UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q/A
Amendment No. 1
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 September 30, 2017March 31, 2019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From _______ To _______
Commission File Number: 33-960-70LA33-96070-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 filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to RuleRegulation 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).xYes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–212b-2 of the Exchange Act). Yes ☐ Nox ☒
There currently does not exist a public trading market for the registrant’s common stock. Over the years, there have been isolated and sporadic privately negotiated transactions in the Company’s shares. See “Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” The Company is not aware of any privately negotiated transactions of the Company’s stock since 2008. The Company is unable to determine the current market value of the common equity held by non-affiliates as no reliable secondary trading price exists.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
On September 30, 2017March 31, 2018 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 0 per share, outstanding.
FORM 10-Q
TABLE OF CONTENTS
Class | Outstanding at March 23, 2019 | |
Common Equity, no par value | 1,236,744 shares |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | tcci | none |
Amendment Change
We are filing this Amendment No. 1 on Form 10-Q/A to amend and restate in their entirety the following items of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 as originally filed with the Securities and Exchange Commission on April 13, 2019 (the “Original Form 10-Q”): (i) Item 1 of Part I “Financial Information,” (ii) Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (iii) Item 4 of Part I, “Controls and Procedures,”. No other sections were affected, but for the convenience of the reader, this report on Form 10-Q/A restates in its entirety, as amended, our Original Form 10-Q. This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, or modify or update disclosures in any way other than as required to reflect the restatement described below.
We adopted ASU No. 2016-02—Leases (Topic 842), as amended, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.
FORM 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | |||||
Item 1. | Financial Statements | ||||
| 5 | |||||
Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018. | 6 | ||||
Statements of Operations for the three months ended March 31, 2019 and March 31, 2018 (unaudited) | 8 | ||||
Statements of Cash Flows for the three months ended March 31, 2019 and March 31, 2018 (unaudited) | 9 | ||||
Notes to Financial Statements | 10 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||
Item 4. | Controls and Procedures | ||||
PART II – OTHER INFORMATION | |||||
Item 1. | Legal Proceedings | ||||
Item 1A. | Risk Factors | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||||
Item 3. | Defaults Upon Senior Securities | ||||
Item | Submission of Matters to a Vote of Security Holders | ||||
Item | Exhibits | ||||
Signatures | |||||
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 September 30, 2017March 31, 2019 and December 31, 2016,2018, and its results of operations for the three month and nine month periods ended September 30, 2017March 31, 2019 and 20162018 and its cash flows for the ninethree month periods ended September 30, 2017March 31, 2019 and 2016.2018. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Company’s annual report on Form 10-K
10-K.
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 | ||||
Thanksgiving Coffee Company, Inc. |
Restated |
Balance Sheets |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited & Restated) | See Note 1 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 199,373 | $ | 153,646 | ||||
Accounts receivable, net of allowance | 281,982 | 218,789 | ||||||
Inventories | 261,385 | 237,708 | ||||||
Prepaid expenses | 99,304 | 90,431 | ||||||
Total current assets | 842,044 | 700,574 | ||||||
Property and equipment | ||||||||
Property and equipment | 1,467,060 | 1,470,182 | ||||||
Right of Use Lease Assets | 627,790 | |||||||
Accumulated depreciation | (1,200,131 | ) | (1,161,533 | ) | ||||
Total property and equipment | 894,719 | 308,649 | ||||||
Other assets | ||||||||
