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 2019-06-30 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 Accountant, Exhibits
8-K 2019-07-31 Accountant, Exhibits

TCCI 10Q Quarterly Report

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-31.1 ex_166087.htm
EX-31.2 ex_166088.htm
EX-32.1 ex_166089.htm
EX-32.2 ex_166090.htm

Thanksgiving Coffee Earnings 2019-06-30

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 tcci20190930_10q.htm FORM 10-Q tcci20190930_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 June 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 June 30, 2019 the registrant had 1,236,744 shares of Class A common stock, no par value per share, and 0 shares of Class B common stock, par value 0 per share, outstanding.

 

Class

 

Outstanding at June 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

     
 

Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

  4

     
 

Statements of Operations for the six months and three months ended June 30, 2019 and June 30, 2018 (unaudited) 

  6

     
 

Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018 (unaudited)

  7

     
 

Notes to Financial Statements

  8

     

Item 2.        

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

  15

     

Item 3.        

Quantitative and Qualitative Disclosures About Market Risk

  17

     

Item 4.        

Controls and Procedures

  18

     

PART II – OTHER INFORMATION

     

Item 1.        

Legal Proceedings

  18

     

Item 1A.    

Risk Factors

  18

     

Item 2.        

Unregistered Sales of Equity Securities and Use of Proceeds

  18

     

Item 3.

Defaults Upon Senior Securities

18
     

Item 4.        

Submission of Matters to a Vote of Security Holders

  19

     

Item 5.

Other Information 19
     

Item 6.        

Exhibits

  19

   

Signatures

  20

 

3

 

 

PART 1. Financial Information

 

 

Item 1. Financial Statements

 

 

The financial statements included herein have been prepared by Thanksgiving Coffee Company, Inc. (the Company) 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 June 30, 2019 and December 31, 2018, and its results of operations for the three and six month periods ended June 30, 2019 and June 30, 2018 and its cash flows for the six month periods ended June 30, 2019 and June 30, 2018. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying 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.

 

Balance Sheets

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
   

(Unaudited)

   

See Note 1

 

Assets

               

Current assets

               

Cash

  $ 380,272     $ 153,646  

Accounts receivable, net of allowance

    257,462       218,789  

Inventories

    249,054       237,708  

Prepaid expenses

    70,915       90,431  

Total current assets

    957,703       700,574  
                 

Property and equipment

               

Property and equipment

    1,486,895       1,470,182  

Right of Use

    639,094       -  

Accumulated depreciation

    (1,242,935 )     (1,161,533 )

Total property and equipment

    883,054       308,649  
                 

Other assets

               

Deposits and other assets

    14,168       4,168  

Total other assets

    14,168       4,168  
                 

Total assets

  $ 1,854,925     $ 1,013,391  

 

See accompanying notes to financial statements

 

4

 

 

Thanksgiving Coffee Company, Inc.

 

Balance Sheets

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 
   

(Unaudited)

   

See Note 1

 

Liabilities and shareholders' equity

               

Current liabilities

               

Accounts payable

  $ 221,727     $ 217,828  

Accrued Liabilities

    68,283       62,817  
Current Operating Lease Liabilities     95,990          

Current portion of long term debt

    36,597       48,262  

Total current liabilities

    422,597       328,907  
                 

Long term debt

               

Long-term debt

    60,692       84,564  

Less current portion of long term debt

    (36,597 )     (48,262 )

Operating Lease

    495,228       -  

Total long term debt

    519,323       36,302  

Total liabilities

    941,920       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  

Retaine earnings (deficit)

    26,589       (238,234 )

Total shareholders' equity

    913,005       648,182  
                 

Total liabilities and shareholders' equity

  $ 1,854,925     $ 1,013,391  

 

See accompanying notes to financial statements

 

5

 

 

 
Thanksgiving Coffee Company, Inc.
 
Statements of Operations

Unaudited

 

   

For the Three Months

   

For the Six Months

 
   

Ended June 30,

   

Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Income

                               

Net sales

  $ 1,161,644     $ 818,755     $ 2,253,779     $ 1,613,791  

Cost of sales

    641,348       454,435       1,235,720       937,512  

Gross profit

    520,296       364,320       1,018,059       676,279  
                                 

Operating expenses

                               

Selling, general and administrative expenses

    347,206       318,373       714,859       683,864  

Depreciation and amortization

    16,409       25,886       34,671       47,268  

Total operating expenses

    363,615       344,259       749,530       731,132  

Operating profit/ (loss)

    156,681       20,061       268,529       (54,853 )
                                 

Other Expense

                               

Interest expense

    (1,433 )     (1,745 )     (3,069 )     (3,404 )

Miscellaneous expense

    186       (1,562 )     199       67  

Total other income (expense)

    (1,247 )     (3,307 )     (2,870 )     (3,337 )
                                 

Profit/ (loss) before income taxes

    155,434       16,754       265,659       (58,190 )

Income tax expense

    (37 )     (800 )     (837 )     (800 )

Net profit/ (loss)

  $ 155,397     $ 15,954     $ 264,822     $ (58,990 )
                                 

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

  $ 0.126     $ 0.013     $ 0.214     $ (0.048 )
                                 

Weighted average number of shares

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

 

6

 

 

 

Thanksgiving Coffee Company, Inc.


