UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended SeptemberJune 30, 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: 33-960-70LA33-96070-LA
THANKSGIVING COFFEE COMPANY, INC.
(Exact name of registrant as specified in its charter)
California | 94-2823626 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
19100 South Harbor Drive, Fort Bragg, California | 95437 | ||
(Address of principal executive offices) | (Zip Code) | ||
(707) 964-0118
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.xYes ☒ No ☐
Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filefiled all reports required to be submitted and posted pursuant to Rule 405filed by Section 13 or 15(d) of Regulation S-Tthe Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to submitfile such reports), and post(2) has been subject to such files).xfiling requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ (Do not check if a smaller | Smaller reporting company | ☒ | |
Emerging growth company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whetherThere currently does not exist a public trading market for the registrantregistrant’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 a shell company (as defined in Rule 12b–2not aware of any privately negotiated transactions of the Exchange Act). Yes ☐ NoxCompany’s stock since 2008. The Company is unable to determine the current market value of the common equity held by non-affiliates as no reliable secondary trading price exists.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
On SeptemberJune 30, 20172018 the registrant had 1,236,744 shares of Class A common stock, no par value per share, and 0 shares of Class B common stock, par value _______ per share, outstanding.
Class | Outstanding at June 30, 2018 | |
Common Equity, no par value | 1,236,744 shares |
FORM 10-Q
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | 3 | ||||
Item 1. | Financial Statements | 3 | |||
Balance Sheets as of | 4 | ||||
Statements of Operations for the | 6 | ||||
Statements of Cash Flows for the | 7 | ||||
Notes to Financial Statements | 8 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 16 | |||
Item 4. | Controls and Procedures | 16 | |||
| PART II – OTHER INFORMATION | 16 | ||||
Item 1. | Legal Proceedings | 16 | |||
Item 1A. | Risk Factors | 16 | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 | |||
Item 3. | Defaults Upon Senior Securities | ||||
Item 4. | Submission of Matters to a Vote of Security Holders | 17 | |||
Item 5. | |||||
Item 6. | Exhibits | 17 | |||
Signatures | 18 | ||||
Financial Statements
and Notes to Financial Statements
Thanksgiving Coffee Company, Inc.
For the Nine Months Ended September 30, 2017 and 2016
PART 1. Financial Information
Item 1. Financial Statements
The financial statements included herein have been prepared by Thanksgiving Coffee Company, Inc. (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations. In the opinion of management of the Company, the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of SeptemberJune 30, 20172018 and December 31, 2016,2017, and its results of operations for the three month and ninesix month periods ended SeptemberJune 30, 20172018 and 2016June 30, 2017 and its cash flows for the ninesix month periods ended SeptemberJune 30, 20172018 and 2016.June 30, 2017. 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-K10-K.
Thanksgiving Coffee Company, Inc. | |
Balance Sheets |
June | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | See Note 1 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 127,635 | $ | 160,392 | ||||
Accounts receivable, net of allowance | 217,533 | 229,877 | ||||||
Inventories | 200,973 | 262,108 | ||||||
Prepaid expenses | 80,975 | 57,780 | ||||||
Total current assets | 627,116 | 710,157 | ||||||
Property and equipment | ||||||||
Property and equipment | 1,459,693 | 1,474,406 | ||||||
Accumulated depreciation | (1,121,535 | ) | (1,109,787 | ) | ||||
Total property and equipment | 338,158 | 364,619 | ||||||
Other assets | ||||||||
Deposits and other assets | 4,168 | 3,112 | ||||||
Total other assets | 4,168 | 3,112 | ||||||
Total assets | $ | 969,442 | $ | 1,077,888 | ||||
Thanksgiving Coffee Company, Inc.
Balance Sheets
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (See Note 1) | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 168,261 | $ | 149,936 | ||||
| Accounts receivable, net of allowance | 205,966 | 239,738 | ||||||
| Inventories | 203,014 | 279,751 | ||||||
| Prepaid expenses | 75,965 | 109,974 | ||||||
| Total current assets | 653,206 | 779,399 | ||||||
| Property and equipment | ||||||||
| Property and equipment | 1,437,358 | 1,418,820 | ||||||
| Accumulated depreciation | (1,080,096 | ) | (992,441 | ) | ||||
| Total property and equipment | 357,262 | 426,379 | ||||||
| Other assets | ||||||||
| Deposits and other assets | 3,112 | 12,242 | ||||||
| Note receivables | 0 | 29,728 | ||||||
| Total other assets | 3,112 | 41,970 | ||||||
| Total assets | $ | 1,013,580 | $ | 1,247,748 | ||||
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc. | |
Balance Sheets |
June | December 31, | |||||||
2018 | 2017 | |||||||
(Unaudited) | See Note 1 | |||||||
Liabilities and shareholders' equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 170,513 | $ | 213,942 | ||||
Accrued Liabilities | 63,570 | 65,299 | ||||||
Current portion of long term debt | 48,262 | 46,476 | ||||||
Total current liabilities | 282,345 | 325,717 | ||||||
Long term debt | ||||||||
Long-term debt | 109,931 | 114,229 | ||||||
Less current portion of long term debt | (48,262 | ) | (46,476 | ) | ||||
Total long term debt | 61,669 | 67,753 | ||||||
Total liabilities | 344,014 | 393,470 | ||||||
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 | (260,988 | ) | (201,998 | ) | ||||
Total shareholders' equity | 625,428 | 684,418 | ||||||
Total liabilities and shareholders' equity | $ | 969,442 | $ | 1,077,888 | ||||
Thanksgiving Coffee Company, Inc.
