UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
Amendment No. 1
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 20212023
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: 001-32491
Coffee Holding Co., Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 11-2238111 | |
(State or other jurisdiction of
| (I.R.S. Employer
|
| 3475 Victory Boulevard, Staten Island, New York | 10314 | |
| (Address of principal executive offices) | (Zip Code) |
(718) 832-0800
(Registrant’s telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed from last report)
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.001 per share | JVA | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “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-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
shares of common stock, par value $0.001 per share, are outstanding at June 17, 2021.12, 2023.
EXPLANATORY NOTE
Coffee Holding Co., Inc. (the “Company”) hereby amends its Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2021, filed with the Securities and Exchange Commission (the “SEC”) on June 14, 2021 (the “Original Quarterly Report”), as set forth in this Amendment No. 1 on Form 10-Q/A (the “Form 10-Q/A” or “Amended Quarterly Report”), to restate its financial statements and related disclosures as of and for the fiscal quarter ended April 30, 2020.
Restatement Background
The Company has determined that it made certain errors in the presentation of net sales and cost of sales in its consolidated statements of operations in the Company’s financial statements during the fiscal year ended October 31, 2020. The effect of these errors was to overstate net sales and cost of sales for the reported period. The Company therefore has found it necessary to file this Amended Quarterly Report to adjust the comparative periods presented. The errors and the required restatement had no effect on the Company’s net income or earnings per share or other items in the consolidated statement of operations as of any reporting date and had no impact on the Company’s consolidated balance sheets, consolidated statements of changes in stockholders’ equity, or consolidated statements of cash flows.
This Amended Quarterly Report sets forth the Original Quarterly Report, as modified and superseded where necessary to reflect the restatement and the related internal control considerations. Accordingly, the following items included in the Original Quarterly Report have been amended:
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Company is also including with this Amended Quarterly Report currently dated certifications of the Company’s Chief Executive Officer and Principal Financial Officer (attached as Exhibits 31.1 and 32.1). Except as discussed above and as further described in Note 2 in the Notes to Condensed Financial Statements, the Company has not modified or updated disclosures presented in this Amended Quarterly Report. Accordingly, the Amended Quarterly Report does not reflect events occurring after the Original Quarterly Report or modify or update those disclosures affected by subsequent events. Information not affected by the restatement is unchanged and reflects disclosures made at the time of the filing of the Original Quarterly Report.
As a result of the restatement, the Company has concluded there was a material weakness in its internal control over financial reporting as of April 30, 2021, and its disclosure controls and procedures were not effective. See additional discussion included in Part I, Item 4 of this Amended Quarterly Report.
TABLE OF CONTENTS
| 2 |
PART I
ITEM 1 – FINANCIAL STATEMENTS.
COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 30, 2023 AND OCTOBER 31, 2022
| April 30, 2021 | October 31, 2020 | |||||||
| (Unaudited) | ||||||||
| - ASSETS - | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 3,528,137 | $ | 2,875,120 | ||||
| Accounts receivable, net of allowances of $144,000 for 2021 and 2020 | 6,699,429 | 7,408,905 | ||||||
| Inventories | 15,166,997 | 17,102,993 | ||||||
| Prepaid expenses and other current assets | 663,423 | 490,246 | ||||||
| Due from broker | 107,083 | - | ||||||
| Prepaid and refundable income taxes | 53,621 | 145,305 | ||||||
| TOTAL CURRENT ASSETS | 26,218,690 | 28,022,569 | ||||||
| Machinery and equipment, at cost, net of accumulated depreciation of $7,916,941 and $7,610,864 for 2021 and 2020, respectively | 2,488,686 | 2,197,319 | ||||||
| Customer list and relationships, net of accumulated amortization of $215,755 and $194,379 for 2021 and 2020, respectively | 469,245 | 490,621 | ||||||
| Trademarks and tradenames | 1,488,000 | 1,488,000 | ||||||
| Non-compete, net of accumulated amortization of $59,400 and $49,500 for 2021 and 2020, respectively | 39,600 | 49,500 | ||||||
| Goodwill | 2,488,785 | 2,488,785 | ||||||
| Equity method investments | 557,489 | 561,405 | ||||||
| Deferred income tax asset | 714,076 | 782,175 | ||||||
| Right of Use Asset | 1,954,072 | 2,114,228 | ||||||
| Deposits and other assets | 416,476 | 285,548 | ||||||
| TOTAL ASSETS | $ | 36,835,119 | $ | 38,480,150 | ||||
| - LIABILITIES AND STOCKHOLDERS’ EQUITY - | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 4,006,972 | $ | 3,036,097 | ||||
| Lease liability – current portion | 500,804 | 484,163 | ||||||
| Note payable – current portion | 2,568 | 5,075 | ||||||
| Due to broker | - | 452,325 | ||||||
| Income taxes payable | 260,982 | 5,371 | ||||||
| TOTAL CURRENT LIABILITIES | 4,771,326 | 3,983,031 | ||||||
| Deferred income tax liabilities | 969,032 | 882,582 | ||||||
| Line of credit | 2,500 | 3,796,822 | ||||||
| Lease liability | 1,580,684 | 1,780,306 | ||||||
| Note payable – long term | 17,292 | 17,292 | ||||||
| Deferred compensation payable | 307,476 | 276,548 | ||||||
| TOTAL LIABILITIES | 7,648,310 | 10,736,581 | ||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Coffee Holding Co., Inc. stockholders’ equity: | ||||||||
| Preferred stock, par value $ per share; shares authorized; issued | - | - | ||||||
| Common stock, par value $ per share; shares authorized, shares issued for 2021 and 2020; shares outstanding for 2021 and 2020 | 6,634 | 6,634 | ||||||
| Additional paid-in capital | 18,309,261 | 17,929,724 | ||||||
| Retained earnings | 14,250,224 | 13,215,868 | ||||||
| Less: Treasury stock, common shares, at cost for 2021 and 2020 | (4,633,560 | ) | (4,633,560 | ) | ||||
| Total Coffee Holding Co., Inc. Stockholders’ Equity | 27,932,559 | 26,518,666 | ||||||
| Non-controlling interest | 1,254,250 | 1,224,903 | ||||||
| TOTAL EQUITY | 29,186,809 | 27,743,569 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 36,835,119 | $ | 38,480,150 | ||||
| April 30, 2023 | October 31, 2022 | |||||||
| (Unaudited) | ||||||||
| - ASSETS - | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 1,468,012 | $ | 2,515,873 | ||||
| Accounts receivable, net of allowances of $144,000 for 2023 and 2022 | 6,604,418 | 7,816,473 | ||||||
| Inventories | 15,823,297 | 19,252,214 | ||||||
| Due from broker | 773,196 | 818,892 | ||||||
| Prepaid expenses and other current assets | 282,006 | 432,126 | ||||||
| Prepaid and refundable income taxes | 866,155 | 866,155 | ||||||
| TOTAL CURRENT ASSETS | 25,817,084 | 31,701,733 | ||||||
| Building, machinery and equipment, net | 3,540,586 | 3,199,790 | ||||||
| Customer list and relationships, net of accumulated amortization of $295,133 and $279,883 for 2023 and 2022, respectively | 200,000 | 215,250 | ||||||
| Trademarks and tradenames | 327,000 | 327,000 | ||||||
| Equity method investments | 345,141 | 354,444 | ||||||
| Investment - other | 2,500,000 | 2,500,000 | ||||||
| Right of use asset | 2,858,346 | 2,871,773 | ||||||
| Deferred income tax assets - net | 1,388,437 | 1,073,187 | ||||||
| Deposits and other assets | 350,500 | 449,348 | ||||||
| TOTAL ASSETS | $ | 37,327,094 | $ | 42,692,525 | ||||
| - LIABILITIES AND STOCKHOLDERS’ EQUITY - | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 2,084,620 | $ | 3,814,864 | ||||
| Cash overdrafts | - | 876,148 | ||||||
| Due to broker | 541,391 | 1,523,563 | ||||||
| Note payable – current portion | 4,200 | 4,200 | ||||||
| Lease liability – current portion | 137,222 | 220,734 | ||||||
| TOTAL CURRENT LIABILITIES | 2,767,433 | 6,439,509 | ||||||
| Line of credit | 7,520,000 | 8,314,000 | ||||||
| Lease liabilities | 3,230,204 | 3,136,006 | ||||||
| Note payable – long term | 6,343 | 9,105 | ||||||
| Deferred compensation payable | 144,390 | 243,238 | ||||||
| TOTAL LIABILITIES | 13,668,370 | 18,141,858 | ||||||
| Commitments and Contingencies | - | - | ||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Coffee Holding Co., Inc. stockholders’ equity: | ||||||||
