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. Remove and Reserved
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
EX-31.1 dex311.htm
EX-31.2 dex312.htm
EX-31.3 dex313.htm
EX-32.1 dex321.htm
EX-32.2 dex322.htm
EX-32.3 dex323.htm

Thanksgiving Coffee Earnings 2010-09-30

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 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the Quarterly Period Ended September 30, 2010

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: 33-960-70LA

 

 

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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b–2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).     Yes  ¨    No  x

On November 12, 2010 the registrant had 1,236,744 shares of Class A common stock, no par value per share, outstanding.

 

 

 


Table of Contents

 

FORM 10-Q

TABLE OF CONTENTS

 

     PART I – FINANCIAL INFORMATION     

Item 1.

   Consolidated Financial Statements    3
   Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009    4
  

Consolidated Statements of Operations for the three months and nine months ended September 30, 2010 and September 30, 2009 (unauditied)

   6
  

Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and September 30, 2009 (unaudited)

   7
   Notes to Consolidated Financial Statements    9

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    19

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    23

Item 4.

   Controls and Procedures    23
   PART II – OTHER INFORMATION   

Item 1.

   Legal Proceedings    24

Item 1A.

   Risk Factors    24

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    24

Item 3.

   Defaults Upon Senior Securities    24

Item 4.

   Remove and Reserved    24

Item 6.

   Exhibits    24

Signatures

      26

 

2


Table of Contents

Financial Statements

and Notes to Financial Statements

Thanksgiving Coffee Company, Inc.

For the Nine Months Ended September 30, 2010 and 2009

PART 1. Financial Information

Item 1. Financial Statements

The consolidated 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 September 30, 2010 and December 31, 2009, and its results of operations for the three month and nine month periods ended September 30, 2010 and 2009 and its cash flows for the nine month periods ended September 30, 2010 and 2009. 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

 

3


Table of Contents

 

Thanksgiving Coffee Company, Inc.

Balance Sheets

 

     September 30,
2010
(Unaudited)
    December 31,
2009

(See Note 1)
 

Assets

    

Current assets

    

Cash

   $ 285,430      $ 54,743   

Accounts receivable, net of allowance

     249,963        245,315   

Inventories

     242,871        307,192   

Prepaid expenses

     22,615        28,267   
                

Total current assets

     800,879        635,517   

Property and equipment

    

Property and equipment

     2,280,433        2,653,539   

Accumulated depreciation

     (2,047,844     (2,310,811
                

Total property and equipment

     232,589        342,728   

Other assets

    

Deposits and other assets

     32,352        12,569   

Other intangibles, net of amortization

     2,289        5,505   
                

Total other assets

     34,641        18,074   
                

Total assets

   $ 1,068,109      $ 996,319   
                

See accompanying notes to financial statements

 

4


Table of Contents

 

Thanksgiving Coffee Company, Inc.

Balance Sheets

 

     September 30,
2010
(Unaudited)
    December 31,
2009

(See Note 1)
 

Liabilities and shareholders’ equity

    

Current liabilities

    

Accounts payable

   $ 395,397      $ 330,381   

Notes payable - bank

     52,286        50,568   

Notes payable - other

     1,277        3,611   

Note Payable - shareholders

     19,919        31,019   

Capital lease obligations

     15,598        19,988   

Accrued liabilities

     71,702        42,249   
                

Total current liabilities

     556,179        477,816   

Long term debt

    

Notes payable - bank

     146,212        175,266   

Notes payable - other

     —          325   

Capital lease obligations

     50,401        44,486   
                

Total long term debt

     196,613        220,077   
                

Total liabilities

     752,792        697,893   

Shareholders’ equity

    

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

     861,816        861,816   

Additional paid in capital

     24,600        24,600   

Accumulated deficit

     (571,099     (587,990
                

Total shareholders’ equity

     315,317        298,426   
                

Total liabilities and shareholders’ equity

   $ 1,068,109      $ 996,319   
                

See accompanying notes to financial statements

 

5


Table of Contents

 

Statements of Operations

Unaudited

 

     For the Three Months
Ended September 30,
    For the Nine Months
Ended September 30,
 
     2010     2009     2010     2009  

Income

        