Deposits and other assets | 5,986 | 4,168 | ||||||
Total other assets | 5,986 | 4,168 | ||||||
Total assets | $ | 1,742,749 | $ | 1,013,391 | ||||
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc. |
Restated |
Balance Sheets |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited & Restated) | See Note 1 | |||||||
Liabilities and shareholders' equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 280,980 | $ | 217,828 | ||||
Accued Liabilities | 28,978 | 62,817 | ||||||
Current Operating Lease Liabilities | 93,336 | |||||||
Current portion of long term debt | 39,492 | 48,262 | ||||||
Total current liabilities | 442,786 | 328,907 | ||||||
Long term debt | ||||||||
Long-term debt | 71,572 | 84,564 | ||||||
Less current portion of long term debt | (39,492 | ) | (48,262 | ) | ||||
Noncurrent Operating Lease | 510,275 | |||||||
Total long term debt | 542,355 | 36,302 | ||||||
Total liabilities | 985,141 | 365,209 | ||||||
Shareholders' equity | ||||||||
Common stock, no par value, 1,960,000 shares authorized, 1,236,744 shares issued and oustanding | 861,816 | 861,816 | ||||||
Additional paid in capital | 24,600 | 24,600 | ||||||
Accumulated deficit | (128,808 | ) | (238,234 | ) | ||||
Total shareholders' equity | 757,608 | 648,182 | ||||||
Total liabilities and shareholders' equity | $ | 1,742,749 | $ | 1,013,391 | ||||
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc. |
Statements of Income and Retained Earnings |
Unaudited |
For the Three Months | ||||||||
Ended March 31, | ||||||||
2019 | 2018 | |||||||
Income | ||||||||
Net sales | $ | 1,092,135 | $ | 795,036 | ||||
Cost of sales | 594,372 | 483,078 | ||||||
Gross profit | 497,763 | 311,958 | ||||||
Operating expenses | ||||||||
Selling, general and administrative expenses | 367,653 | 365,490 | ||||||
Depreciation and amortization | 18,261 | 21,382 | ||||||
Total operating expenses | 385,914 | 386,872 | ||||||
Operating gain (loss) | 111,849 | (74,914 | ) | |||||
Other income (expense) | ||||||||
Miscellaneous income | 13 | 1,608 | ||||||
Interest expense | (1,636 | ) | (1,638 | ) | ||||
Total other income (expense) | (1,623 | ) | (30 | ) | ||||
Gain (loss) before income taxes | 110,226 | (74,944 | ) | |||||
Income tax expense | (800 | ) | - | |||||
Net income (loss) | $ | 109,426 | $ | (74,944 | ) | |||
Accumulater Deficit, beginning of the year | $ | (238,234 | ) | $ | (201,998 | ) | ||
Accumulated Deficit , end of the year | $ | (128,808 | ) | $ | (276,942 | ) | ||
Income (loss) per share (basic and diluted) | $ | 0.09 | $ | (0.06 | ) | |||
Weighted average number of shares | 1,236,744 | 1,236,744 | ||||||
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 Cash Flows |
Unaudited |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Operating activities | ||||||||
Net Income(loss) | $ | 109,426 | $ | (74,944 | ) | |||
Adjustments to reconcile net income (loss) to cash flows from operating activities: | ||||||||
Depreciation and amortization | 18,262 | 21,382 | ||||||
(Increase) decrease in: | ||||||||
Accounts receivable | (63,193 | ) | 17,698 | |||||
Inventories | (23,677 | ) | 37,982 | |||||
Prepaid expenses | (8,872 | ) | (24,138 | ) | ||||
Deposits and other assets | (1,818 | ) | (920 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable | 63,152 | (13,408 | ) | |||||
Accrued liabilities | (33,839 | ) | (21,398 | ) | ||||
Net cash provided by (used in) operating activities | 59,441 | (57,746 | ) | |||||
Investing activities | ||||||||
Purchases of property and equipment | (723 | ) | (7,563 | ) | ||||
Net cash (used in) investing activities | (723 | ) | (7,563 | ) | ||||
Financing activities | ||||||||
(Repayments) issuances of notes payable and capital leases | (12,991 | ) | (11,383 | ) | ||||
Net cash (used in) financing activities | (12,991 | ) | (11,383 | ) | ||||
Increase (decrease) in cash | 45,727 | (76,692 | ) | |||||
Cash at beginning of period | 153,646 | 160,392 | ||||||
Cash at end of period | $ | 199,373 | $ | 83,700 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 1,636 | $ | 1,638 | ||||
Income taxes | $ | 800 | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Non-cash additions to property and equipment | $ | 623,945 | $ | - | ||||
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
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 nine months ending September 30, 2017and September 30, 2016.