Statements of Cash Flows
Unaudited

 

   

For the Six Months

 
   

June 30,

 
   

2019

   

2018

 

Operating activities

               

Net Income (loss)

  $ 264,822     $ (58,990 )

Adjustments to reconcile net loss to cash flows from operating activities:

               

Depreciation and amortization

    34,671       47,268  
                 

(Increase) decrease in:

               

Accounts receivable

    (38,673 )     12,344  

Inventories

    (11,346 )     61,136  

Prepaid expenses

    19,516       (23,195 )

Deposits and other assets

    (10,000 )     (1,056 )

Increase (decrease) in:

               

Accounts payable

    3,899       (43,429 )

Accrued liabilities

    5,466       (1,729 )

Net cash provided by (used in) operating activities

    268,355       (7,651 )
                 

Investing activities

               

Purchases of property and equipment

    (723 )     (20,808 )

Net cash (used in) investing activities

    (723 )     (20,808 )
                 

Financing activities

               

(Repayments) issuances of notes payable and capital leases

    (41,006 )     (4,298 )

Net cash (used in) financing activities

    (41,006 )     (4,298 )
                 

Increase (decrease) in cash

    226,626       (32,757 )

Cash at beginning of period

    153,646       160,392  

Cash at end of period

  $ 380,272     $ 127,635  
                 

Supplemental disclosure of cash flow information:

         

Cash paid during the period for:

               

Interest

  $ 3,069     $ 3,404  

Income taxes

  $ 837     $ 800  
                 

Supplemental disclosure of non-cash investing and financing activities:

               

Non-cash additions to property and equipment

  $ 652,306     $ -  

 

7

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

June 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). It is suggested that these statements be read in conjunction with the December 31, 2018 audited financial statements and the accompanying notes on Form 10-K, as filed with the SEC.

 

The interim financial information in this Form 10-Q reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our results of operations for the interim periods. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of results to be expected for the full year.

 

Concentration of Risk

 

In the second quarter of fiscal 2019, one customer accounted for 39.08% of the Company’s revenue. The first six months of June 30, 2019 one customer accounted for 39.05%. The account has purchased from the Company since 1992 and is a distributor of the Company’s product. This distributor had a set back in opening in 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

 

On January 1, 2019, the Company adopted ASU 2014-09, using the modified retrospective method for all contracts not completed as of the date of adoption. Adoption of ASU 2014-09 did not have a material effect on the results of operations, financial position or cash flows of the Company.

 

The Company has evaluated the provisions of ASU 2014-09 and assessed its impact on the Company’s financial statements, information systems, business processes, and financial statement disclosures. The Company has analyzed its revenue streams, performed detailed contract reviews for each stream, and evaluated the impact ASU 2014-09 will have on revenue recognition. The Company primarily recognizes revenue at point of sale or delivery and has determined that this will not change under the new standard.

 

The Company’s accounting policy for revenue was updated as a result of the adoption of ASU 2014-09. The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 2014-09 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 fro the goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 2014-09, 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.

 

8

 

 

In May 2014, the FASB issued accounting guidance which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09“). ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. On August 12, 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,“ which defers the effective date of ASU 2014-09 by one year allowing early adoption as of the original effective date of January 1, 2017. The deferral results in the new accounting standard being effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2014-09 is effective for the Company beginning January 1, 2019. We adopted ASU No. 2016-02—Leases (Topic 842), as amended, as of January 01, 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.

 

The Company has evaluated the provisions of ASU 2014-09 and assessed its impact on the Company’s financial statements, information systems, business processes, and financial statement disclosures. The Company has analyzed its revenue streams and evaluated the impact ASU 2014-09 will have on revenue recognition. The Company primarily recognizes revenue at point of sale or delivery and has determined that this will not change under the new standard. The adoption of ASU 2014-09 will not have a material effect on the results of operations, financial position or cash flows of the Company.

 

The Company’s primary source of revenue is sales of coffee and complementary products. The Company recognizes revenue when control of the promised good or service is transferred to the ASC 840 footnotes are under item 7 and 8. ASC 842 footnotes appear under item 2. There have been no other changes in the Company’s Disclosure controls over financial reporting during the six months of 2019 that have materially affected or are reasonably likely to affect the Company’s internal controls over financial reporting.

