Company Quick10K Filing
Quick10K
Thanksgiving Coffee
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
8-K 2019-07-31 Accountant, Exhibits
IAU iShares Gold Trust 14,801
FMFG Farmers & Merchants Bancshares 52
MXSG Mexus Gold 19
TRCK Track Group 12
MMTRS Mills Music Trust 7
EQUR E-Qure 2
DQWS DSwiss 0
EST Estre Ambiental 0
HQCL Hanwha Q Cells 0
MHDG Mullan Agritech 0
TCCI 2019-03-31
Part I - Financial 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-31.1 ex_142869.htm
EX-31.2 ex_142870.htm
EX-32.1 ex_142871.htm
EX-32.2 ex_142872.htm

Thanksgiving Coffee Earnings 2019-03-31

TCCI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tcci20190331_10q.htm FORM 10-Q tcci20190331_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 March 31, 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, 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 March 31, 2018 the registrant had 1,236,744 shares of Class A common stock, no par value per share, and _______ shares of Class B common stock, par value _______ per share, outstanding.

 

Class

 

Outstanding at March 31, 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 

 

1

 

 

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.        

Financial Statements

3

     
 

Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018.

  3

     
 

Statements of Operations for the three months ended March 31, 2019 and March 31, 2018 (unaudited) 

  5

     
 

Statements of Cash Flows for the three months ended March 31, 2019 and March 31, 2018 (unaudited)

  6

     
 

Notes to Financial Statements

  7

     

Item 2.        

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

  12

     

Item 3.        

Quantitative and Qualitative Disclosures About Market Risk

  15

     

Item 4.        

Controls and Procedures

  15

     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings 16
     
Item 1A. Risk Factors 16
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 16
     
Item 3. Defaults Upon Senior Securities 16
     
Item 4. Submission of Matters to a Vote of Security Holders 16
     
Item 6.  Exhibits 16
     
Signatures   18

 

2

 

 

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 March 31, 2019 and December 31, 2018, and its results of operations for the three month periods ended March 31, 2019 and 2018 and its cash flows for the three month periods ended March 31, 2019 and 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

 

   

March 31,

   

December 31,

 
   

2019

   

2018

 
   

(Unaudited)

   

See Note 1

 

Assets

               

Current assets

               

Cash

  $ 199,373     $ 153,646  

Accounts receivable, net of allowance

    281,982       218,789  

Inventories

    261,385       237,708  

Prepaid expenses

    99,304       90,431  

Total current assets

    842,044       700,574  
                 

Property and equipment

               

Property and equipment

    1,467,060       1,470,182  

Accumulated depreciation

    (1,175,950 )     (1,161,533 )

Total property and equipment

    291,110       308,649  
                 

Other assets

               

Deposits and other assets

    5,986       4,168  

Total other assets

    5,986       4,168  
                 

Total assets

  $ 1,139,140     $ 1,013,391  

 

See accompanying notes to financial statements

 

3

 

 

Thanksgiving Coffee Company, Inc.

 

Balance Sheets

 

   

March 31,

   

December 31,

 
   

2019

   

2018

 
   

(Unaudited)

   

See Note 1

 

Liabilities and shareholders' equity

               

Current liabilities

               

Accounts payable

  $ 280,980     $ 217,828  

Accued Liabilities

    28,979       62,817  

Current portion of long term debt

    39,492       48,262  

Total current liabilities

    349,451       328,907  
                 

Long term debt

               

Long-term debt

    71,573       84,564  

Less current portion of long term debt

    (39,492 )     (48,262 )

Total long term debt

    32,081       36,302  

Total liabilities

    381,532       365,209  
                 

Shareholders' equity

               

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

    861,816       861,816  

Additional paid in capital

    24,600       24,600  

Accumulated deficit

    (128,808 )     (238,234 )

Total shareholders' equity

    757,608       648,182  
                 

Total liabilities and shareholders' equity

  $ 1,139,140     $ 1,013,391  

 

See accompanying notes to financial statements

 

4

 

 

 

Thanksgiving Coffee Company, Inc.