| Preferred stock, par value $ per share; shares authorized; issued | - | - | ||||||
| Common stock, par value $ per share; shares authorized, shares issued for 2023 and 2022; shares outstanding for 2023 and 2022 | 6,634 | 6,634 | ||||||
| Additional paid-in capital | 19,094,618 | 19,094,618 | ||||||
| Retained earnings | 9,435,494 | 10,327,437 | ||||||
| Less: Treasury stock, common shares, at cost for 2023 and 2022 | (4,633,560 | ) | (4,633,560 | ) | ||||
| Total Coffee Holding Co., Inc. Stockholders’ Equity | 23,903,186 | 24,795,129 | ||||||
| Noncontrolling interest | (244,462 | ) | (244,462 | ) | ||||
| TOTAL EQUITY | 23,658,724 | 24,550,667 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 37,327,094 | $ | 42,692,525 | ||||
See Notes to Condensed Consolidated Financial Statements
| 3 |
COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED APRIL 30, 20212023 AND 20202022
(Unaudited)
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
Six Months Ended April 30, | Three Months Ended April 30, | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | Six Months Ended April 30, | Three Months Ended April 30, | |||||||||||||||||||||||||||
| (As restated) | (As restated) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| NET SALES | $ | 32,602,395 | $ | 34,472,894 | $ | 14,468,558 | $ | 17,345,851 | $ | 33,646,818 | $ | 33,203,029 | $ | 15,320,703 | $ | 16,498,169 | ||||||||||||||||
| COST OF SALES | 24,353,356 | 26,851,714 | 10,699,090 | 12,839,425 | 28,494,333 | 26,938,669 | 12,488,522 | 14,505,415 | ||||||||||||||||||||||||
| GROSS PROFIT | 8,249,039 | 7,621,180 | 3,769,468 | 4,506,426 | 5,152,485 | 6,264,360 | 2,832,181 | 1,992,754 | ||||||||||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||
| Selling and administrative | 6,321,651 | 6,960,526 | 3,161,686 | 3,455,723 | 6,013,188 | 6,784,824 | 3,071,747 | 3,215,085 | ||||||||||||||||||||||||
| Officers’ salaries | 306,863 | 327,404 | 153,638 | 157,154 | 324,775 | 302,275 | 144,888 | 151,138 | ||||||||||||||||||||||||
| TOTAL | 6,628,514 | 7,287,930 | 3,315,324 | 3,612,877 | 6,337,963 | 7,087,099 | 3,216,635 | 3,366,223 | ||||||||||||||||||||||||
| INCOME FROM OPERATIONS | 1,620,525 | 333,250 | 454,144 | 893,549 | ||||||||||||||||||||||||||||
| LOSS FROM OPERATIONS | (1,185,478 | ) | (822,739 | ) | (384,454 | ) | (1,373,469 | ) | ||||||||||||||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||||||||||
| OTHER (EXPENSE) INCOME | ||||||||||||||||||||||||||||||||
| Interest income | 929 | 2,696 | 519 | 1,952 | 3,113 | 4,094 | 6 | 2,556 | ||||||||||||||||||||||||
| Loss from equity method investment | (3,915 | ) | (2,991 | ) | (1,317 | ) | (1,680 | ) | (9,303 | ) | (35,801 | ) | (4,286 | ) | (4,075 | ) | ||||||||||||||||
| Other income | 234,041 | - | - | - | ||||||||||||||||||||||||||||
| Interest expense | (43,507 | ) | (105,459 | ) | (16,839 | ) | (49,725 | ) | (249,566 | ) | (90,293 | ) | (119,106 | ) | (49,683 | ) | ||||||||||||||||
| TOTAL | (46,493 | ) | (105,754 | ) | (17,637 | ) | (49,453 | ) | (21,715 | ) | (122,000 | ) | (123,386 | ) | (51,202 | ) | ||||||||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY | 1,574,032 | 227,496 | 436,507 | 844,096 | ||||||||||||||||||||||||||||
| LOSS BEFORE BENEFIT FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY | (1,207,193 | ) | (944,739 | ) | (507,840 | ) | (1,424,671 | ) | ||||||||||||||||||||||||
| Provision for income taxes | 510,329 | 89,351 | 129,086 | 154,767 | ||||||||||||||||||||||||||||
| Benefit for income taxes | (315,250 | ) | (248,275 | ) | (148,000 | ) | (385,681 | ) | ||||||||||||||||||||||||
| NET INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY | 1,063,703 | 138,145 | 307,421 | 689,329 | ||||||||||||||||||||||||||||
| Less: Net (income) loss attributable to the non-controlling interest | (29,348 | ) | (239,475 | ) | 49,623 | (190,811 | ) | |||||||||||||||||||||||||
| NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY | (891,943 | ) | (696,464 | ) | (359,840 | ) | (1,038,990 | ) | ||||||||||||||||||||||||
| Less: Net loss attributable to the non-controlling interest | - | 609,231 | - | 670,894 | ||||||||||||||||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO COFFEE HOLDING CO., INC. | $ | 1,034,355 | $ | (101,330 | ) | $ | 357,044 | $ | 498,518 | |||||||||||||||||||||||
| NET LOSS ATTRIBUTABLE TO COFFEE HOLDING CO., INC. | $ | (891,943 | ) | $ | (87,233 | ) | $ | (359,840 | ) | $ | (368,096 | ) | ||||||||||||||||||||
| Basic and diluted earnings (loss) per share | $ | .18 | $ | (.02 | ) | $ | .06 | $ | .09 | |||||||||||||||||||||||
| Basic and diluted (loss) earnings per share | $ | (.16 | ) | $ | (.02 | ) | $ | (.06 | ) | $ | (.06 | ) | ||||||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic and diluted | 5,708,599 | 5,569,349 | 5,708,599 | 5,569,349 | 5,708,599 | 5,708,599 | 5,708,599 | 5,708,599 | ||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
| 4 |
COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE AND SIX MONTHS ENDED APRIL 30, 20212023 AND 20202022
(Unaudited)
| Shares | Amount | Shares | Amount | Capital | Earnings | Interest | Total | |||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in | Retained | Non- Controlling | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Interest | Total | |||||||||||||||||||||||||
| Balance, October 31, 2019 | 5,569,349 | $ | 6,494 | 925,331 | $ | (4,633,560 | ) | $ | 16,580,974 | $ | 13,310,169 | $ | 1,466,646 | $ | 26,730,723 | |||||||||||||||||
| Net loss | - | - | (599,848 | ) | (599,848 | ) | ||||||||||||||||||||||||||
| Stock Compensation | - | - | 248,031 | 248,031 | ||||||||||||||||||||||||||||
| Non-Controlling Interest | - | - | 48,664 | 48,664 | ||||||||||||||||||||||||||||
| Balance, January 31, 2020 | 5,569,349 | $ | 6,494 | 925,331 | $ | (4,633,560 | ) | $ | 16,829,005 | $ | 12,710,321 | $ | 1,515,310 | $ | 26,427,570 | |||||||||||||||||
| Stock Compensation | - | - | 240,909 | 240,909 | ||||||||||||||||||||||||||||
| Non-Controlling Interest | - | - | 190,811 | 190,811 | ||||||||||||||||||||||||||||
| Net income | - | 498,518 | 498,518 | |||||||||||||||||||||||||||||
| Balance, April 30, 2020 | 5,569,349 | $ | 6,494 | 925,331 | $ | (4,633,560 | ) | $ | 17,069,914 | $ | 13,208,839 | $ | 1,706,121 | $ | 27,357,808 | |||||||||||||||||
| Balance, October 31, 2020 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 17,929,724 | $ | 13,215,868 | $ | 1,224,903 | $ | 27,743,569 | |||||||||||||||||
| Stock Compensation | - | - | 189,768 | 189,768 | ||||||||||||||||||||||||||||
| Net income | - | - | 677,312 | 677,312 | ||||||||||||||||||||||||||||
| Non-Controlling Interest | - | - | - | �� | 78,970 | 78,970 | ||||||||||||||||||||||||||
| Balance, January 31, 2021 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 18,119,492 | $ | 13,893,180 | $ | 1,303,873 | $ | 28,689,619 | |||||||||||||||||
| Stock Compensation | - | - | 189,769 | 189,769 | ||||||||||||||||||||||||||||
| Net income | - | - | 357,044 | 357,044 | ||||||||||||||||||||||||||||
| Net income (loss) | - | - | 357,044 | 357,044 | ||||||||||||||||||||||||||||
| Non-Controlling Interest | - | - | (49,623 | ) | (49,623 | ) | ||||||||||||||||||||||||||
| Balance, April 30, 2021 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 18,309,261 | $ | 14,250,224 | $ | 1,254,250 | $ | 29,186,809 | |||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Interest | Total | |||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in | Retained | Non- controlling | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Interest | Total | |||||||||||||||||||||||||
| Balance, October 31, 2021 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 18,688,797 | $ | 14,471,222 | $ | 837,226 | $ | 29,370,319 | |||||||||||||||||
| Net income | - | - | - | - | - | 280,863 | - | 280,863 | ||||||||||||||||||||||||
| Stock Compensation | 189,768 | 189,768 | ||||||||||||||||||||||||||||||
| Dividend to common shareholders | (399,000 | ) | (399,000 | ) | ||||||||||||||||||||||||||||
| Non-controlling Interest | 61,663 | 61,663 | ||||||||||||||||||||||||||||||
| Balance, January 31, 2022 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 18,878,565 | $ | 14,353,085 | $ | 898,889 | $ | 29,503,613 | |||||||||||||||||
| Stock Compensation | 174,241 | 174,241 | ||||||||||||||||||||||||||||||
| Distribution to non-controlling interest | (220,043 | ) | (220,043 | ) | ||||||||||||||||||||||||||||
| Non-controlling Interest | (670,894 | ) | (670,894 | ) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (368,096 | ) | - | (368,096 | ) | ||||||||||||||||||||||
