Company Quick10K Filing
Coffee Holding
Price3.97 EPS0
Shares6 P/E118
MCap22 P/FCF-24
Net Debt-3 EBIT0
TEV20 TEV/EBIT39
TTM 2019-07-31, in MM, except price, ratios
10-Q 2020-01-31 Filed 2020-03-16
10-K 2019-10-31 Filed 2020-01-29
10-Q 2019-07-31 Filed 2019-09-13
10-Q 2019-04-30 Filed 2019-06-19
10-Q 2019-01-31 Filed 2019-03-14
10-K 2018-10-31 Filed 2019-01-29
10-Q 2018-07-31 Filed 2018-09-14
10-Q 2018-04-30 Filed 2018-06-07
10-Q 2018-01-31 Filed 2018-03-07
10-K 2017-10-31 Filed 2018-01-29
10-Q 2017-07-31 Filed 2017-09-13
10-Q 2017-04-30 Filed 2017-06-13
10-Q 2017-01-31 Filed 2017-03-17
10-K 2016-10-31 Filed 2017-01-27
10-Q 2016-07-31 Filed 2016-09-14
10-Q 2016-04-30 Filed 2016-06-03
10-Q 2016-01-31 Filed 2016-03-11
10-K 2015-10-31 Filed 2016-01-26
10-Q 2015-07-31 Filed 2015-09-14
10-Q 2015-04-30 Filed 2015-06-11
10-Q 2015-01-31 Filed 2015-03-09
10-K 2014-10-31 Filed 2015-01-23
10-Q 2014-07-31 Filed 2014-09-10
10-Q 2014-04-30 Filed 2014-06-10
10-Q 2014-01-31 Filed 2014-03-14
10-K 2013-10-31 Filed 2014-01-24
10-Q 2013-07-31 Filed 2013-09-11
10-Q 2013-04-30 Filed 2013-06-13
10-Q 2013-01-31 Filed 2013-03-15
10-K 2012-10-31 Filed 2013-01-28
10-Q 2012-07-31 Filed 2012-09-12
10-Q 2012-04-30 Filed 2012-06-13
10-Q 2012-01-31 Filed 2012-03-09
10-K 2011-10-31 Filed 2012-01-30
10-Q 2011-07-31 Filed 2011-09-13
10-Q 2011-04-30 Filed 2011-06-09
10-Q 2011-01-31 Filed 2011-03-17
10-K 2010-10-31 Filed 2011-01-31
10-Q 2010-07-31 Filed 2010-09-14
10-Q 2010-04-30 Filed 2010-06-11
10-Q 2010-01-31 Filed 2010-03-17
10-K 2009-10-31 Filed 2010-01-28
8-K 2020-04-23 Shareholder Vote
8-K 2020-03-16 Earnings, Regulation FD, Exhibits
8-K 2020-01-29 Earnings, Regulation FD, Exhibits
8-K 2019-09-13 Earnings, Regulation FD, Exhibits
8-K 2019-06-19 Earnings, Regulation FD, Exhibits
8-K 2019-04-18 Officers, Shareholder Vote
8-K 2019-03-13 Earnings, Regulation FD, Exhibits
8-K 2019-02-22 Amend Bylaw, Exhibits
8-K 2019-01-29 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-09-14 Earnings, Regulation FD, Exhibits
8-K 2018-06-07 Earnings, Regulation FD, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-03-23 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-07 Earnings, Regulation FD, Exhibits
8-K 2018-01-29 Earnings, Regulation FD, Exhibits

JVA 10Q Quarterly Report

Part I
Item 1 - Financial Statements.
Note 1 - Business Activities:
Note 2 - Basis of Presentation and Significant Accounting Policy:
Note 2 - Basis of Presentation and Significant Accounting Policy (Cont'D):
Note 3 - Recently Issued Accounting Pronouncements Affecting The Company:
Note 4 - Accounts Receivable:
Note 5 - Inventories:
Note 6 - Commodities Held By Broker:
Note 6 - Commodities Held By Broker (Cont'D):
Note 7 - Line of Credit:
Note 7 - Line of Credit (Cont'D):
Note 8 - Income Taxes:
Note 9 - Earnings per Share:
Note 10 - Economic Dependency:
Note 11 - Related Party Transactions:
Note 12 - Stockholders' Equity:
Note 12 - Stockholders' Equity (Cont'D):
Note 13 - Subsequent Events:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 ex10-1.htm
EX-31.1 ex31-1.htm
EX-32.1 ex32-1.htm

Coffee Holding Earnings 2020-01-31

Balance SheetIncome StatementCash Flow
45362718902012201420172020
Assets, Equity
403123146-22012201420172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02012201420172020
Ops, Inv, Fin

10-Q 1 form10q.htm

 

 

 

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: January 31, 2020

 

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: 001-32491

 

Coffee Holding Co., Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   11–2238111

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3475 Victory Boulevard, Staten Island, New York   10314
(Address of principal executive offices)   (Zip Code)

 

(718) 832-0800

(Registrant’s telephone number including area code)

 

N/A

(Former name, former address and former fiscal year, if changed from last report)

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001 per share   JVA   The Nasdaq Capital Market

 

Indicate by check mark whether the 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 (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 [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files). Yes [X] No [  ].

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

5,569,349 shares of common stock, par value $0.001 per share, are outstanding at March 7, 2020.

 

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
PART I   3
     
ITEM 1 FINANCIAL STATEMENTS 3
     
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
     
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26
     
ITEM 4 CONTROLS AND PROCEDURES 27
     
PART II   28
     
ITEM 1 LEGAL PROCEEDINGS 28
     
ITEM 1A RISK FACTORS 28
     
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 28
     
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 28
     
ITEM 4 MINE SAFETY DISCLOSURES 28
     
ITEM 5 OTHER INFORMATION 28
     
ITEM 6 EXHIBITS 28

 

-2-
 

 

PART I

 

ITEM 1 – FINANCIAL STATEMENTS.

