Company Quick10K Filing
Thanksgiving Coffee
Price-0.00 EPS0
Shares1 P/E-0
MCap-0 P/FCF-0
Net Debt-0 EBIT0
TEV-0 TEV/EBIT-1
TTM 2019-06-30, in MM, except price, ratios
10-Q 2019-09-30 Filed 2020-08-19
10-Q 2019-06-30 Filed 2019-12-12
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-27
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-15
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-30
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-15
10-Q 2017-03-31 Filed 2017-05-23
10-K 2016-12-31 Filed 2017-03-29
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-31
8-K 2019-12-12
8-K 2019-07-31

TCCI 10Q Quarterly Report

Part I - Financial Information
Part II - Other Information
Part 1. Financial Information
Item 1. Financial Statements
Item 2. Management 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. Submission of Matters To A Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8 - K
EX-3.1 ex_200646.htm
EX-3.2 ex_200647.htm
EX-31.1 ex_200084.htm
EX-31.2 ex_200085.htm
EX-32.1 ex_200086.htm
EX-32.2 ex_200087.htm

Thanksgiving Coffee Earnings 2019-09-30

Balance SheetIncome StatementCash Flow
1.91.51.10.80.40.02017201820192020
Assets, Equity
1.20.90.70.40.2-0.12017201820192020
Rev, G Profit, Net Income
0.30.20.10.1-0.0-0.12017201820192020
Ops, Inv, Fin

10-Q 1 tcci20190930b_10q.htm FORM 10-Q tcci20190930b_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the Quarterly Period Ended September 30, 2019

 

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: 33-96070-LA

 

THANKSGIVING COFFEE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

California

94-2823626

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

19100 South Harbor Drive, Fort Bragg, California

95437

(Address of principal executive offices)

(Zip Code)

 

(707) 964-0118

(Registrant’s telephone number, including area code)

 

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  ☐    No  ☒

  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Regulation 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☐   No   ☒

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.           Yes  ☐   No   ☒

 

 

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

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 Act). 

Yes ☐  No  ☒

 

There currently does not exist a public trading market for the registrant’s common stock. Over the years, there have been isolated and sporadic privately negotiated transactions in the Company’s shares.  See “Part II, Item 5, and Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”  The Company is not aware of any privately negotiated transactions of the Company’s stock since 2008. The Company is unable to determine the current market value of the common equity held by non-affiliates, as no reliable secondary trading price exists.

 

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

 

On September 30, 2019 the registrant had 1,236,744 shares of common stock, no par value per share, outstanding.

 

Class

 

Outstanding at September 30, 2019

Common Equity, no par value

 

1,236,744 shares

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

tcci

none 

 



 

 

2

 

 

FORM 10-Q

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

Item 1.        

 

Financial Statements

4
     
 

Condensed Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited).

4
     
 

Condensed Statements of Operations for the nine months and three months ended September 30, 2019 and September 30, 2018 (unaudited) 

6
     
  Condensed Statement of Changes in Accumulated Deficit for the nine months and the three months ended September 30, 2019 and September 30, 2018 (unaudited). 7
     
 

Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018 (unaudited)

8
     
 

Notes to Condensed Financial Statements

9
     

Item 2.        

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16
     

Item 3.        

Quantitative and Qualitative Disclosures About Market Risk

19
     

Item 4.        

Controls and Procedures

19
     

PART II – OTHER INFORMATION

 

Item 1.        

Legal Proceedings

20
     

Item 1A.    

Risk Factors

20
     

Item 2.        

Unregistered Sales of Equity Securities and Use of Proceeds

20
     

Item 3.

Defaults Upon Senior Securities

20
     

Item 4.        

Submission of Matters to a Vote of Security Holders

21
     

Item 5.

Other Information 21
     

Item 6.        

Exhibits

21
   

Signatures

22

 

3

 

 

PART 1. Financial Information

 

 

Item 1. Financial Statements

 

 

The condensed financial statements included herein have been prepared by Thanksgiving Coffee Company, Inc. (the Company, or we) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations. In the opinion of management of the Company, the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2019 and December 31, 2018, and its results of operations for the three and nine month periods ended September 30, 2019 and September 30, 2018 and its cash flows for the nine month periods ended September 30, 2019 and September 30, 2018. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying condensed financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Company’s annual report on Form 10-K.

 

 

 

 

Thanksgiving Coffee Company, Inc.

