 $2,885,119 $41,000 $672,500 $752,500 6/21/2016 $3,061,164 $88,550 $874,000 $1,319,000

NOW, THEREFORE, BE IT RESOLVED, that, in connection with such issuance, the officers of the Sacramento Natural Foods Cooperative be, and they hereby are, authorized, directed, and empowered to cause to be prepared and mailed for filing with the California Department of Business Oversight, on behalf of the Sacramento Natural Foods Cooperative, an application for qualification of the securities by permit, pursuant to Corp. Code § 25113; RESOLVED, FURTHER, that, subject and pursuant to Corp. Code § 25113, the Sacramento Natural Foods Cooperative be, and it hereby is, authorized and directed to issue preferred shares as set forth herein, with a total value of $ 3,000,000 to its subscribing members for the purchase price of $50.00 per share for Series B preferred, non-voting shares; and $500.00 per share for Series C and D preferred, non-voting shares, subject to the Cooperative’s receipt of a permit from the California Commissioner of Corporations authorizing such issuance. RESOLVED FURTHER, that the President and Secretary of the Sacramento Natural Foods Cooperative be, and they hereby are, authorized and directed to receive the consideration described above from the subscribing members and to credit the value of such consideration to the capital account of the Sacramento Natural Foods Cooperative;

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RESOLVED FURTHER, that, pursuant to the foregoing resolutions, upon filing of the aforesaid application and receipt of the aforesaid permit and the aforesaid consideration, the President and the Secretary of the Sacramento Natural Foods Cooperative be, and they hereby are, authorized and directed to prepare, issue, and deliver to the subscribing members the shares in certificated or non-certificated form, representing up to an aggregate of $3,000,000 in value of preferred shares of the Sacramento Natural Foods Cooperative's capital stock, all such issued shares thereupon to constitute duly and validly authorized and issued, fully paid and non-assessable shares of the Sacramento Natural Foods Cooperative's capital stock. Approved by the Board of Directors of the Sacramento Natural Foods Cooperative on July 5, 2016.

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Exhibit B

Sacramento Natural Foods Cooperative Management and Board of Directors Roster - 9/3/2016 General Manager: Name: Paul S. Cultrera Jr. Age 67 Occupation: General Manager, Sacramento Natural Foods Cooperative, Inc., 1999 through present Education (degrees, schools, and dates): Bachelor of Arts – English Literature – Boston College 1971 _________________________________________________ Finance Manager Name: Angela Borowski Age: 40 Occupation:

• Finance Manager, Sacramento Natural Foods Cooperative, Inc., 6/18/2007 through present

• Payroll Administrator, Sacramento Natural Foods Cooperative, Inc., 1/4/2005-6/17/2007

• Accounts Payable Clerk, Sacramento Natural Foods Cooperative, Inc., 10/25/2004-1/3/2005

Education (degrees, schools, and dates): Graduate, Encina High School 1973 Accounting program student, Sacramento State University Name: Joel Patrick Erb Age: 42 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. Pioneer Law Group, LLP Attorney/Founding Partner 2011- present Attorney working primarily in business and real estate transactions. Diepenbrock Harrison Attorney/Shareholder/VP 2005-2011

Attorney working primarily in business and real estate transactions. Chair of firm’s business and real estate department 2007-2009; Vice-chair 2009-2011. Education (degrees, schools, and dates): Sacramento Waldorf High School, diploma 1991 Tulane University, Tulane College (New Orleans, LA) B.A. 1995 (magna cum laude, with departmental honors in History) University of California, Berkeley, J.D. 1998 Harvard Law School (Cambridge, MA; Attended for third year of law school as part of Berkeley-Harvard exchange) 1997-1998. _________________________________________________ Name: Ann Marie Richardson Age: 62 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. Senior Advisor to the Chief Deputy, California Lottery 5/12 to present Staff Counsel – California State Lottery 8/10 – 5/12 Board Member, California Unemployment Insurance Appeals Board 10/3- 8/10/10 Education (degrees, schools, and dates): J.D. California Western 1984 B.A. SDSU 1976 _________________________________________________ Name: Chris Tucker Age: 40 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. National General Insurance, Senior Product Manager, Dec 2012-current Liberty Mutual Insurance, Director State Operations, Dec 2007-Jan 2012 Education (degrees, schools, and dates): MBA, Kellogg School of Management, 2003 MA, Cambridge University, 1996 _________________________________________________

