UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended October 31, 2020
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to _______________.
Commission file number: 001-32491
COFFEE HOLDING CO., INC.
(Exact name of registrant as specified in its charter)
| Nevada | 11-2238111 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
| 3475 Victory Boulevard, Staten Island, New York | 10314 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (718) 832-0800
Securities registered under Section 12(b) of the Act:
| Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||
| Common Stock, Par Value $0.001 Per Share | JVA | NASDAQ Capital Market |
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Non-accelerated filer [X] | Accelerated filer [ ] | Smaller Reporting Company [X] |
Emerging Growth Company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the common equity held by non-affiliates of the registrant, computed by reference to the closing price of the registrant’s common stock on the NASDAQ Capital Market on April 30, 2020, was $13,910,209.
As of January 20, 2021, the registrant had 5,708,599 shares of common stock, par value $0.001 per share, outstanding.
Documents incorporated by reference
Portions of the registrant’s proxy statement for the 2020 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year ended October 31, 2020, are incorporated by reference in Part III of this Form 10-K.
TABLE OF CONTENTS
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| ITEM 1. | BUSINESS |
General Overview
Products and Operations. We are an integrated wholesale coffee roaster and dealer in the United States. Our core products can be divided into three categories:
| ● | 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 our own specifications and packaged and sold under our eight proprietary and licensed brand names in different segments of the market. |
Our private label and branded coffee products are sold throughout the United States, Canada and certain countries in Asia to supermarkets, wholesalers, and individually owned and multi-unit retail customers. Our unprocessed green coffee, which includes over 90 specialty coffee offerings, is primarily sold to specialty gourmet roasters.
We conduct our operations in accordance with strict freshness and quality standards. All of our private label and branded coffees are produced from high quality coffee beans that are deep roasted for full flavor using a slow roasting process that has been perfected utilizing our more than 40 years of experience in the coffee industry. In order to ensure freshness, our products are delivered to our customers within 72 hours of roasting. We believe that our long history has enabled us to develop a loyal customer base.
In June 2016, we acquired substantially all of the assets of Coffee Kinetics LLC (doing business as Sonofresco) through our wholly-owned subsidiary Sonofresco, LLC (“Sonofresco” or “SONO”), including equipment, inventory, customer lists, relationships and accounts payable. In addition to our wholesale green coffee, private label coffee and branded coffee product offerings, we currently sell tabletop coffee roasting equipment to our customers through Sonofresco.
On February 23, 2017, we purchased all the outstanding common stock of Comfort Foods, Inc. (“CFI”). CFI is a medium sized regional roaster, manufacturing both branded and private label coffee for retail and foodservice customers located predominantly in the northeast United States marketplace.
On April 24, 2018, pursuant to an Asset Purchase Agreement, by and among Generations Coffee Company, LLC (“GCC”) the entity formed as a result of the Company’s joint venture with Caruso’s Coffee, Inc. and Steep & Brew, Inc. (“the Seller”) a Wisconsin corporation and the stockholder of the Seller. GCC purchased substantially all the assets, including equipment, inventory, customer lists and relationships of the Seller.
On October 15, 2020, we entered into a Contribution and Equity Purchase Agreement (the “Jordre Well Agreement”) to become a 49% owner in The Jordre Well, LLC (“The Jordre Well”), a cannabidiol (“CBD”) beverage company. Under the terms of the Jordre Well Agreement, The Jordre Well will assist us in the development and commercialization of CBD-infused line extensions for the existing coffee brands within our portfolio, as well as launch new brands that are intended to serve consumer demand for non-coffee CBD-infused beverages and products. We plan to infuse our brands Café Caribe Latin Espresso and Harmony Bay Gourmet coffee, with CBD as soon as we are comfortable with our formulations. We believe CBD coffee will be a fast growing and profitable market for us and if the legislative environment surrounding CBD products continues to improve, our plan is to offer all our customers the opportunity to infuses their products with CBD.
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We were incorporated on October 9, 1995 under the laws of the State of Nevada under the name Transpacific International Group Corp (“Transpacific”). On April 16, 1998, Transpacific completed a merger with Coffee Holding Co., Inc., a New York corporation. Upon the consummation of the merger, Coffee Holding Co., Inc. was merged into Transpacific and Transpacific changed its name to Coffee Holding Co., Inc.
Our corporate offices are located at 3475 Victory Boulevard, Staten Island, New York 10314. Our telephone number is (718) 832-0800 and our website address is www.coffeeholding.com. The information on our website is not incorporated by reference into this Annual Report on Form 10-K.
Our Competitive Strengths
To achieve our growth objectives described below, we intend to leverage the following competitive strengths:
Positioned to Profitably Grow Through Varying Cycles of the Coffee Market. We believe that we are one of the few coffee companies to offer a broad array of branded and private label roasted ground coffees and wholesale green coffee across the spectrum of consumer tastes, preferences and price points. While many of our competitors engage in distinct segments of the coffee business, we sell products in each of the following areas:
| ● | Retail branded coffee; | |
| ● | Mainstream retail private label coffee; |
| ● | Specialty retail coffees both private label and branded; | |
| ● | Wholesale specialty green and gourmet whole bean coffees; | |
| ● | Single cup coffee pods; | |
| ● | Food service; | |
| ● | Instant coffees; | |
| ● | Tea; and | |
| ● | Tabletop coffee roasting equipment. |
Our branded and private label roasted ground coffees are sold at competitive and value price levels while some of our other branded and specialty coffees are sold predominantly at premium price levels. Premium price level coffee is high-quality gourmet coffee, such as AA Arabica coffee, which sell at a substantial premium over traditional retail canned coffee, while competitive and value price level coffee is mainstream or traditional canned coffee. Because of this diversification, we believe that our profitability is not dependent on any one area of the coffee industry and, therefore, is less sensitive than our competition to potential coffee commodity price and overall economic volatility.
Wholesale Green Coffee Market Presence. As a large roaster-dealer of green coffee, we believe that we are favorably positioned to increase our specialty coffee sales. Since 1998, we have increased the number of our wholesale green coffee customers, including coffee houses, single store operators, mall coffee stores and mail order sellers, by 813% from 150 to 1,370. We are a charter member of the Specialty Coffee Association of America and one of the largest distributors of Swiss Water Processed Decaffeinated Coffees and Dattera specialty Brazil coffees along the east coast of the United States. Our over 40 years of experience as a roaster and a dealer of green coffee allows us to provide our roasting experience as a value added service to our gourmet roaster customers. The assistance we provide to our customers includes training, coffee blending and market identification. We believe that our relationships with wholesale green coffee customers and our focus on selling green coffee as a wholesaler has enabled us to participate in the growth of the specialty coffee market while mitigating the risks associated with the competitive retail specialty coffee environment.
Diverse Portfolio of Differentiated Branded Coffees. We have amassed a portfolio of eight proprietary name brands sold to supermarkets, wholesalers and individually owned stores in the United States, including brands for specialty espresso, Latin espresso, Italian espresso, 100% Colombian coffee and blended and flavored coffees. In addition, we have entered into a licensing agreement with Del Monte Corporation for the exclusive right to use the S&W trademark in the United States and other countries approved by Del Monte Corporation in connection with the production, manufacture and sale of roasted whole bean and ground coffee for distribution to retail customers. Our existing portfolio of differentiated brands combined with our management expertise serve as a platform to add additional name brands through acquisition or licensing agreements which target product niches and segments that do not compete with our existing brands.
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Management Has Extensive Experience in the Coffee Industry. Andrew Gordon, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, and David Gordon, our Executive Vice President – Operations, have worked with Coffee Holding for 39 and 41 years, respectively. During this period, the company has successfully navigated varying cycles in both the coffee industry and macro economy. David Gordon is an original member of the Specialty Coffee Association of America. We believe that our employees and management are dedicated to our vision and mission, which is to produce high quality products, as well as to provide quality and responsive service to our customers.
Our Growth Strategy
We believe that significant growth opportunities exist by selectively pursuing strategic acquisitions and alliances, targeting the rapidly growing Latin market in the United States, increasing penetration with existing customers by adding new products, and developing our Harmony Bay brand and increase the number of our wholesale green coffee customers. By capitalizing on this strategy, we hope to continue to grow our business with our commitment to quality and personalized service to our customers. We do not intend to compete on price alone nor do we intend to expand sales at the expense of profitability.
Selectively Pursue Strategic Acquisitions and Alliances. We have expanded our operations by acquiring coffee companies, entering into strategic alliances and acquiring or licensing brands, which complement our business objectives and we intend to continue to seek such opportunities.
Grow Our Cafe Caribe and Cafe Supremo Products. We believe the Latin population in the United States is the fastest growing and now represents the largest minority demographic in the United States. We believe there is significant opportunity for our Café Caribe and Café Supremo brands to gain market share among Latin consumers in the United States. Café Caribe, which has historically been our leading brand by poundage, is a specialty espresso coffee that targets espresso coffee drinkers and, in particular, Latin consumers. Café Supremo is a specialty espresso coffee which is priced for the more price sensitive Latin espresso coffee drinker.
Further Market Penetration of Our Niche Products. We intend to capture additional market share through our existing distribution channels by selectively adding or introducing new brand names and products across multiple price points, including:
| ● | New licensing agreements; | |
| ● | Specialty blends and foodservice opportunities; | |
| ● | CBD coffee products as legislation allows; and | |
| ● | Sales of our tabletop coffee roasting equipment. |
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Our Core Products
Our core products can be divided into three categories:
| ● | 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 eight proprietary and licensed brand names in different segments of the market. |
Wholesale Green Coffee. The specialty coffee market remains the fastest growing area of our industry. The number of gourmet coffee houses have been increasing in all areas of the United States. The growth in specialty coffee sales has created a marketplace for higher quality and differentiated products, which can be priced at a premium in the marketplace. As a large roaster-dealer of green coffee, we are favorably positioned to increase our specialty coffee sales. We sell green coffee beans to small roasters and coffee shop operators located throughout the United States and carry over approximately 90 different varieties. Specialty green coffee beans are sold unroasted, direct from warehouses to small roasters and gourmet coffee shop operators, which then roast the beans themselves. We sell from as little as one bag (132 pounds) to a full truckload (44,000 pounds) of specialty green coffee beans, depending on the size and need of the customer. We believe that we can increase sales of wholesale green coffee without an increase in infrastructure as well as without venturing into the highly competitive retail specialty coffee environment. We believe that by utilizing our current strategy we can be as profitable or more profitable than our competitors in this segment by selling “one bag at a time” rather than “one cup at a time.”
Private Label Coffee. We roast, blend, package and sell coffee under private labels for companies throughout the United States and Canada. Our private label coffee is sold in cans, brick packages and instants in a variety of sizes. As of October 31, 2020, we supplied coffee under approximately 21 different labels to wholesalers and retailers. We produce private label coffee for customers who desire to sell coffee under their own name but do not want to engage in the manufacturing process. Our private label customers seek a quality similar to the national brands at a lower cost, which represents a better value for the consumer.
Branded Coffee. We roast and blend our branded coffee according to our own recipes and package the coffee at our facilities in La Junta, Colorado, North Andover, Massachusetts and Brecksville, Ohio. We then sell the packaged coffee under our brand labels to supermarkets, wholesalers and individually-owned stores throughout the United States.
We hold trademarks for each of our proprietary name brands and have the exclusive right to use the S&W, IL CLASSICO brand names in the United States in connection with the production, manufacture and sale of roasted whole bean and ground coffee for distribution at the retail level. For further information regarding our trademark rights, see “Business—Trademarks.”
Each of our name brands is directed at a particular segment of the coffee market. Our branded coffees are:
Cafe Caribe, a specialty espresso coffee that targets espresso coffee drinkers and, in particular, the Latin consumer market;
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Don Manuel, is produced from the finest 100% Colombian coffee beans. Don Manuel is an upscale quality product which commands a substantial premium compared to the more traditional brown coffee blends. We also use this known trademark in our food service business because of the high brand quality;
S&W, an upscale canned coffee established in 1921 and includes Premium, Premium Decaf, French Roast, Colombian, Colombian Decaf, Swiss Water Decaf, Kona, Mellow’d Roast and IL CLASSICO lines;
Cafe Supremo, a specialty espresso that targets espresso drinkers of all backgrounds and tastes. It is designed to introduce coffee drinkers to the tastes of dark roasted coffee;
Via Roma, an Italian espresso targeted at the more traditional espresso drinker;
Premier Roasters, a line of high quality retail and foodservice products packed in composite cans and poly bags and single serve;
Harmony Bay, an upscale line of flavored beans in 11oz and 40oz bags, along with single serve offerings in a multitude of unique flavor profiles; and
Steep and Brew, a premium line of specialty coffees with over 30 years brand recognition. These coffees are comprised of Single Origin, Blended and Flavored coffees sold throughout the upper Midwest region of the United States in bulk whole bean, whole bean and ground bags and single serve format compatible with most single serve brewers.
Other Products
We also offer several niche products, including:
| ● | tea; and | |
| ● | table-top coffee roasters and grinders. |
Raw Materials
Coffee is a commodity traded on the Commodities and Futures Exchange subject to price fluctuations. Over the past five years, the average price per pound of coffee beans ranged from approximately $0.92 to $2.25. The price for coffee beans on the commodities market as of October 31, 2020 and 2019 was $1.04 and $1.02 per pound, respectively. Specialty green coffee, unlike most coffee, is not tied directly to the commodities cash markets. Instead, it tends to trade on a negotiated basis at a substantial premium over commodity coffee pricing, depending on the origin, supply and demand at the time of purchase. We are a licensed Fair Trade dealer for 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 by guaranteeing farmers a minimum price of ten cents above the current market price. Our Ohio Facility operated by Generations Coffee Company, LLC (“GCC”), as well as our North Andover plant operated by our Comfort Foods division, are certified organic by the Organic Crop Improvement Association (OCIA). All of our specialty green coffees, as well as all of the other coffees we import for roasting, are subject to multiple levels of quality control.
We purchase our green coffee from dealers located primarily within the United States. The dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. For the fiscal years ended 2020 and 2019, approximately 23% of all of our green coffee purchases were from five suppliers. One of these suppliers, Rothfos Corporation, accounted for approximately $5.3 million, or 8%, in 2020, and $8.3 million, or 12%, in 2019, of our total product purchases. An employee of Rothfos Corporation is one of our directors. We do not have any formalized, material agreements or long-term contracts with any of these suppliers. Rather, our purchases are typically made pursuant to individual purchase orders. We do not believe that the loss of any one supplier, including Rothfos, would have a material adverse effect on our operations due to the availability of alternate suppliers.
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The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Supply and price can be affected by factors such as weather, politics, currency fluctuations and economics within the countries that export coffee. Increases in the cost of coffee beans can, to a certain extent, be passed on to our customers in the form of higher prices for coffee beans and processed coffee. Drastic or prolonged increases in coffee prices may also adversely impact our business as it could lead to a decline in overall consumption of coffee. Similarly, rapid decreases in the cost of coffee beans may force us to lower our sale prices before realizing cost reductions in our purchases.