See accompanying notes to financial statements
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
September 30, 2017 (unaudited)
March 31, 2019 and December 31, 20162018
1. Basis of Presentation
The unaudited condensed financial statements in this Form 10-Q10-QA 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-Q10-QA 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 2018 Form 10-K filed with the Securities and Exchange Commission (SEC). It is suggested that these statements be read in conjunction with the December 31, 20162018 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-Q10-QA 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 ninethree months ended September 30, 2017March 31, 2019 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 2019, one customer accounted for 11.24%38.10% of the Company’s revenue. This customerThe account has purchased from the Company since 1992,1992. The account is a distributor of the Company’s product. This distributor had a set back in opening their new main café / roaster and has several locations.Thanksgiving will continue to roast all their coffees until they are again operational. 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.basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.
Revenue Recognition
In May 2014, the FASB issued accounting guidance which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09“). ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. On August 12, 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,“ which defers the effective date of ASU 2014-09 by one year allowing early adoption as of the original effective date of January 1, 2017. The deferral results in the new accounting standard being effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. ASU 2014-09 is effective for the Company beginning January 1, 2019.
On January 1, 2019, the Company adopted ASU 2014-09, using the modified retrospective method for all contracts not completed as of the date of adoption. Adoption of ASU 2014-09 did not have a material effect on the results of operations, financial position or cash flows of the Company.
The Company’s accounting policy for revenue was updated as a result of the adoption of ASU 2014-09. The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 2014-09 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for the goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 2014-09, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize the revenue when (or as) the entity satisfies a performance obligation.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
September 30, 2017 (unaudited)
March 31, 2019 and December 31, 20162018
The Company has evaluated the provisions of ASU 2014-09 and assessed its impact on the Company’s financial statements, information systems, business processes, and financial statement disclosures. The Company has analyzed its revenue streams, performed detailed contract reviews for each stream, and evaluated the impact ASU 2014-09 will have on revenue recognition. The Company’s primary sources of revenue are sales of coffee and complementary products. The Company primarily recognizes revenue at point of sale or delivery and has determined that this will not change under the new standard. The adoption of ASU 2014-09 did not have a material effect on the results of operations, financial position or cash flows of the Company.
Leases
We adopted ASU No. 2016-02—Leases (Topic 842), as amended, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.
In addition, we elected the hindsight practical expedient to determine the lease term for existing leases. In our application of hindsight, we evaluated the performance of the leased warehouse and office equipment, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term
Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $627,790 and $603,611 respectively, as of March 31, 2019. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
March 31, 2019 and December 31, 2018
2. | Accounts Receivable |
Accounts receivable consist of the following:
| 9/30/2017 | 12/31/2016 | 3/31/2019 | 12/31/2018 | |||||||||||||
| Accounts receivable | $ | 211,518 | $ | 246,616 | $ | 289,152 | $ | 226,104 | ||||||||
| Less: allowance for doubtful accounts | (5,552 | ) | (6,878 | ) | (7,170 | ) | (7,315 | ) | ||||||||
| Net accounts receivable | $ | 205,966 | $ | 239,738 | $ | 281,982 | $ | 218,789 | ||||||||
The Company utilizes a percentage method to establish the allowance for doubtful accounts. The estimated allowance ranges from 1% to 10% of outstanding receivables based on factors pertaining to the credit risk of specific customers, historical trends and other information. Delinquent accounts are written off when it is determined that amounts are uncollectible. Bad debt expense (recovery) for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 was $(1,326)$924 and $(661),($1,727) respectively.
As of March 31, 2019, accounts receivables from company A in the amount of $1,192 has been outstanding since February 2018, receivables from company B in the amount of $4,642 has been outstanding since October 2018 and accounts receivable from company C in the amount of $2,608 have been outstanding since December 2018. Because the Company has an on going business relationship with these companies it anticipates collecting the full amount.
