| 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 impairment
testing. 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, 2022 AND 2021 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
2022 2021
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, 2022 AND 2021 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. The
Company recorded realized and unrealized gains and losses on these contracts as follows: SCHEDULE OF REALIZED AND UNREALIZED GAINS AND LOSSES ON CONTRACTS
2022 2021
Year Ended October 31,
2022 2021
Gross realized gains $ 2,307,714 $ 1,392,949
Gross realized (losses) (1,683,401 ) (63,516 )
Unrealized (losses) gains (721,350 ) 469,004
Total $ (97,037 ) $ 1,798,437 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 and Sonofresco 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, 2022 and 2021 was $ 62,552 GOODWILL
AND TRADEMARKS The Company has determined that its goodwill
and trademarks, which consist of product lines, trade names and packaging designs have indefinite useful lives. Goodwill and trademarks
are tested for impairment at least annually or when circumstances indicate that the carrying amount of goodwill or trademarks exceed fair
value. For purposes of evaluating goodwill for impairment, the Company has determined it operates a single reporting unit. 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 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2022 AND 2021 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): assessment
date. The Company quantitatively assessed the carrying amount of its goodwill in 2021 and 2022 due to its declining stock price. The
most significant assumptions used in these impairment tests include the royalty rates using the relief from royalty method of
testing trademarks, forecasted revenues and expenses, income tax rates and discounts and premiums built into our weighted average
cost of capital to estimate future cash flows using an income approach. Due to the sustained decline in the price of the Company
stock through the fourth quarter of 2022 and after the proposed Delta merger announcement, the Company determined that an impairment
charge was necessary and recorded an impairment charge of $ 2,569,785 2,488,785 81,000 No 4 %
as of October 31, 2021. For the year ended October 31, 2021, we recorded impairment charges 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 the relief from royalty
method. These impairments were due to a change in the estimated future revenues relating to these trademarks. The impairment charge amounted to
$ 1,080,000 for
the year ended October 31, 2021. SCHEDULE OF CONSOLIDATED STATEMENT OF INCOME
Trademarks and tradenames Total
Balance at November 1, 2020 $ 1,488,000
Impairment (1,080,000 )
Impairment $ ( 1,080,000 )
Balance at October 31, 2021 408,000
Impairment charge (81,000 )
Balance at October 31, 2022 $ 327,000 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
intangible assets subject to amortization, when events and circumstances indicate that the carrying value amounts of these assets
might not be recoverable. For purposes of evaluating the recoverability of buildings, machinery and equipment and amortizable
intangible assets, the undiscounted cash flows estimated to be generated by those assets are compared to the carrying amounts of
those assets. If and when the carrying amounts of the assets exceed the undiscounted cashflows, then the related assets will be
written down to fair value, if less. During the year ended October 31, 2022 and 2021, the Company recorded $ 199,767 0 No ADVERTISING The
Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $ 42,001 67,643 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2022 AND 2021 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): 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. (LOSS)
EARNINGS PER SHARE Basic
(loss) earnings per common share was computed by dividing net (loss) income by the sum of the weighted-average number of common shares
outstanding. Diluted (loss) 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 Company
has issued 1,000,000 The
weighted average common shares outstanding used in the computation of basic and diluted (loss) earnings per share were 5,708,599 5,575,453 FAIR
VALUE OF FINANCIAL INSTRUMENTS The
carrying amounts of cash, accounts receivable, notes due to/(from) broker and 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. COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2022 AND 2021 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): 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 product line for the years ended October 31, 2022 and 2021. SCHEDULE OF REVENUE
2022 2021
Green $ 27,210,883 $ 26,118,492
Packaged 38,495,996 37,803,910
Totals $ 65,706,879 $ 63,922,402
Revenues $ 65,706,879 $ 63,922,402 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
$ 2,964,000 3,165,000 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, 2022 and 2021,
the Company had approximately $ 625,000 2,224,000 The
accounts at the brokerage firm contain cash and securities. Balances are insured up to $ 500,000 100,000 1,560,000 523,000 COFFEE
HOLDING CO., INC. AND SUBSIDIARIES NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER
31, 2022 AND 2021 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 The
Company’s equity method investments consist of the following: (1)
20 100,000 15,178 9,213 56,601 71,779 (2)
On October 15, 2020 the Company acquired a 49 139,250 3.45 480,413 139,250 500,000 32,622 149,947 297,843 330,466 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, 2022 AND 2021 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): LEASES Leases
are accounted for under ASC 842. 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 to be 5.00 |