We subject all of our private unroasted green coffee to both a pre-shipment sample approval and an additional sample approval upon arrival into the United States. Once the arrival sample is approved, we then bring the coffee to one of our facilities to roast and blend according to our own strict specifications. During the roasting and blending process, samples are pulled off the production line and tested on an hourly basis to ensure that each batch roasted is consistent with the others and meets the strict quality standards demanded by our customers and us.
Our Use of Derivatives
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects of changing green coffee prices and to reduce our costs of sales, as further explained in Note 2 of the Notes to the Consolidated Financial Statements in this Report. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain a vital element of our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to continue to grow our sales while trying to minimize margin compression during a time of high coffee prices. However, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties in any one of our physical contracts. Although we have had net gains on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some reporting periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase our cost of sales and materially decrease our profitability and adversely affect our stock price. See “Item 1A – Risk Factors - If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced.” Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward. See “Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risks.”
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Trademarks and Tradename
We hold trademarks, registered with the United States Patent and Trademark Office, for all eight of our proprietary coffee brands and an exclusive license for S&W, IL CLASSICO brands for sale in the United States. Trademark registrations are subject to periodic renewal and we anticipate maintaining our registrations. We believe that our brands are recognizable in the marketplace and that brand recognition is important to the success of our branded coffee business.
Customers
We sell our private label and our branded coffee to some of the largest retail and wholesale customers in the United States (according to Supermarket News).
Although our agreements with wholesale customers generally contain only pricing terms, our contracts with certain customers also contain minimum and maximum purchase obligations at fixed prices. Because our profits on a fixed-price contract could decline if coffee prices increased, we acquire futures contracts with longer terms (generally three to four months) primarily for the purpose of guaranteeing an adequate supply of green coffee at favorable prices. Although the use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices, no strategy can entirely eliminate pricing risks or increased losses and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to any futures contracts. See “Our Use of Derivatives.”
Marketing
We market our private label and wholesale coffee through trade shows, industry publications, face-to-face contact and through the use of our internal sales force and non-exclusive independent food and beverage sales brokers. We also use our web site (www.coffeeholding.com) as a method of marketing our coffee products and ourselves.
For our private label and branded coffees, we will, from time to time in conjunction with retailers and with wholesalers, conduct in-store promotions, such as product demonstrations, coupons, price reductions, two-for-one sales and new product launches to capture changing consumer taste preferences for upscale canned, bagged and single cup coffees.
We evaluate opportunities for growth consistent with our business objectives. In addition, we have established relationships with independent sales brokers to market our products across the United States, in areas of the country where we have not had a high penetration of sales and Canada. We utilize our in-house sales personnel to market our private label brands. We intend to capture additional market share in our existing distribution channels by selectively adding or introducing new brand names and products across multiple price points, including niche specialty blends, private label “value” blends and tea and our own brands, filter packages, and peripheral products.
Charitable Activities
We are also a supporter of several coffee-oriented charitable organizations and during fiscal 2020 and 2019, we donated approximately $78,000 and $42,000, respectively, to charities.
| ● | 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. |
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| ● | 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 $1.40 per pound or fifteen 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. |
Competition
The coffee market is highly competitive. We compete in the following areas:
Wholesale Green Coffee. There are many green coffee dealers throughout the United States. Many of these dealers have greater financial resources than we do. However, we believe that we have both the knowledge and the capability to assist small specialty gourmet coffee roasters with developing and growing their businesses. Our over 40 years of experience as a roaster and a dealer of green coffee allows us to provide our roasting experience as a value added service to our gourmet roaster customers. While other coffee merchants may be able to offer lower prices for coffee beans, we market ourselves as a value-added supplier to small roasters, with the ability to help them market their specialty coffee products and develop a customer base. The assistance we provide our customers includes training, coffee blending and market identification. Because specialty green coffee beans are sold unroasted to small coffee shops and roasters that market their products to local gourmet customers, we do not believe that our specialty green coffee customers compete with our private label or branded coffee lines of business. We believe that the addition of Organic Products Trading Company, LLC (“OPTCO”), Sonofresco, CFI and Steep & Brew as well as our external green coffee salespeople allows us to compete more effectively throughout the country and Canada.
Private Label Competition. There are several major producers of coffee for private label sales in the United States. Many other companies produce coffee for sale on a regional basis. Our main competitor is the Massimo Zanetti Beverage Company. The Massimo Zanetti Beverage Company is larger and has more financial and other resources than we do and, therefore, is able to devote more resources to product development and marketing. We believe that we remain competitive by providing a higher level of quality and customer service. This service includes ensuring that the coffee produced for each label maintains a consistent taste and is delivered on time and in the proper quantities.
Branded Competition. Our proprietary brand coffees compete with many other brands that are sold in supermarkets and specialty stores, primarily in the Northeastern United States. The branded coffee market in both the Northeast and elsewhere is dominated by two large companies: Kraft Foods, Inc. (owner of the Maxwell House brand), and J.M. Smucker Co. (owner of the Folgers and Café Bustelo brands). Our large competitors have greater access to capital and a greater ability to conduct marketing and promotions. We believe that, while our competitors’ brands may be more nationally recognizable, our Café Caribe and Café Supremo brands are competitive in the fast growing Latin demographic, our Harmony Bay has a strong regional presence in the northeast and our S&W brand has been a popular and recognizable brand on the west coast for over 80 years.
Government Regulation
Our coffee roasting operations are subject to various governmental laws and regulations, which require us to obtain licenses relating to customs, health and safety, building and land use and environmental protection. Our roasting facility is subject to state and local air-quality and emissions regulation. If we encounter difficulties in obtaining any necessary licenses or if we have difficulty complying with these laws and regulations, then we could be subject to fines and penalties, which could have a material adverse effect on our profitability. In addition, our product offerings could be limited, thereby reducing our revenues.
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We believe that we are in compliance in all material respects with all such laws and regulations and that we have obtained all material licenses and permits that are required for the operation of our business. We are not aware of any environmental regulations that have or that we believe will have a material adverse effect on our operations.
Employees
We have 82 full-time employees. None of our employees are represented by unions or collective bargaining agreements. Our management believes that we maintain good working relationships with our employees. To supplement our internal sales staff, we sometimes engage independent national and regional sales brokers as independent contractors who work on a commission basis.
| ITEM 1A. | RISK FACTORS |
An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this report. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose all of your investment.
Risks affecting our Company
Because our business is highly dependent upon a single commodity, coffee, any decrease in demand for coffee could materially adversely affect our revenues and profitability. Our business is centered on essentially one commodity: coffee. Our operations have primarily focused on the following areas of the coffee industry:
| ● | 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. |
Demand for our products is affected by:
| ● | consumer tastes and preferences; | |
| ● | global economic conditions; | |
| ● | demographic trends; and | |
| ● | the type, number and location of competing products. |
Because we rely on a single commodity, any decrease in demand for coffee would harm our business more than if we had more diversified product offerings and could materially adversely affect our revenues and operating results.
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The COVID-19 pandemic has, and may continue to have, an adverse impact on our business, financial condition and results of operations. The World Health Organization declared the novel coronavirus (COVID-19), first identified in Wuhan, China, a pandemic in March 2020. Our business, financial condition and results of operations have been and are expected to continue to be adversely affected by the COVID-19 pandemic. The COVID-19 pandemic has affected nearly all regions of the world, and preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdown or shutdown in affected areas. This has and could continue to negatively affect the global economy, including reduced consumer spending and disruption of global supply chains. We cannot predict the degree to which our business, financial condition and results of operations will be affected by the COVID-19 pandemic, but the effects could be material.
In addition to the factors above, the COVID-19 pandemic has subjected our business to additional risk, including, but not limited to:
| ● | Disruption to our green coffee supplier partners and vendors, including through the effects of facility closures, reductions in operating hours, labor shortages, and changes in operating procedures; | |
| ● | Disruption to our own distribution and general office facilities and operations, including through the effects of facility closures, reductions in operating hours, labor shortages, and changes in operating procedures, including for additional cleaning and disinfection procedures; | |
| ● | Closure or reduced operations of cafes, restaurants and food service stores and reductions in consumer traffic, which may adversely affects our Private Label Coffee and Branded Coffee channels; | |
| ● | Lower performance of customers in our wholesale channel, which may result in reduction or cancellation of future orders; | |
| ● | Reductions in consumer spending due to macroeconomic conditions caused by the COVID-19 pandemic, including decreased disposable income and increased unemployment, which may result in decreased sales in all of our channels. |
At this time, we cannot assess the ultimate economic impact of the COVID-19 pandemic on our business, operations or financial performance, which will be determined by, among other things, the duration, severity and magnitude of such circumstances and governmental responses and requirements relating to the pandemic, nor can we predict the long-term effects of governmental and public responses to changing conditions. The extent to which the COVID-19 pandemic will impact our operations, liquidity or financial results in subsequent periods is uncertain, but such impact could be material. If the COVID-19 pandemic becomes prolonged, and/or more severe, it could exacerbate the negative impacts on our business and results of operations and may also heighten many of the other risks described in this section entitled “Risk Factors.”
If we are unable to geographically expand our branded and private label products, our growth will be impeded which could result in reduced sales and profitability. Our business strategy emphasizes, among other things, geographic expansion of our branded and private label products as opportunities arise. We may not be able to implement successfully this portion of our business strategy. Our ability to implement this portion of our business strategy is dependent on our ability to:
| ● | 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. |
Our sales and profitability may be adversely affected if we fail to successfully expand the geographic distribution of our branded and private label products. In addition, our expenses could increase and our profits could decrease as we implement our growth strategy.
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If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. We have used and expect to continue to use to a lesser extent short-term coffee futures and options contracts for the purpose of hedging the effects of changing green coffee prices. In addition, we have acquired and expect to continue to acquire to a lesser extent futures contracts with longer terms, generally three to four months, for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales.
The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. However, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties in any one of our physical contracts. Historically, we generally have been able to pass green coffee price increases through to customers, thereby maintaining our gross profits, however, we may not be able to pass price increases through to our customers in the future. Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedging results in losses, our cost of sales may increase, resulting in a decrease in profitability or an increase in losses. Although we have had net gains on options and futures contracts in the past, we have incurred losses on options and futures contracts during some reporting periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or an increase in losses. Such losses have and could in the future materially increase our cost of sales and materially decrease our profitability or increase losses and adversely affect our stock price.
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Any inability to successfully implement our strategy of growth through selective acquisitions, licensing arrangements and other strategic alliances, including joint ventures, could materially affect our revenues and profitability. Part of our growth strategy utilizes the selective acquisition of coffee companies, the selective acquisition or licensing of additional coffee brands and other strategic alliances including joint ventures, presents risks that could result in increased expenditures and could materially adversely affect our revenues and profitability, including:
| ● | 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. |
In addition, any such acquisitions, licensing arrangements or strategic alliances may result in:
| ● | 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. |
As has been our practice in the past, we will continuously evaluate any such acquisitions, licensing opportunities or strategic alliances as they arise. However, we have not reached any new agreements or arrangements with respect to any such acquisition, licensing opportunity or strategic alliance (other than those described herein) at this time and we may not be able to consummate any acquisitions, licensing arrangements or strategic alliances on terms favorable to us or at all. The failure to consummate any such acquisitions, licensing arrangements or strategic alliances may reduce our growth and expansion. In addition, if these acquisitions, licensing opportunities or strategic alliances are not successful, our earnings could be materially adversely affected by increased expenses and decreased revenues.
Our revenues and profitability could be adversely affected if our joint ventures or acquisitions are not successful. We have historically utilized joint ventures and acquisitions to grow our business and we intend to continue to seek opportunities for new joint ventures and acquisitions that will be complimentary to our business. While we believe that our joint ventures will be successful, losses in our joint ventures or any future joint ventures would hurt our profitability. In addition, we generally will not be in a position to exercise sole decision-making authority regarding our joint ventures. Investments in joint ventures may under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of the required capital contributions. Joint venture partners may have business interests, strategies or goals that are inconsistent with our business interests, strategies or goals and may be, in cases where we have a minority interest, in a position to take actions contrary to our policies, strategies or objectives. Any disputes that may arise between us and our joint venture partners may result in litigation or arbitration that could increase our expenses and could prevent our officers and/or directors from focusing their time and effort exclusively on our business strategies. In addition, we may in certain circumstances be liable for the actions of our third-party joint venture partners.
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Acquisitions including strategic investments or alliances entail numerous risks, which may include:
| ● | difficulties in integrating acquired operations or products, including the loss of key employees from, or customers of, acquired businesses; | |
| ● | diversion of management’s attention from our existing businesses; | |
| ● | adverse effects on existing business relationships with suppliers and customers; | |
| ● | adverse impacts of margin and product cost structures different from those of our current mix of business; and | |
| ● | risks of entering distribution channels, categories or markets in which we have limited or no prior experience. |
Our failure to successfully complete the integration of any acquired business, and any adverse consequences associated with our acquisition activities, could have a material adverse effect on our business, financial condition and operating results.
The loss of any of our key customers, could negatively affect our revenues and decrease our earnings. No one customer accounted for greater than 10% of our net sales during our 2020 fiscal year. We generally do not enter long-term contracts with most of our customers, but we do enter into one and two year agreements with most our key customers on our private label business. Accordingly, some of our customers can stop purchasing our products at any time without penalty and are free to purchase products from our competitors. The loss of, or reduction in sales to any of our other customers to which we sell a significant amount of our products or any material adverse change in the financial condition of such customers would negatively affect our revenues and decrease our earnings.
If we lose our key personnel, including Andrew Gordon and David Gordon, our revenues and profitability could suffer. Our success depends to a large degree upon the services of Andrew Gordon, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, and David Gordon, our Executive Vice President – Operations and Secretary. We also depend to a large degree on the expertise of our coffee roasters. We do not have employment contracts with our coffee roasters. Our ability to source and purchase a sufficient supply of high quality coffee beans and to roast coffee beans consistent with our quality standards could suffer if we lose the services of any of these individuals. As a result, our business and operating results would be adversely affected. We may not be successful in obtaining and retaining a replacement for either Andrew Gordon or David Gordon if they elect to stop working for us. In addition, we do not have key-person insurance on the lives of Andrew Gordon or David Gordon.
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Our indebtedness may adversely affect our ability to obtain additional funds and may increase our vulnerability to economic or business downturns. From time to time, we utilize borrowings under our credit facility in connection with operations. Outstanding debt could have important negative consequences to the holders of our securities, including the following:
| ● | 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. |
Our ability to make payments on our indebtedness and to fund our operations depends on our ability to generate cash in the future. Our future operating performance is subject to market conditions and business factors that are beyond our control. If we are unable to make payments on our debt, we may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our debt.
