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 2020-09-30 Filed 2020-12-18
10-Q 2020-06-30 Filed 2020-11-23
10-Q 2020-03-31 Filed 2020-11-09
10-K 2019-12-31 Filed 2020-10-26
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 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_217702.htm
EX-3.2 ex_217703.htm
EX-31.1 ex_217556.htm
EX-31.2 ex_217557.htm
EX-32.1 ex_217558.htm
EX-32.2 ex_217559.htm

Thanksgiving Coffee Earnings 2020-09-30

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 tcci20200930_10q.htm FORM 10-Q tcci20200930_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, 2020

 

OR

 

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

 

For the Transition Period From _______ To _______

 

Commission File Number: 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, 2020 the registrant had 1,236,744 shares of common stock, no par value per share, outstanding.

 

Class

 

Outstanding at September 30, 2020

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, 2020 and December 31, 2019 (unaudited). 5
     
  Condensed Statements of Operations for the three months and nine months ended September 30, 2020 and September 30, 2019 (unaudited) 7
     
  Condensed Statement of Retained Earnings (Accumulated Deficit) for the three months and nine months ended September 30, 2020 and September 30, 2019 (unaudited). 8
     
  Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and September 30, 2019 (unaudited) 9
     
  Notes to Condensed Financial Statements 10
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
     
Item 4. Controls and Procedures 19
     
PART II – OTHER INFORMATION
     
Item 1.  Legal Proceedings 19
     
Item 1A. Risk Factors 19
     
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 20
     
Item 5. Other Information 20
     
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, 2020 and December 31, 2019, and its results of operations for the three and nine month periods ended September 30, 2020 and 2019 and its cash flows for the nine month periods ended September 30, 2020 and 2019. 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.

 

4

 

 

Thanksgiving Coffee Company, Inc.

 
   
Condensed Balance Sheets  
Unaudited  

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
           

See Note 1

 

Assets

               

Current assets

               

Cash

  $ 662,472     $ 410,974  

Accounts receivable, net of allowance

    213,555       218,454  

Inventories

    261,973       236,258  

Prepaid expenses

    46,730       49,534  

Total current assets

    1,184,730       915,220  
                 
                 

Property and equipment, net

    236,132       259,490  

Right of use leased assets

    471,117       543,465  

Deposits and other assets

    4,545       1,056  
                 
                 

Total assets

  $ 1,896,524     $ 1,719,231  

 

See accompanying notes to condensed financial statements

 

5

 

Thanksgiving Coffee Company, Inc.

 

Condensed Balance Sheets

Unadudited

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
           

See Note 1

 

Liabilities and shareholders' equity

               

Current liabilities

               

Accounts payable

  $ 229,784     $ 165,743  

Notes payable

    25,000       -  

Accrued liabilities

    79,812       44,996  

Current portion of operating lease liabilities

    99,098       96,566  

Current portion of long term debt and equipment financing

    71,592       25,949  

Total current liabilities

    505,286       333,254  
                 

Long term liabilities

               

Noncurrent long-term debt and equipment financing

    148,755       22,096  

Noncurrent operating lease liabilities

    372,019       446,899  

Total liabilities

    1,026,060       802,249  
                 

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  

Retained earnings (accumulated deficit)

    (15,952 )     30,566  

Total shareholders' equity

    870,464       916,982  
                 

Total liabilities and shareholders' equity

  $ 1,896,524     $ 1,719,231  

 

See accompanying notes to condensed financial statements

 

6

 

 

Thanksgiving Coffee Company, Inc.

 

Condensed Statements of Operations

Unaudited

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Income

                               

Net sales

  $ 1,210,517     $ 866,775     $ 2,829,633     $ 3,120,554  

Cost of sales

    596,711       514,016       1,555,330       1,749,736  

Gross profit

    613,806       352,759       1,274,303       1,370,818  
                                 

Operating expenses

                               

Selling, general, and administrative expenses

    429,507       346,082       1,324,317       1,095,802  

Operating profit (loss)

    184,299       6,677       (50,014 )     275,016  
                                 

Other Income (expense)

                               

Interest expense

    (468 )     (1,407 )     (2,328 )     (4,476 )

Other income (expenses), net

    (516 )     (24,227 )     17,383       (24,028 )

Total other income (expense), net

    (984 )     (25,634 )     15,055       (28,504 )
                                 

Income (loss) before income taxes

    183,315       (18,957 )     (34,959 )     246,512  

Income tax expense

    (10,759 )     (9,557 )     (11,559 )     (10,393 )

Net Income (loss)

  $ 172,556     $ (28,514 )   $ (46,518 )   $ 236,119  
                                 

Earnings (loss) per share (basic and diluted)

  $ 0.140     $ (0.023 )   $ (0.038 )   $ 0.191  
                                 

Weighted average number of shares

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

 

See accompanying notes to condensed financial statements

 

7

 

 

Thanksgiving Coffee Company, Inc.