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JANUARY 31, 2020 AND OCTOBER 31, 2019

 

    January 31, 2020     October 31, 2019  
    (Unaudited)        
- ASSETS -                
CURRENT ASSETS:                
Cash   $ 2,751,132     $ 2,402,556  
Accounts receivable, net of allowances of $144,000 for 2020 and 2019     8,610,176       9,421,427  
Inventories     18,055,853       18,841,225  
Due from broker             101,031  
Prepaid expenses and other current assets     613,884       587,626  
Prepaid and refundable income taxes     247,901       385,934  
TOTAL CURRENT ASSETS     30,278,946       31,739,799  
                 
Machinery and equipment, at cost, net of accumulated depreciation of $7,104,068 and $6,931,913 for 2020 and 2019, respectively     2,340,159       2,413,533  
Customer list and relationships, net of accumulated amortization of $162,315 and $151,627 for 2020 and 2019, respectively     522,685       533,373  
Trademarks and tradenames     1,488,000       1,488,000  
Non-compete, net of accumulated amortization of $34,650 and $29,700 for 2020 and 2019, respectively     64,350       69,300  
Goodwill     2,488,785       2,488,785  
Equity method investments     84,696       86,008  
Deferred income tax asset     649,725       480,473  
Right of Use Asset     2,405,061          
Deposits and other assets     382,480       387,453  
TOTAL ASSETS   $ 40,704,887     $ 39,686,724  
                 
- LIABILITIES AND STOCKHOLDERS’ EQUITY -                
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 3,707,669     $ 4,344,015  
Line of credit     5,867,840       7,167,740  
Note payable – current portion     4,440       -  
Lease liability – current portion     483,042          
Due to broker     884,806       -  
Income taxes payable     317       100  
TOTAL CURRENT LIABILITIES     10,948,114       11,511,855  
                 
Deferred income tax liabilities     828,382       872,232  
Deferred rent payable             193,461  
Lease liability     2,104,974          
Note payable – long term     22,367          
Deferred compensation payable     373,480       378,453  
TOTAL LIABILITIES     14,277,317       12,956,001  
Commitments and Contingencies                
STOCKHOLDERS’ EQUITY:                
Coffee Holding Co., Inc. stockholders’ equity:                
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued     -       -  
Common stock, par value $.001 per share; 30,000,000 shares authorized, 6,494,680 shares issued; 5,569,349 shares outstanding for 2020 and 2019     6,494       6,494  
Additional paid-in capital     16,829,005       16,580,974  
Retained earnings     12,710,321       13,310,169  
Less: Treasury stock, 925,331 common shares, at cost for 2020 and 2019     (4,633,560 )     (4,633,560 )
Total Coffee Holding Co., Inc. Stockholders’ Equity     24,912,260       25,264,077  
Noncontrolling interest     1,515,310       1,466,646  
TOTAL EQUITY     26,427,570       26,730,723  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 40,704,887     $ 39,686,724  

 

See Notes to Condensed Consolidated Financial Statements

 

-3-
 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS/(LOSS)

THREE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

   2020   2019 
NET SALES  $19,285,501   $23,633,811 
           
COST OF SALES (which includes purchases of approximately $1.3 million and $1.8 million in fiscal years 2020 and 2019, respectively, from a related party)   16,170,747    19,064,767 
           
GROSS PROFIT   3,114,754    4,569,044 
           
OPERATING EXPENSES:          
Selling and administrative   3,504,803    3,675,661 
Officers’ salaries   170,250    203,346 
TOTAL   3,675,053    3,879,007 
           
(LOSS) INCOME FROM OPERATIONS   (560,299)   690,037 
           
OTHER INCOME (EXPENSE):          
Interest income   744    1,787 
(Loss) gain from equity method investments   (1,311)   105 
Interest expense   (55,734)   (66,240)
TOTAL   (56,301)   (64,348)
           
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY   (616,600)   625,689 
           
(Benefit) provision for income taxes   (65,416)   125,920 
           
NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY   (551,184)   499,769 
Less: Net income attributable to the non-controlling interest in subsidiary   (48,664)   (185,054)
           
NET (LOSS) INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC.  $(599,848)  $314,715 
           
Basic and diluted (loss) earnings per share  $(.11)  $.06 
           
Weighted average common shares outstanding:          
Basic and diluted   5,569,349    5,569,349 

 

See Notes to Condensed Consolidated Financial Statements

 

-4-
 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

   Common Stock   Treasury Stock   Additional Paid-in   Retained   Non- Controlling     
   Shares   Amount   Shares   Amount   Capital   Earnings   Interest   Total 
                                 

Balance, November 1, 2018

   5,569,349   $6,494    925,331   $(4,633,560)  $16,104,075   $13,404,767   $1,108,042   $25,989,818 
                                         
Net income                            314,715         314,715 
                                         
Non-Controlling Interest                                 185,054    185,154 
                                         
Balance, January 31, 2019   5,569,349   $6,494    925,331   $(4,633,560)  $16,104,075   $13,719,482   $1,293,096   $26,489,587 
                                         

Balance, November 1, 2019

   5,569,349   $6,494    925,331   $(4,633,560)  $16,580,974   $13,310,169   $1,466,646   $26,730,723 
                                         
Stock Compensation                       248,031              248,031 
                                         
Net loss                            (599,848)        (599,848)
                                         
Non-Controlling Interest                                 48,664    48,664 
                                         
Balance, January 3l, 2020   5,569,349   $6,494    925,331   $(4,633,560)  $16,829,005   $12,710,321   $1,515,310   $26,427,570 

 

See Notes to Condensed Consolidated Financial Statements

 

-5-
 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

   2020   2019 
OPERATING ACTIVITIES:          
           
Net (loss) income  $(551,184)  $499,769 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   187,793    176,343 
Stock-based compensation   248,031      
Unrealized loss on commodities   985,837    543,149 
Loss on equity method investments   1,311    (105)
Deferred rent   -    (12,051)
Amortization of right to use asset   106,961    - 
Deferred income taxes   (213,102)   (114,938)
Changes in operating assets and liabilities:          
Accounts receivable   811,251    706,566 
Inventories   785,372    (127,639)
Prepaid expenses and other current assets   (26,258)   28,778 
Prepaid and refundable income taxes   138,033    210,491 
Accounts payable and accrued expenses   (636,344)   (1,028,105)
Change in lease liability   (117,468)   - 
Deposits and other assets        (88,160)
Income taxes payable   217    18,409 
Net cash provided by operating activities   1,720,450    812,507 
           
INVESTING ACTIVITIES:          
Purchases of machinery and equipment   (71,974)   (133,511)
Net cash used in investing activities   (71,974)   (133,511)
           
FINANCING ACTIVITIES:          
Advances under bank line of credit   600,100    7,426 
Principal payments under bank line of credit   (1,900,000)   (500,000)
Net cash used in financing activities   (1,299,900)   (492,574)
           
NET INCREASE IN CASH   348,576    186,422 
           
CASH, BEGINNING OF PERIOD   2,402,556    4,611,384 
           
CASH, END OF PERIOD  $2,751,132   $4,797,806 

 

See Notes to Condensed Consolidated Financial Statements

 

-6-
 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED JANUARY 31, 2020 AND 2019