| Balance, April 30, 2022 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,052,806 | $ | 13,984,989 | $ | 7,952 | $ | 28,418,821 | |||||||||||||||||
| Ending balance,value | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,052,806 | $ | 13,984,989 | $ | 7,952 | $ | 28,418,821 | |||||||||||||||||
| Balance, October 31, 2022 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,094,618 | $ | 10,327,437 | $ | (244,462 | ) | $ | 24,550,667 | ||||||||||||||||
| Net loss | - | - | - | - | - | (532,103 | ) | - | (532,103 | ) | ||||||||||||||||||||||
| Balance, January 31, 2023 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,094,618 | $ | 9,795,334 | $ | (244,462 | ) | $ | 24,018,564 | ||||||||||||||||
| Beginning balance, value | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,094,618 | $ | 9,795,334 | $ | (244,462 | ) | $ | 24,018,564 | ||||||||||||||||
| Net loss | - | - | - | - | - | (359,840 | ) | - | (359,840 | ) | ||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | (359,840 | ) | - | (359,840 | ) | ||||||||||||||||||||||
| Balance, April 30, 2023 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,094,618 | $ | 9,435,494 | $ | (244,462 | ) | $ | 23,658,724 | ||||||||||||||||
| Ending, balance value | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 19,094,618 | $ | 9,435,494 | $ | (244,462 | ) | $ | 23,658,724 | ||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
| 5 |
COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2023 AND 2022
(Unaudited)
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net (loss) | $ | (891,943 | ) | $ | (696,464 | ) | ||
| Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 283,585 | 280,594 | ||||||
| Stock-based compensation | - | 364,009 | ||||||
| Unrealized loss (gain) on commodities | (936,476 | ) | (112,446 | ) | ||||
| Loss on equity method investments | 9,303 | 35,801 | ||||||
| Write-off of accounts receivable | 415,096 | |||||||
| Write-down of obsolete inventory | 718,353 | |||||||
| Amortization of right to use asset | 159,843 | 179,949 | ||||||
| Deferred income taxes | (315,250 | ) | (37,567 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 1,212,055 | 1,548,935 | ||||||
| Inventories | 3,428,917 | (949,058 | ) | |||||
| Prepaid expenses and other current assets | 150,120 | 111,286 | ||||||
| Prepaid and refundable income taxes | - | (299,465 | ) | |||||
| Lease liability | (135,730 | ) | (152,934 | ) | ||||
| Deposits and other assets | - | (68,757 | ) | |||||
| Accounts payable and accrued expenses | (1,730,244 | ) | (2,423,835 | ) | ||||
| Income taxes payable | - | (410,235 | ) | |||||
| Net cash provided by (used in) operating activities | 1,234,180 | (1,496,738 | ) | |||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of machinery and equipment | (609,131 | ) | (871,919 | ) | ||||
| Net cash used in investing activities | (609,131 | ) | (871,919 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Advances under bank line of credit | 934,783 | 2,500,000 | ||||||
| Cash overdraft | (876,148 | ) | - | |||||
| Principal payments on note payable | (2,762 | ) | (2,631 | ) | ||||
| Payment of dividend | (399,000 | ) | ||||||
| Principal payments under bank line of credit | (1,728,783 | ) | (400,850 | ) | ||||
| Net cash (used in) provided by financing activities | (1,672,910 | ) | 1,697,519 | |||||
| NET (DECREASE) INCREASE IN CASH | (1,047,861 | ) | (671,138 | ) | ||||
| CASH, BEGINNING OF PERIOD | 2,515,873 | 3,696,275 | ||||||
| CASH, END OF PERIOD | $ | 1,468,012 | $ | 3,025,137 | ||||
See Notes to Condensed Consolidated Financial Statements
| 6 |
COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 20212023 AND 20202022
(Unaudited)
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 1,063,703 | $ | 138,145 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 337,353 | 378,934 | ||||||
| Stock-based compensation | 379,537 | 488,940 | ||||||
| Unrealized (gain) loss on commodities | (559,408 | ) | 318,936 | |||||
| Loss on equity method investments | 3,915 | 2,991 | ||||||
| Amortization of right of use asset | 226,155 | 215,335 | ||||||
| Deferred income taxes | 154,550 | (91,802 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 709,476 | 171,461 | ||||||
| Inventories | 1,935,996 | 474,443 | ||||||
| Prepaid expenses and other current assets | (173,177 | ) | 71,148 | |||||
| Prepaid and refundable income taxes | 91,684 | 163,258 | ||||||
| Accounts payable and accrued expenses | 970,875 | 343,330 | ||||||
| Deposits and other assets | (100,000 | ) | - | |||||
| Change in lease liability | (248,980 | ) | (236,607 | ) | ||||
| Income taxes payable | 255,611 | 217 | ||||||
| Net cash provided by operating activities | 5,047,290 | 2,438,729 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of machinery and equipment | (597,444 | ) | (132,967 | ) | ||||
| Net cash used in investing activities | (597,444 | ) | (132,967 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Advances under bank line of credit | 15,563 | 641,132 | ||||||
| Principal payments on note payable | (2,507 | ) | (1,994 | ) | ||||
| Principal payments under bank line of credit | (3,809,885 | ) | (2,700,000 | ) | ||||
| Net cash used in financing activities | (3,796,829 | ) | (2,060,862 | ) | ||||
| NET INCREASE IN CASH | 653,017 | 244,900 | ||||||
| CASH, BEGINNING OF PERIOD | 2,875,120 | 2,402,556 | ||||||
| CASH, END OF PERIOD | $ | 3,528,137 | $ | 2,647,456 | ||||
| 2023 | 2022 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: | ||||||||
| Interest paid | $ | 243,100 | $ | 84,967 | ||||
| Income taxes paid | $ | - | $ | 498,992 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Purchase of inventory by non-controlling interest | $ | 220,043 | ||||||
| Initial recognition of operating lease right of use asset | $ | 146,416 | ||||||
See Notes to Condensed Consolidated Financial Statements
| 7 |
COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2021 AND 2020
(Unaudited)
| 2021 | 2020 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: | ||||||||
| Interest paid | $ | 54,943 | $ | 113,647 | ||||
| Income taxes paid | $ | 8,485 | $ | 17,678 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Initial recognition of operating lease right of use asset | $ | 65,999 | $ | 2,512,022 | ||||
| Initial recognition of operating lease liabilities | $ | 65,999 | $ | 2,705,484 | ||||
| Machinery and equipment acquired through financing | $ | - | $ | 26,807 | ||||
See Notes to Condensed Consolidated Financial Statements
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20212023
(UNAUDITED)
NOTE 1 - BUSINESS ACTIVITIES:
Coffee Holding Co., Inc. (the “Company”) conducts wholesale coffee operations, including manufacturing, roasting, packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and it sells green coffee. The Company also manufactures and sells coffee roasters. The Company’s core product, coffee, can be summarized and divided into three product categories (“product lines”) as follows:
Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small roasters and coffee shop operators;
Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want to have their own brand name ofon coffee to compete with national brands; and
Branded Coffee: coffee roasted and blended to the Company’s own specifications and packaged and sold under the Company’s eight proprietary and licensed brand names in different segments of the market.
The Company’s wholesale green coffee sales are included in the “green” revenue stream, and the Company’s private label and branded coffee sales are included in the “packaged revenue stream” and are primarily to customers that are located throughout the United States with limited sales in Canada and certain countries in Asia. Such customers include supermarkets, wholesalers, and individually-owned and multi-unit retailers. The Company’s unprocessed green coffee, which includes over 90 specialty coffee offerings, is sold primarily to specialty gourmet roasters and to coffee shop operators in the United States with limited sales in Australia, Canada, England and China.
The Company’s wholesale green, private label, and branded coffee product categories generate revenues and cost of sales individually but incur selling, general and administrative expenses in the aggregate. There are no individual product managers and discrete financial information is not available for any of the product lines. The Company’s product portfolio is used in one business and it operates and competes in one business activity and economic environment. In addition, the three product lines share customers, manufacturing resources, sales channels, and marketing support. Thus, the Company considers the three product lines to be one single reporting segment.