3. | Inventories |
Inventories consist of the following:
| 9/30/2017 | 12/31/2016 | 3/31/2019 | 12/31/2018 | |||||||||||||
| Coffee | ||||||||||||||||
| Unroasted | $ | 81,782 | $ | 168,003 | $ | 165,398 | $ | 161,355 | ||||||||
| Roasted | 61,501 | 55,066 | 56,620 | 34,420 | ||||||||||||
| Tea | 2,444 | 1,690 | 1,788 | 1,723 | ||||||||||||
| Packaging, supplies and other merchandise held for sale | 57,286 | 54,992 | 37,579 | 40,210 | ||||||||||||
| Total inventories | $ | 203,014 | $ | 279,751 | $ | 261,385 | $ | 237,708 | ||||||||
4. | Property and Equipment |
Property and equipment consist of the following:
| 9/30/2017 | 12/31/2016 | |||||||||||||||
| Equipment | $ | 516,229 | $ | 506,939 | ||||||||||||
| Furniture and fixtures | 143,410 | 138,715 | ||||||||||||||
| Leasehold improvements | 352,237 | 352,237 | 368,954 | 366,698 | ||||||||||||
| Transportation equipment | 150,686 | 146,133 | 64,202 | 178,497 | ||||||||||||
| Package design | 41,000 | 41,000 | ||||||||||||||
Right of use lease assets | 627,790 | - | ||||||||||||||
Pacakge design | 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 | ||||||||||||||
Property held under finance leases | 340,159 | 225,864 | ||||||||||||||
| Total property and equipment | $ | 1,437,358 | $ | 1,418,820 | 2,094,851 | 1,470,182 | ||||||||||
| Accumulated depreciation | (1,080,096 | ) | (992,441 | ) | (1,200,131 | ) | (1,161,533 | ) | ||||||||
| Property and equipment, net | $ | 357,262 | $ | 426,379 | $ | 894,720 | $ | 308,649 | ||||||||
Depreciation and amortization expense for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 was $92,215$18,262 and $92,696,$21,382 respectively.
Included in cost of goods sold is $25,554Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
March 31, 2019 and $28,064 of depreciation expense, respectively, for the nine months ending September 30, 2017 and September 30, 2016. December 31, 2018
5. Finance Lease and Operating Lease
ASU No. 2016-02, “Leases (Topic 842)” requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard, and, therefore, those amounts are not presented below.
We lease a warehouse, heavy machinery, and office equipment under finance and operating leases. As of March 31, 2019, we had two operating and five finance leases with remaining terms ranging from less than one year to six years. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Some of our leases include renewal options that are factored into our determination of lease payments when appropriate. We did not separate lease and non-lease components of contracts for any asset class.
None of our leases require us to provide a residual value guarantee. When available, we use the rate implicit in the lease to discount lease payments to present value; however some of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Lease Position as of March 31, 2019
The table below presents the lease-related assets and liabilities recorded on the balance sheet.
Classification on the Balance Sheet | March 31, 2019 | ||||||
Assets
Operating lease assets
Operating lease right-of-use assets
Finance lease assets
Property and equipment, net
Total lease assets
Liabilities
Current
Operating
Current maturities of operating leases
Finance
Current maturities of finance leases
Noncurrent
Operating
Noncurrent operating leases
Finance
Long-term finance leases
Total lease liabilities
Weighted-average remaining lease term
Operating leases (in years)
Finance leases (in years)
Weighted-average discount rate
Operating leases
Finance leases
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
September 30, 2017 (unaudited)
March 31, 2019 and December 31, 2016
| 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 | ||||
Interest paid for the nine months ended September 30, 2017 and 2016 was $5,500 and $6,784, respectively.2018
As of September 30, 2017, maturities of notes payable
Lease Costs
The table below presents certain information related to the lease costs for finance and capital lease obligationsoperating leases during Q1 2019.