 

Condensed Balance Sheets

Unaudited

 

                 
   

September 30,

   

December 31,

 
   

2019

   

2018

 
           

See Note 1

 

Assets

               

Current assets

               

Cash

  $ 326,704     $ 153,646  

Accounts receivable, net of allowance

    245,318       218,789  

Inventories

    269,177       237,708  

Prepaid expenses

    70,613       90,431  

Total current assets

    911,812       700,574  
                 
                 

Property and equipment, net

    275,463       308,649  

Right of use leased assets

    567,564       -  

Total property, equipment, and other

    843,027       308,649  
                 

Other assets

               

Deposits and other assets

    7,076       4,168  
                 
                 

Total assets

  $ 1,761,915     $ 1,013,391  

 

See accompanying notes to condensed financial statements

 

4

 

Thanksgiving Coffee Company, Inc.

 

Condensed Balance Sheets

Unadudited

 

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 
           

See Note 1

 

Liabilities and shareholders' equity

               

Current liabilities

               

Accounts payable

  $ 189,370     $ 217,828  

Accrued liabilities

    59,336       62,817  

Current portion of operating lease liabilities

    96,604       -  

Current portion of long term debt

    32,640       48,262  

Total current liabilities

    377,950       328,907  
                 

Long term liabilities

               

Long-term debt

    28,704       36,302  

Noncurrent operating lease liabilities

    470,960       -  

Total long term debt

    499,664       36,302  

Total liabilities

    877,614       365,209  
                 

Shareholders' equity

               

Common stock, no par value, 1,960,000 shares authorized, 1,236,744 shares issued and outstanding

    861,816       861,816  

Additional paid in capital

    24,600       24,600  

Accumulated deficit

    (2,115 )     (238,234 )

Total shareholders' equity

    884,301       648,182  
                 

Total liabilities and shareholders' equity

  $ 1,761,915     $ 1,013,391  

 

See accompanying notes to condensed financial statements

 

5

 

 

Thanksgiving Coffee Company, Inc.

 

Condensed Statements of Operations

Unaudited

 

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Income

                               

Net sales

  $ 866,775     $ 800,149     $ 3,120,554     $ 2,413,940  

Cost of sales

    514,016       447,840       1,749,736       1,385,347  

Gross profit

    352,759       352,309       1,370,818       1,028,593  
                                 

Operating expenses

                               

Selling, general, and administrative expenses

    329,120       323,384       1,044,169       1,007,248  

Depreciation and amortization

    16,962       19,571       51,633       66,839  

Total operating expenses

    346,082       342,955       1,095,802       1,074,087  

Operating profit (loss)

    6,677       9,354       275,016       (45,494 )
                                 

Other Income

                               

Interest expense

    (1,407 )     (2,040 )     (4,476 )     (5,444 )

Other expense, net

    (24,227 )     11,463       (24,028 )     11,530  

Total other income (expense), net

    (25,634 )     9,423       (28,504 )     6,086  
                                 

Income/(loss) before income taxes

    (18,957 )     18,777       246,512       (39,408 )

Income tax expense

    (9,557 )     0       (10,393 )     (800 )

Net Income/ (loss)

  $ (28,514 )   $ 18,777     $ 236,119     $ (40,208 )
                                 

Earnings/ (loss) per share (basic and dilutive)

  $ (0.023 )   $ 0.015     $ 0.191     $ (0.033 )
                                 

Weighted average number of shares

    1,236,744       1,236,744       1,236,744       1,236,744  

 

See accompanying notes to condensed financial statements

 

6

 

 

Thanksgiving Coffee Company, Inc.

 

Condensed Statements of Accumulated Deficit

Unaudited

 

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Retained earnings/Accumulated deficit, beginning of the period

  $ 26,399     $ (260,975 )   $ (238,234 )   $ (201,990 )
                                 

Net income/ (loss)

    (28,514 )     18,777       236,119       (40,208 )
                                 

Accumulated deficit, end of period

  $ (2,115 )   $ (242,198 )   $ (2,115 )   $ (242,198 )

 

See accompanying notes to condensed financial statements

 

7

 

 

 Thanksgiving Coffee Company, Inc. 