Balance Sheets
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (See Note 1) | |||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 156,080 | $ | 286,852 | ||||
| Accrued Liabilities | 45,822 | 67,344 | ||||||
| Current portion of long term debt | 38,004 | 38,004 | ||||||
| Total current liabilities | 239,906 | 392,200 | ||||||
| Long term debt | ||||||||
| Long-term debt | 101,337 | 130,297 | ||||||
| Less current portion of long term debt | (38,004 | ) | (38,004 | ) | ||||
| Total long term debt | 63,333 | 92,293 | ||||||
| Total liabilities | 303,239 | 484,493 | ||||||
| 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 | (176,075 | ) | (123,161 | ) | ||||
| Total shareholders' equity | 710,341 | 763,255 | ||||||
| Total liabilities and shareholders' equity | $ | 1,013,580 | $ | 1,247,748 | ||||
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc. |
Statements of Operations |
Unaudited |
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Income | ||||||||||||||||
Net sales | $ | 818,755 | $ | 948,802 | $ | 1,613,791 | $ | 1,768,098 | ||||||||
Cost of sales | 454,435 | 565,069 | 937,512 | 1,019,994 | ||||||||||||
Gross profit | 364,320 | 383,733 | 676,279 | 748,104 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative expenses | 318,373 | 344,055 | 683,864 | 706,719 | ||||||||||||
Depreciation and amortization | 25,886 | 22,282 | 47,268 | 44,458 | ||||||||||||
Total operating expenses | 344,259 | 366,337 | 731,132 | 751,177 | ||||||||||||
Operating profit/ (loss) | 20,061 | 17,396 | (54,853 | ) | (3,073 | ) | ||||||||||
| Other expense | ||||||||||||||||
Interest expense | (1,745 | ) | (3,404 | ) | ||||||||||||
Miscellaneous expense | (1,562 | ) | (30,750 | ) | 67 | (30,750 | ) | |||||||||
Total other income (expense) | (3,307 | ) | (30,750 | ) | (3,337 | ) | (30,750 | ) | ||||||||
Profit/ (loss) before income taxes | 16,754 | (13,354 | ) | (58,190 | ) | (33,823 | ) | |||||||||
Income tax expense | (800 | ) | 0 | (800 | ) | (800 | ) | |||||||||
Net profit/ (loss) | $ | 15,954 | $ | (13,354 | ) | $ | (58,990 | ) | $ | (34,623 | ) | |||||
Profit/ (loss) per share (basic and dilutive) | $ | 0.013 | $ | (0.011 | ) | $ | (0.048 | ) | $ | (0.028 | ) | |||||
Weighted average number of shares | 1,236,744 | 1,236,744 | 1,236,744 | 1,236,744 | ||||||||||||
Thanksgiving Coffee Company, Inc.