Name: Steven Maviglio Age: 57 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. Self-employed, Forza Communications, Sacramento, Calif., 2010-Present – Run public relations and campaign firm. Education (degrees, schools, and dates): Masters in Public Administration, University of New Hampshire, 1996 B.S. Public Relations, Boston University, 1980. _________________________________________________ Name: Ellen McCormick Age: 45 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. Page & Turnbull - October 2015 - present Project Designer February 2015 – September 2015 Lochte + Architectural Group Project Designer April 2013 – January 2015 Ellen McCormick Design | Designer and Project Manager | Sacramento, CA Commercial and residential projects in Sacramento, West Sacramento and New York City July 2012 - March 2013 Indigo: Hammond Playle Architects | Production + Design | Davis, CA Senior Housing, Sikh Temple and Community Center, residential, and local government projects in Northern California May 2011 - June 2012 Anova Nexus Architects | Production + Design | Sacramento, CA

Education (including portable classroom remodel + relocation and culinary arts master planning) and healthcare facilities in California and Utah January 2010 - May 2011 Vrilakas Architects | Architectural Intern | Sacramento, CA Rapid transit and mixed-use housing in schematic, design development and construction document phases; contract administration and Division of State Architect coordination for new Light Rail Station in Sacramento; and architectural renderings using Photoshop Education (degrees, schools, and dates): Master of Architecture, University of Oregon | 2009 Public Administration, California State University, Sacramento and Los Angeles | 1993 - 1995 BFA Theatre Design, New York University, Tisch School of the Arts | 1992 _________________________________________________ Name: Michelle Mussuto Age: 53 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. California State Teachers’ Retirement System, Information Officer, 2009 to current. Respond to media inquiries, write news releases, talking points, analyze media outreach, develop strategic plans, crisis communications plans. Education (degrees, schools, and dates): Bachelor of Science, University of California, Davis, Graduated 1993. Associate in Occupational Studies, Culinary Institute of America, NY, Graduated 1982. _________________________________________________ Name: Joseph Phillips Age: 28 Names of employers, titles, and dates of positions held during past five years, with an indication of job responsibilities. Vigilant Web, Inc – CEO / Co-Founder, 12/15 – Present Founded start-up company, making public data search products

Boulevard Park Strategies – Principal, 1/13 – Present Founded political / public affairs consulting firm Chris Murphy for US Senate – Senior Advisor, 8/12 – 11/12 Served as senior staffer & advisor for U.S. Senate candidate in Connecticut StudentsFirst - Communications Chief of Staff, 6/11 – 8/12 Build and managed communications team for national non-profit advocacy group Education (degrees, schools, and dates): BA, Economics / Political Science, George Washington University, 2009

Exhibit C

Exhibit C

Sacramento Natural Foods Cooperative Relocation Project Pro Forma

Project Overview The Sacramento Natural Foods Cooperative currently operates a full-service grocery store housed in a leased 16,000 square foot facility. Approximately 12,000 of those square feet are devoted to retail sales, with the rest being used for backroom operations. In addition it uses the following space in remote buildings:

• Approximately 1,500 square feet leased for its administrate offices. The currentterm of this lease expired in May of 2012 and the Co-op has exercised its optionto renew the lease for another five years. An exit option from that five year termwill be sought.

• Approximately 2,200 square feet leased for its Point of Sale, IT and Trainingdepartment offices and for a meeting room. The lease on this space has been on amonth-to month basis since July of 2016.

• Approximately 1,800 square foot for its Community Learning Center. The leasefor this space was renewed for on a month-to-month basis beginning in May of2015.

• Approximately 1,600 square feet leased on the second floor of the building usedfor the CLC and used for its Education and Communication & Design department offices. The lease for this space was renewed on a month-to-month basis in May of 2015.

• An area leased for 9 parking spaces and for an outdoor staff break area. The leasefor this area has been on a moth-to-month basis since September of 2015.

• Approximately 700 ground floor square feet in a building that is owned by theCo-op and used for overflow storage.

• Approximately 700 second floor square feet used for a staff break room and forstorage located in the same building that the Co-op owns.