 

 Condensed Statements of Cash Flows 

Unaudited 

                                                     

 

   

For the Nine Months

 
   

September 30,

 
   

2019

   

2018

 

Operating activities

               

Net income (loss)

  $ 236,119     $ (40,208 )

Adjustments to reconcile net income (loss) to cash flows from operating activities:

               

Depreciation and amortization

    51,633       66,839  
                 

(Increase) decrease in:

               

Accounts receivable

    (26,529 )     14,870  

Inventories

    (31,469 )     57,163  

Prepaid expenses

    19,818       (8,063 )

Deposits and other assets

    (2,908 )     (1,056 )

Increase (decrease) in:

               

Accounts payable

    (28,458 )     (45,697 )

Accrued liabilities

    (3,481 )     (21,753 )

Net cash provided by operating activities

    214,725       22,095  
                 

Investing activities

               

Purchases of property and equipment

    (724 )     (26,364 )
                 
                 

Financing activities

               

Repayments of long term debt

    (40,943 )     (16,874 )
                 

Increase (decrease) in cash

    173,058       (21,143 )

Cash at beginning of period

    153,646       160,392  

Cash at end of period

  $ 326,704     $ 139,249  
                 

Interest

  $ 4,476     $ 5,444  

Income taxes

  $ 837     $ 800  

 

See accompanying notes to condensed financial statements

 

8

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

1. Basis of Presentation

 

The unaudited condensed financial statements in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The Company has continued to follow the accounting policies disclosed in the financial statements included in its 2018 Form 10-K filed with the Securities and Exchange Commission (SEC). The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC for interim financial information. The unaudited interim condensed consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes necessary to fairly state results of interim operations, should be read in conjunction with the Notes to Financial Statements (including the Significant Accounting Policies and Recent Accounting Pronouncements) included in the Company’s audited financial statements for the year ended December 31, 2018, as filed with the SEC on Form 10-k (the “2018 Report”). Results of operations for interim periods are not necessarily indicative of annual results of operations. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the full year. The unaudited condensed balance sheet at September 30, 2019 was extracted from the audited annual financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements.

 

Disclosure A/R Concentration

 

In the third quarter of 2019, one customer accounted for 31.55% of the Company’s revenue. The account has purchased from the Company since 1992 and is a distributor of the Company’s product. This distributor had a setback in opening their new main café/roaster and Thanksgiving continues to roast all their coffees until they are operational again. A loss of this account or any other large account, or a significant reduction in sales to any of the Company’s principal customers, could have an adverse impact on the Company.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method as prescribed by ASC 740, Accounting for Income Taxes. As such, deferred income tax assets and liabilities are recognized for the future tax consequences of the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the five-step model as prescribed by Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers,” 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 the goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 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 the revenue when (or as) the entity satisfies a performance obligation.

 

The Company recognizes revenue once its performance obligation to the customer is completed and control of the product or service is transferred to the customer. Revenue reflects the total amount the Company receives, or expects to receive, from the customer and includes shipping costs that are billed and included in the consideration. The Company's contractual obligations to customers generally have a single point of obligation and are short term in nature. For sales through distributors, the Company recognizes revenue when the product is shipped, and title passes to the distributor. The Company's standard terms are 'FOB' shipping point, with no customer acceptance provisions. The cost of price promotions and rebates are treated as reductions of revenue. No products are sold on consignment. Credit sales are recorded as trade accounts receivable and no collateral is required. The Company has price incentive programs with its distributors to encourage product placement. The cost of price promotions and rebates are treated as reductions of revenue and revenues are presented net of sales allowances. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. Freight charges are recognized as revenue at the time of delivery.

 

9

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

The Company sells coffee directly to customers through its direct delivery, retail web site and wholesale mail order customers. Additionally, the Company sells other coffee related merchandise through its website. Web site sales are paid for and recognized as revenue at the point of sale. Retail orders are billed to the customer's credit card, at the time of shipment, and revenue is then recognized. The Company periodically sells special bulk orders of products that are in excess of production requirements. These sales are recognized when ownership transfers to the buyer, which occurs at the point of shipment.

 

Leases

 

The Company adopted Accounting Standard Update (ASU) No. 2016-02—Leases (Topic 842), as amended, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

 

In addition, The Company elected the hindsight practical expedient to determine the lease term for existing leases. In our application of hindsight, we evaluated the performance of the leased warehouse and office equipment, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term.

 

Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $625,826 as of January 1, 2019.

 

Earnings per share

 

The Company computes basic earnings per share ("EPS") by dividing net earnings for the period (adjusted for any cumulative dividends for the period) by the weighted average number of common shares outstanding during the period. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect, if any, of the common stock deliverable pursuant to stock options or common stock issuable upon the conversion of convertible stock. We have no dilutive instruments for the three months and nine-months ended September 30, 2019 and 2018.