 

Statements of Income and Retained Earnings

Unaudited

 

   

For the Three Months

 
   

Ended March 31,

 
   

2019

   

2018

 

Income

               

Net sales

  $ 1,092,135     $ 795,036  

Cost of sales

    594,372       483,078  

Gross profit

    497,763       311,958  
                 

Operating expenses

               

Selling, general and administrative expenses

    367,653       365,490  

Depreciation and amortization

    18,262       21,382  

Total operating expenses

    385,915       386,872  

Operating gain (loss)

    111,848       (74,914 )
                 

Other income (expense)

               

Miscellaneous income

    13       1,608  

Interest expense

    (1,636 )     (1,638 )

Total other income (expense)

    (1,623 )     (30 )
                 
                 

Gain (loss) before income taxes

    110,225       (74,944 )

Income tax expense

    (800 )     -  

Net income (loss)

  $ 109,425     $ (74,944 )
                 

Accumulated Deficit, beginning of the year

  $ (238,234 )   $ (201,998 )
                 

Accumulated Deficit, end of the year

  $ (128,809 )   $ (276,942 )
                 

Income (loss) per share (basic and diluted)

  $ 0.09     $ (0.06 )
                 
                 

Weighted average number of shares

    1,236,744       1,236,744  

 

See accompanying notes to financial statements

 

5

 

 

 

Thanksgiving Coffee Company, Inc.

 

Statements of Cash Flows

Unaudited

 

   

For the Three Months Ended

 
   

March 31,

 
   

2019

   

2018

 

Operating activities

               

Net Income (loss)

  $ 109,425     $ (74,944 )

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

               

Depreciation and amortization

    18,262       21,382  
                 

(Increase) decrease in:

               

Accounts receivable

    (63,193 )     17,698  

Inventories

    (23,677 )     37,982  

Prepaid expenses

    (8,873 )     (24,138 )

Deposits and other assets

    (1,818 )     (920 )

Increase (decrease) in:

               

Accounts payable

    63,152       (13,408 )

Accrued liabilities

    (33,838 )     (21,398 )

Net cash provided by (used in) operating activities

    59,440       (57,746 )
                 

Investing activities

               

Purchases of property and equipment

    (723 )     (7,563 )

Net cash (used in) investing activities

    (723 )     (7,563 )
                 

Financing activities

               

(Repayments) issuances of notes payable and capital leases

    (12,991 )     (11,383 )

Net cash (used in) financing activities

    (12,991 )     (11,383 )
                 

Increase (decrease) in cash

    45,726       (76,692 )

Cash at beginning of period

    153,646       160,392  

Cash at end of period

  $ 199,372     $ 83,700  

 

See accompanying notes to financial statements

 

6

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements

 

March 31, 2019 and December 31, 2018

 

 

Cash paid for income taxes was $800 for the three months ending March 31, 2019.

 

 

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 three months ended March 31, 2019 are not necessarily indicative of results to be expected for the full year.

 

Concentration of Risk

 

In the first quarter of fiscal 2019, one customer accounted for 38.10% of the Company’s revenue. The account has purchased from the Company since 1992. The account is a distributor of the Company’s product. This distributor had a set back in opening their new main café / roastery and Thanksgiving will continue to roast all their coffees until they are again operational. 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 basis. 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.

 

7

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements

 

March 31, 2019 and December 31, 2018

 

 

 

2.

Accounts Receivable

 

Accounts receivable consist of the following:

 

   

3/31/2019

   

12/31/2018

 

Accounts receivable

  $ 289,152     $ 226,104  

Less: allowance for doubtful accounts

    (7,170 )     (7,315 )

Net accounts receivable

  $ 281,982     $ 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 three months ended March 31, 2019 and 2018 was $924 and ($1,727) respectively.

 

As of March 31, 2019, accounts receivables from company A in the amount of $1,192 has been outstanding since February 2018, receivables from company B in the amount of $4,642 has been outstanding since October 2018 and accounts receivable from company C in the amount of $2,608 have been outstanding since December 2018. Because the Company has an on going business relationship with these companies it anticipates collecting the full amount.

 

 

3.

Inventories

 

Inventories consist of the following:

 

   

3/31/2019

   

12/31/2018

 

Coffee

               

Unroasted

  $ 165,398     $ 161,355  

Roasted

    56,620       34,420  

Tea

    1,788       1,723  

Packaging, supplies and other merchandise held for sale

    37,579       40,210  

Total inventories

  $ 261,385     $ 237,708  

 

 

4.     Property and Equipment

 

Property and equipment consist of the following:

 

   

3/31/2019

   

12/31/2018

 

Equipment

  $ 485,052     $ 490,430  

Furniture and fixtures

    148,693       148,693  

Leasehold improvements

    368,955       366,698  

Transportation equipment

    178,496       178,497  

Pacakge design

    41,000       41,000  

Capitalized website development costs

    19,000       19,000  

Property held under capital leases

    225,864       225,864  

Total property and equipment

    1,467,060       1,470,182  

Accumulated depreciation

    (1,175,950 )     (1,161,533 )

Property and equipment, net

  $ 291,110     $ 308,649  

 

Depreciation expense for the three months ended March 31, 2019 and 2018 was $18,262 and $21,382 respectively.