 

9

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

June 30, 2019 and December 31, 2018

 

 

 

2.

Accounts Receivable

 

Accounts receivable consist of the following:

 

   

6/30/2019

   

12/31/2018

 

Accounts receivable

  $ 262,652     $ 226,104  

Less: allowance for doubtful accounts

    (5,190 )     (7,315 )

Net accounts receivable

  $ 257,462     $ 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 six months ended June 30, 2019 and 2018 was $6,130 and $316 respectively.

 

As of June 30, 2019 we wrote off receivables from company A in the amount of $1,192 and company B in the amount of $4,642. Because the company has an on going business relationship with company C we anticipates collecting the full amount.

 

 

 

3.

Inventories

 

Inventories consist of the following:

 

   

6/30/2019

   

12/31/2018

 

Coffee

               

Unroasted

  $ 146,670     $ 161,355  

Roasted

    57,301       34,420  

Tea

    2,408       1,723  

Packaging, supplies and other merchandise held for sale

    42,675       40,210  

Total inventories

  $ 249,054     $ 237,708  

 

 

 

4.

Property and Equipment

 

Property and equipment consist of the following:

 

    6/30/2019     12/31/2018  

Furniture and fixtures

    148,693       148,693  

Leasehold improvements

    368,954       366,698  

Transportation equipment

    64,202       178,497  

Right of Use

    639,094       -  

Finance Lease Asset

    241,113       -  

Pacakge design

    41,000       41,000  

Capitalized website development costs

    19,000       19,000  

Property held under capital leases

    99,046       225,864  

Total property and equipment

    2,125,989       1,470,182  

Accumulated depreciation

    (1,242,935 )     (1,161,533 )

Property and equipment, net

  $ 883,054     $ 308,649  

 

Depreciation expense for the six months ended June 30, 2019 and 2018 was $34,671 and $47,268 respectively.

 

10

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

June 30, 2019 and December 31, 2018

 

 

 

5. Finance Lease and Operating Lease

 

We applied the hindsight practical expedient for measurement of lease assets and liabilities, and associated leasehold improvement assets, in our adoption of ASU No. 2016-02—Leases (Topic 842), which required judgment, to determine the reasonably certain lease term for existing leases in transition to the new standard. Operating lease assets and liabilities was $591,218 at June 30, 2019. Finance lease assets and liabilities was $60,692 at June 30, 2019.

 

We adopted 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, we 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 approximately $2,063,211 and $969,442 respectively, as of June 30, 2019. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

 

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 June 30, 2019, we had three operating and five 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.

 

11

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

June 30, 2019 and December 31, 2018

 

 

Lease Position as of June 30, 2019

 

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

 

 

Classification on the Balance Sheet

 

June 30, 2019

 

Assets

         

Operating lease assets

Operating lease right-of-use assets

    591,218  

Finance lease assets

Property and equipment, net

    60,692  

Total lease assets

      651,910  

Liabilities

         

Current

         

Operating

Current maturities of operating leases

    95,990  

Finance

Current maturities of finance leases

    36,597  

Noncurrent

         

Operating

Noncurrent operating leases

    495,228  

Finance

Long-term finance leases

    24,095  

Total lease liabilities

      651,910  

Weighted-average remaining lease term

         

Operating leases (in years)

      4.76  

Finance leases (in years)

      1.61  

Weighted-average discount rate

         

Operating leases

      2.45 %

Finance leases

      7.96 %

 

Lease Costs

 

The table below presents certain information related to the lease costs for finance and operating leases during Q1 – Q2 2019.

 

   

Quarter Ended June 30, 2019

 

Finance lease cost:

  $ 24,632  

Amortization of assets

  $ 21,563  

Interest on lease liabilities

  $ 3,069  

Operating lease cost:

  $ 54,104  

Short-term lease cost

  $ 840  

Variable lease cost

  $ 0  

Total lease cost

  $ 79,576  

 

12

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

June 30, 2019 and December 31, 2018

 

 

Other Information

 

The table below presents supplemental cash flow information related to leases through Q2 2019.

 

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

 

Quarter Ended June 30, 2019

 

Operating cash flows for operating leases

  $ 54,104  

Operating cash flows for finance leases

  $ 3,069  
         

Financing cash flows for finance leases

  $ 21,563  

  

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

 

2019

    54,984       24,628  

2020

    109,968       26,690  

2021

    109,968       12,555  

2022

    109,221       2,633  

2023

    105,544       0  

2024

    104,342       -  

Thereafter

    43,000       -  

Total minimum lease payments

    637,027       66,506  

Less: amount of lease payments representing interest

    (45,809 )     (5,814 )

Present value of future minimum lease payments

    591,218       60,692  

Less: current obligations under leases

    (95,990 )     (36,597 )

Long-term lease obligations

    495,228       24,095  

 

13

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements (continued)

 

June 30, 2019 and December 31, 2018

 

 

 

6. 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 net operating loss carryforwards expire in various years through 2034. 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.