COVID-19
The global outbreakOn September 29, 2022, the Company entered into a Merger and Share Exchange Agreement (the “Merger Agreement”), by and among the Company, Delta Corp Holdings Limited, a Cayman Islands exempted company (“Pubco”), Delta Corp Holdings Limited, a company incorporated in England and Wales (“Delta”), CHC Merger Sub Inc., a Nevada corporation and wholly owned subsidiary of COVID-19 was declared a pandemic by the World Health OrganizationPubco (“Merger Sub”), and a national emergency by the U.S. government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, mandated closures and stay-at-home orders, and created significant disruptioneach of the financial markets.
The continuing impact onholders of ordinary shares of Delta as named therein (the “Sellers”). Upon the Company’s business, includingterms and subject to the decreaseconditions set forth in our sales, the lengthMerger Agreement, Merger Sub will merge with and impactinto the Company, with the Company surviving as a direct, wholly-owned subsidiary of stay-at-home orders and/or regional quarantines, labor shortagesPubco (the “Merger”). As a result of the Merger, each issued and employment trends, disruptionsoutstanding share of the Company common stock, $ par value per share (the “Common Stock”), will be cancelled and converted for the right of the holder thereof to supply chains, including its ability to obtain products from global suppliers, higher operating costs, the form and impactreceive one ordinary share, par value $ of economic stimulus and general overall economic instability, has contributed to and may continue to have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. At this time the full impact could not be determined.Pubco (the “Pubco Ordinary Shares”).
| 8 |
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20212023
(UNAUDITED)
NOTE 2 - BASIS OF PRESENTATION RESTATEMENT AND SIGNIFICANT ACCOUNTING POLICY:POLICY:
The following (a)Company’s fiscal year ends on October 31, of each calendar year. The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended October 31, 2022. In the opinion of the Company’s management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The October 31, 2022 year-end condensed consolidated balance sheet as of April 30, 2021, which has beendata in this document was derived from audited consolidated financial statements. These condensed consolidated financial statements and (b) the unaudited interim condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normallynotes included in financial statements prepared in accordance withthis quarterly report on Form 10-Q does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed consolidated financial statementsshould be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended October 31, 2022 and notes thereto included in the Company’s latest shareholders’ annual reportfiscal 2022 Annual Report on Form 10-K, filed with the SECSecurities and Exchange Commission (“SEC”) on February 16, 2021 for the fiscal year ended October 31, 2020 (“FormMarch 29, 2023 (the “2022 10-K”).
In the opinion of management, all adjustments (which include normal and recurring nature adjustments) necessary to present a fair statement of the Company’s financial position as of April 30, 2021 and 2020, and The results of operations for the three and six months ended April 30, 2021 and 2020 and the cash flows for the six months ended April 30, 2021 and 2020 as applicable, have been made.
The results of operations for the three and six months ended April 30, 2021 and 2020interim periods included in these condensed consolidated financial statements are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.period or the entire fiscal year.
The condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco, LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”), the entity formed as a result of the Company’s joint venture with Caruso’s Coffee, Inc. The Company owns a 60% equity interest in GCC. All significant inter-company transactions and balances have been eliminated in consolidation.
RESTATEMENT:
The Company is restating its condensed consolidated statement of operations for the three and six months ended April 30, 2020 to correct its accounting for certain intercompany transactions that should have been eliminated in consolidation. The restatement is being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings in the statement of financial position as of the beginning of each period presented.
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2021
(UNAUDITED)
NOTE 2 - BASIS OF PRESENTATION, RESTATEMENT AND SIGNIFICANT ACCOUNTING POLICY (cont’d):
The effects of the adjustment on the Company’s previously issued April 30, 2020 condensed consolidated statement is summarized as follows:
Selected Condensed Consolidated Statement of Operations for the three months ended April 30, 2020.
SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS
Previously Reported | Increase (Decrease) |
As Restated | ||||||||||
| Net Sales | $ | 20,095,876 | $ | (2,750,025 | ) | $ | 17,345,851 | |||||
| Cost of Sales | $ | (15,589,450 | ) | $ | 2,750,025 | $ | (12,839,425 | ) | ||||
| Gross Profit | $ | 4,506,426 | $ | - | $ | 4,506,426 | ||||||
Selected Condensed Consolidated Statement of Operations for the six months ended April 30, 2020.
Previously Reported | Increase (Decrease) |
As Restated | ||||||||||
| Net Sales | $ | 39,381,377 | $ | (4,908,483 | ) | $ | 34,472,894 | |||||
| Cost of Sales | $ | (31,760,197 | ) | $ | 4,908,483 | $ | (26,851,714 | ) | ||||
| Gross Profit | $ | 7,621,180 | $ | - | $ | 7,621,180 | ||||||
Significant Accounting Policies
The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in our 20202022 10-K, and there have been no changes to the Company’s significant accounting policies during the three and six months ended April 30, 2021.2023.
Revenue Recognition
The Company recognizes revenue in accordance with the five-step model as prescribed by the Financial Accounting Standards Board (“FASB”) Accounting Codification (“ASC”) Topic 606 (“ASC 606”) 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 those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, 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 revenue when (or as) the entity satisfies a performance obligation.
The following table presents revenues by stream for the six and three months ended April 30, 2021 and 2020.
Six Months Ended April 30, 2021 | Three Months Ended April 30, 2021 | |||||||
| Green | $ | 12,050,777 | $ | 5,446,902 | ||||
| Packaged | $ | 20,551,618 | $ | 9,021,656 | ||||
| Totals | $ | 32,602,395 | $ | 14,468,558 | ||||
SCHEDULE OF REVENUE
(As previously reported) Six Months Ended April 30, 2020 | (As restated) Six Months Ended April 30, 2020 | (As previously reported) Three Months Ended April 30, 2020 | (As restated) Three Months Ended April 30, 2020 | |||||||||||||
| Green | $ | 12,688,131 | $ | 11,548,684 | $ | 5,902,555 | $ | 5,257,705 | ||||||||
| Packaged | $ | 26,693,246 | $ | 22,924,210 | $ | 14,193,321 | $ | 12,088,146 | ||||||||
| Totals | $ | 39,381,377 | $ | 34,472,894 | $ | 20,095,876 | $ | 17,345,851 | ||||||||
| 9 |
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20212023
(UNAUDITED)
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d):
The following table presents revenues by stream for the six and three months ended April 30, 2023 and 2022.
SCHEDULE OF REVENUE
Six Months Ended April 30, 2023 | Three Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | Three Months Ended April 30, 2022 | |||||||||||||
| Green | $ | 14,432,796 | $ | 6,773,848 | $ | 14,148,853 | $ | 7,197,280 | ||||||||
| Packaged | $ | 19,214,022 | $ | 8,546,855 | $ | 19,054,176 | $ | 9,300,889 | ||||||||
| Totals | $ | 33,646,818 | $ | 15,320,703 | $ | 33,203,029 | $ | 16,498,169 | ||||||||
| Revenues | $ | 33,646,818 | $ | 15,320,703 | $ | 33,203,029 | $ | 16,498,169 | ||||||||
NOTE 3 - INVENTORIES:
Inventories at April 30, 20212023 and October 31, 20202022 consisted of the following:
SCHEDULE OF INVENTORIES
April 30, 2021 | October 31, 2020 | April 30, 2023 | October 31, 2022 | |||||||||||||
| Packed coffee | $ | 3,357,198 | $ | 3,590,709 | $ | 3,164,089 | $ | 2,677,617 | ||||||||
| Green coffee | 9,493,183 | 11,390,668 | 10,582,615 | 14,847,708 | ||||||||||||
| Roasters and parts | 431,153 | 381,617 | 539,175 | 576,778 | ||||||||||||
| Packaging supplies | 1,885,463 | 1,739,999 | 1,537,418 | 1,150,111 | ||||||||||||
| Totals | $ | 15,166,997 | $ | 17,102,993 | $ | 15,823,297 | $ | 19,252,214 | ||||||||
| Inventories | $ | 15,823,297 | $ | 19,252,214 | ||||||||||||
| 10 |
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20212023
(UNAUDITED)
NOTE 4 - COMMODITIES HELD BY BROKER:
The Company has used, and intends to continue to use in a limited capacity, short term coffee futures and options contracts primarily for the purpose of partially hedging and minimizing the effects of changing green coffee prices and to reduce our cost of sales. The commodities held atby broker represent the market value of the Company’s trading account, which consists of options and futurefutures contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the condensed consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period. We record all open contract positions on our consolidated balance sheets at fair value in the due from and due to broker line items and typically do not offset these assets and liabilities.