The one property that the Co-op owns and that houses the above-mentioned overflow storage and break room/offices also includes a residential duplex that is rented to tenants.

The lease for the Sacramento store expires at the end of September of 2017. Discussions have been underway with the building’s landlord regarding an early termination of the lease should the landlord find a new tenant before the lease’s prescribed termination date.

Current annual sales volume is trending at over $33 million, an average of $2, 750/retail square foot. The national average of sales/square foot for supermarkets is in the $500 – $600 range. The current facilities provide parking for 54 cars and a dozen bicycles. With average customer counts running at 200/hour and peaking at 270/hour, the parking situation is clearly inadequate.

In summary: • The store facility is over capacity• The available parking is inadequate• The Co-op operates out of five separate buildings with six separate leases• The term of its store lease is expires in just over two years.

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Exhibit C

For these reasons the Co-op has determined that relocating would be its best option. Based on input from its owners, the Co-op has concluded that any relocation should keep the store close to its current location at the corner of Alhambra Blvd. and S Street in Sacramento. With that guidance it has examined a number of potential sites and settled on one located two and a half blocks away on a parcel bordered by 28th and 29th Street on the west and east, and by R and S Streets on the north and south. This site will be leased from local developers Raval/Rasmussen/Separovich/Domich who are constructing a built-to-suit structure with approximately 26,000 square feet of space on the ground floor, a 16,000 square foot mezzanine, 59 surface automobile parking spaces, an additional 59 automobile parking spaces in an adjacent parking garage and approximately 24 bicycle parking spots. This facility would allow the Co-op to consolidate all of its retail, storage, office and meeting spaces into one building with one lease, while increasing its retail area by approximately 40% and more than doubling the parking capacity. The projected opening date for the new store is early Fall of 2016. The initial term of the lease will be twenty years, with four additional five year options.

To assist the Co-op in the planning and implementation of this project the following consultants have been engaged:

• John Lassner, Attorney at Law, has prepared and negotiated the lease for the storeand parking facilities.

• Wayne Stokes of Stokes Commercial Real Estate has served as the real estateagent that has assisted the Co-op in the examination of potential sites and thenegotiation of the terms of the lease for the chosen site.

• The National Cooperative Grocers Development Cooperative (NCGDC) hasprovided store layout, financial modeling, and project development assistance.Payment for these services will be by way of a development fee not to exceed$150,000 and billed as one quarter percent of the relocated store’s sales for up totwenty four months starting with the first complete month of operations in thenew store.

• Food for Thought Consulting has provided assistance in development of therelocated store’s food service programs. Food for Thought will work as asubcontractor for the NCGDC.

• Mogavero Architects (MA) is serving as the Co-op’s architect of record for theTenant Improvement (TI) plans and has consulted on the sustainable designfeatures of the structures.

• West Fork Construction is be the General Contractor for the store shell and sitework and Commercial Dynamics is the General Contractor for the TI.

• Stantec will provide interior design services for the project.• John Viera at Supermarket Source has been contracted to serve as Project

Manager.

Current Project Status The relocation project received the required entitlements from the Sacramento Planning and Design Review Commission in September of 2013. In late December of 2013 construction drawings were submitted to all relevant city agencies and since that time the design team has responded to agency comments and resubmitted plans. Construction of the parking garage was completed in December of 2015. Ground-breaking for the store

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was held on September 3, 2015. Store construction and fixturization is currently 90% complete. The GC’s TI budget including change orders is currently $5,254,918. “Green design” features have been incorporated into both the store’s Shell and TI plans. These include extensive use of skylights, enhanced insulation, LED lighting, and high efficiency HVAC and refrigeration systems. This work was coordinated with SMUD’s Savings by Design and Net Zero programs that will qualify it for substantial rebates. Energy modeling done by MNA’s engineering subcontractor predicts that the store’s energy usage will be between 50 and 60% lower than that in conventionally designed grocery stores. Their model shows that annual utility bills would be in the $35,000 range. For the sake of the pro forma I have used a more conservative figure, starting with $130,600/year in FY 17 and increasing based on inflation. The Co-op has received a number of proposals to add solar panels on both the store roof and on the parking lot carports. Due to the relatively high cost of these arrays, the limited amount of kilowatts that they would generate and the relatively low electric rates that we currently pay, it does not appear that adding solar at this time would result initially in a favorable financial return on investment. However, the Co-op is continuing to consider incorporating some solar into the project and is making the project “solar ready” by installing the necessary conduit and electrical service to allow for upgrading to solar in the future should the cost/benefit situation change.