 

8

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements

 

March 31, 2019 and December 31, 2018

 

 

 

5.      Long Term Debt (continued)

 

Capital Lease Obligations

 

3/31/2019

   

12/31/2018

 
                 

Bank of the West payable in monthly installments of $787.03, including interest at 9.234% collateralized by equipment, final payment due on January 1, 2021.

  $ 14,049     $ 17,187  
                 

Bank of the West payable in monthly installments of $1,465, including interest at 9.227%, colateralized by equipment, final payment due on January 1, 2020.

    15,208       18,058  
                 

Hansel Ford, payable in monthly installments of $385, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019.

    -       1,154  
                 

Hansel Ford, payable in monthly installments of $385, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019.

    -       1,154  
                 

Savings Bank of Mendocino, payable in monthly installments of $518, interest at 4.24%, collateralized by a security interest of sustantially all of the Company's assets, final payment due on December 28, 2021.

    16,099       17,473  
                 

Pawnee Leasing, payable monthly installments of $528, including interest at 15.178%, collateralized by equipment, final payment due May 31, 2022.

    15,852       16,811  
                 

Hansel Ford, payable in monthly installments of $806.38, including interest at 1.939%, collateralized by equipment, final payment due on April 10, 2020.

    10,365       12,727  
    $ 71,573     $ 84,564  

Less current portion

    (39,492 )     (48,262 )

Long term portion of notes payable

  $ 32,081     $ 36,302  

 

Interest paid for the three months ended March 31, 2019 and 2018 was $1,636 and $1,659, respectively.

 

9

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements

 

March 31, 2019 and December 31, 2018

 

 

As of March 31, 2019, maturities of notes payable and capital lease obligations for each of the next five years and in the aggregate were as follows:

 

Years Ending March 31,

       

2020

  $ 39,492  

2021

    19,425  

2022

    12,656  
    $ 71,573  

 

 

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.     Operating Leases

 

The Company leases some office equipment under non-cancelable operating leases with terms ranging from three to five years.

 

As of March 31, 2019, minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:

 

Years Ending March 31,

       

2020

    8,631  

2021

    7,069  

2022

    6,767  

2023

    4,572  
    $ 27,039  

 

Total operating lease payments for the three months ended March 31, 2019 and 2018 is $2171 and $2,340 respectively.

 

10

 

 

Thanksgiving Coffee Company, Inc.

 

Notes to Financial Statements

 

March 31, 2019 and December 31, 2018

 

 

 

8.     Long Term Leases

 

The Company leases its corporate headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Company’s majority shareholders, Directors and Officers). The lease is classified as an operating lease and provides for monthly rental payments of $8,600. The Company is responsible for all real estate taxes, insurance and maintenance costs related to the facilities. The ten-year lease term ends May 31, 2025.

 

As of March 31, 2019, minimum future rental payments under non-cancelable facilities operating leases for each of the next five years and in the aggregate are as follows:

 

Years ending March 31,

       

2020

  $ 103,200  

2021

    103,200  

2022

    103,200  

2023

    103,200  

2024

    103,200  

Thereafter

    43,000  
    $ 559,000  

 

 

9.      Related Party Transactions

 

As of March 31, 2019, the Company had green contracts with three cooperatives in Nicaragua. 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 March 31, 2019, amounts owed to ETICO totaled $45,588. All the amounts owed are current and were paid 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.

 

11

 

 

 

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 businesses, 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 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 its green beans than the market price, because of quality, the organic nature of many of its lines and the fact that it uses fair-traded coffees. 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.

 

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Results of Operations

 

Three months ended March 31, 2019 versus March 31, 2018

 

   

Increase (Decrease)

   

Percent Change

 
                 

Net Sales

  $ 297,099       37.4 %

Cost of Sales

    111,294       23.0 %

Gross Margin%

    185,805       59.6 %
                 

Selling, G&A Expense

    2,163       0 .6 %

Depreciation And Amortization

    (3,120 )     (14.6 )%

Other

    (1,593 )     -  

Net Gain/Loss

    184,369       (246 )%

 

Net sales for the three months ended March 31, 2019 were $1,092,135, up 37.4%, or over $297,099 when compared with net sales of $795,036 for the same period in fiscal 2018

 

Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down $28,098 or (9.01%) for the three months ended March 31, 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 customers have been lost.