The Company has open position contracts held by the broker, which are summarized as follows:
SCHEDULE OF CONTRACTS HELD BY BROKER
| April 30, 2021 | October 31, 2020 | |||||||
| Option Contracts | $ | 53,158 | $ | (164,475 | ) | |||
| Future Contracts | 53,925 | (287,850 | ) | |||||
| Total Commodities | $ | 107,083 | $ | (452,325 | ) | |||
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in the statement of operations as a component of cost of salesearnings and not reflected as a net amount as a separate component of stockholders’ equity.
The Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
SCHEDULE OF REALIZED AND UNREALIZED GAINS AND LOSSES ON CONTRACTS
| 2021 | 2020 | 2023 | 2022 | |||||||||||||
| Three Months Ended April 30, | Three Months Ended April 30, | |||||||||||||||
| 2021 | 2020 | 2023 | 2022 | |||||||||||||
| Gross realized gains | $ | 241,125 | $ | 485,344 | $ | 247,983 | $ | 1,000,908 | ||||||||
| Gross realized losses | - | (668,114 | ) | (626,311 | ) | (878,440 | ) | |||||||||
| Unrealized gain | 144,333 | 666,901 | 164,455 | 179,213 | ||||||||||||
| Total | $ | 385,458 | $ | 484,131 | $ | (213,873 | ) | $ | 301,681 | |||||||
| Gain (Loss) on Investments | $ | (213,873 | ) | $ | 301,681 | |||||||||||
| 2021 | 2020 | 2023 | 2022 | |||||||||||||
| Six Months Ended April 30, | Six Months Ended April 30, | |||||||||||||||
| 2021 | 2020 | 2023 | 2022 | |||||||||||||
| Gross realized gains | $ | 503,112 | $ | 841,903 | $ | 376,908 | $ | 1,323,048 | ||||||||
| Gross realized losses | (76 | ) | (794,925 | ) | (1,292,361 | ) | (1,257,359 | ) | ||||||||
| Unrealized gain (loss) | 559,408 | (318,936 | ) | |||||||||||||
| Unrealized gain | 936,476 | 112,446 | ||||||||||||||
| Total | $ | 1,062,444 | $ | (271,958 | ) | $ | 21,023 | $ | 178,135 | |||||||
| Gain (Loss) on Investments | $ | 21,023 | $ | 178,135 | ||||||||||||
| 11 |
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20212023
(UNAUDITED)
NOTE 5 - LINE OF CREDIT:
On April 25, 2017 the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”) (later acquired by Webster Financial Corp. (“Webster”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.
On March 13, 2020,17, 2022, the Company reached an agreement for a new loan modification agreement and credit facility which extended the maturity date to June 29, 2022. The facility was then approved for a two-year extension. All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.
On June 28, 2022, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling.Webster. The terms of the new agreement, among other things: (i) providesprovided for a new maturity date of March 31, 2022June 30, 2024, and (ii) decreaseschanged the interest rate per annum to LIBORSOFR plus 1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A&R Loan Agreement and A&R Loan Facility remainremained the same.
The Company is subject to certain covenants with respect to its line of credit agreement. The Company was not in compliance with the net profit and non-borrower affiliate covenants as of October 31, 2022. The Company requested a waiver from the lender and the waiver was granted and received on March 15, 2023. The lender also extended the due date of the October 31, 2022 financial statements until April 15, 2023. The loan agreement was also modified on March 15, 2023 to, among other things: (i) provide for a requirement for subordination agreements if necessary, and (ii) change the terms of transactions with affiliates from a dollar limitation to allowable in the ordinary course of business, (iii) establishe a new covenant for a fixed charge coverage ratio.
Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. The Company was in compliance with all covenants as of April 30, 2021 and October 31, 2020. The outstanding balance on the Company’s lines of credit were $2,5007,520,000 and $3,796,8228,314,000 as of April 30, 20212023 and October 31, 2020,2022, respectively.
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2021
(UNAUDITED)
NOTE 6 - INCOME TAXES:
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities.
As of April 30, 20212023 and October 31, 2020,2022, the Company did not have any unrecognized tax benefits or open tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of April 30, 20212023 and October 31, 2020,2022, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.
| 12 |
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
(UNAUDITED)
NOTE 6 - INCOME TAXES (cont’d):
The Company files a U.S. federal income tax return and California, Colorado, Connecticut, Idaho, Kansas, Louisiana, Montana, Massachusetts, Michigan, New Jersey, New York, New York City, Oregon,Virginia, Texas, Rhode Island, South Carolina, Tennessee, Virginia, and TexasOregon state tax returns.
The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for the years before fiscal 2017.2019. The Company’s California, Colorado and New Jersey and Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2016.2019. The Company’s Oregon, and New York, Kansas, South Carolina, Rhode Island, Connecticut and Michigan income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2017.2019.
The Company presents “basic” and “diluted” earnings per common share pursuant to the provisions included in the authoritative guidance issued by FASB, “Earnings per Share,” and certain other financial accounting pronouncements. Basic earnings per common share were computed by dividing net (loss) income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net (loss) income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2021
(UNAUDITED)
NOTE 8 –- COMMITMENTS AND CONTINGENCIES:
CLASS ACTION COMPLAINTSCOMPLAINT
The Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Illinois (the “Court”) on or about December 21, 2020. The plaintiffs, Eileen Brodsky and Rhonda Diamond, purportingpurported to represent a class of individuals who purchased coffee products at Aldi, Inc. (“Aldi”), aone of our supermarket chain,customers, generally allege that Aldisuch client sold private label coffee products manufactured by the Company and another coffee roasting company,one of its partners, which falsely described the number of cups of coffee that could be made from the amount of product purchased. Aldi and Pan American areThese parties were also named as defendants in the action. The complaint assertsasserted a variety of claims under New York and California consumer protection laws, and seekssought unspecified monetary damages, including disgorgement and restitution, as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believesOn September 28, 2021, the allegations inCourt entered an order granting the complaint are wholly without merit and that the claims asserted are legally deficient, and the company intends to vigorously defend the action. The Company has filed aCompany’s motion to dismiss with prejudice (the “Dismissal Order”). In the Dismissal Order, the Court stated that no reasonable coffee drinker would be deceived by the Company’s packaging. The plaintiffs filed an appeal with the 7th Circuit Court of Appeals (the “Appeal”). After the Appeal was filed, the Company settled the matter during mediation in late January 2022 and the plaintiff has sought leave to file an amended complaint. At this time, the Company is unable to predict the ultimate outcome of this lawsuit.Appeal was dismissed.
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COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
(UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (cont’d):
A significant customer of the Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the District of Massachusetts on or about February 2, 2021, concerning the labeling on private label coffee productions wethe Company sold to the customer. The plaintiff, David Cohen, purportingpurported to represent a class of individuals who purchased coffee products from ourthe Company’s customer, generally allegealleged that the customer sold private label coffee products manufactured by the Company which falsely described the number of cups of coffee that could be made from the amount of product purchased. The Company iswas not named as a defendant in the action, but hasthe Company agreed to indemnify the customer for the costs and expenses incurred in defending the lawsuit and for any liability the customer may suffersuffered as a result. The complaint assertsasserted a variety of claims under Massachusetts consumer protection laws, and seekssought unspecified monetary damages as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believesparties finalized the allegations indetails of a settlement agreement and the complaint are wholly without meritfinal settlement amount was immaterial to the Company’s operations and that the claims asserted are legally deficient, and intends to vigorously support the customer in defending the action. Asresults of the filing of this Form 10-Q, the Company is unable to predict the ultimate outcome of this lawsuit.operations.
A number of lawsuits similar to those above have been filed in recent years against coffee sellers in the industry in which the Company competes. Many of these lawsuits have yet to be finally adjudicated. The Company believeshas a 401(k) Retirement Plan, which covers all the lawsuits filed against it are without merit.full time employees who have completed one year of service and have reached their 21st birthday. The Company matches 100% of the aggregate salary reduction contribution up to the first 3% of compensation and 50% of aggregate contribution of the next 2% of compensation.