Statements of Operations
Unaudited
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Income | ||||||||||||||||
| Net sales | $ | 856,952 | $ | 903,403 | $ | 2,625,044 | $ | 2,660,735 | ||||||||
| Cost of sales | 481,066 | 543,324 | 1,501,060 | 1,570,470 | ||||||||||||
| Gross profit | 375,886 | 360,079 | 1,123,984 | 1,062,265 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | 370,867 | 398,542 | 1,077,586 | 1,113,331 | ||||||||||||
| Depreciation and amortization | 22,203 | 22,495 | 66,661 | 64,605 | ||||||||||||
| Total operating expenses | 393,070 | 421,037 | 1,144,247 | 1,177,936 | ||||||||||||
| Operating loss | (17,184 | ) | (60,958 | ) | (20,263 | ) | (115,671 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Miscellaneous income/ (expense) | (1,107 | ) | 143 | (31,710 | ) | (1,246 | ) | |||||||||
| Total other income (expense) | (1,107 | ) | 143 | (31,710 | ) | (1,246 | ) | |||||||||
| Loss before income taxes | (18,291 | ) | (60,815 | ) | (51,973 | ) | (116,917 | ) | ||||||||
| Income tax expense | 0 | 0 | (800 | ) | (800 | ) | ||||||||||
| Net Loss | $ | (18,291 | ) | $ | (60,815 | ) | $ | (52,773 | ) | $ | (117,717 | ) | ||||
| Loss per share (basic and dilutive) | $ | (0.015 | ) | $ | (0.049 | ) | $ | (0.043 | ) | $ | (0.095 | ) | ||||
| Weighted average number of shares | 1,236,744 | 1,236,744 | 1,236,744 | 1,236,744 | ||||||||||||
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc. |
Statements of Cash Flows |
Thanksgiving Coffee |
Statements of Cash Flows |
Unaudited |
For the Six Months | ||||||||
June 30, | ||||||||
2018 | 2017 | |||||||
Operating activities | ||||||||
Net loss | $ | (58,990 | ) | $ | (34,623 | ) | ||
Adjustments to reconcile net loss to cash flows from operating activities: | ||||||||
Depreciation and amortization | 47,268 | 63,449 | ||||||
(Increase) decrease in: | ||||||||
Accounts receivable | 12,344 | 16,047 | ||||||
Inventories | 61,136 | 31,809 | ||||||
Prepaid expenses | (23,195 | ) | 26,291 | |||||
Deposits and other assets | (1,056 | ) | 3,442 | |||||
Increase (decrease) in: | ||||||||
Accounts payable | (43,429 | ) | (87,077 | ) | ||||
Accrued liabilities | (1,729 | ) | (5,050 | ) | ||||
Net cash provided by (used in) operating activities | (7,651 | ) | 14,288 | |||||
Investing activities | ||||||||
Purchases of property and equipment | (20,808 | ) | (12,941 | ) | ||||
Net cash (used in) investing activities | (20,808 | ) | (12,941 | ) | ||||
Financing activities | ||||||||
(Increase) in notes receivables | (2,969 | ) | ||||||
(Repayments) issuances of notes payable and capital leases | (4,298 | ) | (19,174 | ) | ||||
Net cash (used in) financing activities | (4,298 | ) | (22,143 | ) | ||||
Increase (decrease) in cash | (32,757 | ) | (20,796 | ) | ||||
Cash at beginning of period | 160,392 | 149,936 | ||||||
Cash at end of period | $ | 127,635 | $ | 129,140 | ||||
Thanksgiving Coffee Company, Inc.
Statements of Cash Flows
Unaudited
| For the nine Months | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (52,773 | ) | $ | (117,717 | ) | ||
| Adjustments to reconcile net loss to cash flows from operating activities: | ||||||||
| Depreciation and amortization | 92,215 | 92,696 | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 33,772 | (30,424 | ) | |||||
| Inventories | 76,737 | 39,663 | ||||||
| Prepaid expenses | 34,009 | 47,170 | ||||||
| Deposits and other assets | 9,130 | - | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | (130,772 | ) | 1,687 | |||||
| Accrued liabilities | (21,522 | ) | (21,052 | ) | ||||
| Net cash provided by operating activities | 43,796 | 12,023 | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | (18,538 | ) | (93,058 | ) | ||||
| Net cash (used in) investing activities | (18,538 | ) | (93,058 | ) | ||||
| Financing activities | ||||||||
| Decreases in notes receivable | 29,728 | - | ||||||
| (Repayments) increases of notes payable and capital leases | (36,661 | ) | 79,528 | |||||
| Net cash (used in) provided by financing activities | (6,933 | ) | 79,528 | |||||
| Decrease in cash | 18,325 | (1,507 | ) | |||||
| Cash at beginning of period | 149,936 | 213,193 | ||||||
| Cash at end of period | $ | 168,261 | $ | 211,686 | ||||
Cash paid for income taxes was $800 separately for each of the ninesix months ending SeptemberJune 30, 2017and September 30, 2016.2018.
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
SeptemberCash paid for income taxes was $800 for the six months ending June 30, 2017 (unaudited) and December 31, 20162018.
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 haveThe Company has continued to follow the accounting policies disclosed in the financial statements included in our 2016its 2017 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, 20162017 audited financial statements and the accompanying notes on Form 10-K, as filed with the Securities and Exchange Commission.SEC.
The interim financial information in this Form 10-Q reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our results of operations for the interim periods. The results of operations for the ninesix months ended SeptemberJune 30, 20172018 are not necessarily indicative of results to be expected for the full year.