Our credit facility contains covenants that place annual restrictions on our operations, including covenants relating 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 restrictions on intercompany transactions. The credit facility also requires that we maintain a minimum working capital at all times. There can be no assurance that we will be in compliance with all covenants in the future or that we will be able to modify the terms of the credit facility should that become necessary. Failure to comply with any of these covenants and restrictions would result in an event of default under the loan agreement.
We received a loan under the Paycheck Protection Program of the CARES Act, and all or a portion of the loan may not be forgivable. In July, 2020, we received a $634,400 loan (the “PPP Loan”) pursuant to the Paycheck Protection Program of the CARES Act. The receipt of the funds, and the forgiveness of the PPP Loan is dependent on us having initially qualified for the loan and qualifying for the forgiveness of such loan based on our adherence to the forgiveness criteria. In June 2020, the United States Congress passed the Payroll Protection Program Flexibility Act that made several significant changes to PPP Loan provisions, including providing greater flexibility for loan forgiveness. We are using the proceeds from the PPP Loan to fund payroll costs in accordance with the relevant terms and conditions of the CARES Act. We are following the government guidelines and tracking costs to insure 100% forgiveness of the PPP Loan. To the extent the PPP Loan is not forgiven, we will be required to repay that portion at an interest rate of 1% over a period of two years. If the conditions outlined in the loan program are adhered to by us, all or part of such loan could be forgiven. However, we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven.
If we fail to promote, enhance and maintain our brands, the value of our brands could decrease and our revenues and profitability could be adversely affected. We believe that promoting and enhancing our brands is critical to our success. If our brand-building strategy is unsuccessful, these expenses may never be recovered, and we may be unable to increase awareness of our brands or protect the value of our brands. If we are unable to achieve these goals, our revenues and ability to implement our business strategy could be adversely affected.
Our success in promoting and enhancing our brands will also depend on our ability to provide customers with high quality products and service. Although we take measures to ensure that we sell only fresh roasted coffee, we have no control over our roasted coffee products once they are purchased by our customers. Accordingly, wholesale customers may store our coffee for longer periods of time or resell our coffee without our consent, in each case, potentially affecting the quality of the coffee prepared from our products. Although we believe we are less susceptible to quality control problems than many of our competitors because our products are processed in-house under strict quality control guidelines which have been in place for more than 40 years, if consumers do not perceive our products and service to be of high quality, then the value of our brands may be diminished and, consequently, our operating results and ability to implement our business strategy may be adversely affected.
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Our roasting methods are not proprietary, so competitors may be able to duplicate them, which could harm our competitive position. If our competitive position is weakened, our revenues and profitability could be materially adversely affected. We consider our roasting methods essential to the flavor and richness of our roasted coffee and, therefore, essential to our brands of coffee. Because we do not hold any patents for our roasting methods, it may be difficult for us to prevent competitors from copying our roasting methods if such methods become known. If our competitors copy our roasting methods, the value of our coffee brands may be diminished, and we may lose customers to our competitors. In addition, competitors may be able to develop roasting methods that are more advanced than our roasting methods, which may also harm our competitive position.
The success of our brand also depends in part on our intellectual property. We rely on a combination of trademarks, copyrights, service marks, trade secrets and similar rights to protect our intellectual property. The success of our growth strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our brand in both domestic and international markets. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, the value of our brand may be harmed, which could have a material adverse effect on our business. We may become engaged in litigation to protect our intellectual property, which could result in substantial costs to us as well as diversion of management attention.
Since we rely heavily on common carriers to ship our coffee on a daily basis, any disruption in their services or increase in shipping costs could adversely affect our relationship with our customers, which could result in reduced revenues, increased operating expenses, a loss of customers or reduced profitability. We rely on a number of common carriers to deliver coffee to our customers and to deliver coffee beans to us. We have no control over these common carriers and the services provided by them may be interrupted as a result of labor shortages, contract disputes and other factors. If we experience an interruption in these services, we may be unable to ship our coffee in a timely manner, which could reduce our revenues and adversely affect our relationship with our customers. In addition, a delay in shipping could require us to contract with alternative, and possibly more expensive, common carriers and could cause orders to be cancelled or receipt of goods to be refused. Any significant increase in shipping costs could lower our profit margins or force us to raise prices, which could cause our revenue and profits to suffer.
If there was a significant interruption in the operation of our Colorado, Ohio or Massachusetts facilities, we may not have the capacity to service all of our customers and we may not be able to service our customers in a timely manner, thereby reducing our revenues and earnings. We are dependent on the continued operations of our Colorado, Ohio and Massachusetts coffee roasting and distribution facilities. Our ability to maintain our computer and telecommunications equipment in effective working order and to protect against damage from fire, natural disaster, power loss, telecommunications failure or similar events. In addition, growth of our customer base may strain or exceed the capacity of our systems and lead to degradations in performance or systems failure. Although we continually review and consider upgrades to our order fulfillment infrastructure and provide for system redundancies to limit the likelihood of systems overload or failure, substantial damage to our systems or a systems failure that causes interruptions for a number of days could adversely affect our business. Additionally, if we are unsuccessful in updating and expanding our order fulfillment infrastructure, our ability to grow may be constrained. As a result, our revenues and earnings could be materially adversely affected.
There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our company. We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.
As of October 31, 2020, we have identified material weaknesses in our internal control over financial reporting related to the accounting for stock-based compensation awards and an overstatement in inventory levels and the valuation of inventory at one of our subsidiaries. If our steps are insufficient to successfully remediate these material weaknesses and otherwise maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be adversely affected.
Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
Moreover, we do not expect that disclosure controls or internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to detect or prevent error or fraud could materially adversely impact us.
Our remediation efforts may not enable us to avoid a material weakness in our internal control over financial reporting in the future. Any of the foregoing occurrences, should they come to pass, could negatively impact the public perception of our company, which could have a negative impact on our stock price.
The failure of our suppliers or customers to adhere to the quality standards that we set for our products could lead to investigations, litigation, write-offs, recalls or boycotts of our products, which could damage our reputation and our brand, increase our costs, and otherwise adversely affect our business. Unfavorable allegations, government investigations and legal actions surrounding our products and/or our business could harm our reputation, impair our ability to grow or sustain our business, and adversely affect our business, financial condition and operating results. We do not control the operations of our suppliers or customers and we cannot guarantee that our suppliers or customers will comply with applicable laws and regulations or operate in a legal, ethical and responsible manner. Additionally, it is possible that we may not be able to identify noncompliance by our suppliers or customers notwithstanding any precautionary measures we implement. Violation of applicable laws and regulations by our suppliers or customers, or their failure to operate in a legal, ethical or responsible manner, could expose us to legal risks, cause us to violate laws and regulations and reduce demand for our products if, as a result of such violation or failure, we attract negative publicity. In addition, the failure of our suppliers and customers to adhere to the quality standards that we set for our products could lead to government investigations, litigation, write-offs and recalls, which could damage our reputation and our brand, increase our costs, and otherwise adversely affect our business.
We rely on our reputation for offering great value, superior service and a broad assortment of high-quality, safe products. If we become subject to unfavorable allegations, government investigations or legal actions involving our products or us, such circumstances could harm our reputation and our brand and adversely affect our business, financial condition and operating results. If this negative impact is significant, our ability to grow or sustain our business could be jeopardized.
As disclosed further herein, we have been named as a defendant in one class action lawsuit, and we have agreed to indemnify a client named in another class action lawsuit, alleging that our products were mislabeled and thus violate consumer protection and false advertising statutes, among others. These lawsuits, which generally allege that our coffee products do not make the number of servings as stated on the label, are affecting the entire coffee industry and numerous similar lawsuits have been filed against numerous private label coffee manufacturers and retailers.
Negative publicity surrounding product matters, including publicity about other retailers, may harm our reputation and affect the demand for our products. In addition, if more stringent laws or regulations are adopted in the future, we may have difficulty complying with the new requirements imposed by such laws and regulations, and in turn, our business, financial condition, and operating results could be adversely affected. Moreover, regardless of whether any such changes are adopted, we may become subject to claims or governmental investigations alleging violations of applicable laws and regulations. Any such matter may subject us to fines, penalties, and/or litigation. Any one of these results could negatively affect our business, financial condition, and operating results and impair our ability to grow or sustain our business.
Risks related to the coffee industry
Increases in the cost of high quality Arabica or Robusta coffee beans could reduce our gross margin and profit. Green coffee is our largest single cost of sales. Coffee is a traded commodity and, in general, its price can fluctuate depending on:
| ● | outside speculative influences such as indexed and algorithmic commodity funds; | |
| ● | 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. | |
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If the cost of wholesale green coffee increases due to any of these factors, our margins could decrease and our profitability could suffer accordingly. It is expected that coffee prices will remain volatile in the coming years. Although we have historically attempted to raise the selling prices of our products in response to increases in the price of wholesale green coffee, when wholesale green coffee prices increase rapidly or to significantly higher than normal levels, we are not always able to pass the price increases through to our customers on a timely basis, if at all, which adversely affects our operating margins and cash flow. We may not be able to recover any future increases in the cost of wholesale green coffee. Even if we are able to recover future increases, our operating margins and results of operations may still be materially and adversely affected by time delays in the implementation of price increases.
Disruptions in the supply of green coffee could result in a deterioration of our relationship with our customers, decreased revenues or could impair our ability to grow our business. Green coffee is a commodity and its supply is subject to volatility beyond our control. Supply is affected by many factors in the coffee growing countries including weather, pest damage, economic conditions, acts of terrorism, as well as efforts by coffee growers to expand or form cartels or associations. In addition, the political situation in many of the Arabica coffee growing regions, including Africa, Indonesia, and Central and South America, can be unstable, and such instability could affect our ability to purchase coffee from those regions. If Arabica coffee beans from a region become unavailable or prohibitively expensive, we could be forced to discontinue particular coffee types and blends or substitute coffee beans from other regions in our blends. Frequent substitutions and changes in our coffee product lines could lead to cost increases, customer alienation and fluctuations in our gross margins.
Some of the Arabica coffee beans of the quality we purchase do not trade directly on the commodity markets. Rather, we purchase the high-end Arabica coffee beans that we use on a negotiated basis. We depend on our relationships with coffee brokers, exporters and growers for the supply of our primary raw material, high quality Arabica coffee beans. If any of our relationships with coffee brokers, exporters or growers deteriorate, we may be unable to procure a sufficient quantity of high quality coffee beans at prices acceptable to us or at all. In such case, we may not be able to fulfill the demand of our existing customers, supply new retail stores or expand other channels of distribution. A raw material shortage could result in a deterioration of our relationship with our customers, decreased revenues or could impair our ability to expand our business.
The coffee industry is highly competitive and if we cannot compete successfully, we may lose our customers or experience reduced sales and profitability. The coffee markets in which we do business are highly competitive and competition in these markets could become increasingly more intense due to the increasing popularity and growth of the coffee industry. The industry in which we compete is particularly sensitive to price pressure, as well as quality, reputation and viability for wholesale and brand loyalty for retail. To the extent that one or more of our competitors becomes more successful with respect to any key competitive factor, our ability to attract and retain customers could be materially adversely affected. Our private label and branded coffee products compete with other manufacturers of private label coffee and branded coffees. These competitors, such as Kraft Foods, Inc. (owner of the Maxwell House brand), and J.M. Smucker Co. (owner of the Folgers and Café Bustelo brands), have much greater financial, marketing, distribution, management and other resources than we do for marketing, promotions and geographic and market expansion. In addition, there are a growing number of specialty coffee companies who provide specialty green coffee and roasted coffee for retail sale. If we are unable to compete successfully against existing and new competitors, we may lose our customers or experience reduced sales and profitability.
Besides coffee, we face exposure to other commodity cost fluctuations, which could impair our profitability. In addition to the increase in coffee costs discussed in the risk factor above, we are exposed to cost fluctuation in other commodities, including, in particular, steel, natural gas and gasoline. In addition, an increase in the cost of fuel could indirectly lead to higher electricity costs, transportation costs and other commodity costs. Much like coffee costs, the costs of these commodities depend on various factors beyond our control, including economic and political conditions, foreign currency fluctuations, and global weather patterns. To the extent we are unable to pass along such costs to our customers through price increases, our margins and profitability will decrease.
Adverse public or medical opinion about caffeine may harm our business. Coffee contains caffeine and other active compounds, the health effects of some of which are not fully understood. A number of research studies conclude or suggest that excessive consumption of caffeine may lead to increased heart rate, nausea and vomiting, restlessness and anxiety, depression, headaches, tremors, sleeplessness and other adverse health effects. An unfavorable report on the health effects of caffeine or other compounds present in coffee could significantly reduce the demand for coffee, which could harm our business and reduce our sales and profits. In addition, we could become subject to litigation relating to the existence of such compounds in our coffee; litigation that could be costly and could divert management attention.
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Risks related to our common stock
Our operating results may fluctuate significantly, which makes our results of operations difficult to predict and could cause our results of operations to fall short of expectations. Our operating results may fluctuate from quarter to quarter and year to year as a result of a number of factors, many of which are outside of our control. These fluctuations could be caused by a number of factors including:
| ● | 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. |
As a result of the foregoing, period-to-period comparisons of our operating results may not necessarily be meaningful and those comparisons should not be relied upon as indicators of future performance. Accordingly, our operating results in future quarters may be below market expectations. In this event, the price of our common stock may decline.
The Gordon family has the ability to influence action requiring stockholder approval. Members of the Gordon family, including Andrew Gordon, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, and David Gordon, our Executive Vice President and Secretary, own, in the aggregate, approximately 15.3% of our outstanding shares of common stock. As a result, the Gordon family is able to influence the actions that require stockholder approval, including:
| ● | 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. |
As a result, our other stockholders may have reduced influence over matters submitted for stockholder approval. In addition, the Gordon family’s influence could preclude any unsolicited acquisition of us and consequently materially adversely affect the price of our common stock.
The market price of our common stock has been volatile over the year and may continue to be volatile. The market price and trading volume of our common stock has been volatile over the past year and it may continue to be volatile. Over the past year, our common stock has traded as low as $1.76 and as high as $5.37 per share. We cannot predict the price at which our common stock will trade in the future and it may decline. The price at which our common stock trades may fluctuate significantly and may be influenced by many factors, including our financial results, developments generally affecting the coffee industry, general economic, industry and market conditions, the depth and liquidity of the market for our common stock, fluctuations in coffee prices, investor perceptions of our business, reports by industry analysts, negative announcements by our customers, competitors or suppliers regarding their own performances, and the impact of other “Risk Factors” discussed in this Annual Report.