Pro Forma Assumptions

A complete set of pro forma financial statements have been prepared that cover Fiscal 2016 and extend through the end of Fiscal 2021 (the Co-op’s fiscal year begins on the Monday following the last Sunday in September and runs until the final Sunday in the following September). These statements include:

• An estimation of the relocation project’s Sources and Uses of funds. • Monthly Profit and Loss projections for Fiscal 2016 through Fiscal 2019, and then

annual projections of those items for Fiscal 2020 and 2021 • Monthly projections of Balance Sheet accounts for Fiscal 2016 through Fiscal

2019, and then annual projections of those items for Fiscal 2020 and 2021. • Monthly Cash Flow projections for Fiscal 2016 through Fiscal 2019, and then

annual projections of those items for Fiscal 20209 and 2021. Note: The following Page Numbers reference the following pages of financial data. The P&L, Balance Sheet and Cash Flow projections shown on Pages 2 - 5 have been consolidated to show only annual results. Fiscal 2015 data is based on audited performance for that fiscal year. Sources & Uses: Pages 1A and 1B Uses of project funds are broken into two categories:

• Hard Costs: This category consists of Tenant Improvement, Equipment and Additional Inventory.

o The TI estimate of $5,254,918 is based on the General Contractor’s contract figure plus change orders through the end of August 2016. I have added an additional 1% contingency to the GC’s figure. Depreciation of all TI’s is calculated over 31 years. The $4,373,161 estimate of

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Equipment costs is based on the equipment list originally supplied by the NCGDC, updated to reflect all currently quoted items. That amount includes a 5% allowance for price increases on unquoted items and an additional 1.5% contingency. At this time the costs for quoted items amounts to 93% of all items on the list. Depreciation of all Equipment costs is calculated over 7 years.

o Additional Inventory is based on a per square foot estimate of the inventory needed for the store’s added retail area with a 10% contingency

• Soft Costs: This category consists of the costs for legal, architectural, consulting, project management, promotions, bank fees and other miscellaneous costs associated with the project.

o Costs for architectural services are based on MA’s proposal (detail is shown on the schedule).

o Project management costs cover the contract with project manager. o Other soft costs have been estimated using ballpark figures and a 10%

contingency has been added to the subtotal of all of these costs added together.

o Amortization of all soft costs is calculated over 20 years (the initial term of the store lease).

• Total Project costs are estimated to be $11,130,905. This amount includes $244,027 worth of contingencies. A total $78,016 of additional contingencies is embedded in the Equipment list. Factoring in those embedded contingencies, total project contingencies amount to $322,043, equivalent to 2.89% of total project costs.

• The schedule of Uses indicates how these costs will be distributed over Fiscal Years 2012- 2017.

Sources of project funds include:

• Cash Reserves: Subtracting all other Sources of Project funds from the total of Project Uses, $4,568,235 of the Co-op’s cash reserves will be needed to complete the projects’ funding.

• Preferred Shares: The Co-op offers non-voting, dividend-paying preferred shares for sale to its owners who are fully vested in their required $300 Membership Share. In March of 2013 it made its first $1.5 million offering of preferred shares as follows:

o B Shares which sold for $50 each, have no minimum retention period and carry an annual dividend rate of 1%.

o C and D shares which sold for $500 each, have a minimum retention period of four and five years respectively, and carry annual dividend rates of 2.5% and 3% respectively.

To date, $1,500,000 worth of share have been sold from that offering. Of that amount $15,000 worth of Series B shares had been redeemed. Based on the strong demand for these shares, in May of 2014 the Co-op’s Board passed a resolution to make a second offering of $3 million worth of preferred shares. That offering was initially made available to Co-op owners in October of 2015. The pro forma shows an additional $1,000,000 worth of preferred shares being sold from this second offering during Fiscal 2016. As of June 26, 2016, a total of $813,050 shares had been sold from the second offering.

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• Incentives and Rebates: The Co-op has been working with SMUD (the local utility district) that has a program of incentives and rebates linked to building design that incorporates energy efficiency. The district has indicated that there will be $350,000 or more of such invectives and rebates available based on the Co-op’s new store design. To date, $20,000 has already been received.