Quarter Ended March 31, 2019 | |||||
Finance lease cost: | $ | 12,314 | |||
Amortization of assets | $ | 10,682 | |||
Interest on lease liabilities | $ | 1,632 | |||
Operating lease cost: | $ | 26,921 | |||
Short-term lease cost | $ | 0 | |||
Variable lease cost | $ | 0 | |||
Total lease cost | $ | 39,235 | |||
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
March 31, 2019 and December 31, 2018
Other Information
The table below presents supplemental cash flow information related to leases through Q1 2019.
Cash paid for amounts included in the measurement of lease liabilities: | Quarter Ended March 31, 2019 | ||||
Operating cash flows for operating leases | $ | 26,921 | |||
Operating cash flows for finance leases | $ | 1,632 | |||
Financing cash flows for finance leases | $ | 10,682 | |||
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the next fourfirst five years and intotal of the aggregate were as follows:remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.
| Years Ending September 30, | ||||
| 2018 | $ | 38,004 | ||
| 2019 | 40,554 | |||
| 2020 | 22,779 | |||
| $ | 101,337 | |||
Operating Leases | Finance Leases | ||||||||
2019 | 80,880 | 36,949 | |||||||
2020 | 107,685 | 26,690 | |||||||
2021 | 107,685 | 12,555 | |||||||
2022 | 106,939 | 2,633 | |||||||
2023 | 103,200 | - | |||||||
2024 | 103,200 | - | |||||||
Thereafter | 43,000 | - | |||||||
Total minimum lease payments | 652,589 | 78,827 | |||||||
Less: amount of lease payments representing interest | (48,978 | ) | (7,253 | ) | |||||
Present value of future minimum lease payments | 603,611 | 71,572 | |||||||
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
March 31, 2019 and December 31, 2018
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 Statements
September 30, 2017 (unaudited) and December 31, 2016
The Company leases some office equipment under non cancelable operating leases.9. Related Party Transactions
As of September 30, 2017, 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 | ||
| 2021 | 326 | |||
| $ | 9,953 | |||
Total operating lease payments for the nine months ended September 30, 2017 and 2016 were $6,094 and $5,526 respectively.
The Company leases its corporate headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Company’s majority shareholders). The lease is classified as an operating lease and provides for monthly rental payments of $8,600. The Company is responsible for all real estate taxes, insurance and maintenance costs related to the facilities. The ten-year lease term ends MayMarch 31, 2025. As of September 30, 2017, minimum future rental payments under non cancelable facilities operating leases for each of the next five years and in the aggregate are as follows:
| Years ending September 30, | ||||
| 2018 | $ | 103,200 | ||
| 2019 | 103,200 | |||
| 2020 | 103,200 | |||
| 2021 | 103,200 | |||
| 2022 | 103,200 | |||
| Thereafter | 275,200 | |||
| $ | 791,200 | |||
9. Related Party Transactions
As of September 30, 2017,2019, the Company hashad green coffee contracts with three cooperatives in Nicaragua. Ethical Trading and Investment Company of Nicaragua (ETICO) is the importer for the transactions. Nicholas Hoskyns, a directorDirector of the company,Company, is the managing directorDirector of ETICO. As of September 30, 2017,At March 31, 2019, amounts owed to ETICO totaled $40,083.$45,588 and in 2018 was $26,929. In the first three months of March 31, 2019 and 2018 we have paid $148,105 and $194,226 respectively. All the amounts owed are current and were paid in accordance with our standard vendor payment policies. The loss of the ETICO relationship could have an adverse effect on the Company’s business in the short term. Management believes other options are available that could be utilized in the event the ETICO relationship was terminated.
The 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.
10. Disclosure
During 2019, The Company determined that the Application of ASC 842 had not been accounted for in accordance with U.S. GAAP. This error was discovered after the issuance of the 2019 March 31st Quarterly Financial Statements. The Company has restated its Balance Sheet, Statements of Operations, Statements of Cash Flows, and Notes to Financial Statements for the Quarter ended March 31, 2019.