(Unaudited)

 

   2020   2019 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:          
Interest paid  $61,906   $66,943 
Income taxes paid  $9,436   $11,958 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Initial recognition of operating lease right of use asset  $2,512,022      
Initial recognition of operating lease liabilities  $2,705,484      
           
Machinery and equipment acquired through financing  $26,807      

 

See Notes to Condensed Consolidated Financial Statements

 

-7-
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 1 - BUSINESS ACTIVITIES:

 

Coffee Holding Co., Inc. (the “Company”) conducts wholesale coffee operations, including manufacturing, roasting, packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and it sells green coffee. The Company also manufactures and sells coffee roasters. The Company’s core product, coffee, can be summarized and divided into three product categories (“product lines”) as follows:

 

Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small roasters and coffee shop operators;

 

Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want to have their own brand name on coffee to compete with national brands; and

 

Branded Coffee: coffee roasted and blended to the Company’s own specifications and packaged and sold under the Company’s eight proprietary and licensed brand names in different segments of the market.

 

The Company’s private label and branded coffee sales are primarily to customers that are located throughout the United States with limited sales in Canada and certain countries in Asia. Such customers include supermarkets, wholesalers, and individually-owned and multi-unit retailers. The Company’s unprocessed green coffee, which includes over 90 specialty coffee offerings, is sold primarily to specialty gourmet roasters and to coffee shop operators in the United States with limited sales in Australia, Canada, England and China.

 

The Company’s wholesale green, private label, and branded coffee product categories generate revenues and cost of sales individually but incur selling, general and administrative expenses in the aggregate. There are no individual product managers and discrete financial information is not available for any of the product lines. The Company’s product portfolio is used in one business and it operates and competes in one business activity and economic environment. In addition, the three product lines share customers, manufacturing resources, sales channels, and marketing support. Thus, the Company considers the three product lines to be one single reporting segment.

 

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY:

 

The following (a) condensed consolidated balance sheet as of October 31, 2019, which has been derived from our audited financial statements, and (b) the unaudited interim condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest shareholders’ annual report on Form 10-K filed with the SEC on January 29, 2020 for the fiscal year ended October 31, 2019 (“Form 10-K”).

 

In the opinion of management, all adjustments (which include normal and recurring nature adjustments) necessary to present a fair statement of the Company’s financial position as of January 31, 2020, and results of operations for the three ended January 31, 2020 and the cash flows for the three months ended January 31, 2020 as applicable, have been made.

 

-8-
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d):

 

The results of operations for the three months ended January 31, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

The condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco, LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”), the entity formed as a result of the Company’s joint venture with Caruso’s Coffee, Inc. The Company owns a 60% equity interest in GCC. All significant inter-company transactions and balances have been eliminated in consolidation.

 

Significant Accounting Policy

 

Revenue Recognition

 

The Company’s significant accounting policy for revenue was updated as a result of the adoption of ASU Topic 606. The Company has adopted the new standard on November 1, 2018 and has used the modified retrospective method. The majority of the Company’s business is ship and bill. Based on our analysis, the Company did not identify a cumulative effect adjustment to retained earnings at November 1, 2018. The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 606 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 10 for revenue disaggregated by product line.

 

Share-Based Payment

 

The Company accounts for share-based payments using the fair value method. For employees and directors, the fair value of the award is measured, as discussed below, on the grant date. The Company has granted stock options at an exercise price equal to the closing price of the Company’s common stock as reported by Nasdaq. Upon exercise of an option, the Company issues new shares of common stock out of its authorized shares.

 

The weighted-average fair value of options has been estimated on the grant date using the Black-Scholes pricing model. The fair value of each instrument is estimated on the grant date utilizing certain assumptions for a risk-free interest rate, volatility and expected remaining lives of the awards. The risk-free interest rate used is the United States Treasury rate for the day of the grant having a term equal to the life of the equity instrument. Beginning with the current year quarter, the fair value of stock-based payment awards issued was estimated using a volatility derived from comparable companies share price. The assumptions used in calculating the fair value of share-based payment awards represents management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgement. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.

 

-9-
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d):

 

The following assumptions were used as inputs to the Black Scholes option pricing model to estimate the fair value of option granted during the quarter ended July 31 2019 which are currently being expensed over the requisite service period:

 

Expected Life   10 years 
Risk free interest rate   2.42% ˗ 2.57%
Expected volatility   43.0% ˗ 64.2%
Expected dividend yield   0%
Forfeiture rate   0%

 

Recently Adopted Accounting Pronouncements

 

Effective November 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”). The new guidance increases transparency by requiring the recognition of right to use assets and lease liabilities on the statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous US GAAP requirement, which did not require lease assets and lease liabilities to be recognized for most operating leases.

 

The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lease, have not significantly changed from previous US GAAP requirements.

 

On November 1, 2019, the effective date of ASC 842, existing leases of the Company were required to be recognized and measured. Additionally any leases entered into during the year were also required to recognized and measured. In applying ASC 842, the Company made an accounting policy election not to recognize the right of use assets and lease liabilities relating to short-term leases. Implementation of ASC 842 included an analysis of contracts, including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of the right to use assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates to apply in determining the lease liabilities.

 

The new standard provides a number of transition practical expedients, which the Company has elected, including:

 

● A “package of three” expedients that must be taken together and allow entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases, and

 

● An implementation expedient which allows the requirements of the standard in the period of adoption with no restatement of prior periods.

 

The adoption of ASC 842 resulted in the recording of operating lease right of use assets of $2,512,022 and operating lease liabilities of $2,705,484 at November 1, 2019.

 

The Company implemented ASC 842 using the modified retrospective approach. In addition, at November 1, 2019, there was no impact to stockholder’s equity upon adoption.

 

The Company determines if an arrangement is or contains a lease at inception. The Company’s operating lease arrangement are comprised of real estate and facility leases. Right of use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right of use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As the Company’s leases do not provide an implicit rate and the implicit rate is not readily determinable, the Company estimates its incremental borrowing rate based on the information available at the measurement date in determining the present value of the lease payments. The present value of the lease payments was determined using a 4.75% incremental borrowing rate. Right of use assets also exclude lease incentives.

 

The Company presents the amortization of its right to use assets and payments of related lease liabilities originating in connection with operating leases as an adjustment to reconcile net income or loss to net cash generated or used in operating activities and an operating cash outflow, respectively within the operating section of the statement of cash flows.

 

-10-
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d):

 

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. Our material leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Total expense for operating leases for the three months ended January 31, 2020 was $195,230 of which, $36,719 was included within cost of goods sold and $158,511 was recorded in the selling and administrative expenses. The aggregate cash payments under these leasing agreements was $149,188 for the three months ended January 31, 2020.

