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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal years ended12/31/20172018

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:  033-96070-LA

Thanksgiving Coffee Company, Inc.

(Exact name of registrant as specified in its charter)

(707) 964-0118

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ☐   No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.   Yes  ☐   No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒   No  ☐ No    ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐  No  ☒

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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FORWARD LOOKING INFORMATION

In addition to historical information, this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “would,” “should,” “could,” 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 the Company.  Any such statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. The 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 coffee beans, continuing competition within the Company’s markets, 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 increase prices for the Company’s products, 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, weather and other risks identified herein.  We do not intend, and undertake no obligations, to update any of our forward-looking statements after the date of this annual report to reflect actual results of future events or circumstances.  Given these risks and circumstances, readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this annual report.

PART I

ITEM 1.  BUSINESS

INTRODUCTION

Thanksgiving Coffee Company, Inc. (Thanksgiving”, the “Company”, “we”, “us”, or “our”) was founded by Joan and Paul Katzeff in 1972 as a partnership, and they incorporated it on May 10, 1982. Since its inception, the Company has been a pioneer, modeling social and economic justice, and environmental sustainability, employing as many as 50 full-time employees in the Ft. Bragg, CA area. The Company’s motto, “Not Just a Cup, but a Just Cup,” ™ reflects the Company’s principles and mission, and its commitment to cooperatives composed of small coffee farmers in developing nations.

For years the Company has purchased and roasted high quality coffee beans and marketed them to the specialty coffee market, (providing coffeebeans of the best flavor which are producedgrown in special micro climates).  The Company buys green coffee beans (which are the color of coffee beans before they are roasted) through six main importers.

The Company wholesales its coffee through its own distribution system and through outside distributors in the Northern California market.  In other parts of the nation, the Company distributes its products directly to retailers. The Company also markets directly to consumers through electronic media. The Company’s coffee product offerings and accessories of third parties are made on the Internet web site.   

In October 1996, the Company completed a direct public offering (a “Qualification by Permit” in California), and the Company filed with several other states¹ to conduct its offering of shares of its Common Equity (“Common Stock”).  As of December 31, 2017, 1,3262018, 1,295 non-affiliated shareholders (shareholders who are not officers, directors, 5% or greater holders of the Company’s Common Stock or affiliates of the Company) held shares of the Company’s Common Stock, representing approximately 22% of the outstanding shares.

In 2015, Thanksgiving Coffee became a certified B Corporation. A certified B Corporation is certified by B Lab, which analyzed our operations as a whole and provided a score based on how The Company conducted its operations. The Company is in the process of becoming a “Benefit Corporation”. A Benefit Corporation is a Certified B Corporation with three additional legal attributes: accountability, transparency and purpose. The B Corporation and Benefit Corporation are designed for companies committed to conscious capitalism, combining higher purpose, accountability, and transparency where there is no trade-off between return on investment and social impact.

PRODUCTS

Coffee.  The Company roasts a wide variety of whole bean caffeinated, decaffeinated, flavored, blended and unblended coffees.  With the exception of its high-caffeinated coffee, the Company roasts only high quality Arabica beans with a focus on organic, shade grown and fair-traded beans (these are coffees where a floor price has been established).  Arabica beans are grown at high altitudes where the cooler climate results in slow growth and usually higher quality.  In addition to its current line of classic, Specialty and single origin coffees produced by local farmer cooperatives from over 12 countries, the Company is producing custom products for the American Birding Association, the Dian Fossey Gorilla Fund International, Defenders of Wildlife, Friends of the Earth and other social justice and environmental non-profits under exclusive licensing agreements, as well as private-label products for retail and food service accounts.

Complementary products.  The Company sells a wide variety of complementary coffee products and accessories, such as coffee makers, thermal carafes, mugs, and chocolate covered espresso beans.

The Company sells its coffees and other products through a multi-channel distribution network consisting of wholesale distribution operations and direct marketing operations.  Complementary products are purchased from third party vendors on an as-needed basis and resold to the Company’s customers.  The Company generally provides its wholesale customers with brewing, grinding and related equipment (leased from third party leasing companies) and product displays (designed and manufactured by the Company) at no charge if predetermined sales volumes are reached.

COFFEE INDUSTRY

According to the SpecialityU.S. National Coffee Association over the last 18 years,2018 report, the number of dailyAmericans drinking coffee drinkers has grown from 9%reached its highest percentage in the past six years. The global market is expected to 41% in 2017. It should be noted that in 2017 the increasesee a 6.55% Compound Annual Growth Rate (CAGR.) between 2018 and 2022. The major growth comes from the prior year has jumped by 10%. The occasional coffee drinkers have remained steady over the last 16 years at around 60%.

ITEM 1.  BUSINESS- continuedmillennials.

In 2017, specialty coffee consumers were consuming 2.97 cups per day which shows an increase from 2.24 cups in 2001. In addition, 46%36% of coffee was consumed outside the home in 2017,2018, and of all the coffees consumed, 59%69% was specialty versus 41%31% non-specialty.