 

National revenues (e.g., revenues not derived by mail order and direct truck distribution) increased $321,780, or 84.55% for the three months ended March 31, 2019 when compared to national sales for the same period in 2018. This 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 their coffees and not a selected variety as in the past. This is a short term fix until they are again fully operational.

 

Mail order revenues (e.g., revenues generated from products sold directly to the consumer either through print media or the Internet) decreased $17,300 or (13.92%) for the three months ended March 31, 2019 when compared to mail order sales for the same period in 2018. The decrease in the mail order division was attributable to the increase in completion with other on line competitor’s.

 

Cost of sales for the three months ended March 31, 2019 were $594,372, up 23%, or $111,294 when compared to the cost of sales of $483,078 for the same period in 2018. The increase reflects the increase in sales in the first three months of 2019.

 

Gross margin percentage (gross profit as a percentage of net sales) for the three months ended March 31, 2019 was, up 59.6% when compared with the increased gross margin of 12.84% for the same period in 2018. Increased sales in the three months ended March 2019 resulted in an increase in gross margins amounts compared to the same period in 2018.

 

Consolidated selling, general and administrative expenses were $367,653 for the three months ended March 31, 2019, an increase of .6% when compared with the selling, general and administrative expenses of $365,490 for the same period in 2018. The increase was a result of lesser fees for the 2018 10K.

 

Depreciation and amortization expenses for the three months ended March 31, 2019 were $18,262, a (14.6) decrease, or nearly $(3,120) when compared to the depreciation expense of $21,382 for the same period in 2018. The decrease reflects the disposal of old equipment.

  

As a result of the foregoing factors, the Company recorded net income of $109,425 for the three months ended March 31, 2019, compared to a loss of ($74,944) for the same period in 2018.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2019, the Company had working capital of $492,594 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 March 31, 2019.

 

Net cash provided by operating activities was $59,440 for the three months ended March 31, 2019 compared to net cash used in operating activities of ($57,746) during the same period in 2018. The increase in the net cash was due to the increase in net revenue.

 

Cash used in investing activities was ($723) for the three months ended March 31, 2019 compared to ($7,563) used in the same period in 2018.

Net cash used in financing activities for the three months ended March 31, 2019 was ($12,991) compared to net cash used in financing activities of ($11,383) during the same period in 2018. The cash used by financing activities was a result of paying existing debt.

 

At March 31, 2018, the Company had total borrowings of $71,573.

 

For long-term debt, see Note 7 of the Notes to Financial Statements. For operating leases, see Note 9 of the Notes to Financial Statements. For real estate leases, see Note 10 and Note 11 of the Notes to Financial Statements.

 

   

Payments Due By Period

 

Contractual

Obligations

 

 

Total

   

Less than

One year

   

 

1-3 years

   

 

4-5 years

   

 

After 5 years

 

Debt

  $ 71,573     $ 39,492     $ 31,058     $ 1,023     $ -  
                                         

Operating Leases

    27,039       8,631       13,836       4,572       -  
                                         

Real Estate Leases

    559,000       103,200       206,400       206,400       43,000  
                                         

Total Cash Obligations

  $ 657,612     $ 151,323     $ 251,294     $ 211,995     $ 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 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.

 

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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 continues to keep tight control on its inventory supply, resulting in less on hand in the first quarter of 2019.

 

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 proceeding 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

 

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 March 31, 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. There have been no changes in the Company’s Disclosure controls over financial reporting during the first quarter of 2019 that have materially affected or are reasonably likely to affect the Company’s internal controls over financial reporting.

 

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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 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.

 

The Company’s coffee roasting facility is subject to state and local air-quality and emissions regulations. If the Company encounters difficulties in obtaining any necessary licenses or complying with these laws and regulations its ability to produce any of its roasted products would be severely limited. The Company believes it is in compliance in all material respects with all such laws and regulations and has obtained all material licenses that are required for the operation of its business. The Company is unaware of any environmental regulations that have or could 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 –

 

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

 

- None -

 

ITEM 5. OTHER INFORMATION

 

- None –

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 

 

Financial Statement Schedules

 

Not Applicable

 

16

 

 

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, 2017.

***

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.

 

 

17

 

 

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 May 8, 2019    
Paul Katzeff        
         
/s/ Joan Katzeff             President   May 8, 2019    
Joan Katzeff        

 

 

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