 

The following summarizes the Company’s operating leases:

 

   January 31, 2020 
     
Right-of-use operating lease assets  $2,405,061 
Current lease liability  $483,042 
Non-current lease liability  $2,104,974 

 

   January 31, 2020 
     
Average remaining lease term   4.0 
Discount rate   4.75%

 

Maturities of lease liabilities by year for our operating leases are as follows:

 

2020  $448,757 
2021   547,788 
2022   529,320 
2023   531,807 
2024   316,477 
2025   168,288 
2026   168,288 
2027   168,288 
2028   98,170 
Total lease payments  $2,977,183 
Less: imputed interest   (389,167)
Present value of operating lease liabilities  $2,588,016 

 

 -11- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” which addresses narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. Part I of this Update addresses the complexity of accounting for certain financial instruments with down round features. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this Update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. These amendments in Part I of this update are effective for annual and interim periods beginning after December 15, 2018, early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part I of this Update should be applied in either of the following ways: (1) Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective. (2) Retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The amendments in Part I and Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.

 

 -12- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 4 - ACCOUNTS RECEIVABLE:

 

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

 

The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from its customers. The allowances are summarized as follows:

 

   January 31, 2020   October 31, 2019 
Allowance for doubtful accounts  $65,000   $65,000 
Reserve for other allowances   35,000    35,000 
Reserve for sales discounts   44,000    44,000 
Totals  $144,000   $144,000 

 

NOTE 5 - INVENTORIES:

 

Inventories at January 31, 2020 and October 31, 2019 consisted of the following:

 

   January 31, 2020   October 31, 2019 
Packed coffee  $3,989,332   $4,044,279 
Green coffee   11,556,810    12,515,124 
Roasters and parts   420,032    419,077 
Packaging supplies   2,089,679    1,862,745 
Totals  $18,055,853   $18,841,225 

 

NOTE 6 - COMMODITIES HELD BY BROKER:

 

The Company has used, and intends to continue to use in a limited capacity, short term coffee futures and options contracts primarily for the purpose of partially hedging and minimizing the effects of changing green coffee prices and to reduce our cost of sales. The commodities held at broker represent the market value of the Company’s trading account, which consists of options and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the condensed consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period.

 

 -13- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 6 - COMMODITIES HELD BY BROKER (cont’d):

 

The Company has open position contracts held by the broker, which are summarized as follows:

 

   January 31, 2020   October 31, 2019 
Option Contracts  $(692,831)  $(58,856)
Future Contracts   (191,975)   159,887 
Total Commodities  $(884,806)  $101,031 

 

The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings and not reflected as a net amount as a separate component of stockholders’ equity.

 

At January 31, 2020, the Company held 21 futures contracts (generally with terms of three to four months) for the purchase of 787,500 pounds of green coffee at a weighted average price of $1.10 to $1.225 per pound. The fair market value of coffee applicable to such contracts was $1.0265 per pound at that date. The Company also held 100 options covering an aggregate of 3,750,000 pounds of green coffee beans. The fair market value of these options, which was obtained from observable market data of similar instruments was ($565,779).

 

At October 31, 2019, the Company held 124 futures contracts (generally with terms of three to four months) for the purchase of 4,650,000 pounds of green coffee at a weighted average price of $.9860 per pound. The fair market value of coffee applicable to such contracts was $1.02 per pound at that date.

 

The Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:

 

   Three Months Ended January 31, 
   2020   2019 
Gross realized gains  $356,559   $542,596 
Gross realized losses   (126,811)   (309,613)
Unrealized gain (loss)   (985,837)   (543,149) 
Total  $(756,089)  $(310,166)

 

 -14- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 7 - LINE OF CREDIT:

 

On April 25, 2017 the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.

 

Pursuant to the A&R Loan Agreement, the terms of each of the Company Financing Agreement and the OPTCO Financing Agreement were amended and restated to, among other things: (i) provide for a new Maturity Date of February 28, 2018; (ii) consolidate the principal amounts of the Company Financing Agreement and the OPTCO Financing Agreement to provide for a maximum principal amount limit of $12,000,000 for the Borrowers, collectively, provided that OPTCO is limited to a $3,000,000 maximum principal amount sublimit; (iii) expand the borrowing base to include, along with 85% of eligible accounts receivable, up to the lesser of $2,000,000 as to the Company and $1,500,000 as to OPTCO; (iv) effective March 1, 2017, converted the interest rate on the average unpaid balance of the A&R Loan Facility from an interest rate per annum equal to the Wall Street Journal Prime Rate to an interest rate per annum equal to the sum of the LIBOR rate plus 2.4%; (v) require the Company and OPTCO to pay, collectively, upon the occurrence of certain termination events, a prepayment premium of 1.0% (as opposed to the 0.5% under the OPTCO Financing Agreement) of the maximum amount of the A&R Loan Facility in effect as of the date of the termination event; (vi) eliminate the over advance fee; and (vii) establish a Letter of Credit Facility (as defined in the A&R Loan Agreement) with a maximum obligation amount of $1,000,000, and subject to other terms and conditions described therein. Also on April 25, 2017, SONO and CFI (collectively referred to herein as the “Guarantors”), entered into a Guaranty Agreement (the “Guaranty Agreement”) in connection with the A&R Loan Agreement. The Guaranty Agreement was provided as an inducement to Sterling to extend credit to Borrowers in exchange for the Guarantors’ unconditional guarantee of the payment and performance obligations of the Borrowers under the Loan Agreement, as further defined in the Guaranty Agreement.

 

On March 23, 2018, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement among other things: (i) provides for a new maturity date of March 31, 2020; (ii) increases the maximum principal amount to $14,000,000; and (iii) decreases the interest rate per annum to LIBOR plus 2 percent, 3.66% at January 31, 2020.

 

On March 13, 2020, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement among other things: (i) provides for a new maturity date of March 31, 2022 and (ii) decreases the interest rate per annum to LIBOR plus 1.75% (with such interest rate not to be lower than 3.50%).

 

Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. The Company was in compliance with all covenants as of January 31, 2020 and October 31, 2019.

 

The A&R Loan Facility also requires that we maintain a minimum working capital at all times, and the A&R Loan Agreement requires that the Borrowers, on a consolidated basis, maintain a minimum working capital at all times and achieve a minimum net profit amount as of fiscal year end during the term of the A&R Loan Agreement.

 

 -15- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 7 - LINE OF CREDIT (cont’d):

 

Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all tangible and intangible assets of the Company. Other than as amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.