2019 | ||||||||
As Previously Reported | As Restated | |||||||
At March 31 2019: | ||||||||
Right of Use Lease Assets | $ | - | $ | 627,790 | ||||
Accumulated Depreciation | (1,175,950 | ) | (1,200,131 | ) | ||||
Current Operating Lease Liabilities | - | 93,336 | ||||||
Noncurrent Operating Lease | - | 510,275 | ||||||
For the Three Months Ended March 31: | ||||||||
Supplemental Disclosure of non-cash investing and financing activities: | ||||||||
Non-cash additions to property and equipment | - | 623,945 | ||||||
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-Q10-QA contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. In some cases, forward-looking statements may be identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements relate to, among other things, possible expansions into new and existing markets and trends in the operations of Thanksgiving Coffee Company, Inc. (“the Company”). Any forward-looking statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. These various risks and uncertainties include, but are not limited to: changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products and in the availability and costs of green beans, continuing competition within the Company’s businesses, variances from budgeted sales mix and growth rate, consumer acceptance of the Company’s products, inability to secure adequate capital to fund its operating expenses and working capital requirements, inability to hire, train and retain qualified personnel, concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully implement the Company’s sales goals, natural disasters, civil unrest in countries which produce coffee and tea, weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this Quarterly Report on Form 10-Q. The Company’s forward-looking statements should also be considered in light of its reviewed financial statements, related notes and the other financial information appearing elsewhere in this report and in its other filings with the Securities and Exchange Commission. As a result of these risks and uncertainties, the Company’s actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company assumes no obligation to update any forward-looking statements.
SUMMARY
Sales of the Company have eroded over the last fiveprior 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. TheIn the first quarter of this year the Company has triedis experiencing an increase in sales because one of its distributors had a fire which curtailed what they could roast in house. In addition, the Company continues to try a number of strategies that 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 ourits on-line sales with the main focus of promoting our award as “Roaster of the Year for 2017”, from Roast magazine.a continued emphasis on its presence in social media, growing its email list and linking its search optimization. The effecteffects of these changes on the Company’s sales has been limited but has reducedwill reduce 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 the market price, because of the higher quality, the organic nature of many of its lines and the fact that it uses fair-traded coffees. 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
NineThree months ended September 30, 2017March 31, 2019 versus September 30, 2016March 31, 2018
Increase (Decrease) | Percent Change | |||||||
Net Sales | $ | 297,099 | 37.4 | % | ||||
Cost of Sales | 111,294 | 23.0 | % | |||||
Gross Margin% | 185,805 | 59.6 | % | |||||
Selling, G&A Expense | 2,163 | 0 .6 | % | |||||
Depreciation And Amortization | (3,120 | ) | (14.6 | %) | ||||
Other | (1,593 | ) | 5,310 | % | ||||
Net Gain/Loss | 184,369 | (246 | %) | |||||
| Income and Expense | Increase (Decrease) | Percent Change | ||||||
| Net Sales | $ | (35,691 | ) | -1.3 | % | |||
| Cost of Sales | (97,410 | ) | -6.09 | % | ||||
| Gross Margin % | - | 2.9 | % | |||||
| Selling, G&A Expense | (35,745 | ) | -3.21 | % | ||||
| Depreciation And Amortization | 2,056 | 3.18 | % | |||||
| Net Profit (Loss) | (64,944 | ) | -55.17 | % | ||||
Net sales for the ninethree months ending September 30, 2017ended March 31, 2019 were $2,625,044 down 1.3%$1,092,135, up 37.4%, (or down by $35,691),or over $297,099 when compared towith net sales of $2,660,735$795,036 for the same period in fiscal 2016. 2018
Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down by ($56,253),$28,098 or (5.25%(9.01%) for the ninethree months ending September 30, 2017,ended March 31, 2019, when compared with distribution sales for the same period in 2016. Sales on the coast2018. The decline appears to be a result of Mendocino continue to rise.slower volume for existing customers as no customers have been lost.
