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 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-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, 20172019 are not necessarily indicative of results to be expected for the full year.

Concentration of Risk

ForIn the nine months period ending September 2017,second quarter of fiscal 2019, one customer accounted for 11.24%39.08% of the Company’s revenue. ThisThe first six months of June 30, 2019 one customer accounted for 39.05%. The account has purchased from the Company since 1992 and has several locations.is a distributor of the Company’s product. This distributor had a set back in opening in their new main café/roaster and Thanksgiving continues to roast all their coffees until they are operational again. 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. 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

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.7. Related Party Transactions

As of SeptemberJune 30, 2017, minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:

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 May 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:

9. Related Party Transactions

As of September 30, 2017,2019, the Company has green coffee contracts with three cooperatives in Nicaragua.Nicaragua, Guatemala and Uganda. Ethical Trading and Investment Company of Nicaragua (ETICO) is the importer for the transactions. Nicholas Hoskyns, a director of the company, is the managing director of ETICO. As of SeptemberAt June 30, 2017,2019, amounts owed to ETICO totaled $40,083.$31,452. For the first six months ended June 30, 2019 and 2018 we have paid $290,930 and $313,800 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.

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 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 and second 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 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, 2019 versus SeptemberJune 30 2016, 2018

Net sales for the ninesix months ending Septemberended June 30, 20172019 were $2,625,044 down 1.3%$2,253,779 up 39.7%, (or down by $35,691),or over $639,988 when compared towith net sales of $2,660,735$1,613,791 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),$47,523 or (5.25%(7.47%) for the ninesix months ending Septemberended June 30, 2017,2019, 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 customer have been lost.

National revenues (e.g., revenues not derived by mail order and direct truck distribution) were up $26,312$82,910 or 2.09%25.44% for the ninesix months ending Septemberended June 30, 20172019 when compared to national sales for the same period in 2016.2018. The 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 of their coffees and not a selected variety as in the past. This is a short term fix and they will be fully operational in the upcoming quarter.

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 $1,009, or 3.25% for the ninesix months ending Septemberended June 30, 20172019 when compared to mail order sales for the same period in 2016.2018. The decrease is attributable to the increase in competition with other on line competitors.

Cost of sales for the ninesix months endingended June 30, 2017 was $1,501,060 down by 6.09%; ($97,410)2019 were $1,235,720, up 31.8%, or $298,208 when compared towith the cost of sales of $1,598,470$937,507 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 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 2019.

Gross margin percentage (gross profit as a percentage of net sales) for the ninesix months ending Septemberended June 30, 2017,2019 was 42.82%, up almost 3%45.17% percentage points when compared with the gross margin of 39.9%41.9% 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.2018.

Selling,Consolidated selling, general and administrative expenses were $1,077,586$714,859 for the ninesix months ending Septemberended June 30, 2017, a decrease2019, an increase of 3.21% ($35,745)4.5% when compared towith the selling, general and administrative expenses of $1,113,331$683,864 for the same period in 2016.2018. The decreaseincrease was a result of workers’ compensation ratesincrease in freight, printing and audit fees.auto expenses.

Depreciation and amortization expenses for the ninesix months ending Septemberended June 30, 2017,2019 were $92,215,$34,671, a (26.7%) decrease, of 0.5% (or $454)or nearly ($12,597) when compared to depreciation and amortization expense of $92,669$47,268 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 a net lossincome of ($52,772)$264,822 for the ninesix months ending Septemberended June 30, 2017,2019, compared to a loss of $117,717$58,990 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 SeptemberJune 30, 20172019, the Company had working capital of $413,300$631,096 versus working capital of $387,199$371,667 as of December 31, 2016.2018. The increase in working capital is due primarily to profitable results experienced in the decrease in accounts payable.quarter ended June 30, 2019.

Net cash provided by operating activities was $43,796$268,335 for the ninesix months ending Septemberended June 30, 2017,2019 compared to $12,033 fornet cash used by activities of $7,651 during the nine months ending September 30, 2016.same period in 2018. The increase of $31,773 or 265%in cash was principally the result ofdue to a decreasetemporary increase in inventory.roasting for one distributor.

Net cashCash used in investing activities was ($18,538)723) for the ninesix months ending Septemberended June 30, 2017,2019 compared to ($93,058)20,808) 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 ninesix months ending Septemberended June 30, 20172019 was ($6,933)41,006) 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($4,298) during the same period in 2018. The cash used by financing activities was a result of paying existing debts.debt.

As of SeptemberAt June 30, 2017,2019, the Company had total borrowings of $101,338. This compares to total borrowings of $130,297 as of December 31, 2016.$60,692.

For long-term debt, see Note 5 of the Notes to Financial Statements. For operating leases, see Note 7 of the Notes to Financial Statements. For real estate leases, see Note 8 of the Notes to Financial Statements.

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 2018 the Company has been keeping a tighter control on its inventory supply, resulting in fewer inventory supplies on hand. In the first quarter of 2019, 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 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:

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 June 30, 2019 and our statements of operations, stockholders’ deficit and cash flows for the years ended June 30, 2019 in conformity with GAAP.

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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 4. REMOVE AND RESERVED– 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