 

 

 

7. Related Party Transactions

 

As of June 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 June 30, 2019, amounts owed to ETICO totaled $31,452. For the first six months ended June 30, 2019 and 2018 we have paid $290,930 and $313,800 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.

 

14

 

 

 

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.

 

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 and second 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 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.

 

Results of Operations

 

Six months ended June 30, 2019 versus June 30, 2018

 

   

Increase (Decrease)

   

Percent Change

 
                 

Net Sales

  $ 639,988       39.7 %

Cost of Sales

    298,208       31.8 %

Gross Margin%

    341,780       50.5 %
                 

Selling, G&A Expense

    30,995       4.5 %

Depreciation and Amortization

    -12,597       (26.7 %)

Other

    467       (14 %)

Net Income

    323,812       (549 %)

 

15

 

 

Net sales for the six months ended June 30, 2019 were $2,253,779 up 39.7%, or over $639,988 when compared with net sales of $1,613,791 for the same period in fiscal 2018.

 

Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down $47,523 or (7.47%) for the six months ended June 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 as no customer have been lost.

 

National revenues (e.g., revenues not derived by mail order and direct truck distribution) were up $82,910 or 25.44% for the six months ended June 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 all 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 the upcoming quarter.

 

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) decreased $1,009, or 3.25% for the six months ended June 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 six months ended June 30, 2019 were $1,235,720, up 31.8%, or $298,208 when compared with the cost of sales of $937,507 for the same period in 2018. The increase reflects the increase in the overall sales in the six months of 2019.

 

Gross margin percentage (gross profit as a percentage of net sales) for the six months ended June 30, 2019 was 45.17% percentage points when compared with the gross margin of 41.9% for the same period in 2018.

 

Consolidated selling, general and administrative expenses were $714,859 for the six months ended June 30, 2019, an increase of 4.5% when compared with the selling, general and administrative expenses of $683,864 for the same period in 2018. The increase was a result of increase in freight, printing and auto expenses.

 

Depreciation and amortization expenses for the six months ended June 30, 2019 were $34,671, a (26.7%) decrease, or nearly ($12,597) when compared to depreciation expense of $47,268 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 $264,822 for the six months ended June 30, 2019, compared to a loss of $58,990 for the same period in 2018.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2019, the Company had working capital of $631,096 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 June 30, 2019.

 

Net cash provided by operating activities was $268,335 for the six months ended June 30, 2019 compared to net cash used by activities of $7,651 during the same period in 2018. The increase in cash was due to a temporary increase in roasting for one distributor.

 

Cash used in investing activities was ($723) for the six months ended June 30, 2019 compared to ($20,808) used in the same period in 2018. Net cash used in financing activities for the six months ended June 30, 2019 was ($41,006) compared to net cash used in financing activities of ($4,298) during the same period in 2018. The cash used by financing activities was a result of paying existing debt.

 

At June 30, 2019, the Company had total borrowings of $60,692.

 

16

 

 

   

Payments Due By Period

 

Contractual

Obligations

 

 

Total

   

Less than

One year

   

 

1-3 years

   

 

4-5 years

   

 

After 5 years

 

Finance Leases

  $ 60,693       36,597       24,096       0     $ -  
                                         

Operating Leases

    33,837       8,534       14,746       10,557       -  
                                         

Real Estate Leases

    610,600       103,200       283,800       206,400       17,200  
                                         

Total Cash Obligations

  $ 705,130     $ 148,331     $ 322,642     $ 216,957     $ 17,200  

 

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 is 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.

 

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 2018 the Company has been keeping a tighter control on its inventory supply, resulting in fewer inventory supplies on hand. In the first 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.

 

17

 

 

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 the 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 consolidated financial statements fairly present, in all material respects, our balance sheets at June 30, 2019 and our statements of operations, stockholders’ deficit and cash flows for the years ended June 30, 2019 in conformity with GAAP.

 

 

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.

 

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

 

– None –

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

– None –

 

18

 

 

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

 

– None –

 

ITEM 5. OTHER INFORMATION

 

Verification of shareholders

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

Financial Statement Schedules

 

Not Applicable

 

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.

**** Incorporated by reference to the exhibits to the Company’s Form 10-Q for the quarter ended March 31, 2018.

 

19

 

 

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

December 12, 2019                                                

Paul Katzeff

   
     
     

/s/ Joan Katzeff     

President

December 12, 2019                              

Joan Katzeff

   

 

20