Overall, according to the National Coffee Drinking Trends (NCDT) the above information demonstrates the continued trend of the coffee consumer desire for more and better tasting coffees among all age demographics in the “gourmet” coffee, non espresso drinks such as cold brew, and brews from single cup machines.

The National Coffee Association, Inc.-(NCA) states that the younger consumers appear to be leading the trend toward specialty beverages.

Total sales

ITEM 1.  BUSINESS - continued

In 2018, the National Coffee Association (“NCA”) surveyed 3,000 Americans about their coffee drinking habits. The survey found that 64 percent of Americans drink a cup of coffee ineveryday, up from 2017. U.S. coffee drinkers consume on average 3 cups a day. In addition, 79 percent of coffee was consumed at home versus 36 percent consumed out of the home.

The United States werecoffee market has increased by 3.8% in 2018 and the growth is expected to grow by a compounded rate of 6.9% from 2005 to 2010, reaching $48.2 billion by 2010,continue, according to the U.S. Market forAllegra World Coffee and Ready-to-Drink Coffee, a report from market research publisher Packaged Facts.Portal’s 2019 Project Café’s USA report.  According to the NCA, coffee now surpasses soft drinks as the most popular beverage after water.  Daily coffee drinking, according to their study, is up for the fourth year in a row with younger drinkers dominating the increases. This upward trend has continued. From 2010 through 2015, the number of coffee houses had grown from 4,000 to approximately 12,000. In addition, the number of coffee roasters increased by approximately 2,000.

In the 1970’s, when the Company began to roast coffee, there were less than 15 roasters in the country, with the large roasters accounting for nearly all of the coffees consumed.  Today, there are over 3,000 Specialty coffee roasters, each segmenting and fragmenting the market, adapting to a wide variety of niche markets.  They are focusing on their ability to provide a wide range of coffee origins, freshly roasted in the appropriate style to meet the specific needs of local and regional markets.

According to a 2009 survey of Lifestyles of Health and Sustainability Consumer Trends Database by the Natural Marketing Institute, 60% of U.S. adults would more likely purchase products of companies that are mindful of the impact their product has on the environment and society.  In the study, 57% of the consumers are more loyal to companies that are socially responsible and 52% said they would recommend the food products of these companies to their friends.  More that 38% of the respondents said they would pay more to buy products of socially responsible companies.  In the book “The Better World Shopping Guide” by Ellis Jones, the Company is listed as an “A+” producer because of its environmental and socially responsible practices and is listed as a “Corporate Hero” in the coffee segment of the book for consumers. Even in today’s difficult economy, 34% of Americans are more likely to buy environmentally responsible products and another 44% indicate their environmental habits have not changed as a result of the economy according to the results of a 2009 study by Cone Consumer Environmental Survey. This trend continues as well. In 2016,2018, approximately 80% of the Company’s products sold were certified organic.

ITEM 1.  BUSINESS- continued

NCA reports that there is fundamental shift in the American coffee landscape. “What it means that more people are drinking coffee and that comes at a higher price premium and could help buoy what’s known as third wave coffee- a market”. The third-wave market does not just understand the espresso made by the barista but givinggives credit to the producer and roaster. In 2018 the fourth wave market was driven by science and roasting obsessions that were born from custom in-house brews. According to Beverage Daily the fifth wave market for 2019 will focus on hyper-professionalism, operational excellence and training. It has been Thanksgiving’s mission from the onset to credit the producer for the wonderfulhigh quality coffees we receive in all of our marketing material.materials. As of 2010, “Fair Trade” (or “FT”) coffee was roasted by over 300 U.S. companies and sold at thousands of retail outlets.  Fair Trade certified coffee directly supports a better life for farming families in the developing world through fair prices, community development and environmental stewardship. Fair Trade farmers market their own harvests through direct, long-term contracts with international buyers, learning how to manage their businesses and compete in the global marketplace. Dunkin Donuts, the number one U.S. retailer of coffee by the cup, has rolled outoffers a Fair Trade espresso line of drinks.  Even Starbucks, the largest Specialty coffee company in the United States, is targeting to serve 10% of their coffee with FT product. This trend has continued but the trend line has flattened. The Company continues to offer 80% of our coffees as FT certified.

MARKETING STRATEGY

The Company’s sales and marketing efforts are currently organized in four different sales methods:

ITEM 1.  BUSINESS- continued

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

The Company focuses its marketing on creating and selling products that socially, environmentally and economically justifies the Company’s motto since 1985: “Not Just A Cup, But A Just Cup.” To this end, we:

These licensing agreements enable the creation of meaningful and multi-dimensional coffees that are sold by “brick and mortar” retailers, as well as on-line.