Net sales

   $ 990,273      $ 1,156,415      $ 3,083,055      $ 3,372,188   

Cost of sales

     600,222        694,227        1,901,449        2,022,353   
                                

Gross profit

     390,051        462,188        1,181,606        1,349,835   

Operating expenses

        

Selling, general and administrative expenses

     366,765        405,585        1,174,160        1,225,961   

Depreciation and amortization

     21,736        27,830        68,058        76,244   
                                

Total operating expenses

     388,501        433,415        1,242,218        1,302,205   
                                

Operating profit/ (loss)

     1,550        28,773        (60,612     47,630   

Other income (expense)

        

Miscellaneous income/ (expense), net

     107,080        982        102,452        (5,232

Interest expense

     (8,769     (8,849     (24,149     (27,149
                                

Total other income (expense)

     98,311        (7,867     78,303        (32,381
                                

Profit/ (loss) before income taxes

     99,861        20,906        17,691        15,249   

Income tax expense

     —          —          (800     (800
                                

Net profit/ (loss)

   $ 99,861      $ 20,906      $ 16,891      $ 14,449   
                                

Profit/ (loss) per share (basic)

   $ 0.081      $ 0.017      $ 0.014      $ 0.012   
                                

Profit/ (loss) per share (dilutive)

   $ 0.081      $ 0.017      $ 0.014      $ 0.012   
                                

Weighted average number of shares

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

See accompanying notes to financial statements

 

6


Table of Contents

 

Thanksgiving Coffee Company, Inc.

Statements of Cash Flows

Unaudited

 

     For the Nine Months
September 30,
 
     2010     2009  

Operating activities

    

Net Income

   $ 16,891      $ 14,449   

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

    

Depreciation and amortization

     77,649        83,865   

Allowance for bad debts

     (252     508   

(Gain) on disposal of assets

     (480,000     —     

Proceeds from insurance recovery for losses

     555,000        —     

(Increase) decrease in:

    

Accounts receivable

     (4,396     12,131   

Inventories

     64,321        38,628   

Prepaid expenses

     5,652        (175

Deposits and other assets

     (19,783     971   

Increase (decrease) in:

    

Accounts payable

     65,016        (39,321

Accrued liabilities

     29,453        23,469   
                

Net cash provided by operating activities

     309,551        134,525   

Investing activities

    

Purchases of property and equipment

     (39,294     (33,952

Proceeds from sale of equipment/disposal

     —          —     
                

Net cash (used in) investing activities

     (39,294     (33,952

Financing activities

    

Proceeds from notes payable and capital leases

     —          —     

Repayments of notes payable and capital leases

     (39,570     (100,603
                

Net cash (used in) financing activities

     (39,570     (100,603

Increase (decrease) in cash

     230,687        (30

Cash at beginning of period

     54,743        52,144   
                

Cash at end of period

   $ 285,430      $ 52,114   
                

See accompanying notes to financial statements

 

7


Table of Contents
     For the nine months ended  
     2010      2009  

Supplemental Cash Flow Information:

     

Cash paid for interest:

   $ 24,149       $ 27,149   

Cash paid for income taxes:

   $ 800       $ 800   

Non-cash transaction

     

Capital lease transaction

   $ 23,712       $ —     

 

8


Table of Contents

 

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

September 30, 2010 and December 31, 2009

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. We have continued to follow the accounting policies disclosed in the financial statements included in our 2009 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, 2009 audited financial statements and the accompanying notes on Form 10-K, as filed with the Securities and Exchange Commission.

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 nine months ended September 30, 2010 are not necessarily indicative of results to be expected for the full year.

Concentration of Risk

In the third quarter of fiscal 2010, one customer accounted for 19.5% of the Company’s revenue. The account has purchased from the Company since 1992. The account has serving locations and is a distributor of the Company’s product. A loss of this account or any other large account, or a significant reduction in sales to any of the of the Company’s principal customers, could have an adverse impact on the Company.

Segment Reporting

ASC 280, “Disclosures about Segments of an Enterprise and Related Information”, changed the way public companies report information about segments of their business in their financial statements. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. See Note 12

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 basses. 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.