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Provisions in our articles of incorporation, bylaws and of Nevada law have anti-takeover effects that could prevent a change in control that could be beneficial to our stockholders, which could depress the market price of shares of our common stock. Our articles of incorporation, bylaws and Nevada corporate law contain provisions that could delay, defer or prevent a change in control of us or our management that could be beneficial to our stockholders. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a price above the then current market price for shares of our common stock. These provisions:
| ● | 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. |
We are also subject to certain anti-takeover provisions under Nevada law. Under Nevada law, a corporation may not, in general, engage in a business combination with any “interested stockholder” for two (2) years after the date the person first became an interested stockholder, unless the combination meets all of the requirements of our articles of incorporation and (i) the purchase of shares by the interested stockholder is approved by our board of directors before that date or (ii) the combination is approved by our board of directors and, at or after that time, the combination is approved at an annual or special meeting of our stockholders, and not by written consent, by the affirmative vote of the holders of stock representing at least sixty percent (60%) of our outstanding voting power not beneficially owned by the interested stockholder or the affiliates or associates of the interested stockholder.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 2. | PROPERTIES |
We are headquartered at 3475 Victory Boulevard, Staten Island, New York, where we lease office and warehouse space. We pay annual rent of $129,420 under the terms of the lease, which expires on October 31, 2023.
We lease a 50,000 square foot facility located at 27700 Frontage Road in La Junta, Colorado from the City of La Junta. We pay annual rent of $100,093 under the terms of the lease, which expires in January 2024.
We lease production, warehouse and office space in North Arlington, MA. We pay annual rent of $168,288 under the terms of a lease, which expires in May 2028.
We lease production, warehouse and office space in Madison, WI. For Steep & Brew, through our joint venture with “GCC”. We pay annual rent of $114,660 under the terms of a lease, which expires in September 2024.
We also use a variety of independent, bonded commercial warehouses to store our green coffee beans. Our management believes that our facilities are adequate for our current operations and for our contemplated operations in the foreseeable future.
| ITEM 3. | LEGAL PROCEEDINGS |
We were named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Illinois on or about December 21, 2020. The plaintiffs, Eileen Brodsky and Rhonda Diamond, purporting to represent a class of individuals who purchased coffee products at one of our supermarket customers, generally allege that such client sold private label coffee products manufactured by us and one of our partners, which falsely described the number of cups of coffee that could be made from the amount of product purchased. These parties are also named as defendants in the action. The complaint asserts a variety of claims under New York and California consumer protection laws, and seeks unspecified monetary damages, including disgorgement and restitution, as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. We believe the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and the company intends to vigorously defend the action. As of the filing of this Form 10-K, we have not been served with the complaint. Therefore, we are unable to predict the ultimate outcome of this lawsuit.
A significant customer of ours was named as a defendant in a putative class action lawsuit filed in the United States District Court for the District of Massachusetts on or about February 2, 2021, concerning the labeling on private label coffee productions we sold to the customer. The plaintiff, David Cohen, purporting to represent a class of individuals who purchased coffee products from our customer, generally allege that the customer sold private label coffee products manufactured by us which falsely described the number of cups of coffee that could be made from the amount of product purchased. We are not named as a defendant in the action, but we have agreed to indemnify the customer for the costs and expenses incurred in defending the lawsuit and for any liability the customer may suffer as a result. The complaint asserts a variety of claims under Massachusetts consumer protection laws, and seeks unspecified monetary damages as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. We believe the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and we intend to vigorously support the customer in defending the action. As of the filing of this Form 10-K, we are unable to predict the ultimate outcome of this lawsuit.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| 18 |
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock trades on the NASDAQ Capital Market under the symbol “JVA.” We do not currently pay cash dividends on our common stock. Our board of directors does not have any intention of paying a dividend in the future.
As of January 20, 2021, we had 170 holders of record.
| ITEM 6. | SELECTED FINANCIAL DATA |
The following table sets forth selected financial data for the last five years from the consolidated financial statements of Coffee Holding Co., Inc. The following information is only a summary, and you should read it in conjunction with our consolidated financial statements and notes beginning on page F-1.
| For the Years Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
| Income Statement Data: | ||||||||||||||||||||
| Net sales | $ | 74,336 | $ | 86,467 | $ | 90,655 | $ | 77,128 | $ | 78,948 | ||||||||||
| Cost of sales | 61,257 | 70,708 | 75,041 | 64,978 | 67,066 | |||||||||||||||
| Gross profit | 13,079 | 15,759 | 15,614 | 12,150 | 11,882 | |||||||||||||||
| Operating expenses | 13,904 | 15,219 | 13,213 | 10,927 | 8,019 | |||||||||||||||
| (Loss) income from operations | (825 | ) | 540 | 2,401 | 1,223 | 3,863 | ||||||||||||||
| Other income (expense) | 447 | (247 | ) | (362 | ) | (246 | ) | (147 | ) | |||||||||||
| (Loss) income before income taxes | (378 | ) | 293 | 2,039 | 977 | 3,716 | ||||||||||||||
| (Benefit) provision for income taxes | (42 | ) | 29 | 505 | 244 | 1,366 | ||||||||||||||
| Minority interest | 242 | (359 | ) | (468 | ) | (266 | ) | (138 | ) | |||||||||||
| Net (loss) income | $ | (94 | ) | $ | (95 | ) | $ | 1,066 | $ | 467 | $ | 2,212 | ||||||||
| Net (loss) income per share – Basic & Diluted | $ | (0.02 | ) | $ | (0.02 | ) | $ | 0.19 | $ | 0.08 | $ | 0.36 | ||||||||
| At October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| (Dollars in thousands, except per shares data) | ||||||||||||||||||||
| Balance Sheet Data: | ||||||||||||||||||||
| Total assets | $ | 38,480 | $ | 39,687 | $ | 38,834 | $ | 40,132 | $ | 37,023 | ||||||||||
| Short-term debt | 5 | 7,168 | 6,330 | 8,408 | 6,958 | |||||||||||||||
| Total liabilities | 10,736 | 12,956 | 12,844 | 14,408 | 11,910 | |||||||||||||||
| Stockholders’ equity | 27,744 | 26,731 | 25,990 | 25,591 | 25,113 | |||||||||||||||
| Book value per share | $ | 4.86 | $ | 4.80 | $ | 4.67 | $ | 4.41 | $ | 4.28 | ||||||||||
| At October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| Per Common Share Data: | ||||||||||||||||||||
| Basic & Diluted EPS | $ | (.02 | ) | $ | (.02 | ) | $ | .19 | $ | .08 | $ | (.36 | ) | |||||||
| Cash dividends declared | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Note on Forward-Looking Statements
Some of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements upon information available to management as of the date of this Form 10-K and management’s expectations and projections about future events, including, among other things:
| ● | 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 potential adverse impact of the COVID-19 pandemic on our operations and results, including as a result of the loss of adequate labor, any prolonged closures, or series of temporary closures, of our supply chain, or changes in consumer behaviors, when stay-at-home restriction orders are lifted and/or as a result of the COVID-19 pandemic’s impact on financial markets and economic conditions; | |
| ● | our expectations regarding, and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of green coffee, as a result of COVID-19 or otherwise; | |
| ● | 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”). |
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate” and similar expressions (or the negative of such expressions). Any or all of our forward looking statements in this annual report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. In addition, we undertake no responsibility to update any forward-looking statement to reflect events or circumstances, that occur after the date of this annual report.
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Overview
We are an integrated wholesale coffee roaster and dealer in the United States and one of the few coffee companies that offers a broad array of coffee products across the entire spectrum of consumer tastes, preferences and price points. As a result, we believe that we are well-positioned to increase our profitability and endure potential coffee price volatility throughout varying cycles of the coffee market and economic conditions.
Our operations have primarily focused on the following areas of the coffee industry:
| ● | the sale of wholesale specialty green coffee; | |
| ● | the roasting, blending, packaging and sale of private label coffee; | |
| ● | the roasting, blending, packaging and sale of our eight brands of coffee; and | |
| ● | sales of our tabletop coffee roasting equipment. |
Our operating results are affected by a number of factors including:
| ● | 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. |
Our net sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract new customers. For this reason, we have made, and will continue to evaluate, strategic decisions to invest in measures that are expected to increase net sales. These transactions include our acquisition of Premier Roasters, LLC, including equipment and a roasting facility in La Junta, Colorado, the addition of a west coast sales manager to increase sales of our private label and branded coffees to new customers, our joint venture with Caruso’s Coffee, Inc. of Brecksville, Ohio, the transaction with OPTCO. On June 29, 2016, we purchased substantially all the assets, including equipment, inventory, customer lists and relationships of Coffee Kinetics, LLC, a Washington limited liability company. On June 29, 2016, we purchased through SONO, substantially all the assets, including equipment, inventory, customer list and relationships of Coffee Kinetics, LLC, a Washington limited liability company. On February 24, 2017, we acquired 100% of the capital stock of Comfort Foods, Inc. (“CFI”), a Massachusetts based medium sized coffee roaster, manufacturing both branded and private label coffee for retail and foodservice customers. In April 2018, Generations Coffee Company, the entity formed as a result of our joint venture with Caruso’s Coffee, Inc., purchased substantially all the assets of Steep & Brew, Inc. In October 2020, we entered into the Jordre Well Agreement to become a 49% owner in The Jordre Well, a CBD beverage company. Under the terms of the Jordre Well Agreement, The Jordre Well will assist us in the development and commercialization of CBD-infused line extensions for the existing coffee brands within our portfolio, as well as launch new brands that are intended to serve consumer demand for non-coffee CBD-infused beverages and products. We believe these efforts will allow us to expand our business. We believe these efforts will allow us to expand our business.
Our net sales are affected by the price of green coffee. We purchase our green coffee from dealers located primarily within the United States. The dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. For example, in Brazil, which produces approximately 40% of the world’s green coffee, the coffee crops are historically susceptible to frost in June and July and drought in September, October and November. However, because we purchase coffee from a number of countries and are able to freely substitute one country’s coffee for another in our products, price fluctuations in one country generally have not had a material impact on the price we pay for coffee. Accordingly, price fluctuations in one country generally have not had a material effect on our results of operations, liquidity and capital resources. Historically, because we generally have been able to pass green coffee price increases through to customers, increased prices of green coffee generally result in increased net sales, irrespective of sales volume.
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects of changing green coffee prices, as further explained in Note 2 of the Notes to the Consolidated Financial Statements in this Report. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain a vital element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices. However, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we have had net gains on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some recent reporting periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase our cost of sales and materially decrease our profitability and adversely affect our stock price. See “Item 1A – Risk Factors - If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced.” Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward.
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventories, assets held for sale, business combinations, carrying amounts of intangible assets and goodwill, deferred taxes, income taxes, commodities held and loss contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions and estimates used in the preparation of the financial statements:
| ● | The Company has adopted the new revenue recognition standard ASC 606 on November 1, 2018 using the modified retrospective method. The majority of the Company’s business is ship and bill. The Company recognizes revenue in accordance with the five-step model in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. | |
| ● | Effective November 1, 2019, we adopted ASC Topic 842, Leases (“ASC 842”). The new guidance increases transparency by requiring the recognition of right to use assets and lease liabilities on the statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous US GAAP requirement, which did not require lease assets and lease liabilities to be recognized for most operating leases. The recognition, measurement and presentation of expenses and cash flows arising from a lease, have not significantly changed from previous US GAAP requirements. On November 1, 2019, the effective date of ASC 842, existing leases of ours were required to be recognized and measured. Additionally any leases entered into during the year were also required to recognized and measured. In applying ASC 842, we made an accounting policy election not to recognize the right of use assets and lease liabilities relating to short-term leases. Implementation of ASC 842 included an analysis of contracts, including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of the right to use assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates to apply in determining the lease liabilities. The new standard provides a number of transition practical expedients, which the Company has elected, including: A “package of three” expedients that must be taken together and allow entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases. | |
| ● | 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 $74,000 for the year ended October 31, 2020. 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 write-down would have decreased operating income by approximately $171,000 for the year ended October 31, 2020. |
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| ● | The commodities held at broker represent the market value of our 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. | |
| ● | Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, SONO, CFI and Steep & Brew, through GCC, 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 lists and relationships and trademarks acquired from OPTCO and SONO. At October 31, 2020 our balance sheet reflected goodwill and intangible assets as set forth below: |
| October 31, 2020 | ||||
| Customer list and relationships, net | $ | 490,621 | ||
| Non-compete, net | 49,500 | |||
| Goodwill | 2,488,785 | |||
| Trademarks and tradenames | 1,488,000 | |||
| $ | 4,516,906 | |||
Goodwill and the trademarks which are deemed to have indefinite lives are subject to annual impairment tests. Goodwill impairment tests require the comparison of the fair value and carrying value of reporting units. We assess the potential impairment of goodwill and intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon completion of such review, if impairment is found to have occurred, a corresponding charge will be recorded. The value assigned to the customer list and relationships is being amortized over a twenty year period.
Because the Company is a single reporting unit, the closing NASDAQ Capital Market price of our common stock as of the acquisition date was used as a basis to measure the fair value of goodwill. Goodwill and the intangible assets will be tested annually at the end of each fiscal year to determine whether they have been impaired. Upon completion of each annual review, there can be no assurance that a material charge will not be recorded. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment or decline in value may have occurred.
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Year Ended October 31, 2020 (Fiscal Year 2020) Compared to the Year Ended October 31, 2019 (Fiscal Year 2019)
Net Sales. Net sales totaled $74,335,815 for the fiscal year ended October 31, 2020, a decrease of $12,131,617, or 14%, from $86,467,432 for the fiscal year ended October 31, 2019. The decrease in net sales was due to the COVID-19 pandemic which caused many of our green coffee customers who service the restaurant and food service industry as well as our customers in the food service space to either close or suspend their business operations during the period resulting in lost revenues from that segment of our customer base. Also, supermarket sales returned to more traditional levels, as the stockpiling in the second quarter of the year did not repeat for the remaining six months of the year.
Cost of Sales. Cost of sales for the fiscal year ended October 31, 2020 was $61,256,926, or 82.4% of net sales, as compared to $70,708,100, or 81.8% of net sales, for the fiscal year ended October 31, 2019. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The decrease in cost of sales was due to our decreased sales and increased cost of coffee.
Gross Profit. Gross profit for the fiscal year ended October 31, 2020 was $13,078,889, a decrease of $2,680,443 from $15,759,332 for the fiscal year ended October 31, 2019. Gross profit as a percentage of net sales decreased to 17.6% for the fiscal year ended October 31, 2020 from 18.2% for the fiscal year ended October 31, 2019. The decrease in gross profits resulted from a decrease in sales due to the COVID-19 pandemic and inventory adjustments resulting from such decreased sales, lost customers and outdated inventory during the year.
Operating Expenses. Total operating expenses decreased by $1,314,596 to $13,904,207 for the fiscal year ended October 31, 2020 from $15,218,803 for the fiscal year ended October 31, 2019. Selling and administrative expenses decreased $1,281,500, or 8.8%, to $13,223,207 for the fiscal year ended October 31, 2020 from $14,504,707 for the fiscal year ended October 31, 2019. Our efforts to control costs through the elimination of redundancy in our operations and the elimination of certain unnecessary variable costs were the primary reasons for this decrease. Officers’ salary decreased by $33,096 or 4.6% to $681,000 for the fiscal year ended October 31, 2020 from $714,096 for the fiscal year ended October 31, 2019. Further, each of our Chief Executive Officer and our Vice President took pay decreases in the fourth quarter, which will continue during fiscal 2021.