Concentration of Risk
ForIn the nine months period ending September 2017,first quarter of fiscal 2018, one customer accounted for 11.24%16.91% of the Company’s revenue. This customerThe account has purchased from the Company since 1992, and has several locations.2009. The account is a distributor of the Company’s product. A loss of this customer account or any other large account, or a significant reduction in sales to any of the Company’s principal customers, could have an adverse impact on the Company.
Income Taxes
The Company accounts for income taxes under the asset and liability method as prescribed by ASC 740,Accounting for Income Taxes. As such, deferred income tax assets and liabilities are recognized for the future tax consequences of the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases.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.
2. |
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
September 30, 2017 (unaudited) and December 31, 2016
| Accounts Receivable |
Accounts receivable consist of the following:
| 9/30/2017 | 12/31/2016 | 6/30/2018 | 12/31/2017 | |||||||||||||
| Accounts receivable | $ | 211,518 | $ | 246,616 | $ | 223,696 | $ | 236,116 | ||||||||
| Less: allowance for doubtful accounts | (5,552 | ) | (6,878 | ) | (6,163 | ) | (6,239 | ) | ||||||||
| Net accounts receivable | $ | 205,966 | $ | 239,738 | $ | 217,533 | $ | 229,877 | ||||||||
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 ninesix months ended SeptemberJune 30, 2018 and 2017 was $316 and 2016 was $(1,326) and $(661),($907) respectively.
3. | Inventories |
Inventories consist of the following:
| 9/30/2017 | 12/31/2016 | 6/30/2018 | 12/31/2017 | |||||||||||||
| Coffee | ||||||||||||||||
| Unroasted | $ | 81,782 | $ | 168,003 | $ | 101,817 | $ | 166,865 | ||||||||
| Roasted | 61,501 | 55,066 | 48,609 | 43,689 | ||||||||||||
| Tea | 2,444 | 1,690 | 1,391 | 2,249 | ||||||||||||
| Packaging, supplies and other merchandise held for sale | 57,286 | 54,992 | 49,156 | 49,305 | ||||||||||||
| Total inventories | $ | 203,014 | $ | 279,751 | $ | 200,973 | $ | 262,108 | ||||||||
4. Property and Equipment
Property and equipment consist of the following:
| 9/30/2017 | 12/31/2016 | 6/30/2018 | 12/31/2017 | |||||||||||||
| Equipment | $ | 516,229 | $ | 506,939 | $ | 490,985 | $ | 517,526 | ||||||||
| Furniture and fixtures | 143,410 | 138,715 | 138,008 | 145,089 | ||||||||||||
| Leasehold improvements | 352,237 | 352,237 | 358,498 | 358,498 | ||||||||||||
| Transportation equipment | 150,686 | 146,133 | 178,497 | 178,497 | ||||||||||||
| Package design | 41,000 | 41,000 | 41,000 | 41,000 | ||||||||||||
| Capitalized website development costs | 19,000 | 19,000 | 19,000 | 19,000 | ||||||||||||
| Property held under capital leases | 214,796 | 214,796 | 233,705 | 214,796 | ||||||||||||
| Total property and equipment | $ | 1,437,358 | $ | 1,418,820 | 1,459,693 | 1,474,406 | ||||||||||
| Accumulated depreciation | (1,080,096 | ) | (992,441 | ) | (1,121,535 | ) | (1,109,787 | ) | ||||||||
| Property and equipment, net | $ | 357,262 | $ | 426,379 | $ | 338,158 | $ | 364,619 | ||||||||
Depreciation and amortization expense for the ninesix months ended SeptemberJune 30, 2018 and 2017 was $47,268 and 2016 was $92,215 and $92,696,$44,458 respectively.