Fire Damage

The Company has experienced a major fire at its plant and office facility on July 5, 2010. The fire was deemed to be arson. The offices, packaging, tasting room and shipping facility were destroyed. The roasting and warehouse facility, where the Company stored most of its green beans, were not damaged. The Company had building, personal property, business interruption, loss of rent, code upgrades and additional expense insurance. Through September 30, 2010, the Company has received advances of $555,000 from the insurance company. The Company is still in the process of finalizing the total loss from the aspects of the fire and has yet to negotiate on a final settlement.

 

9


Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

2. Accounts Receivable

Accounts receivable consist of the following:

 

     9/30/2010     12/31/2009  

Accounts receivable

   $ 256,770      $ 252,374   

Less: allowance for doubtful accounts

     (6,807     (7,059
                

Net accounts receivable

   $ 249,963      $ 245,315   
                

The Company utilizes a percentage method to establish the allowance for doubtful accounts. The estimated allowance ranges from 1% to 10% of outstanding receivables based on factors pertaining to the credit risk of specific customers, historical trends and other information. Delinquent accounts are written off when it is determined that amounts are uncollectible. Bad debt expense (recovery) for the nine months ended September 30, 2010 and 2009 was $(209) and $178 respectively.

3. Inventories

Inventories consist of the following:

 

     9/30/2010      12/31/2009  

Coffee

     

Unroasted

   $ 126,202       $ 107,325   

Roasted

     32,696         71,159   

Tea

     81         1,393   

Packaging, supplies and other merchandise held for sale

     83,892         127,315   
                 

Total inventories

   $ 242,871       $ 307,192   
                 

4. Property and Equipment

Property and equipment consist of the following:

 

     9/30/2010     12/31/2009  

Equipment

   $ 1,116,707      $ 1,334,579   

Furniture and fixtures

     185,160        210,016   

Leasehold improvements

     456,031        460,729   

Transportation equipment

     189,669        184,368   

Marketing equipment

     153,986        166,162   

Capitalized website development costs

     —          14,076   

Property held under capital leases

     178,880        283,609   
                

Total property and equipment

     2,280,433        2,653,539   

Accumulated depreciation

     (2,047,844     (2,310,811
                

Property and equipment, net

   $ 232,589      $ 342,728   
                

Depreciation expense for the nine months ended September 30, 2010 and 2009 was $73,741 and $80,649 respectively.

 

10


Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

5. Goodwill and Other Intangible Assets

Intangible assets subject to amortization consist of the following:

 

     9/30/2010     12/31/2009  

Leasehold value

   $ 67,000      $ 67,000   

Trademarks

     5,127        5,127   
                

Total intangible assets

     72,127        72,127   

Accumulated amortization

     (69,838     (66,622
                

Other intangibles, net of amortization

   $ 2,289      $ 5,505   
                

Amortization expense for the nine months ended September 30, 2010 and 2009 was $3,907 and $3,216 respectively.

6. Deposits and Other Assets

Included in Deposits and Other Assets are artwork that was developed for the labels for the tea program and long-term deposits.

 

11


Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

7. Long Term Debt

 

Notes Payable    9/30/2010      12/31/2009  

Note payable to Savings Bank of Mendocino, payable in monthly installments of $4,309 plus interest at 7.25% renewed December 1, 2009, final payment is due on December 1, 2014. The note payable is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee from the Company’s majority shareholders.

   $ 185,497       $ 213,334   

Line of credit to Savings Bank of Mendocino, payable in monthly installments of interest only at 2% over prime rate renewed March16, 2010 with a minimum rate of 6.5% (6.50% at September 30, 2010). The note payable for the line of credit is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee from the Company’s majority shareholders.The line is for a maximum of $25,000 and $13,000 has been used as of September 30, 2010.

     13,000         12,500   

Note payable to majority shareholders, Paul and Joan Katzeff, uncollateralized, payable in monthly installments of $2,000 plus interest at 12% paid monthly, due on June 15, 2010 .

     —           11,100   

Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of interest only at 12%, with balance due on demand after June 30, 1996.

     19,919         19,919   

Note payable to Chrysler Financing, payable in monthly installments of $329, including interest at 15.492%, collateralized by a vehicle, final payment due on January 24, 2011

     1,277         3,936   

 

12


Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

Capital Lease Obligations      
     9/30/2010      12/31/2009  

Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $621, including interest at 14.32%, collateralized by equipment, final payment due on September 8, 2014.