CUSTOMER BASE

The Company’s customer base is wide in scope. Customers include wholesale accounts, such as supermarkets, hotels, restaurants, food services entities and offices. Wholesale sales represent 88%86% of total sales. The Company also retails its products on-line. Approximately 12% of sales are on-line. The Company’s sales area breaksbreak down roughly as follows: Locally (defined as within a 50150 mile radius) - approximately 25%40% of total sales volume, regionally (defined as between a 50 and 150150+ mile radius) - approximately 63%is 46% of sales volume, and on-line (which is more or less a national retail market) – 12%14% of total sales volume.

ITEM 1.  BUSINESS- continued

The scope of our sales base makes us less vulnerable to competition, although each segment of the business requires a unique marketing approach. We believe our marketing approach enables us to weather economic fluctuations.

Although competition has increased from 2012 through 2017,2018, we have retained market share. Smaller roasters have been acquired by larger entities and the acquisition pace has continued to consolidate the industry as large investments by venture capital and private equity interests have flooded the coffee trade.

We believe our position in the industry is both iconic and solid. In 2015 we were awarded B certification and in 2016 we were awarded “Roaster of the Year”. for 2017 by trade publication Roast Magazine. Recently we received the Good Food Award for coffee for the North West Region from the Good Food Foundation.

COMPETITION

The Specialty coffee market is highly competitive, and the Company competes against all sellers of Specialty coffee.  At the wholesale level, the Company competes with several nationally known premium coffee brands, such as Smucker’s Millstone label, Nestlé’s Nescafe label and Green Mountain Coffee Roasters as well as other lesser known-known brands and store brands.  The Company also competes regionally in Northern California with Specialty roasters such as Peet’s, Taylor MaidGevalia and Jeremiah’s Pick for retail shelf space and with large regional roasters for food service trade.  In the direct mail area, the Company competes with established suppliers such as Gevalia, a division of General Foods Corporation, as well as with other direct mail companies, including Starbucks, the leading independent Specialty coffee retailer and wholesaler.

The Company also competes with other eco-friendly coffee companies such as Equal Exchange, Counter Culture, and other coffee companies that sell eco-friendly coffees as part of their product line.

The Company competes primarily on the basis of the quality of its products, its package design, and its social and environmental philosophies.  Many of the Company’s competitors are larger than the Company and have significantly greater financial, marketing and other resources than the Company, and there can be no assurance that the Company will be able to maintain or expand sales successfully in the future.

The Company cannot guarantee successful competition against other coffee companies.  The Company believes its focus on partnering (such as the relationships with the American Birding Association and the Dian Fossey Gorilla Fund International) has enabled the Company to find a niche in the coffee market. However, there can be no assurance that these or the Company’s other marketing efforts will be successful in future years.

The Company also sells complementary products, primarily to its wholesale serving accounts that are ancillary to the coffee business but are necessary to serve coffee.  These items include coffee sleeves, coffee cups, equipment cleanercleaners and the like.  These items are provided as a convenience for those accounts and assist in increasing revenue per stop for the Company’s distribution system.  The Company also sells these items in its direct marketing division.  The Company experiences competition in the sale of these ancillary items from manufacturers or other distributors, such as foodservice distributors.  There can be no assurance that the Company will be able to maintain or expand sales of these products successfully in the future.

GREEN BEAN COFFEE SUPPLY AND AVAILABILITY

The Company purchases green beans from a number of importers as well as from farmer representatives and small producer cooperatives.  Although most coffee trades in the worldwide commodities markets, coffee of the quality sought by the Company tends to trade on a negotiated basis at a substantial premium or “differential” above commodity coffee pricing, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors, such as weather, politics and economics in the producing countries.

ITEM 1.  BUSINESS- continued

The Company believes its long-term relationships with many cooperatives in the various growing regions where it buys coffee and with coffee bean brokers provide adequate sources of supply of high-quality green beans to meet the Company’s needs for the foreseeable future.  However, a worldwide supply shortage of the high quality Arabica coffees the Company purchases, the loss of one or more of these broker relationships or a shortage of organic, fair trade and shade grown beans, in particular, could have an adverse impact on the Company.  See also “Coffee Industry.”

CUSTOMERS AND VENDORS

See Note 1 to the financial statements under “concentrations of credit risk” for a summary of significant customers and vendors.

INTELLECTUAL PROPERTY

The Company holds various federal registrations in the United States for the following trademarks and service marks: Thanksgiving Coffee Company, Royal Gardens Tea Company, Pony Express, Time Bandits, Grand Slam Coffee, “Not Just a…A Cup, But a Just Cup, “Many Beans are Picked, Few are Chosen.”, Mayan Harvest, Inca Harvest, and End the Embargo. From time to time, federal [trademarks] and service mark registrations must be renewed.  The Company does not hold any patents.

GOVERNMENT REGULATION

The Company’s roasting plant has been certified wholly organic by the United States Department of Agriculture (USDA)(“USDA”).  The California Certified Organic Farmers (CCOF)(“CCOF”) is the inspecting agent.  The CCOF has also certified the organic practices of several farms from which the Company receives green beans.  The certification criteria of the CCOF, an independent organization, meet the standards promulgated under the Organic Foods Production Act of 1990, allowing the Company to market product originating at the certified farms as organic.