Included in cost of goods sold is $25,554 and $28,064 of depreciation expense, respectively, for the nine months ending September 30, 2017 and September 30, 2016.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
September 30, 2017 (unaudited)
June 30, 2018 and December 31, 20162017
| Capital Lease Obligations | 9/30/2017 | 12/31/2016 | ||||||
| Bank of the West payable in monthly installments of $787.03, including interest at 9.234% collateralized by equipment, final payment due on January 1, 2021. | $ | 26,430 | $ | 31,486 | ||||
| Bank of the West payable in monthly installments of $1,465, including interest at 9.227%, collateralized by equipment, final payment due on January 1, 2020. | 36,778 | 47,020 | ||||||
| Hansel Ford, payable in monthly installments of $385.18, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019. | 6,883 | 10,290 | ||||||
| Hansel Ford, payable in monthly installments of $385.18, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019. | 6,883 | 10,290 | ||||||
| Hansel Ford, payable in monthly installments of $806.38, including interest at 1.939%, collateralized by equipment, final payment due on April 10, 2020. | 24,363 | 31,211 | ||||||
| $ | 101,337 | $ | 130,297 | |||||
| Less current portion | (38,004 | ) | (38,004 | ) | ||||
| Long term portion of notes payable | $ | 63,333 | $ | 92,293 | ||||
5. Long Term Debt (continued)
Capital Lease Obligations | 6/30/2018 | 12/31/2017 | ||||||
Bank of the West payable in monthly installments of $787.03, including interest at 9.234% collateralized by equipment, final payment due on January 1, 2021 | $ | 21,012 | $ | 24,665 | ||||
Bank of the West payable in monthly installments of $1,465, including interest at 9.227%, collateralized by equipment, final payment due on January 1, 2020 | 25,805 | 33,204 | ||||||
Hansel Ford, payable in monthly installments of $385, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019. | 3,453 | 5,743 | ||||||
Hansel Ford, payable in monthly installments of $385, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019. | 3,453 | 5,743 | ||||||
Savings Bank of Mendocino, payable in monthly installments of $518, interest at 4.24%, collateralized by a security interest of substantially all of the Company's assets, final payment due on December 28, 2021. | 20,172 | 22,816 | ||||||
Pawnee Leasing payable in monthly installments of $528, including interest at 15.178%, collateralized by equipment, final payment due on May 15, 2022 | 18,621 | - | ||||||
Hansel Ford, payable in monthly installments of $806.38, including interest at 1.939%, collateralized by equipment, final payment due on April 10, 2020. | 17,415 | 22,058 | ||||||
| $ | 109,931 | $ | 114,229 | |||||
Less current portion | (48,262 | ) | (46,476 | ) | ||||
Long term portion of notes payable | $ | 61,669 | $ | 67,753 | ||||
Interest paid for the ninesix months ended SeptemberJune 30, 2018 and 2017 was $3,404 and 2016 was $5,500 and $6,784,$3,800, respectively.
As of SeptemberJune 30, 2017,2018, maturities of notes payable and capital lease obligations for each of the next fourfive years and in the aggregate were as follows:
| Years Ending September 30, | ||||
| 2018 | $ | 38,004 | ||
| 2019 | 40,554 | |||
| 2020 | 22,779 | |||
| $ | 101,337 | |||
Years Ending June 30, | ||||
2018 | $ | 48,789 | ||
2019 | 36,925 | |||
2020 | 15,664 | |||
2021 | 8,553 | |||
| $ | 109,931 |
6. Income Taxes
Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Company’s deferred tax assets consist of the benefit from net operating loss (NOL) carryforwards and temporary differences. The net operating loss carryforward expirescarryforwards expire in various years through 2036.2034. The Company’s deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operation loss carryforwards. Net operating loss carryforwards may be further limited by a change in the company ownership and other provisions of the tax laws.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements7. Operating Leases
September 30, 2017 (unaudited) and December 31, 2016
The Company leases some office equipment under non cancelablenon-cancelable operating leases.leases with terms ranging from three to five years.
As of SeptemberJune 30, 2017,2018, minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:
| Years Ending September 30, | ||||||||
| 2018 | $ | 9,626 | 7,832 | |||||
2019 | 6,105 | |||||||
2020 | 4,696 | |||||||
| 2021 | 326 | 4,139 | ||||||
2022 | 1,979 | |||||||
| $ | 9,953 | |||||||
| $ | 24,751 | |||||||
Total operating lease payments for the ninesix months ended SeptemberJune 30, 2018 and 2017 were $4,264 and 2016 were $6,094 and $5,526$4,480 respectively.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
June 30, 2018 and December 31, 2017
8. Long Term Leases
The Company leases its corporate headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Company’s majority shareholders)shareholders, directors and officers). The lease is classified as an operating lease and provides for monthly rental payments of $8,600. The Company is responsible for all real estate taxes, insurance and maintenance costs related to the facilities. The ten-year lease term ends May 31, 2025.
As of SeptemberJune 30, 2017,2018, minimum future rental payments under non cancelablenon-cancelable facilities operating leases for each of the next five years and in the aggregate are as follows:
| Years ending September 30, | ||||||||
Years ending June 30, | ||||||||
| 2018 | $ | 103,200 | $ | 103,200 | ||||
| 2019 | 103,200 | 103,200 | ||||||
| 2020 | 103,200 | 103,200 | ||||||
| 2021 | 103,200 | 103,200 | ||||||
| 2022 | 103,200 | 103,200 | ||||||
| Thereafter | 275,200 | 180,600 | ||||||
| $ | 791,200 | $ | 696,600 | |||||
9.