 

As of January 31, 2020 and October 31, 2019, the outstanding balance under the bank line of credit was $5,867,840 and $7,167,740, respectively.

 

NOTE 8 - INCOME TAXES:

 

The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities.

 

As of January 31, 2020 and October 31, 2019, the Company did not have any unrecognized tax benefits or open tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of January 31, 2020 and October 31, 2019, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.

 

The Company files a U.S. federal income tax return and California, Colorado, Connecticut, Idaho, Kansas, Louisiana, Montana, Massachusetts, Michigan, New Jersey, New York, New York City, Oregon, Rhode Island, South Carolina, Tennessee, Virginia, and Texas state tax returns. The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for the years before fiscal 2016. The Company’s California, Colorado and New Jersey income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2015. The Company’s Oregon and New York income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2016.

 

 -16- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 9 - EARNINGS PER SHARE:

 

The Company presents “basic” and “diluted” earnings per common share pursuant to the provisions included in the authoritative guidance issued by FASB, “Earnings per Share,” and certain other financial accounting pronouncements. Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.

 

The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,569,349 for the three months ended January 31, 2020 and 2019. The Company has granted 1,000,000 options which have not been included in the calculation of diluted earnings per share due to their anti-dilutive nature.

 

NOTE 10 - ECONOMIC DEPENDENCY:

 

Approximately 24% of the Company’s sales were derived from six customers during the three months ended January 31, 2020. These customers also accounted for approximately $2,651,000 of the Company’s accounts receivable balance at January 31, 2020. Approximately 21% of the Company’s sales were derived from five customers during the three months ended January 31, 2019. These customers also accounted for approximately $2,500,000 of the Company’s accounts receivable balance at January 31, 2019. Concentration of credit risk with respect to other trade receivables is limited due to the short payment terms generally extended by the Company, by ongoing credit evaluations of customers, and by maintaining an allowance for doubtful accounts that management believes will adequately provide for credit losses.

 

For the three months ended January 31, 2020, approximately 28% of the Company’s purchases were from six vendors. These vendors accounted for approximately $633,000 of the Company’s accounts payable at January 31, 2020. For the three months ended January 31, 2019, approximately 30% of the Company’s purchases were from five vendors. These vendors accounted for approximately $486,000 of the Company’s accounts payable at January 31, 2019. Management does not believe the loss of any one vendor would have a material adverse effect of the Company’s operations due to the availability of many alternate suppliers.

 

The following table presents revenues by product line in the three months ended January 31, 2020 and 2019

 

   January 31,
2020
   January 31,
2019
 
Green  $6,785,576   $9,157,707 
Packaged  $12,499,925   $14,476,104 
Totals  $19,285,501   $23,633,811 

 

 -17- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 11 - RELATED PARTY TRANSACTIONS:

 

The Company has engaged its 40% partner in GCC as an outside contractor (the “Partner”). Included in contract labor expense are expenses incurred from the Partner during the three months ended January 31, 2020 and 2019 of $102,771 and $100,618, respectively, for the processing of finished goods.

 

An employee of one of the top five vendors is a director of the Company. Purchases from that vendor totaled approximately $1,333,000 and $1,796,000 for the three months ended January 31, 2020 and 2019 respectively. The corresponding accounts payable balance to this vendor was approximately $285,000 and $228,000 at January 31, 2020 and 2019, respectively.

 

In January 2005, the Company established the “Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan.” Currently, there is only one participant in the plan: the Company’s Chief Executive Officer. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The assets are held in a separate trust. The deferred compensation payable represents the liability due to an officer of the Company. The assets are included in the Deposits and other assets in the accompanying balance sheets. The deferred compensation asset and liability at January 31, 2020 and October 31, 2019 were $373,480 and $378,453, respectively.

 

NOTE 12 - STOCKHOLDERS’ EQUITY:

 

  a. Treasury Stock. The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is determined under the last-in, first-out method. The Company did not purchase any shares during the three months ended January 31, 2020 and the year ended October 31, 2019.
     
  b. Stock Options. The Company has an incentive stock plan, the 2013 Equity Compensation Plan (the “2013 Plan”), and on April 19, 2019, has granted stock options to employees, officers and non-employee directors from the 2013 Plan. Options granted under the 2013 Plan may be Incentive Stock Options or Nonqualified Stock Options, as determined by the Administrator at the time of grant. As of January 31, 2020, the Board of Directors approved 1,000,000 options.
     
    During the year ended October 31, 2019, the Company granted stock option awards to five board members to purchase an aggregate 59,000 shares of the Company’s common stock at $5.43 per share.

 

 -18- 
 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2020

(UNAUDITED)

 

NOTE 12 - STOCKHOLDERS’ EQUITY (cont’d):

 

The stock options have an expected term of six years and will vest over a twelve month service period.

 

The stock options have an aggregate grant date fair value of approximately $233,050. The Company also granted stock option awards to certain officers and employees to purchase an aggregate of 941,000 shares of the Company’s common stock at an exercise price of $5.43 per share. The stock options have an expected term of six years and will vest over a three year service period. These stock options have an aggregate grant date fair value of approximately $2,277,220.

 

The following table represents stock option activity for the year ended October 31, 2019:

 

    Stock Options   Exercise Price   Contractual Life   Aggregate Intrinsic 
    Outstanding   Exercisable   Outstanding   Exercisable   (Years)   Value 
Balance October 31, 2018   -   -   -       -   -         - 
Granted    1,000,000        $5.43    -    10    - 
Exercised    -    -    -    -    -    - 
Cancelled    -    -    -    -    -    - 
Balance October 31, 2019    1,000,000    -   $5.43    -    10    - 
Exercised    -    -    -    -    -    - 
Cancelled    -    -    -    -    -    - 
Balance January 31, 2020    1,000,000    -   $5.43    -    10    - 

 

The Company recorded $248,031 and $476,899 of stock-based compensation in the three months ended January 31, 2020 and the year ended October 31, 2019, respectively.

 

The outstanding stock compensation expense as of January 31, 2020 was approximately $1,785,340.

 

NOTE 13 - SUBSEQUENT EVENTS:

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required further adjustment or disclosure in the condensed consolidated financial statements.