 

Condensed Statements of Retained Earnings (Accumulated Deficit)

Unaudited

 

   

For the Three Months

   

For the Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 
                                 
Retained earnings (accumulated deficit), beginning of period   $ (188,508 )   $ 26,399     $ 30,566     $ (238,234 )
                                 

Net income (loss)

    172,556       (28,514 )     (46,518 )     236,119  
                                 

Accumulated deficit, end of period

  $ (15,952 )   $ (2,115 )   $ (15,952 )   $ (2,115 )

 

See accompanying notes to condensed financial statements

 

8

 

 

Thanksgiving Coffee Company, Inc.

 

Condensed Statements of Cash Flows

Unaudited

 

   

For the Nine Months

 
   

September 30,

 
   

2020

   

2019

 

Operating activities

               

Net income (loss)

  $ (46,518 )   $ 236,119  

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

               

Depreciation and amortization

    56,867       51,633  

Net gain on disposal of property and equipment

    (5,759 )     -  
                 

(Increase) decrease in:

               

Accounts receivable

    4,899       (26,529 )

Inventories

    (25,715 )     (31,469 )

Prepaid expenses

    2,804       19,818  

Other assets

    (3,489 )     (2,908 )

Increase (decrease) in:

               

Accounts payable

    64,041       (28,458 )

Accrued liabilities

    34,816       (3,481 )

Net cash provided by operating activities

    81,946       214,725  
                 

Investing activities

               

Purchases of property and equipment

    (44,259 )     (724 )

Proceeds from insurance recovery

    16,509       -  

Net cash used in investing activities

    (27,750 )     (724 )
                 

Financing activities

               

Proceeds from borrowings

    214,228       -  

Repayments of long term debt

    (16,926 )     (40,943 )

Net cash provided by (used in) financing activities

    197,302       (40,943 )
                 

Increase in cash

    251,498       173,058  

Cash at beginning of period

    410,974       153,646  

Cash at end of period

  $ 662,472     $ 326,704  
                 

Supplemental disclosure of cash flow information:

               

Cash paid during the period for:

               

Interest

  $ 2,328     $ 4,476  

Income taxes

  $ 11,559     $ 837  

 

See accompanying notes to condensed financial statements

 

9

 

 

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 2019 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, 2019, as filed with the SEC on Form 10-K (the “2019 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, 2020 are not necessarily indicative of results to be expected for the full year. The unaudited condensed balance sheet at December 31, 2019 was extracted from the audited annual financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements.

 

Concentration of Risk

 

For the three months ended September 30, 2020, Customer A accounted for 46%, of the Company’s revenue. For the nine months ended September 30, 2020, Customer A accounted for 29%, of the Company’s revenue. 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.

 

As of September 30, 2020, one customer accounted for approximately 41% of the Company’s accounts receivable. As of December 31, 2019, one customer accounted for approximately 21% of the Company’s accounts receivable.

 

Income Taxes

 

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 US GAAP 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.

 

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.

 

10

 

Leases

 

Our leases consist of both operating and equipment financing. We categorize leases as either operating leases or equipment financing at the commencement date of the agreement.

 

We recognize a right-of-use (“ROU”) asset and lease liability for each operating and equipment financing with a contractual term greater than 12 months at the time of lease inception. We do not record leases with an initial term of 12 months or less on our consolidated balance sheet but continue to record rent expense on a straight-line basis over the lease term.

 

Our lease liability represents the present value of future lease payments over the lease term. We cannot determine the interest rate implicit in all of our leases. Therefore, we use market and term-specific incremental borrowing rates when the rate is not implicit in the agreement. Our incremental borrowing rate for a lease is the rate of interest we expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not borrow on a collateralized basis, we consider a combination of factors, including the risk profile and funding cost of the specific lease, the lease term and the effect of adjusting the rate to reflect consideration of collateral.

 

Total lease costs recorded as rent and other occupancy costs include fixed operating lease costs, variable lease costs and short-term lease costs, as applicable. We recognize operating lease costs on a straight-line basis over the lease term. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. A significant majority of our leases are related to our corporate warehouse and distribution network and are recorded within selling, general, and administrative expenses.

 

The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For equipment financing, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each equipment financing liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

 

Earnings (Loss) per Share

 

The Company computes basic earnings (loss) per share ("EPS") by dividing net earnings (loss) 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, 2020 and 2019.