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COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2023
(UNAUDITED)
NOTE 9 - LEASES:
The following summarizes the Company’s operating leases:
SCHEDULE OF OPERATING LEASELEASES
| April 30, 2021 | ||||||||||||
| 2023 | 2022 | |||||||||||
| Right-of-use operating lease assets | $ | 1,954,072 | $ | 2,858,346 | $ | 2,871,773 | ||||||
| Current lease liability | $ | 500,804 | 137,222 | 220,734 | ||||||||
| Non-current lease liability | $ | 1,580,684 | 3,230,204 | 3,136,006 | ||||||||
| Total lease liability | 2,081,488 | $ | 3,367,426 | $ | 3,356,740 | |||||||
The amortization of the right-of-use asset for the six and three months ended April 30, 20212023 and 2022 was $226,15580,180 and $112,58777,268, respectively. The amortization of the right-of-use asset for the six months ended April 30, 2023 and 2022 was $159,843 and $179,949, respectively.
| 10.8 | ||||||
| 4.9 | % | |||||
Maturities of lease liabilities by year for our operating leases are as follows:
SCHEDULE OF MINIMUM FUTURE LEASE PAYMENTS
| 2021 (remaining six months) | $ | 303,370 | ||||||
| 2022 | 570,854 | |||||||
| 2023 | 546,542 | $ | 473,033 | |||||
| 2024 | 316,477 | 519,304 | ||||||
| 2025 | 168,288 | 393,668 | ||||||
| 2026 | 376,683 | |||||||
| 2027 | 367,788 | |||||||
| Thereafter | 434,744 | 2,333,300 | ||||||
| Total lease payments | $ | 2,340,275 | $ | 4,463,776 | ||||
| Less: imputed interest | (258,787 | ) | (1,096,350 | ) | ||||
| Present value of operating lease liabilities | $ | 2,081,488 | $ | 3,367,426 | ||||
In June 2021, the Company purchased a facility in Colorado for $900,321 that it was previously leasing. On the date of purchase, the Company wrote off the carrying value of the right-of-use asset and lease liability associated with this facility of $242,888.
The aggregate cash payments under these leasing agreements wasIn December 2022, the Company extended its lease at its subsidiary Sonofresco in Washington through December 2023. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $300,30640,797 foras of January 31, 2023.
In March 2023, the six months endedCompany extended its lease at its subsidiary Organics Products Trading Company in Washington through March 2026. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $105,619 as of April 30, 2021.2023.
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COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 20212023
(UNAUDITED)
NOTE 9 - ECONOMIC DEPENDENCY (restated):
Approximately 23% and 24% of the Company’s sales were derived from six customers during the three and six months ended April 30, 2021, respectively. These customers also accounted for approximately $2,094,000 of the Company’s accounts receivable balance at April 30, 2021. Approximately 28% of the Company’s sales were derived from six customers during the three and six months ended April 30, 2020. These customers also accounted for approximately $3,557,000 of the Company’s accounts receivable balance at April 30, 2020. Concentration of credit risk with respect to other trade receivables is limited due to the short payment terms generally extended by the Company, by ongoing credit evaluations of customers, and by maintaining an allowance for doubtful accounts that management believes will adequately provide for credit losses.
Approximately 27% and 28% of the Company’s purchases were from six vendors for the three and six months ended April 30, 2021, respectively. These vendors accounted for approximately $386,000 of the Company’s accounts payable at April 30, 2021. Approximately 30% of the Company’s purchases were from six vendors for the three and six months ended April 30, 2020, respectively. These vendors accounted for approximately $971,000 of the Company’s accounts payable at April 30, 2020. Management does not believe the loss of any one vendor would have a material adverse effect of the Company’s operations due to the availability of many alternate suppliers.
NOTE 10 - RELATED PARTY TRANSACTIONS:
The Company has engaged its 40% former partner in GCCGeneration Coffee Company LLC (“GCC”) as an outside contractor (the “Partner”). Included in contract labor expense are expenses incurred fromby the Partner during the three and six months ended April 30, 20212023 and 2022 of $88,0320 and $162,725, respectively and $94,42994,037 and $197,20056,851 and $152,471, respectively, for the three and six months ended April 30, 2020, for the processing of finished goods. These amounts are reflected in cost of sales in the statement of operations.
An employee of one of the top five vendors is a director of the Company. Purchases from that vendor totaled approximately $0 and $734,000 for the three and six months ended April 30, 2021 and 2020, respectively and $1,672,000 and $3,005,000 for the three and six months ended April 30, 2020, respectively. These amounts are reflected in cost of sales in the statement of operations. The corresponding accounts payable balance to this vendor was $0 at April 30, 2021 and October 31, 2020.
In January 2005, the Company established the “Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan.” Currently, there is only one participant in the plan: the Company’s Chief Executive Officer. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The assets are held in a separate trust. The deferred compensation payable represents the liability due to an officerthe Chief Executive Officer of the Company. The assets were $144,390 and $243,238 at April 30, 2023 and October 31, 2022, respectively, and are included in the Deposits and other assets in the accompanying balance sheets. The deferred compensation asset and liability at April 30, 20212023 and October 31, 20202022 were $307,476144,390 and $276,548243,238, respectively.
COFFEE HOLDING CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2021
(UNAUDITED)
NOTE 11 - STOCKHOLDERS’ EQUITY:
| a. | Treasury Stock. The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is determined under the last-in, first-out method. The Company did not purchase any shares during the three and six months ended April 30, | |
| b. | Stock | |
| The Company recorded $ stock-based compensation for the three and six months ended April 30, 2023 and $ and $ for the three and six months ended April 30, 2022. |
The Company recorded $ and $ of stock-based compensation for the three and six months ended April 30, 2021 and $ and $ for the three and six months ended April 30, 2020, respectively.
The remaining unamortized stock compensation expense as of April 30, 2021 was approximately $785,357, which will be expensed over a weighted average period of one year.
NOTE 12 - SUBSEQUENT EVENTS:
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required further adjustment or disclosure in the condensed consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note on Forward-Looking Statements
Some of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements upon information available to management as of the date of this Form 10-Q and management’s expectations and projections about future events, including, among other things:
| ● | our dependency on a single commodity could affect our revenues and profitability; | |
| ● | our success in expanding our market presence in new geographic regions; | |
| ● | the effectiveness of our hedging policy may impact our profitability; | |
| ● | the success of our joint ventures; | |
| ● | our success in implementing our business strategy or introducing new products; | |
| ● | our ability to attract and retain customers; | |
| ● | our ability to obtain additional financing; | |
| ● | our ability to comply with the restrictive covenants we are subject to under our current financing; | |
| ● | the effects of competition from other coffee manufacturers and other beverage alternatives; | |
| ● | the impact to the operations of our Colorado facility; | |
| ● | general economic conditions and conditions which affect the market for coffee; | |
| ● | the potential adverse impact of the COVID-19 pandemic on our operations and | |
| ● | our expectations regarding, and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of green | |
| ● | the macro global economic environment; | |
| ● | our ability to maintain and develop our brand recognition; | |
| ● | the impact of rapid or persistent fluctuations in the price of coffee beans; | |
| ● | fluctuations in the supply of coffee beans; | |
| ● | the volatility of our common stock; and | |
| ● | other risks which we identify in future filings with the Securities and Exchange Commission (the “SEC”). |
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate” and similar expressions (or the negative of such expressions). Any or all of our forward looking statements in this quarterly report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. In addition we undertake no responsibility to update any forward-looking statement to reflect events or circumstances that occur after the date of this quarterly report.
Overview
We are an integrated wholesale coffee roaster and dealer in the United States and one of the few coffee companies that offers a broad array of coffee products across the entire spectrum of consumer tastes, preferences and price points. As a result, we believe that we are well-positioned to increase our profitability and endure potential coffee price volatility throughout varying cycles of the coffee market and economic conditions.
Our operations have primarily focused on the following areas of the coffee industry:
| ● | the sale of wholesale specialty green coffee; | |
| ● | the roasting, blending, packaging and sale of private label coffee; | |
| ● | the roasting, blending, packaging and sale of our eight brands of coffee; and | |
| ● | sales of our tabletop coffee roasting equipment. |
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Our operating results are affected by a number of factors including:
| ● | the level of marketing and pricing competition from existing or new competitors in the coffee industry; | |
| ● | our ability to retain existing customers and attract new customers; | |
| ● | our hedging policy; | |
| ● | fluctuations in purchase prices and supply of green coffee and in the selling prices of our products; and | |
| ● | our ability to manage inventory and fulfillment operations and maintain gross margins. |
Our net sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract new customers. For this reason, we have made, and will continue to evaluate, strategic decisions to acquire and invest in measures that are expected to increase net sales. In addition to our acquisitions, in October 2020, we entered into an agreement to become a 49% owner in The Jordre Well, a CBD beverage company (“The Jordre Well”). Under the terms of the agreement with The Jordre Well, The Jordre Well will assist us in the development and commercialization of CBD-infused line extensions for the existing coffee brands within our portfolio, as well as launch new brands that are intended to serve consumer demand for non-coffee CBD-infused beverages and products. We believe these efforts will allow us to expand our business.
Our sales are affected by the price of green coffee. We purchase our green coffee from dealers located primarily within the United States. The dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. For example, in Brazil, which produces approximately 40% of the world’s green coffee, the coffee crops are historically susceptible to frost in June and July and drought in September, October and November. However, because we purchase coffee from a number of countries and are able to freely substitute one country’s coffee for another in our products, price fluctuations in one country generally have not had a material impact on the price we pay for coffee. Accordingly, price fluctuations in one country generally have not had a material effect on our results of operations, liquidity and capital resources. Historically, because we generally have been able to pass green coffee price increases through to customers, increased prices of green coffee generally result in increased net sales, irrespective of sales volume.