 

10

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

 

2. Accounts Receivable

 

Accounts receivable consist of the following:

 

   

9/30/2019

   

12/31/2018

 

Accounts receivable

  $ 249,953     $ 226,104  

Less: allowance for doubtful accounts

    (4,635 )     (7,315 )

Net accounts receivable

  $ 245,318     $ 218,789  

 

The Company utilizes a percentage method to establish the allowance for doubtful accounts. The estimated allowance ranges from 1% to 10% of outstanding receivables based on factors pertaining to the credit risk of specific customers, historical trends and other information. Delinquent accounts are written off when it is determined that amounts are uncollectible. Bad debt expense (recovery) for the nine months ended September 30, 2019 and 2018 was $8,795 and $(32), respectively. Bad debt expense (recovery) for the three months ended September 30, 2019 and 2018 was $1,236 and $(348), respectively.

 

As of September 30, 2019 we wrote off receivables from company A in the amount of $1,192 and company B in the amount of $4,642.

 

 

3. Inventories

 

Inventories consist of the following:

 

   

9/30/2019

   

12/31/2018

 

Coffee

               

Unroasted

  $ 172,795     $ 161,355  

Roasted

    49,122       34,420  

Tea

    1,597       1,723  

Packaging, supplies and other merchandise held for sale

    45,663       40,210  

Total inventories

  $ 269,177     $ 237,708  

 

 

4. Properties and Equipment

 

Property and equipment, consist of the following:

 

   

9/30/2019

   

12/31/2018

 

Equipment

  $ 485,413     $ 490,430  

Furniture and fixtures

    149,527       148,693  

Leasehold improvements

    368,954       366,698  

Transportation equipment

    50,217       178,497  

Pacakge design

    41,000       41,000  

Capitalized website development costs

    19,000       19,000  

Property held under finance leases

    362,280       225,864  

Total property and equipment

    1,476,391       1,470,182  

Accumulated depreciation

    (1,200,928 )     (1,161,533 )

Property and equipment, net

  $ 275,463     $ 308,649  

 

11

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

Property and Equipment and Right of Use Assets

 

Depreciation and amortization expense for the nine months ended September 30, 2019 and 2018 was $51,633 and $66,839, respectively.

 

Depreciation and amortization expense for the three months ended September 30, 2019 and 2018 was $16,409 and $19,572 respectively.

 

 

5. Finance and Operating Leases

 

ASU No. 2016-02, “Leases (Topic 842)” requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard, and, therefore, those amounts are not presented below.

 

We lease a warehouse, heavy machinery, and office equipment under finance and operating leases. As of September 30, 2019, we had three operating and six finance leases with remaining terms ranging from less than one year to six years. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Some of our leases include renewal options that are factored into our determination of lease payments when appropriate. We did not separate lease and non-lease components of contracts for any asset class.

 

None of our leases require us to provide a residual value guarantee. When available, we use the rate implicit in the lease to discount lease payments to present value; however, some of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.

 

Lease Position as of September 30, 2019

 

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

 

 

Classification on the Balance Sheet

 

September 30, 2019

 

Assets

         

Operating lease assets

Operating lease right-of-use assets

  $ 567,564  

Finance lease assets

Property and equipment, net

    61,344  

Total lease assets

  $ 628,908  
           

Liabilities

         

Current

         

Operating

Current maturities of operating leases

  $ 96,604  

Finance

Current maturities of finance leases

    32,640  

Noncurrent

         

Operating

Noncurrent operating leases

    470,960  

Finance

Long-term finance leases

    28,704  

Total lease liabilities

  $ 628,908  
           

Weighted-average remaining lease term

         

Operating leases (years)

   

4.50

 

Finance leases (years)

   

1.93

 
           

Weighted-average discount rate

         

Operating leases

    2.45 %

Finance leases

    7.62 %

 

12

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

Lease Costs

 

The table below presents certain information related to the lease costs for finance and operating leases for the nine months ended September 30, 2019.

 

   

Quarter Ended September 30, 2019

 
         

Finance lease cost:

  $ 28,704  
         

Amortization of assets

  $ 24,229  

Interest on lease liabilities

    4,475  
         

Operating lease cost:

    81,905  

Short-term lease cost

    -  

Variable lease cost

    -  

Total lease cost

  $ 110,609  

 

Other Information

 

The table below presents supplemental cash flow information related to leases for the nine months ended September 30, 2019.

