| 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 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, depreciable lives for long-lived assets, and valuation of goodwill and indefinitely lived intangible assets. These
estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded
amounts. CASH
AND CASH EQUIVALENTS Cash
and cash equivalents consists primarily of unrestricted cash on deposit and securities with an original maturity of 3 months or less
at financial institutions and brokerage firms. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 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
2021 2020
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 BUILDING,
MACHINERY AND EQUIPMENT Building,
machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.
Purchases of buildings, 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 which are depreciated over the shorter of the useful life
of the improvement or the lease term. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 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
level 1 investments 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 impact 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 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 sales and not reflected as a net amount as a separate component of stockholders’
equity. The
Company recorded realized and unrealized gains and losses on these contracts as follows: SCHEDULE OF REALIZED AND UNREALIZED GAINS AND LOSSES ON CONTRACTS
2021 2020
Year
Ended October 31,
2021 2020
Gross
realized gains $ 1,392,949 $ 1,678,995
Gross
realized (losses) (63,516 ) (1,451,761 )
Unrealized
gains (losses) 469,004 (553,356 )
Total $ 1,798,437 $ (326,122 ) The
notional amount of open future and option contracts was approximately $ 1,712,000 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. Amortization expense for the years ended October 31, 2021 and 2020 was $ 67,522 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 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. Goodwill and trademarks are not amortized but are tested for impairment at least annually or upon the occurrence of an event
or when circumstances indicate that the carrying amount of goodwill and trademarks is greater than its fair value. For purposes of evaluating
goodwill for impairment, the Company has determined it operates as one single reporting unit based on the Company’s internal reporting
structure, the level at which discrete financial information is available and for which operating results are reviewed. The Company performs
its annual impairment test on October 31 of each year by first performing a qualitative assessment to determine if it is more likely
than not that the carrying amounts exceed the fair values. Depending on the outcome of our qualitative assessment, we may perform a quantitative
assessment to determine if the carrying amounts exceed the fair values on the assessment date. The most significant assumptions used
in these impairment tests were the royalty rates, the projections used to determine the future cashflows, and the discount rate applied
to those future cashflows. For the years ending October 31, 2021 and 2020, no impairment charges were recorded to the carrying value
of goodwill and the reporting unit has a fair value in excess of its carrying value by approximately 4 %
as of October 31, 2021. For the year ended October 31, 2021, we recorded impairment on two of our trademarks as the carrying
amount of these trademarks exceeded the respective fair values on the test date which were determined using a relief from royalty method.
These impairments were due to a change in the estimated future revenues relating to these trademarks. The impairment expense totaled
$ 1,080,000 SCHEDULE
OF CONSOLIDATED STATEMENT OF INCOME
Trademarks
and tradenames Total
Balance
at November 1, 2019 $ 1,488,000
Impairment -
Balance
at October 31, 2020 $ 1,488,000
Impairment (1,080,000 )
Balance
at October 31, 2021 $ 408,000 IMPAIRMENT
OF LONG-LIVED ASSETS The
Company assesses the impairment of long-lived assets used in operations, primarily buildings, machinery and equipment as well as purchased
intangible assets subject to amortization, when events and circumstances indicate that the carrying value of these assets might not be
recoverable. For purposes of evaluating the recoverability of buildings, machinery and equipment and amortizing intangible assets, the
undiscounted cash flows estimated to be generated by those assets are compared to the carrying amount of those assets. If and when the
carrying values of the assets exceed the undiscounted cashflows, then the related assets will be written down to fair value. During the
year ended October 31, 2021 and 2020, no ADVERTISING The
Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $ 67,643 149,505 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 5,708,599 5,575,453 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): FAIR
VALUE OF FINANCIAL INSTRUMENTS The
carrying amounts of cash, accounts receivable, notes due to/(from) broker , accounts payable approximate fair value
because of the short-term nature of these instruments. The carrying amount of the bank line of credit 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. The
Company measures fair value as required by Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements
and Disclosures” (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding
the methods used for measuring fair value, and expands disclosures about fair value measurements. ASC Topic 820 clarifies that fair value
is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market
participants would use in pricing an asset or liability. As a basis for considering such assumptions, there exists a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
A) Level
1 – unadjusted quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access as of the measurement date.
B) Level
2 – inputs other than quoted prices included within Level 1 that are directly observable
for the asset or liability or indirectly observable through corroboration with observable
market data.
C) Level
3 – unobservable inputs for the asset or liability only used when there is little,
if any, market activity for the asset or liability at the measurement date. The
hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining
fair value. 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. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): The
following table presents revenues by product line for the years ended October 31, 2021 and 2020. SCHEDULE OF REVENUE
2021 2020
(As restated)
Green $ 26,118,492 $ 22,303,488
Packaged 37,803,910 43,728,465
Totals $ 63,922,402 $ 66,031,953 Revenue
for these product lines is recognized upon shipment to the customer. 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
$ 3,165,000 2,780,000 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 was set to mature in five years from the date of the first disbursement of proceeds to the Company and accrued interest at a
fixed rate of 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 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 Financial Accounting Standards Board (“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 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): 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 as of October 31, 2020: SCHEDULE
OF PAYCHECK PROTECTION PROGRAM
PPP
Loan $ 634,400
Qualified
expenses incurred to date 634,400
Unrecognized
government grant income $ - The
PPP loan was formally forgiven during fiscal year ended October 31, 2021. STOCK-
BASED COMPENSATION Stock-based
awards are accounted for as required by ASC Topic 718 “Compensation-Stock Compensation” (“ASC 718”). Under ASC
718 stock-based awards are valued at fair value on the date of grant, and that fair value is recognized over requisite service period.
The Company accounts for forfeitures when they occur. 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, 2021 and 2020,
the Company had approximately $ 2,224,000 816,000 The
accounts at the brokerage firm contain cash and securities. Balances are insured up to $ 500,000 100,000 523,000 1,421,000 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. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): 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 Statements
of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Equity method
investments” in the Company’s consolidated Balance Sheets. The
Company’s equity method investments consist of the following: (1)
20 100,000 9,213 5,016 71,779 80,992 (2)
On October 15, 2020 the Company acquired a 49 139,250 3.45 480,413 139,250 500,000 149,947 330,466 480,413 INVESTMENTS
- OTHER Investment
– other represent investments made by the Company that do not qualify as equity method investments as the Company cannot exercise
significant influence over the target. The Company accounts for these investments in accordance with ASC Topic 321 “Investments
– Equity Securities” (“ASC 321”). In August 2021, the Company made an investment of $ 2,500,000 2,500,000 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2021 AND 2020 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): LEASES : Effective November 1, 2019, the Company
adopted ASC Topic 842, Leases (“ASC 842”). The guidance requires the recognition of right to use assets and lease liabilities
on the statement of financial condition. 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. The
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
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 %
incremental borrowing rate for in place leases as of October 31, 2020 and 5.00 %
for new leases and lease amendments that occurred during fiscal year 2021. Right of use assets also exclude lease incentives. |