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects of changing green coffee prices. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain a vital element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices.
However, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we have had net gains on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some recent reporting periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase our cost of sales and materially decrease our profitability and adversely affect our stock price. If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced. Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward.
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COVID-19 Pandemic
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, mandated closures and stay-at-home orders, and created significant disruption of the financial markets. However, we are classified as an essential business and its factories continued to operate with little to no impact from the pandemic-related closures.
To date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of green coffee beans, though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world. We are also working closely with all of our business partners. As a food producer, we are an essential service and almost all of our employees continue to work within our production and distribution facilities.
The COVID-19 pandemic has had a material adverse impact on our condensed consolidated financial statements for the three and six months ended April 30, 2021, and it has resulted, and is expected to continue to result for at least the near and immediate term, in significant economic disruptions and changes to consumer behaviors in the United States, which, has impacted and is expected to continue to negatively impact our business. Many of our customers who purchase green coffee from us for use in cafés, restaurants and food service operations, were forced to temporarily suspend or close operations, adversely impacting our sales to customers in that segment. However, as sales to the café, restaurant and food service segment decreased in the quarter, sales to large wholesaler and retail customers increased, as there was a shift in buying and consumption of coffee products to this segment.
The continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including our ability to obtain products from global suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, is uncertain at this time and could have a material adverse effect on our business, results of operations, and financial condition.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the three and six months ended April 30, 2021.2023. Critical accounting policies and the significant estimates in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our consolidated financial statements and footnotes thereto, each included in our annual report on Form 10-K filed with the SEC on February 16, 2021March 29, 2023 for the fiscal year ended October 31, 2020.2022.
Three Months Ended April 30, 20212023 Compared to the Three Months Ended April 30, 2020 (restated)2022
Net Sales. Net sales totaled $14,468,558$15,320,703 for the three months ended April 30, 2021,2023, a decrease of $2,877,293,$1,177,466, or 16.6%7.1%, from $17,345,851$16,498,169 for the three months ended April 30, 2020.2022. The decrease in net sales was due to multiple factors, includingan increase of sales to our legacy customers partially offset by a decline of $5.2 milliondecrease in sales of packed coffee. During April 2021 we experienced a 50% decline, as compared to April 2020, in production atfrom our largest operating facility in Colorado. This reduction was due to supermarkets no longer building their inventories as they did in April 2020 during COVID-19 shutdowns. Further, we experienced a loss of approximately $750,000 in revenue as we dropped Aldi, Inc. (“Aldi”) as a customer due to unacceptably low net margins. The above losses were slightly offset by gains in sales to new private label accounts as well as an increase in sales of our flagship Café Caribe brand.Generations/Steep N Brew subsidiary.
Cost of Sales. Cost of sales for the three months ended April 30, 20212023 was $10,699,090,$12,488,522, or 74%81.5% of net sales, as compared to $12,839,425,$14,505,415, or 74%87.9% of net sales, for the three months April 30, 2020.2022. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The decrease in cost of sales was due to our decreased sales offset by higher packaging costs due to increases in materials, most notably steel for our cans.sales.
Gross Profit. Gross profit for the three months ended April 30, 20212023 amounted to $3,769,468$2,832,181 or 26%18.5% of net sales, as compared to $4,506,426$1,992,754 or 26%12.1% of net sales, for the three months ended April 30, 2020.2022. The decreaseincrease in gross profit numericallyprofits on a percentage basis was attributable to decreased sales for the quarter ended April 30, 2021 as compared to the quarter ended April 30, 2020.factors listed above.
Operating Expenses. Total operating expenses decreased by $297,553$149,588 to $3,315,324$3,216,635 for the three months ended April 30, 20212023 from $3,612,877$3,366,223 for the three months ended April 30, 2020.2022. Selling and administrative expenses decreased by $294,037$143,338 and officers’ salaries decreased by $3,516. Our efforts to control costs through the elimination of redundancy in our operations and the elimination of certain unnecessary variable costs were the primary reasons for this decrease. These efforts were partially offset by the increase in our freight costs as the cost of truckload deliveries to our largest wholesale customers was up approximately 20% year over year.$6,250.
Other Income (Expense).Other expense for the three months ended April 30, 20212023 was $17,637, a decrease$123,386, an increase of $31,816$72,184 from $49,453$51,202 for the three months ended April 31, 2020.30, 2022. The decreaseincrease in other expense was attributable to a decreasean increase in interest expense of $32,886, a decrease$69,423, an increase in our loss from our equity investments of $363$211 and a decrease in our interest income of $1,433,$2,550, during the three months ended April 30, 2021 as compared to the three months ended April 30, 2020.2023.
Income Taxes. Our provisionbenefit for income taxes for the three months ended April 30, 20212023 totaled $129,086$148,000 compared to a provisionbenefit of $154,767$385,681 for the three months ended April 30, 2020.2022. The change was primarily attributable to the difference in the incomeloss for the quarter ended April 30, 20212023 versus the income in the quarter ended April 30, 2020, as well as a true up to the provision that was recorded in the three months ended April 30, 2020.2022.
Net (Loss) Income.We had a net incomeloss of $357,044$359,840 or $0.06$(0.06) per share basic and diluted, for the three months ended April 30, 20212023 compared to a net incomeloss of $498,518,$368,096, or $0.09$(0.06) per share basic and diluted for the three months ended April 30, 2020. The decrease in net income was due primarily to the reasons described above.2022.
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Six Months Ended April 30, 20212023 Compared to the Six Months Ended April 30, 2020 (restated)2022
Net Sales. Net sales totaled $32,602,395$33,646,818 for the six months ended April 30, 2021, a decrease2023, an increase of $1,870,499,$443,789, or 5.4%1.3%, from $34,472,894$33,203,029 for the six months ended April 30, 2020.2022. The decreaseincrease in net sales was due to multiple factors, including the continued lossan increase of sales of packed coffee to our legacy customers who have not fully re-opened due to COVID-19 restrictions. During April 2021 we experiencedpartially offset by a 50% decline, as compared to April 2020,decrease in production atsales from our largest operating facility in Colorado. This reduction was due to supermarkets no longer building their inventories as they did in April 2020 during COVID-19 shutdowns. Further, we experienced a loss of approximately $750,000 in revenue as we dropped Aldi as a customer due to unacceptably low net margins.Generations/Steep N Brew subsidiary.
Cost of Sales. Cost of sales for the six months ended April 30, 20212023 was $24,353,356,$28,494,333, or 74.7%84.7% of net sales, as compared to $26,851,714,$26,938,669, or 77.9%81.1% of net sales, for the six months April 30, 2020.2022. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The decreaseincrease in cost of sales was due to our decreasedincreased sales partially offset byand the higher packaging costs due to increases in materials, most notably steel for our cans.of packaging.
Gross Profit. Gross profit for the six months ended April 30, 20212023 amounted to $8,249,039$5,152,485 or 25.3%15.3% of net sales, as compared to $7,621,092$6,264,360 or 22.1%18.9% of net sales, for the six months ended April 30, 2020.2022. The increasedecrease in gross profitprofits on a percentage basis was attributable to increased margins on our roasted and branded products partially due to the movement of lower cost green coffee inventory built up in previous quarters, partially offset by higher packaging costs due to increases in materials, most notably steel for our cans.factors listed above.
Operating Expenses. Total operating expenses decreased by $659,416$749,136 to $6,628,514$6,337,963 for the six months ended April 30, 20212023 from $7,287,930$7,087,099 for the six months ended April 30, 2020.2022. Selling and administrative expenses decreased by $638,875$771,636 and officers’ salaries increased by $22,500. Operating expenses decreased by $20,541. Our effortsprimarily due to control costs throughour Generations joint venture not generating expenses for the elimination of redundancy in our operations andsix months ended April 2023 compared to the elimination of certain unnecessary variable costs were the primary reasons for this decrease. These efforts weresix months ended April 30, 2022, partially offset by the increase in our freight costs as the cost of truckload deliveries to our largest wholesale customers was up approximately 20% year over year.various other categories.
Other Income (Expense). Other expense for the six months ended April 30, 20212023 was $46,493,$21,715, a decrease of $59,261$100,285 from $105,754$122,000 for the six months ended April 30, 2020.2022. The decrease in other expense was attributable to an increase in other income of $234,041 due to an insurance claim, a decrease in interest expense of $61,952, partially offset by an increase in our loss from our equity investments of $924$26,498, partially offset by an increase in our interest expense of $159,273 and a decrease in our interest income of $1,767,$981, during the six months ended April 30, 2021 as compared to the six months ended April 30, 2020.2023.
Income Taxes. Our provisionbenefit for income taxes for the six months ended April 30, 20212023 totaled $510,329$315,250 compared to a provisionbenefit of $89,351$248,275 for the six months ended April 30, 2020.2022. The change was primarily attributable to the difference in the income for the six months ended April 30, 20212023 versus the income in the six months ended April 30, 2020.2022.