• Free Fill: It is estimated that half of the Additional Inventory can be obtained via Free Fills, i.e. obtained for free or at a discount from the Co-op’s distributors.

• TPCF Loan: In the past the Twin Pines Cooperative Fund has been wiling to lend funds to the Co-op’s projects and has indicated a willingness to do so again. The pro forma currently does not show any funds coming from this source.

• Owner Loans: If necessary the Co-op may set up an Owner Loan program that will allow owners to lend funds to the Co-op at annual interest rates and repayment terms to be determined at the time the program would be launched. The pro forma currently does not show funds coming from such a program.

• Leases: The Co-op may choose to lease some of the equipment needed to fixturize the relocated store. The pro forma currently estimates that a capital lease for $218,000 worth of Point of Sale equipment at a rate of 6.5% interest will be entered into in September of 2016,and that operating leases for $29,660 worth of warehouse equipment will be entered into at the same time

• Bank Loan: Co-op bylaws require owner approval for any loan whose value is greater than the Co-op’s net worth. In May of 2012, owners approved the Co-op’s borrowing up to $4 million to fund the relocation project by a vote of 92% in favor of approval. The pro forma shows a need to borrow $3.4 million. In May of 2015, the Co-op’s Board of Directors accepted a loan proposal presented by Five Star Bank. The loan carries a 10 year term.

• Total Sources amount to $11,130,905, of which 29.03% is projected to come from debt.

• The schedule of project Sources indicates how these funds will be used over the course of Fiscal Years 2012 – 2017.

Profit & Loss Projections: Pages 2A and 2B The pro forma shows a consolidated summary of projected revenues, expenses and net income. This summary is backed up with detailed estimates of departmental sales, margins, labor costs etc. as well as line-item by line-item estimates of all operating costs. These estimates cover the first four fiscal years of operation of the relocated store (which for purposes of the pro forma occurs at the end of Period 12 of FY 16). Again using the NCGDC’s experience with similar projects we have conservatively estimated that sales will increase by approximately 25% in the relocated store’s first 12 months of operation. For the sake of comparison, for the last three years, without adding any sales area or parking spaces, Co-op sales have already been growing by an average of 3.8% per year. Because the relocated store will allow the Co-op to expand its offerings and resolve the current parking limitations, there is good reason to believe that these sales projections are achievable. After the initial 12 months, sales growth is expected to come in at 10% until such time as the proposed Midtown Whole Foods store opens in the Spring of 2018, approximately one mile from the relocated Co-op store. For the sake of the pro forma, the Whole Foods store opening occurs in May 2018. At that time sales growth is expected to fall off, initially by 14%. Over the course of the next 12 months, sales growth is projected to slowly recover to levels achieved previous to the opening of the Whole Foods store. The projections for the impact of the opening of the Whole Foods

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store are based on examining results seen by similar-sized cooperatives that have experienced a Whole Foods opening close by to their stores. The following is a summary of the key revenue expense assumptions:

• Sales: Sales projections for FY 16 – 20 have been made on a week-by-week basis taking into account historical annual weekly trends. At the opening of the relocated store, it is assumed that after an inventory reduction sale the current store will be closed for two days to facilitate the moving of inventory.

• Gross Margins: Gross Margins after relocation are projected to increase due to the larger percentage of sales that are expected to come from the relocated store’s Deli. The latter department already carries higher margins compared to the rest of the store’s departments and it will be expanded in size and scope compared to the current store’s Deli. The effect of free fill on the opening inventory will also provide a one-time boost in Gross Margin during the first year in the relocated store.

• Personnel: It is estimated that there will be 60 new employees at the relocated store. The costs of bringing them on before relocation has been calculated in a larger training budget during the quarter preceding and following relocation. While the relocated store has been designed to provide for greater labor efficiency, the pro forma assumes that it will take a while to realize gains in that regard. The costs of Health and Workers Compensation insurance add a significant amount to overall Personnel costs and annual increases for both of these line items have been factored into the pro forma.