 

Cash paid for amounts included in the measurement of lease liabilities:

 

Quarter Ended September 30, 2019

 
         

Operating cash flows for operating leases

  $ 81,905  

Operating cash flows for finance leases

  $ 4,475  
         

Financing cash flows for finance leases

  $ 24,229  

 

13

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

Undiscounted Cash Flows

 

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

 

   

Operating Leases

   

Finance Leases

 
                 

Period Ending December 31,

               

2019

  $ 27,492     $ 13,024  

2020

    109,969       29,529  

2021

    109,969       15,393  

2022

    109,221       5,472  

2023

    105,544       2,838  

2024

    104,458       1,655  

Thereafter

    43,000       -  

Total minimum lease payments

    609,653       67,911  

Less: amount of lease payments representing interest

    (42,089 )     (6,399 )

Present value of future minimum lease payments

    567,564       61,344  

Less: current obligations under leases

    (96,604 )     (32,640 )

Long-term lease obligations

  $ 470,960     $ 28,704  

 

 

6. Disaggregated Revenue by routes, direct and mail order

 

Disaggregated information of revenue recognized as follows:

 

For the Three months ended September 30

 

Sales by department

 

2019

   

2018

 

Routes-wholesale

  $ 316,621     $ 342,083  

Direct-wholesale

    453,201       357,758  

Mailorder-retail

    96,953       100,308  

Total

  $ 866,775     $ 800,149  

 

For the Nine months ended September 30

 

Sales by department

 

2019

   

2018

 

Routes-wholesale

  $ 904,589     $ 991,440  

Direct-wholesale

    1,910,988       1,097,862  

Mailorder-retail

    304,977       324,638  

Total

  $ 3,120,554     $ 2,413,940  

 

14

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

September 30, 2019 and December 31, 2018

 

 

 

7. Income Taxes

 

Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Company’s deferred tax assets consist of the benefit from net operating loss (NOL) carryforwards and temporary differences. The Company’s deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operation loss carryforwards. Net operating loss carryforwards may be further limited by a change in company ownership and other provisions of the tax laws.

 

 

8. Related Party Transactions

 

As of September 30, 2019, the Company has green contracts with three cooperatives in Nicaragua, Guatemala and Uganda. Ethical Trading and Investment Company of Nicaragua (ETICO) is the importer for the transactions. Nicholas Hoskyns, a director of the Company, is the managing director of ETICO. At September 30, 2019, amounts owed to ETICO totaled $48,567. For the first nine months ended September 30, 2019 and 2018 we have paid $424,367 and $421,402, respectively. All the amounts owed are current and were paid in accordance with our standard vendor payment policies. The loss of the ETICO relationship could have an adverse effect on the Company’s business in the short term. Management believes other options are available that could be utilized in the event the ETICO relationship was terminated.

 

The Company holds a five-year rental lease with the majority shareholder, which is due to expire on May 1, 2025.

 

 

9. Business Segment

 

The Company operates in one reportable segment. All revenues are derived and all long-lived assets are held in the U.S.

 

 

10. Subsequent Events

 

During the first quarter of 2020, government offices throughout the United States and around the world issued shelter in place orders due to the global outbreak of the COVID-19 virus. On March 27, 2020, the President of the United States signed into law the Families First Coronavirus Response Act and two phases of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act which are intended to provide emergency assistance to individuals and business affected by COVID-19. The CARES Act includes a small business stimulus program, Paycheck Protection Program (“PPP”), which is intended to provide loans to qualified businesses to guarantee eight weeks of payroll and other identified costs which may be eligible for partial or full forgiveness.

 

In April 2020, the Company successfully secured a $189,228 Small Business Association (“SBA”) loan under the Payroll Protection Program to secure payroll expenses for otherwise furloughed employees impacted by government imposed shelter in place orders. Per the terms of the loan, the full amount will be forgiven as long as loan proceeds are used to cover payroll costs and other specified non-payroll costs (provided any non-payroll costs do not exceed 40% of the forgiven amount) over a 24-week period after the loan is made; and employee and compensation levels are maintained. The Company intends to comply with the above terms in order to qualify for full or partial loan forgiveness. In the event the Company is required to repay the loan, all payments are deferred for 6 months with accrued interest over this period. Amounts outstanding under the loan will bear a fixed interest rate of 1.00% per annum with a maturity date of 2 years from commencement date. The Company has not applied for loan forgiveness as of the issuance of these financial statements.