National revenues (e.g., revenues not derived by mail order and direct truck distribution) were up $26,312increased $321,780, or 2.09%84.55% for the ninethree months ending September 30, 2017ended March 31, 2019 when compared to national sales for the same period in 2016.2018. This increase reflects the increased sales from a distributor who suffered a major fire and was not able to fulfill all their orders for the cafes they own. Thanksgiving is roasting all their coffees and not a selected variety as in the past. This is a short term fix until they are again fully operational.
Mail order revenues (e.g., revenues generated from productproducts sold directly to the consumer either through print media or the Internet) were down $9,051; 2.67%decreased $17,300 or (13.92%) for the ninethree months ending September 30, 2017ended March 31, 2019 when compared to mail order sales for the same period in 2016.2018. The decrease in the mail order division was attributable to the increase in completion with other on line competitors.
Cost of sales for the ninethree months ending June 30, 2017 was $1,501,060 down by 6.09%; ($97,410)ended March 31, 2019 were $594,372, up 23%, or $111,294 when compared to the cost of sales of $1,598,470$483,078 for the same period in 2016. This decrease was a result of lower costs of green beans. Cost per pound of green beans2018. The increase reflects the increase in sales in the second quarter was $2.70 in 2017 versus $2.83 for the same period in 2016, creating a $77,424 cost savings.first three months of 2019.
Gross margin percentage (gross profit as a percentage of net sales) for the ninethree months ending September 30, 2017,ended March 31, 2019 was, 42.82%, up almost 3%59.6% when compared with the increased gross margin of 39.9%12.84% for the same period in 2016. The2018. Increased sales in the three months ended March 2019 resulted in an increase in gross margin was a result of lower green bean costs and better efficienciesmargins amounts compared to the same period in our overall inventory.2018.
Selling,Consolidated selling, general and administrative expenses were $1,077,586$367,653 for the ninethree months ending September 30, 2017, a decreaseended March 31, 2019, an increase of 3.21% ($35,745)0.6% when compared towith the selling, general and administrative expenses of $1,113,331$365,490 for the same period in 2016.2018. The decreaseincrease was a result of workers’ compensation rates andreduced audit fees.fees in 2018.
Depreciation and amortization expenses for the ninethree months ending September 30, 2017,ended March 31, 2019 were $92,215,$18,262, a (14.6%) decrease, of 0.5% (or $454)or nearly ($3,120) when compared to the depreciation and amortization expense of $92,669$21,382 for the same period in 2016. 2018. The decrease reflects the disposal of old equipment.
As a result of the foregoing factors, the Company had arecorded net lossincome of ($52,772)$109,425 for the ninethree months ending September 30, 2017,ended March 31, 2019, compared to a loss of $117,717($74,944) 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.2018.
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 September 30, 2017March 31, 2019, the Company had working capital of $413,300$399,258 versus working capital of $387,199$371,667 as of December 31, 2016.2018. The increase in working capital is due primarily toprofitable results experienced in the decrease in accounts payable.quarter ended March 31, 2019.
Net cash provided by operating activities was $43,796$59,440 for the ninethree months ending September 30, 2017,ended March 31, 2019 compared to $12,033 fornet cash used in operating activities of ($57,746) during the nine months ending September 30, 2016.same period in 2018. The increase of $31,773 or 265%in the net cash was principallydue to the result of a decreaseincrease in inventory.net revenue.
Net cashCash used in investing activities was ($18,538)723) for the ninethree months ending September 30, 2017,ended March 31, 2019 compared to ($93,058)7,563) 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.2018.
Net cash used in financing activities for the ninethree months ending September 30, 2017ended March 31, 2019 was ($6,933)12,991) 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($11,383) during the same period in 2018. The cash used by financing activities was a result of paying existing debts.debt.
As of September 30, 2017,At March 31, 2018, the Company had total borrowings of $101,338. This compares to total borrowings of $130,297 as of December 31, 2016.$71,572.