9. Related Party Transactions
As of SeptemberJune 30, 2017,2018, the Company has green coffee contracts with three cooperatives in Nicaragua. Ethical Trading and Investment Company of Nicaragua (ETICO) is the importer for the transactions.transaction. Nicholas Hoskyns, a director of the company, is the managing director of ETICO. As of SeptemberAt June 30, 2017,2018, amounts owed to ETICO totaled $40,083.$23,235. All the amounts owed are current and were paid in accordance with our standard vendor payment policies. The loss of the ETICO relationship could have an adverse effect on the Company’s business in the short term. Management believes other options are available that could be utilized in the event the ETICO relationship was terminated.
The total rent payments made to the majority shareholders in connection with these related transactions for the nine months ended September 30, 2017 and September 30, 2016 were $77,400 and $77,400, respectively.
ITEM 2.MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. In some cases, forward-looking statements may be identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements relate to, among other things, possible expansions into new and existing markets and trends in the operations of Thanksgiving Coffee Company, Inc. (“the Company”). Any forward-looking statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. These various risks and uncertainties include, but are not limited to: changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products and in the availability and costs of green beans, continuing competition within the Company’s business, variances from budgeted sales mix and growth rate, consumer acceptance of the Company’s products, inability to secure adequate capital to fund its operating expenses and working capital requirements, inability to hire, train and retain qualified personnel, concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully implement the Company’s sales goals, natural disasters, civil unrest in countries which produce coffee and tea, weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this Quarterly Report on Form 10-Q. The Company’s forward-looking statements should also be considered in light of its reviewed financial statements, related notes and the other financial information appearing elsewhere in this report and in its other filings with the Securities and Exchange Commission. As a result of these risks and uncertainties, the Company’s actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company assumes no obligation to update any forward-looking statements.
SUMMARY
Sales of the Company have eroded over the 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 triedcontinues to try a number of strategies that havemay or may not provenprove effective in abating these declines. The Company has changed its method of distribution to rely less on direct distribution (with only twothree routes) and instead uses independent distributors or shippingships direct (via UPS or other common carrier). In addition, the companyCompany is trying to focus on increasing our on-line sales with the maina continued focus of promotingon our award as “Roaster of the Year for 2017”, from Roast magazine.presence in social media, growing our email list and linking our search optimization. The effecteffects of these changes on the Company’s sales has been limited but has reducedwill reduce our distribution expenses. Because of the limited impact of these changes, as well as the changesincrease 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 our competitors, because of the higher quality, the organic nature of many of its linesthe varietals we carry and the fact that it useswe use fair-traded coffees.coffees as well. Green bean costs have continued toremained stable but any rise and have placedwill place pressure on margins. If green bean costs do not declinecontinue as is 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 if the Company cannot offset costs by raising prices, it would have a negative impact on the Company and its margins.
Results of Operations
Nine Six months ended SeptemberJune 30 2017, 2018 versus SeptemberJune 30 2016, 2017
| Income and Expense | Increase (Decrease) | Percent Change | ||||||||||||||
| Interest (Decrease) | Percent Change | |||||||||||||||
| Net Sales | $ | (35,691 | ) | -1.3 | % | $ | (154,307 | ) | (8.7 | %) | ||||||
| Cost of Sales | (97,410 | ) | -6.09 | % | (82,482 | ) | (8.1 | %) | ||||||||
| Gross Margin % | - | 2.9 | % | (71,825 | ) | (9.6 | %) | |||||||||
| Selling, G&A Expense | (35,745 | ) | -3.21 | % | (22,855 | ) | (3.2 | %) | ||||||||
| Depreciation And Amortization | 2,056 | 3.18 | % | |||||||||||||
| Net Profit (Loss) | (64,944 | ) | -55.17 | % | ||||||||||||
Depreciation and Amortization | 2,810 | 6.3 | % | |||||||||||||
Other | 27,413 | 89.1 | % | |||||||||||||
Net Loss | (24,367 | ) | (70 | %) | ||||||||||||
Net sales for the ninesix months ending Septemberended June 30, 20172018 were $2,625,044$1,613,791, down 1.3%8.7%, (or down by $35,691),or under $154,307 when compared towith net sales of $2,660,735$1,768,098 for the same period in fiscal 2016. 2017
Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down by ($56,253),$20,844 or (5.25%(3.18%) for the ninesix months ending Septemberended June 30, 2017,2018, when compared with distribution sales for the same period in 2016. Sales on the coast2017. The decline appears to be a result of Mendocino continue to rise.slower volume for existing customers.