 

 -19- 
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Note on Forward-Looking Statements

 

Some of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements upon information available to management as of the date of this Form 10-Q and management’s expectations and projections about future events, including, among other things:

 

  our dependency on a single commodity could affect our revenues and profitability;
  our success in expanding our market presence in new geographic regions;
  the effectiveness of our hedging policy may impact our profitability;
  the success of our joint ventures;
  our success in implementing our business strategy or introducing new products;
  our ability to attract and retain customers;
  our ability to obtain additional financing;
  our ability to comply with the restrictive covenants we are subject to under our current financing;
  the effects of competition from other coffee manufacturers and other beverage alternatives;
  the impact to the operations of our Colorado facility;
  general economic conditions and conditions which affect the market for coffee;
  the macro global economic environment;
  our ability to maintain and develop our brand recognition;
  the impact of rapid or persistent fluctuations in the price of coffee beans;
  fluctuations in the supply of coffee beans;
  the volatility of our common stock; and
  other risks which we identify in future filings with the Securities and Exchange Commission (the “SEC”).

 

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate” and similar expressions (or the negative of such expressions). Any or all of our forward looking statements in this quarterly report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. In addition we undertake no responsibility to update any forward-looking statement to reflect events or circumstances that occur after the date of this quarterly report.

 

 -20- 
 

 

Overview

 

We are an integrated wholesale coffee roaster and dealer in the United States and one of the few coffee companies that offers a broad array of coffee products across the entire spectrum of consumer tastes, preferences and price points. As a result, we believe that we are well-positioned to increase our profitability and endure potential coffee price volatility throughout varying cycles of the coffee market and economic conditions.

 

Our operations have primarily focused on the following areas of the coffee industry:

 

  the sale of wholesale specialty green coffee;
  the roasting, blending, packaging and sale of private label coffee;
  the roasting, blending, packaging and sale of our eight brands of coffee; and
  sales of our tabletop coffee roasting equipment.

 

Our operating results are affected by a number of factors including:

 

  the level of marketing and pricing competition from existing or new competitors in the coffee industry;
  our ability to retain existing customers and attract new customers;
  our hedging policy;
  fluctuations in purchase prices and supply of green coffee and in the selling prices of our products; and
  our ability to manage inventory and fulfillment operations and maintain gross margins.

 

Our sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract new customers. For this reason, we have made, and will continue to evaluate, strategic decisions to invest in measures that are expected to increase sales. These transactions include our acquisition of Premier Roasters, LLC, including equipment and a roasting facility in La Junta, Colorado, the addition of a west coast sales manager to increase sales of our private label and branded coffees to new customers, our joint venture with Caruso’s Coffee, Inc. of Brecksville, Ohio, the transaction with OPTCO and our licensing arrangement with DTS8 Coffee Company, Ltd. On June 23, 2016, we formed our wholly owned subsidiary, Sonofresco, LLC (“SONO”), a Delaware limited liability company. On June 29, 2016, we purchased through SONO, substantially all the assets, including equipment, inventory, customer list and relationships of Coffee Kinetics, LLC, a Washington limited liability company. On February 24, 2017, we acquired 100% of the capital stock of Comfort Foods, Inc. (“CFI”), a Massachusetts based medium sized coffee roaster, manufacturing both branded and private label coffee for retail and foodservice customers. In April 2018, Generations Coffee Company, the entity formed as a result of our joint venture with Caruso’s Coffee, Inc., purchased substantially all the assets of Steep & Brew, Inc. We believe these efforts will allow us to expand our business.

 

Our sales are affected by the price of green coffee. We purchase our green coffee from dealers located primarily within the United States. The dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. For example, in Brazil, which produces approximately 40% of the world’s green coffee, the coffee crops are historically susceptible to frost in June and July and drought in September, October and November. However, because we purchase coffee from a number of countries and are able to freely substitute one country’s coffee for another in our products, price fluctuations in one country generally have not had a material impact on the price we pay for coffee. Accordingly, price fluctuations in one country generally have not had a material effect on our results of operations, liquidity and capital resources. Historically, because we generally have been able to pass green coffee price increases through to customers, increased prices of green coffee generally result in increased net sales, irrespective of sales volume.

 

 -21- 
 

 

The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects of changing green coffee prices. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain a vital element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices. However, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we have had net gains on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some recent reporting periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase our cost of sales and materially decrease our profitability and adversely affect our stock price. If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced.” Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventories, assets held for sale, business combinations, carrying amounts of intangible assets and goodwill, deferred taxes, income taxes, commodities held and loss contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions and estimates used in the preparation of the financial statements:

 

  The Company has adopted the new revenue recognition standard ASC 606 on November 1, 2018 using the modified retrospective method. The majority of the Company’s business is ship and bill. The Company recognizes revenue in accordance with the five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

 

 -22- 
 

 

  Our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required. For example, every additional one percent of our net accounts receivable that becomes uncollectible, would decrease our operating income by approximately $86,000 for the three months ended January 31, 2020. The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by us from our customers.

 

  Inventories are stated at lower of cost (determined on a first-in, first-out basis) or market. Based on our assumptions about future demand and market conditions, inventories are subject to be written-down to market value. If our assumptions about future demand change and/or actual market conditions are less favorable than those projected, additional write-downs of inventories may be required. Each additional one percent of potential inventory write-down would have decreased operating income by approximately $181,000 for the three months ended January 31, 2020.
     
  The commodities held at broker represent the market value of the Company’s trading account, which consists of option and futures contracts for coffee held with a brokerage firm. We use options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. We classify options and futures contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings. We record realized and unrealized gains and losses in our cost of sales in the statement of operations/income.
     
  We account for income taxes in accordance with the relevant authoritative guidance. Deferred tax assets and liabilities are computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.
     
  Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, SONO, CFI and Steep & Brew, through GCC, which has been integrated into a structure that does not provide the basis for separate reporting units. Consequently, we are a single reporting unit for goodwill impairment testing purposes. We also have intangible assets consisting of our customer lists and relationships and trademarks acquired from OPTCO and SONO. At January 31, 2020 our balance sheet reflected goodwill and intangible assets as set forth below:

 

   January 31, 2020 
Customer list and relationships, net  $522,685 
Non-compete, net   64,350 
Trademarks and tradenames   1,488,000 
Goodwill   2,488,785 
   $4,563,820 

 

Goodwill and the trademarks which are deemed to have indefinite lives are subject to annual impairment tests. Goodwill impairment tests require the comparison of the fair value and carrying value of reporting units. We assess the potential impairment of goodwill and intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon completion of such review, if impairment is found to have occurred, a corresponding charge will be recorded. The value assigned to the customer list and relationships is being amortized over a twenty year period. The value assigned to non-compete is being amortized over a five year period.

 

Goodwill and the intangible assets will be tested annually at the end of each fiscal year to determine whether they have been impaired. Upon completion of each annual review, there can be no assurance that a material charge will not be recorded. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment or decline in value may have occurred.