 

In April 2020, the Company executed a $25,000 non-interest bearing emergency COVID-19 Commercial loan with a maturity date of April 16, 2021 with Savings Bank of Mendocino County.

 

15

 

 

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

 

FORWARD LOOKING STATEMENTS

 

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. In some cases, forward-looking statements may be identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements relate to, among other things, possible expansions into new and existing markets and trends in the operations of Thanksgiving Coffee Company, Inc. (“the Company”). Any forward-looking statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. These various risks and uncertainties include, but are not limited to: changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products and in the availability and costs of green beans, continuing competition within the Company’s business, variances from budgeted sales mix and growth rate, consumer acceptance of the Company’s products, inability to secure adequate capital to fund its operating expenses and working capital requirements, inability to hire, train and retain qualified personnel, concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully implement the Company’s sales goals, natural disasters, civil unrest in countries which produce coffee and tea, weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this Quarterly Report on Form 10-Q. The Company’s forward-looking statements should also be considered in light of its reviewed financial statements, related notes and the other financial information appearing elsewhere in this report and in its other filings with the Securities and Exchange Commission. As a result of these risks and uncertainties, the Company’s actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company assumes no obligation to update any forward-looking statements.

 

Risks that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or that may materially and adversely affect our actual results include, but are not limited to, those discussed in Part II, Item 1A. Risk Factors in the 2018 Report and the additional risk factor regarding COVID-19 discussed in Part II, Item 1A of this Report. Readers should carefully review the risk factors described in the 2018 Report, this Report and in other documents that the Company files from time to time with the SEC.

 

SUMMARY

 

Sales of the Company have eroded over the prior years due to declines in the direct distribution sales method of the Company’s business (i.e., delivery by company truck). Increased competition, customer attrition and customers roasting green beans for their own use have all had a negative impact on the Company’s sales. In the first quarter, second quarter and third quarter of this year the Company is experiencing an increase in sales because one of its distributors had a fire which curtailed what they could roast in house. In addition, the Company continues to try a number of strategies that may or may not prove effective in abating these declines. The Company has changed its method of distribution to rely less on direct distribution (with only three routes) and instead uses independent distributors or ships direct (via UPS or other common carrier). In addition, the Company is trying to focus increasing its on-line sales with a continued emphasis on its presence in social media, growing its email list and linking its search optimization. The effects of these changes on the Company’s sales will reduce distribution expenses. Because of the limited impact of these changes, as well as the increase in cost of sales and other factors noted herein, there can be no assurances that the Company will be profitable in any future period, and, as a consequence, the Company is considering various strategic alternatives.

 

The Company pays substantially more for green beans than our competitors, because of quality, the organic nature of many of the varietals we carry and the fact that we use fair-traded coffees as well. Green bean costs have remained stable but any rise will place pressure on margins. If green bean costs continue as is or rise, whether as a consequence of inclement weather in a major producing area or any other event that affects green bean pricing, and if the Company cannot offset costs by raising prices, it would have a negative impact on the Company and its margins.

 

16

 

Results of Operations

 

Nine months ended September 30, 2019 versus September 30, 2018

 

   

Increase (Decrease)

   

Percent Change

 
                 

Net Sales

  $ 706,614       29.3 %

Cost of Sales

    364,389       26.3 %

Gross Profit

    342,225       33.3 %
                 

Selling, G&A Expense

    36,921       3.7 %

Depreciation and Amortization

    (15,206 )     (22.8 %)

Other, net

    (34,590 )     (568 %)

Net Income

    276,326       687.0 %

 

Net sales for the nine months ended September 30, 2019 were $3,120,554 up 29.3%, or $706,614 when compared with net sales of $2,413,940 for the same period in fiscal 2018.

 

Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down 86,686 or (8.73%) for the nine months ended September 30, 2019, when compared with distribution sales for the same period in 2018. The decline appears to be a result of slower volume for existing customers and no customers have been lost.

 

National revenues (e.g., revenues not derived by mail order and direct truck distribution) were up $775,756 or 68.31% for the nine months ended September 30, 2019 when compared to national sales for the same period in 2018. The increase reflects the increased sales from a distributor who suffered a major fire and was not able to fulfill all their orders for the cafes they own. Thanksgiving is roasting more of their coffees and not a selected variety as in the past. This is a short-term fix and they will be fully operational in 2020.