National revenues (e.g., revenues not derived by mail order and direct truck distribution) were up $26,312down $66,375 or 2.09%(18.42%) for the ninesix months ending Septemberended June 30, 20172018 when compared to national sales for the same period in 2016.2017. In 2017 we provided our services to fulfill two unusual orders for one of our customers.
Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) were down $9,051; 2.67%decreased $637, or .29% for the ninesix months ending Septemberended June 30, 20172018 when compared to mail order sales for the same period in 2016.2017.
Cost of sales for the ninesix months endingended June 30, 2017 was $1,501,0602018 were $937,507, down by 6.09%; ($97,410)8.1%, or down $82,482 when compared towith the cost of sales of $1,598,470$1,019,994 for the same period in 2016. This2017. The decrease was a result of lower costs of green beans. Cost per pound of green beansreflects the decrease in the second quarter was $2.70overall sales in 2017 versus $2.83 for the same period in 2016, creating a $77,424 cost savings.six months of 2018.
Gross margin percentage (gross profit as a percentage of net sales) for the ninesix months ending Septemberended June 30, 2017,2018 was 42.82%, up almost 3%41.9% percentage points when compared with the gross margin of 39.9%42.3% for the same period in 2016. The increase in gross margin was a result of lower green bean costs and better efficiencies in our overall inventory.2017.
Selling,Consolidated selling, general and administrative expenses were $1,077,586$683,864 for the ninesix months ending Septemberended June 30, 2017,2018, a decrease of 3.21% ($35,745)3.2% when compared towith the selling, general and administrative expenses of $1,113,331$706,719 for the same period in 2016.2017. The decrease was a result of workers’ compensation rates and audit fees.renegotiating our general insurance.
Depreciation and amortization expenses for the ninesix months ending Septemberended June 30, 2017,2018 were $92,215,$47,268, a decrease of 0.5% (or $454)6.3% increase, or nearly $2,810 when compared to depreciation and amortization expense of $92,669$44,458 for the same period in 2016. 2017. The increase reflects the addition of new equipment.
As a result of the foregoing factors, the Company had a net loss of ($52,772)$58,990 for the ninesix months ending Septemberended June 30, 2017,2018, a 70.38% increase, compared to a loss of $117,717$34,623 for the same period in 2016. It should be noted that in the Statement of Operations, for the three month ending June 30, 2017, that a one-time bonus of $30K was awarded to the company employees. This bonus was awarded from the final payment from sale of the bakery in 2012, and the sale at the time was recorded as revenue. The bonus payment was a non-recurring event and the Company would have otherwise experienced less of a loss.2017.
Due to the increasing costs of insurance and other goods, there can be no assurances that the Company will be profitable in future periods.
LIQUIDITY AND CAPITAL RESOURCES
As of SeptemberJune 30, 20172018, the Company had working capital of $413,300$344,770 versus working capital of $387,199$384,440 as of December 31, 2016.2017. The increasedecrease in working capital is due primarily to the decrease in cash, accounts payable.
Net cash provided by operating activities was $43,796 for the nine months ending September 30, 2017, compared to $12,033 for the nine months ending September 30, 2016. The increase of $31,773 or 265% was principally the result of a decrease in inventory.receivable, inventory and prepaid expenses.
Net cash used in operating activities was $7,651 for the six months ended June 30, 2018 compared to net cash provided by activities of $14,288 during the same period in 2017. The decrease in net cash provided by operating activities in the first six months of 2018 was the result of decreases in inventory in the amount of $61,136 and a decrease in accounts payable in the amount of 43,429 and a decrease in accounts receivables of $12,344.
Cash used in investing activities was ($18,538)20,808) for the ninesix months ending Septemberended June 30, 2017,2018 compared to ($93,058)12,941) used in the same period in 2016. Capital additions of $12,986 this year were a result of adding two new Safeway stores and, another commercial grinder to our packaging facility.
2017.
Net cash used in financing activities for the ninesix months ending Septemberended June 30, 20172018 was ($6,933)4,298) compared to net cash provided by financing activities of $79,528 during the same period in 2016. The decrease in cash used in financing activities of $86,461($22,143) during the same period in 2017. The cash used by financing activities was a result of paying existing debts.debt.
As of SeptemberAt June 30, 2017,2018, the Company had total borrowings of $101,338. This compares to total borrowings of $130,297 as of December 31, 2016.$109,931.