 

 -23- 
 

 

Three Months Ended January 31, 2020 Compared to the Three Months Ended January 31, 2019

 

Net Sales. Net sales totaled $19,285,501 for the three months ended January 31, 2020, a decrease of $4,348,310, or 18.0%, from $23,633,811 for the three months ended January 31, 2019. The decrease in net sales was due to lower sales of green coffee during the quarter as customers slowed purchases due to the volatility in the green coffee market. Also, our largest customer at Steep n Brew changed our distribution agreement into a commission agreement. The change resulted in a $1.3 million decline in sales compared to the first quarter of last year as well as a decrease in sales of approximately $296,000 to our former largest wholesale green coffee customer.

 

Cost of Sales. Cost of sales for the three months ended January 31, 2020 was $16,170,747, or 83.8% of net sales, as compared to $19,064,767, or 80.7% of net sales, for the three months January 31, 2019. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The decrease in cost of sales was due to our decreased sales partially offset by the unrealized losses on our options and futures hedges.

 

Gross Profit. Gross profit for the three months ended January 31, 2020 amounted to $4,100,591 or 21.2% of net sales excluding the effect of $985,837 of unrealized losses we recorded in connection with our hedging of futures and option contracts. Gross profit including the effect of our hedging activities amounted to $3,114,754 or 16.2% of net sales. Gross profit for the three months ended January 31, 2019 amounted to $5,112,193 or 21.6% of net sales excluding the effect of $543,149 of unrealized losses we recorded in connection with our hedging of futures and option contracts. Gross profit including the effect of our hedging activities amounted to $4,569,044 or 19.3% of net sales. The decrease in gross profits is attributable to a 22% decline in the green coffee market in the month of January 2020, which had a negative effect on our previously established positions.

 

Operating Expenses. Total operating expenses decreased by $203,954 to $3,675,053 for the three months ended January 31, 2020 from $3,879,007 for the three months ended January 31, 2019. Selling and administrative expenses decreased by $170,858 and officers’ salaries decreased by $33,096. Our efforts to control costs through the elimination of redundancy in our operations and the elimination of certain unnecessary variable costs were the primary reasons for this decrease. These efforts were partially offset by the stock compensation expense of $248,000 and the increase in our freight costs as we increased and expanded our product distribution.

 

Other Income (Expense). Other expense for the three months ended January 31, 2020 was $56,301, a decrease of $8,047 from $64,348 for the three months ended January 31, 2019. The decrease in other expense was attributable to a decrease in interest expense of $10,506, partially offset by a reduction in our gain from our equity investments of $1,416 and a decrease in our interest income of $1,043, during the three months ended January 31, 2020.

 

Income Taxes. Our benefit for income taxes for the three months ended January 31, 2020 totaled $(65,416) compared to a provision of $125,920 for the three months ended January 31, 2019. The change was primarily attributable to the difference in the income for the quarter ended January 31, 2020 versus the income in the quarter ended January 31, 2019.

 

Net Income. We had a net loss of $599,848 or $0.11 per share basic and diluted, for the three months ended January 31, 2020 compared to net income of $314,715, or $0.06 per share basic and diluted for the three months ended January 31, 2019. The decrease in net income was due primarily to the reasons described above.

 

 -24- 
 

 

Liquidity and Capital Resources

 

As of January 31, 2020, we had working capital of $19,330,832, which represented a $897,112 decrease from our working capital of $20,227,944 as of October 31, 2019, and total stockholders’ equity of the Company of $24,912,260 which decreased by $351,817 from our total stockholders’ equity of $25,264,077 as of October 31, 2019. Our working capital decreased primarily due to decreases of $811,251 in accounts receivable, $785,372 in inventories, $101,031 in due from broker, $138,033 in prepaid and refundable income taxes, increases of $4,440 in note payable – current portion, $483,042 in lease liability – current portion, $884,806 in due to broker and $217 in income taxes payable partially offset by increases in cash of $348,576, prepaid expenses and other current assets of $26,258, decreases of $636,346 in accounts payable and accrued expenses and $1,299,900 in our line of credit. As of January 31, 2020, the outstanding balance on our line of credit was $5,867,840 compared to $7,167,740 as of October 31, 2019. Total stockholders’ equity decreased due to our net loss, partially offset by our paid in capital from our equity based compensation.

 

On April 25, 2017 the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between the Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.

 

Pursuant to the A&R Loan Agreement, the terms of each of the Company Financing Agreement and the OPTCO Financing Agreement were amended and restated to, among other things: (i) provide for a new Maturity Date of February 28, 2018; (ii) consolidate the principal amounts of the Company Financing Agreement and the OPTCO Financing Agreement to provide for a maximum principal amount limit of $12,000,000 for the Borrowers, collectively, provided that OPTCO is limited to a $3,000,000 maximum principal amount sublimit; (iii) expand the borrowing base to include, along with 85% of eligible accounts receivable, up to the lesser of $2,000,000 as to the Company and $1,500,000 as to OPTCO; (iv) effective March 1, 2017, converted the interest rate on the average unpaid balance of the A&R Loan Facility from an interest rate per annum equal to the Wall Street Journal Prime Rate to an interest rate per annum equal to the sum of the LIBOR rate plus 2.4%; (v) require the Company and OPTCO to pay, collectively, upon the occurrence of certain termination events, a prepayment premium of 1.0% (as opposed to the 0.5% under the OPTCO Financing Agreement) of the maximum amount of the A&R Loan Facility in effect as of the date of the termination event; (vi) eliminate the over advance fee; and (vii) establish a Letter of Credit Facility (as defined in the A&R Loan Agreement) with a maximum obligation amount of $1,000,000, and subject to other terms and conditions described therein. Also on April 25, 2017, SONO and CFI (collectively referred to herein as the “Guarantors”), entered into a Guaranty Agreement (the “Guaranty Agreement”) in connection with the A&R Loan Agreement. The Guaranty Agreement was provided as an inducement to Sterling to extend credit to Borrowers in exchange for the Guarantors’ unconditional guarantee of the payment and performance obligations of the Borrowers under the Loan Agreement, as further defined in the Guaranty Agreement.

 

On March 23, 2018, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement among other things: (i) provided for a new maturity date of March 31, 2020; (ii) increased the maximum principal amount to $14,000,000; and (iii) decreased the interest rate per annum to LIBOR plus 2 percent, 3.66% at January 31, 2020.

 

On March 13, 2020, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement among other things: (i) provides for a new maturity date of March 31, 2022 and (ii) decreases the interest rate per annum to LIBOR plus 1.75% (with such interest rate not to be lower than 3.50%).