 

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) decreased $39,286 or (11.40%) for the nine months ended September 30, 2019 when compared to mail order sales for the same period in 2018. The decrease is attributable to the increase in competition with other on line competitors.

 

Cost of sales for the nine months ended September 30, 2019 were $1,749,736, up 26.3%, or $364,389 when compared with the cost of sales of $1,385,347 for the same period in 2018. The increase reflects the increase in the overall sales in the nine months of 2019.

 

Gross margin percentage (gross profit as a percentage of net sales) for the nine months ended September 30, 2019 was 43.92% percentage points when compared with the gross margin of 42.61% for the same period in 2018.

 

Selling, general and administrative expenses were $1,044,169 for the nine months ended September 30, 2019, an increase of 3.7% when compared with the selling, and general and administrative expenses of $1,007,248 for the same period in 2018. The increase was a result of increase in freight, graphics and advertising.

 

Depreciation and amortization expenses for the nine months ended September 30, 2019 were $51,633, a (22.8%) decrease, or nearly ($15,206) when compared to depreciation expense of $66,839 for the same period in 2018. The decrease reflects the disposal of old equipment.

  

As a result of the foregoing factors, the Company had a net income of $236,118 for the nine months ended September 30, 2019, compared to a loss of $40,208 for the same period in 2018.

 

To summarize the Company’s third quarter overall sales are up over the prior year. The growth was in national revenue, which required us to ship out the coffees and in turn increased our selling, general and administrative expenses. It was one customer whose sales attributed to the increase. It is noted the cost of sales increased as well because of the volume of green roasted to fulfill orders. Customers shared part of the cost in freight but not all and that is reflected in the increase in freight cost in the selling, general, and administrative expenses of the profit and loss reports.

 

Direct routes and mail order revenues decreased due to the increase of competition in the market place. The Company is in the process of upgrading the website, links, and increasing our social media presence, but in turn means more expenses out -going for marketing. In addition, the Company is working on introducing a new product to the market place and a re-introduction of a product. Overall our expenses have risen in advertising, freight and the on line mail order aspect of the Company but have decreased in other areas, such as insurance and depreciation.

 

17

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2019, the Company had working capital of $533,862 versus working capital of $371,667 as of December 31, 2018. The increase in working capital is due primarily to profitable results experienced in the quarter ended September 30, 2019.

 

Net cash provided by operating activities was $214,725 for the nine months ended September 30, 2019 compared to net cash used by activities of $22,095 during the same period in 2018. The increase in cash was due to an increase in roasting for one distributor.

 

Cash used in investing activities was ($724) for the nine months ended September 30, 2019 compared to ($26,364) used in the same period in 2018. Net cash used in financing activities for the nine months ended September 30, 2019 was ($40,943) compared to net cash used in financing activities of ($16,874) during the same period in 2018. The cash used by financing activities was a result of paying existing debt.

 

At September 30, 2019, the Company had total borrowings of $61,344.

 

At September 30, 2019, our contractual obligations are as follows:

 

   

Payments Due By Period

 

Contractual

Obligations

 

 

Total

   

Less than

One year

   

 

1-3 years

   

 

4-5 years

   

 

After 5 years

 

Finance Leases

  $ 67,911       13,024       50,394       4,493     $ -  
                                         

Operating Leases

    24,853       1,692       19,559       3,602       -  
                                         

Real Estate Leases

    584,800       25,800       309,600       206,400       43,000  
                                         

Total Cash Obligations

  $ 677,564     $ 40,516     $ 379,553     $ 214,495     $ 43,000  

 

The Company is dependent on successfully executing its business plan to achieve profitable operations, obtaining additional sources of borrowings (including normal trade credit) and securing favorable financing arrangements (including lease financing) to finance its working capital needs. There can be no assurance that the Company will be successful in this regard. If the Company were not able to meet its credit obligations the stability of the Company’s business would be in question.

 

 

RELATED PARTY TRANSACTIONS

 

From time to time, the Company enters into various transactions with its majority shareholders, Paul and Joan Katzeff. See note “11 — Related Party Transactions” in the Notes to the Financial Statements included in the Company’s 10-K, as filed with the SEC. In addition, see note “7- Related Party Transaction” in regards to ETICO green bean purchases for 2019.

 

18

 

SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE

 

The Company’s business is seasonal in nature. The seasonal availability of green bean coffee in the first two quarters of the year and increased sales in the last quarter historically create a high use of cash and a build up in inventories in the first two quarters, with a corresponding decrease in inventory and increase in cash in the last quarter. In 2019 the Company has been keeping a tighter control on its inventory supply, resulting in fewer inventory supplies on hand. In the third quarter of 2019, similar controls continue.