Net (Loss) Income. We had a net incomeloss of $1,034,355$891,433 or $0.18($0.16) per share basic and diluted, for the six months ended April 30, 20212023 compared to a net loss of $101,330,$87,233, or $0.02($0.02) per share basic and diluted for the six months ended April 30, 2020.2022. The increasedecrease in net income was due primarily to the reasons described above, as well as a true up to the provision that was recorded in the three months ended April 30, 2020.above.
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Liquidity and Capital Resources
As of April 30, 2021,2023, we had working capital of $21,447,364,$23,049,651, which represented a $2,592,174$2,212,573 decrease from our working capital of $24,039,538$25,262,224 as of October 31, 2020, and total stockholders’ equity of $27,932,559 which increased by $1,413,893 from our total stockholders’ equity of $26,518,666 as of October 31, 2020.2022. Our working capital decreased primarily due to decreases of $709,476$1,047,861 in cash and cash equivalents, $1,212,055 in accounts receivable, $1,935,996$3,428,917 in inventories, $91,684$45,696 in due from broker and $150,120 in prepaid expenses and refundable income taxes, increasesother current assets, partially offset by decreases of $970,875$1,730,244 in accounts payable and accrued expenses, increases of $255,611 in income taxes payable, increase of $16,641 in lease liabilities – current portion, partially offset by increase of $653,017$876,148 in cash $173,177 in prepaid expenses, $559,408overdrafts, $982,172 in due to broker.broker and $83,512 in lease liability – current portion. As of April 30, 2021,2023, the outstanding balance on our line of credit was $2,500$7,520,000 compared to $3,796,822$8,314,000 as of October 31, 2020.2022.
On April 25, 2017 wethe Company and Organic Products TradingOPTCO (together with the Company, LLC (“OPTCO”)(collectively referred to herein as the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which was later acquired by Webster Financial Corp. (“Webster”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between us,Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.
On March 13, 2020,17, 2022, we reached an agreement for a new loan modification agreement and credit facility which extended the maturity date to June 29, 2022. All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.
On June 28, 2022, we reached an agreement for a new loan modification agreement and credit facility with Sterling.Webster. The terms of the new agreement, among other things: (i) providesprovided for a new maturity date of March 31, 2022June 30, 2024, and (ii) decreaseschanged the interest rate per annum to LIBORSOFR plus 1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.
As further explained in Note 5 to the unaudited financial statements, the Company is subject to certain covenants with respect to its line of credit agreement. We were not in compliance with the net profit and non-borrower affiliate covenants as of October 31, 2022. We requested a waiver from the lender and the waiver was granted and received on March 15, 2023. The lender also extended the due date of the October 31, 2022 financial statements until April 15, 2023. On March 15, 2023, the A&R Loan Agreement was also modified to, among other things: (i) provide for a requirement for subordination agreements if necessary, (ii) change the terms of transactions with affiliates from a dollar limitation to allowable in the ordinary course of business, and (iii) establish a new covenant for a fixed charge coverage ratio.
Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. WeThe outstanding balance on our lines of credit were in compliance with all covenants$7,520,000 and $8,314,000 as of April 30, 20212023 and October 31, 2020.
Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all of our tangible and intangible assets. Other than as amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.2022, respectively.
For the six months ended April 30, 2021,2023, our operating activities provided net cash of $5,047,290$1,234,180 as compared to the six months ended April 30, 20202022 when operating activities providedused net cash of $2,438,729.$1,496,738. The increased cash flow from operations for the threesix months ended April 30, 20212023 was primarily due to our inventory usage during the quarter and our net income.position.
For the six months ended April 30, 2021,2023, our investing activities used net cash of $597,444$609,131 as compared to the six months ended April 30, 20202022 when net cash used by investing activities was $132,967.$871,919. The increasedecrease in our uses of cash in investing activities was due to our increaseddecreased purchases of machinery and equipment during the six months ended April 30, 2021.2023.
For the six months ended April 30, 2021,2023, our financing activities used net cash of $3,796,829$1,672,910 compared to net cash usedprovided by financing activities of $2,060,862$1,697,519 for the six months ended April 30, 2020.2022. The change in cash flow from financing activities for the six months ended April 30, 20212023 was due to our increased principal payments on our credit line.line activity.
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We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness, through June 14, 2022at least the next twelve months from the date these consolidated financial statements are issued, with cash provided by operating activities and the use of our credit facility. In addition, an increase in eligible accounts receivable and inventory would permit us to make additional borrowings under our line of credit.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES (restated)
Evaluation of Disclosure Controls and Procedures
Management, which includes our President, Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective due to multiplethe existence of material weaknesses discussed below. Notwithstanding such material weaknesses, we believe thein our internal controls over financial information presented herein is materially correct and fairly presents the financial position and operating results of the quarter ended April 30, 2021.reporting.
As previously disclosed in Item 9A of our Annual Report on Form 10-K forMaterial Weakness Over Financial Reporting
During the fiscal year ended October 31, 2020, management has identified material weaknesses asour controls were inadequate to prevent and detect misstatements of that date. The identified material weaknesses related to the accounting for stock-based compensation awards and inventoriesquantities of inventory at one of our subsidiaries. Accordingly, management determined that this control deficiency constituted a material weakness.
We further concluded, based upon our restatement, that our annual financial statements duringDuring the fiscal year ended October 31, 20202021, we identified inappropriate system access controls over our financial reporting system. These controls were not designed to prevent or detect unauthorized changes to source information, or implement an appropriate level of segregation of duties. During this same period, we determined that we lacked adequate controls with respect to identifying and accounting for material contracts. This was evidenced by our failure to properly identify and account for a material lease amendment.
Further, during the year ended October 31, 2021, we determined that we lacked adequate controls with respect to physical custody of certain hardware, electronic and hard copy records of Generations Coffee and its component operation known as Steep n’ Brew following the Company’s relocation or vacating of certain premises used in the operations of that business unit. Accordingly, management determined that the foregoing were control deficiencies that constituted material weaknesses.
Additionally, on January 24, 2023, we concluded, after discussion with management, that our financial statements inaccurately accounted for certain intercompany eliminations in our consolidated statements of operations.operations for the fiscal year ended October 31, 2020. As a result, we determined that there was an overstatement of net sales and cost of sales in the consolidated statement of operations of approximately $8.3 million in our condensed consolidatedfinancial statements during the fiscal year ended October 31, 2020 which required a restatement of the previously issued financial statements for the three and six month periodsfiscal year ended April 30,October 31, 2020. This was due to inadequate design and implementation of controls to evaluate and monitor the presentation and compliance with accounting principles generally accepted in the United States of America related to the statement of operations. Accordingly, management has determined that this control deficiency constituted a material weakness.
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Notwithstanding such material weaknesses, we believe the financial information presented herein is materially correct and fairly presents the financial position and operating results of the three and six months ended April 30, 2023 in conformity with U.S. generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the SEC.
Remediation Plan for the Material Weaknesses
As previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, management has identified material weaknesses as of that date. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. To remediate the material weakness,weaknesses identified above, we are initiating controls and procedures in order to:
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| ● | developing and maintaining documentation to promote knowledge transfer upon personnel and function changes; | |
| ● | developing enhanced controls and reviews related to our financial reporting systems; | |
| ● | performing an in-depth analysis of who should have access to perform key functions within our financial reporting system that impact financial reporting and redesigning aspects of the | |
| ● | cross referencing analysis to be completed on | |
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The material weaknesses identified above will not be considered remediated until our remediation efforts have been fully implemented and we have concluded that these controls are operating effectively.
Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
Changes in Internal Control over Financial Reporting
Other than the changes intended to remediate the material weaknessesweakness as discussed above and in Part II, Item 9A of our Annual Report on Form 10-K for the year ended October 31, 2020,2022, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended April 30, 2021January 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Information regarding reportable legal proceedings is contained in Part I, Item 3, “Legal Proceedings,” in our Annual Report on Form 10-K for the year ended October 31, 2020. There have been no material changes to the legal proceedings previously disclosed in the Annual Report on Form 10-K for the year ended October 31, 2020, which are incorporated by reference herein.None.
ITEM 1A. RISK FACTORS.
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 20202022 filed with the Securities and Exchange Commission on February 16, 2021.March 29, 2023. There have been no material changes to our risk factors since the Company’s Annual Report on Form 10-K for the year ended October 31, 2020.2022.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS (restated).EXHIBITS.
| 31.1 | Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 32.1 | Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 101.INS | Inline XBRL Instance Document * | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document * | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document * | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document * | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document * | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document * | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
** Furnished herewith
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Coffee Holding Co., Inc. | ||
| Date: | By: | /s/ Andrew Gordon |
| Andrew Gordon President | ||
| Chief Executive Officer and Chief Financial Officer | ||
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