     22,614         25,599   

Note payable to Bank of the West payable in monthly installments of $489, including interest at 12.69%, colateralized by equipment, final payment due on May 1, 2013

     13,217         16,201   

Note payable to BSB Leasing payable in monthly installments of $285, including interest at 15.89%, colateralized by equipment, final pament due June 2, 2012

     7,151         9680   

Note payable to Marlin Leasing payable in monthly installments of $544, including interest at 17.17%, collateralized by equipment, final payment due on March 1, 2010.

     —           2,619   

Note payable to Marlin Leasing payable in monthly installments of $428, including interest at 18.00%, collateralized by equipment, final payment due on June 1, 2010.

     —           2,830   

Note payable to BSB Leasing paable in monthly installments of $390, including interest at 14.30% collateralized by equipment, final payment due on June 2, 2012

     5197         7,021   

Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $533, including interest at 22.24%, collateralized by equipment, final payment due on January 10, 2010

     —           524   

 

13


Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

7. Long Term Debt (continued)

 

Capital Lease Obligations    9/30/2010     12/31/2009  

Note payable to Bank of the West payable in monthly installments of $427, including interest at 11.83%, collateralized by equipment, final payment due on April 1, 2015.

   $ 17,821      $ —     
                
     285,693        325,263   

Less current portion

     (89,080     (105,180
                

Long term portion of notes payable

   $ 196,613      $ 220,077   
                

Interest paid for the nine months ended September 30, 2010 and 2009 was $24,149 and $27,149, respectively.

As of September 30, 2010, maturities of notes payable and capital lease obligations for each of the next five years and in the aggregate were as follows:

 

Years Ending September 30,

  

2011

   $ 89,080   

2012

     76,748   

2013

     59,251   

2014

     54,851   

Thereafter

     5,763   
     —     
        
   $ 285,693   
        

Based on current borrowing rates, the fair value of the notes payable and capital lease obligations approximate their carrying amounts.

8. 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 2030. 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.

 

14


Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

8. Income Taxes (continued)

The Company’s deferred tax assets, valuation allowance, and change in valuation allowance as of September 30, 2010 are as follows:

 

Period Ending

   Estimated NOL
Carryforward Less
Temporary Differences
     NOL Expires      Benefit From
NOL
     Valuation
Allowance
    Change in
Valuation
Allowance
    Net Tax
Benefit
 

September 30, 2010

               

Federal

   $ 11,416         2017       $ 1,712       $ (1,712   $ (1,712   $ —     
     128,576         2018         19,286         (19,286     (19,286     —     
     96,867         2023         14,530         (14,530     (14,530     —     
     49,714         2024         7,457         (7,457     (7,457     —     
     125,700         2026         18,855         (18,855     (18,855     —     
     63,303         2028         9,495         (9,495     (9,495     —     
     83,917         2030         12,588         (12,588     (12,588     —     
                                             
   $ 559,493          $ 83,923       $ (83,923   $ (83,923   $ —     
                                             
                  —     

State

   $ 5,881         2018       $ 520       $ (520   $ (520   $ —     
     67,858         2029         5,999         (5,999     (5,999     —     
     86,509         2030         7,647         (7,647     (7,647     —     
                                             
   $ 160,248          $ 14,166       $ (14,166   $ (14,166   $ —     
                                             

Income taxes at the expected statutory rate are reconciled to the Company’s actual income taxes as follows:

 

     2010  

Tax (benefit) at federal statutory rate

     (15.00 )% 

State tax (benefit) net of federal benefit

     (7.50

Non-taxable differences

     1.10   

Temporary differences

     (0.98

Valuation allowance

     23.32   
        

Tax provision - effective rate

     0.94   
        

Income taxes paid for the nine months ended September 30, 2010 and the year ended December 31, 2009 were $800 and $800 respectively.

9. Operating Leases

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

As of September 30, 2010, minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:

 

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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

9. Operating Leases (continued)

 

Years Ending September 30,

  

2011

     10,909   

2012

     6,652   

2013

     6,652   

2014

     836   
        
   $ 25,049   
        

Total operating lease payments for the nine months ended September 30, 2010 and 2009 was $8,182 and $9,393, respectively.

10. Long Term Leases

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 ten-year lease term ends May 31, 2015.