Other Income (Expense). Other income for the fiscal year ended October 31, 2020 was $447,561, a decrease of $694,876 from other expenses of $247,315 for the fiscal year ended October 31, 2019. The decrease in other expense was attributable to our recognition of the forgiveness of the PPP government grant of $634,400, a decrease in interest expense of $69,415, partially offset by a decrease in interest income of $7,692 and an increase in our loss from our equity investments of $1,247, during the fiscal year ended October 31, 2020.
Income (Loss) Before provision for income Taxes and Non-controlling Interest in Subsidiary. We had a loss of $377,757 before income taxes and non-controlling interest in subsidiary for the fiscal year ended October 31, 2020 compared to income of $293,214 for the fiscal year ended October 31, 2019, resulting in a net change of $670,971 for the year ended October 31, 2020.
Income Taxes. Our benefit for income taxes for the fiscal year ended October 31, 2020 totaled $41,713 compared to a provision of $29,208 for the fiscal year ended October 31, 2019. The change was attributable to the difference in the income for the year ended October 31, 2020 versus fiscal year ended October 31, 2019.
Net (Loss) Income. We had a net loss of $94,301 or $0.02 per share basic and diluted, for the fiscal year ended October 31, 2020 compared to a net loss of $94,598, or $0.02 per share basic and diluted for the fiscal year ended October 31, 2019. The decrease in net income was due to numerous factors which had to be dealt with during our fiscal fourth quarter. For example, for the year ended October 31, 2020, we had a loss before our non-controlling interest in our subsidiary of $336,044 versus net income of $264,006 for the year ended October 31, 2019. Our non-controlling interest for the year ended October 31, 2020 reduced the loss by $366,044 bringing the net loss attributable to Coffee Holding Co. to $94,301, whereas the non-controlling interest for the year ended October 31, 2019 reduced profit by $358,604 bringing the net loss attributable to Coffee Holding Co. to a loss of $94,598. Our consolidated subsidiary, in which we have a 60% interest, had write downs on both inventories and accounts receivable due to COVID-19, including an approximately $85,000 write down of receivables and an approximately $217,000 write down of inventories.
| 24 |
Liquidity and Capital Resources
As of October 31, 2020, we had working capital of $24,039,538, which represented a $3,811,594 increase from our working capital of $20,227,944 as of October 31, 2019, and total stockholders’ equity of $26,518,666 which increased by $1,254,589 from our total stockholders’ equity of $25,264,077 as of October 31, 2019. Our working capital increased primarily due to an increase of $472,564 in cash, decreases of $1,307,918 in accounts payable and accrued expenses, $3,365,843 in our short term borrowings, partially offset by decreases of $2,012,522 in accounts receivable, $1,738,232 in inventory, $553,356 in due from broker, $97,380 in prepaid expenses and other current assets, $240,629 in prepaid and refundable income taxes, increases of $5,271 in income taxes payable and $484,163 in lease liability – current portion. As of October 31, 2020, the outstanding balance on our line of credit was $3,796,822 compared to $7,167,740 as of October 31, 2019.
On April 25, 2017, us and OPTCO (collectively, the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between us, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.
On March 13, 2020, we reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement among other things: (i) provides for a new maturity date of March 31, 2022 and (ii) decreases the interest rate per annum to LIBOR plus 1.75% (with such interest rate not to be lower than 3.50%).
Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. We were in compliance with all covenants as of October 31, 2020 and October 31, 2019.
Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all of our tangible and intangible assets. Other than as amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.
Pursuant to the terms of the Jordre Well Agreement, we issued to The Jordre Well 139,250 shares of our Common Stock on the effective date of the Jordre Well Agreement and are obligated to issue an additional 139,250 shares of Common Stock once $500,000 in revenue is generated from the joint venture.
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For the fiscal year ended October 31, 2020, our operating activities provided net cash of $4,385,757 as compared to the fiscal year ended October 31, 2019 when operating activities used net cash of $2,148,616. The increased cash flow from operations for the fiscal year ended October 31, 2020 was primarily due to our inventories usage during the year ended October 31, 2020.
For the fiscal year ended October 31, 2020, our investing activities used net cash of $537,835 as compared to the fiscal year ended October 31, 2019 when net cash used by investing activities was $897,683. The decrease in our uses of cash in investing activities was due to our decreased outlays for purchases of machinery and equipment during the fiscal year ended October 31, 2020.
For the fiscal year ended October 31, 2020, our financing activities used net cash of $3,375,358 compared to net cash provided by financing activities of $837,471 for the fiscal year ended October 31, 2019. The change in cash flow from financing activities for the fiscal year ended October 31, 2020 was due to our increased principal reductions on our line of credit.
We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness, through October 31, 2021 with cash provided by operating activities and the use of our credit facility. In addition, an increase in eligible accounts receivable and inventory would permit us to make additional borrowings under our line of credit.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See pages F-1 through F-21 following the Exhibit Index of this Annual Report on Form 10-K.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| 27 |
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures. Management, which includes our President, Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective. We specifically identified a combination of control deficiencies relating to the accuracy and completeness of our accounting for stock-based compensation awards and inventories at one of our subsidiaries, which constitute material weaknesses in internal control over financial reporting. Notwithstanding such material weaknesses, we believe the financial information presented herein is materially correct and fairly presents the financial position and operating results of the fiscal year ended October 31, 2020 in accordance with U.S. GAAP.
Management Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is a process designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and the directors, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of its internal control over financial reporting as of October 31, 2020. In making this assessment, management used the criteria set forth by the 2013 Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based upon the assessment, our management concluded that our internal control over financial reporting was not effective as of October 31, 2020. Our control were inadequate to prevent and detect misstatements of stock based compensation awards and quantities of inventory at one of our subsidiaries. A material weakness is a control deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis.
Remediation Plan for the Material Weakness
To remediate the material weakness identified above, we are initiating controls and procedures in order to:
| ● | Reinforce the importance of a strong control environment, to emphasize the technical requirements for controls that are designed, implemented and operating effectively and to set the appropriate expectations on internal controls through establishing the related policies and procedures; | |
| ● | Review the processes for documenting and alerting key personnel, including our board members, officers, auditors and outside accountants, of non-reoccurring events related to stock-based compensation awards to ensure such events are timely and adequately recorded and communicated to the appropriate parties; and | |
| ● | We have replaced and hired new employees in the accounting department at the subsidiary where the inventory analysis issue occurred and have made upgrades to the computer systems at the subsidiary. Further, we hired a new director of finance at the subsidiary that is responsible for overseeing inventory counts and we are enhancing controls in the inventory business process over (i) inventory count procedures by requiring more frequent physical audits of our inventory, and (ii) review of inventory adjustments and approvals. |
The material weaknesses identified above will not be considered remediated until our remediation efforts have been fully implemented and we have concluded that these controls are operating effectively.
Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
Changes in Control Over Financial Reporting. During the fiscal year ending October 31, 2020, we continued to implement procedures to review and document all corporate actions related to stock-based compensation awards. There have been no additional changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Protection Act that permits us to provide only management’s report in this annual report.
| ITEM 9B. | OTHER INFORMATION |
None.
| 28 |
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders.
| ITEM 11. | EXECUTIVE COMPENSATION |
Information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders.
| 29 |
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| (a) | List of Documents filed as part of this Report |
| (1) | Financial Statements |
The financial statements and related notes, together with the report of Marcum LLP appear at pages F-1 through F-24 following the Exhibit List as required by Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.
| (2) | Financial Statement Schedules |
None.
| (3) | List of Exhibits |
| (a) | Exhibits |
The Company has filed with this report or incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-32 under the Exchange Act.
| 30 |
| 31 |
* Filed herewith
**Furnished herewith
None.
| 32 |
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 16, 2021.
| COFFEE HOLDING CO., INC. | ||
| By: | /s/ Andrew Gordon | |
| Andrew Gordon | ||
| President, Chief Executive Officer | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/Andrew Gordon | President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director | February 16, 2021 | ||
| Andrew Gordon | (principal executive officer and principal financial and accounting officer) | |||
| /s/ David Gordon | Executive Vice President – Operations, Secretary and Director | February 16, 2021 | ||
| David Gordon | ||||
| /s/ Gerard DeCapua | Director | February 16, 2021 | ||
| Gerard DeCapua | ||||
| /s/ Daniel Dwyer | Director | February 16, 2021 | ||
| Daniel Dwyer | ||||
| /s/ Barry Knepper | Director | February 16, 2021 | ||
| Barry Knepper | ||||
| /s/ John Rotelli | Director | February 16, 2021 | ||
| John Rotelli | ||||
| /s/ George Thomas | Director | February 16, 2021 | ||
| George Thomas |
| 33 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Coffee Holding Co., Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Coffee Holding Co., Inc. (the “Company”) as of October 31, 2020 and 2019, the related consolidated statements of (loss) / income, changes in stockholders’ equity and cash flows for each of the two years in the period ended October 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2020 due to the adoption of the guidance in ASC Topic 842, Leases using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit[s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2013.
New York, NY
February 16, 2021
| F-2 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| - ASSETS - | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 2,875,120 | $ | 2,402,556 | ||||
| Accounts receivable, net of allowances of $144,000 for 2020 and 2019 | 7,408,905 | 9,421,427 | ||||||
| Inventories | 17,102,993 | 18,841,225 | ||||||
| Due from broker | 101,031 | |||||||
| Prepaid expenses and other current assets | 490,246 | 587,626 | ||||||
| Prepaid and refundable income taxes | 145,305 | 385,934 | ||||||
| TOTAL CURRENT ASSETS | 28,022,569 | 31,739,799 | ||||||
| Machinery and equipment, at cost, net of accumulated depreciation of $7,610,864 and $6,931,913 for 2020 and 2019, respectively | 2,197,319 | 2,413,533 | ||||||
| Customer list and relationships, net of accumulated amortization of $194,379 and $151,627 for 2020 and 2019, respectively | 490,621 | 533,373 | ||||||
| Trademarks and tradenames | 1,488,000 | 1,488,000 | ||||||
| Non-compete, net of accumulated amortization of $49,500 and $29,700 for 2020 and 2019, respectively | 49,500 | 69,300 | ||||||
| Goodwill | 2,488,785 | 2,488,785 | ||||||
| Equity method investments | 561,405 | 86,008 | ||||||
| Deferred income tax asset | 782,175 | 480,473 | ||||||
| Right of use asset | 2,114,228 | |||||||
| Deposits and other assets | 285,548 | 387,453 | ||||||
| TOTAL ASSETS | $ | 38,480,150 | $ | 39,686,724 | ||||
| - LIABILITIES AND STOCKHOLDERS’ EQUITY - | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 3,036,097 | $ | 4,344,015 | ||||
| Line of credit | 7,167,740 | |||||||
| Due to broker | 452,325 | |||||||
| Note payable – current portion | 5,075 | |||||||
| Lease liability – current portion | 484,163 | |||||||
| Income taxes payable | 5,371 | 100 | ||||||
| TOTAL CURRENT LIABILITIES | 3,983,031 | 11,511,855 | ||||||
| Deferred income tax liabilities | 882,582 | 872,232 | ||||||
| Line of credit | 3,796,822 | |||||||
| Deferred rent payable | 193,461 | |||||||
| Lease liability | 1,780,306 | |||||||
| Note payable – long term | 17,292 | |||||||
| Deferred compensation payable | 276,548 | 378,453 | ||||||
| TOTAL LIABILITIES | 10,736,581 | 12,956,001 | ||||||
| Commitments and Contingencies | ||||||||
| 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, 6,633,930 and 6,494,680 shares issued for 2020 and 2019; 5,708,599 and 5,569,349 shares outstanding for 2020 and 2019 | 6,634 | 6,494 | ||||||
| Additional paid-in capital | 17,929,724 | 16,580,974 | ||||||
| Retained earnings | 13,215,868 | 13,310,169 | ||||||
| Less: Treasury stock, 925,331 common shares, at cost for 2020 and 2019 | (4,633,560 | ) | (4,633,560 | ) | ||||
| Total Coffee Holding Co., Inc. Stockholders’ Equity | 26,518,666 | 25,264,077 | ||||||
| Noncontrolling interest | 1,224,903 | 1,466,646 | ||||||
| TOTAL EQUITY | 27,743,569 | 26,730,723 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 38,480,150 | $ | 39,686,724 | ||||
See Notes to Consolidated Financial Statements
| F-3 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| NET SALES | $ | 74,335,815 | $ | 86,467,432 | ||||
| COST OF SALES (which includes purchases of approximately $5.3 million and $8.3 million in fiscal years 2020 and 2019, respectively, from a related party) | 61,256,926 | 70,708,100 | ||||||
| GROSS PROFIT | 13,078,889 | 15,759,332 | ||||||
| OPERATING EXPENSES: | ||||||||
| Selling and administrative | 13,223,207 | 14,504,707 | ||||||
| Officers’ salaries | 681,000 | 714,096 | ||||||
| TOTAL | 13,904,207 | 15,218,803 | ||||||
| (LOSS) INCOME FROM OPERATIONS | (825,318 | ) | 540,529 | |||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest income | 3,354 | 11,046 | ||||||
| Loss from equity method investment | (5,016 | ) | (3,769 | ) | ||||
| Other income - PPP | 634,400 | |||||||
| Interest expense | (185,177 | ) | (254,592 | ) | ||||
| TOTAL | 447,561 | (247,315 | ) | |||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY | (377,757 | ) | 293,214 | |||||
| (Benefit) provision for income taxes | (41,713 | ) | 29,208 | |||||
| NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY | (336,044 | ) | 264,006 | |||||
| Less: Net loss (income) attributable to the non-controlling interest in subsidiary | 241,743 | (358,604 | ) | |||||
| NET (LOSS) ATTRIBUTABLE TO COFFEE HOLDING CO., INC. | $ | (94,301 | ) | $ | (94,598 | ) | ||
| Basic and diluted (loss) per share | $ | (.02 | ) | $ | (.02 | ) | ||
| Weighted average common shares outstanding: | ||||||||
| Basic and diluted | 5,575,453 | 5,569,349 | ||||||
See Notes to Consolidated Financial Statements
| F-4 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED OCTOBER 31, 2020 AND 2019
| Common Stock | Treasury Stock | Additional Paid-in | Retained | Non- Controlling | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Interest | Total | |||||||||||||||||||||||||
| Balance, November 1, 2018 | 5,569,349 | $ | 6,494 | 925,331 | $ | (4,633,560 | ) | $ | 16,104,075 | $ | 13,404,767 | $ | 1,108,042 | $ | 25,989,818 | |||||||||||||||||
| Stock Compensation | 476,899 | 476,899 | ||||||||||||||||||||||||||||||
| Non-Controlling interest | 358,604 | 358,604 | ||||||||||||||||||||||||||||||
| Net loss | (94,598 | ) | (94,598 | ) | ||||||||||||||||||||||||||||
| Balance, October 31, 2019 | 5,569,349 | $ | 6,494 | 925,331 | $ | (4,633,560 | ) | $ | 16,580,974 | $ | 13,310,169 | $ | 1,466,646 | $ | 26,730,723 | |||||||||||||||||
| Stock Compensation | 868,477 | 868,477 | ||||||||||||||||||||||||||||||
| Stock issuance equity investment | 139,250 | 140 | 480,273 | 480,413 | ||||||||||||||||||||||||||||
| Non-Controlling Interest | (241,743 | ) | (241,743 | ) | ||||||||||||||||||||||||||||
| Net loss | (94,301 | ) | (94,301 | ) | ||||||||||||||||||||||||||||
| Balance, October 31, 2020 | 5,708,599 | $ | 6,634 | 925,331 | $ | (4,633,560 | ) | $ | 17,929,724 | $ | 13,215,868 | $ | 1,224,903 | $ | 27,743,569 | |||||||||||||||||
See Notes to Consolidated Financial Statements
| F-5 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | (336,044 | ) | $ | 264,006 | |||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 741,503 | 742,637 | ||||||
| Stock-based compensation | 868,477 | 476,899 | ||||||
| Unrealized loss (gain) on commodities | 553,356 | (123,077 | ) | |||||
| Loss on equity method investments | 5,016 | 3,768 | ||||||
| Deferred rent | (48,682 | ) | ||||||
| Amortization of right to use asset | 397,794 | |||||||
| Deferred income taxes | (291,352 | ) | (49,938 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 2,012,522 | 492,870 | ||||||
| Inventories | 1,738,232 | (3,570,119 | ) | |||||
| Prepaid expenses and other current assets | 97,380 | (8,765 | ) | |||||
| Prepaid and refundable income taxes | 240,629 | (2,728 | ) | |||||
| Accounts payable and accrued expenses | (1,307,917 | ) | (489,533 | ) | ||||
| Change in lease liability | (441,015 | ) | ||||||
| Deposits and other assets | 101,905 | 165,451 | ||||||
| Income taxes payable | 5,271 | (1,405 | ) | |||||
| Net cash provided by (used in) operating activities | 4,385,757 | (2,148,616 | ) | |||||
| INVESTING ACTIVITIES: | ||||||||
| Distribution of funds from deferred compensation plan | (101,905 | ) | (154,273 | ) | ||||
| Purchases of machinery and equipment | (435,930 | ) | (743,410 | ) | ||||
| Net cash used in investing activities | (537,835 | ) | (897,683 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Advances under bank line of credit | 1,141,132 | 1,407,726 | ||||||
| Principal payment on note payable | (4,440 | ) | (70,255 | ) | ||||
| Principal payments under bank line of credit | (4,512,050 | ) | (500,000 | ) | ||||
| Net cash (used in) provided by financing activities | (3,375,358 | ) | 837,471 | |||||
| NET INCREASE (DECREASE) IN CASH | 472,564 | (2,208,828 | ) | |||||
| CASH, BEGINNING OF YEAR | 2,402,556 | 4,611,384 | ||||||
| CASH, END OF YEAR | $ | 2,875,120 | $ | 2,402,556 | ||||
See Notes to Consolidated Financial Statements
| F-6 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2020 AND 2019
| 2020 | 2019 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: | ||||||||
| Interest paid | $ | 196,823 | $ | 254,603 | ||||
| Income taxes paid | $ | 3,739 | $ | 83,279 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| On October 15, 2020 Coffee Holding Company acquired an equity interest in Jordre Well, LLC in exchange for 139,250 shares: | 480,413 | |||||||
| Initial recognition of operating lease right of use asset | $ | 2,512,022 | ||||||
| Initial recognition of operating lease liabilities | $ | 2,705,484 | ||||||
| Machinery and equipment acquired through financing | $ | 26,807 | ||||||
See Notes to Consolidated Financial Statements
| F-7 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 1 - 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 Company’s 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 Company’s own specifications and packaged and sold under the Company’s eight proprietary and licensed brand names in different segments of the market.