• Physical Plant: The current store lease’s final term will expire at the end of FY 17. The projected Physical Plant costs reflect the costs of leasing both the current and the relocated store buildings through that time. The building’s landlord has expressed a desire to bring in a new tenant early during calendar 2017. Should that occur, the Co-op would terminate its lease and be freed of successive rent obligations. The pro forma assumes that all other leases, with the exception of the lease on the administrative office building at 1919 Alhambra Blvd., will expire by within two months of the opening of the relocated store. The latter lease will end in May of 2017. From the beginning of FY 18 Physical Plant costs drop down to reflect only the costs associated with the relocated store. . The relocated store’s lease has a percentage rent component with an initial break point set at $10 million above the sales level that the current store achieves before the opening of the relocated store. The pro forma takes this percentage rent into account. Other projections in this category reflect the savings on utility costs that expect to be seen by operating out of a new building that is designed with energy efficiency as a priority as described previously.

• Operating Expenses: Operating expenses are estimated to follow historical patterns. The major exceptions are an increase in costs for security services based on the need to maintain security at both the store and parking garage and increased costs for insuring the larger amount of assets

• Promotions Expenses: In order to attract new customers Promotions expense are planned to increase significantly each year to support the required sales increases. Pre-opening promotions expenses are built into the schedule of project Uses.

• Governance Expenses: Governance expenses are expected to remain stable as a percentage of sales.

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• Development Expenses: Development expenses shown in FY 17 and FY 18 are those to reimburse the NCGDC. In FY 20 and FY 21 there is $15K per year to fund potential future projects.

• Interest Expense: As of June 2012, the Co-op has been debt-free. Interest has been calculated based on the amortization schedule for the Five Star Bank Loan and on the amortization schedule for the capital lease of the POS equipment.

• Deprecation / Amortization: As noted above, relocation project costs are depreciated over 7 years for Equipment and 31 years for TI, while all project soft costs are amortized over 20 years. During FY 167equipment in the current store, along with any remaining deprecation and amortization associated with them, is written off. In FY 18 the TI’s of the current building are similarly written off at the end of the lease period which occurs in Period 12 of FY 18.

• Other Income: The bulk of the revenue in this category comes from class fees from activities in the Community Learning Center, from the rental fees that are charged on the residential duplex that the Co-op owns, and from the SMUD incentives. In FY 17, it is assumed that the Co-op will sell off the equipment in the current store for $35,000. After factoring in the net value of those assets, the Co-op will record a loss, which when combined with the expected revenue from classes etc. will result in the $852,522 gain shown in this category during FY 17. In FY 17 it will sell the building that it owns free and clear that houses its overflow storage, offices and residential duplex for an estimated $380,000 net of sales commissions. Accounting for that sale and for writing off the net value of the current store’s TI at the end of the lease period along with class revenues etc. results in the $296 loss shown in this account for that year.

• Net Income: Results for Fiscal 2015 are based on the Co-op’s audited financial statements. Projected Pre-Tax Net Income for Fiscal 2016 was based on conservative revenue and generous expenses estimates and have been updated to reflect actual results for Periods 1 =- 10 of that year. For FY 16, prior to the relocated store’s opening, Gross Margin is projected to decrease due to adjustments to the Co-op’s pricing structure.

Taking all revenues and expenses into account, it is projected that the proposed relocation will result in operating losses during Fiscal Year 2017 (primarily due to depreciation and amortization of project costs). These losses will be magnified by the amounts returned to owners via the Co-op’s owner discount programs. In FY 18 through FY 19, these discounts add to the Pre-tax losses that are projected, while in FY 20 they create the Pre-tax loss that is projected. Because Depreciation is also a major factor in the projected losses, EBITDA remains positive in all years with the exception of FY 19. Balance Sheet Projections: Pages 3 & 4 The pro forma shows the projected Balance Sheets for Fiscal Years 16 – 21 along with the audited results for FY 15. Balance Sheet accounts are projected primarily based on historical averages. Exceptions include:

• Current Assets: Increases in this category are primarily due to increased inventory needed for the larger relocated store and the capitalized costs associated with the relocation project which have been posted to this account prior to the opening of the relocated store. . Note: Following the opening of the relocated store an adjustment to the latter will be made and the adjusted amount will then become part of the Fixture and Equipment account

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• Fixtures & Equipment: This category reflects the additions called for in the schedule of project Uses, modified by the amounts written off or sold from the current store, and adjusted for the Deprecation shown on Pages 2A and 2B. As noted above, the amount shown in the pro forma will be adjusted after the opening of the relocated store.

