| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS
OF PRESENTATION The
consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (“OPTCO”),
Sonofresco LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”).
All significant inter-company balances and transactions have been eliminated in consolidation. USE
OF ESTIMATES The
preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United
States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Significant estimates include allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation,
intangible asset valuations and useful lives, taxes, contingencies, and valuation of financial instruments. These estimates may
be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts. CASH Cash
consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): ACCOUNTS
RECEIVABLE Trade
accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts
for estimated losses resulting from the inability of its customers to make required payments. Management considers the following
factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history
with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and
other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers
were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s
assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation
allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a
charge to the valuation allowance and a credit to accounts receivable. The
reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances
represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from
its customers. The allowances are summarized as follows: SCHEDULE OF ACCOUNTS RECEIVABLE
2020 2019
Allowance
for doubtful accounts $ 65,000 $ 65,000
Reserve
for other allowances 35,000 35,000
Reserve
for sales discounts 44,000 44,000
Totals $ 144,000 $ 144,000 INVENTORIES Inventories
are stated at the lower of cost (first in, first out basis) or net realizable value, including provisions for obsolescence commensurate
with known or estimated exposures. There are no MACHINERY
AND EQUIPMENT Machinery
and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.
Purchases of machinery and equipment and additions and betterments which substantially extend the useful life of an asset are
capitalized at cost. Expenditures which do not materially prolong the normal useful life of an asset are charged to operations
as incurred. The Company also provides for amortization of leasehold improvements. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): COMMODITIES
HELD BY BROKER The
commodities held at broker represent the market value of the Company’s trading account, which consists of option and future
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 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. The
Company has open position contracts held by the broker, which are summarized as follows: SCHEDULE
OF COMMODITIES HELD BY BROKER
2020 2019
Option
contracts $ (164,475 ) $ (58,856 )
Future
contracts (287,850 ) 159,887
Commodities
due (to) from broker $ (452,325 ) $ 101,031 The
Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses
are included in earnings. At
October 31, 2020, the Company held 48 three four months 1,800,000 1.158 1.044 At
October 31, 2019, the Company held 124 three four months 4,650,000 .986 1.02 Included
in cost of sales for the years ended October 31, 2020 and 2019, 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
2020 2019
Year
Ended October 31,
2020 2019
Gross
realized gains $ 1,678,995 $ 1,307,816
Gross
realized (losses) (1,451,761 ) (2,642,537 )
Unrealized
(losses) gains (553,356 ) 123,077
Total $ (326,122 ) $ (1,211,644 ) COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): GOODWILL
AND TRADEMARKS The
Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have
an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill
and trademarks are not amortized but are assigned to a specific reporting unit or asset class and tested for impairment at least
annually or upon the occurrence of an event or when circumstances indicate that the reporting unit’s carrying amount of
goodwill and trademarks is greater than its fair value. As of October 31, 2020 and 2019, the Company has determined by using a
qualitative assessment that an impairment did not exist. CUSTOMER
LIST AND RELATIONSHIPS Customer
list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition
of OPTCO, Comfort Foods, Sonofresco and Steep & Brew which are being amortized on the straight-line method over their estimated
useful life of twenty years ADVERTISING The
Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $ 149,505 449,678 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. EARNINGS
PER SHARE Basic
earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding.
Diluted earnings per common share is computed by dividing the net 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 Company has issued 1,000,000 The
weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,575,453 5,569,349 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): FAIR
VALUE OF FINANCIAL INSTRUMENTS The
carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses approximate fair value
because of the short-term nature of these instruments. The carrying amount of the bank line of credit borrowings approximates
fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities.
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments
when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore,
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. REVENUE
RECOGNITION The
Company recognizes revenue in accordance with the five-step model as prescribed by ASU 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 ASU 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. See Note 10 for revenue disaggregated
by product line. PAYCHECK
PROTECTION PROGRAM On
July 22, 2020, the Company received loan proceeds of $ 634,400 The PPP,
which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), provides for
loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business.