The Company’s 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 Company’s 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 Company’s 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 Company’s 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.
COVID-19
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, mandated closures and stay-at-home orders, and created significant disruption of the financial markets. During the third quarter the Company received an unsecured loan in the amount of $634,400 (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”). Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount can be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its future adherence to the forgiveness criteria.
The continuing impact on the Company’s business including the decrease in our sales, the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including its ability to obtain products from global suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, has contributed to and may continue to have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. At this time the full impact could not be determined.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”). All significant inter-company balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes, contingencies, and valuation of financial instruments. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts.
CASH:
Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms.
| F-8 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
ACCOUNTS RECEIVABLE:
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from its customers. The allowances are summarized as follows:
| 2020 | 2019 | |||||||
| Allowance for doubtful accounts | $ | 65,000 | $ | 65,000 | ||||
| Reserve for other allowances | 35,000 | 35,000 | ||||||
| Reserve for sales discounts | 44,000 | 44,000 | ||||||
| Totals | $ | 144,000 | $ | 144,000 | ||||
INVENTORIES:
Inventories are stated at the lower of cost (first in, first out basis) or net realizable value, including provisions for obsolescence commensurate with known or estimated exposures. There are no reserves for obsolescence as of October 31, 2020 and 2019.
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.
| F-9 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
COMMODITIES HELD BY BROKER:
The commodities held at broker represent the market value of the Company’s trading account, which consists of option and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
| 2020 | 2019 | |||||||
| Option contracts | $ | (164,475 | ) | $ | (58,856 | ) | ||
| Future contracts | (287,850 | ) | 159,887 | |||||
| Commodities due (to) from broker | $ | (452,325 | ) | $ | 101,031 | |||
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings.
At October 31, 2020, the Company held 48 futures contracts (generally with terms of three to four months) for the purchase of 1,800,000 pounds of green coffee at a weighted average price of $1.158 per pound. The fair market value of coffee applicable to such contracts was $1.044 per pound at that date.
At October 31, 2019, the Company held 124 futures contracts (generally with terms of three to four months) for the purchase of 4,650,000 pounds of green coffee at a weighted average price of $.986 per pound. The fair market value of coffee applicable to such contracts was $1.02 per pound at that date.
Included in cost of sales for the years ended October 31, 2020 and 2019, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
| Year Ended October 31, | ||||||||
| 2020 | 2019 | |||||||
| Gross realized gains | $ | 1,678,995 | $ | 1,307,816 | ||||
| Gross realized (losses) | (1,451,761 | ) | (2,642,537 | ) | ||||
| Unrealized (losses) gains | (553,356 | ) | 123,077 | |||||
| Total | $ | (326,122 | ) | $ | (1,211,644 | ) | ||
| F-10 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
GOODWILL AND TRADEMARKS:
The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill and trademarks are not amortized but are assigned to a specific reporting unit or asset class and tested for impairment at least annually or upon the occurrence of an event or when circumstances indicate that the reporting unit’s carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2020 and 2019, the Company has determined by using a qualitative assessment that an impairment did not exist.
CUSTOMER LIST AND RELATIONSHIPS:
Customer list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition of OPTCO, Comfort Foods, Sonofresco and Steep & Brew which are being amortized on the straight-line method over their estimated useful life of twenty years.
ADVERTISING:
The Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $149,505 and $449,678 for the years ended October 31, 2020 and 2019, 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE:
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution. The Company has issued 1,000,000 options as of October 31, 2019, they have not been included in the calculation of diluted earnings per share because of their anti-dilutive value for the years presented in this financial statement.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,575,453 and 5,569,349 for the years ended October 31, 2020 and 2019, respectively.
| F-11 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying amount of the bank line of credit borrowings approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 606 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 10 for revenue disaggregated by product line.
PAYCHECK PROTECTION PROGRAM:
On July 22, 2020, the Company received loan proceeds of $634,400 under the Paycheck Protection Program (“PPP”). The PPP, which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels, as defined by the PPP. At least 60% of the amount forgiven must be attributable to payroll costs, as defined by the PPP.
The PPP loan matures five years from the date of the first disbursement of proceeds to the Company and accrues interest at a fixed rate of 1%. Payments are deferred for at least the first six months and payable in 54 equal consecutive monthly installments of principal and interest commencing upon expiration of the deferral period of the PPP loan date.
U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances outlined below, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a
| F-12 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
forgivable loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”, however, based on certain interpretations, it is analogous to “probable” as defined in FASB ASC 450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a more clear distinction in its financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all period presented.
The following table provided the balance and activity related to the PPP Loan:
| PPP Loan | $ | 634,400 | ||
| Qualified expenses incurred to date | 634,400 | |||
| Unrecognized government grant income | $ | 0 |
| F-13 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
SHIPPING AND HANDLING FEES AND COSTS:
Revenue earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to customers aggregating approximately $2,780,000 and $3,214,000 for the years ended October 31, 2020 and 2019, 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, 2020 and 2019, the Company had approximately $816,000 and $1,490,000 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, 2020 and 2019, the Company had approximately $1,421,000 and $706,000 in excess of SIPC insured limits, respectively.
RECLASSIFICATION:
Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation. These reclassification adjustments had no effect on the Company’s previously reported net income.
EQUITY METHOD OF ACCOUNTING:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Consolidated Statements of Income; however, the Company’s 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 Company’s carrying value in an equity method Investee company is reflected in the caption “Equity method investments” in the Company’s Consolidated Balance Sheets.
The Company’s 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 $5,016 and $3,769 for the years ended October 31, 2020 and 2019, respectively. The net value of this investment as presented on our consolidated balance sheet at October 31, 2020 and 2019 was $80,992 and $86,008, respectively. (2) On October 15, 2020 the Company acquired a 49% interest in Jordre Well LLC, a company that will produce CBD infused products. The investment was made in newly issued stock. The Company issued 139,250 shares to be paid at closing. The price of the stock on October 15, 2020 was $3.45 for a value of $480,413. As of October 31, 2020 there was no activity.
| F-14 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
Effective November 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”). The new guidance increases transparency by requiring the recognition of right to use assets and lease liabilities on the statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous US GAAP requirement, which did not require lease assets and lease liabilities to be recognized for most operating leases.
The recognition, measurement and presentation of expenses and cash flows arising from a lease, have not significantly changed from previous US GAAP requirements.
On November 1, 2019, the effective date of ASC 842, existing leases of the Company were required to be recognized and measured. Additionally any leases entered into during the year were also required to recognized and measured. In applying ASC 842, the Company made an accounting policy election not to recognize the right of use assets and lease liabilities relating to short-term leases. Implementation of ASC 842 included an analysis of contracts, including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of the right to use assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates to apply in determining the lease liabilities.
The new standard provides a number of transition practical expedients, which the Company has elected, including:
● A “package of three” expedients that must be taken together and allow entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases, and
● An implementation expedient which allows the requirements of the standard in the period of adoption with no restatement of prior periods.
The adoption of ASC 842 resulted in the recording of operating lease right of use assets of $2,512,022 and operating lease liabilities of $2,705,484 at November 1, 2019.
The Company implemented ASC 842 using the modified retrospective approach. In addition, at November 1, 2019, there was no impact to stockholder’s equity upon adoption.
The Company determines if an arrangement is or contains a lease at inception. The Company’s operating lease arrangement are comprised of real estate and facility leases. Right of use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right of use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As the Company’s leases do not provide an implicit rate and the implicit rate is not readily determinable, the Company estimates its incremental borrowing rate based on the information available at the measurement date in determining the present value of the lease payments. The present value of the lease payments was determined using a 4.75% incremental borrowing rate. Right of use assets also exclude lease incentives.
The Company presents the amortization of its right to use assets and payments of related lease liabilities originating in connection with operating leases as an adjustment to reconcile net income or loss to net cash generated or used in operating activities and an operating cash outflow, respectively within the operating section of the statement of cash flows.
| F-15 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 4 - INVENTORIES:
Inventories at October 31, 2020 and 2019 consisted of the following:
| 2020 | 2019 | |||||||
| Packed coffee | $ | 3,590,709 | $ | 4,044,279 | ||||
| Green coffee | 11,390,668 | 12,515,124 | ||||||
| Roaster parts | 381,617 | 419,077 | ||||||
| Packaging supplies | 1,739,999 | 1,862,745 | ||||||
| Totals | $ | 17,102,993 | $ | 18,841,225 | ||||
NOTE 5 – EQUITY METHOD INVESTMENT:
On October 15, 2020, The Ideation Lab, LLC (“TIL”), Jordre Well, LLC (“Jordre Well”), an entity created by TIL and the Company entered into a Contribution and Equity Purchase Agreement. TIL contributed 100% of its assets to Jordre Well in exchange for 100 common units. TIL, immediately following the contribution, sold 49 common units of Jordre Well to the Company for up to 278,500 shares of the Company’s common stock, payable as follows: (a) 139,250 shares of the Company’s common stock on October 15, 2020 and (b) an additional 139,250 shares of its common stock when Jordre Well generates $500,000 in revenue from the sale of its newly created brands. This was accounted for as an equity method investment.
NOTE 6 - MACHINERY AND EQUIPMENT:
Machinery and equipment at October 31, 2020 and 2019 consisted of the following:
| Estimated
Useful Life | 2020 | 2019 | ||||||||
| Improvements | 15-30 years | $ | 233,766 | $ | 228,201 | |||||
| Machinery and equipment | 7 years | 8,492,395 | 8,035,223 | |||||||
| Furniture and fixtures | 7 years | 1,082,022 | 1,082,022 | |||||||
| 9,808,183 | 9,345,446 | |||||||||
| Less, accumulated depreciation | 7,610,864 | 6,931,913 | ||||||||
| $ | 2,197,319 | $ | 2,413,533 | |||||||
Depreciation expense totaled $678,951 and $680,085 for the years ended October 31, 2020 and 2019, respectively.
| F-16 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 7 - LINE OF CREDIT:
On April 25, 2017 the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.
On March 13, 2020, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement, among other things: (i) provides for a new maturity date of March 31, 2022 and (ii) decreases the interest rate per annum to LIBOR plus 1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A7R Loan Agreement and A&R Loan Facility remain the same.
Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. The Company was in compliance with all covenants as of October 31, 2020 and October 31, 2019.
Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all tangible and intangible assets of the Company. Other than as amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.