 

Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past seasonal patterns are not necessarily indicative of future results.

  

 

INDEMNIFICATION MATTERS

 

The Company’s Bylaws provide that the Company may indemnify its directors, officers, employees and other agents to the fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such liability insurance for its directors and certain officers and employees.

 

At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or preceding that might result in a claim for such indemnification.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company’s stock is generally illiquid and there have been few trades in recent years. There have been two trades in the Company’s Common Stock since 1999. In June 2004, 750 shares were traded at $4.50 per share. In December 2005, 400 shares were traded at $2.00 per share.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and President, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our Chief Executive Officer and President concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2018.

 

Management has identified the following material weakness in our internal control over financial reporting:

 

 

Application of New Accounting Standards – we did not have appropriate controls in place to ensure proper and timely implementation of new accounting standards, specifically with respect to the adoption of ASC 842 – Leases.

 

Notwithstanding the existence of these material weaknesses in our internal controls, we believe that our financial statements fairly present, in all material respects, our balance sheets at September 30, 2019 and our statements of operations, stockholders’ deficit and cash flows for the quarter ended September 30, 2019 in conformity with GAAP.

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and President, of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2019. Based on that evaluation, the Company’s management, including the Chief Executive Officer, and the President concluded that the Company’s disclosure controls and procedures were effective.

 

19

 

Part II – OTHER INFORMATION

 

 

ITEM 1. LEGAL PROCEEDINGS

 

-None-

 

 

ITEM 1A. RISK Factors

 

The Company has concerns regarding the current economic situation. The United States and the global economy is experiencing severe instability in the commercial and investment banking systems which are likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and the Company’s operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.

 

Our coffee roasting facility is subject to state and local air-quality and emissions regulations. If we encounter difficulties in obtaining any necessary licenses or complying with these laws and regulations our ability to produce any of our roasted products would be severely limited. We believe that we are in compliance in all material respects with all such laws and regulations and we have obtained all material licenses that are required for the operation of our business. We are not aware of any environmental regulations that have or that we believe will have a material adverse effect on our operations.

 

We face risks related to health pandemics, particularly the recent outbreak of COVID-19, which could adversely affect our business and results of operations.

 

Our business could be materially adversely affected by a widespread outbreak of contagious disease, including the recent outbreak of the novel coronavirus, known as COVID-19, which has spread to many countries throughout the world. The effects of this outbreak on our business have included and could continue to include disruptions or restrictions on our employees’ ability to travel in affected regions, as well as temporary closures of our roasting facility and temporary closures of the facilities of our suppliers, customers, or other vendors in our supply chain, which could impact our business, interactions and relationships with our customers, third-party suppliers and contractors, and results of operations. In addition, a significant outbreak of contagious disease in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could reduce the demand for our products and likely impact our results of operations. The extent to which the COVID-19 outbreak will impact business and the economy is highly uncertain and cannot be predicted. Accordingly, we cannot predict the extent to which our financial condition and results of operations will be affected.

 

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.

 

 

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

 

None –

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

 

- None –

 

20

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 

 

- None -

 

 

ITEM 5. OTHER INFORMATION

 

 Not applicable

 

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 

 

Financial Statement Schedules

 

Not Applicable

 

Exhibits

 

Exhibits

 

3.1

Restated Articles of Incorporation of the Company.*

3.2

Bylaws of the Company and amendments.*

10.4

Sample Coffee Purchase Agreement.**

10.10

License Agreement between the Company and the American Birding Association, Inc. and amendment.**

10.13

Lease agreement for the Company’s headquarters and manufacturing and storage facility dated November 1, 2005 and amendment.**

14.1

Code of Ethics***

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*

31.2

Certification of President Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted 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.

**

Incorporated by reference to the exhibits to the Company’s Form 10-K for the year ended December 31, 2018.

***

Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2003.

 

21

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, The Registrant has duly caused this Quarterly Report to be signed on it’s behalf by the undersigned, thereunto duly authorized.

 

THANKSGIVING COFFEE COMPANY, INC.

 

 

Name Title Date
     
     
/s/ Paul Katzeff Chief Executive Officer August 19, 2020
   Paul Katzeff    
     
     
/s/ Joan Katzeff President August 19, 2020
   Joan Katzeff    

 

 

 

22