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 that we have obtained all material licenses that are required of our business.

EMPLOYEES

As of December 31, 2017,2018, the Company had twenty-four full-time employees and two part-time employees.

ITEM 1A.  RISK FACTORS

We are a smaller reporting company and are not required to provide information required by this item.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

We are a smaller reporting company and are not required to provide information required by this item

ITEM 2.  PROPERTIES

The executive offices of the Company occupy approximately 14,500 square feet at 19100 South Noyo Harbor Drive, Fort Bragg, California 95437, which address also includes a warehouse and the capacity for manufacturing operations. These facilities are currently being leased for a ten-year term under a lease affective May of 2015 at a rate of approximately $8,600 per month from Joan and Paul Katzeff, who are founders, principal shareholders, officers and directors. The Company is responsible for real estate taxes, insurance and maintenance on the facilities.  See Item 13 “Certain Relationships and Related Party Transactions, and Director Independence” and Note 6 to the “Notes to Financial Statements” included in this annual report.

ITEM 3.  LEGAL PROCEEDINGS

No material legal matters in which the Company is a party or of which its property is the subject are pending at this time.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information.  Trades in the Company’s Common Stock are made through Mutual Securities, Inc., in Camarillo, California, a broker dealer that makes markets in corporation securities over-the-counter.  No established public trading market exists for the Company’s Common Stock.  The Company has no present intention of developing a public trading market for the Common Stock.  No trades have been reported from 2008 through December 31, 2017.2018.

Holders. As of December 31, 2017,2018, there were 1,3261,295 holders of record of the Company’s Common Stock.

Dividends.  The Company has neither declared nor paid any cash dividend since its inception.  The Company intends to retain all earnings for use in its business and therefore does not anticipate paying any cash dividends in the near future.

Securities Authorized for Issuance Under Equity Compensation Plans.  The Company does not presently have an equity compensation plan or any individual compensation arrangement under which the Company’s equity securities, such as options, warrants or rights, have been authorized for issuance.

Recent Sales of Unregistered Securities.  No sales of the Company’s equity securities were made by the Company during the past four fiscal years.

Company Purchases of its Equity Securities.  No purchases of the Company’s equity securities were made by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) during the five fiscal years ended December 31, 2017.2018.

ITEM 6.  SELECTED FINANCIAL DATA

We are a smaller reporting company and are not required to provide information required by this item. However, please see “Selected Quarterly Financial Data” in Item 7, which provides unaudited quarterly condensed results of operations for the previous two years ending December 31, 2017.2018.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of financial condition and results of operations should be read in conjunction with the Company’s audited financial statements and notes thereto appearing elsewhere in this annual report.

SUMMARY OF ACTIONS TAKEN BY MANAGEMENT IN 20122018

Jonah Katzeff, son of the Co-Founders, Vice President and manager of the Green Coffee Division took on the role of General managerManager in 2017. 

Management has the goals of A) generating positive cash flow from operations and B) becoming profitable on a Company–wide basis.

In 2017,2018, the Company generated $52,382$18,695 in cash from operations. However, overall the Company reflected a net increasedecrease in cash for the year of $10,456, as$6,746, a fixed asset additionsdecrease of $55,586 outpaced$4,224 and a decrease in net financing sources of $13,660.$29,665.

WORLD PRICING FOR RAW (GREEN) COFFEE:

Raw Coffee prices are benchmarked through an International Trading System that is managed by the World Robusta Coffee Exchange in London and by the Trading for Arabica Coffees on the NYCSCE. The Coffee Industry is the second most traded commodity in the world after crude oil. Prices fluctuate due to weather, crop disease, fundamental supply/demand shifts and quality.

In the Specialty Coffee Trade, the benchmark price becomes the base price, from which premiums are added for rarity, processing methodology, flavor quality scores, season, age of the raw beans and country of origin. In addition, premiums are added for the cost of certifications such as Fair Trade and Organic. Occasionally, the Company will purchase exotic coffees in small quantities (an example being Kenya “Peaberry” at $8.00/lb) to offer on our webstore to customers willing to try the best at a higher price.

In response to this risk factor, in 2013 the Company created a Green Coffee Management Team. The team is led by the General Manager (Jonah Katzeff), Roastmaster (Jacob Long) and board member (Nicholas Hoskyns). In creating a Green Coffee Team, the goal was to return a positive credit with our importers, a more precise inventory mix that matches our sales needs and a more stable and predictable cost of product, which would enable our wholesale price to be stabilized for a 12-month crop cycle.

The cost we pay for raw coffee can significantly influence our cost of sales from year to year. Green bean coffee is the most significant component of our cost of sales. Timely green coffee purchasing has positive consequences while untimely inventory can have negative consequences. Keeping a steady flow of products from 10 to 15 countries, locating both large (full containers at 37,500 pounds each) and small micro lots (150 to 1,500 pounds) is a daunting task requiring focus, time and available money for purchase. In the four years preceding the Founders’ return, the Company’s credit position with its bank had deteriorated significantly. Over-buying created extended interest and storage charges. Under-buying created scarcity and higher prices.