As of October 31, 2020 and October 31, 2019, the outstanding balance under the bank line of credit was $3,796,822 and $7,167,740, respectively.
| F-17 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 8 - INCOME TAXES:
The Company’s (benefit)/provision for income taxes in 2020 and 2019 consisted of the following:
| 2020 | 2019 | |||||||
| Current | ||||||||
| Federal | $ | 187,140 | $ | 10,172 | ||||
| State and local | 62,499 | 68,974 | ||||||
| 249,639 | 79,146 | |||||||
| Deferred | ||||||||
| Federal | (229,355 | ) | (45,323 | ) | ||||
| State and local | (61,997 | ) | (4,615 | ) | ||||
| (291,352 | ) | (49,938 | ) | |||||
| Income tax (benefit)/expense | $ | (41,713 | ) | $ | 29,208 | |||
A reconciliation of the difference between the expected income tax rate using the statutory U.S. federal tax rate and the Company’s effective tax rate is as follows:
| 2020 | 2019 | |||||||
| (Benefit) tax at the federal statutory rate | $ | (79,329 | ) | $ | 61,575 | |||
| Other permanent differences | 52,537 | (45,107 | ) | |||||
| State and local tax, net of federal | (14,921 | ) | 12,740 | |||||
| (Benefit) provision for income taxes | $ | (41,713 | ) | $ | 29,208 | |||
| Effective income tax rate | 11 | % | 10 | % | ||||
| F-18 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 8 - INCOME TAXES (cont’d):
The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2020 and 2019 are as follows:
| 2020 | 2019 | |||||||
| Deferred tax assets: | ||||||||
| Accounts receivable | $ | 36,468 | $ | 36,802 | ||||
| Unrealized loss | 140,136 | |||||||
| Deferred rent | 36,810 | 49,442 | ||||||
| Deferred compensation | 70,035 | 96,720 | ||||||
| Net operating loss | 70,275 | 82,973 | ||||||
| Stock-based compensation | 340,715 | 121,880 | ||||||
| Inventory | 87,736 | 92,656 | ||||||
| Total deferred tax asset | $ | 782,175 | $ | 480,473 | ||||
| Deferred tax liability: | ||||||||
| Intangible assets acquired | 484,932 | 484,932 | ||||||
| Unrealized gain | 32,656 | |||||||
| Fixed assets | 397,650 | $ | 354,644 | |||||
| Total deferred tax liabilities | $ | 882,582 | $ | 872,232 | ||||
A valuation allowance was not provided at October 31, 2020 or 2019. 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.
As of October 31, 2020 and 2019, the Company did not have any unrecognized tax benefits or open tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of October 31, 2020 and 2019, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.
| F-19 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 8 - INCOME TAXES (cont’d):
The Company files a U.S. federal income tax return and California, Colorado, Connecticut, Idaho, Kansas, Michigan, New Jersey, New York, New York City, Virginia, Texas, Rhode Island, South Carolina, and Oregon state tax returns. The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for years before fiscal 2017. The Company’s California, Colorado and New Jersey and Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2016. The Company’s Oregon, New York, Kansas, South Carolina, Rhode Island, Connecticut and Michigan income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2017.
On March 27, 2020 Congress enacted the CARES Act (Coronavirus Aid, Relief and Economic Security Act). The Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding prior and future operation losses, temporary changes to prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property and enhanced recoverability of AMT tax credits. The Company is currently evaluating the impact of the CARES Act, but at present does not expect any impact.
As of October 31, 2020, and 2019, the Company had cumulative net operating loss carryforwards of approximately $334,642 and $395,111 respectively, which begin to expire in 2038. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards is subject to an annual limitation of $60,469. These net operating loss carryforwards may be may be further limited in the event of a change in ownership.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
CLASS ACTION COMPLAINT
The Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Illinois on or about December 21, 2020. The plaintiffs, Eileen Brodsky and Rhonda Diamond, purporting to represent a class of individuals who purchased coffee products at Aldi, Inc. (“Aldi”), a supermarket chain, generally allege that Aldi sold private label coffee products manufactured by us and by Pan American Coffee Co., LLC (“Pan American”), which falsely described the number of cups of coffee that could be made from the amount of product purchased. Aldi and Pan American are also named as defendants in the action. The complaint asserts a variety of claims under New York and California consumer protection laws, and seeks unspecified monetary damages, including disgorgement and restitution, as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believes the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and the company intends to vigorously defend the action. As of the filing of this Form 10-K, the Company has not been served with the complaint. Therefore, the Company is unable to predict the ultimate outcome of this lawsuit.
A significant customer of the Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the District of Massachusetts on or about February 2, 2021, concerning the labeling on private label coffee productions we sold to the customer. The plaintiff, David Cohen, purporting to represent a class of individuals who purchased coffee products from our customer, generally allege that the customer sold private label coffee products manufactured by the Company which falsely described the number of cups of coffee that could be made from the amount of product purchased. The Company is not named as a defendant in the action, but has agreed to indemnify the customer for the costs and expenses incurred in defending the lawsuit and for any liability the customer may suffer as a result. The complaint asserts a variety of claims under Massachusetts consumer protection laws, and seeks unspecified monetary damages as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believes the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and intends to vigorously support the customer in defending the action. As of the filing of this Form 10-K, the Company is unable to predict the ultimate outcome of this lawsuit.
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. Operating lease costs amounted to $95,504 for the years ended October 31, 2020 and 2019.
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. Operating lease costs amounted to $175,640 and $143,171 for the years ended October 31, 2020 and 2019, respectively. 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, expired on March 31, 2017. The lease was extended, effective as of April 1, 2017 and expiring on March 31, 2019. The lease was extended, effective as of April 1, 2019 and expiring on March 31, 2021. Operating lease costs amounted to $41,150 and $39,960 for the years ended October 31, 2020 and 2019, respectively.
In December 2016, the Company entered into a lease for office and warehouse space in Burlington, WA. This lease, which is at a monthly rental beginning December 1, 2017, expired on December 31, 2018. The lease was extended, effective January 1, 2019 and expiring on December 31, 2020. The lease was extended, effective January 1, 2021 and expiring on December 21, 2021. Operating lease costs amounted to $32,924 and $47,143 for the years ended October 31, 2020 and 2019, respectively.
In April 2017, the Company entered into a lease for office and warehouse space in North Andover, MA. This lease, which is at a monthly rental beginning April 1, 2017, expires on May 31, 2028 and includes charges for common areas and utilities. Operating lease costs amounted to $235,710 and $233,754 for the years ended October 31, 2020 and 2019, respectively.
In April 2018, the Company through its joint venture Generations Coffee Company, LLC entered into a lease for office and warehouse space in Madison, WI. This lease, which is at a monthly rental beginning April 1, 2018, expires on September 30, 2024 and includes charges for common areas and utilities. Operating lease costs amounted to $169,244 and $117,149 for the years ended October 31, 2020 and 2019, respectively.
| F-20 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 9 - COMMITMENTS AND CONTINGENCIES (cont’d):
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. Our material leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Total operating lease costs for the year ended October 31, 2020 was $750,172, of which, $131,730 was included within cost of goods sold and $618,442 was recorded in the selling and administrative expenses. The aggregate cash payments under these leasing agreements was $597,945 for the year ended October 31, 2020.
The following summarizes the Company’s operating leases:
| October 31, 2020 | ||||
| Right-of-use operating lease assets | $ | 2,114,228 | ||
| Current lease liability | $ | 484,163 | ||
| Non-current lease liability | $ | 1,780,306 | ||
| Average remaining lease term | 3.0 | |||
| Discount rate | 4.75 | % | ||
Maturities of lease liabilities by year for our operating leases are as follows:
| 2021 | $ | 580,788 | ||
| 2022 | 535,920 | |||
| 2023 | 531,807 | |||
| 2024 | 316,477 | |||
| 2025 | 168,288 | |||
| Thereafter | 434,744 | |||
| Total lease payments | $ | 2,568,024 | ||
| Less: imputed interest | (303,555 | ) | ||
| Present value of operating lease liabilities | $ | 2,264,469 |
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 $81,384 and $89,577 for the years ended October 31, 2020 and 2019, respectively.
| F-21 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 10 - ECONOMIC DEPENDENCY:
Approximately 23% of the Company’s sales were derived from six customers during the year ended October 31, 2020. These customers also accounted for approximately $2,076,000 or 28% of the Company’s accounts receivable balance at October 31, 2020. Approximately 19% of the Company’s sales were derived from five customers during the year ended October 31, 2019. These customers also accounted for approximately $3,109,000 or 33% of the Company’s accounts receivable balance at October 31, 2019. 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, 2020, approximately 23% of the Company’s purchases were from six vendors. These vendors accounted for approximately $468,000 of the Company’s accounts payable at October 31, 2020. For the year ended October 31, 2019, approximately 26% of the Company’s purchases were from six vendors. These vendors accounted for approximately $1,005,000 of the Company’s accounts payable at October 31, 2019. Management does not believe the loss of any one vendor would have a material adverse effect of the Company’s operations due to the availability of many alternate suppliers.
The following table presents revenues by product line for the years ended October 31, 2020 and 2019.
| 2020 | 2019 | |||||||
| Green | $ | 23,912,022 | $ | 32,849,195 | ||||
| Packaged | 50,423,793 | 53,618,237 | ||||||
| Totals | $ | 74,335,815 | $ | 86,467,432 | ||||
NOTE 11 - 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, 2020 and 2019 of $380,838 and $401,227, respectively.
An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately $5,300,000 and $8,300,000 for the years ended October 31, 2020 and 2019, respectively. The corresponding accounts payable balance to this vendor was approximately $0 and $840,000 at October 31, 2020 and 2019, 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, 2020 and 2019 was $276,548 and $378,453, respectively. Deferred compensation expenses included in officers’ salaries were $0 during the years ended October 31, 2020 and 2019, respectively.
| F-22 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 12 - STOCKHOLDERS’ EQUITY:
| 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 did not purchase any shares during the years ended October 31, 2020 and 2019. | |
| b. | Stock Options. The Company has an incentive stock plan, the 2013 Equity Compensation Plan (the “2013 Plan”), and on April 19, 2019, has granted stock options to employees, officers and non-employee directors from the 2013 Plan. Options granted under the 2013 Plan may be Incentive Stock Options or Nonqualified Stock Options, as determined by the Administrator at the time of grant. As of January 31, 2020, the Board of Directors approved 1,000,000 options. | |
| During the year ended October 31, 2019, the Company granted stock option awards to five board members to purchase an aggregate 59,000 shares of the Company’s common stock at $5.43 per share. |
The stock options have an expected term of six years and will vest over a twelve month service period.
The stock options have an aggregate grant date fair value of approximately $233,050. The Company also granted stock option awards to certain officers and employees to purchase an aggregate of 941,000 shares of the Company’s common stock at an exercise price of $5.43 per share. The stock options have an expected term of six years and will vest over a three year service period. These stock options have an aggregate grant date fair value of approximately $2,277,220.
The following table represents stock option activity for the year ended October 31, 2020:
| Stock Options | Exercise Price | Contractual Life | Aggregate Intrinsic | |||||||||||||||||||||
| Outstanding | Exercisable | Outstanding | Exercisable | (Years) | Value | |||||||||||||||||||
| Balance October 31, 2019 | 1,000,000 | - | $ | 5.43 | - | 10 | - | |||||||||||||||||
| Exercised | - | - | - | - | - | - | ||||||||||||||||||
| Cancelled | - | - | - | - | - | - | ||||||||||||||||||
| Balance October 31, 2020 | 1,000,000 | - | $ | 5.43 | - | 10 | - | |||||||||||||||||
| Stock Options | Exercise Price | Contractual Life | Aggregate Intrinsic | |||||||||||||||||||||
| Outstanding | Exercisable | Outstanding | Exercisable | (Years) | Value | |||||||||||||||||||
| Balance October 31, 2018 | - | - | - | - | - | - | ||||||||||||||||||
| Granted | 1,000,000 | $ | 5.43 | - | 10 | - | ||||||||||||||||||
| Exercised | - | - | - | - | - | - | ||||||||||||||||||
| Cancelled | - | - | - | - | - | - | ||||||||||||||||||
| Balance October 31, 2019 | 1,000,000 | - | $ | 5.43 | - | 10 | - | |||||||||||||||||
The Company recorded $868,477 and $476,899 of stock-based compensation during the years ended October 31, 2020 and 2019, respectively.
The unrecognized stock compensation expense as of October 31, 2020 was approximately $1,164,894.
| F-23 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 13 - 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 Company’s deferred compensation plan is disclosed in Note 11.
The Company’s 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 Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
| F-24 |
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2020 AND 2019
NOTE 13 - FAIR VALUE MEASUREMENTS (cont’d):
| Fair Value Measurements as of October 31, 2020 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Money market | 276,548 | 276,548 | – | – | ||||||||||||
| Total Assets | $ | 276,548 | $ | 276,548 | $ | - | – | |||||||||
| Liabilities: | ||||||||||||||||
| Commodities - Futures | (287,850 | ) | (287,850 | ) | ||||||||||||
| Commodities – Options | (164,475 | ) | – | (164,475 | ) | – | ||||||||||
| Total Liabilities | $ | (452,325 | ) | – | $ | (452,325 | ) | – | ||||||||
| Fair Value Measurements as of October 31, 2019 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Money market | 378,453 | 378,453 | – | – | ||||||||||||
| Commodities – Futures | 159,887 | 159,887 | ||||||||||||||
| Total Assets | $ | 538,340 | $ | 378,453 | $ | 159,887 | – | |||||||||
| Liabilities: | ||||||||||||||||
| Commodities – Options | (58,856 | ) | – | (58,856 | ) | – | ||||||||||
| Total Liabilities | $ | (58,856 | ) | – | $ | (58,856 | ) | – | ||||||||
NOTE 14 - 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 consolidated financial statements.
| F-25 |
Exhibit 4.2
DESCRIPTION OF CAPITAL STOCK
The following is a summary of all material characteristics of our capital stock as set forth in our articles of incorporation and bylaws. The summary does not purport to be complete and is qualified in its entirety by reference to our articles of incorporation and bylaws and applicable provisions of the Nevada Revised Statutes, as amended (“NRS”).
Common Stock
We are authorized to issue 30,000,000 shares of common stock with a par value of $0.001 per share. As of January 25, 2021, there were 5,742,894 shares of common stock issued and outstanding.
The following summary of the terms of our common stock is subject to and qualified in its entirety by reference to our articles of incorporation and bylaws, copies of which are on file with the SEC as exhibits to previous SEC filings.
Voting Rights
Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of stockholders. There are no cumulative voting rights. Removal of directors requires the vote, in addition to any vote required by law, of not less than eighty percent (80%) of the total votes eligible to be cast by the holders of all outstanding shares of capital stock entitled to vote generally in the election of directors at a meeting of stockholders expressly called for that purpose. The approval of the holders of at least eighty percent (80%) of the outstanding shares of voting stock of the Corporation is required in connection with certain “Business Combinations” with an Interested Stockholder, as defined in the NRS, after the expiration of three years after the date the person becomes an Interested stockholder, except in cases where the proposed Business Combination has been approved in advance by a majority of those members of the board of directors who are unaffiliated with the Interested Stockholder and who were directors prior to the time when the Interested Stockholder became an Interested Stockholder. Any alteration, amendment, repeal or rescission of any provision of our articles of incorporation must be approved by the affirmative vote of the holders of at least eighty percent (80%) of the total votes eligible to be cast by the holders of all outstanding shares of capital stock entitled to vote thereon; provided, however, if a majority of the board of directors recommends the change, then such change shall only require the affirmative vote of the holders of a majority of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon. Any bylaw may be altered, amended, rescinded, or repealed by the holders of eighty percent (80%) of the shares of capital stock entitled to vote thereon at any annual meeting or at any special meeting called for that purpose. Notwithstanding the foregoing, any provision of the bylaws that contains a supermajority voting requirement shall only be altered, amended, rescinded, or repealed by a vote of the board of directors or holders of shares of capital stock entitled to vote thereon that is not less than the supermajority specified in such provision.