The Company also leases a bakery establishment in Mendocino, California under operating leases expiring September 30, 2011. The lease provides for monthly rental payments of approximately $5,000.

As of September 30, 2010, minimum future rental payments under noncancelable facilities operating leases for each of the next five years and in the aggregate are as follows:

 

Years Ending September 30,

  

2011

   $ 160,200   

2012

     103,200   

2013

     103,200   

2014

     103,200   

2015

     43,000   
        
   $ 512,800   
        

11. Related Party Transactions

As of September 30, 2010, the Company has an interest only note payable totaling $19,919, due on demand, to Paul and Joan Katzeff, (the Company’s majority shareholders, directors and officers). In addition, the Company had a note payable to Paul and Joan Katzeff that was paid as of June 30, 2010. The outstanding loan is uncollateralized and requires monthly payments of interest only at 12% per annum and is due on

 

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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

11. Related Party Transaction (continued)

demand after June 30, 1996. The Company also leases properties from its majority shareholders.

The summary of payments made to Paul and Joan Katzeff in connection with these related party transactions for the nine months ended September 30, 2010, is as follows:

 

Interest payments

   $ 2,464   

Rent payments

   $ 77,400   

Principal payments

   $ 11,100   

The Company’s majority shareholders’ also guarantee certain notes payable of the Company (See Note 7).

12. Information on Business Segments

As noted in Note 1 in the Notes to the Financial Statements, the Company operates in two different business segments: the specialty coffee business and the retail bakery business. The specialty coffee business, although primarily based in California, sells to grocery stores, serving locations and other retail outlets throughout the United States and some international business. The bakery sells exclusively on the north coast of California in Mendocino and Fort Bragg.

Selected financial data by business segment

 

     9/30/2010     9/30/2009  

Net Sales

    

Specialty Coffee

   $ 2,721,121      $ 2,947,000   

Bakery

     396,006        464,876   
                

Total

   $ 3,117,127      $ 3,411,876   
                

Intersegment Sales

    

Specialty Coffee

   $ 34,072      $ 39,688   
                

Total Sales

   $ 3,083,055      $ 3,372,188   
                

Operating Income/(Loss)

    

Specialty Coffee

   $ 10,015      $ 96,985   

Bakery

     (70,627     (49,355
                

Total

   $ (60,612   $ 47,630   
                

Depreciation and Amortization

    

Specialty Coffee

   $ 50,395      $ 58,428   

Bakery

     17,663        17,816   
                

Total

   $ 68,058      $ 76,244   
                

Interest Expense

    

Specialty Coffee

   $ 22,424      $ 24,790   

 

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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

September 30, 2010 and December 31, 2009

 

12. Information on Business Segments (continued)

 

Interest Expense (continued)    9/30/2010      9/30/2009  

Bakery

     1,725         2,359   
                 

Total

   $ 24,149       $ 27,149   
                 
     9/30/2010      12/31/2009  

Assets

     

Specialty Coffee

   $ 982,287       $ 890,709   

Bakery

     85,822         105,610   
                 

Total

   $ 1,068,109       $ 996,319   
                 

Fixed Assets

     

Specialty Coffee

   $ 176,559       $ 274,988   

Bakery

     56,030         67,740   
                 

Total

   $ 232,589       $ 342,728   
                 

 

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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 last five years primarily 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. The Company has tried a number of strategies that have not proven effective in abating these declines. The Company has changed its method of distribution to rely less on direct distribution (with only two routes) and instead uses independent distributors or shipping direct (via UPS or other common carrier). The effect of these changes on the Company’s sales has been limited but has reduced 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, organic nature of many of its lines and the fact that it uses fair-traded coffees. Green bean costs have continued to rise and have placed pressure on margins. If green bean costs do not decline or continue to rise, whether as a consequence of inclement weather in a major producing area or any other event that affects green bean pricing, and the Company cannot offset costs by raising prices, it would have a negative impact on the Company and its margins.

The Company has a revolving line of credit for $25,000 of which $13,000 is currently outstanding and a term debt facility of $185,498 with the Savings Bank of Mendocino. The term debt is a five-year note due December 1, 2014 and the line of credit is renewed annually. If the credit line should not be renewed, the stability of the Company’s business would be in question. “See Liquidity and Capital Resources.”