ITEM7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -continued

Mr. Hoskyns and Co-founder Paul Katzeff have worked together since 1999 when then CEO Katzeff secured a $304,000 USAID Grant to work with coffee farmers in Nicaragua. The Grant was used for training coffee cooperatives to enable them to relate their coffees to the emerging Speciality Trade. Mr. Hoskyn’sHoskyns business, Ethical Trading and Investment Company (“ETICO”), was exporting sesame to England and became the major exporter of sesame in Nicaragua. He built a major credit line relationship with his bank and, being on our Board of Directors, understood the credit crunch that was impacting the Company.

In 2012, Mr. Hoskyns, agreed to use his company to reorganize our purchasing schedules, to act as our importer for all Central American Coffees and to use his Company’scompany’s line of credit in a way that would enable the Company to pay for our green coffee as it was pulled from bonded warehouses in the San Francisco Bay, lowering interest payments and storage costs.

There was a mutual benefit to this relationship. We agreed to purchase all of our Central American and African coffees through ETICO in exchange for our ability to pay for the coffee as it was being used, i.e., pulled from US bonded warehouses. ETICO received a $.10 per pound commission and the Company estimates it saved $.05 per pound in reduced import and customs costs. ETICO also gained entry into the growing trade as a coffee importer. The Company now had the ability to purchase coffees using the importer’s (ETICO’s) credit line, which allowed for more favorable pricing on bulk purchases and preferential service cost savings of $.05 per pound.

By 2014, Thethe Company was using ETICO for approximately 70% of our purchasing needs and through this control system was made Thanksgiving less vulnerable to a changing market. This new systemapproach brought our largest annual cost into a managed cash flow system, relieving the pressure on our cash position and enabling the Company to begin to reestablish its credit with its other suppliers.

RESULTS OF OPERATIONS

The following table shows the changes, both in U.S. Dollars and percent, of the significant income statement line item classifications for the two previous fiscal years.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -continued

Total sales in 20172018 were $3,506,756$3,226,269, a decline of $46,143,$280,487, or 1.3%8%, as compared to 20162017 sales of $3,552,899.$3,506,756. Part of the decline can be attributed by oneto the effects of our customer’s selling their business to Safeway. We are a vendor for Safeway and have been adding additional Safeway stores.the catastrophic wildfires of 2018, particularly in Northern California.

The grossGross profit, increaseddecreased by $55,884,$101,832, or 4.0%6.9%, from 20162018 to 2017. As a percentage of net sales, in 2017,2018, as compared to 2016,2017, gross profit increased 2.13%profits decreased 7%. Our 20172018 cost of sales declined by $102,027,$178,155 or 4.8%8.7%, as compared to 2016.2017. As a percentage of net sales, our cost of sales in 20172018 decreased by 2.1%2.3%. The decrease in our cost of sales is the result of tighter inventory controls and cost benefits realized from the practice of contracting for larger bulk purchasing of raw beans, which resulted in a lower cost of raw product.

Thanksgiving’s selling, general and administrative (SG&A)(“SG&A”) expense decreased by $85,297$101,832 year over year, or 5.3%6.9%, compared to the 20162017 increase of $134,140,$85,297, or 9.13%5.3%. SG&A expenses, as a percentage of net sales, were 43%44% in 20172018 as compared to 45% in 2016.2017. The decrease in S GSG&A expense was primarily the result of controlling costs relating to the audit and preparation of the Form 10K. Other income and income tax expense did not vary significantly year over year.increase from 2017 from a non recurring employee bonus payment.

LIQUIDITY AND CAPITAL RESOURCES

Working capital as of December 31, 20172018 was $384,940$371,667 as compared to working capital at December 31, 20162017 of $387,199,$384,940, a decrease of $2,259$13,273, or 0.6%3.4%.

For 2018, the Company generated $18,695 in cash from operations, but incurred a net loss of $36,236. Included in the net loss is $51,746 of depreciation expense, which does not affect cash flows. For 2017, the Company generated $52,382 in cash from operations, but incurred a net loss of $78,837.$76,737. Included in the net loss is $117,346 of depreciation expense which does not affect cash flows. For 2016, the Company generated $804 in cash from operations, but incurred a net loss of $190,864. Included in the net loss is $124,155 of depreciation expense, which does not affect cash flows.

Cash used in investing activities for 20172018 and 20162017 is primarily the result of fixed asset additions.

Cash flows from financing activities for 20172018 and 20162017 consisted mainly of borrowings and repayments on long-term debt.

See Note 5 to the accompanying financial statements for a summary of the Company’s outstanding debt.

SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE

The Company’s business is seasonal in nature.  However, since we have been able to smooth out our purchasing and cash flow needs through the use of our relationship with ETICO, we no longer face significant seasonal supply pressures brought on by the availability of green beans. Sales are historically higher in the last two quarters as compared to the first two quarters. Please refer to the table of selected quarterly financial data for quarter-by-quarter results of operations.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -continued

The Company’s future results of operations and earnings could also be significantly affected by other factors, such as changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products, the availability and costs of green coffee beans, increased competition, consumer acceptance of the Company’s new products, the loss of one or more major customers, civil unrest in countries that produce coffee, weather and other natural disasters.  There can be no assurance that sales will be maintained or increase in future quarters.

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 precedingproceeding that might result in a claim for such indemnification that would be material to the financial statements.

SELECTED QUARTERLY FINANCIAL DATA

Sales for the last 8 quarters have remained fairly stable. For 2017,2018, sales decreased by $46,143$280,487 over 2016,2017, a 1.3%7.99% decrease. The quarterly gross profit percentage on sales for each of the quarters for the past two years has likewise remained stable, ranging from a high 6.44% to a low of 1.17%. The gross profit percentage on sales was 41.15%42.36% and 39.77%41.15% for the 20172018 and 20162017 fiscal years, respectively.

Operating expenses on a quarterly basis have ranged from a low of 39%25.06% of sales to a high of 48%30.80%. For the 20172018 and 20162017 fiscal years, operating expenses were as high as 43.2%48% and 45.1%43.2% of sales, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company and are not required to provide information required by this item.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this item is set forth in the financial statements and the accompanying notes beginning on page F-1 of this annual report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The last Company 10-K filing was for the fiscal year ended December 31, 2016.2017. In 2016,2018, the Company again retained the services of Vavrinek, Trine, Day & Co., LLP, (VTD) to audit the Company’s financial statements for the fiscal years ended December 31, 2012 through December 31, 2016.2017. To date, there has not been a change in or disagreement with the independent accountant.

ITEM 9A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of the Chief Executive Officer and the Chief Operating Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this annual report.  Based on that evaluation, management has concluded that our disclosure controls and procedures, as of December 31, 20172018 and for fiscal year ending December 31, 2016,2017, were adequate and effective to insure that material information relating to the Company would be made known to them during the period in which this annual report was being prepared.  Disclosure controls and procedures are designed to ensure that information that is required to be disclosed by us in the reports that we file is accumulated and communicated to management, including our CEO and COO, in a manner to allow timely decisions regarding disclosure, and that such information is recorded, processed, summarized and reported in a timely manner.

Management’s Annual Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the securitiesSecurities Exchange Act of 1934).  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes accordance with generally accepted accounting principles in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.   

Management evaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) inInternal Control – Integrated Framework (2013).  Based on this evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer, and the Chief Operating Officer, management believes the Company maintained effective internal control over financial reporting as of December 31, 2017,2018, and for the year ended December 31, 2016.2017.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to Item 308(a)(4) of Regulation S-K.

There have not been any significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting other than those reported above.

ITEM 9B.  OTHER INFORMATION

No information was required to be disclosed in a report on form 8-K during the fourth quarter of the year covered by this annual report.

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The directors, nominees, key employees and executive officers of the Company and their ages as of the date of this Form 10-K are as follows:

Paul Katzeff, a co-founder of the Company has served as Roastmaster, and a Director since the Company’s incorporation on May 10, 1982, and as our Chairman of the Board of Directors since June 2010.  Mr. Katzeff also served as our Chief Executive Officer from the date of our incorporation.  Mr. Katzeff iswas a co-founder of the Specialty Coffee Association of America (S.C.A.A.) and served as its Chairman in 1985 and 2000.  He has served as Chairman of the Environmental Committee of the Board in 1994.  Mr. Katzeff co-chaired the Second Annual Sustainable Coffee Conference held in April of 1998.  Mr. Katzeff served as S.C.A.A. President in the year 2000.  Mr. Katzeff and Joan Katzeff are husband and wife.  Mr. Katzeff holds a Bachelor’s degree in Agriculture from Cornell University and a Masters degree in Social Work from Adelphi University.

Joan Katzeff, a co-founder, has served as a Director of the Company since incorporation on May 10, 1982 and as our Secretary and Treasurer since June 2010.  Ms. Katzeff served as the President from the date of our incorporation to June 2010.  Her experience in the Company’s early years included production, delivery and bookkeeping. Ms. Katzeff was appointed Chief Operating Officer, (COO) in 2012. Ms. Katzeff has a B.S. in speechSpeech and Hearing from Emerson College, and an M.S. in Audiology from Temple University.

Nicholas Hoskyns has been a Director of the Company since 2007.  Since 2003, he has served the managing directoras Managing Director of the Ethical Trading and Investment Company of Nicaragua (“ETICO”), a company that works with small farmer cooperatives on their organizational, business and marketing development.  He has helped found three cooperatives, integrating these bodies at local, regional and national levels and supporting their entry into markets in Europe, the United States and Japan.  His work has been primarily in the coffee and sesame seed trade in the Central American region where he resides.  He has a BA in Development Economics from the University of East Anglia in the United Kingdom.