• Building and Land: In FY 17 these amounts go away with the sale of the property that the Co-op currently owns.

• Liabilities – Current and Long Term: Current Liabilities include the ongoing accounts payable that are a regular factor of business operations. Current and Long Term Liabilities also account for the borrowing called for in the project’s Sources and are based on the amortization schedules that apply to that financing. They also reflect the fact that the Co-op is debt-free at the onset of project financing.

• Current Ownership Equity: This account is calculated based on the combination of the amounts that current owners have in their $300 Membership Share accounts, plus the amounts that those owners typically invest each year to become fully vested, as well as the amount of owner equity coming from the number of new owners that the Co-op anticipates will be joining in the coming years and who will be making that $300 investment over time.

• Other Equity: This is the amount left unclaimed in the Membership Share accounts of inactive owners who have gone through the annual escheatment process.

• Preferred Shares: As discussed above, the Co-op anticipates selling $2,500,000 worth of shares by the time that the relocated store opens. Of that amount, $2,298,050 had already been sold as of June 26, 2016 Regarding the rights of preferred shareholders to request redemption of the value of their shares, the Memorandum of Terms that all preferred shareholders receive states “the Cooperative shall have up to one year from the date the holder provided written notice, to the Secretary of the Cooperative, to pay the redemption amount.” The pro forma projects that preferred shareholders will exercise their right to redemption according to the following schedule:

• Series B shareholders will request redemption of their share thirty six months after purchase, and the Cooperative will redeem the value of the shares twelve months after that date.

• Series C shareholders will request redemption of all of their shares forty eight months after the date of purchase, and the Cooperative will redeem the value of the shares twelve months after that date.

• Series D shareholders will request redemption of sixty five percent of their shares sixty months after the date of purchase, and the Cooperative will redeem the value of the shares twelve months after that date.

The effect of these projected share redemptions are reflected on the Balance Sheets in Fiscal years 17 – 21.

• Debt to Equity: The Debt to Equity ratio is shown at the bottom of the Balance Sheets. It ranges from between .35 – 1, to .93 - 1 over the course of FY 15 – FY 21.

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Cash Flow Projections: Pages 5 - 8 The projections of Cash Flows take into account the projected changes in all Balance Sheet accounts and indicate that the Co-op will have sufficient cash to operate and to service its debts at all times from FY 17 through FY 21. As noted above, these projections were made on a month-to-month basis for Fiscal Year 17 – 19, and then on an annual basis for Fiscal 20 and 21. This was done to validate that monthly cash balances would be sufficient to maintain operations during the times when the needs for cash were highest (i.e. during construction of TI and fixturization for the relocated store and during all periods until operating revenues exceeded expenses). Page 5 shows annual cash flow projections for FY 16 – FY 21, while Pages 6, 7 and 8 show monthly cash flow projections for FY 17, FY 18 and FY 19 respectively. The projections show that at the beginning of Fiscal 2016 the Co-op’s cash balance was $4,842,384. Over the course of the next six years, after accounting for repayment of all monthly debt obligations, that balance dips to a low of $625,629 (during Period 12 of FY 19, after repurchase of $1,162,500 worth of preferred shares during FY 18 and FY 19) and ends at $1,097,951 by the end of FY 21 after repurchase of an additional $232,500 worth of preferred shares during that fiscal year.. A calculation of “days in cash” based on daily cash needs shows that a low point of 5.67 days is reached during Period 12 of FY 19. During FY 17, FY 18 and FY 19 “days in cash” ranges from a low of 5.67 to a high of 25.99. At the end of FY 21 it is projected that there would be 8.39 days of available cash. The Co-op’s operational standard for “days in cash” is 10 days. In order to maintain that level of cash, the Co-op would need to generate and additional $544,400 either through increased revenues or decreased expenditures during the period from the beginning of FY 19 through the end of FY 21. Debt Service: Page 9 details the repayment schedule for the project’s estimated debt load. Note: the annual data on Pages 2-5 is consolidated and based on month-to- month projections of revenues and expenses for Fiscal years 2016 – 2019, and annual projections for Fiscal years 2020 – 2021. Submitted by Paul Cultrera General Manager September 3, 2016

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Exhibit C