The Company sustained a major fire to its packaging, offices, tasting room and shipping facility on July 5, 2010. Because of the fire, sales for the month of July, 2010 were approximately 60% of projected monthly volume. In August and September of 2010, sales were approximately 90% of projected volume. The Company is currently packaging its product by hand and also using other roasters to package its retail 12 ounce packages of regular and its flavored coffees. Although there have been no loses of major customers, there can be no assurances that the Company will be able to sustain even its current level of sales.

 

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Results of Operations

Three months ended September 30, 2010 versus September 30, 2009

 

Consolidated

   Increase (Decrease)     Percent Change  

Net Sales

   $ (166,142     (14.4 )% 

Cost of Sales

     (94,005     (13.5 )% 

Gross Margin %

     (.6 )%      (1.5 )% 

Selling, G&A Expense

     (38,820     (9.6 )% 

Depreciation And
Amortization

     (6,094     (21.9 )% 

Interest Expense

     (80     (.9 )% 

Net Income (Loss)

     78,955        —  

Consolidated net sales for the three months ended September 30, 2010 were $990,273, down 14.4%, or over $166,000 when compared with net sales of $1,156,415 for the same period in fiscal 2009.

Distribution revenues (e.g., revenues generated on the Company’s own truck distribution) were down $60,000 or 12% for the three months ended September 30, 2010, when compared with distribution sales for the same period in 2009. The decline was a result of the Company being closed for the first two weeks in July 2010 because of the fire. During the balance of the month, the Company was producing bulk coffee but did not begin sales of its packaged coffee until August, 2010. As a result, its supermarket business dropped during this quarter. The Company is packaging some of its 12 ounce packs at its facility and utilizing other roasters facilities to package the remaining amounts.

National revenues (e.g., revenues not derived by mail order and direct truck distribution) were down $40,000, or 10% for the three months ended September 30, 2010 when compared to national sales for the same period in 2009. The decrease is attributed to the Company not operating the first two weeks of July as noted above.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) decreased $30,000, or 25% for the three months ended September 30, 2010 when compared to mail order sales for the same period in 2009. The decrease was attributable to the lack of operations in the first two weeks of July and hand packing of the 12 ounce packages.

Sales of the Company’s bakery were down $35,000 for the three months ended September 30, 2010 when compared to bakery sales for the same period in 2009. Lower customer counts and lower sales dollars per transaction contributed to the decline. The fire did not affect the bakery operations.

Consolidated cost of sales for the three months ended September 30, 2010 were $600,222 down 13.5%, or over $94,000 when compared with the cost of sales of $694,227 for the same period in 2009. This decrease was a result of lower volume because of the fire and lower wages for the bakery operations.

Consolidated gross margin percentage (gross profit as a percentage of net sales) for the three months ended September 30, 2010 was 39.4%, down .6 % when compared with gross margin of 40% for the same period in 2009.

Consolidated selling, general and administrative expenses were $366,765 for the three months ended September 30, 2010, a decrease of 9.6% or nearly $39,000 when compared with the selling, general and administrative expenses of $405,585 for the same period in 2009. The decreases were a result of lower wages of $27,000, a drop in travel expenses of $8,000 and lower commissions of $5,000 because of lower sales for the quarter.

Consolidated depreciation and amortization expenses for the three months ended September 30, 2010 were $21,736, a nearly 22% decrease, or over $6,000, when compared to depreciation expense of $27,830 for the same period in 2009.

Consolidated interest expense for the three months ended September 30, 2010 was $8,769, a .9% decrease compared with interest expense of $8,849 for the same period in 2009. Total debt is $285,693 at September 30, 2010 versus $325,263 at December 31, 2009.

Consolidated miscellaneous income for the three months ended September 30, 2010 was $107,080 a $106,000 increase from miscellaneous income of $982 last year. The increase in other income is the result of advances from the insurance company over the expenses incurred by the Company through September 30, 2010.

As a result of the foregoing factors, the Company had a consolidated net profit of $99,861 for the three months ended September 30, 2010, compared to a profit of $20,906 for the same period in 2009. Because of the sales declines higher green bean expenses and the unresolved claim with the insurance carrier, there can be no assurances that the Company will be profitable in future periods.