 

 


2. Accounts Receivable

 

Accounts receivable consist of the following:

 

   

9/30/2020

   

12/31/2019

 

Accounts receivable

  $ 217,230     $ 223,116  

Less: allowance for doubtful accounts

    (3,675 )     (4,662 )

Net accounts receivable

  $ 213,555     $ 218,454  

 

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 for the three months ended September 30, 2020 and 2019 was $65 and $1,236, respectively. Bad debt expense for the nine months ended September 30, 2020 and 2019 was $795 and $8,795, respectively.

 

11

 

 

3. Inventories

 

Inventories consist of the following:

 

   

9/30/2020

   

12/31/2019

 

Coffee

               

Unroasted

  $ 173,560     $ 142,095  

Roasted

    37,717       35,141  

Tea

    987       1,616  

Packaging, supplies, and other merchandise held for sale

    49,709       57,406  

Total inventories

  $ 261,973     $ 236,258  

 

 

 

4. Properties and Equipment

 

Property and equipment, consist of the following:

 

   

9/30/2020

   

12/31/2019

 

Equipment

  $ 504,687     $ 488,189  

Furniture and fixtures

    155,932       151,093  

Leasehold improvements

    368,954       368,954  

Transportation equipment

    44,687       50,217  

Pacakge design

    41,000       41,000  

Capitalized website development costs

    32,708       19,000  

Property held under financings

    325,437       362,280  

Total property and equipment

    1,473,405       1,480,733  

Accumulated depreciation

    (1,237,273 )     (1,221,243 )

Property and equipment, net

  $ 236,132     $ 259,490  

 

Depreciation and amortization expense for the nine months ended September 30, 2020 and 2019 was $56,867 and $51,633, respectively. Depreciation and amortization expense for the three months ended September 30, 2020 and 2019 was $17,412 and $16,409 respectively.

 

 

 

5. Operating Leases, and Long-term Debt and Equipment Financing

 

ASC 842, “Leases (Topic 842)” requires leases with durations greater than twelve months to be recognized on the balance sheet.

 

We lease a warehouse, heavy machinery, and office equipment under finance and operating leases. As of September 30, 2020, we had three operating leases and four equipment financings and long-term debt with remaining terms ranging from less than one year to five 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.

 

12

 

Lease Position as of September 30, 2020

 

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

 

 

Classification on the Balance Sheet

 

September 30, 2020

 

Assets

         

Operating lease assets

Operating lease right-of-use assets

  $ 471,117  

Equipment financing assets

Property and equipment, net

    72,709  

Total lease assets

  $ 543,826  
           

Liabilities

         

Current

         

Operating

Current portions of operating leases

  $ 99,098  

Equipment financing

Current portion of long-term debt and equipment financing

    14,824  

Noncurrent

         

Operating

Noncurrent operating leases

    372,019  

Equipment financing and long-term debt

Noncurrent long-term debt and equipment financing

    16,295  

Total lease liabilities

  $ 502,236  
           

Weighted-average remaining lease term

         

Operating leases (in years)

   

3.50

 

Equipment financing (in years)

   

1.82

 
           

Weighted-average discount rate

         

Operating leases

    2.45 %

Equipment financing

    8.64 %

 

Lease Costs

 

The table below presents certain information related to the lease costs for equipment financings and operating leases for the nine months ended September 30, 2020.

 

   

Nine Months Ended September 30, 2020

 
         

Equipment financing and long-term debt costs:

  $ 23,614  
         

Amortization of assets

  $ 21,286  

Interest on equipment financing and long-term debt

    2,328  
         

Operating lease cost

    82,476  

Short-term lease cost

    -  

Variable lease cost

    -  

Total lease cost

  $ 106,090  

 

13

 

Other Information

 

The table below presents supplemental cash flow information related to operating leases and equipment financing and long-term debt for the nine months ended September 30, 2020.

 

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

 

Nine Months Ended September 30, 2020

 
         

Operating cash flows for operating leases

  $ 82,476  

Operating cash flows for equipment financing and long-term debt

  $ 2,328  
         

Financing cash flows for equipment financing and long-term debt

  $ 16,926  

 

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 equipment financing and long-term debt liabilities and operating lease liabilities recorded on the balance sheet.