 

Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. The Company was in compliance with all covenants as of January 31, 2020 and October 31, 2019.

 

The A&R Loan Facility also requires that we maintain a minimum working capital at all times, and the A&R Loan Agreement requires that the Borrowers, on a consolidated basis, maintain a minimum working capital at all times and achieve a minimum net profit amount as of fiscal year end during the term of the A&R Loan Agreement.

 

 -25- 
 

 

Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all tangible and intangible assets of the Company. Other than as amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.

 

For the three months ended January 31, 2020, our operating activities provided net cash of $1,720,450 as compared to the three months ended January 31, 2019 when operating activities provided net cash of $812,507. The increased cash flow from operations for the three months ended January 31, 2020 was primarily due to our inventories usage during the quarter and our accounts payable reduction.

 

For the three months ended January 31, 2020, our investing activities used net cash of $71,974 as compared to the three months ended January 31, 2019 when net cash used by investing activities was $133,511. The decrease in our uses of cash in investing activities was due to our reduced purchases of machinery and equipment during the three months ended January 31, 2020.

 

For the three months ended January 31, 2020, our financing activities used net cash of $1,299,900 compared to net cash used by financing activities of $492,574 for the three months ended January 31, 2019. The change in cash flow from financing activities for the three months ended January 31, 2020 was due to our increased principal payments on our credit line, partially offset by our increased advances from our line of credit.

 

We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness, through March 16, 2020 with cash provided by operating activities and the use of our credit facility. In addition, an increase in eligible accounts receivable and inventory would permit us to make additional borrowings under our line of credit.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

 -26- 
 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision of and with the participation of our management, including the Company’s President, Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Executive Officer and Chief Financial Officer concluded that as of January 31, 2020 our disclosure controls and procedures are not effective and we have a material weakness related to the accounting for stock-based compensation awards. Despite the existence of the material weakness, we believe the financial information presented herein is materially correct and fairly presents the financial position and operating results of the quarter ended January 31, 2020 in accordance with U.S. GAAP.

 

As previously disclosed in Item 9A of our Quarterly Report on Form 10-Q for the fiscal period ended April 30, 2019, management identified a material weakness as of that date. The identified material weakness related to the accounting for stock-based compensation awards. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. To remediate the material weakness, we are initiating controls and procedures in order to:

 

  Reinforce the importance of a strong control environment, to emphasize the technical requirements for controls that are designed, implemented and operating effectively and to set the appropriate expectations on internal controls through establishing the related policies and procedures; and
  Review the processes for documenting and alerting key personnel, including our board members, officers, auditors and outside accountants, of non-reoccurring events related to stock-based compensation awards to ensure such events are timely and adequately recorded and communicated to the appropriate parties.

 

The material weakness identified above will not be considered remediated until our remediation efforts have been fully implemented and we have concluded that these controls are operating effectively.

 

Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

 

Changes in Internal Control over Financial Reporting

 

We have made progress towards remediation of the material weakness identified above. Since the quarter ended April 30, 2019, we have implemented further procedures to review and document all corporate actions related to stock-based compensation awards.

 

There have been no additional changes in our internal controls over financial reporting during the three months ended January 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 -27- 
 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are not a party to, and none of our property is the subject of, any pending legal proceedings other than routine litigation that is incidental to our business. To our knowledge, no governmental authority is contemplating initiating any such proceedings.

 

ITEM 1A. RISK FACTORS.

 

The Company’s operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended October 31, 2019 filed with the Securities and Exchange Commission on January 29, 2020. Except as set forth below, there have been no material changes to our risk factors since the Company’s Annual Report on Form 10-K for the year ended October 31, 2019:

 

An Outbreak of Disease or Similar Public Health Threat, or Fear of Such an Event, Could Have a Material Adverse Impact on the Company’s Business, Operating Results and Financial Condition.

 

These types of events could disrupt business and otherwise materially adversely affect business and financial condition. With operations in many states and the reliance on foreign countries for the supply of green coffee, the Company is subject to numerous risks outside of its control, including risks arising from natural disasters, such as fires, earthquakes, hurricanes, floods, tornadoes, unusual weather conditions, pandemic outbreaks and other global health emergencies, terrorist acts or disruptive global political events, or similar disruptions that could materially adversely affect business and financial performance.

 

Any public health emergencies, including a real or potential global pandemic such as those caused by the avian flu, SARS, Ebola, coronavirus, or even a particularly virulent flu, could decrease demand for the Company’s products. The recent outbreak in China of the Coronavirus Disease 2019 (“COVID-19”), which has been declared by the World Health Organization to be a “pandemic,” has spread to many countries and is impacting worldwide economic activity. A public health epidemic, including COVID-19, poses the risk that the Company or its employees, suppliers, consumers, and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. Given the interconnectivity of global supply chain and global economy, and the possible rate of future global transmission, the impact of COVID-19 may extend beyond the areas which are currently known to be impacted. While it is not possible at this time to estimate the impact COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain, our sales efforts and adversely impact our business, financial condition, or results of operations.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

On March 13, 2020, we and OPCO (collectively, “the Borrowers”) entered into a Loan Modification Agreement and Waiver (the “Amendment”) with Sterling, which amended that certain Amended and Restated Loan and Security Agreement (the “Loan Agreement”), dated April 25, 2017, by and among Borrowers and Sterling. The Amendment modifies the Loan Agreement to, among other things: (i) provide for a new loan maturity date of March 31, 2022 and (ii) reduce the interest rate per annum to the sum of the LIBOR rate plus 1.75% (with such interest rate not to be lower than 3.5%).

 

Other than as modified above, the terms of the Loan Agreement and the Guaranty Agreement, dated April 25, 2017 related thereto, remain in full force and effect.

 

The foregoing summary of the terms of the Amendment is not intended to be complete and is qualified in its entirety by the terms of the Amendment, a copy of which is attached hereto as Exhibit 10.1.

 

ITEM 6. EXHIBITS.

 

10.1   Loan Modification Agreement and Waiver, dated March 13, 2020, by and among Coffee Holding Co., Inc., Organic Products Trading Company LLC and Sterling National Bank.
     
31.1   Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
     
32.1   Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
     
101.INS   XBRL Instance Document *
101.SCH   XBRL Taxonomy Extension Schema Document *
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB   XBRL Taxonomy Extension Label Linkbase Document *
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document *

 

* Filed herewith

** Furnished herewith

 

 -28- 
 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Coffee Holding Co., Inc.
     
Date: March 16, 2020 By: /s/ Andrew Gordon
    Andrew Gordon President
    Chief Executive Officer and Chief Financial Officer

 

 -29-