For long-term debt, see Note 57 of the Notes to Financial Statements. For operating leases, see Note 79 of the Notes to Financial Statements. For real estate leases, see Note 810 and Note 11 of the Notes to Financial Statements.
| Payments Due By Period | Payments Due By Period | |||||||||||||||||||||||||||||||||||||||
Contractual Obligations |
Total | Less than One year |
1-3 years |
4-5 years |
After 5 years |
Total | Less than One year |
1-3 years |
4-5 years |
After 5 years | ||||||||||||||||||||||||||||||
| Long Term Debt | $ | 101,337 | $ | 38,004 | $ | 63,333 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||
Debt | $ | 109,931 | $ | 48,789 | $ | 52,590 | $ | 8,553 | $ | - | ||||||||||||||||||||||||||||||
| Operating Leases | 9,952 | 9,626 | 326 | 0 | 0 | 24,751 | 7,832 | 14,940 | 1,979 | - | ||||||||||||||||||||||||||||||
| Real Estate Leases | 791,200 | 103,200 | 309,600 | 206,400 | 172,000 | 696,600 | 103,200 | 206,400 | 206,400 | 180,600 | ||||||||||||||||||||||||||||||
| Total Cash Obligations | $ | 902,489 | $ | 150,830 | $ | 373,259 | $ | 206,400 | $ | 172,000 | $ | 831,282 | $ | 159,821 | $ | 273,930 | $ | 216,931 | $ | 180,600 | ||||||||||||||||||||
The Company is dependent on successfully executing its business plan to achieve profitable operations, obtainobtaining 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 “9 —“note “11 — Related Party Transactions” in the Notes to the Financial Statements.
SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE
The Company’s business is seasonal in nature. The seasonal availability of green bean coffee in the first two quarters of the year and increased sales in the last quarter historically create a high use of cash and a build up in inventories in the first two quarters, with a corresponding decrease in inventory and increase in cash in the last quarter. In 2017 the Company has been keeping a tighter control on its inventory supply, resulting in fewer inventory supplies on hand. In the first quarter of 2018, similar controls continue.
Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past seasonal patterns are not necessarily indicative of future results.
INDEMNIFICATION MATTERS
The Company’s Bylaws provide that the Company may indemnify its directors, officers, employees and other agents to the fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such liability insurance for its directors and certain officers and employees.
At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or preceding that might result in a claim for such indemnification.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s stock is generally illiquid and there have been few trades in recent years. There have been twothree trades in the Company’s Common Stock since 1999. In June 2004, 750 shares were traded at $4.50 per share. In December 2005, 400 shares were traded at $2.00 per share.
ITEM 4.CONTROLS AND PROCEDURES
An evaluation was performed under the supervision of and with the participation of the Company’s management, including the Chief Executive Officer and the President, of the effectiveness of the Company’s disclosure controls and procedures as of SeptemberJune 30, 2017.2018. Based on that evaluation, the Company’s management, including the Chief Executive Officer, and the President concluded that the Company’s disclosure controls and procedures were effective. There have been no changes in the Company’s Disclosure controls over financial reporting during the second quartersix months of 20172018 that have materially affected or are reasonably likely to affect the Company’s internal controls over financial reporting.
Part II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-None-
ITEM 1A. RISK FACTORSFactors
The Company has concerns regarding the current economic situation. The United States and the global economy is experiencing severe instability in the commercial and investment banking systems which are likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and the Company’s operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.
Our coffee roasting facility is subject to state and local air-quality and emissions regulations. If we encounter difficulties in obtaining any necessary licenses or complying with these laws and regulations our ability to produce any of our roasted products would be severely limited. We believe that we are in compliance in all material respects with all such laws and regulations and we have obtained all material licenses that are required for the operation of our business. We are not aware of any environmental regulations that have or that we believe will have a material adverse effect on our operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-None-
- None –
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-None-
- None –
ITEM 4. REMOVE AND RESERVEDSUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-None-
- None -
ITEM 5. OTHER INFORMATION
-None-
Verification of shareholders
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Financial Statement Schedules
Not Applicable
Exhibits
Exhibits
3.1 | |
3.2 |
10.4 | ||
10.10 | License Agreement between the Company and the American Birding Association, Inc. and amendment.** | |
10.13 | ||
14.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | XBRL Instance Document.* | |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* |
* | Filed herewith. |
** | Incorporated by reference to the exhibits to the Company’s Form 10-K for the year ended December 31, 2017. |
*** | Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2003. |
| **** | Incorporated by reference to the exhibits to the Company’s Form 10-Q for the quarter ended March 31, 2018. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The Registrant has duly caused this Quarterly Report to be signed on itit’s behalf by the undersigned, thereunto duly authorized.
THANKSGIVING COFFEE COMPANY, INC.
Name | Title | Date | ||
/s/ Paul Katzeff | Chief Executive Officer | August 13, 2018 | ||
Paul Katzeff | ||||
/s/ Joan Katzeff | President | August 13, 2018 | ||
Joan Katzeff |
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