 

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Nine Months ended September 30, 2010 versus September 30, 2009:

 

Consolidated

   Increase/(Decrease)     Percent Change  

Sales

   $ (289,133     (7.6 )% 

Cost of Sales

     (120,904     (6.0 )% 

Gross Margin

     (1.7 )%      (4.2 )% 

Selling G & A Expense

     (51,801     (4.2 )% 

Depreciation and

Amortization

     (8,186     (10.7 )% 

Interest Expense

     (3,000     (11.0 )% 

Net Income/(Loss)

     2,442        16.9

Consolidated net sales for the nine months ended September 30, 2010 were $3,083,055 a decrease of over $289,000 or 7.6%, when compared to sales of $3,372,188 for the same period in 2009.

Distribution revenues (e.g., revenues generated on the Company’s own truck distribution) were down $130,000 or 10%, for the nine months ended September 30, 2010 when compared to the same period in 2009. Sales have dropped during the current period because of lower volumes at grocery stores and serving accounts and the fire that resulted in reduced sales for July, August and September. No major accounts have been lost during this period.

National Revenues (e.g., revenues not derived by mail order and direct truck distribution) were down $29,000 or 2%, for the nine months ended September 30, 2010 when compared to sales for the same period in 2009. The decrease was a result of the fire that limited our production capability especially in July.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) were down $60,000 or 20%, for the nine months ended September 30, 2010 when compared to sales for the same period in 2009. The drop was a result of a slowdown in the Company’s online store volume and the fire in July which has limited the Company’s ability to produce its 12 ounce packages.

Sales of the Company’s bakery were down $70,000 or 15%, for the nine months ended September 30, 2010 when compared to the same period in 2009 because of a decline in customer counts and lower sales dollars per transaction.

Consolidated cost of sales for the nine months ended September 30, 2010 were $1,901,449 a decrease of nearly $121,000 or 6% when compared with the cost of sales of $2,022,353 for the same period in 2009. The decrease was attributed to lower wages at both the coffee company and bakery operations and the lower sales volume primarily as a result of the fire in July.

Consolidated gross margin (gross profit as a percentage of net sales) for the nine months ended September 30, 2010 was 38.3%, down 1.7% when compared with gross margin of 40% for the same period in 2009. The drop in gross margin is attributed to the higher bean costs at the coffee company and higher raw ingredient costs at the bakery coupled with lower volume.

Consolidated selling, general and administrative expenses were $1,174,160 for the nine months ended September 30, 2010, a decrease of nearly $51,801 or 4.2%, when compared to selling, general and administrative expenses of $1,225,961 for the same period in 2009. The decrease was a result of lower wages of $40,000, lower travel expenses of $5,000 and lower commissions of $8,000 because of the drop in volume.

Consolidated depreciation and amortization expenses for the nine months ended September 30, 2010 were $68,058 a decline of over $8,000 or 10.7%, when compared to depreciation and amortization expenses of $76,244 for the same period in 2009. The decrease is a result of assets that were fully depreciated for the period.

Consolidated interest expense for the nine months ended September 30, 2010 was $24,149 a decrease of $3,000 or 11%, when compared to interest expense of $27,149 for the same period in 2009. Total debt has been reduced by nearly $40,000 since December 31, 2009.

Consolidated miscellaneous income for the nine months ended September 30, 2010 were $102,452 or $107,684 higher when compared to miscellaneous expenses of $5,232 for the same period in 2009. Increases in miscellaneous income this year was a result of insurance company advances over the losses the Company has incurred through September 30, 2010.

 

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As a result of the forgoing items, the Company had a consolidated net profit for the nine months ended September 30, 2010 of $16,891 compared to a profit of $14,449 for the same period in 2009. Because of the sales decline, increases in green beans and the unresolved claim with the insurance carrier, there can be no assurances that the Company will be profitable in any future periods.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2010, the Company had working capital of $244,700 versus working capital of $157,701 as of December 31, 2009. The increase in working capital is due primarily to the increase in cash which are advances from the insurance company from various fire coverages that were offset by lower inventory and higher payables.

Net cash provided by operating activities was $309,551 for the nine months ended September 30, 2010 compared to net cash provided by operating activities for the nine months ended September 30, 2009 of $134,525. The increase in net cash provided by operating activities in the nine months of 2010 was principally the result of income from the advances from the insurance company relating to the Company’s fire coverage.