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 | ||||||||||||||||||||
Contractual Obligations |
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 | ||||||||||
| Operating Leases | 9,952 | 9,626 | 326 | 0 | 0 | |||||||||||||||
| Real Estate Leases | 791,200 | 103,200 | 309,600 | 206,400 | 172,000 | |||||||||||||||
| Total Cash Obligations | $ | 902,489 | $ | 150,830 | $ | 373,259 | $ | 206,400 | $ | 172,000 | ||||||||||
Payments Due By Period | |||||||||||||||||||||
Contractual Obligations |
Total | Less than One year |
1-3 years |
4-5 years |
After 5 years | ||||||||||||||||
Debt | $ | 71,573 | $ | 39,948 | $ | 34,625 | $ | - | $ | - | |||||||||||
Operating Leases | 15,361 | 3,369 | 11,992 | - | - | ||||||||||||||||
Real Estate Leases | 636,400 | 77,400 | 309,600 | 206,400 | 43,000 | ||||||||||||||||
Total Cash Obligations | $ | 723,334 | $ | 120,717 | $ | 356,217 | $ | 206,400 | $ | 43,000 | |||||||||||
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 —“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 2019 the Company continues to keep tight control on its inventory supply, resulting in less on hand in the first quarter of 2019.
Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past seasonal patterns are not necessarily indicative of future results.
INDEMNIFICATION MATTERS
The Company’s Bylaws provide that the Company may indemnify its directors, officers, employees and other agents to the fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such liability insurance for its directorsDirectors and certain officers and employees.
At present, there is no pending litigation or proceeding involving any director,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.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s stock is generally illiquid and there have been few trades in recent years. There have been two trades in the Company’s Common Stock since 1999. In June 2004, 750 shares were traded at $4.50 per share. In December 2005, 400 shares were traded at $2.00 per share.
ITEM 4.CONTROLS AND PROCEDURES
An evaluation was performed underUnder the supervision of and with the participation of the Company’sour management, including theour Chief Executive Officer and the President, we conducted an evaluation of the effectiveness of the Company’sour disclosure controls and procedures, as such term is defined under the Securities and Exchange Act of September 30, 2017.1934 Rules 13a-15(f). Based on thatthis evaluation, the Company’s management, including theour Chief Executive Officer and the President concluded that the Company’s disclosure controls and procedures were effective. There have been no changesnot effective as of December 31, 2018.
Management has identified the following material weakness in the Company’s Disclosure controlsour internal control over financial reporting during the second quarter of 2017 that have materially affected or are reasonably likely to affect the Company’s internal controls over financial reporting.reporting:
● | Application of New Accounting Standards – we did not have appropriate controls in place to ensure proper and timely implementation of new accounting standards; specifically with respect to the adoption of ASC 842 – Leases. |
Notwithstanding the existence of these material weaknesses in our internal controls, we believe that our consolidated financial statements fairly present, in all material respects, our balance sheets at March 31, 2019 and our statements of operations, stockholders’ deficit and cash flows for the years ended March 31, 2019 in conformity with GAAP.
Part II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-None-
ITEM 1A. RISK FACTORSFactors
OurThe Company has concerns regarding the current economic situation. The United States and the global economy is experiencing instability in the commercial and investment banking systems which are likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and the Company’s operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.
The Company’s coffee roasting facility is subject to state and local air-quality and emissions regulations. If we encounterthe Company encounters difficulties in obtaining any necessary licenses or complying with these laws and regulations ourits ability to produce any of ourits roasted products would be severely limited. We believe that we areThe Company believes it is in compliance in all material respects with all such laws and regulations and we havehas obtained all material licenses that are required for the operation of ourits business. We are not awareThe Company is unaware of any environmental regulations that have or that we believe willcould 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-– None –
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Financial Statement Schedules
Not Applicable
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, 2018. |
*** | 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 | December 5, 2019 | ||
Paul Katzeff | ||||
/s/ Joan Katzeff | President | |||
Joan Katzeff |
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15