 

   

Operating Leases

   

Equipment Financing

 
                 

Period Ending December 31,

               

2020

  $ 27,492     $ 6,209  

2021

    109,968       15,393  

2022

    109,221       8,581  

2023

    105,484       2,838  

2024

    104,342       1,655  

2025

    43,000       -  

Total minimum lease payments and equipment financings

    499,507       34,676  

Less: amount of lease payments representing interest

    (28,390 )     (3,557 )

Present value of future minimum lease payments and equipment financings

    471,117       31,119  

Less: current obligations under leases and equipment financings

    (99,098 )     (14,824 )

Long-term lease and equipment financing obligations

  $ 372,019     $ 16,295  

 

14

 

 

6. Disaggregated Revenue by routes, direct and mail order

 

Disaggregated information of revenue recognized is as follows:

 

  For the Three months ended September 30

Sales by department

 

2020

   

2019

 

Routes-wholesale

  $ 277,049     $ 316,621  

Direct-wholesale

    744,016       453,201  

Mailorder-retail

    189,452       96,953  

Total

  $ 1,210,517     $ 866,775  

 

  For the Nine months ended September 30

Sales by department

 

2020

   

2019

 

Routes-wholesale

  $ 808,208     $ 904,589  

Direct-wholesale

    1,434,696       1,910,988  

Mailorder-retail

    586,729       304,977  

Total

  $ 2,829,633     $ 3,120,554  


 

 

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, 2020, 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, 2020 and December 31, 2019, amounts owed to ETICO totaled $58,139 and $37,333, respectively. For the nine months ended September 30, 2020 and 2019, we have paid $401,811 and $424,367, 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 leases its corporate headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Company’s majority shareholders). 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 Company is a guarantor on certain debt that the Company’s majority shareholders hold in connection with its corporate headquarters, warehouse and waterfront facilities. The ten-year lease term ends in May 2025.

 

In September 2020, the Company deferred rent payments for its corporate headquarters totaling $17,200 for the months of July and August 2020. As the rental lease was entered into with the majority shareholders, terms of repayment have not been agreed upon as of the date of these condensed financial statements but will be determined upon the improvement of economic conditions.

 

 

 

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. COVID-19 Uncertainty and Related Activity

 

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 twenty-four weeks of payroll and other identified costs which may be eligible for partial or full forgiveness.

 

15

 

The future impact of the global emergence of COVID-19 on our business is currently unknown. We are closely monitoring the impact of the COVID-19 global outbreak and its resulting impact on our roasting operations and supply chain, with our top priority being the health and safety of our employees, customers, partners, and communities. While we believe our supply chain is in a healthy position, there remains uncertainty related to the public health situation globally. The magnitude of any potential impact is unknown, as it is unclear how long it will take for the overall supply chain to return to normal. We are working closely with our partners and suppliers to manage this process.

 

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 may 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. In the event the Company is required to repay the loan, all payments are deferred for 10 months with accrued interest over this period. Amounts outstanding under the loan bear a fixed interest rate of 1.00% per annum with a maturity date of 2 years from commencement date. The Company has not yet applied for loan forgiveness. If the loan is not forgiven, future debt maturities would be $113,537 and $75,691 for the years ending December 31, 2021 and 2022, respectively.

 

The SBA loan is being accounted for under ASC 470, “Debt”, whereby interest expense is being accrued at the contractual rate and future debt maturities are based on the assumption that none of the principal balance will be forgiven. Forgiveness, if any, will be recognized as a gain on extinguishment when the lender legally releases the Company based on the criteria set forth in the debt agreement and the CARES Act.

 

In April 2020, the Company executed a $25,000 non-interest bearing loan with a maturity date of April 16, 2021 with Savings Bank of Mendocino County. The Company repaid the loan in full in December 2020.

 

16

 

 

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”, “Thanksgiving”, “We”, “Our”). 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 interim 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 I, Item 1A. Risk Factors in the 2019 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 2019 Report, this Quarterly Report on Form 10-Q 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 and second quarter of this year, the Company experienced a decrease in sales because one of its distributors had begun roasting their own beans in house. However, in the third quarter this distributor was unable to roast their own beans and returned to purchasing roasted beans from Thanksgiving. This led to an increase in direct distribution revenue for the three months ended September 30, 2020 when compared to the three months ended September 30, 2019. 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). The Company is also trying to focus increasingly toward 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 decrease in Gross Profit 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.

 

Results of Operations

 

Nine months ended September 30, 2020 versus September 30, 2019

 

   

Increase (Decrease)

   

Percent Change

 
                 

Net Sales

  $ (290,921 )     (9.3% )

Cost of Sales

    (194,406 )     (11.1% )

Gross Profit

    (96,515 )     (7.0% )
                 

Selling, General, and Administrative Expenses

    228,515       20.9 %

Other, net

    43,559       (152.8% )

Net Loss

    (282,637 )     (119.7% )

 

17

 

Net sales for the nine months ended September 30, 2020 were $2,829,633 down 9.3%, or $290,921 when compared with net sales of $3,120,554 for the same period in fiscal 2019.