The authorized number of directors is five.  Currently there are three directors.  All directors will hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, unless they earlier resign or are removed from office.  Committees of the Board may be appointed by resolution passed by a majority of the directors.  

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE - continued

The Company does not presently have any standing audit, nominating or compensation committee, or any committee performing similar functions.  The executive officers of the Company are elected annually by the Board of Directors and serve at the discretion of the Board.

At the present time, the Company does not have a standing audit committee of the Board of Directors, or an audit committee financial expert, as those terms are defined by Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and Item 407(d) (5)(ii) of Regulation S-K respectively.  The very small size of the Board, the small size of the Company and the remote location render it difficult at this time to fulfill these requirements.  In addition, our financial statements are relatively simple to read and understand.  The current Board members have had years of experience with the Company and are familiar with its financial reporting and operations.  The Company makes every attempt, in conjunction with our independent auditors, our attorneys and our officers to assure that our filings and financial statements are fairly, clearly and accurately reportedreported.

Code of Ethics.  The Company has adopted a code of ethics that is applicable to all members of senior management and the Company’s employees.  A copy of the code of ethics has been filed with the Securities and Exchange Commission.

Section 16(a) Beneficial Ownership Reporting Compliance.  Our equity securities are not registered pursuant to Section 12 of the Securities Exchange Act of 1934.  Accordingly, our officers, directors and principal shareholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.

ITEM 11.  EXECUTIVE COMPENSATION

The following table provides certain information concerning the compensation paid to our Chief Executive Officer and Chief Operating Officer during the fiscal years ended December 31, 20172018 and 2016.2017.

Summary Compensation Table

During the year ending December 31, 2017,2018, neither Paul Katzeff nor Joan Katzeff received any additional compensation in the form of a bonus, stock or stock option award, non-equity incentive plan compensation, non-qualified deferred compensation earnings or any other form of compensation except for their salary.

Securities Authorized for Issuance Under Equity Compensation Plans.  The Company currently does not have in place any compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

Compensation of Directors.  Our members of the Board of Directors do not receive compensation for service on the Board.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial ownership of the Company’s Common Stock as of December 31, 2017,2018, (i) by each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Company’s Common Stock, (ii) by each of the named executive officers, (iii) by each of the Company’s directors, and (iv) by all directors and executive officers as a group.  The Company believes that the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable.  Beneficial ownership representing less than one percent is denoted with an “*”.  The Company does not have an equity compensation plan. 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

In May 2015, the Company signed a new lease for its corporate headquarters, warehouse and production facilities from Joan and Paul Katzeff, who own the facility and are directors, executive officers and the majority shareholders of the Company (the “Katzeffs”).  The lease was for ten years and ends May 31, 2025.  The lease provides for monthly payments of approximately $8,600 for the entire term of the lease. The lease runs for 10 years, ending in May of 2025. The Company remains responsible for all real estate taxes, insurance and maintenance related to the leased facilities.

The Company carries insurance indemnifying its directors and certain officers and certain employees against certain liabilities by reason of their status or service as directors, officers, or employees of the Company.

The Company uses the services of ETICO, which acts as a broker for us in our purchase of coffees from Nicaragua, Guatemala, Rwanda, Uganda and certain Mexican green coffee beans. Nicholas Hoskyns, a director of the Company, is the managing director of ETICO.  At December 31, 2017,2018, there was $56,427$53,327 payable to ETICO for coffee purchases. All amounts owed were current and were paid in accordance with our standard vendor payment policies. The relationship with ETICO is ongoing. There is no written agreement. While management believes there is no indication of any concern, the arrangement with ETICO could be cancelled at any time. The loss of the ETICO relationship could have an adverse effect on the Company’s business in the short term. Management believes they have other options that could be utilized in the event the ETICO relationship was terminated.

Our Board of Directors has selected independence standards of the NASDAQ Stock Market (“NASDAQ”), solely for the purpose of making the independence determination in compliance with SEC requirements.  We are not a listed issuer on the NASDAQ and are not required to meet NASDAQ’s director independence standards.  None of the directors of the Company are independent under standards established by NASDAQ.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The aggregate accounting and audit fees billed to the Company for services rendered during the fiscal years ended December 31, 20172018 and 20162017 are set forth in the table below:

Pre-approval Policies and Procedures for Audit and Non-Audit Services.  As we do not have a standing audit committee, our Board of Directors performs the functions that may be delegated to an audit committee.  Section 10A(i) of the Securities Exchange Act of 1934 prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the Company’s Board of Directors (in lieu of the audit committee) or unless the non-audit services meet certain de minimis standards.  On January 13, 2017,23, 2018, the Company retained the firm of Vavrinek, Trine, Day & Company; LLP (VTD) to audit the Company’s financial statements for each of the years in the four-year periodyear ended December 31, 2016.2017. In addition, the Company, on January 23, 2018,28, 2019. the Company retained VTD to audit the Company’s financials for the year ended December 31, 2017.2018.