Cash used in investing activities was $39,294 for the nine months ended September 30, 2010 compared to $33,952 used in the same period in 2009. Capital additions for the first nine months of 2010 were $7,000 for a new online store, $5,000 for a T-1 communication line, $14,000 for new local area network computer servers and $13,000 for brewing equipment.

Net cash used in financing activities for the nine months ended September 30, 2010 was $39,570 compared to net cash used in financing activities of $100,603 during the same period in 2009. The drop in cash used in financing activities was a result of the payoff of a number of leases and loans during the last twelve months.

Because of the cash advances from the insurance company and a reduction in cash used in financing activities, cash at September 30, 2010 increased by $230,687 from the cash balance at January 1, 2009 and $233,316 from cash at September 30, 2009.

In December 2009, the Company extended a term note with the Savings Bank of Mendocino. This note is for five years and is due on December 1, 2014 with an interest rate of 7.25%. The note is collateralized by the Company’s accounts receivable, inventory, equipment, instruments, general intangibles and contract rights. This note is personally guaranteed by the Company’s majority shareholders. As of September 30, 2010, the balance on the note is $185,498. (See Note 7 of Notes to the Financial Statements)

The Company also has a $25,000 line of credit with the Savings Bank of Mendocino. The credit line is interest only payments renewable annually at 2% over the prime rate with a minimum rate of 6.5% and was renewed in March of 2010. The rate was 6.5% at September 30, 2010 with an outstanding balance on the line of $13,000. The credit line is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights. The line of credit is personally guaranteed by the Company’s majority shareholders. (See Note 7 of Notes to Financial Statements)

The Company has an interest-only note for $19,919 payable to the majority shareholders, directors and officers, Joan and Paul Katzeff. The interest-only note bears interest at 12%, with balance due on demand after June 30, 1996 and is uncollateralized. (See Note 7 and Note 11 of Notes to Financial Statements)

At September 30, 2010, the Company had total borrowings of $285,693 including $198,498 owing to the Savings Bank of Mendocino. This compares to total borrowings of $325,263 as of December 31, 2009, including $225,834 outstanding to the Savings Bank of Mendocino.

For long-term debt, see Note 7 and Note 11 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.

 

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     Payments Due By Period  

Contractual

Obligations

   Total      Less than
One year
     1-3 years      4-5 years      After 5 years  

Long Term Debt

   $ 285,693       $ 89,080       $ 135,999       $ 60,614       $ —     

Operating Leases

     25,049         10,909         13,304         836         —     

Real Estate Leases

     512,800         160,200         206,400         146,200         —     

Total Cash Obligations

   $ 823,542       $ 260,189       $ 355,703       $ 207,650       $ —     

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

RELATED PARTY TRANSACTIONS

From time to time, the Company enters into various transactions with its majority shareholders, Paul and Joan Katzeff. See note “11 — Related Party Transactions” in the Notes to the Financial Statements.

SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE

The Company’s business is seasonal in nature. The seasonal availability of green bean coffee in the first two quarters of the year and increased sales in the last quarter historically creates 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. 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 three 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

 

  (a) We maintain a system of controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange act of 1934, as amended, is accumulated and communicated to our management including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of September 30, 2010, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, management has evaluated the effectiveness of the design and operation our disclosure controls and procedures. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.

 

  (b) Changes in Internal Controls. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2010 that materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

 

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Part II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

-None-

ITEM 1A. RISK Factors

We have 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 likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and the Company’s operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.

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

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

- None –

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

- None –

ITEM 4. REMOVE AND RESERVED

- None -

ITEM 5. OTHER INFORMATION

- None –

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

a.    Exhibits
   31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
   31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (President).

 

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31.3 Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President).
32.3 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

 

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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 behalf by the undersigned, thereunto duly authorized.

THANKSGIVING COFFEE COMPANY, INC.

 

Name

  

Title

 

Date

/s/ Sam Kraynek

   Chief Executive Officer   November 15, 2010
    Sam Kraynek     

/s/ Ben Corey-Moran

   President   November 15, 2010
    Ben Corey-Moran     

/s/ Sam Kraynek

   Chief Financial Officer   November 15, 2010
    Sam Kraynek     

 

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