-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jp1TolSBDbx9AXIDH2Zfwju3jYIvNfNpOBn8ElIABIo1iLOKUvOrd6sUWYRHzfX0 4D06wFrGmmOvJHL6p4fyxw== 0000891092-01-000111.txt : 20010130 0000891092-01-000111.hdr.sgml : 20010130 ACCESSION NUMBER: 0000891092-01-000111 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001031 FILED AS OF DATE: 20010129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COFFEE HOLDING CO INC CENTRAL INDEX KEY: 0001007019 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 113860760 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-00588-NY FILM NUMBER: 1518275 BUSINESS ADDRESS: STREET 1: 4401 FIRST AVENUE CITY: BROOKLYN STATE: NY ZIP: 11232 BUSINESS PHONE: 7188320800 MAIL ADDRESS: STREET 1: 4401 FIRST AVENUE CITY: BROOKLYN STATE: NY ZIP: 11232 FORMER COMPANY: FORMER CONFORMED NAME: TRANSPACIFIC INTERNATIONAL GROUP CORP DATE OF NAME CHANGE: 19960201 10-K 1 0001.txt FORM 10-K DRAFT January 25, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2000 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 No. _______ COFFEE HOLDING CO., INC. (Exact name of registrant as specified in its charter) Nevada 11-2238111 (state or other jurisdiction of (IRS employer incorporation or organization) identification number) 4401 First Avenue, Brooklyn, New York 11232-0005 (address of principal executive offices) (zip code) Registrant's telephone number, including area code (718) 832-0800 Securities registered pursuant to Section 12(b) of the Act: None (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) 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 and 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 X No __. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting common stock held by non-affiliates of the Registrant cannot be determined as the common stock is not quoted or listed on any quotation system or market. As of October 31, 2000, the Registrant had 3,999,650 shares of common stock, par value $.001 per share, outstanding. 1 PART I COFFEE HOLDING CO., INC. This document contains forward looking statements. Forward looking statements are based on management's then current views and assumptions regarding future events and operating performance. These statements are subject to factors which could cause actual results to differ materially from those statements. For a more detailed discussion of forward looking statements and the factors which could cause actual results to differ, please refer to Item 7 herein. ITEM 1. BUSINESS Coffee Holding Co., Inc. (sometimes referred to herein as the "Company" or "Coffee Holding") conducts wholesale coffee operations, including roasting, blending, packaging, marketing and distributing coffees for sale under private labels and under its own brands of specialty coffees. The Company also sells unprocessed green coffee to specialty gourmet roasters. Coffee Holding's sales are primarily to customers located throughout the United States. Coffee Holding Co., Inc. was originally incorporated in New York in 1971. Pursuant to an Agreement and Plan of Merger between Coffee Holding Co., Inc. and Transpacific International Group Corp. (the "Merger Agreement"), Coffee Holding merged with and into Transpacific International Group Corp. ("Transpacific") in February, 1998, with Transpacific being the surviving corporation (the "Reverse Acquisition"). After the merger, Transpacific changed its name to Coffee Holding Co., Inc. Transpacific was incorporated in Nevada in 1995 for the sole purpose of acquiring or merging with an unspecified operating business. Transpacific had no operating assets and did not engage in any business activities other than seeking and investigating other businesses for potential merger or acquisition. On August 12, 1996, Transpacific commenced a "blank check" offering pursuant to Rule 419 of the Securities Act, selling 3,000 shares of common stock at $6.00 per share, which generated $18,000 in gross proceeds from approximately 35 different investors. Pursuant to Rule 419, all of the gross proceeds from the offering, less 10%, and the shares of Transpacific purchased by the investors were held in escrow pending distribution of a prospectus to each of them describing any prospective business acquisition by Transpacific and the subsequent confirmation of holders of at least 80% of the shares that they elected to remain investors. All but one investor reconfirmed their investment and the merger was consummated. Pursuant to the Merger Agreement, the Transpacific common stock was split ten for one and 3,000,000 shares were issued to Coffee Holding shareholders in exchange for the outstanding shares of Coffee Holding. All descriptions of the business of Coffee Holding contained in this Form 10-K prior to the date of the merger describe the operations of the New York corporation named Coffee Holding Co., Inc. and, from the date of the merger, the operations of the Nevada corporation currently named Coffee Holding Co., Inc. Unless otherwise specifically stated herein, all descriptions of Coffee Holding and its operations contained herein are as of the date of this Form 10-K. Products Coffee Holding's products can be divided into three categories: (i) Private label coffee (ii) Branded coffee; and (iii) Wholesale green coffee Private label coffee. Coffee Holding roasts, blends, packages and distributes coffee under private labels for companies throughout the United States and Canada. As of October 31, 2000, the Company supplied coffee to approximately 35 different wholesale and retail companies. Coffee Holding is currently the leading supplier for three of the largest wholesalers in the United States. In the year ended October 31, 2000 ("fiscal 2000"), approximately 48% of Coffee Holding's sales revenue came from private label coffee sales, and, in fiscal years 1999 and 1998, 50% and 42% of revenues, respectively, came from those sales. Branded coffee. Coffee Holding roasts, grinds and blends coffee according to its own recipes and packages the coffee at its facilities. The Company then sells the packaged coffee in its proprietary brand label to supermarkets, wholesalers and individually owned stores throughout the United States, shipping directly from its factory. 2 Coffee Holding's name brands of coffee are: Cafe Caribe, Cafe Supremo, Don Manuel, Fifth Avenue and Via Roma. The Company has acquired trademark registration rights for each of Coffee Holding's name brands. For further information regarding these trademark registration rights, see "Business--Trademarks and Domain Names." Each of Coffee Holding's name brands is directed at a particular segment of the consumer coffee market. Cafe Caribe, Coffee Holding's leading name brand by revenue, is a specialty espresso coffee that targets espresso coffee drinkers, in particular, the Latin American consumer market. Market research indicates that Latin American coffee drinkers consume up to four times as much coffee than other coffee drinkers and tend to be more brand loyal than other coffee drinkers. Cafe Supremo is a specialty espresso that targets espresso drinkers of all backgrounds and tastes. It is designed to introduce coffee drinkers to the tastes of dark roasted coffee. Don Manuel is a 100% Colombian coffee product made from the finest beans Colombia produces. 100% Colombian coffee is an upscale quality product which commands a substantial premium at retail compared to the more traditional brown coffee blends. Fifth Avenue is a blended coffee which has become popular as an alternative for consumers who purchase private label or national branded coffee. The Company also markets this brand to wholesalers who do not wish to undertake the expense of developing a private label coffee program under their own name. Via Roma is an Italian style espresso targeted at the more traditional espresso drinker. In fiscal 2000, sales of Coffee Holding's branded coffees comprised approximately 9% of its sales revenues and, in fiscal 1999 and 1998, 6% and 10% of revenues, respectively, came from those sales. Wholesale Green Coffee. Coffee Holding sells and brokers green coffee beans to small roasters and coffee shop operators located throughout the United States. Coffee Holding carries over 50 different varieties of green coffee beans. Green gourmet coffee beans are sold unroasted, direct from the Company's warehouse to the small roasters and gourmet coffee shop operators which then roast the beans themselves. In fiscal 2000, wholesales of green coffee beans accounted for approximately 43% of Coffee Holding's sales revenues, and, in fiscal 1999 and 1998, approximately 44% and 48% of revenues, respectively, came from such sales. Although the overall coffee market is mature, the green coffee market represents the fastest growing area of the industry, as the number of gourmet coffee houses have been increasing in all areas of the United States. The Company currently has approximately 200 customers in this area. Raw Materials Coffee is a commodity traded on the Commodities and Futures Exchange. Coffee prices are subject to fluctuation. Over the past five years, the average price per pound of coffee beans ranged from approximately $.72 to $3.18. The price for coffee beans on the commodities market as of October 31, 2000, was $.745 The Company purchases its green coffee from dealers located primarily within the United States. The dealers supply the Company with coffee beans from many countries, including Columbia, Mexico, Kenya, Indonesia, Brazil and Ethiopia, among others. In fiscal 2000, substantially all of the Company's purchases were from approximately nine dealers. Management does not believe that the loss of any one dealer would have a material adverse effect on the Company's operations due to the availability of alternate suppliers. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond Coffee Holding's control. Supply and price can be affected by many factors such as weather, politics and economics in the exporting countries. Increases in the cost of coffee beans can, to a certain extent, be passed on to Coffee Holding's customers in the form of higher prices for coffee beans and processed coffee. However, there can be no assurance that the Company will be successful in passing coffee price increases to customers without losses in sales volume or margin. Drastic or prolonged increases in coffee prices could also adversely impact the Company's business as it could lead to a decline in overall consumption of coffee. Similarly, rapid decreases in the cost of coffee beans could force the Company to lower its sales prices before realizing cost reductions in its purchases. In addition, a worldwide supply shortage of gourmet coffee beans could have an adverse impact on the Company. 3 Gourmet green coffee, unlike most coffee, does not trade on the commodity market. Instead, it tends to trade on a negotiated basis at a substantial premium over commodity coffee pricing, depending on the origin, supply and demand at the time of purchase. The Company from time to time engages in the purchase and sale of coffee futures and option contracts to guard against the effects of fluctuations in the price of green coffee beans and to supplement its supply of coffee, if necessary. See "Item 7A - Quantitative and Qualitative Disclosures About Market Risks" herein. Trademarks and Domain Names Coffee Holding holds trademarks, registered with the United States Office of Patent and Trademark for all five of its proprietary coffee brands. Trademark registrations are subject to periodic renewal and the Company anticipates maintaining its registrations. The Company believes that its brands are recognizable in the marketplace and that brand recognition is important to the success of its branded coffee business. Customers Coffee Holding sells private label and its branded coffee to three of the leading wholesalers in the United States: Supervalu, Nash Finch and Shurfine International. For fiscal 2000, sales to these three companies accounted for approximately 31% of Coffee Holding's total sales. Sales of green coffee beans to Green Mountain Coffee Roasters accounted for approximately 17% of Coffee Holding's total sales. The Company historically has had short term contracts with some of these customers (generally one to three years in duration) and although the Company believes that it has a strong mutually beneficial relationship with those companies, there can be no assurance that these relationships will continue. The loss of any one of these relationships would likely have a material adverse effect on the Company's business and results of operations. In fiscal 2000, the Company experienced a significant loss in business from one of its largest wholesale customers. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations". Competition The coffee market is highly competitive. Coffee Holding competes with other suppliers and distributors of green coffee beans, whole coffee beans and roasted coffees. The Company's whole bean coffees compete directly against specialty coffees sold at retail through supermarkets and a growing number of specialty coffee stores. Private Label Competition. There are approximately four major producers of coffee for private label sale in the United States. Many other companies produce coffee for sale on a regional basis. Coffee Holding's main competitors are Kroger and Chock Full O' Nuts. Both Kroger and Chock Full O' Nuts, a division of Sara Lee, are larger and have more financing and resources than Coffee Holding does and therefore are able to devote more resources to product development and marketing. The Company believes that it remains competitive by providing a high level of quality and customer service. Private label coffee also competes with all of the branded coffee on the market. Chock Full O' Nuts also produces branded coffees which compete directly with their private label products. Brand Competition. Coffee Holding's proprietary brand coffees compete with many other brand coffees which are sold in supermarkets and specialty stores. The branded coffee market is dominated by three large companies: Kraft General Foods, Inc., Proctor & Gamble Co. and Sara Lee, who also market gourmet coffee in addition to non-gourmet coffee. Coffee Holding's large competitors have greater access to capital than the Company and have a greater ability to conduct marketing and promotions. The Company believes that, while its competitors' brands may be more recognizable nationwide, its proprietary brands are well recognized in the Northeastern United States and are distinguished by their distinctive flavors. Wholesale Green Coffee Competition. There are many green coffee dealers throughout the United States. Many of these dealers have greater financial resources than Coffee Holding. However, Coffee Holding believes that it has both the knowledge and the capability to assist small specialty gourmet coffee roasters with developing and growing their business. Because the Company is also a roaster as well as a seller of green coffee, it can provide its roasting experience as a value added service to its gourmet roaster customers. While other coffee merchants may be able to offer a lower price for coffee beans, Coffee Holding markets itself as a partner to small roasters, with the ability to help them market their specialty coffee products and develop a customer base. The assistance the Company provides its customers includes training, coffee blending and market identification. 4 Marketing The Company markets its private label and wholesale coffee through trade shows, industry publications, face to face contact and through the use of non-exclusive independent food and beverage sales brokers. The Company also uses its web site (www.coffeeholding.com) as a method of marketing itself and its coffee products. For its private label and brand coffees, the Company will from time to time, in conjunction with retailers and with wholesalers, conduct in-store promotions (e.g. coupons, price reductions, two for one sales). The Company evaluates opportunities for growth consistent with its core business. The Company recently established relationships with additional independent sales brokers to market the Company's products in the western United States, an area of the country where the Company has historically not marketed and sold its coffee. The Company is also considering the possibility of using web site auctions to market coffee. Seasonality Historically, consumer coffee consumption is greater in the winter months as compared to the other seasons. Employees Coffee Holding has 27 full-time employees, 22 of which are employed in the areas of coffee roasting, blending and packaging and five of which are in administration and sales. None of its employees are represented by unions or collective bargaining agreements. The Company's management believes that the Company maintains a good working relationship with its employees. In order to supplement its internal sales staff, Coffee Holding sometimes uses independent national and regional sales brokers who work on a commission basis. ITEM 2. PROPERTIES Coffee Holding is headquartered at 4401 First Avenue, Brooklyn, New York where it owns the land and an approximately 15,000 square foot building. The building houses the Company's executive offices as well as the Company's plant where it roasts, blends and packages its coffee. Coffee Holding also leases a 7,500 square foot warehouse located at 4425A First Avenue in Brooklyn from T & O Management. T& O Management is not affiliated with the Company or any of its officers, directors or shareholders. The Company pays an annual rent of $46,800. The lease expires on August 31, 2002. Coffee Holding also uses a variety of independent, bonded commercial warehouses to store its green coffee beans. Coffee Holding's management believes that the Company's facilities are adequate for its current operations and for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, Coffee Holding is a party to litigation involving its operations. The Company does not believe that the outcome of any current litigation will have a material adverse effect upon its business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report on Form 10-K, no matters were submitted to a vote of security holders. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is not quoted or listed on any quotation system or market. The Company does not know of any firm that makes a market for the Common Stock. The number of registered holders of the Company's common stock at October 31, 2000 and at January 23, 2001 was 472. In January 1998, prior to the date of the merger with Transpacific, Coffee Holding, while it was still a privately held "S" corporation, paid a distribution in the amount of $422,258 to its stockholders to pay personal income taxes. Since the January 1998 payment, the Company has never paid any cash dividends on its common stock and has no intention to do so in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The following selected data should be read in conjunction with the audited financial statements of the Company and management's discussion and analysis of the Company's financial condition and results of operations included elsewhere herein:
As of or for the Year Ended October 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 ------------ ------------ ------------ ------------ Operating data: Net sales $20,097,548 $ 23,089,592 $ 25,853,791 $ 26,120,519 Cost of sales 16,673,790 19,796,476 24,090,666 22,961,911 ------------ ------------ ------------ ------------ Gross profit 3,423,758 3,293,116 1,763,125 3,158,608 Operating expenses 2,647,629 2,301,306 2,215,134 2,355,548 ------------ ------------ ------------ ------------ Income (loss) from operations 776,129 991,810 (452,009) 803,060 Other income (expense), net (A) (375,795) (382,906) (650,020) (301,448) ------------ ------------ ------------ ------------ Income (loss) before income taxes 400,334 608,904 (1,102,029) 501,612 Provision for income taxes (B) 119,000 64,173 ------------ ------------ ------------ ------------ Net income (loss) (B) $ 281,334 $ 608,904 $ (1,102,029) $ 437,439 ============ ============ ============ ============ Basic earnings per share (B) $ .07 $ .15 ============ ============ Basic weighted average common shares outstanding 3,999,650 3,999,650 ============ ============ Pro forma (B): Historical income (loss) before income taxes $ (1,102,029) $ 501,612 Unaudited pro forma: Provision (credit) for income taxes (496,000) 226,000 ------------ ------------ Net income (loss) $ (606,029) $ 275,612 ============ ============ Basic income (loss) per share $ (.15) $ .07 ============ ============ Basic weighted average common shares outstanding 3,999,650 3,999,650 ============ ============ Dividends $ -- $ -- $ 422,258 $ -- ============ ============ ============ ============ Balance sheet data: Total assets $ 5,997,477 $ 6,511,598 $ 6,524,043 $ 6,794,629 ============ ============ ============ ============ Long-term obligations (including current portion) $ 3,101,239 $ 3,121,479 $ 3,882,804 $ 1,486,549 ============ ============ ============ ============ Stockholders' equity (deficiency) $ 225,144 $ (319,178) $ (928,082) $ 595,432 ============ ============ ============ ============
(A) Includes consulting and professional fees and other costs incurred in connection with the reverse acquisition totaling $327,087 in fiscal 1998. (B) As further explained in Notes 2 and 7 to the financial statements elsewhere herein, prior to the reverse acquisition on February 10, 1998, the Company had elected to be treated as an "S" Corporation. Therefore, it was not required to record any historical provisions or credits for Federal income taxes, although it was required to record provisions for state and local taxes at full or reduced rates, in periods prior to February 10, 1998. The unaudited pro forma provisions and credits for income taxes in fiscal 1998 and 1997 assume that the Company had not made the "S" Corporation elections during any portion of those fiscal years and reflect an effective rate of approximately 45% for each period. There were no provisions or credits for income taxes in fiscal 1999 due primarily to the utilization of a portion of the Company's net operating loss carryforwards and the inability of the Company to recognize benefits from the remainder as a result of the uncertainties related to the extent and timing of its future taxable income. The total provision for income taxes in fiscal 2000 was lower than expected based on statutory rates due primarily to the utilization of the remainder of the Company's net operating loss carryforwards. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. Coffee Holding and its representatives may from time to time make written or oral forward-looking statements, including statements contained in this report and in our other filings with the SEC. These statements use words such as "believes", "expects", "intends", "plans", "may", "will", "should", "anticipates" and other similar expressions. All statements which address operating performance, events or developments that the Company expects or anticipates will occur in the future are forward-looking statements within the meaning of the Act. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performance. We cannot assure that anticipated results will be achieved since actual results may differ materially because of risks and uncertainties. We do not undertake to revise these statements to reflect subsequent developments. The following are some of the factors that could cause actual results to differ materially from our forward-looking statements: o the impact of rapid or persistent fluctuations in the price of coffee beans; o fluctuations in the supply of coffee beans; o general economic conditions and conditions which affect the market for coffee; o the effects of any loss of major customers; o the effects of competition from other coffee manufacturers and other beverage alternatives; o changes in consumption of coffee; and o other risks which we identify in future filings with the SEC. You are strongly encouraged to consider these factors when evaluating forward-looking statements in this annual report. We undertake no responsibility to update any forward-looking statements contained in this report. Year Ended October 31, 2000 (fiscal 2000) Compared to Year Ended October 31, 1999 (fiscal 1999) Net sales totaled $20,097,548 in fiscal 2000, a decrease of $2,992,044 or 13% from $23,089,592 in fiscal 1999. Coffee pounds sold were approximately 16 million pounds, unchanged from fiscal 1999. The Company experienced a significant loss in business from an important wholesale customer. This customer's purchases in fiscal 2000 were approximately one million pounds lower than its purchases in fiscal 1999 which negatively impacted net sales by approximately $1,000,000. Sales to this customer in fiscal 2001 are expected to be at a level similar to fiscal 2000. The number of the Company's customers in the gourmet green coffee area increased from approximately 150 to approximately 200 in fiscal 2000. These customers are predominately independent gourmet coffee shops. Sales to new customers in this area historically start slowly because many of these shops are start up ventures. The Company believes that its customer base and sales will grow in this area. The Company's selling prices decreased steadily throughout fiscal 2000. Beginning at the end of 1998, the purchase price of green coffee began a gradual decline that, with the exception of brief price surges, continued through to the end of fiscal 2000. Declines in green coffee purchase prices eventually led to declines in selling prices. Selling prices of products which use commodity coffee react fairly quickly to changes in green coffee purchase prices. Gourmet green coffee selling prices tend to react more slowly 6 to changes in purchase prices because demand for gourmet coffee is less price sensitive. The Company also experienced some pricing pressure in the private label area as some of the Company's larger competitors cut their prices in order to increase market share. The Company is unable to predict how long and to what extent pricing pressure in the private label area will continue. Cost of sales in fiscal 2000 was $16,673,790, or 83% of net sales, as compared to $19,796,476, or 86% of net sales in fiscal 1999. Cost of sales consists primarily of the cost of green coffee and packaging materials. The decrease in cost of sales was attributable to the decline in green coffee purchase prices. As the price of coffee is cyclical and volatile and subject to many factors, including weather, politics and economics, the Company is unable to predict the purchase price of green coffee in fiscal 2001. The Company's gross profit in fiscal 2000 was $3,423,758, an increase of $130,642 or 4% from $3,293,116 in fiscal 1999. Gross profit as a percentage of net sales increased by 3% to 17% in fiscal 2000 from 14% in fiscal 1999. Margins improved primarily due to lower inventory costs as a result of the overall decline in green coffee purchase prices. Margins were particularly favorable in gourmet green coffee sales, as pricing in this area decreased more slowly relative to the decrease in green coffee purchase prices. Selling and administrative expenses were $2,317,629 in fiscal 2000, an increase of $406,323 or 21% from $1,911,306 in fiscal 1999. As a percentage of net sales, this change represented a 4% increase from 8% in fiscal 1999 to 12% in fiscal 2000. The increase was primarily attributable to an increase in freight expenses, commissions, professional fees incurred in connection with the preparation of reports filed by the Company with the Securities and Exchange Commission and a one time settlement of litigation in the amount of $75,000. Freight expenses were approximately $130,000 higher in fiscal 2000 due in part to fuel surcharges by the carriers as a result of higher gasoline costs and shipping costs incurred as the Company shipped more products to the Western United States. Increased commission expenses of approximately $59,000 included amortization of pre-paid commissions in the amount of $28,000. Interest expense increased $20,353 or 5% from $386,506 in fiscal 1999 to $406,859 in fiscal 2000. The increase was attributable to higher interest rates on outstanding borrowings. Rates of interest on the Company's outstanding borrowings are tied to the prime rate. As the prime rate rose in fiscal 2000, the Company's rate of interest payable on its outstanding borrowings also rose. Other income (expense), which consisted of interest expense and interest income in fiscal 2000, was a net expense of $375,795. Other income (expense) in fiscal 1999 was a net expense of $382,906. The Company had income of $400,334 before income taxes in fiscal 2000 compared to income of $608,904 before income taxes in fiscal 1999. The decline was attributable primarily to the increase in selling and administrative expenses. The Company's provision for income taxes for the year ended October 31, 2000 totaled $119,000 whereas it had no provision or credit for income taxes for the year ended October 31, 1999. The difference between the tax provision computed based on the Company's pre-tax income and the applicable statutory income tax rate and the Company's provisions for Federal, state and local taxes for the year ended October 31, 2000 and 1999 are set forth below: Year Ended October 31 ------------------------- 2000 1999 --------- --------- Tax provision at statutory rate of 34% Adjustments for the effects of: $ 140,000 $ 207,000 State income taxes, net of Federal benefit 45,000 67,000 Net change in valuation allowance (66,000) (274,000) --------- --------- Provision for income taxes $ 119,000 $ -- ========= ========= As further explained in Note 7 of the notes to the financial statements elsewhere herein, the Company had estimated net operating loss carryforwards remaining as of October 31, 1999 of approximately $191,000 available to reduce future Federal, state and local taxable income. Due to the uncertainties related to the extent and timing of the Company's future taxable income, the Company 7 had offset the estimated deferred tax assets of approximately $89,000 attributable to the potential benefits from the net operating loss carryforwards as of October 31, 1999 by an equivalent allowance. The Company had pre-tax income of approximately $400,000 for the year ended October 31, 2000; however, it was only able to use net operating loss carryforwards of $145,000. As a result, the Company reversed the valuation allowance of $89,000 that it had established to offset the remaining deferred tax assets attributable to the estimated potential benefits from the net operating loss carryforwards as of October 31, 1999, of which $23,000 was attributable to the reduction in the estimate of net operating loss carryforwards and $66,000 was attributable to the reduction in the provision for income taxes that is shown in the table above for benefits actually realized from the net operating loss carryforwards. As further explained below, the Company did not record a provision or credit for income taxes in fiscal 1999 as a result of the utilization of a portion of its net operating loss carryforwards and the uncertainties as of October 31, 1999 as to its ability to generate taxable income and utilize the benefits from its remaining net operating loss carryforwards. As a result, the Company had net income of $281,334, or $.07 per share, in fiscal 2000 compared to net income of $608,904, or $.15 per share, in fiscal 1999. Year Ended October 31, 1999 (fiscal 1999) Compared to Year Ended October 31, 1998 (fiscal 1998) Net sales totaled $23,089,592 in fiscal 1999, a decrease of $2,764,199 or 11% from $25,853,791 in fiscal 1998. Although coffee sold increased by approximately 3 million pounds or 23% from 13 million pounds in fiscal 1998 to 16 million pounds in fiscal 1999, sales revenues decreased primarily due to lower prices for green coffee sold by the Company. Cost of sales in fiscal 1999 was $19,796,476, or 86% of net sales, as compared to $24,090,666, or 93% of net sales in fiscal 1998. Cost of sales consists primarily of the cost of green coffee and packaging materials. The decrease in cost of sales in fiscal 1999 was attributable to lower purchase prices for green coffee. Beginning around the end of fiscal 1998, the purchase price of coffee began to decline gradually and fiscal 1999 saw continuing decreases in the purchase price. As the price of coffee is cyclical and volatile and subject to many factors, including weather, politics and economics, the Company is unable to predict the purchase price of coffee in fiscal 2000 and beyond. The Company's gross profit in fiscal 1999 was $3,293,116, an increase of $1,529,991 or 87% from $1,763,125 in fiscal 1998. Gross profit as a percentage of net sales increased by 7% to 14% in fiscal 1999 from 7% in fiscal 1998. The increase in gross profit as a percentage of sales was primarily attributable to increased margins on sales of private label and wholesale green coffee as purchase prices for green coffee gradually declined throughout the year. Selling and administrative expenses were $1,911,306 in fiscal 1999, a decrease of $10,558 or 1% from $1,921,864 in fiscal 1998. As a percentage of net sales, this change represented a 1% increase from 7% in fiscal 1998 to 8% in fiscal 1999. Interest expense increased $23,061 or 6% from $363,445 in fiscal 1998 to $386,506 in fiscal 1999. The increase in fiscal 1999 was attributable primarily to additional average borrowings on the Company's credit line. The amount in fiscal 1998 included costs incurred in connection with the cancellation of a factoring agreement. Other income (expense) in fiscal 1999 was a net expense of $382,906 compared to a net expense of $650,020 in fiscal 1998 which included $327,087 of consulting and professional fees and other costs incurred in connection with the reverse acquisition by Transpacific that was effectively completed on February 10, 1998. Primarily as a result of the increase in gross profit, the increase in other operating expenses and the absence of the charge for costs incurred in connection with the reverse acquisition, the Company had income of $608,904 before income taxes in fiscal 1999 compared to a loss of $1,102,029 before income taxes in fiscal 1998. As further explained in Notes 2 and 7 of the notes to the financial statements elsewhere herein, the Company was not required to record a provision for Federal income tax in fiscal 1998 because it had elected to be taxed as an "S" Corporation prior to the reverse acquisition on February 10, 1998 and it had a pre-tax loss for the period from February 11, 1998 to October 31, 1998. Although the Company had potential benefits of approximately $363,000 from the net operating loss carryforwards as of October 31, 1998, it did not record a credit for income taxes based on its pre-tax loss due to the uncertainties related to the extent and timing of its future taxable income. The Company did not record a provision for income taxes based on its pre-tax income in fiscal 1999 because it used a portion of the benefits available from the net operating loss carryforwards that were available as of October 31, 1998. Although the Company had estimated potential benefits of approximately $89,000 from the net operating loss carryforwards as of October 31, 8 1999, it did not record a credit for income taxes based on its net operating loss carryforwards due to the uncertainties related to the extent and timing of its future taxable income. Since the Company had no historical provisions or credits for income taxes in fiscal 1999 and 1998, it had historical net income of $608,904 in fiscal 1999 compared to a historical net loss of $1,102,029 in fiscal 1998. The statement of operations included in the financial statements elsewhere herein presents an unaudited pro forma credit for income taxes, net loss and related loss per share information for 1998 assuming the Company had not elected to be taxed as an "S" Corporation. The Company would have had a credit for income taxes of approximately $496,000 in fiscal 1998 assuming the "S" Corporation elections had not been made and it would have been able to carryback its net operating losses. The unaudited total pro forma credit for Federal, state and local income taxes reflects an effective rate of approximately 45% in fiscal 1998 based on the respective statutory rates. On an unaudited pro forma basis, the Company would have had a net loss of $606,029, or $.15 per share, in fiscal 1998 compared to the Company's historical net income of $608,904, or $.15 per share, in fiscal 1999. Liquidity and Capital Resources As of October 31, 2000, the Company had working capital of approximately $1,062,000, which increased by approximately $560,000 from its working capital of approximately $502,000 as of October 31, 1999, and a total stockholders' equity of $225,000, which increased by $544,000 from its total stockholders' deficiency of $319,000 as of October 31, 1999. The Company's working capital increased primarily as a result of net income generated, additional borrowings under its credit facility and a capital contribution from a stockholder. As of November 29, 2000, the Company extended the maturity of its credit facility with Wells Fargo Business Credit from November 20, 2000 until November 20, 2002, and amended certain terms of the facility (see Note 5 of the notes to the financial statements). The credit facility, as amended, provides for a revolving line of credit of up to $5,000,000 based on eligible trade accounts receivable and inventories and a term loan of up to $600,000 based on eligible equipment. The line of credit provides for borrowings of up to 85% of the Company's eligible trade accounts receivable and 60% of its eligible inventories. Interest on the line of credit is payable monthly at the prime rate plus .5% (an effective rate of 9.5% at January 10, 2001). Interest on the term loan is payable monthly at the prime rate plus .75% (an effective rate of 9.75% at January 10, 2001). Principal payments on the term loan are payable monthly at $7,276 and beginning January 1, 2001, are payable monthly at $10,000. Andrew Gordon and David Gordon, directors and officers of the Company, each have guaranteed borrowings under the credit facility up to $500,000. As of October 31, 2000, the line of credit had an outstanding balance of $2,618,000, which approximated the maximum amount that the Company could borrow based on its eligible trade accounts receivable and inventory as of that date as compared to an outstanding balance of $2,445,000 at October 31, 1999. The outstanding balance under the term loan was $192,000 as at October 31, 2000, and was $600,000 as at November 29, 2000 as the Company borrowed the maximum amount of the term loan upon the amendment of the credit facility. The Company had on deposit $261,000 in a cash collateral account to secure the outstanding borrowings under the credit facility. The outstanding balance under the line of credit and a portion of the outstanding balance under the term loan were classified as long-term liabilities in the Company's October 31, 2000 balance sheet based on the amended terms of the credit facility whereby the Company may either defer payments until, or make installment payments, through November 20, 2002. The Company had loans payable to its stockholders, all of whom are members of the Gordon family, of $245,000 at October 31, 2000. The loans are due on demand and bear interest at 10%. The Company borrows from its stockholders, from time-to-time to supplement short-term working capital needs. The stockholders are under no obligation to make such loans. In fiscal 2000, the Company's operating activities provided net cash of $2,400 as compared to fiscal 1999 when net cash provided by operating activities was $704,000. The decrease principally reflects a decrease in net income of $328,000, and a decrease in accounts payable and accrued expenses of $1,038,000, partially offset by decreases in amounts due from broker of $143,000 and accounts receivable of $306,000. During fiscal 2000, the Company used $95,000 of its cash resources to purchase property and equipment. Capital expenditures were slightly below those made in fiscal 1999 and management does not believe that the Company's capital expenditures will be significant in fiscal 2001. Capital expenditures have decreased as compared to fiscal 1998 and fiscal 1997 when the Company purchased and installed new equipment and refurbished existing equipment to upgrade its production capabilities. The Company also used $689,000 of cash in fiscal 2000, which included $399,000 to make interest payments and pay administrative fees on its credit facility, $87,000 to reduce its term loan and $203,000 to reduce capital lease obligations. In addition, the Company deposited $261,000 in a cash collateral account to secure outstanding borrowings under its credit facility. 9 During fiscal 2000, the Company received short term advances of $97,000 from related parties and a capital contribution of $263,000 from a stockholder which represented a return of a portion of a dividend paid during a period in which the Company was taxed as an "S" corporation. The Company anticipates, but cannot assure, that it will be able to fund its operations, including paying its liabilities, funding capital expenditures and making required payments on its debts, in fiscal 2001 through cash provided by operating activities and borrowings under its credit facility. This expectation assumes that the Company is able to generate a sufficient level of sales in order to increase net income and eligible accounts receivable. An increase in eligible accounts receivable and inventory would permit the Company to make additional borrowings under its line of credit. The Company also believes it could, if necessary, obtain additional loans by mortgaging its headquarters. Year 2000 The Year 2000 issue concerns the possible inability of information systems and non-information systems with embedded technology to properly recognize and process date sensitive information beyond December 31, 1999. The Company did not experience any systems problems related to Year 2000 issues. The Company's information and non-information systems functioned normally. The Company's business with its suppliers and customers was not affected by Year 2000 issues, although the Company did experience some reduction in inventory purchases from its wholesale customers in November and December 1999 as the customers did not want to carry a large inventory ahead of the Year 2000. The Company does not presently anticipate making any expenditures in the fiscal year ending October 31, 2001 for Year 2000 items. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Market risks relating to the Company's operations result primarily from changes in interest rates and commodity prices as further described below. Interest Rate Risks The Company is subject to market risk from exposure to fluctuations in interest rates. At October 31, 2000, the Company's long-term debt, other than capitalized leases, consisted of approximately $245,000 of fixed rate debt and approximately $2,800,000 of variable rate debt under its revolving line of credit and term loan. Interest on the variable rate debt was payable primarily at .5% above the prime rate, with a portion of the variable rate debt payable at .75% above the prime rate. The Company does not expect changes in interest rates to have a material effect on results of operations or cash flows in fiscal 2001, although there can be no assurance that interest rates will not significantly change. Commodity Price Risks The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond the Company's control. Historically, the Company has used short-term coffee futures and options contracts primarily for the purpose of partially hedging and minimizing the effects of changing green coffee prices, as further explained in Note 2 of the notes to financial statements in this Annual Report. In addition, during the latter half of fiscal 2000, the Company began to acquire futures contracts with longer terms (generally three to four months) primarily for the purpose of guaranteeing an adequate supply of green coffee. The use of these derivative financial instruments has enabled the Company to mitigate the effect of changing prices although it generally remains exposed to loss when prices surge significantly in a short period of time. The Company generally has been able to pass green coffee price increases through to its customers, thereby maintaining its gross profits. However, the Company cannot predict whether it will be able to pass inventory price increases through to its customers in the future. At October 31, 2000, the Company held options covering an aggregate of 1,875,000 pounds of green coffee beans which are exercisable at $.725 per pound. The fair market value of these options, which was obtained from a major financial institution, was approximately $27,000 at October 31, 2000. At October 31, 2000, the Company held longer-term futures contracts for the purchase of 412,500 pounds of coffee at an average price of $1.04 per pound. The fair market price of coffee applicable to such contracts was $.744 per pound at that date. Generally, such contracts are marked to market on a daily basis, and realized gains and losses are included in cost of sales. 10 The table below provides information about the Company's green coffee inventory and futures contracts that are sensitive to changes in commodity prices, specifically green coffee prices. For inventory, the table presents the carrying amount and fair value at October 31, 2000. For the future contracts, the table presents the notional amounts in pounds, the weighted average contract prices, and the total dollar contract amount by expected maturity dates, the latest of which occurs within one year from the reporting date. Contract amounts are used to calculate the contractual payments and quantity of green coffee to be exchanged under the futures contracts. October 31, 2000 --------------------- Carrying Fair Amount Value -------- ----- On balance sheet commodity position and related derivatives Green coffee inventory $813,320 $813,320 Fair value Related derivatives Futures contracts (long): Contract volumes (412,500 pounds) Weighted average price (per pound) $ 1.04 Contract amount $429,000 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 14 herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On May 15, 1998, Transpacific dismissed German W. Chacon ("Chacon") who has been previously engaged as the principal accountant for Transpacific and had previously audited its financial statements as of September 30, 1997 and for the period from October 9, 1995 (date of inception) to September 30, 1997. Chacon's reports on Transpacific's financial statements for the period from October 9, 1995 to September 30, 1997 did not contain any adverse opinion or disclaimer of opinion, qualifications or modifications as to uncertainty, audit scope or accounting principles. There were no disagreements between Transpacific and Chacon on any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure within the period from October 9, 1995 to September 30, 1997 and the subsequent interim period preceding its dismissal which disagreement, if not resolved to Chacon's satisfaction, would have caused it to make reference to such disagreement. During the period from October 9, 1995 to September 30, 1997 and the subsequent interim period preceding Chacon's dismissal, there were no "reportable events" as set forth in Item 304(a)(1)(v) of Regulation S-K. On May 15, 1998, Coffee Holding dismissed the accounting firm of Ira D. Ganzfried & Company ("Ganzfried") which had been previously engaged as the principal accountants for Coffee Holding and had previously audited its financial statements as of October 31, 1996 and 1995 and for the years then ended. 11 Ganzfried's reports on Coffee Holding's financial statements for the years ended October 31, 1996 and 1995 did not contain any adverse opinion or disclaimer of opinion, qualifications or modifications as to uncertainty, audit scope or accounting principles. There were no disagreements between Coffee Holding and Ganzfried on any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure for the years ended October 31, 1996 and 1995 and the subsequent interim period preceding its dismissal which disagreement, if not resolved to Ganzfried's satisfaction, would have caused it to make reference to such disagreement. For the years ended October 31, 1996 and 1995 and the subsequent interim period preceding Ganzfried's dismissal, there were no "reportable events" as set forth in Item 304(a)(1)(v) of Regulation S-K. The decision to change accountants was approved by the Board of Directors of the Company following the merger between Transpacific and Coffee Holding. The Company does not have an audit committee. On May 15, 1998, Coffee Holding engaged the accounting firm of J.H. Cohn LLP as the principal accountant to audit its financial statements in subsequent years. Neither Coffee Holding nor anyone acting on its behalf consulted with J.H. Cohn LLP prior to engaging them regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on the Coffee Holding or Transpacific financial statements for which disclosure would be required by Item 304(a)(2) of Regulation S-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF COFFEE HOLDING CO., INC. Set forth below is information concerning the Company's directors and executive officers. The Company's board of directors currently consists of five directors. Directors are elected by a plurality of the votes cast at the Company's annual meeting of stockholders. Once elected, each director serves until the next annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation or removal. Officers are appointed by the directors, and, once appointed, each officer serves until his or her successor is duly appointed, or until his or her earlier death, resignation or removal. Name Age Position ---- --- -------- Andrew Gordon........... [39] Chief Executive Officer, President, Treasurer and Director David Gordon............ [36] Executive Vice President, Secretary and Director Gerard DeCapua.......... [39] Director Daniel Dwyer............ [44] Director Matthew Phillips........ [46] Director Andrew Gordon is Chief Executive Officer, President, Treasurer and a Director of Coffee Holding. He was previously a Vice President from 1981 to 1997. He has been a Director of Coffee Holding since 1981. Mr. Gordon received his B.B.A. degree from Emory University. He is the brother of David Gordon. David Gordon is Executive Vice President--Operations, Secretary and a Director of Coffee Holding. He was previously a Vice President and Operating Manager from 1983 to 1997. He has been a Director of Coffee Holding since 1983. Mr. Gordon attended Baruch College in New York City. He is the brother of Andrew Gordon. Gerard DeCapua has been a Director of Coffee Holding since 1997. He has had his own law practice in Rockville Centre, New York since 1985. Mr. DeCapua received his law degree from Pace University. Daniel Dwyer has been a Director of Coffee Holding since 1998. Mr. Dwyer has been a senior coffee trader at Rothfos Corporation since 1995. Matthew Phillips has been a Director of Coffee Holding since 1998. Since 1991, Mr. Phillips has been a Vice-President of Branco Peres International, responsible for coffee trading operations. The Company currently does not have any standing committees. 12 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain compensation information for the Company's chief executive officer and each other executive officer whose salary and bonus compensation exceeded $100,000 for the fiscal year ended October 31, 2000. Summary Compensation Table Annual Compensation --------------------------------------- Name and Salary Bonus All Other Principal Position Fiscal Year ($) ($)(1) Compensation ($)(2) - ------------------ ----------- ------ ------ ------------------- Andrew Gordon 2000 155,000 - 13,671 Chief Executive 1999 160,000 50,000 8,896 Officer and President 1998 160,000 - 24,379 David Gordon 2000 125,000 40,000 6,919 Executive Vice 1999 160,000 50,000 6,970 President - Operations 1998 130,000 - 6,970 - ---------- (1) Amounts shown as bonuses were earned in the fiscal year shown. (2) The amounts set forth consist of amounts paid by the Company for the use of an automobile and automobile insurance. The Company has a stock option plan under which stock options to purchase shares of Company Common Stock may be granted to the Company's directors, officers and other key employees and consultants. The Company has reserved 2,000,000 shares of its Common Stock for issuance under the stock option plan. As of October 31, 2000, no options had been granted under the plan. Compensation of Directors Directors do not receive any compensation for their services. They are, however, reimbursed for travel expenses and other out-of-pocket costs incurred in connection with attendance at board of directors and committee meetings. ITEM 12. SECURITY STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding ownership of shares of the Company's common stock, as of October 31, 2000, by each person known to be the owner of 5% or more of the Company's common stock, by each person who is a director or executive officer and by all directors and executive officers as a group. When reviewing the following table, you should be aware that: (i) The amounts and percentages of common stock and preferred stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which that person has no economic interest. (ii) Unless otherwise indicated by footnote, each person identified in the table below has sole voting power and investment power as to the shares beneficially owned. 13 Common Stock ------------------------ Number of Percentage Shares of Class --------- ---------- Andrew Gordon(1) 1,970,378 49.3% David Gordon(1) 1,970,378 49.3% Gerard DeCapua 100 * Daniel Dwyer 100 * Matt Phillips 100 * Rachelle Gordon(2) 1,740,000 43.5% Rachelle Gordon Grantor Retained Annuity Trust 1,350,878 30.8% Sterling Gordon 199,600 5.0% Judy Melnick 199,600 5.0% All directors and executive officers as a group (5 persons)(1) 2,590,178 64.8% - ---------- * Less than 1%. (1) Includes 1,350,878 shares held by the Rachelle Gordon Grantor Retained Annuity Trust, of which Andrew and David Gordon are the co-trustees with the power to vote and dispose of the shares. (2) Includes 1,350,878 shares held by the Rachelle Gordon Grantor Retained Annuity Trust, of which Ms. Gordon is the grantor and beneficiary. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS From time to time, certain of the Company's stockholders and directors and officers make loans to the Company for working capital purposes. At October 31, 2000, the Company had loans payable to certain of its stockholders and directors and officers in the principal amounts as follows: Rachelle Gordon - $38,633 Sterling Gordon - $47,884 David Gordon - $90,371 Andrew Gordon - $68,373 The loans are unsecured, due on demand and bear interest at 10% per annum. Andrew Gordon and David Gordon have each guaranteed the payment of the Company's borrowings under its outstanding credit facilities from Wells Fargo Business Credit up to $500,000. Daniel Dwyer, a director of the Company, is a senior coffee trader for Rothfos Corporation. Mr. Dwyer is responsible for the Company's account. The Company paid Rothfos approximately $3,500,000 for green coffee purchases in fiscal 2000 and expects to pay it a similar amount in fiscal 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The financial statements and financial statement schedules listed below are filed as a part of this report. See Index to Financial Statements and Financial Statement Schedules beginning on Page F-1. 1. Financial Statements: - Index to Financial Statements and Financial Statement Schedules - Report of Independent Public Accountants. 14 - Balance sheets as of October 31, 2000 and 1999 - Statements of Operations for the Years Ended October 31, 2000, 1999 and 1998 - Statements of Changes in Stockholders' Equity (Deficiency) for the Years Ended October 31, 2000, 1999 and 1998 - Statements of Cash Flows for the Years Ended October 31, 2000, 1999 and 1998 - Notes to Financial Statements 2. Financial Statement Schedules: II. Valuation and Qualifying Accounts and Reserves for the Years Ended October 31, 2000, 1999 and 1998 Other Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. (b) No reports on Form 8-K were filed by the Company during the fourth quarter ended October 31, 2000. (c) Exhibits Exhibit Number Exhibit Name - ------ ------------ 3.1 Articles of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1998). 3.2 Certificate of Amendment of Articles of Incorporation of Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1998) 3.3 The Company's By-Laws, as amended (incorporated herein by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1998). 10.1 Lease with T&O Management Corp. dated August 15, 1997 (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1998). 10.2 1998 Stock Option Plan (incorporated hereby reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1998). 10.3* Loan and Security Agreement dated as of November 21, 1997 between the Company and NationsCredit Commercial Corporation. 10.4* First Amendment to Loan and Security Agreement dated as of May 22, 1998 between the Company and NationsCredit Commercial Corporation. 10.5* Second Amendment dated as of November 29, 2000 to Loan and Security Agreement between the Company and Wells Fargo Business Credit, Inc., as assignee. 10.6* Term Note dated as of November 29, 2000 made by the Company in favor of Wells Fargo Business Credit, Inc. in the principal amount of $600,000. 16.1 Letter from German W. Chacon (incorporated by reference to Exhibit 16(a) to the Form 8-K of Transpacific International Group Corp. filed with the SEC on May 18, 1998). 16.2 Letter from Ira D. Ganzfried & Company (incorporated by reference to Exhibit 16(b) to the Form 8-K of Transpacific International Group Corp. filed with the SEC on May 18, 1998). 27* Financial Data Schedule. - ---------- * Filed herewith ** To be filed by Amendment 15 Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act Coffee Holding has not and does not intend to send an annual report to stockholders or proxy materials to its stockholders. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. COFFEE HOLDING CO., INC. By: /s/ Andrew Gordon --------------------------------- Andrew Gordon Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on January 29, 2001 by the following persons on behalf of the registrant and in the capacities indicated. Signature Title --------- ----- /s/ Andrew Gordon Chief Executive Officer, President, Treasurer - ---------------------- and Director (principal executive officer and Andrew Gordon principal financial and accounting officer) /s/ David Gordon Executive Vice President--Operations, Secretary - ---------------------- and Director David Gordon /s/ Gerard DeCapua Director - ---------------------- Gerard DeCapua /s/ Dan Dwyer Director - ---------------------- Dan Dwyer /s/ Matt Philips Director - ---------------------- Matt Phillips 17 COFFEE HOLDING CO., INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PAGE ---- (A) FINANCIAL STATEMENTS: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 BALANCE SHEETS OCTOBER 31, 2000 AND 1999 F-3 STATEMENTS OF OPERATIONS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-4 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-5 STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 F-6 NOTES TO FINANCIAL STATEMENTS F-7/17 (B) FINANCIAL STATEMENT SCHEDULE: II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 S-1 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. * * * F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Coffee Holding Co., Inc. We have audited the accompanying balance sheets of COFFEE HOLDING CO., INC. as of October 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity (deficiency) and cash flows for the years ended October 31, 2000, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Coffee Holding Co., Inc. as of October 31, 2000 and 1999, and its results of operations and cash flows for the years ended October 31, 2000, 1999 and 1998, in conformity with generally accepted accounting principles. Our audits referred to above included the information in Schedule II which presents fairly, in all material respects, when read in conjunction with the basic financial statements taken as a whole, the information required to be set forth therein. J. H. COHN LLP Roseland, New Jersey December 29, 2000 F-2 COFFEE HOLDING CO., INC. BALANCE SHEETS OCTOBER 31, 2000 AND 1999 ASSETS 2000 1999 ----------- ----------- Current assets: Cash $ 153,844 $ 265,044 Due from broker 138,555 281,064 Accounts receivable, net of allowance for doubtful accounts of $200,510 and $227,210 2,066,964 2,416,700 Inventories 1,466,050 1,478,485 Prepaid expenses and other current assets 68,582 59,565 ----------- ----------- Total current assets 3,893,995 4,500,858 Property and equipment, at cost, net of accumulated depreciation of $2,161,398 and $1,908,410 1,825,648 1,983,317 Cash equivalents restricted under credit facility 261,038 Deposits and other assets 16,796 27,423 ----------- ----------- Totals $ 5,997,477 $ 6,511,598 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current portion of term loan $ 114,552 $ 87,312 Current portion of obligations under capital leases 46,161 202,743 Accounts payable and accrued expenses 2,671,094 3,709,297 ----------- ----------- Total current liabilities 2,831,807 3,999,352 Term loan, net of current portion 77,563 192,119 Line of credit borrowings 2,617,702 2,445,130 Obligations under capital leases, net of current portion 46,161 Loans from related parties 245,261 148,014 ----------- ----------- Total liabilities 5,772,333 6,830,776 ----------- ----------- Commitments and contingencies Stockholders' equity (deficiency): Preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued -- -- Common stock, par value $.001 per share; 30,000,000 shares authorized, 3,999,650 shares issued and outstanding 4,000 4,000 Additional paid-in capital 743,985 480,997 Accumulated deficit (522,841) (804,175) ----------- ----------- Total stockholders' equity (deficiency) 225,144 (319,178) ----------- ----------- Totals $ 5,997,477 $ 6,511,598 =========== =========== See Notes to Financial Statements. F-3 COFFEE HOLDING CO., INC. STATEMENTS OF OPERATIONS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 2000 1999 1998 ------------ ------------ ----------- Net sales $ 20,097,548 $ 23,089,592 $25,853,791 Cost of sales 16,673,790 19,796,476 24,090,666 ------------ ------------ ----------- Gross profit 3,423,758 3,293,116 1,763,125 ------------ ------------ ----------- Operating expenses: Selling and administrative 2,317,629 1,911,306 1,921,864 Officers' salaries 330,000 390,000 293,270 ------------ ------------ ----------- Totals 2,647,629 2,301,306 2,215,134 ------------ ------------ ----------- Income (loss) from operations 776,129 991,810 (452,009) ------------ ------------ ----------- Other income (expense): Interest income 31,064 3,600 40,512 Interest expense (406,859) (386,506) (363,445) Expenses incurred in connection with reverse acquisition (327,087) ------------ ------------ ----------- Totals (375,795) (382,906) (650,020) ------------ ------------ ----------- Income (loss) before income taxes 400,334 608,904 (1,102,029) Provision for income taxes 119,000 ------------ ------------ ----------- Net income (loss) $ 281,334 $ 608,904 $(1,102,029) ============ ============ =========== Basic earnings per share $ .07 $ .15 ============ =========== Basic weighted average common shares outstanding 3,999,650 3,999,650 ============ =========== Unaudited: Historical loss before income taxes $(1,102,029) Pro forma: Credit for income taxes (496,000) ----------- Net loss $ (606,029) =========== Basic loss per share $ (.15) =========== Basic weighted average common shares outstanding 3,999,650 =========== See Notes to Financial Statements. F-4 COFFEE HOLDING CO., INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
Common Stock ------------------------------------------------------- Retained No Par Value $.001 Par Value Earnings -------------------------- ------------------------- Additional (Accum- Number of Number of Paid-in ulated Shares Amount Shares Amount Capital Deficit) Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, November 1, 1997 100 $ 460,000 $ 135,432 $ 595,432 Effect of reverse acquisition and related transactions (100) (460,000) 3,999,650 $ 4,000 $ 480,997 (24,224) 773 Net loss (1,102,029) (1,102,029) Dividends paid (422,258) (422,258) ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, October 31, 1998 -- -- 3,999,650 4,000 480,997 (1,413,079) (928,082) Net income 608,904 608,904 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, October 31, 1999 -- -- 3,999,650 4,000 480,997 (804,175) (319,178) Capital contribution 262,988 262,988 Net income 281,334 281,334 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, October 31, 2000 -- $ -- 3,999,650 $ 4,000 $ 743,985 $ (522,841) $ 225,144 =========== =========== =========== =========== =========== =========== ===========
See Notes to Financial Statements. F-5 COFFEE HOLDING CO., INC. STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 2000 1999 1998 ----------- ----------- ----------- Operating activities: Net income (loss) $ 281,334 $ 608,904 $(1,102,029) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 252,988 252,925 239,687 Bad debts 44,091 12,210 53,391 Write-off of deferred mortgage financing costs 55,063 Changes in operating assets and liabilities: Due from broker 142,509 (130,472) 273,307 Accounts receivable 305,645 (185,112) 561,012 Inventories 12,435 (118,531) 19,429 Prepaid expenses and other current assets (9,017) (2,367) (30,132) Deposits and other assets 10,627 71,900 (42,132) Accounts payable and accrued expenses (1,038,203) 139,976 1,360,674 ----------- ----------- ----------- Net cash provided by operating activities 2,409 704,496 1,333,207 ----------- ----------- ----------- Investing activities - purchases of property and equipment (95,319) (111,092) (347,260) ----------- ----------- ----------- Financing activities: Principal payments on mortgage note payable (600,000) (50,000) (Increase) decrease in cash and cash equivalents restricted under credit facility and mortgage note (261,038) 432,965 (366,895) Principal payments on term loan (87,316) (87,312) (87,312) Net advances under bank line of credit 172,572 124,617 271,340 Principal payments of obligations under capital leases (202,743) (215,447) (185,483) Advances from (repayments to) related parties 97,247 16,817 (344,018) Dividends paid (422,258) Capital contribution 262,988 ----------- ----------- ----------- Net cash used in financing activities (18,290) (328,360) (1,184,626) ----------- ----------- ----------- Net increase (decrease) in cash (111,200) 265,044 (198,679) Cash, beginning of year 265,044 -- 198,679 ----------- ----------- ----------- Cash, end of year $ 153,844 $ 265,044 $ -- =========== =========== =========== Supplemental disclosure of cash flow data: Interest paid $ 399,045 $ 335,267 $ 334,567 =========== =========== =========== Income taxes paid $ 12,519 $ 904 $ 104,664 =========== =========== =========== See Notes to Financial Statements. F-6 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 1 - Business activities and reverse acquisition: Coffee Holding Co., Inc. ("Coffee"), which was incorporated in New York on January 22, 1971, conducts wholesale coffee operations, including manufacturing, roasting, packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and sells green coffees. The Company's sales are primarily to customers that are located throughout the United States. On February 10, 1998, the holders of all of the shares of Coffee's common stock consummated an exchange (the "Exchange") of their shares for shares of common stock of Transpacific International Group Corp. ("Transpacific"). Transpacific was incorporated in Nevada on October 9, 1995 and organized originally as a "blind pool" or "blank check" company for the purpose of either merging with or acquiring an operating company. It had been a development stage company with no significant operating activities or assets and liabilities prior to the Exchange. Transpacific, which had, effectively, 999,650 outstanding shares of common stock (with a par value of $.001 per share) prior to the Exchange, issued 3,000,000 shares of common stock in exchange for all of the 100 issued and outstanding shares of common stock (no par value) of Coffee. Concurrently, Coffee was merged into Transpacific (the "Merger") and Transpacific changed its name to Coffee Holding Co., Inc. Coffee Holding Co., Inc. after the Exchange, the Merger and the name change is referred to below as the "Company" or the "Combined Company." The "Company" is also used to refer to Coffee Holding Co., Inc. prior to the Exchange, the Merger and the name change. The stockholders of Coffee also owned 540,040 shares of common stock of Transpacific prior to the Exchange and, accordingly, they owned a total of 3,540,400 or 88.5% of the outstanding shares of the Combined Company immediately after the Exchange. Therefore, the Merger was treated, effective as of February 10, 1998, as a "purchase business combination" and a "reverse acquisition" for accounting purposes in which Transpacific was the "legal acquirer" and Coffee was the "accounting acquirer." The carrying values of the assets and liabilities of Transpacific, which were immaterial, were recorded at their historical carrying values as of February 10, 1998. Accordingly, the historical financial statements included herein only reflect the operations of Coffee for the period prior to February 10, 1998. All references to numbers of shares of common stock as of the dates or for periods prior to the Exchange have been restated to reflect the number of common shares of Transpacific effectively exchanged for common shares of Coffee. Consulting and professional fees and other costs incurred in connection with the reverse acquisition totaling $327,087 were charged to expense in 1998. Information as to the unaudited pro forma results of operations of the Company assuming the Merger had been consummated as of, and the results of operations of Transpacific had been included from, November 1, 1997 has not been presented because such pro forma results would not differ materially from the historical results of operations for 1998 reflected in the accompanying historical statements of operations. F-7 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies: Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash equivalents: Cash equivalents represent highly liquid investments with maturities of three months or less at the date of purchase. Inventories: Inventories are valued at the lower of cost (first-in, first-out basis) or market. Property and equipment: Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Hedging: The Company uses options and futures contracts to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are marked to market with current recognition of gains and losses on such positions. The Company does not defer such gains and losses since its positions are not considered hedges for financial reporting purposes. The Company's accounting for options and futures contracts may have the effect of increasing earnings volatility in any particular period. At October 31, 2000, the Company held options (generally with terms of two months or less) covering an aggregate of 1,875,000 pounds of green coffee beans at a price of $.725 per pound. At October 31, 1999, the Company held options covering an aggregate of 3,525,000 pounds of green coffee beans at prices ranging from $.85 to $1.05 per pound. The fair market value of these options, which was obtained from a major financial institution, was approximately $27,000 and $271,000 at October 31, 2000 and 1999, respectively. The Company began to acquire futures contracts during the year ended October 31, 2000 with longer terms (generally three to four months) primarily for the purpose of guaranteeing an adequate supply of green coffee. At October 31, 2000, the Company held longer-term futures contracts for the purchase of 412,500 pounds of coffee at an average price of $1.04 per pound. The market price of coffee applicable to such contracts was $.744 per pound at that date. F-8 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Deferred financing costs: Costs incurred in connection with obtaining financing are capitalized and amortized over the term of the related loan using a method that approximates the interest method. Advertising: The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations totaled $70,108, $92,924 and $140,397 in 2000, 1999 and 1998, respectively. 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 annually for temporary differences between the financial statement and tax bases 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 credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Prior to the Merger on February 10, 1998, Coffee, with the consent of its stockholders, had elected to be treated as an "S" Corporation under the Internal Revenue Code. Accordingly, the Company's income or loss prior to that date was allocated to Coffee's stockholders for inclusion in their personal Federal income tax returns. Therefore, the Company was not required to record any historical provision or credit for Federal income taxes for the period prior to February 10, 1998. The Company had also elected to be treated as an "S" Corporation for New York state income tax purposes. However, New York imposes a tax on "S" Corporation income at a reduced rate and New York City does not recognize "S" Corporations. Therefore, the Company was required to record appropriate historical provisions and credits for state and local income taxes in periods prior and subsequent to February 10, 1998. F-9 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Stock options: In accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," the Company will recognize compensation costs as a result of the issuance of stock options to employees based on the excess, if any, of the fair value of the underlying stock at the date of grant or award (or at an appropriate subsequent measurement date) over the amount the employees must pay to acquire the stock. Therefore, the Company will not be required to recognize compensation expense as a result of any grants of stock options to employees at an exercise price that is equivalent to or greater than fair value. The Company will also make pro forma disclosures, as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), of net income or loss as if a fair value based method of accounting for stock options had been applied, if such amounts differ materially from the historical amounts. Earnings (loss) per share: The Company presents "basic" and, if applicable, "diluted" earnings per common share pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and certain other financial accounting pronouncements. Basic earnings (loss) per common share is calculated by dividing net income or loss by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per common share is similar to that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options, were issued during the period. Since the Company had no potentially dilutive securities outstanding in 2000 and 1999, only historical basic earnings per share amounts are presented in the accompanying statement of operations for those years. Since the Company had elected to be taxed as an "S" Corporation, it was not required to provide for Federal income taxes and it was only required to provide for state income taxes at a reduced rate prior to the date of the Exchange. SEC rules and regulations prohibit the presentation of earnings (loss) per common share amounts on a historical basis for the periods during which the "S" Corporation elections were in effect; instead, they require the presentation of basic and, if applicable, diluted unaudited pro forma earnings (loss) per common share amounts in the statements of operations for such periods assuming that the Company had been subject to Federal and state income taxes at statutory rates applicable to those companies that had not made "S" Corporation elections. Since the Company had elected to be taxed as an "S" Corporation for part of 1998 and it had no potentially dilutive securities outstanding in 1998, only the unaudited pro forma loss per share amount is presented in the accompanying statement of operations for that year. F-10 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (concluded): Earnings (loss) per share (concluded): The weighted average common shares outstanding used in the computation of basic earnings per share in 2000 and 1999 was the 3,999,650 shares of common stock actually outstanding during those years. The weighted average common shares outstanding used in the computation of unaudited pro forma basic loss per share in 1998 was also 3,999,650 based on the assumption that the 3,999,650 shares effectively issued as of February 10, 1998, the date of the Exchange (see Note 1), had been outstanding from the beginning of that year. Recent accounting pronouncements: In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which, as amended, requires that all derivative financial instruments be recognized as either assets or liabilities in the balance sheet and measured at fair value. The Company will be required to implement SFAS 133 in the first quarter of its fiscal year ending October 31, 2001. Management does not believe that the adoption of SFAS 133 will have a significant impact on results of operations. The FASB and the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants had issued certain other accounting pronouncements as of October 31, 2000 that will become effective in subsequent periods. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain staff views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company will be required to implement SAB 101 no later than the fourth quarter of its fiscal year ending October 31, 2001. However, management of the Company does not believe that any of those other pronouncements would have significantly affected the Company's financial accounting measurements or disclosures had they been in effect during the years ended October 31, 2000, 1999 and 1998 or that they will have a significant affect at the time they become effective. Reclassifications: Certain accounts in the 1999 and 1998 financial statements have been reclassified to conform to the 2000 presentation. Note 3 - Inventories: Inventories at October 31, 2000 and 1999 consisted of the following: 2000 1999 ---------- ---------- Packed coffee $ 280,764 $ 211,620 Green coffee 813,320 892,344 Packaging supplies 371,966 374,521 ---------- ---------- Totals $1,466,050 $1,478,485 ========== ========== F-11 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 4 - Property and equipment: Property and equipment at October 31, 2000 and 1999 consisted of the following: Estimated Useful Life 2000 1999 ----------- ---------- ---------- Building and improvements 30 years $1,244,285 $1,232,659 Machinery and equipment 7 years 2,194,351 1,709,915 Machinery and equipment under capital leases 7 years 288,500 694,609 Furniture and fixtures 7 years 118,910 113,544 ---------- ---------- 3,846,046 3,750,727 Less accumulated depreciation (including $103,035 and $206,859 arising from capital leases) 2,161,398 1,908,410 ---------- ---------- 1,684,648 1,842,317 Land 141,000 141,000 ---------- ---------- Totals $1,825,648 $1,983,317 ========== ========== Depreciation totaled $252,988, $251,204 and $234,525 in 2000, 1999 and 1998, respectively. During 1998, the Company effectively acquired equipment at a cost of $288,500 by incurring capital lease obligations. These noncash transactions are not reflected in the accompanying 1998 statement of cash flows. Note 5 - Credit facility and other borrowings: As of October 31, 2000, the Company was obligated for aggregate borrowings of $2,809,817 under a credit facility provided by Bank of America Commercial Finance Corporation ("BACFC"), formerly Nationscredit Commercial Corp., that was scheduled to expire on November 20, 2000. The credit facility consisted of a revolving line of credit and a term loan. The line of credit provided for borrowings of up to 85% of the Company's eligible trade accounts receivable and 60% of its eligible inventories up to a maximum of $5,000,000. The outstanding balance of $2,617,702 and $2,445,130 at October 31, 2000 and 1999, respectively, approximated the maximum amount that the Company could borrow based on its eligible trade accounts receivable and inventories as of each date. Interest was payable monthly at the prime rate plus 1% (an effective rate of 10.5% at October 31, 2000). F-12 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 5 - Credit facility and other borrowings (concluded): The term loan, which had an outstanding balance of $192,115 and $279,431 (including a current portion of $114,552 and $87,312) at October 31, 2000 and 1999, respectively, provided for borrowings of up to the greater of 80% of the cost of eligible equipment or $500,000. Principal was payable in monthly installments of $7,276 plus interest which was also at the prime rate plus 1%. Two of the Company's stockholders had each guaranteed outstanding borrowings under the credit facility of up to $100,000 at October 31, 2000, plus interest and other costs and expenses as defined, and the Company also had $261,038 in an interest bearing money market account that was deposited with BACFC during the year ended October 31, 2000 to secure outstanding borrowings under the credit facility. As a result of amendments to the agreements with Wells Fargo Business Credit, the assignee of BACFC, that became effective on November 29, 2000, interest on borrowings under the line of credit and the term loan will be payable monthly at .5% and .75% above the prime rate, respectively; the credit facility will not expire until November 20, 2002; the maximum amount of borrowings under the term loan increased from $500,000 to $600,000; term loan principal payments will increase from $7,276 to $10,000 per month commencing January 1, 2001; the amount of borrowings guaranteed by each of the two stockholders increased to $500,000; and the Company's ability to continue to use the credit facility will become subject to its ability to meet specified financial covenants and ratios. In addition, the outstanding balance under the line of credit and a portion of the outstanding balance under the term loan were classified as long-term liabilities in the accompanying October 31, 2000 balance sheet based on the Company's ability to either defer payments until, or make installment payments through, November 20, 2002. The Company was obligated for variable rate borrowings under a $600,000 mortgage note until it was prepaid in March 1999. The Company wrote off deferred financing costs of approximately $55,000 in connection with the prepayment of the mortgage note in 1999, and it incurred costs of $113,000 in connection with the cancellation of a factoring agreement that were charged to interest expense in 1998. During 1998, the Company increased its obligations under the credit facility and decreased the balance payable to its factor through a direct transfer of $2,503,288 from the bank to the factor. This was a noncash transaction that is not reflected in the accompanying 1998 statement of cash flows. F-13 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 6 - Loans from related parties: The Company had loans payable to its stockholders of $245,261 and $148,014 at October 31, 2000 and 1999, respectively. The loans are due on demand and bear interest at 10%. Interest expense totaled approximately $34,000, $12,000 and $12,000 in 2000, 1999 and 1998, respectively. Note 7 - Income taxes: The Company's historical provision for income taxes in 2000 consisted of the following: 2000 -------- Federal $ 72,000 State and local 47,000 -------- Total historical $119,000 ======== The Company had no historical provision or credit for income taxes in 1999 and 1998. The differences between the tax provision or credit computed based on the Company's historical pre-tax income or loss and the applicable statutory income tax rate and the Company's historical provisions and credits for Federal, state and local income taxes for 2000, 1999 and 1998 are set forth below: 2000 1999 1998 --------- --------- --------- Tax provision (credit) at statutory rate of 34% $ 140,000 $ 207,000 $(374,000) Adjustments for effects of: State income taxes, net of Federal tax effect 45,000 67,000 "S" Corporation election and termination of "S" Corporation election 11,000 Net change in valuation allowance (66,000) (274,000) 363,000 --------- --------- --------- Historical provision $ 119,000 $ -- $ -- ========= ========= ========= As explained in Note 2, prior to February 10, 1998, the date of the Exchange, the Company had elected to be taxed as an "S" Corporation and, accordingly, it was not required to provide for any Federal income tax on its historical income before income taxes of approximately $1,028,000 for the period from November 1, 1997 to February 10, 1998. F-14 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 7 - Income taxes (continued): Although the Company became subject to Federal, state and local income taxes at full statutory rates for periods subsequent to the date of the Exchange, it had a historical loss before income taxes of approximately $2,130,000 for the period from February 11, 1998 to October 31, 1998; as a result of that loss and certain other elections related to the termination of its "S" Corporation election, the Company had net operating loss carryforwards as of October 31, 1998 of approximately $800,000 available to reduce future Federal, state and local taxable income. There were no other material temporary differences as of October 31, 1998. Due to the uncertainties related to the extent and timing of the Company's future taxable income, the Company offset the deferred tax assets of approximately $363,000 attributable to the potential benefits from the net operating loss carryforwards as of October 31, 1998 by an equivalent valuation allowance and, accordingly, it did not recognize any credits for income taxes for the period from February 11, 1998 to October 31, 1998. As a result of recording the valuation allowance of approximately $363,000 for the period after February 10, 1998, and the "S" Corporation election for the period through February 10, 1998, the Company did not recognize any provisions or credits for income taxes for the year ended October 31, 1998. Since the Company had pre-tax income of approximately $609,000 in 1999, it still had net operating loss carryforwards remaining as of October 31, 1999 of approximately $191,000 available to reduce future Federal, state and local taxable income. There were no other material temporary differences as of October 31, 1999. Due to the continuing uncertainties related to the extent and timing of the Company's future taxable income, the Company also offset the remaining deferred tax assets of approximately $89,000 attributable to the potential benefits from its net operating loss carryforwards as of October 31, 1999 by an equivalent valuation allowance. As a result of the reduction in the valuation allowance of $274,000 from $363,000 at October 31, 1998 to $89,000 at October 31, 1999, the Company did not recognize any provisions or credits for income taxes for the year ended October 31, 1999. The Company had pre-tax income of approximately $400,000 for the year ended October 31, 2000; however, it was only able to use net operating loss carryforwards of $145,000. As a result, the Company reversed the valuation allowance of $89,000 that it had established to offset the remaining deferred tax assets attributable to the estimated potential benefits from the net operating loss carryforwards as of October 31, 1999, of which $23,000 was attributable to the reduction in the estimate of net operating loss carryforwards and $66,000 was attributable to the reduction in the provision for income taxes for benefits actually realized from the net operating loss carryforwards. F-15 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 7 - Income taxes (concluded): The Company's "S" Corporation election was in effect for part of 1998. Unaudited pro forma historical credits for income taxes assuming the Exchange had occurred on November 1, 1997 and the Company was subject to Federal, state and local income taxes at full statutory rates for all of 1998 are set forth below: 1998 -------- Federal $310,000 State and local 186,000 -------- Total pro forma (unaudited) $496,000 ======== The unaudited total pro forma credit for income taxes reflects an effective rate for Federal, state and local income taxes of approximately 45% for 1998. Note 8 - Commitments and contingencies: Operating lease: The Company occupies warehouse facilities under an operating lease which expires on August 31, 2002 unless renewed at the option of the Company for an additional two years. The lease requires the Company to pay utilities and other maintenance expenses. Rent charged to operations amounted to $46,800 in 2000, 1999 and 1998. Future minimum rental payments under the noncancelable operating lease in years subsequent to October 31, 2000 totaled $85,800, of which $46,800 is payable in 2001 and $39,000 is payable in 2002. Capital leases: As of October 31, 2000, the Company remained obligated under one capital lease for machinery and equipment that expires in February 2001. Assets under capital leases are amortized over their estimated useful lives of seven years. Amortization of $99,300, $96,271 and $77,246 was charged to operations in 2000, 1999 and 1998, respectively. The future minimum lease payments under the remaining capital lease as of October 31, 2000 and the net present value of the future minimum lease payments through the expiration of the lease in 2001 were as follows: Total minimum lease payments $47,043 Less amount representing interest 882 ------- Present value of net minimum lease payments $46,161 ======= Legal proceedings: The Company is a party to various legal proceedings. In the opinion of management, these actions are routine in nature and will not have any material adverse effects on the Company's financial statements in subsequent years. F-16 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 9 - Concentrations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from broker and trade accounts receivable. The Company maintains its cash and cash equivalents in bank and brokerage accounts the balances of which, at times, may exceed Federal insurance limits. At October 31, 2000, the Company had cash balances that exceeded Federal insurance limits by approximately $160,000. The net balance of the Company's investments in derivative financial instruments also represents an amount due from a broker. Exposure to credit risk is reduced by placing such deposits and investments with major financial institutions and monitoring their credit ratings. Approximately 17%, 20% and 20% of the Company's sales were derived from one customer during 2000, 1999 and 1998, respectively. That customer also accounted for approximately $121,000 of the Company's accounts receivable balance at October 31, 2000. Concentrations of credit risk with respect to other trade receivables are 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. Management does not believe that credit risk was significant at October 31, 2000. Note 10- Stock option plan: On February 10, 1998, the Company's stockholders consented to the adoption of the Company's stock option plan (the "Plan") whereby incentive and/or nonincentive stock options for the purchase of up to 2,000,000 shares of the Company's common stock may be granted to the Company's directors, officers, other key employees and consultants. Under the Plan, the exercise price of all options must be at least 100% of the fair market value of the common stock on the date of grant (the exercise price of an incentive stock option for an optionee that holds more than 10% of the combined voting power of all classes of stock of the Company must be at least 110% of the fair market value on the date of grant). As of October 31, 2000, no options had been granted under the Plan. Note 11- Major vendors: During 2000, substantially all of the Company's purchases were from nine vendors. The nine vendors also accounted for substantially all of the Company's accounts payable at October 31, 2000. An employee of one of those vendors is a director of the Company. Purchases from that vendor totaled approximately $3,500,000, $4,400,000 and $4,500,000 in 2000, 1999 and 1998, respectively. Management does not believe that the loss of any one vendor would have a material adverse effect on the Company's operations due to the availability of alternate suppliers. * * * F-17 COFFEE HOLDING CO., INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998 De- Balance at Additions- ductions Balance Beginning Charged From at End of Year to Income Reserves of Year -------- -------- -------- -------- 2000: Allowance for doubtful accounts $227,210 $ 44,091 $ 70,791 $200,510 ======== ======== ======== ======== 1999: Allowance for doubtful accounts $215,000 $ 12,210 $227,210 ======== ======== ======== 1998: Allowance for doubtful accounts $254,317 $ 53,391 $ 92,708 $215,000 ======== ======== ======== ======== S-1 INDEX TO EXHIBITS 10.4 First Amendment to Loan and Security Agreement dated as of May 22, 1998 between the Company and NationsCredit Commercial Corporation. 10.5 Second Amendment dated as of November 29, 2000 to Loan and Security Agreement between the Company and Wells Fargo Business Credit, Inc., as assignee. 10.6 Term Note dated as of November 29, 2000 made by the Company in favor of Wells Fargo Business Credit, Inc. in the principal amount of $600,000. 27 Financial Data Schedule 18 EX-10.4 2 0002.txt FIRST AMEND. TO LOAN AND SECURITY AGREEMENT FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT THIS FIRST AMENDMENT (this "Amendment") is entered into as of May 22, 1998, between COFFEE HOLDING CO, INC. ("Borrower"), and NATIONSCREDIT COMMERCIAL CORPORATION, through its NATIONSCREDIT COMMERCIAL FUNDING DIVISION ("Lender"). WHEREAS, Borrower has requested that certain Loan and Security Agreement dated as of November 21, 1997, between Borrower and Lender (as amended, the "Loan Agreement") be amended as provided herein; WHEREAS, Lender is willing to consent to the foregoing subject to the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Loan Agreement. 2. Amendment. (a) A sentence is added to paragraph 5.13(a) to read, "In addition to the Collateral Reports described above, Borrower shall provide Lender with weekly inventory reports regarding its green coffee bean inventory, all in such form as required by Lender", (b) Section 1.(d)(I) of Schedule A of the Loan Agreement is hereby amended and restated in its entirety as follows: (i) Overall sublimit on advances against Eligible Inventory. $1,000,000 or, if less, the aggregate advances against accounts at any time of determination. 3. Fee. In consideration of the above amendment, Borrower agrees to pay an additional fee in the amount of $1,500.00 which shall be charged to Borrower's Revolving Loans or the date of execution of this amendment. 4. Miscellaneous. (a) Warranties and Absence of Defaults. In order to induce Lender to enter into this Amendment, Borrower hereby warrants to Lender, as of the date hereof, that: (i) The representations and warranties of Borrower contained in the Loan Agreement are true and correct as of the date hereof as if made on the date hereof, except to the extent that such representation and warranties relate specifically to an earlier date, in which case such representations and warranties were true and correct as of such earlier date. (ii) All information, reports and other papers and data heretofore furnished to Lender by Borrower in connection with this Amendment, the Loan Agreement and the other Loan Documents are accurate and correct in all material respects and complete insofar as may be necessary to give Lender true and accurate Knowledge of the subject matter thereof. Borrower has disclosed to Lender every fact of which it is aware which might adversely affect the business, operations or financial condition of Borrower or the ability of Borrower to perform its obligations under this Amendment, the Loan Agreement or under any of the other Loan Documents. None of the information furnished to Lender by or on behalf of Borrower contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained herein or therein not materially misleading. (iii) No Event of Default or Defaults exists as of the date hereof. (b) Governing Law. This Amendment shall be a contract made under and governed by the internal laws of the State of New York. (c) Counterparts. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. (d) Reference to Loan Agreement. On and after the effectiveness of the amendment to the Loan Agreement accomplished hereby, each reference in the Loan Agreement to "this Agreement", "hereunder", "herein" or words of like import, and each reference to the Loan Agreement in any other Loan Documents, or other agreements, documents or other instruments executed and delivered pursuant to the Loan Agreements, shall mean and be a reference to the Loan Agreement, as so amended. (e) Successors. This Amendment shall be binding upon Borrower, Lender and their respective successors and assigns, and shall inure to the benefit of Borrower, Lender and the successors and assigns of Lenders. (f) Effectiveness. This Amendment shall become effective upon execution hereof by Borrower and Lender. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered at New York, New York as of the date first above written. COFFEE HOLDINGS, INC. By:______________________________________ Its:________________________ NATIONSCREDIT COMMERCIAL CORPORATION, through its NATIONSCREDIT COMMERICAL FUNDING DIVISION By:______________________________________ Its:________________________ -3- EX-10.5 3 0003.txt SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT EXECUTION COPY SECOND AMENDMENT, dated as of November 29, 2000 (this "Amendment") to LOAN AND SECURITY AGREEMENT dated as of November 21, 1997 (as amended through the date hereof, the "Loan Agreement") between COFFEE HOLDING CO. INC. ("Borrower") and WELLS FARGO BUSINESS CREDIT, INC., as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation ("Lender"). Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings described to such terms in the Loan Agreement. WHEREAS, the Borrower has requested the Lender to consider (i) extending the maturity of the credit facility established pursuant to the Loan Agreement, (ii) extending an additional Equipment Advance to the Borrower and (iii) modifying certain of the terms and provisions contained in the Loan Agreement, and the Lender is willing to agree to the foregoing, subject to the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: Section One. Amendments to the Loan Agreement. Effective as of the date hereof, upon the satisfaction of the conditions precedent contained in Section Three hereof, the Loan Agreement is hereby amended as follows: (a) Preamble. The name and address of the Lender set forth in the Preamble shall be amended to read entirely as follows: "WELLS FARGO BUSINESS CREDIT, INC., as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation (the "Lender"), with a business address at 119 West 40th Street, New York, New York 10018-2500" (b) Section 1.1(a). Revolving Loans and Credit Accomodations. A new clause (iii) is added to the definition of Availability in Section 1.1(a) to read as follows, and clauses (iii), (iv) and (v) of Section 1.1(a) are renumbered (iv), (v), (vi), respectively: "plus (iii) an amount equal to the lesser of $250,000 and the aggregate balance of funds in the Cash Collateral Account maintained by the Borrower with Wells Fargo Bank as set forth in Section 14 of Schedule A." (c) Section 1.1(b). Term Loan. The following sentences are added to the end of Section 1.1(b): "On the effective date of the Second Amendment to this Agreement, dated as of November 29, 2000, (x) the Borrower warrants and represents that the unpaid principal balance of the Term Loan equals $192,000 and (y) the Lender shall make an additional Equipment Advance to Borrower in the amount of $408,000. The term "Term Loan" shall include the making of such additional Equipment Advance." (d) Article 3. Security Interest. A new Section 3.2 shall be added to the Loan Agreement to read in its entirety as follows: "3.2 Until all Obligations have been paid in full and the Lender's obligation to make Loans and to provide Credit Accommodations under the Loan Agreement have terminated, Borrower shall maintain a Cash Collateral Account with Wells Fargo Bank, the minimum balance of which shall at no time be less than the amount set forth in Section 14(a) of Schedule A. Such account shall earn interest at the annual rate set forth in Section 14(c) of Schedule A." (e) Section 5.3. Title to Collateral; Permitted Liens. Section 5.3 is amended by adding the following sentence to the end thereof: "The Borrower will not enter into any arrangement, directly or indirectly, with any other Person whereby the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee such property or any part thereof or any other property which the Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred." (f) Section 5.13. Financial and Collateral Reports. Section 5.13 is amended by adding the following paragraph (h) thereto: "(h) Personal Financial Statements. No later than April 30 of each year, the personal financial statement, as of December 31 of the preceding year, of each of Andrew Gordon and David Gordon, each of which personal financial statements shall be (i) prepared based on reasonable accounting standards consistently applied, (ii) signed by Andrew Gordon or David Gordon, as applicable, and (iii) reflect all assets and liabilities in reasonable detail, and the net worth, of such applicable person." (g) Section 5.18. Negative Covenants. Section 5.18 is amended by deleting clause (vi) thereof in its entirety and by substituting the following in lieu thereof: "(vi) incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness for borrowed money or letters of credit issued on the Borrower's behalf or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, except (a) indebtedness arising hereunder; (b) indebtedness of the Borrower in existence on the date hereof and listed on Schedule 5.18 (vi); and (c) indebtedness secured by Permitted Liens." (h) Section 5.18. Negative Covenants. Section 5.18 is amended by deleting clause (i) thereof in its entirety and by substituting the following in lieu thereof: "(i) merge or consolidate with another Person, acquire any interest in any Person or from any new Subsidiary, engage in any line of business materially different from that presently engaged in by the Borrower, or purchase, lease or otherwise acquire assets not related to its business" (i) Article 5. Representations, Warranties and Covenants. Article 5 amended by adding a new Section 5.20 thereto, captured "Additional Negative Covenants, as follows: "5.20 Negative Covenants. Borrower will not, without Lender's prior written consent, (i) engage in any line of business materially different from that presently engaged in by the Borrower and will not purchase, lease or otherwise acquire assets not related to its business; (ii) adopt any material change in accounting principles other than as required by GAAP, and will not adopt, permit or consent to any change in its fiscal year; (iii) adopt, create, assume or become a party to any defined benefit pension plan, unless previously disclosed in writing to the Lender; (iv) amend its certificate of incorporation, articles of incorporation or bylaws; (v) pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; (vi) issue or sell any stock of the Borrower so as to change the percentage of voting and non-voting stock owned by each of the Borrower's shareholders on November 29, 2000 and the Borrower will not permit or suffer to occur the sale, transfer, assignment, pledge or other disposition of any or all of the issued and outstanding shares of stock of the Borrower. (j) Section 7.1. Maturity Date. 7.1 is amended by deleting the first sentence thereof in its entirety, and by substituting the following in lieu thereof: "7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit Accommodations under this Agreement shall initially continue in effect until the Initial Maturity Date set forth in Section 7 (a) of Schedule A (the "Initial Term"); provided that such date shall automatically be extended (the Initial Maturity Date, as it may be so extended, being referred to as the "Maturity Date") for successive additional terms of two years each (each a "Renewal Term") unless one party gives written notice to the other, not less than sixty (60) days prior to the Maturity Date, that such party elects not to extend the Maturity Date." (k) Schedule A of the Loan Agreement shall be amended and restated in its entirety to read as set forth in Schedule A attached hereto. (l) Schedule B of the Loan Agreement shall be amended to add the following defined term: "Preferred Products Account" means an Account, the Account Debtor in respect of which is Supervalue. Section Two. Representations and Warranties. To induce the Lender to enter into this Amendment, the Borrower warrants and represents to the Lender as follows: (a) All of the representations and warranties contained in the Loan Agreement and each other Loan Document to which the Borrower is a party continue to be true and correct in all material respects as of the date hereof, as if repeated as of the date hereof, except for such representations and warranties which, by their terms, are only made as of a previous date; (b) The execution, delivery and performance of this Amendment by the Borrower is within its corporate powers, has been duly authorized by all necessary corporate action, and the Borrower has received all necessary consents and approvals (if any shall be required) for the execution and delivery of this Amendment; (c) Upon its execution, this Amendment shall constitute the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) general principles of equity; (d) The Borrower is not in default under any indenture, mortgage, deed of trust, or other material agreement or material instrument to which it is a party or by which it may be bound. Neither the execution and delivery of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation applicable to it, (ii) cause a violation by the Borrower, of any order or decree of any court or government instrumentality applicable to it, (iii) conflict with, or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, or other material agreement or material instrument to which the Borrower is a party or by which it may be bound, (iv) result in the creation or imposition of any lien, charge, or encumbrance upon any of the property of the Borrower, except in favor of the Lender, to secure the Obligations, or (v) violate any provision of the Certificate of Incorporation, By-Laws or any capital stock provisions of the Borrower; (e) No Event of Default has occurred and is continuing; and (f) Since the date of the Lender's receipt of the financial statements of the Borrower for the eleven month period ended on September 30, 2000, no change or event has occurred which has had or is reasonably likely to have a material adverse effect on the Borrower's business, operations, condition (financial or otherwise) or prospects (a "Material Adverse Effect"). Section Three. Conditions Precedent. This Amendment shall become effective upon the date that the last of the following events shall have occurred: (a) the Lender shall have received this Amendment, duly executed by the Borrower. (b) No Default shall have occurred and be continuing which constitutes an Event of Default or would constitute an Event of Default upon the giving of notice or lapse of time or both, and no event or development which has had or is reasonably likely to have a Material Adverse Effect shall have occurred, in each case since the date of delivery to the Lender of the Borrower's most recent financial statement. (c) the Lender shall have received (i) an officer's certificate, executed by the chief financial officer or chief executive officer of the Borrower, confirming the truth and accuracy of the representations and warranties contained in Section Two hereof and contained in Section Three (b) hereof, and (ii) a secretary's certificate, executed by the corporate secretary of the Borrower, in form reasonably satisfactory to the Lender. (d) the Lender shall have received a letter agreement from each of David Gordon and Andrew Gordon, duly executed by each of them, each in the form of Exhibit A of this Agreement. (e) the Lender shall have received a promissory note, duly executed by the Borrower, in the form of Exhibit B to this Agreement. (f) the Lender shall have received and reviewed to its satisfaction the results of a tax, lien and judgment search report, as of a recent date, conducted against the Borrower and its properties. (g) the Lender shall have received (i) financing statements on form UCC-1, to be filed against the Borrower, as debtor, suitable for recordation in all appropriate jurisdictions and (ii) financing statements on form UCC-3, to reflect the assignment to the Lender by Banc of America Commercial Finance Corporation of its security interests in the assets and properties of the Borrower, suitable for recordation in all appropriate jurisdictions. (h) the Lender shall have received an amendment, duly executed by Sterling Gordon, to the Subordination Agreement dated as of August 31, 1999 executed by him in favor of Banc of America Commercial Financial Corporation, such amendment to be in the form of Exhibit C to this Agreement. (i) the Lender shall have received a Certificate of Property Insurance evidencing the effectiveness of casualty insurance on the Borrower's assets and properties, together with a loss payable endorsement form naming the Lender as loss payee with respect thereto. Section Four. General Provisions. (a) Except as herein expressly amended, the Loan Agreement and all other agreements, documents, instruments and certificates executed in connection therewith, are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms. (b) All references to "the Loan Agreement" in the Loan Agreement shall mean the Loan Agreement as amended as of the effective date hereof, and as amended hereby and as hereafter amended, supplemented and modified from time to time. All references to "the Mortgage" in the Patent, Trademark and License Mortgage made as of November 21, 1997 by Coffee Holding Co., Inc. in favor of Nationscredit Commercial Corporation shall be deemed to be references to Wells Fargo Business Credit, Inc., as assignee of Banc of America Commercial Finance Corporation, f/k/a Nationscredit Commercial Corporation. (c) This Amendment shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the conflicts of law principles thereof. (d) The Borrower agrees to use its reasonable best efforts to obtain from (i) each warehouseman, bailee or other Person that has possession or control from time to time of any Inventory or Equipment of the Borrower a written acknowledgement by such Person in substantially the form of Exhibit D to this Amendment, and (ii) T & O Management Corp. a landlord's waiver in substantially the form of Exhibit E to this Amendment. (e) Upon the effective date of this Amendment, that certain notification letter dated September 20, 2000, as amended by letter dated as of November 17, 2000, from the Borrower to the Lender, pursuant to which the Borrower notified the Lender of its intention to terminate the Loan Agreement effective December 15, 2000, is hereby deemed rescinded by the Borrower and is null and void and of no force or effect. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered at New York, New York as of the date first above written. COFFEE HOLDING CO. INC. By: /s/ Andrew Gordon ------------------------------ Name: Andrew Gordon Title: President/CEO WELLS FARGO BUSINESS CREDIT, INC., as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation By: /s/ Christopher Stavrakos ------------------------------ Name: Christopher Stavrakos Title: V.P. Div. Mgr. Exhibit A Form of Amendment of Guaranty WELLS FARGO BUSINESS CREDIT, INC. 119 West 40th Street New York, New York 10018-2500 As of November 29, 2000 Mr. Andrew Gordon 251 Meisher Avenue Staten Island, New York 10306 Mr. David Gordon 22 Barclay Road Scarsdale, New York 10538 Gentlemen: Reference is made to the Individual Guaranty dated as of November 21, 1997 (the "Guaranty") executed by each of you in favor of NationsCredit Commercial Corporation, now known as Banc of America Commercial Finance Corporation ("Banc of America") with respect to the obligations owing to Banc of America by Coffee Holding Co., Inc., a New York corporation (the "Borrower") pursuant to the Loan and Security Agreement dated as of November 21, 1997 (as amended, the "Loan Agreement") between Banc of America and the Borrower. As you may know, pursuant to an Asset Sale Agreement dated as of September 5, 2000 between Banc of America and Wells Fargo Business Credit, Inc. ("Wells Fargo"), Banc of America assigned to Wells Fargo, among other things, all of the right, title and interest of Banc of America in and to the Loan Agreement and all agreements, documents and instruments executed or delivered in connection therewith, including without limitation the Guaranty. The purpose of this letter is to obtain your written acknowledgment of the foregoing, and your agreement that for all purposes, on and after September 5, 2000, Wells Fargo shall be deemed to be and is the "Lender" referred to in the Guaranty, as if the Guaranty had originally been executed by each of you in favor of Wells Fargo. In addition, the Guaranty is hereby amended to provide that the maximum liability of each of you thereunder shall be and is hereby increased to the sum of $500,000 (exclusive of interest, costs and expenses of collection). Accordingly, the third paragraph contained on the first page of the Guaranty is hereby deleted in its entirety, and the following is substituted in lieu thereof: "NOTWITHSTANDING ANYTHING IN THIS GUARANTY TO THE CONTRARY, THE LIABILITY OF EACH GUARANTOR HEREUNDER SHALL NOT EXCEED $500,000 IN THE AGGREGATE WITH RESPECT TO EACH SUCH GUARANTOR, PLUS COSTS AND EXPENSES OF COLLECTION AND PROSECUTION OF ACTIONS AGAINST EACH GUARANTOR AND PLUS INTEREST AS PROVIDED FOR IN THIS GUARANTY." If the foregoing is acceptable to you and is in accordance with your understanding, kindly sign in the space below to so indicate. Your signature shall also constitute your acknowledgement and agreement that the Guaranty continues to be in full force and effect, and is enforceable by Wells Fargo against each of you in accordance with its terms. This letter agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Except to the extent set forth herein, no other change in any of the terms or provisions of the Guaranty is intended or implied. Very truly yours, WELLS FARGO BUSINESS CREDIT, INC., as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation By: __________________________________ Name: Title: Read and Agreed to: _____________________ Andrew Gordon, individually _____________________ David Gordon, individually Exhibit B Form of Promissory Note evidencing Term Loan TERM NOTE As of November 29, 2000 $600,000.00 FOR VALUE RECEIVED, the undersigned, COFFEE HOLDING CO., INC., a New York corporation (the "Borrower") promises to pay to the order of WELLS FARGO BUSINESS CREDIT, INC. (the "Lender"), at its office located at 119 West 40th Street, New York, New York 10018-2500, in lawful money of the United States of America and in immediately available funds, the principal amount of SIX HUNDRED THOUSAND DOLLARS, ($600,000.00) in sixty (60) equal and consecutive monthly installments of $10,000 each, payable on the first day of each month, commencing January 1, 2001, provided, however, that the entire unpaid balance of this Term Note shall be due and payable in full on the Maturity Date, as defined in the Loan Agreement, as hereinafter defined. The Borrower further agrees to pay interest at said office, in like money, on the unpaid principal amount owing hereunder from time to time from the date hereof on the dates and at the rate specified in paragraph 3 (b) of Schedule A to the Loan and Security Agreement dated as of November 21, 1997 (as amended from time to time, the "Loan Agreement") between the Borrower and the Lender, as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation. All capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement, unless otherwise defined herein. If any payment on this Term Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. This Term Note evidences the Term Loan made under the Loan Agreement by the Lender to the Borrower and is subject to, and entitled to, all provisions and benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower acknowledges that (i) a portion of the proceeds of such Term Loan has been disbursed to the Borrower prior to the date hereof, (ii) $408,000 of the proceeds of such Term Loan is being disbursed to the Borrower concurrently with its execution of this Term Note, and (iii) this Term Note evidences the consolidation of the unpaid principal balance of prior Equipment Advances made to the Borrower and a new Equipment Advance being made to the Borrower concurrently with its execution of this Term Note. Upon the occurrence of any Event of Default specified in the Loan Agreement or upon termination of the Loan Agreement, all amounts then remaining unpaid on this Term Note may become, or be declared to be, immediately due and payable as provided in the Loan Agreement. COFFEE HOLDING CO., INC. By: __________________________________ Name: Title: Exhibit C Form of Amendment to Subordination Agreement WELLS FARGO BUSINESS CREDIT, INC. 119 West 40th Street New York, New York 10018-2500 As of November 29, 2000 Mr. Sterling Gordon 4401 First Avenue Brooklyn, New York 11232 Dear Mr. Gordon: Reference is made to the Subordination Agreement dated as of August 31, 1999 (the "Subordination Agreement") executed by you in favor of NationsCredit Commercial Corporation, now known as Banc of America Commercial Finance Corporation ("Banc of America") with respect to the subordination of all indebtedness, liabilities and obligations owing to you by Coffee Holding Co., Inc., a New York corporation (the "Borrower") to the prior payment and satisfaction in full of all indebtedness, liabilities and obligations owing by the Borrower to Banc of America, including those arising under the Loan and Security Agreement dated as of November 21, 1997 (as amended, the "Loan Agreement") between Banc of America and the Borrower. As you may know, pursuant to an Asset Sale Agreement dated as of September 5, 2000 between Banc of America and Wells Fargo Business Credit, Inc. ("Wells Fargo"), Banc of America assigned to Wells Fargo, among other things, all of the right, title and interest of Banc of America in and to the Loan Agreement and all agreements, documents and instruments executed or delivered in connection herewith, including without limitation the Subordination Agreement. The purpose of this letter is to obtain your written acknowledgment of the foregoing, and your agreement that for all purposes, on and after September 5, 2000, Wells Fargo shall be deemed to be and is the "Lender" referred to in the Subordination Agreement, as if the Subordination Agreement had originally been executed by you in favor of Wells Fargo. If the foregoing is acceptable to you and is in accordance with your understanding, kindly sign in the space below to so indicate. Your signature shall also constitute your acknowledgement and agreement that the Subordination Agreement continues to be in full force and effect, and is exercisable by Wells Fargo against you in accordance with its terms. The Borrower has signed below to confirm its acknowledgment of and agreement with the foregoing. This letter agreement shall be governed by and construed in accordance with the internal laws of the State of New York. Except to the extent set forth herein, no other change in any of the terms or provisions of the Subordination Agreement is intended or implied. Very truly yours, WELLS FARGO BUSINESS CREDIT, INC., as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation By: __________________________________ Name: Title: Read and Agreed to: _____________________ Sterling Gordon, individually Confirmed: Coffee Holding Co., Inc. By:________________________ Name: Title: Exhibit D Form of Acknowledgment from lessor, warehouseman, or bailee WELLS FARGO BUSINESS CREDIT, INC. 119 West 40th Street New York, New York 10018 [Name of Warehouse man on bailee] Address [ Date ] Gentlemen: Please be advised that all of the right, title and interest of NationsCredit Commercial Corporation, now known as Banc of America Commercial Finance Corporation ("NationsCredit") under the Loan and Security Agreement dated as of November 21, 1997 between NationsCredit and Coffee Holding Co., Inc. (the "Client") was assigned as of September 5, 2000 to Wells Fargo Business Credit, Inc. ("Wells Fargo"). Kindly sign below to indicate your acknowledgment of the foregoing, and to confirm your agreement that the agreement between you and NationsCredit dated __________, with respect to certain of the Client's merchandise, inventory and goods which may be held by you from time to time shall continue in full force and effect in favor of Wells Fargo, as assignee of NationsCredit, as if Wells Fargo was an original party thereto. The Client has signed below to confirm its agreement with the foregoing. Very truly yours, WELLS FARGO BUSINESS CREDIT, INC. By: __________________________________ Name: Title: Read and Agreed to: [Name of warehouseman or bailee] By:____________________________ Name: Title: Confirmed: Coffee Holding Co., Inc. By:____________________________ Name: Title: Exhibit E Form of Landlord Waiver THIS LANDLORD WAIVER AGREEMENT AND CONSENT (this "Agreement") is made and delivered as of this day of _____, 200___, by T&O MANAGEMENT CORP. (the "Landlord"), to and for the benefit of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation, with an office at 119 West 40th Street, New York, New York 10018 (the "Lender"). RECITALS WHEREAS, Coffee Holding Co., Inc. a New York corporation, is a tenant under that certain [Lease Agreement] dated _____________, by and between the Lessee and the Landlord (the "Lease") pertaining to certain space located at 4425 a First Avenue, Brooklyn, New York 11232 (the "Leased Premises"); WHEREAS, the Lessee is a party to and a borrower under that certain Loan and Security Agreement dated as of November 21, 1999 (as hereafter amended, modified, supplemented or restated from time to time, the "Loan Agreement") between the Lessee and the Lender; WHEREAS, the Lender will make certain loans and advances (collectively, the "Loans") to the Lessee pursuant to the terms of the Loan Agreement, which Loans will be secured, in part, by all merchandise, inventory and goods of the Lessee, including, without limitation, all inventory of the Lessee now or hereafter located on the Leased Premises (the "Inventory") and all machinery, equipment, fittings and furniture now or hereafter located on the Leased Premises (the "Equipment"); and WHEREAS, the Lender has requested that the Landlord execute this Agreement as a condition precedent to the extension of certain Loans to the Lessee under the Loan Agreement. NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Landlord hereby represents and warrants to and covenants and agrees with the Lender as follows: 1. The Landlord hereby waives and releases unto the Lender and its successors and assigns: (i) any contractual landlord's lien and any other landlord's lien which the Landlord may be entitled to assert or enforce, whether at law or in equity, against the Inventory or Equipment, (ii) any and all rights granted by or under any present or future laws to levy or distrain for rent (or any other charges which may be due to the Landlord) against the Inventory or Equipment and (iii) any and all other claims, liens and demands of every kind which the Landlord has or may hereafter have against the Inventory or Equipment. The Landlord acknowledges that the Inventory and Equipment are and will remain personal property and not fixtures even though they may be affixed to or placed on the Leased Premises. 2. The Landlord certifies that: (i) the Lease is in full force and effect and has not been amended, modified, or supplemented, (ii) there is no defense, offset, claim or counterclaim by or in favor of the Landlord against the Lessee under the Lease or against the obligations of the Landlord under the Lease, and (iii) no notice of default has been given under or in connection with the Lease which has not been cured, and the Landlord has no knowledge of any occurrence of any other default by the Lessee under or in connection with the Lease. 3. The Landlord agrees that the Lender has the right to remove the Inventory and Equipment from the Leased Premises at any time prior to the occurrence of a default under the Lease and, after the occurrence of such default, during the Standstill Period (as hereinafter defined). The Landlord further agrees that, during the foregoing periods, the Landlord will not: (i) remove any of the Inventory or Equipment from the Leased Premises or (ii) hinder the Lender's actions in removing the Inventory or Equipment from the Leased Premises or the Lender's actions in otherwise enforcing its security interest in the Inventory and Equipment. The Landlord acknowledges that the Lender shall have no obligation to remove the Inventory or Equipment from the Leased Premises. 4. The Landlord acknowledges and agrees that the Lessee's granting of a security interest to the Lender in the Inventory and Equipment shall not constitute a default under the Lease and the Landlord hereby expressly consents to the granting of such security interest. 5. The Landlord shall send to the Lender a copy of any notice of default under the Lease sent by the Landlord to the Lessee. In addition, the Landlord shall send to the Lender a copy of any notice received by the Landlord of a breach or default under the Lease. 6. Notwithstanding anything to the contrary contained in this Agreement or the Lease, in the event of a default by the Lessee under the Lease, the Landlord shall forbear from exercising any of its remedies against the Lessee provided in favor of Landlord under the Lease or at law or in equity until the date which is 90 days after the date the Landlord delivers written notice of such default to the Lender (such 90 day period being referred to herein as the "Standstill Period"). The Lender shall have the right, but not the obligation, during the Standstill Period, to cure such default and the Landlord shall accept any such cure by the Lender. If, during the Standstill Period, the Lender or the Lessee cures the default, then the Landlord shall rescind the notice of default. The Landlord shall not, after the expiration of the Standstill Period, terminate the Lease or exercise any other remedies available to it thereunder or at law or in equity, so long as: (i) the Lender complies with all provisions of the Lease requiring the payment or expenditure of money by the Lessee and (ii) the Lender cures the default to the reasonable satisfaction of Landlord prior to the expiration of the Standstill Period. 7. The Landlord hereby agrees to give the Lender at least ten (10) days written notice prior to the effectiveness of any termination, cancellation or surrender of the Lease by the Lessee. 8. The terms and provisions of this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Landlord and the Lender. Specifically, the Landlord acknowledges and agrees that, in connection with any refinancing of the Loans (including, without limitation, any increase in the aggregate principal amount of indebtedness incurred in respect thereof), the Lender may assign this Agreement to the lender extending such financing (which lender may include the Lender) (the "New Lender"), in which event this Agreement shall, without further action by any party, be enforceable by the New Lender. Notwithstanding that the provisions of this paragraph are intended to be self-executing, the Landlord agrees, upon request by the New Lender, to execute and deliver a written acknowledgment confirming the provisions of this paragraph in form satisfactory to the New Lender. 9. All notices to the Lender under this Agreement shall be in writing and sent to the Lender at its address set forth above by certified mail, postage prepaid, return receipt requested or by overnight delivery service. 10. The provisions of this Agreement shall continue in full force and effect until the Landlord shall have received the Lender's written certification that the Loans have been paid in full. 11. The interpretation, validity and enforcement of this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of the laws principles thereof. 12. The Landlord agrees to execute, acknowledge and deliver such further instruments as the Lender may reasonably request to allow for the proper recording of this Agreement (including, without limitation, a revised agreement in form and substance sufficient for recording) or to otherwise accomplish the purposes of this Agreement. IN WITNESS WHEREOF, the undersigned Landlord has executed this Agreement as of the day and year first set forth above. T&O MANAGEMENT CORP. By: __________________________________ Name: Title: ACCEPTED: WELLS FARGO BUSINESS CREDIT, INC. By:____________________________ Name: Title: Schedule A Description of Certain Terms This Schedule is an integral part of the Loan and Security Agreement dated as of November 21, 1997 (as amended through the date hereof, the "Agreement"), between COFFEE HOLDING CO., INC (the "Borrower") and WELLS FARGO BUSINESS CREDIT, INC. (as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation) (in such capacity, the "Lender"). 1. Loan Limits for Revolving Loans: (a) Maximum Facility Amount: $5,000,000 (b) Advance Rates: (i) Accounts 85%; provided, that if the Advance Rate: Dilution Percentage exceeds 4%, such advance rate will be reduced by the number of full or partial percentage points of such excess (ii) Inventory Advance Rate(s): (A) Finished 60% goods: (B) Raw materials: 60% (C) Work in process: Not Applicable (iii) Cash Collateral $250,000, provided that (x) a sum not less than such amount is maintained at all times by the Borrower in a Cash Collateral Account at Wells Fargo Bank and (y) the Lender at all times has a first priority lien against such Cash Collateral Account (c) Accounts Sublimit Not Applicable A-1 (d) Inventory Sublimit(s): (i) Overall sublimit on $1,000,000 or, if less, the advances against aggregate advances against Eligible Inventory Accounts at any time of determination (ii) Sublimit on advances Not Applicable against finished goods (iii) Sublimit on advances Not Applicable against raw materials (e) Credit Accommodation Limit: $500,000 (f) Permanent Reserve Amount: Not Applicable (g) Overadvance Amount: Not Applicable 2. Loan Limits for Term Loan: (a) Principal Amount: (i) Equipment Advance: The lesser of $600,000 and 85% of the appraised auction sale value of Borrower's Eligible Equipment (ii) Real Property Advance: Not Available A-2 (b) Repayment Schedule: (i) Equipment Advance: The Equipment Advance shall be repaid based on an amortization schedule consisting of 60 months, in equal consecutive monthly installments of $10,000 each, payable on the first day of each calendar month commencing January 1, 2001, with the entire unpaid balance due and payable on the Maturity Date (ii) Real Property Advance: Not Applicable 3. Interest Rates: (a) Revolving Loans: 0.50% per annum in excess of the Prime Rate (b) Term Loan: 0.75% per annum in excess of the Prime Rate 4. Minimum Loan Amount: $2,750,000 5. Maximum Days: the lesser of (a) Maximum days after original due date for Eligible Accounts: 60 days (b) Maximum days after original invoice date for Eligible Accounts: 90 days 6. Fees: (a) Closing Fee: Not Applicable (b) Facility Fee: (i) Initial Term: $27,000 (ii) Renewal Term(s) $27,000 A-3 (c) Service Fee: Not Applicable (d) Unused Line Fee: Not Applicable (e) Minimum Borrowing Fee: (i) Applicable Period: Each Year (ii) Date payable: Each anniversary of the date of the Agreement (f) Success Fee: Not Applicable (g) Warrants: Not Applicable (h) Early Termination 2% of the Maximum Facility Amount if terminated during the first year of the Renewal Term, 1% of the Maximum Facility Amount if terminated thereafter and prior to the Maturity Date; provided that the Early Termination Fee will be waived by Lender if Borrower transfers the Loans and all of its other Obligations hereunder to another division of Wells Fargo Bank (i) Fees for letters of credit 1 % per annum of the face and other Credit amount of each open Credit Accommodations (or guaranties Accommodation, plus all costs thereof by Lender): and fees charged by the issuer (j) Field Exam Fee: $750 per day per person plus all out-of-pocket expenses, provided that if no Default has occurred during any consecutive 365 day period commencing on November 20, 2000, then the maximum amount of the field exam fees for which the Borrower shall be obligated to pay the Lender during such period shall not exceed $13,500. 7. Maturity Date: (a) Initial Maturity Date: November 20, 2002 A-4 8. Financial Covenants: (a) Capital Expenditure Limitation: Not Applicable (b) Minimum Net Worth Requirement: Not Applicable (c) Minimum Tangible Net Worth Not Applicable (d) Minimum Working Capital: Not Applicable (e) Maximum Cumulative Net Loss: Not Applicable (f) Minimum Cumulative for the fiscal quarter ending Net Income: January 31,2001 Not less than $1.00 for the two fiscal quarters ending April 30, 2001 Not less than $ 261,000 for the three fiscal quarters ending July 31, 2001 Not less than $ 312,000 for the four fiscal quarters ending October 31, 2001 Not less than $ 511,000 for the fiscal quarter ending January 31, 2002, for the two fiscal quarters ending April 30, 2002, for the three fiscal quarters ending July 31, 2002, and for the four fiscal quarters ending October 31, 2002, the Borrower shall be required to maintain a minimum cumulative net income in an amount mutually agreed upon with the Lender, but in no event less than 67% of the cumulative net income projected by the Borrower for each such period, as reflected in its forecasted income statement for the fiscal year ending October 31, 2002 (g) Maximum Leverage Ratio: Not Applicable (i) Limitation on Equipment Leases: Not Applicable A-5 (h) Limitation on Purchase Money Security Interests: Not Applicable (i) Additional Financial Covenants: Not Applicable 9. Borrower Information: (a) Prior Name of Borrower: None (b) Prior Trade Names of Borrower None (c) Existing Trade Names of Borrower: None (d) Inventory Locations: Continental Terminals, Inc. 738 Third Avenue Brooklyn, New York 11232 (e) Other Locations: 4425a First Avenue Brooklyn, New York 11232 4401 First Avenue Brooklyn, New York 11232-0005 54 A Hackensack Avenue River Terminal Kearny, NJ 07032 (f) Litigation: None (g) Ownership of Borrower Andrew Gordon - 32.5% David Gordon - 32.5% Mr. and Mrs. Sterling Gordon - 15.0% Other - 20.0% (h) Subsidiaries (and ownership thereof): None A-6 (i) Facsimile Numbers: Borrower: 718-832-0892 Lender: 646-728-3279 10. Description of Real Property None 11. Lender's Bank: Wells Fargo Bank 12. Other Covenants: None 13. Exceptions to Negative Covenants: None 14. Cash Collateral: (a) Minimum Amount $250,000 (b) Duration: Until all Loans are repaid in full and all of the Lender's commitments under the Agreement are terminated. (c) Interest Paid: 0.50% per annum below the Prime Rate 15. Guaranties: (a) Guarantors: Andrew Gordon David Gordon (b) Amount: Each in the amount of $500,000 A-7 IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of the date set forth in the letter agreement to which this Schedule is attached. Borrower: Lender: COFFEE HOLDING CO., INC. WELLS FARGO BUSINESS CREDIT, INC., (as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation) By: ___________________________ By:____________________________________ Name: Name: Title: Title: A-8 EX-10.6 4 0004.txt TERM NOTE TERM NOTE As of November 29, 2000 $600,000.00 FOR VALUE RECEIVED, the undersigned, COFFEE HOLDING CO., INC., a New York corporation (the "Borrower") promises to pay to the order of WELLS FARGO BUSINESS CREDIT, INC. (the "Lender"), at its office located at 119 West 40th Street, New York, New York 10018-2500, in lawful money of the United States of America and in immediately available funds, the principal amount of SIX HUNDRED THOUSAND DOLLARS, ($600,000.00) in sixty (60) equal and consecutive monthly installments of $10,000 each, payable on the first day of each month, commencing January 1, 2001, provided, however, that the entire unpaid balance of this Term Note shall be due and payable in full on the Maturity Date, as defined in the Loan Agreement, as hereinafter defined. The Borrower further agrees to pay interest at said office, in like money, on the unpaid principal amount owing hereunder from time to time from the date hereof on the dates and at the rate specified in paragraph 3 (b) of Schedule A to the Loan and Security Agreement dated as of November 21, 1997 (as amended from time to time, the "Loan Agreement") between the Borrower and the Lender, as assignee of Banc of America Commercial Finance Corporation, f/k/a NationsCredit Commercial Corporation. All capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement, unless otherwise defined herein. If any payment on this Term Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day, and with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. This Term Note evidences the Term Loan made under the Loan Agreement by the Lender to the Borrower and is subject to, and entitled to, all provisions and benefits thereof and is subject to optional and mandatory prepayment, in whole or in part, as provided therein. The Borrower acknowledges that (i) a portion of the proceeds of such Term Loan has been disbursed to the Borrower prior to the date hereof, (ii) $408,000 of the proceeds of such Term Loan is being disbursed to the Borrower concurrently with its execution of this Term Note, and (iii) this Term Note evidences the consolidation of the unpaid principal balance of prior Equipment Advances made to the Borrower and a new Equipment Advance being made to the Borrower concurrently with its execution of this Term Note. Upon the occurrence of any Event of Default specified in the Loan Agreement or upon termination of the Loan Agreement, all amounts then remaining unpaid on this Term Note may become, or be declared to be, immediately due and payable as provided in the Loan Agreement. COFFEE HOLDING CO., INC. By: /s/ Andrew Gordon ------------------------------- Name: Andrew Gordon Title: President/CEO EX-27 5 0005.txt FDS --
5 YEAR OCT-31-2000 NOV-01-1999 OCT-31-2000 153,844 0 2,267,474 200,510 1,466,050 3,893,995 3,987,046 2,161,398 5,997,477 2,831,807 3,101,239 0 0 4,000 221,144 5,997,477 20,097,548 20,097,548 16,673,790 16,673,790 2,603,538 44,091 406,859 400,334 119,000 281,334 0 0 0 281,334 .07 0
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