The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks so long as the borrower uses the loan proceeds
for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels, as
defined by the PPP. At least 60% of the amount forgiven must be attributable to payroll costs, as defined by the PPP. The
PPP loan matures five years 1 U.S.
GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit
entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement
preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances outlined
below, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by
analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government
Assistance. Under the provisions of IAS 20, “a COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): forgivable
loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms
for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”, however, based on certain interpretations,
it is analogous to “probable” as defined in FASB ASC 450-20-20 under U.S. GAAP, which is the definition the Company
has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic
basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses).
Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as
a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income
to present a more clear distinction in its financial statements between its operating income and the amount of net income resulting
from the PPP loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability
amongst all period presented. The
following table provided the balance and activity related to the PPP Loan: SCHEDULE OF PAYCHECK PROTECTION PROGRAM
PPP
Loan $ 634,400
Qualified
expenses incurred to date 634,400
Unrecognized
government grant income $ 0 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): SHIPPING
AND HANDLING FEES AND COSTS Revenue
earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to customers aggregating
approximately $ 2,780,000 3,214,000 CONCENTRATION
OF RISK Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial
institutions and brokerage firms. Accounts
at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At October 31, 2020
and 2019, the Company had approximately $ 816,000 1,490,000 The
accounts at the brokerage firm contain cash and securities. Balances are insured up to $ 500,000 100,000 1,421,000 706,000 RECLASSIFICATION Certain
amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation. These
reclassification adjustments had no effect on the Company’s previously reported net income. EQUITY
METHOD OF ACCOUNTING Investee
companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity
method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation
of several factors including, among others, representation on the Investee company’s board of directors and ownership level,
which is generally a 20% to 50% interest in the voting securities of the Investee company. The
Company’s investment in a company that is accounted for on the equity method of accounting consist of the following: (1)
20 100,000 5,016 3,769 80,992 86,008 49 139,250 3.45 480,413 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
AFFECTING THE COMPANY Effective November 1, 2019, the Company
adopted ASC Topic 842, Leases (“ASC 842”). The new guidance increases transparency by requiring the recognition of right to
use assets and lease liabilities on the statement of financial condition. The recognition of these lease assets and lease liabilities
represents a change from previous US GAAP requirement, which did not require lease assets and lease liabilities to be recognized for most
operating leases. The recognition, measurement and presentation
of expenses and cash flows arising from a lease, have not significantly changed from previous US GAAP requirements. On November 1, 2019, the effective date
of ASC 842, existing leases of the Company were required to be recognized and measured. Additionally any leases entered into during the
year were also required to recognized and measured. In applying ASC 842, the Company made an accounting policy election not to recognize
the right of use assets and lease liabilities relating to short-term leases. Implementation of ASC 842 included an analysis of contracts,
including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of the right to use
assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates to apply in
determining the lease liabilities. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2020 AND 2019 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): The new standard provides a number of transition
practical expedients, which the Company has elected, including: ●
A “package of three” expedients that must be taken together and allow entities to (1) not reassess whether existing contracts
contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing
leases, and ●
An implementation expedient which allows the requirements of the standard in the period of adoption with no restatement of prior periods. The
adoption of ASC 842 resulted in the recording of operating lease right of use assets of $ 2,512,022 2,705,484 The
Company implemented ASC 842 using the modified retrospective approach. In addition, at November 1, 2019, there was no impact to stockholder’s
equity upon adoption. The
Company determines if an arrangement is or contains a lease at inception. The Company’s operating lease arrangement are comprised
of real estate and facility leases. Right of use assets represent the Company’s right to use the underlying asset for the lease
term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right of use assets
and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As
the Company’s leases do not provide an implicit rate and the implicit rate is not readily determinable, the Company estimates its
incremental borrowing rate based on the information available at the measurement date in determining the present value of the lease payments.
The present value of the lease payments was determined using a 4.75 The
Company presents the amortization of its right to use assets and payments of related lease liabilities originating in connection with
operating leases as an adjustment to reconcile net income or loss to net cash generated or used in operating activities and an operating
cash outflow, respectively within the operating section of the statement of cash flows. |