PART IV

ITEM 15.  EXHIBITS and FINANCIAL STATEMENT SCHEDULES

(a)  The following documents are filed as part of this annual report:

Financial Statements

Financial Statement Schedules

Not Applicable

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Supplemental Information to be Furnished with Reports Filed Pursuant to

Section 15(d) of the Securities Exchange Act of 1934 by Registrants Which Have Not Registered Securities

Pursuant to Section 12 of the Securities Exchange Act of 1934

No annual report covering the registrant’s last fiscal year or proxy materials with respect to any annual or other meeting of shareholders have been sent to the registrant’s shareholders.

Thanksgiving Coffee Company, Inc.

Financial Statements and Report

of Independent Registered Public Accounting Firm

For the year ended December 31, 2018 and 2017

Audited Financial Statements

For the Years Ended December 31, 2018 and 2017

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Thanksgiving Coffee Company, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Thanksgiving Coffee Company, Inc. (the Company)(Company) as of year-end, December 31, 20172018 and December 31, 2016,2017, and the related statements of income and retained earnings, and cash flows for each of the years in the two-year period ended December 31, 2017,2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of year-end, December 31, 20172018 and December 31, 2016,2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31,2017,31,2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Vavrinek, Trine, Day & Co., LLP 

We have served as the Company’s auditor since January 2016.

Palo Alto, California

March 27, 2018

We have served as the Company’s auditor since January 2016.
Palo Alto, California
March 27, 2019

Thanksgiving Coffee Company, Inc.

Balance Sheets

December 31:

See accompanying notes and auditors’ report

Thanksgiving Coffee Company, Inc.

Statements of Income and Retained Earnings

Years Ended December 31:

See accompanying notes and auditors’ report

Thanksgiving Coffee Company, Inc.

Statements of Cash Flow

For the Years Ended December 31:

See accompanying notes and auditors’ report

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

Accounts Receivable

The Company extends credit to customers in the normal course of business and performs ongoing credit evaluations of customers, maintaining allowances for potential credit losses which, when realized, have been within management’s expectations. Invoices are aged based on terms with the customer. 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. The allowance for doubtful accounts is based on historical information and recorded as a charge to operating expense. At December 31, 20172018 and 20162017 the Company’s allowance for doubtful accounts was $7,315, $6,239, $6,878, respectively.

The bad debt-write-offs for the years ended December 31, 2018, 2017 2016 were $1,162, $503 $1,641 respectively.

Inventory

Inventory is stated at the lower of cost, determined using the first-in, first-out method, or market.

Property and Equipment

Property and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes; maintenance and repair costs are charged against operations as incurred. The estimated useful lives of the assets are as follows:

Revenue Recognition

Sales are recognized when revenue is realized or becomes realizable and has been earned. In general, revenue is recognized when the earnings process is complete, which is upon shipment of products.

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

Shipping and Handling Charges

The Company reports shipping and handling fees charged to customers as part of freight, an operating expense. The associated expense is reported in the same account.

Sales Tax

States impose sales tax on certain sales to nonexempt customers. The Company collects that sales tax from customers and remits the entire amount to the state. The Company’s accounting policy is to exclude the tax collected and remitted to the state from revenues and cost of goods sold.

Advertising

Advertising costs are expensed as incurred. The advertising costs incurred for the years ended December 31, 2018, and 2017, and 2016, were $8,579, $15,639, $11,333, respectively.

Comprehensive Income

The Company has no components of other comprehensive income other than net income, and accordingly, the comprehensive income is equivalent to the net income for the years presented.

Income Taxes

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

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

Uncertain Tax Positions

The Company accounts for uncertainty in income taxes, by designating a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also considers various related matters such as de-recognition, interest, penalties, and disclosures required.

The Company’s management has determined that no unrecognized tax benefits or liabilities were to be recognized or disclosed in the financial statements. The Company accrues interest and penalties associated with uncertain tax positions as a part of operating expenses. As of December 31, 2017,2018, and December 31, 2016,2017, there were no accrued interest or penalties associated with uncertain tax positions.

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

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.

Recent Relevant Accounting Guidance Not Yet Effective

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02,Leases (Topic 842). The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance. The amendments in this Update are effective for interim and annual periods beginning after December 15, 2018 for public business entities and one year later for all other entities. The Company is currently evaluating the effects of ASU 2016-02 on its financial statements and disclosures.

Variable Interest Entities

The Company holds a financial interest in an entity owned by its majority stockholders. The interest consists of the related party leasing arrangement more fully described in Note 6 to these financial statements. This interest is considered to be a Variable Interest Entity (VIE) for accounting purposes. Due to the nature and amount of the Company’s financial obligations with respect to the VIE, the Company is not considered to financially control the VIE, therefore the Company is not required to consolidate the VIE in these financial statements.

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements