x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Nevada
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11-2238111
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3475 Victory Boulevard, Staten Island, New York
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10314
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(Address of principal executive offices)
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(Zip Code)
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Title of each class:
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Name of each exchange on which registered:
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Common Stock, Par Value $0.001 Per Share
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NASDAQ Capital Market
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Large accelerated filer o
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Non-accelerated filer o
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Accelerated filer o
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Smaller Reporting Company x
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Page
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PART I
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1
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ITEM 1.
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BUSINESS
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1
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ITEM 1A.
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RISK FACTORS
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9
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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16
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ITEM 2.
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PROPERTIES
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16
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ITEM 3.
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LEGAL PROCEEDINGS
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16
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ITEM 4.
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MINE SAFETY DISCLOSURES
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16
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PART II
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17
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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17
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ITEM 6.
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SELECTED FINANCIAL DATA
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18
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ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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19
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ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
24
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
25
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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25
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ITEM 9A.
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CONTROLS AND PROCEDURES
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25
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ITEM 9B.
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OTHER INFORMATION
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26
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PART III
|
27
|
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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27
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ITEM 11.
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EXECUTIVE COMPENSATION
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27
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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27
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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27
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ITEM 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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27
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PART IV
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28
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|
ITEM 15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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28
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SIGNATURES
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31
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|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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F-1
|
ITEM 1.
|
BUSINESS
|
|
·
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Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small roasters and coffee shop operators;
|
|
·
|
Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want to have their own brand name on coffee to compete with national brands; and
|
|
·
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Branded Coffee: coffee roasted and blended to our own specifications and packaged and sold under our seven proprietary and licensed brand names in different segments of the market.
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|
·
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Retail branded coffee;
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|
·
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Mainstream retail private label coffee;
|
|
·
|
Specialty retail coffees both private label and branded;
|
|
·
|
Wholesale specialty green and gourmet whole bean coffees;
|
|
·
|
Food service;
|
|
·
|
Instant coffees; and
|
|
·
|
Tea.
|
|
·
|
Specialty blends;
|
|
·
|
Tea line of products;
|
|
·
|
Private label “value” blends; and
|
|
·
|
Specialty instant coffees.
|
|
·
|
Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large, medium and small roasters and coffee shop operators;
|
|
·
|
Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want to have their own brand name on coffee to compete with national brands; and
|
|
·
|
Branded Coffee: coffee roasted and blended to our own specifications and packaged and sold under our seven proprietary and licensed brand names in different segments of the market.
|
|
·
|
specialty instant coffees;
|
|
·
|
tea; and
|
|
·
|
trial-sized mini-brick coffee packages.
|
|
·
|
For over 20 years, we have been members of Coffee Kids, an international non-profit organization that helps to improve the quality of life of children and their families in coffee-growing communities in Mexico, Guatemala, Nicaragua and Costa Rica.
|
|
·
|
We are members of Grounds for Health, an organization that educates, screens, and arranges treatment for women who have cancer and live in the rural coffee growing communities of Mexico.
|
|
·
|
We are a licensed Fair Trade dealer of Fair Trade certified coffee. Fair Trade certified coffee helps small coffee farmers to increase their incomes and improve the prospects of their communities and families. It guarantees farmers a minimum price of $1.25 per pound or ten cents above the current market price.
|
|
·
|
We are the administrative benefactors to a non-profit organization called Cup for Education. After discovering the lack of schools, teachers, and basic fundamental learning supplies in the poor coffee growing communities of Central and Latin America, “Cup” was established by our employee, Karen Gordon, to help build schools, sponsor teachers, and purchase basic supplies such as books, chalk and other necessities for a proper education.
|
ITEM 1A.
|
RISK FACTORS
|
|
·
|
the roasting, blending, packaging and distribution of private label coffee;
|
|
·
|
the roasting, blending, packaging and distribution of proprietary branded coffee; and
|
|
·
|
the sale of wholesale specialty green coffee.
|
|
·
|
consumer tastes and preferences;
|
|
·
|
global economic conditions;
|
|
·
|
demographic trends; and
|
|
·
|
the type, number and location of competing products.
|
|
·
|
market our products on a national scale;
|
|
·
|
increase our brand recognition on a national scale;
|
|
·
|
enter into distribution and other strategic arrangements with third party retailers; and
|
|
·
|
manage growth in administrative overhead and distribution costs likely to result from the planned expansion of our distribution channels.
|
|
·
|
such acquisitions, licensing arrangements or other strategic alliances may divert our management’s attention from our existing operations;
|
|
·
|
we may not be able to successfully integrate any acquired coffee companies or new coffee brands into our existing business;
|
|
·
|
we may not be able to manage the contingent risks associated with the past operations of, and other unanticipated problems arising in, any acquired coffee company; and
|
|
·
|
we may not be able to control unanticipated costs associated with such acquisitions, licensing arrangements or strategic alliances.
|
|
·
|
potentially dilutive issuances of our equity securities;
|
|
·
|
the incurrence of additional debt
|
|
·
|
restructuring charges; and
|
|
·
|
the recognition of significant charges for depreciation and amortization related to intangible assets.
|
|
·
|
general domestic and global economic conditions;
|
|
·
|
a portion of our cash flow from operations will be needed to pay debt service and will not be available to fund future operations;
|
|
·
|
we have increased vulnerability to adverse general economic and coffee industry conditions;
|
|
·
|
we may be vulnerable to higher interest rates because interest expense on borrowings under our revolving line of credit is based on variable rates; and
|
|
·
|
we may be subject to covenants that could restrict our operations.
|
·
|
weather patterns in coffee-producing countries;
|
·
|
economic and political conditions affecting coffee-producing countries, including acts of terrorism in such countries;
|
·
|
foreign currency fluctuations; and
|
·
|
trade regulations and restrictions between coffee-producing countries and the United States.
|
|
·
|
fluctuations in purchase prices and supply of green coffee;
|
|
·
|
fluctuations in the selling prices of our products;
|
|
·
|
the level of marketing and pricing competition from existing or new competitors in the coffee industry;
|
|
·
|
the success of our hedging strategy;
|
|
·
|
our ability to retain existing customers and attract new customers; and
|
|
·
|
our ability to manage inventory and fulfillment operations and maintain gross margins.
|
|
·
|
the election of a majority of our directors;
|
|
·
|
the amendment of our charter documents; and
|
|
·
|
the approval of mergers, sales of assets or other corporate transactions or matters submitted for stockholder approval.
|
|
·
|
provide that directors may only be removed upon a vote of at least eighty percent of the shares outstanding;
|
|
·
|
establish advance notice requirements for nominating directors and proposing matters to be voted on by shareholders at shareholder meetings;
|
|
·
|
limit the right of our stockholders to call a special meeting of stockholders;
|
|
·
|
authorize our board of directors to issue preferred stock and to determine the rights and preferences of those shares, which would be senior to our common stock, without prior stockholder approval;
|
|
·
|
require amendments to our articles of incorporation to be approved by the holders of at least eighty percent of our outstanding shares of common stock;
|
|
·
|
a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; and
|
|
·
|
provide a prohibition on stockholder action by written consent, thereby only permitting stockholder action to be taken at an annual or special meeting of our stockholders.
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
ITEM 2.
|
PROPERTIES
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Period
|
(a)
Total Number of Shares (or Unites) Purchased
|
(b)
Average Price Paid per Share (or Unit)
|
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
|
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
|
||||||||||||
September 29, 2015 to September 30, 2015
|
||||||||||||||||
October 1, 2015 to October 31, 2015
|
53,687
|
$
|
4.23
|
53,687
|
$
|
1,773,150
|
||||||||||
Total
|
(1)
|
On September 29, 2015, we announced that the Board of Directors had approved a share repurchase program (the “Share Repurchase Program”) pursuant to which we may repurchase up to $2 million of our outstanding common stock from time to time on the open market and in privately negotiated transactions subject to market conditions, share price and other factors. The Share Repurchase Program may be discontinued or suspended at any time.
|
High
|
Low
|
|||||||
2015
|
||||||||
1st Quarter
|
$
|
6.20
|
$
|
4.50
|
||||
2nd Quarter
|
$
|
5.38
|
$
|
4.39
|
||||
3rd Quarter
|
$
|
5.50
|
$
|
4.70
|
||||
4th Quarter
|
$
|
5.07
|
$
|
3.74
|
||||
2014
|
||||||||
1st Quarter
|
$
|
5.57
|
$
|
4.50
|
||||
2nd Quarter
|
$
|
8.58
|
$
|
4.96
|
||||
3rd Quarter
|
$
|
8.19
|
$
|
5.87
|
||||
4th Quarter
|
$
|
7.40
|
$
|
5.26
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
For the Years Ended October 31,
|
||||||||||||||||||||
2015
|
2014
|
2013
|
2012
|
2011
|
||||||||||||||||
(Dollars in thousands, except per share data)
|
||||||||||||||||||||
Income Statement Data:
|
||||||||||||||||||||
Net sales
|
$ | 118,154 | $ | 108,863 | $ | 133,981 | $ | 173,656 | $ | 146,755 | ||||||||||
Cost of sales
|
112,437 | 93,334 | 128,012 | 161,649 | 138,210 | |||||||||||||||
Gross profit
|
5,717 | 15,529 | 5,969 | 12,007 | 8,545 | |||||||||||||||
Operating expenses
|
7,654 | 7,527 | 7,522 | 7,607 | 7,345 | |||||||||||||||
(Loss) income from operations
|
(1,937 | ) | 8,002 | (1,553 | ) | 4,400 | 1,200 | |||||||||||||
Other income (expense)
|
(156 | ) | (37 | ) | (169 | ) | (345 | ) | (124 | ) | ||||||||||
(Loss) income before income taxes
|
(2,093 | ) | 7,965 | (1,722 | ) | 4,055 | 1,076 | |||||||||||||
(Benefit) provision for income taxes
|
(764 | ) | 2,947 | (393 | ) | 1,471 | 230 | |||||||||||||
Minority interest
|
(84 | ) | (51 | ) | (152 | ) | (98 | ) | (34 | ) | ||||||||||
Net (loss) income
|
$ | (1,413 | ) | $ | 4,967 | $ | (1,481 | ) | $ | 2,486 | $ | 812 | ||||||||
Net (loss) income per share – Basic
|
$ | (0.23 | ) | $ | 0.78 | $ | (0.23 | ) | $ | 0.39 | $ | 0.15 | ||||||||
Net (loss) income per share – Diluted
|
$ | (0.23 | ) | $ | 0.78 | $ | (0.23 | ) | $ | 0.37 | $ | 0.14 |
At October 31,
|
||||||||||||||||||||
2015
|
2014
|
2013
|
2012
|
2011
|
||||||||||||||||
(Dollars in thousands, except per shares data)
|
||||||||||||||||||||
Balance Sheet Data:
|
||||||||||||||||||||
Total assets
|
$
|
35,274
|
$
|
38,952
|
$
|
32,399
|
$
|
38,248
|
$
|
38,779
|
||||||||||
Short-term debt
|
5,554
|
2,498
|
1,229
|
563
|
1,820
|
|||||||||||||||
Long-term debt
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||
Total liabilities
|
10,856
|
12,898
|
10,315
|
14,448
|
16,789
|
|||||||||||||||
Stockholders’ equity
|
24,418
|
26,055
|
22,084
|
23,800
|
21,990
|
|||||||||||||||
Book value per share
|
$
|
3.96
|
$
|
4.19
|
$
|
3.47
|
$
|
3.73
|
$
|
3.45
|
At October 31,
|
||||||||||||||||||||
2015
|
2014
|
2013
|
2012
|
2011
|
||||||||||||||||
Per Common Share Data:
|
||||||||||||||||||||
Basic EPS
|
$
|
(.23)
|
$
|
.78
|
$
|
(.23)
|
$
|
.39
|
$
|
.15
|
||||||||||
Diluted EPS
|
$
|
(.23)
|
$
|
.78
|
$
|
(.23)
|
$
|
.37
|
$
|
.14
|
||||||||||
Cash dividends declared
|
$
|
0
|
$
|
0
|
$
|
387,379
|
$
|
774,756
|
$
|
694,658
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
·
|
our dependency on a single commodity could affect our revenues and profitability;
|
|
·
|
our success in expanding our market presence in new geographic regions;
|
|
·
|
the effectiveness of our hedging policy may impact our profitability;
|
|
·
|
the success of our joint ventures;
|
|
·
|
our success in implementing our business strategy or introducing new products;
|
|
·
|
our ability to attract and retain customers;
|
|
·
|
our ability to obtain additional financing;
|
|
·
|
our ability to comply with the restrictive covenants we are subject to under our current financing;
|
|
·
|
the effects of competition from other coffee manufacturers and other beverage alternatives;
|
|
·
|
the impact to the operations of our Colorado facility;
|
|
·
|
general economic conditions and conditions which affect the market for coffee;
|
|
·
|
the macro global economic environment;
|
|
·
|
our ability to maintain and develop our brand recognition;
|
|
·
|
the impact of rapid or persistent fluctuations in the price of coffee beans;
|
|
·
|
fluctuations in the supply of coffee beans;
|
|
·
|
the volatility of our common stock; and
|
|
·
|
other risks which we identify in future filings with the Securities and Exchange Commission (the “SEC”).
|
|
·
|
the sale of wholesale specialty green coffee;
|
|
·
|
the roasting, blending, packaging and sale of private label coffee; and
|
|
·
|
the roasting, blending, packaging and sale of our seven brands of coffee.
|
|
·
|
the level of marketing and pricing competition from existing or new competitors in the coffee industry;
|
|
·
|
our ability to retain existing customers and attract new customers;
|
|
·
|
our hedging policy;
|
|
·
|
fluctuations in purchase prices and supply of green coffee and in the selling prices of our products; and
|
|
·
|
our ability to manage inventory and fulfillment operations and maintain gross margins.
|
|
·
|
We recognize revenue in accordance with the relevant authoritative guidance. Revenue is recognized at the point title and risk of ownership transfers to its customers which is upon the shippers taking possession of the goods because i) title passes in accordance with the terms of the purchase orders and with our agreements with our customers, ii) any risk of loss is covered by the customers’ insurance, iii) there is persuasive evidence of a sales arrangement, iv) the sales price is determinable and v) collection of the resulting receivable is reasonably assured. Thus, revenue is recognized at the point of shipment.
|
|
·
|
Our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required. For example, every additional one percent of our accounts receivable that becomes uncollectible, would decrease our operating income by approximately $110,000 for the year ended October 31, 2015. The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by us from our customers.
|
|
·
|
Inventories are stated at lower of cost (determined on a first-in, first-out basis) or market. Based on our assumptions about future demand and market conditions, inventories are subject to be written-down to market value. If our assumptions about future demand change and/or actual market conditions are less favorable than those projected, additional write-downs of inventories may be required. Each additional one percent of potential inventory writedown would have decreased operating income by approximately $139,000 for the year ended October 31, 2015.
|
|
·
|
The commodities held at broker represent the market value of the Company’s trading account, which consists of option and futures contracts for coffee held with a brokerage firm. We use options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. We classify options and futures contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings. We record realized and unrealized gains and losses in our cost of sales in the statement of operations/income.
|
|
·
|
We account for income taxes in accordance with the relevant authoritative guidance. Deferred tax assets and liabilities are computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. Accordingly, our net deferred tax asset as of October 31, 2015 of $905,350 may require a valuation allowance if we do not generate taxable income.
|
|
·
|
Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, which has been integrated into a structure that does not provide the basis for separate reporting units. Consequently, we are a single reporting unit for goodwill impairment testing purposes. We also have intangible assets consisting of our customer list and relationships and trademarks acquired from OPTCO. At October 31, 2015 our balance sheet reflected goodwill and intangible assets as set forth below:
|
October 31, 2015
|
||||
Customer list and relationships, net
|
$
|
108,750
|
||
Trademarks
|
180,000
|
|||
Goodwill
|
440,000
|
|||
$
|
728,750
|
|||
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
ITEM 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
Exhibit No.
|
Description
|
|
2.1
|
Agreement and Plan of Merger, dated October 31, 1997, by and among Transpacific International Group Corp. and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form SB-2 filed on November 10, 1997 (File No. 333-00588-NY)).
|
|
2.2
|
Asset Purchase Agreement, dated February 4, 2004, by and between Coffee Holding Co., Inc. and Premier Roasters LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 20, 2004 (File No. 333-00588-NY)).
|
|
3.1
|
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A the “2005 Registration Statement” filed on May 2, 2005 (File No. 001-32491)).
|
|
3.2
|
ByLaws of the Company (incorporated herein by reference to Exhibit 3.2 to the 2005 Registration Statement (File No. 001-32491)).
|
|
4.1
|
Form of Stock Certificate of the Company (incorporated herein by reference to the Company’s Registration Statement on Form SB-2 filed on June 24, 2004 (Registration No. 333-116838)).
|
|
10.1
|
Loan and Security Agreement, dated February 17, 2009, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K filed on February 23, 2009 (File No. 001-32491)).
|
|
10.2
|
Lease, dated February 4, 2004, by and between Coffee Holding Co., Inc. and the City of La Junta, Colorado (incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Registration Statement on Form SB-2/A filed on August 12, 2004 (Registration No. 333-116838)).
|
|
10.3
|
Trademark License Agreement, dated February 4, 2004, between Del Monte Corporation and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-QSB/A for the quarter ended April 30, 2004 filed on August 26, 2004 (File No. 333-00588-NY)) as amended by that First Amendment to Trademark License Agreement, dated January 4, 2013.
|
10.4
|
First Amendment to Trademark License Agreement, dated January 4, 2013, by and between Del Monte Corporation and Coffee Holding Co., Inc. Certain portions of Exhibit 10.4 are omitted based upon approval of the Company’s request for confidential treatment through January 28, 2023. The omitted portions were filed separately with the SEC on a confidential basis (incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2012 filed on January 28, 2013 (File No. 001-32491)).
|
|
10.5
|
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and Andrew Gordon (incorporated herein by reference to Exhibit 10.14 of the Company’s Current Report on Form 8-K filed on April 16, 2008 (File No. 001-32491)).
|
|
10.6
|
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and David Gordon (incorporated herein by reference to Exhibit 10.15 of the Company’s Current Report on Form 8-K filed on April 16, 2008 (File No. 001-32491)).
|
|
10.7
|
Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.19 of the Company’s Quarterly Report on Form 10-QSB filed on June 14, 2005 (File No. 001-32491)).
|
|
10.8
|
Contract of Sale, dated April 14, 2009, by and between Coffee Holding Co., Inc. and 4401 1st Ave LLC (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K filed on January 28, 2010 (File No. 001-32491)).
|
|
10.9
|
First Amendment to Loan and Security Agreement between Coffee Holding Co., Inc. and Sterling National Bank, dated July 23, 2010 (incorporated herein by reference to Exhibit 103 to the Company’s Annual Report on Form 10-K filed on January 31, 2011 (File No. 001-32491)).
|
|
10.10
|
Placement Agency Agreement, dated as of September 27, 2011, by and among the Company, the selling stockholders named therein, Roth Capital Partners, LLC and Maxim Group, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)).
|
|
10.11
|
Subscription Agreement, dated as of September 27, 2011, by and between the Company, the selling stockholders named therein and each of the purchasers identified on the signature pages thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)).
|
|
10.12
|
2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement filed on February 28, 2013 (File No. 13653320)).
|
|
10.13
|
Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on January 24, 2014 (File No. 001-32491)).
|
|
10.14
|
Loan Modification Agreement, dated March 10, 2015, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
|
|
10.15
|
Loan Agreement, dated March 10, 2015, by and between Sterling National Bank and Organic Products Trading Company LLC (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
|
|
10.16
|
Security Agreement, dated March 10, 2015, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
|
|
10.17
|
Guarantee, dated March 10, 2015, by Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
|
List of Significant Subsidiaries.*
|
||
23.1 | Consent of Marcum LLP.* | |
Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
||
Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
101.INS
|
XBRL Instance Document.
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
COFFEE HOLDING CO., INC.
|
|||
By:
|
/s/ Andrew Gordon
|
||
Andrew Gordon
|
|||
President, Chief Executive Officer
|
|||
Signature
|
Title
|
Date
|
||||
/s/Andrew Gordon
|
President, Chief Executive Officer, Chief Financial Officer, Treasurer and
|
January 26, 2016
|
||||
Andrew Gordon
|
Director
|
|||||
(principal executive officer and principal financial and accounting officer)
|
||||||
/s/ David Gordon
|
Executive Vice President – Operations, Secretary and Director
|
January 26, 2016
|
||||
David Gordon
|
||||||
/s/ Gerard DeCapua
|
Director
|
January 26, 2016
|
||||
Gerard DeCapua
|
||||||
/s/ Daniel Dwyer
|
Director
|
January 26, 2016
|
||||
Daniel Dwyer
|
||||||
/s/ Barry Knepper
|
Director
|
January 26, 2016
|
||||
Barry Knepper
|
||||||
/s/ John Rotelli
|
Director
|
January 26, 2016
|
||||
John Rotelli
|
||||||
/s/ Robert M. Williams
|
Director
|
January 26, 2016
|
||||
Robert M. Williams
|
Exhibit No.
|
Description
|
|
2.1
|
Agreement and Plan of Merger, dated October 31, 1997, by and among Transpacific International Group Corp. and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form SB-2 filed on November 10, 1997 (File No. 333-00588-NY)).
|
|
2.2
|
Asset Purchase Agreement, dated February 4, 2004, by and between Coffee Holding Co., Inc. and Premier Roasters LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 20, 2004 (File No. 333-00588-NY)).
|
|
3.1
|
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A the “2005 Registration Statement” filed on May 2, 2005 (File No. 001-32491)).
|
|
3.2
|
ByLaws of the Company (incorporated herein by reference to Exhibit 3.2 to the 2005 Registration Statement (File No. 001-32491)).
|
|
4.1
|
Form of Stock Certificate of the Company (incorporated herein by reference to the Company’s Registration Statement on Form SB-2 filed on June 24, 2004 (Registration No. 333-116838)).
|
|
10.1
|
Loan and Security Agreement, dated February 17, 2009, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K filed on February 23, 2009 (File No. 001-32491)).
|
|
10.2
|
Lease, dated February 4, 2004, by and between Coffee Holding Co., Inc. and the City of La Junta, Colorado (incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Registration Statement on Form SB-2/A filed on August 12, 2004 (Registration No. 333-116838)).
|
|
10.3
|
Trademark License Agreement, dated February 4, 2004, between Del Monte Corporation and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-QSB/A for the quarter ended April 30, 2004 filed on August 26, 2004 (File No. 333-00588-NY)) as amended by that First Amendment to Trademark License Agreement, dated January 4, 2013.
|
|
10.4
|
First Amendment to Trademark License Agreement, dated January 4, 2013, by and between Del Monte Corporation and Coffee Holding Co., Inc. Certain portions of Exhibit 10.4 are omitted based upon a approval of the Company’s request for confidential treatment through January 28, 2023. The omitted portions were filed separately with the SEC on a confidential basis (incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2012 filed on January 28, 2013 (File No. 001-32491)).
|
|
10.5
|
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and Andrew Gordon (incorporated herein by reference to Exhibit 10.14 of the Company’s Current Report on Form 8-K filed on April 16, 2008 (File No. 001-32491)).
|
|
10.6
|
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and David Gordon (incorporated herein by reference to Exhibit 10.15 of the Company’s Current Report on Form 8-K filed on April 16, 2008 (File No. 001-32491)).
|
10.7
|
Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.19 of the Company’s Quarterly Report on Form 10-QSB filed on June 14, 2005 (File No. 001-32491)).
|
|
10.8
|
Contract of Sale, dated April 14, 2009, by and between Coffee Holding Co., Inc. and 4401 1st Ave LLC (incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K filed on January 28, 2010 (File No. 001-32491)).
|
|
10.9
|
First Amendment to Loan and Security Agreement between Coffee Holding Co., Inc. and Sterling National Bank, dated July 23, 2010 (incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on January 31, 2011 (File No. 001-32491).
|
|
10.10
|
Placement Agency Agreement, dated as of September 27, 2011, by and among the Company, the selling stockholders named therein, Roth Capital Partners, LLC and Maxim Group, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)).
|
|
10.11
|
Subscription Agreement, dated as of September 27, 2011, by and between the Company, the selling stockholders named therein and each of the purchasers identified on the signature pages thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)).
|
|
10.12
|
2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement filed on February 28, 2013 (File No. 13653320)).
|
|
10.13
|
Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on January 24, 2014 (File No. 001-32491)).
|
|
List of Significant Subsidiaries.*
|
||
23.1 | Consent of Marcum, LLP* | |
Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
||
Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
101.INS
|
XBRL Instance Document.
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
PAGE
|
|||
FINANCIAL STATEMENTS:
|
|||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-2
|
||
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2015 AND 2014
|
F-3
|
||
CONSOLIDATED STATEMENTS OF OPERATIONS - YEARS ENDED OCTOBER 31, 2015 AND 2014
|
F-4
|
||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - YEARS ENDED OCTOBER 31, 2015 AND 2014
|
F-5
|
||
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED OCTOBER 31, 2015 AND 2014
|
F-6
|
||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-7
|
2015
|
2014
|
|||||||
- ASSETS -
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash
|
$ | 3,853,816 | $ | 3,782,639 | ||||
Accounts receivable, net of allowances of $144,000 for 2015 and 2014
|
10,968,237 | 15,419,860 | ||||||
Inventories
|
13,862,818 | 15,210,153 | ||||||
Prepaid green coffee
|
620,452 | 467,155 | ||||||
Prepaid expenses and other current assets
|
256,202 | 260,112 | ||||||
Prepaid and refundable income taxes
|
1,434,577 | 759 | ||||||
Deferred income tax asset
|
997,720 | 343,657 | ||||||
TOTAL CURRENT ASSETS
|
31,993,822 | 35,484,335 | ||||||
Machinery and equipment, at cost, net of accumulated depreciation of $4,241,256 and $3,704,802 for 2015 and 2014, respectively
|
1,845,000 | 1,991,094 | ||||||
Customer list and relationships, net of accumulated amortization of $41,250 and $33,750 for 2015 and 2014, respectively
|
108,750 | 116,250 | ||||||
Trademarks
|
180,000 | 180,000 | ||||||
Goodwill
|
440,000 | 440,000 | ||||||
Equity method investments
|
96,571 | 97,404 | ||||||
Deposits and other assets
|
610,499 | 643,549 | ||||||
TOTAL ASSETS
|
$ | 35,274,642 | $ | 38,952,632 | ||||
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable and accrued expenses
|
$ | 4,021,389 | $ | 8,693,100 | ||||
Line of credit
|
5,554,121 | 2,498,458 | ||||||
Due to broker
|
483,835 | 484,924 | ||||||
Income taxes payable
|
- | 331,051 | ||||||
TOTAL CURRENT LIABILITIES
|
10,059,345 | 12,007,533 | ||||||
Deferred income tax liabilities
|
92,370 | 165,157 | ||||||
Deferred rent payable
|
222,055 | 209,640 | ||||||
Deferred compensation payable
|
482,499 | 515,549 | ||||||
TOTAL LIABILITIES
|
10,856,269 | 12,897,879 | ||||||
STOCKHOLDERS’ EQUITY:
|
||||||||
Coffee Holding Co., Inc. stockholders’ equity:
|
||||||||
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, 6,456,316 shares issued; 6,162,207 and 6,215,894 shares outstanding for 2015 and 2014
|
6,456 | 6,456 | ||||||
Additional paid-in capital
|
15,904,109 | 15,904,109 | ||||||
Retained earnings
|
9,665,940 | 11,079,168 | ||||||
Less: Treasury stock, 294,109 and 240,422 common shares, at cost for 2015 and 2014
|
(1,494,712 | ) | (1,267,862 | ) | ||||
Total Coffee Holding Co., Inc. Stockholders’ Equity
|
24,081,793 | 25,721,871 | ||||||
Noncontrolling interest
|
336,580 | 332,882 | ||||||
TOTAL EQUITY
|
24,418,373 | 26,054,753 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 35,274,642 | $ | 38,952,632 |
2015
|
2014
|
|||||||
NET SALES
|
$ | 118,153,541 | $ | 108,863,097 | ||||
COST OF SALES (which include purchases of approximately $22.1 million and $17.5 million in fiscal years 2015 and 2014, respectively, from a related party)
|
112,436,831 | 93,334,118 | ||||||
GROSS PROFIT
|
5,716,710 | 15,528,979 | ||||||
OPERATING EXPENSES:
|
||||||||
Selling and administrative
|
7,000,744 | 6,868,052 | ||||||
Officers’ salaries
|
653,285 | 659,400 | ||||||
TOTAL
|
7,654,029 | 7,527,452 | ||||||
(LOSS) INCOME FROM OPERATIONS
|
(1,937,319 | ) | 8,001,527 | |||||
OTHER INCOME (EXPENSE):
|
||||||||
Interest income
|
45,049 | 44,962 | ||||||
Loss from equity method investments
|
(833 | ) | (774 | ) | ||||
Interest expense
|
(200,074 | ) | (80,493 | ) | ||||
TOTAL
|
(155,858 | ) | (36,305 | ) | ||||
(LOSS) INCOME BEFORE (BENEFIT) PROVISION FOR INCOME TAXES AND
|
||||||||
NON-CONTROLLING INTEREST IN SUBSIDIARY
|
(2,093,177 | ) | 7,965,222 | |||||
(Benefit) provision for income taxes
|
(763,647 | ) | 2,947,102 | |||||
NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY
|
(1,329,530 | ) | 5,018,120 | |||||
Less: Net income attributable to the non-controlling interest in subsidiary
|
(83,698 | ) | (50,585 | ) | ||||
NET (LOSS) INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC.
|
$ | (1,413,228 | ) | $ | 4,967,535 | |||
Basic and diluted (loss) earnings per share
|
$ | (.23 | ) | $ | .78 | |||
Weighted average common shares outstanding:
|
||||||||
Basic and diluted
|
6,212,929 | 6,333,212 |
Common Stock
|
Treasury Stock
|
Additional Paid - in Capital
|
Retained Earnings
|
Non- Controlling Interest
|
Total
|
|||||||||||||||||||||||||||
$.001 Par Value
|
||||||||||||||||||||||||||||||||
Number of
|
Number of
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|
|||||||||||||||||||||||||||
Balance,10/31/13
|
6,372,309 | $ | 6,456 | 84,007 | $ | (272,133 | ) | $ | 15,904,109 | $ | 6,111,633 | $ | 334,297 | $ | 22,084,362 | |||||||||||||||||
Treasury Stock
|
(156,415 | ) | 156,415 | (995,729 | ) | (995,729 | ) | |||||||||||||||||||||||||
Dividend
|
(52,000 | ) | (52,000 | ) | ||||||||||||||||||||||||||||
Net income
|
4,967,535 | 4,967,535 | ||||||||||||||||||||||||||||||
Non-Controlling
|
||||||||||||||||||||||||||||||||
Interest
|
- | - | - | - | - | - | 50,585 | 50,585 | ||||||||||||||||||||||||
Balance, 10/31/14
|
6,215,894 | $ | 6,456 | 240,422 | $ | (1,267,862 | ) | $ | 15,904,109 | $ | 11,079,168 | $ | 332,882 | $ | 26,054,753 | |||||||||||||||||
|
||||||||||||||||||||||||||||||||
Treasury Stock
|
(53,687 | ) | 53,687 | (226,850 | ) | (226,850 | ) | |||||||||||||||||||||||||
Dividend
|
(80,000 | ) | (80,000 | ) | ||||||||||||||||||||||||||||
Net loss
|
(1,413,228 | ) | (1,413,228 | ) | ||||||||||||||||||||||||||||
Non-Controlling
|
||||||||||||||||||||||||||||||||
Interest
|
- | - | - | - | - | - | 83,698 | 83,698 | ||||||||||||||||||||||||
Balance, 10/31/15
|
6,162,207 | $ | 6,456 | 294,109 | $ | (1,494,712 | ) | $ | 15,904,109 | $ | 9,665,940 | $ | 336,580 | $ | 24,418,373 |
2015
|
2014
|
|||||||
OPERATING ACTIVITIES:
|
||||||||
Net (loss) income
|
$ | (1,329,530 | ) | $ | 5,018,120 | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||
Depreciation and amortization
|
545,390 | 581,400 | ||||||
Unrealized (gain) on commodities
|
(1,089 | ) | (499,116 | ) | ||||
Loss on equity method investments
|
833 | 774 | ||||||
Deferred rent
|
12,415 | 14,188 | ||||||
Deferred income taxes
|
(726,850 | ) | 1,006,500 | |||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
4,451,623 | (3,057,068 | ) | |||||
Inventories
|
1,347,335 | (5,837,135 | ) | |||||
Prepaid expenses and other current assets
|
3,910 | 76,382 | ||||||
Prepaid green coffee
|
(153,297 | ) | (27,865 | ) | ||||
Prepaid and refundable income taxes
|
(1,433,818 | ) | 999,558 | |||||
Accounts payable and accrued expenses
|
(4,671,711 | ) | 1,448,278 | |||||
Deposits and other assets
|
- | (25,001 | ) | |||||
Income taxes payable
|
(331,051 | ) | 331,051 | |||||
Net cash (used in) provided by operating activities
|
(2,285,840 | ) | 30,066 | |||||
INVESTING ACTIVITIES:
|
||||||||
Purchases of machinery and equipment
|
(391,796 | ) | (504,644 | ) | ||||
Net cash used in investing activities
|
(391,796 | ) | (504,644 | ) | ||||
FINANCING ACTIVITIES:
|
||||||||
Line of credit
|
3,055,663 | 1,269,277 | ||||||
Purchase of treasury stock
|
(226,850 | ) | (995,729 | ) | ||||
Payment of dividend
|
(80,000 | ) | (52,000 | ) | ||||
Net cash provided by financing activities
|
2,748,813 | 221,548 | ||||||
NET INCREASE (DECREASE) IN CASH
|
71,177 | (253,030 | ) | |||||
CASH, BEGINNING OF PERIOD
|
3,782,639 | 4,035,669 | ||||||
CASH, END OF PERIOD
|
$ | 3,853,816 | $ | 3,782,639 |
2015
|
2014
|
|||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
|
||||||||
Interest paid
|
$ | 196,556 | $ | 73,692 | ||||
Income taxes paid
|
$ | 1,651,156 | $ | 1,432,777 |
2015
|
2014
|
|||||||
Allowance for doubtful accounts
|
$ | 65,000 | $ | 65,000 | ||||
Reserve for other allowances
|
35,000 | 35,000 | ||||||
Reserve for sales discounts
|
44,000 | 44,000 | ||||||
Totals
|
$ | 144,000 | $ | 144,000 |
2015
|
2014
|
|||||||
Option contracts
|
$ | (134,613 | ) | $ | (217,624 | ) | ||
Future contracts
|
(349,222 | ) | (267,300 | ) | ||||
Commodities due to broker
|
$ | (438,835 | ) | $ | (484,924 | ) |
Year Ended October 31,
|
||||||||
2015
|
2014
|
|||||||
Gross realized gains
|
$ | 1,292,471 | $ | 5,294,449 | ||||
Gross realized (losses)
|
(6,778,407 | ) | (2,054,301 | ) | ||||
Unrealized gains
|
1,089 | 499,116 | ||||||
Total
|
$ | (5,484,847 | ) | $ | 3,739,264 |
2014
|
2014
|
|||||||
Packed coffee
|
$ | 1,441,451 | $ | 1,578,248 | ||||
Green coffee
|
11,730,006 | 12,987,257 | ||||||
Packaging supplies
|
691,361 | 644,648 | ||||||
Totals
|
$ | 13,862,818 | $ | 15,210,153 |
Estimated
Useful Life
|
2015
|
2014
|
|||||||
Improvements
|
15-30 years
|
$ | 199,035 | $ | 172,506 | ||||
Machinery and equipment
|
7 years
|
5,274,277 | 4,937,017 | ||||||
Furniture and fixtures
|
7 years
|
612,944 | 586,373 | ||||||
6,086,256 | 5,695,896 | ||||||||
Less, accumulated depreciation
|
4,241,256 | 3,704,802 | |||||||
$ | 1,845,000 | $ | 1,991,094 |
2015
|
2014
|
|||||||
Current
|
||||||||
Federal
|
$ | (73,407 | ) | $ | 1,607,952 | |||
State and local
|
36,610 | 332,199 | ||||||
(36,797 | ) | 1,940,151 | ||||||
Deferred
|
||||||||
Federal
|
(657,500 | ) | 886,060 | |||||
State and local
|
(69,350 | ) | 120,891 | |||||
(726,850 | ) | 1,006,951 | ||||||
Income tax (benefit) expense
|
$ | (763,647 | ) | $ | 2,947,102 |
2015
|
2014
|
|||||||
Tax at the federal statutory rate of 34%
|
$ | (711,680 | ) | $ | 2,708,175 | |||
Other permanent differences
|
(30,359 | ) | (62,348 | ) | ||||
State and local tax, net of federal
|
(21,608 | ) | 301,278 | |||||
Provision for income taxes
|
$ | (763,647 | ) | $ | 2,947,102 | |||
Effective income tax rate
|
(37 | )% | 37 | % |
2015
|
2014
|
|||||||
Current deferred tax assets:
|
||||||||
Accounts receivable
|
$ | 53,605 | $ | 54,407 | ||||
Net operating loss
|
714,150 | 27,807 | ||||||
Unrealized loss
|
180,112 | 183,216 | ||||||
Inventory
|
49,853 | 78,227 | ||||||
Total current deferred tax asset
|
$ | 997,720 | $ | 343,657 | ||||
Non-current deferred tax assets:
|
||||||||
Deferred rent
|
82,666 | 79,575 | ||||||
Deferred compensation
|
179,614 | 194,768 | ||||||
Total non-current deferred tax asset
|
$ | 262,280 | $ | 274,343 | ||||
Total deferred tax asset
|
$ | 1,260,000 | $ | 618,000 | ||||
Non-current deferred tax liability:
|
||||||||
Fixed assets
|
354,650 | 439,500 | ||||||
Total deferred tax liabilities
|
$ | 354,650 | $ | 439,500 |
October 31,
|
||||
2016
|
$ | 279,945 | ||
2017
|
264,123 | |||
2018
|
254,683 | |||
2019
|
262,413 | |||
2020
|
271,051 | |||
Thereafter
|
889,467 | |||
|
||||
$ | 2,221,682 |
a.
|
Treasury Stock. The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is determined under the last-in, first-out method. The Company purchased 53,687 shares for $226,850 during the year ended October 31, 2015 and 156,415 shares for $995,729 during the year ended October 31, 2014.
|
b.
|
Share Repurchase Program. On January 24, 2014, the Company announced that the Board of Directors had approved a share repurchase program (the “2014 Share Repurchase Program”) pursuant to which the Company may repurchase up to $1 million of its outstanding shares of common stock from time to time on the open market and in privately negotiated transactions subject to market conditions, share price and other factors. The 2014 Share Repurchase Program may be discontinued or suspended at any time. As of October 31, 2015, pursuant to the terms of the 2014 Share Repurchase Program, the Company repurchased 156,415 shares of outstanding common stock in an amount equal in value to $995,729. On September 29, 2015, the Company announced that the Board of Directors had approved a share repurchase program (the “2015 Share Repurchase Program”) pursuant to which the Company may repurchase up to $2 million of the outstanding common stock from time to time on the open market and in privately negotiated transactions subject to market conditions, share price and other factors. The timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions and other factors. The 2015 Share Repurchase Program may be discontinued or suspended at any time. As of October 31, 2015, pursuant to the terms of the 2015 Share Repurchase Program, the Company repurchased 53,687 shares of outstanding common stock in an amount equal in value to $1,773,150.
|
Fair Value Measurements as of October 31, 2015
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Money market
|
482,499 | 482,499 | – | – | ||||||||||||
Total Assets
|
$ | 482,499 | $ | 482,499 | – | – | ||||||||||
Liabilities:
|
||||||||||||||||
Commodities – Options
|
(134,613 | ) | (134,613 | ) | ||||||||||||
Commodities – Futures
|
(349,222 | ) | – | (349,222 | ) | – | ||||||||||
Total Liabilities
|
$ | (483,835 | ) | – | $ | (483,835 | ) | – |
Fair Value Measurements as of October 31, 2014
|
||||||||||||||||
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Money market
|
515,549 | 515,549 | – | – | ||||||||||||
Total Assets
|
$ | 515,549 | $ | 515,549 | – | – |
Liabilities:
|
||||||||||||||||
Commodities – Options
|
(217,624 | ) | (217,624 | ) | ||||||||||||
Commodities – Futures
|
(267,300 | ) | – | (267,300 | ) | – | ||||||||||
Total Liabilities
|
$ | (484,924 | ) | – | $ | (484,924 | ) | – |
Name of Entity
|
Jurisdiction
|
Organic Products Trading Company, LLC
|
United States, Washington
|
1.
|
I have reviewed this annual report on Form 10-K for the period ended October 31, 2015 of Coffee Holding Co., Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: January 26, 2016
|
/s/ Andrew Gordon
|
||
Andrew Gordon
|
|||
President, Chief Executive Officer, Chief Financial Officer and Treasurer
|
|||
(Principal Executive Officer, Principal Financial Officer, Chief Accounting Officer)
|
A)
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
|
B)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
|
Date: January 26, 2016
|
/s/ Andrew Gordon
|
|
Andrew Gordon
|
||
President, Chief Executive Officer, Chief Financial Officer and Treasurer
|
||
(Principal Executive Officer, Principal Financial Officer, Chief Accounting Officer)
|
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Oct. 31, 2015 |
Jan. 20, 2016 |
Apr. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | COFFEE HOLDING CO INC | ||
Entity Central Index Key | 0001007019 | ||
Document Type | 10-K | ||
Document Period End Date | Oct. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --10-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 31,377,696 | ||
Entity Common Stock, Shares Outstanding | 6,162,207 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
ASSETS: | ||
Allowances for doubtful accounts | $ 144,000 | $ 144,000 |
Accumulated Depreciation | 4,241,256 | 3,704,802 |
Customer list and relationships, accumulated amortization | $ 41,250 | $ 33,750 |
STOCKHOLDERS EQUITY: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 30,000,000 | 30,000,000 |
Common stock shares issued | 6,456,316 | 6,456,316 |
Common stock shares outstanding | 6,162,207 | 6,215,894 |
Treasury Stock, Shares | 294,109 | 240,422 |
CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Oct. 31, 2015 |
Oct. 31, 2014 |
|
Consolidated Statements Of Operations Parenthetical | ||
Related party costs | $ 22.1 | $ 17.5 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) |
Common Stock |
Treasury Stock |
Additional Paid-In Capital |
Retained Earnings |
Noncontrolling Interest |
Total |
---|---|---|---|---|---|---|
Beginning Balance, Shares at Oct. 31, 2013 | 6,372,309 | 84,007 | ||||
Beginning Balance, Amount at Oct. 31, 2013 | $ 6,456 | $ (272,133) | $ 15,904,109 | $ 6,111,633 | $ 334,297 | $ 22,084,362 |
Treasury, Shares | (156,415) | 156,415 | ||||
Treasury, Amount | $ (995,729) | (995,729) | ||||
Dividend | (52,000) | (52,000) | ||||
Net income (loss) | 4,967,535 | 4,967,535 | ||||
Non-Controlling Interest | 50,585 | 50,585 | ||||
Ending Balance, Shares at Oct. 31, 2014 | 6,215,894 | 240,422 | ||||
Ending Balance, Amount at Oct. 31, 2014 | $ 6,456 | $ (1,267,862) | 15,904,109 | 11,079,168 | 332,882 | 26,054,753 |
Beginning Balance, Shares at Oct. 31, 2014 | 6,215,894 | 240,422 | ||||
Treasury, Shares | (53,687) | 53,687 | ||||
Treasury, Amount | $ (226,850) | (226,850) | ||||
Dividend | (80,000) | (80,000) | ||||
Net income (loss) | (1,413,228) | (1,413,228) | ||||
Non-Controlling Interest | 83,698 | 83,698 | ||||
Ending Balance, Shares at Oct. 31, 2015 | 6,162,207 | 294,109 | ||||
Ending Balance, Amount at Oct. 31, 2015 | $ 6,456 | $ (1,494,712) | $ 15,904,109 | $ 9,665,940 | $ 336,580 | $ 24,418,373 |
1. BUSINESS ACTIVITIES |
12 Months Ended |
---|---|
Oct. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BUSINESS ACTIVITIES | Coffee Holding Co., Inc. (the Company) conducts wholesale coffee operations, including manufacturing, roasting, packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and it sells green coffee. The Companys core product, coffee, can be summarized and divided into three product categories (product lines) as follows:
Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small roasters and coffee shop operators;
Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want to have their own brand name on coffee to compete with national brands; and
Branded Coffee: coffee roasted and blended to the Companys own specifications and packaged and sold under the Companys seven proprietary and licensed brand names in different segments of the market.
The Companys private label and branded coffee sales are primarily to customers that are located throughout the United States with limited sales in Canada and certain countries in Asia. Such customers include supermarkets, wholesalers, and individually-owned and multi-unit retailers. The Companys unprocessed green coffee, which includes over 90 specialty coffee offerings, is sold primarily to specialty gourmet roasters and to coffee shop operators in the United States with limited sales in Australia, Canada, England and China.
The Companys wholesale green, private label, and branded coffee product categories generate revenues and cost of sales individually but incur selling, general and administrative expenses in the aggregate. There are no individual product managers and discrete financial information is not available for any of the product lines. The Companys product portfolio is used in one business and it operates and competes in one business activity and economic environment. In addition, the three product lines share customers, manufacturing resources, sales channels, and marketing support. Thus, the Company considers the three product lines to be one single reporting segment. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (OPTCO) and Generations Coffee Company, LLC (GCC). All significant inter-company balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of the Companys financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes, contingencies, and valuation of financial instruments. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts.
CASH:
Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms.
PREPAID GREEN COFFEE:
Prepaid coffee is an item that emanates from OPTCO. The balance represents advance payments made by OPTCO to several coffee growing cooperatives for the purchase of green coffee. Interest is charged to the cooperatives for these advances. Interest earned was $45,049 and $40,334 as of October 31, 2015 and 2014, respectively. The prepaid coffee balance was $620,452 and $467,155 as of October 31, 2015 and 2014, respectively.
ACCOUNTS RECEIVABLE:
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Companys customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on managements assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from its customers. The allowances are summarized as follows:
INVENTORIES:
Inventories are stated at the lower of cost (First in, first out basis) or market, including provisions for obsolescence commensurate with known or estimated exposures. There are no reserves for obsolescence as of October 31, 2015 and 2014.
MACHINERY AND EQUIPMENT:
Machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Purchases of machinery and equipment and additions and betterments which substantially extend the useful life of an asset are capitalized at cost. Expenditures which do not materially prolong the normal useful life of an asset are charged to operations as incurred. The Company also provides for amortization of leasehold improvements.
COMMODITIES HELD BY BROKER:
The commodities held at broker represent the market value of the Companys trading account, which consists of option and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. The Company's accounting for options and futures contracts may increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings.
At October 31, 2015, the Company held 38 futures contracts (generally with terms of three to four months) for the purchase of 1,425,000 pounds of green coffee at a weighted average price of $1.23 per pound. The fair market value of coffee applicable to such contracts was $1.21 per pound at that date. At October 31, 2015, the Company held 20 options covering an aggregate of 750,000 pounds of green coffee beans at $1.25 per pound. The fair market value of these options, which was obtained from observable market data of similar instruments was $42,750.
At October 31, 2014, the Company held 60 futures contracts (generally with terms of three to four months) for the purchase of 2,250,000 pounds of green coffee at a weighted average price of $2.00 per pound. The fair market value of coffee applicable to such contracts was $1.88 per pound at that date. The Company did not hold any options that were in the money at October 31, 2014.
Included in cost of sales for the years ended October 31, 2015 and 2014, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
GOODWILL AND TRADEMARKS:
The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill and trademarks are not amortized but are assigned to a specific reporting unit or asset class and tested for impairment at least annually or upon the occurrence of an event or when circumstances indicate that the reporting units carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2015 and 2014, the Company has determined by using a qualitative assessment that an impairment did not exist. In 2011, the Company adopted Financial Accounting Standard ASB ASU 2011-08 Intangibles Goodwill and Other Testing Goodwill for Impairment, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendment includes a number of events and circumstances for an entity to consider in conducting the qualitative assessment.
CUSTOMER LIST AND RELATIONSHIPS:
Customer list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition of OPTCO which are being amortized on the straight-line method over their estimated useful life of twenty years.
ADVERTISING:
The Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $157,922 and $142,552 for the years ended October 31, 2015 and 2014, 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 for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets and liabilities are individually classified as current or non-current based on their characteristics. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE:
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 6,212,929 and 6,333,212 for the years ended October 31, 2015 and 2014, respectively. The 267,000 shares that could be exercised pursuant to the warrant agreement attached to the units issued in September 2011 have not been included in the diluted earnings per share calculation because of their anti-dilutive impact.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying amount of the bank line of credit borrowings approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the authoritative guidance. Revenue is recognized at the point title and risk of ownership transfers to its customers upon the Companys shippers taking possession of the goods at the time of shipment because i) title passes in accordance with the terms of the Companys purchase orders and with its agreements with its customers, ii) any risk of loss is covered by the Companys customers insurance, iii) there is persuasive evidence of a sales arrangement, iv) the sales price is determinable and v) collection of the resulting receivable is reasonably assured. Thus, revenue is recognized at the point of shipment to its customers.
Returns: The Company does not accept returns for damaged goods on packaged coffee and usable green coffee, as the customer takes possession of our product at the point of shipment. In the event a customer claims receipt of damaged goods, the Company, acting as an agent on behalf of the customer, may file a claim for reimbursement with the shipper. The Company is not obligated or required to act as an agent on behalf of its customers, but may make the business decision to do so as a convenience to its customers. The shipper keeps the damaged product. The Company will then ship a completely new order to the customer once a claim has been filed and the Company receives reimbursement or credit from the shipper for the initial shipment. The Company does evaluate the need, if any, of an accrual for returns for damaged goods. To date, returns for damaged goods have been immaterial. The Company estimates that, based on historical trends, that future returns for damaged goods should also be immaterial.
In the event that the Company ships an incorrect order or has returns for short dated product, the Company will accept those two types of items back as returns. The amount for these two types of returns are estimated, accrued and recognized at the date of sale. These amounts are included in the determination of net sales.
Slotting fees: Certain retailers require the payment of slotting fees in order to obtain space for the Companys products on the retailers store shelves. The cost of these fees are estimated, accrued and recognized at the earlier of the date cash is paid or a liability to the retailer is created. The amounts are included in the determination of net sales.
Sales discounts: The amount of sales discounts are estimated, accrued and recognized at the date of the sale. These amounts are included in the determination of net sales.
Volume-based incentives: These incentives typically involve rebates or refunds of a specific amount of cash consideration that are redeemable only if the reseller completes a specified cumulative level of sales transactions. Under incentive programs of this nature, the Company estimates and accrues the cost of the rebate when it is taken by the reseller. These amounts are included in the determination of net sales.
Cooperative advertising: Under these arrangements, the Company will agree to reimburse the reseller for a portion of the costs incurred by the reseller to advertise and promote certain of the Companys products. The Company estimates, accrues and recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional activity first takes place. The costs of these incentives are included in advertising expense.
SHIPPING AND HANDLING FEES AND COSTS:
Revenue earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to customers aggregating approximately $1,352,000 and $1,374,000 for the years ended October 31, 2015 and 2014, respectively, is included in selling and administrative expenses.
CONCENTRATION OF RISK:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions and brokerage firms.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At October 31, 2015 and 2014, the Company had approximately $220,422 and $171,091 in excess of FDIC insured limits, respectively.
The accounts at the brokerage firm contain cash and securities. Balances are insured up to $500,000, with a limit of $100,000 for cash, by the Securities Investor Protection Corporation (SIPC). At October 31, 2015 and 2014, the Company had approximately $2,818,431 and $2,730,404 in excess of SIPC insured limits, respectively.
See Note 10 for concentration of risks with respect to trade receivables and purchases from accounts payable vendors.
OPERATING LEASES:
The Company has operating lease agreements for its corporate office and warehouses, some of which contain provisions for future rent increases or periods in which rent payments are abated. Operating leases which provide for lease payments that vary materially from the straight-line basis are adjusted for financial accounting purposes to reflect rental income or expense on the straight-line basis in accordance with the authoritative guidance issued by the FASB. The excess of straight-line rent over actual payments by the Company of $222,055 and $209,640 is included as deferred rent payable as of October 31, 2015 and 2014, respectively.
EQUITY METHOD OF ACCOUNTING:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee companys board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee companys accounts are not reflected within the Companys Consolidated Balance Sheets and Consolidated Statements of Income; however, the Companys share of the earnings or losses of the Investee company is reflected in the caption Loss from equity method investments in the Consolidated Statements of Income. The Companys carrying value in an equity method Investee company is reflected in the caption Equity method investments in the Companys Consolidated Balance Sheets.
The Companys investment in a company that is accounted for on the equity method of accounting consist of the following: (1) 20% interest in Healthwise Gourmet Coffees, LLC, a distributor of low acidity coffees. The investments in this company amounted to $100,000. The loss recognized amounted to $833 and $774 for the years ended October 31, 2015 and 2014, respectively. The net value of this investment as presented on our consolidated balance sheet at October 31, 2015 and 2014 was $96,571 and $97,404, respectively. |
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY |
12 Months Ended |
---|---|
Oct. 31, 2015 | |
Accounting Changes and Error Corrections [Abstract] | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY | In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) Revenue from Contracts with Customers, which requires an entity to recognize revenue representing the transfer of promised goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. ASU 2014-09 is intended to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenues and cash flows arising from the entitys contracts with customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The original standard was effective for the Company on January 1, 2017, however, in April 2015, the FASB proposed a one-year deferral of this standard with a new effective date for the Company of January 1, 2018. Early application is not permitted. The Company is currently evaluating the effect that ASU 2014-09 will have on its condensed consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which applies to inventory that is measured using first-in, first-out (FIFO) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, last-out (LIFO). This ASU is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of adopting this guidance. |
4. INVENTORIES |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | Inventories at October 31, 2015 and 2014 consisted of the following:
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5. MACHINERY AND EQUIPMENT |
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MACHINERY AND EQUIPMENT | Machinery and equipment at October 31, 2015 and 2014 consisted of the following:
Depreciation expense totaled $537,890 and $573,900 for the years ended October 31, 2015 and 2014, respectively. |
6. LINE OF CREDIT |
12 Months Ended |
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Oct. 31, 2015 | |
Debt Disclosure [Abstract] | |
LINE OF CREDIT | On March 10, 2015, the Company entered into a loan modification agreement (the Modification Agreement) with its lender Sterling National Bank (Sterling) which modified the terms of the financing agreement with Sterling previously entered into on February 17, 2009 (the Financing Agreement). Prior to the Modification Agreement, the Financing Agreement, as amended, provided for a credit facility in which we had a revolving line of credit for a maximum of $7,000,000 (the Loan Facility). On February 3, 2011, the Company amended the Financing Agreement to create a create a sublimit within the revolving line of credit in the form of a $300,000 term loan for the benefit of GCC. The Financing Agreement was set to expire on March 31, 2015. Pursuant to the Modification Agreement, the Financing Agreement was modified to, among other things, (i) extend the term of the Financing Agreement until February 28, 2017; (ii) increase the maximum amount of the Loan Facility from $7,000,000 to $9,000,000; (iii) reduce the interest rate on the average unpaid balance of the line of credit from an interest rate equal to a per annum reference rate of 3.75% to an interest rate per annum equal to the Wall Street Journal Prime Rate; and (iv) require the Company to pay, upon the occurrence of certain termination events, a prepayment premium of 0.50% of the maximum amount of the credit facility in effect as of the date of the termination event.
Other than as described above, the Financing Agreement remains in full force and effect. Pursuant to the Modification Agreement, we are able to draw on the loan Facility up to an amount of 85% of eligible accounts receivable and 25% of eligible inventory consisting of green coffee beans and finished coffee not to exceed $1,000,000. The Loan Facility is secured by all tangible and intangible assets of the Company.
The Loan Facility contains covenants that place annual restrictions on our operations, including covenants related to debt restrictions, capital expenditures, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, distribution restrictions (common stock and preferred stock), dividend restrictions, and restrictive transactions. The Loan Facility also requires that the Company maintain a minimum working capital at all times. The Company was in compliance with all required financial covenants at October 31, 2015 and October 31, 2014.
As of October 31, 2015 and 2014, the outstanding balance under the bank line of credit was $4,317,121 and $2,498,458, respectively.
Also on March 10, 2015, the Company, as guarantor, and OPTCO (the Borrower), as borrower, entered into a new loan facility agreement with Sterling. The new loan facility is a revolving line of credit for a maximum of $3,000,000 (the New Loan Facility), including a letter of credit in the amount of $286,855 . The New Loan Facility terminates on February 28, 2017. The Borrower is able to draw on the New Loan Facility at an amount up to 85% of eligible accounts receivable, not to exceed 25% of all accounts of the Borrower. The New Loan Facility is payable monthly in arrears on the average unpaid balance of the line of credit at an interest rate per annum equal to the Wall Street Journal Prime Rate (currently 3.25%). The New Loan Facility is secured by all tangible and intangible assets of the Company. In connection with the New Loan Facility, the Company entered into a security agreement with Sterling and provided Sterling with a guarantee of the Borrowers obligations.
As of October 31, 2015, the outstanding balance under the New Loan Facility was $1,237,000 and the outstanding letter of credit amounted to $286,855. |
7. INCOME TAXES |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | The Companys provision (benefit) for income taxes in 2015 and 2014 consisted of the following:
A reconciliation of the difference between the expected income tax rate using the statutory U.S. federal tax rate and the Companys effective tax rate is as follows:
The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2015 and 2014 are as follows:
A valuation allowance was not provided at October 31, 2015 or 2014. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are expected to be deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
The gross net operating loss (NOL) incurred for the year ended October 31, 2015 aggregated to $1,918,380. As of October 31, 2015, The Company has NOL carryforwards of approximately $1,918,380, which will be available to offset future federal and state taxable income. If not used, these carryforwards will expire in 2035.
As of October 31, 2015 and 2014, the Company did not have any unrecognized tax benefits or open tax positions. The Companys practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of October 31, 2015 and 2014, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.
The Company files a U.S. federal income tax return and California, Colorado, Connecticut, Idaho, Kansas, Michigan, New Jersey, New York, Texas, Rhode Island, South Carolina, Rhode Island and Oregon state tax returns. The Companys federal income tax return is no longer subject to examination by the federal taxing authority for years before fiscal 2012. The Companys California, Colorado and New Jersey income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2009. The Companys Oregon, New York, Kansas, South Carolina, Rhode Island, Connecticut and Michigan and Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2010. |
8. COMMITMENTS AND CONTINGENCIES |
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Oct. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | OPERATING LEASES:
In February 2004, the Company entered into a lease for office and warehouse space in La Junta City, Colorado. This lease, which is at a monthly rental of $8,341 beginning January 2005, expires on January 31, 2024. Rent charged to operations amounted to $95,504 for the years ended October 31, 2015 and 2014.
In October 2008, the Company entered into a lease for office and warehouse space in Staten Island, NY. This lease, which is at a monthly rental beginning November 2008, expires on October 31, 2023 and includes annual rent increases. Rent charged to operations amounted to $146,423 for the years ended October 31, 2015 and 2014. The Company also uses a variety of independent, bonded commercial warehouses to store its green coffee beans.
In March 2015, the Company entered into a lease for office space in Vancouver, WA. This lease, which is at a monthly rental beginning April 1, 2015, expires on March 31, 2017. Rent charged to operations amounted to $36,889 and $36,721 for the years ended October 31, 2015 and 2014, respectively.
The aggregate minimum future lease payments as of October 31, 2015 for each of the next five years and thereafter are as follows:
401 (K) RETIREMENT PLAN:
The Company has a 401(k) Retirement Plan, which covers all the full time employees who have completed one year of service and have reached their 21st birthday. The Company matches 100% of the aggregate salary reduction contribution up to the first 3% of compensation and 50% of aggregate contribution of the next 2% of compensation. Contributions to the plan aggregated $67,166 and $77,822 for the years ended October 31, 2015 and 2014, respectively. |
9. ECONOMIC DEPENDENCY |
12 Months Ended |
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Oct. 31, 2015 | |
Risks and Uncertainties [Abstract] | |
ECONOMIC DEPENDENCY | Approximately 54% of the Companys sales were derived from one customer during the year ended October 31, 2015. This customer also accounted for approximately $4,113,000 or 38% of the Companys accounts receivable balance at October 31, 2015. Approximately 60% of the Companys sales were derived from one customer during the year ended October 31, 2014. This customer also accounted for approximately $7,423,000 or 48% of the Companys accounts receivable balance at October 31, 2014. Concentration of credit risk with respect to other trade receivables is limited due to the short payment terms generally extended by the Company, by ongoing credit evaluations of customers, and by maintaining an allowance for doubtful accounts and other allowances that management believes will adequately provide for credit losses.
For the year ended October 31, 2015, approximately 64% of the Companys purchases were from five vendors. These five vendors accounted for approximately $2,664,000 of the Companys accounts payable at October 31, 2015. For the year ended October 31, 2014, approximately 61% of the Companys purchases were from four vendors. These four vendors accounted for approximately $4,104,000 of the Companys accounts payable at October 31, 2014. Management does not believe the loss of any one vendor would have a material adverse effect of the Companys operations due to the availability of many alternate suppliers. |
10. RELATED PARTY TRANSACTIONS |
12 Months Ended |
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Oct. 31, 2015 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | The Company has engaged its 40% partner in Generation Coffee Company, LLC as an outside contractor (the Partner). Included in contract labor expense, which is a component of cost of sales, are expenses incurred from the Partner during the years ended October 31, 2015 and 2014 of $422,039 and $443,518, respectively.
An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately $22,143,000 and $17,495,000 for the years ended October 31, 2015 and 2014, respectively. The corresponding accounts payable balance to this vendor was approximately $586,000 and $884,000 at October 31, 2015 and 2014, respectively.
In January 2005, the Company established the Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan. Currently, there is only one participant in the plan: Andrew Gordon, the CEO. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The deferred compensation payable represents the liability due to an officer of the Company. The deferred compensation liability at October 31, 2015 and 2014 was $482,499 and $515,549, respectively. Deferred compensation expenses included in officers salaries were $0 during the years ended October 31, 2015 and 2014, respectively. |
11. STOCKHOLDERS' EQUITY |
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Oct. 31, 2015 | |||||
Equity [Abstract] | |||||
STOCKHOLDERS' EQUITY |
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12. FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3) as described below:
Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company;
Level 2 Inputs Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
Level 3 Inputs Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.
The Company determines fair values for its investment assets as follows:
Investments at fair value consist of commodity securities and deferred compensation plan assets.
The Company maintains a deferred compensation plan. The fair value of the plan assets are classified within Level 1 as the assets are valued using quoted prices in active markets. The assets are included with Deposits and other assets in the accompanying balance sheets. Additional information related to the Companys deferred compensation plan is disclosed in Note 10.
The Companys commodity securities are classified within Level 2 and include coffee futures and options contracts. To determine fair value, the Company utilizes the market approach valuation technique for the coffee futures and options contracts. The Company uses Level 2 inputs that are based on market data of similar instruments that are in observable markets. All commodities on the balance sheet are recorded at fair value with changes in fair value included in earnings.
The following tables present the Companys assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
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13. SUBSEQUENT EVENTS |
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Oct. 31, 2015 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required further adjustment or disclosure in the condensed consolidated financial statements. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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BASIS OF PRESENTATION | The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (OPTCO) and Generations Coffee Company, LLC (GCC). All significant inter-company balances and transactions have been eliminated in consolidation. |
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USE OF ESTIMATES | The preparation of the Companys financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes, contingencies, and valuation of financial instruments. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts. |
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CASH | Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms. |
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PREPAID GREEN COFFEE | Prepaid coffee is an item that emanates from OPTCO. The balance represents advance payments made by OPTCO to several coffee growing cooperatives for the purchase of green coffee. Interest is charged to the cooperatives for these advances. Interest earned was $45,049 and $40,334 as of October 31, 2015 and 2014, respectively. The prepaid coffee balance was $620,452 and $467,155 as of October 31, 2015 and 2014, respectively. |
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ACCOUNTS RECEIVABLE | Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Companys customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on managements assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from its customers. The allowances are summarized as follows:
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INVENTORIES | Inventories are stated at the lower of cost (First in, first out basis) or market, including provisions for obsolescence commensurate with known or estimated exposures. There are no reserves for obsolescence as of October 31, 2015 and 2014. There are no reserves for obsolescence as of October 31, 2015 and 2014. |
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MACHINERY AND EQUIPMENT | Machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Purchases of machinery and equipment and additions and betterments which substantially extend the useful life of an asset are capitalized at cost. Expenditures which do not materially prolong the normal useful life of an asset are charged to operations as incurred. The Company also provides for amortization of leasehold improvements. |
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COMMODITIES HELD BY BROKER | The commodities held at broker represent the market value of the Companys trading account, which consists of option and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. The Company's accounting for options and futures contracts may increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings.
At October 31, 2015, the Company held 38 futures contracts (generally with terms of three to four months) for the purchase of 1,425,000 pounds of green coffee at a weighted average price of $1.23 per pound. The fair market value of coffee applicable to such contracts was $1.21 per pound at that date. At October 31, 2015, the Company held 20 options covering an aggregate of 750,000 pounds of green coffee beans at $1.25 per pound. The fair market value of these options, which was obtained from observable market data of similar instruments was $42,750.
At October 31, 2014, the Company held 60 futures contracts (generally with terms of three to four months) for the purchase of 2,250,000 pounds of green coffee at a weighted average price of $2.00 per pound. The fair market value of coffee applicable to such contracts was $1.88 per pound at that date. The Company did not hold any options that were in the money at October 31, 2014.
Included in cost of sales for the years ended October 31, 2015 and 2014, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
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GOODWILL AND TRADEMARKS | The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill and trademarks are not amortized but are assigned to a specific reporting unit or asset class and tested for impairment at least annually or upon the occurrence of an event or when circumstances indicate that the reporting units carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2015 and 2014, the Company has determined by using a qualitative assessment that an impairment did not exist. In 2011, the Company adopted Financial Accounting Standard ASB ASU 2011-08 Intangibles Goodwill and Other Testing Goodwill for Impairment, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendment includes a number of events and circumstances for an entity to consider in conducting the qualitative assessment. |
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CUSTOMER LIST AND RELATIONSHIPS | Customer list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition of OPTCO which are being amortized on the straight-line method over their estimated useful life of twenty years. |
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ADVERTISING | The Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $157,922 and $142,552 for the years ended October 31, 2015 and 2014, respectively. |
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INCOME TAXES | The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets and liabilities are individually classified as current or non-current based on their characteristics. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities. |
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EARNINGS PER SHARE | Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 6,212,929 and 6,333,212 for the years ended October 31, 2015 and 2014, respectively. The 267,000 shares that could be exercised pursuant to the warrant agreement attached to the units issued in September 2011 have not been included in the diluted earnings per share calculation because of their anti-dilutive impact. |
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FAIR VALUE OF FINANCIAL INSTRUMENTS | The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying amount of the bank line of credit borrowings approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. |
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REVENUE RECOGNITION | The Company recognizes revenue in accordance with the authoritative guidance. Revenue is recognized at the point title and risk of ownership transfers to its customers upon the Companys shippers taking possession of the goods at the time of shipment because i) title passes in accordance with the terms of the Companys purchase orders and with its agreements with its customers, ii) any risk of loss is covered by the Companys customers insurance, iii) there is persuasive evidence of a sales arrangement, iv) the sales price is determinable and v) collection of the resulting receivable is reasonably assured. Thus, revenue is recognized at the point of shipment to its customers.
Returns: The Company does not accept returns for damaged goods on packaged coffee and usable green coffee, as the customer takes possession of our product at the point of shipment. In the event a customer claims receipt of damaged goods, the Company, acting as an agent on behalf of the customer, may file a claim for reimbursement with the shipper. The Company is not obligated or required to act as an agent on behalf of its customers, but may make the business decision to do so as a convenience to its customers. The shipper keeps the damaged product. The Company will then ship a completely new order to the customer once a claim has been filed and the Company receives reimbursement or credit from the shipper for the initial shipment. The Company does evaluate the need, if any, of an accrual for returns for damaged goods. To date, returns for damaged goods have been immaterial. The Company estimates that, based on historical trends, that future returns for damaged goods should also be immaterial.
In the event that the Company ships an incorrect order or has returns for short dated product, the Company will accept those two types of items back as returns. The amount for these two types of returns are estimated, accrued and recognized at the date of sale. These amounts are included in the determination of net sales.
Slotting fees: Certain retailers require the payment of slotting fees in order to obtain space for the Companys products on the retailers store shelves. The cost of these fees are estimated, accrued and recognized at the earlier of the date cash is paid or a liability to the retailer is created. The amounts are included in the determination of net sales.
Sales discounts: The amount of sales discounts are estimated, accrued and recognized at the date of the sale. These amounts are included in the determination of net sales.
Volume-based incentives: These incentives typically involve rebates or refunds of a specific amount of cash consideration that are redeemable only if the reseller completes a specified cumulative level of sales transactions. Under incentive programs of this nature, the Company estimates and accrues the cost of the rebate when it is taken by the reseller. These amounts are included in the determination of net sales.
Cooperative advertising: Under these arrangements, the Company will agree to reimburse the reseller for a portion of the costs incurred by the reseller to advertise and promote certain of the Companys products. The Company estimates, accrues and recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional activity first takes place. The costs of these incentives are included in advertising expense. |
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SHIPPING AND HANDLING FEES AND COSTS | Revenue earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to customers aggregating approximately $1,352,000 and $1,374,000 for the years ended October 31, 2015 and 2014, respectively, is included in selling and administrative expenses. |
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CONCENTRATION OF RISK | Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions and brokerage firms.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At October 31, 2015 and 2014, the Company had approximately $220,422 and $171,091 in excess of FDIC insured limits, respectively.
The accounts at the brokerage firm contain cash and securities. Balances are insured up to $500,000, with a limit of $100,000 for cash, by the Securities Investor Protection Corporation (SIPC). At October 31, 2015 and 2014, the Company had approximately $2,818,431 and $2,730,404 in excess of SIPC insured limits, respectively.
See Note 10 for concentration of risks with respect to trade receivables and purchases from accounts payable vendors. |
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OPERATING LEASES | The Company has operating lease agreements for its corporate office and warehouses, some of which contain provisions for future rent increases or periods in which rent payments are abated. Operating leases which provide for lease payments that vary materially from the straight-line basis are adjusted for financial accounting purposes to reflect rental income or expense on the straight-line basis in accordance with the authoritative guidance issued by the FASB. The excess of straight-line rent over actual payments by the Company of $222,055 and $209,640 is included as deferred rent payable as of October 31, 2015 and 2014, respectively. |
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EQUITY METHOD OF ACCOUNTING | Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee companys board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee companys accounts are not reflected within the Companys Consolidated Balance Sheets and Consolidated Statements of Income; however, the Companys share of the earnings or losses of the Investee company is reflected in the caption Loss from equity method investments in the Consolidated Statements of Income. The Companys carrying value in an equity method Investee company is reflected in the caption Equity method investments in the Companys Consolidated Balance Sheets.
The Companys investment in a company that is accounted for on the equity method of accounting consist of the following: (1) 20% interest in Healthwise Gourmet Coffees, LLC, a distributor of low acidity coffees. The investments in this company amounted to $100,000. The loss recognized amounted to $833 and $774 for the years ended October 31, 2015 and 2014, respectively. The net value of this investment as presented on our consolidated balance sheet at October 31, 2015 and 2014 was $96,571 and $97,404, respectively. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Significant Accounting Policies Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of accounts receivable |
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Schedule of commodited held by brokers |
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Schedule of commodities with realized and unrealized gains/(losses) |
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4. INVENTORIES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventories |
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5. MACHINERY AND EQUIPMENT (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Machinery And Equipment Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of machinery and equipment |
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7. INCOME TAXES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of income taxes |
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Schedule of income tax reconciliation |
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Schedule of tax effects of temporary differences |
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8. COMMITMENTS AND CONTINGENCIES (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments And Contingencies Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of minimum lease payments |
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12. FAIR VALUE MEASUREMENTS (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value hierarchy |
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Summary Of Significant Accounting Policies Details | ||
Allowance for doubtful accounts | $ 65,000 | $ 65,000 |
Reserve for other allowances | 35,000 | 35,000 |
Reserve for sales discounts | 44,000 | 44,000 |
Totals | $ 144,000 | $ 144,000 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Summary Of Significant Accounting Policies Details 1 | ||
Option contracts | $ (134,613) | $ (217,624) |
Future contracts | (349,222) | (267,300) |
Commodities due to broker | $ (438,835) | $ (484,924) |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) |
12 Months Ended | |
---|---|---|
Oct. 31, 2015 |
Oct. 31, 2014 |
|
Summary Of Significant Accounting Policies Details 2 | ||
Gross realized gains | $ 1,292,471 | $ 5,294,449 |
Gross realized (losses) | (6,778,407) | (2,054,301) |
Unrealized gains | 1,089 | 499,116 |
Total | $ (5,484,847) | $ 3,739,264 |
4. INVENTORIES (Details) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Inventories Details | ||
Packed coffee | $ 1,441,451 | $ 1,578,248 |
Green coffee | 11,730,006 | 12,987,257 |
Packaging supplies | 691,361 | 644,648 |
Totals | $ 13,862,818 | $ 15,210,153 |
5. MACHINERY AND EQUIPMENT (Details) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Machinery And Equipment Details | ||
Improvements | $ 199,035 | $ 172,506 |
Machinery and equipment | 5,274,277 | 4,937,017 |
Furniture and fixtures | 612,944 | 586,373 |
Subtotal | 6,086,256 | 5,695,896 |
Less, accumulated depreciation | 4,241,256 | 3,704,802 |
Total | $ 1,845,000 | $ 1,991,094 |
5. MACHINERY AND EQUIPMENT (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Oct. 31, 2015 |
Oct. 31, 2014 |
|
Machinery And Equipment Details Narrative | ||
Depreciation expense | $ 537,890 | $ 573,900 |
6. LINE OF CREDIT (Details Narrative) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Line Of Credit Details Narrative | ||
Bank line of credit | $ 4,317,121 | $ 2,498,458 |
7. INCOME TAXES (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Oct. 31, 2015 |
Oct. 31, 2014 |
|
Current | ||
Federal | $ (73,407) | $ 1,607,952 |
State and local | 36,610 | 332,199 |
Total Current | (36,797) | 1,940,151 |
Deferred | ||
Federal | (657,500) | 886,060 |
State and local | (69,350) | 120,891 |
Total Deferred | (726,850) | 1,006,500 |
Income tax (benefit) expense | $ (763,647) | $ 2,947,102 |
7. INCOME TAXES (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Oct. 31, 2015 |
Oct. 31, 2014 |
|
Income Taxes Details 1 | ||
Tax at the federal statutory rate of 34% | $ (711,680) | $ 2,708,175 |
Other permanent differences | (30,359) | (62,348) |
State and local tax, net of federal | (21,608) | 301,278 |
Provision for income taxes | $ (763,647) | $ 2,947,102 |
Effective income tax rate | (37.00%) | 37.00% |
7. INCOME TAXES (Details 2) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Current deferred tax assets: | ||
Accounts receivable | $ 53,605 | $ 54,407 |
Net operating loss | 714,150 | 27,807 |
Unrealized loss | 180,112 | 183,216 |
Inventory | 49,853 | 78,227 |
Total current deferred tax asset | 997,720 | 343,657 |
Non-current deferred tax assets: | ||
Deferred rent | 82,666 | 79,575 |
Deferred compensation | 179,614 | 194,768 |
Total non-current deferred tax asset | 262,280 | 274,343 |
Total deferred tax asset | 1,260,000 | 618,000 |
Non-current deferred tax liability: | ||
Fixed assets | 354,650 | 439,500 |
Total deferred tax liabilities | $ 354,650 | $ 439,500 |
8. COMMITMENTS AND CONTINGENCIES (Details) |
Oct. 31, 2015
USD ($)
|
---|---|
Commitments And Contingencies Details | |
2016 | $ 279,945 |
2017 | 264,123 |
2018 | 254,683 |
2019 | 262,413 |
2020 | 271,051 |
Thereafter | 889,467 |
Total | $ 2,221,682 |
10. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Oct. 31, 2015 |
Oct. 31, 2014 |
|
Related Party Transactions Details Narrative | ||
Contract labor expense from partner | $ 422,039 | $ 443,518 |
Purchases from related party vendor | 22,143,000 | 17,495,000 |
Accounts payable from related party vendor | 586,000 | 884,000 |
Deferred compensation liability | $ 482,499 | $ 515,549 |
12. FAIR VALUE MEASUREMENTS (Details) - USD ($) |
Oct. 31, 2015 |
Oct. 31, 2014 |
---|---|---|
Assets: | ||
Money market | $ 482,499 | $ 515,549 |
Total Assets | 482,499 | 515,549 |
Liabilities: | ||
Commodities Options | (134,613) | (217,624) |
Commodities-Futures | (349,222) | (267,300) |
Total Liabilities | (483,835) | (484,924) |
FairValueInputsLevel1Member | ||
Assets: | ||
Money market | 482,499 | 515,549 |
Total Assets | 482,499 | 515,549 |
Liabilities: | ||
Commodities Options | 0 | 0 |
Commodities-Futures | 0 | 0 |
Total Liabilities | 0 | 0 |
FairValueInputsLevel2Member | ||
Assets: | ||
Money market | 0 | 0 |
Total Assets | 0 | 0 |
Liabilities: | ||
Commodities Options | (134,613) | (217,624) |
Commodities-Futures | (349,222) | (267,300) |
Total Liabilities | (483,835) | (484,924) |
FairValueInputsLevel3Member | ||
Assets: | ||
Money market | 0 | 0 |
Total Assets | 0 | 0 |
Liabilities: | ||
Commodities Options | 0 | 0 |
Commodities-Futures | 0 | 0 |
Total Liabilities | $ 0 | $ 0 |
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