 

Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down $96,381 or 11% for the nine months ended September 30, 2020, when compared with distribution sales for the same period in 2019. 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 down $476,292 or 25% for the nine months ended September 30, 2020 when compared to national sales for the same period in 2019. The decrease reflects the decrease in volume from a distributor who has begun roasting their own coffee. Thanksgiving is now roasting a selected variety, whereas in the past Thanksgiving was roasting all of their coffee. During the third quarter, Thanksgiving saw an increased demand from the distributor compared to the first and second quarter.

 

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) increased $281,752 or 92% for the nine months ended September 30, 2020 when compared to mail order sales for the same period in 2019. The increase is attributable to the increase in our online marketing and social media presence.

 

Cost of sales for the nine months ended September 30, 2020 was $1,555,330 down 11.1%, or $194,406 when compared with the cost of sales of $1,749,736 for the same period in 2019. The decrease reflects the decrease in the overall sales in the nine months of 2020.

 

Gross margin percentage (gross profit as a percentage of net sales) for the nine months ended September 30, 2020 was 45% when compared with the gross margin of 44% for the same period in 2019, an increase of 1 percentage point. This is due to a decrease in Distribution (e.g., revenues generated by the Company’s own truck distribution) cost per unit sold this year compared to the prior period, specifically due to the decrease in Routes-wholesale costs.

 

Selling, general, and administrative expenses were $1,324,317 for the nine months ended September 30, 2020, an increase of 20.9% when compared with the selling, general, and administrative expenses of $1,095,802 for the same period in 2019. The increase was a result of an increase in professional fees.

 

As a result of the foregoing factors, the Company had a net loss of $46,518 for the nine months ended September 30, 2020, compared to a net income of $236,119 for the same period in 2019.

 

Quarter Ended September 30, 2020

 

To summarize the Company’s third quarter overall sales are up over the prior period. The increase was in national revenue, due to one customer whose increase in sales attributed to the increase, as well as Mail order revenue. It is noted the cost of sales increased as well because of the increase in volume of green beans roasted to fulfill orders.

 

Mail order revenues increased due to the increase of online marketing and social media presence. The Company completed upgrades to the website, links, and social media outlets, in January of 2020. In addition, the Company introduced a new product to the marketplace and re-introduced another product in early 2020. Overall, our expenses have decreased in advertising, freight, and the online mail order aspect of the Company but have increased in other areas, such as professional fees.

 

Direct routes decreased due to the changed method of distribution as well as COVID-19 causing a decreased demand from distributors.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2020, the Company had working capital of $679,444 versus working capital of $581,966 as of December 31, 2019. The increase in working capital is due primarily to the increase in cash due to the increased third quarter sales, and Paycheck Protection Program borrowings.

 

Net cash provided by operating activities was $81,946 for the nine months ended September 30, 2020 compared to net cash provided by activities of $214,725 during the same period in 2019. The decrease in operating cash was due to the net loss, partially offset by an increase in accounts payable.

 

Net cash used in investing activities was ($27,750) for the nine months ended September 30, 2020 compared to ($724) used in the same period in 2019. This increased use of cash was due to purchases of property and equipment. Investing activities comprised of purchases of property and equipment for $44,259 and receiving $16,509 from insurance recoveries.

 

Net cash provided by financing activities for the nine months ended September 30, 2020 was $197,302 compared to net cash used in financing activities of ($40,943) during the same period in 2019. The cash provided by financing activities was a result of proceeds from the Paycheck Protection Program promissory note of $189,228 and a commercial loan of $25,000, partially offset by payment of equipment financings of $16,926.

 

At September 30, 2020, the Company had total borrowings of $245,347.

 

18

 

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 “8- Related Party Transaction” in regards to ETICO green bean purchases for 2020 in the Notes to the condensed Financial Statements included in this 10-Q.

 

 

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 buildup in inventories in the first two quarters, with a corresponding decrease in inventory and increase in cash in the last quarter. In 2020, the Company has been increasing its inventory supply, resulting in increased inventory supplies on hand.

 

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 September 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 September 30, 2020. 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 were no changes in our internal control over financial reporting that occurred during the quarter to which this report related that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

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.

 

19

 

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

 

 

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

 

None

 

 

ITEM 5. OTHER INFORMATION

 

 Not applicable

 

20

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 

 

Financial Statement Schedules

 

Not applicable

 

Exhibits

 

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, 2019.

***

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 December 18, 2020
Paul Katzeff    
     
     
/s/ Joan Katzeff President December 18, 2020
Joan Katzeff    
     

 

22