Dividends
Each stockholder is entitled to receive the dividends as may be declared by our board of directors out of funds legally available for dividends and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities. Our board of directors is not obligated to declare a dividend. Any future dividends will be subject to the discretion of our board of directors and will depend upon, among other things, future earnings, the operating and financial condition of our company, its capital requirements, general business conditions and other pertinent factors.
Other Rights
Upon liquidation, dissolution or winding up of the corporation, the holders of common stock are entitled to share ratably in all net assets available for distribution to stockholders after payment to creditors. Our common stock is not convertible or redeemable and has no preemptive, subscription or conversion rights. There is no conversion, redemption, sinking fund or similar provisions regarding our common stock.
Transfer Agent
The transfer agent and registrar for our Common Stock is Direct Transfer LLC. Its address is 500 Perimeter Park Drive, Suite D, Morrisville, North Carolina 27560 and its telephone number is (919) 481-4000. The transfer agent and registrar for any series or class of preferred stock will be set forth in the applicable prospectus supplement.
Preferred Stock
We are authorized to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share, with such designations, rights, and preferences as may be determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock could have the effect of restricting dividends on our common stock (if any are declared), diluting the voting power of our common stock, impairing the liquidation rights of our common stock, or delaying or preventing a change in control of our company, all without further action by our stockholders. As of the date of this Annual Report on Form 10-K, no shares of our preferred stock were outstanding.
Stock Options
We had issued and outstanding options to purchase up to 1,000,000 shares of common stock, exercisable at $5.43 per share.
Anti-Takeover Effects of Certain Provisions of Nevada Law and Our Articles of Incorporation and Bylaws
Our articles of incorporation and bylaws contain a number of provisions that could make our acquisition by means of a tender or exchange offer, a proxy contest or otherwise more difficult. Certain of these provisions are summarized below.
Classified Board of Directors
Pursuant to our articles of incorporation, the directors constituting our board of directors are classified, with respect to the time for which they severally hold office, into three classes as nearly equal in number as possible. At each annual meeting of stockholders, the successors of the class of directors whose term expires at that meeting are elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The articles of incorporation do provide, however, that directors may be removed at any time upon the approval of eighty percent (80%) of the total votes eligible to be cast by the holders of all outstanding shares of capital stock entitled to vote at a meeting expressly called by stockholders for such purpose.
Our classified board of directors may have an anti-takeover effect of making more difficult and discouraging a takeover attempt, merger, tender offer, or proxy fight. Additionally, our classified board of directors extends the time it would take for holders of a majority of our shares to remove incumbent management to obtain control of the board of directors. That is, as a general matter a majority shareholder could not obtain control of the board of directors until the second annual shareholder’s meeting after it acquired a majority of the voting stock. Our classified board of directors may have the effect of making it more difficult for stockholders to remove our existing management.
Special Meetings
Our articles of incorporation provide that special meetings of our stockholders may, unless otherwise prescribed by law, be called only by resolution of a majority of the directors of the board then in office, by resolution of a majority of the disinterested directors then in office, or upon written application, by stockholders holding at least 80% of the capital stock entitled to vote at the meeting. Our stockholders are not permitted to act by written consent pursuant to our articles of incorporation.
Business Combinations Act
The Business Combinations Act, Sections 78.411 to 78.444 of the NRS, restricts the ability of a Nevada “resident domestic corporation” having at least 200 stockholders of record to engage in any “combination” with an “interested stockholder” for two (2) years after the date that the person first became an interested stockholder, unless the combination meets all of the requirements of the articles of incorporation of the resident domestic corporation and (i) the purchase of shares by the interested stockholder is approved by the board of directors before that date or (ii) the combination is approved by the board of directors of the resident domestic corporation and, at or after that time, the combination is approved at an annual or special meeting of the stockholders of the resident domestic corporation, and not by written consent, by the affirmative vote of the holders of stock representing at least sixty percent (60%) of the outstanding voting power of the resident domestic corporation not beneficially owned by the interested stockholder or the affiliates or associates of the interested stockholder.
If this approval is not obtained, then after the expiration of the two (2) year period, the business combination may still not be consummated unless it is a combination meeting all of the requirements of the articles of incorporation of the resident domestic corporation and either the “fair price” requirements specified in NRS 78.441 to 78.444, inclusive are satisfied or the combination is (a) a combination or transaction by which the person first became an interested stockholder is approved by the board of directors of the resident domestic corporation before the person first became an interested stockholder, or (b) a combination approved by a majority of the outstanding voting power of the resident domestic corporation not beneficially owned by the interested stockholder, or any affiliate or associate of the interested stockholder.
“Interested stockholder” means any person, other than the resident domestic corporation or its subsidiaries, who is (a) the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the resident domestic corporation or (b) an affiliate or associate of the resident domestic corporation and at any time within two years immediately before the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding shares of the resident domestic corporation.
A “combination” is broadly defined and includes, for example, any merger or consolidation of a corporation or any of its subsidiaries with (i) an interested stockholder or (ii) any other entity that after and as a result of the merger or consolidation would be an affiliate or associate of the interested stockholder; or any sale, lease, exchange, pledge, transfer or other disposition of assets of the corporation, in one transaction or a series of transactions, to or with an interested stockholder having: (x) an aggregate market value equal to more than 5% of the aggregate market value of the assets of a corporation, (y) an aggregate market value equal to more than 5% of the aggregate market value of all outstanding voting shares of a corporation, or (z) representing more than 10% of the earning power or net income of a corporation.
The provisions of Nevada law, our articles of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Limitations of Director Liability and Indemnification of Directors, Officers and Employees
Neither our articles of incorporation nor bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the NRS. NRS Section 78.7502, provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein. NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
EXHIBIT 21.1
COFFEE HOLDING CO., INC.
Significant Subsidiaries
| Name of Entity | Jurisdiction | |
| Organic Products Trading Company, LLC | United States, Washington |
EXHIBIT 31.1
Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Andrew Gordon, certify that:
| 1. | I have reviewed this annual report on Form 10-K for the period ended October 31, 2020 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: February 16, 2021 | /s/ Andrew Gordon |
| Andrew Gordon | |
| President, Chief Executive Officer, Chief Financial Officer and Treasurer | |
| (Principal Executive Officer, Principal Financial Officer, Chief Accounting Officer) |
EXHIBIT 32.1
Statement Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
The undersigned, Andrew Gordon, is the President, Chief Executive Officer and Chief Financial Officer of Coffee Holding Co., Inc. (the “Company”).
This statement is being furnished in connection with the filing by the Company of the Company’s Annual Report on Form 10-K for the period ended October 31, 2020 (the “Report”).
By execution of this statement, I certify that:
| 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. |
This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to Coffee Holding Co., Inc. and will be retained by Coffee Holding Co., Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: February 16, 2021 | /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, 2020 |
Jan. 20, 2021 |
Apr. 30, 2020 |
|
| Cover [Abstract] | |||
| Entity Registrant Name | COFFEE HOLDING CO INC | ||
| Entity Central Index Key | 0001007019 | ||
| Document Type | 10-K | ||
| Document Period End Date | Oct. 31, 2020 | ||
| Amendment Flag | false | ||
| Current Fiscal Year End Date | --10-31 | ||
| Entity Well-known Seasoned Issuer | No | ||
| Entity Voluntary Filers | No | ||
| Entity Current Reporting Status | Yes | ||
| Entity Interactive Data Current | Yes | ||
| Entity Filer Category | Non-accelerated Filer | ||
| Entity Small Business Flag | true | ||
| Entity Emerging Growth Company | false | ||
| Entity Shell Company | false | ||
| Entity Public Float | $ 13,910,209 | ||
| Entity Common Stock, Shares Outstanding | 5,708,599 | ||
| Document Fiscal Period Focus | FY | ||
| Document Fiscal Year Focus | 2020 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts | $ 144,000 | $ 144,000 |
| Accumulated depreciation | 7,610,864 | 6,931,913 |
| Customer list and relationships, accumulated amortization | 194,379 | 151,627 |
| Non-compete, accumulated amortization | $ 49,500 | $ 29,700 |
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | ||
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 30,000,000 | 30,000,000 |
| Common stock, shares issued | 6,633,930 | 6,494,680 |
| Common stock, shares outstanding | 5,708,599 | 5,569,349 |
| Treasury stock, shares | 925,331 | 925,331 |
Consolidated Statements of Operations (Parenthetical) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Income Statement [Abstract] | ||
| Related party costs | $ 5,300,000 | $ 8,300,000 |
Consolidated Statements of Changes in Stockholders' Equity - USD ($) |
Common Stock [Member] |
Treasury Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Non-Controlling Interest [Member] |
Total |
|---|---|---|---|---|---|---|
| Beginning balance at Oct. 31, 2018 | $ 6,494 | $ (4,633,560) | $ 16,104,075 | $ 13,404,767 | $ 1,108,042 | $ 25,989,818 |
| Beginning balance, shares at Oct. 31, 2018 | 5,569,349 | 925,331 | ||||
| Stock Compensation | 476,899 | 476,899 | ||||
| Non-Controlling Interest | 358,604 | 358,604 | ||||
| Net loss | (94,598) | (94,598) | ||||
| Ending balance at Oct. 31, 2019 | $ 6,494 | $ (4,633,560) | 16,580,974 | 13,310,169 | 1,466,646 | 26,730,723 |
| Ending balance, shares at Oct. 31, 2019 | 5,569,349 | 925,331 | ||||
| Stock Compensation | 868,477 | 868,477 | ||||
| Stock issuance equity investment | $ 140 | 480,273 | 480,413 | |||
| Stock issuance equity investment, shares | 139,250 | |||||
| Non-Controlling Interest | (241,743) | (241,743) | ||||
| Net loss | (94,301) | (94,301) | ||||
| Ending balance at Oct. 31, 2020 | $ 6,634 | $ (4,633,560) | $ 17,929,724 | $ 13,215,868 | $ 1,224,903 | $ 27,743,569 |
| Ending balance, shares at Oct. 31, 2020 | 5,708,599 | 925,331 |
Consolidated Statements of Cash Flows (Parenthetical) |
Oct. 15, 2020
shares
|
|---|---|
| Jordre Well, LLC [Member] | |
| Exchange of shares | 139,250 |
Business Activities |
12 Months Ended |
|---|---|
Oct. 31, 2020 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Business Activities | NOTE 1 - 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 Company’s 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 Company’s own specifications and packaged and sold under the Company’s eight proprietary and licensed brand names in different segments of the market.
The Company’s 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 Company’s 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 Company’s 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 Company’s 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.
COVID-19
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, mandated closures and stay-at-home orders, and created significant disruption of the financial markets. During the third quarter the Company received an unsecured loan in the amount of $634,400 (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”). Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount can be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its future adherence to the forgiveness criteria.
The continuing impact on the Company’s business including the decrease in our sales, the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including its ability to obtain products from global suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, has contributed to and may continue to have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. At this time the full impact could not be determined. |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”). All significant inter-company balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes, contingencies, and valuation of financial instruments. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts.
CASH:
Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms.
ACCOUNTS RECEIVABLE:
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from its customers. The allowances are summarized as follows:
INVENTORIES:
Inventories are stated at the lower of cost (first in, first out basis) or net realizable value, including provisions for obsolescence commensurate with known or estimated exposures. There are no reserves for obsolescence as of October 31, 2020 and 2019.
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 Company’s trading account, which consists of option and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings.
At October 31, 2020, the Company held 48 futures contracts (generally with terms of three to four months) for the purchase of 1,800,000 pounds of green coffee at a weighted average price of $1.158 per pound. The fair market value of coffee applicable to such contracts was $1.044 per pound at that date.
At October 31, 2019, the Company held 124 futures contracts (generally with terms of three to four months) for the purchase of 4,650,000 pounds of green coffee at a weighted average price of $.986 per pound. The fair market value of coffee applicable to such contracts was $1.02 per pound at that date.
Included in cost of sales for the years ended October 31, 2020 and 2019, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
GOODWILL AND TRADEMARKS:
The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill and trademarks are not amortized but are assigned to a specific reporting unit or asset class and tested for impairment at least annually or upon the occurrence of an event or when circumstances indicate that the reporting unit’s carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2020 and 2019, the Company has determined by using a qualitative assessment that an impairment did not exist.
CUSTOMER LIST AND RELATIONSHIPS:
Customer list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition of OPTCO, Comfort Foods, Sonofresco and Steep & Brew which are being amortized on the straight-line method over their estimated useful life of twenty years.
ADVERTISING:
The Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $149,505 and $449,678 for the years ended October 31, 2020 and 2019, 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE:
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution. The Company has issued 1,000,000 options as of October 31, 2019, they have not been included in the calculation of diluted earnings per share because of their anti-dilutive value for the years presented in this financial statement.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,575,453 and 5,569,349 for the years ended October 31, 2020 and 2019, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying amount of the bank line of credit borrowings approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 606 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 10 for revenue disaggregated by product line.
PAYCHECK PROTECTION PROGRAM:
On July 22, 2020, the Company received loan proceeds of $634,400 under the Paycheck Protection Program (“PPP”). The PPP, which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels, as defined by the PPP. At least 60% of the amount forgiven must be attributable to payroll costs, as defined by the PPP.
The PPP loan matures five years from the date of the first disbursement of proceeds to the Company and accrues interest at a fixed rate of 1%. Payments are deferred for at least the first six months and payable in 54 equal consecutive monthly installments of principal and interest commencing upon expiration of the deferral period of the PPP loan date.
U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances outlined below, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a forgivable loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”, however, based on certain interpretations, it is analogous to “probable” as defined in FASB ASC 450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a more clear distinction in its financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all period presented.
The following table provided the balance and activity related to the PPP Loan:
SHIPPING AND HANDLING FEES AND COSTS:
Revenue earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to customers aggregating approximately $2,780,000 and $3,214,000 for the years ended October 31, 2020 and 2019, 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, 2020 and 2019, the Company had approximately $816,000 and $1,490,000 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, 2020 and 2019, the Company had approximately $1,421,000 and $706,000 in excess of SIPC insured limits, respectively.
RECLASSIFICATION:
Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation. These reclassification adjustments had no effect on the Company’s previously reported net income.
EQUITY METHOD OF ACCOUNTING:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Consolidated Statements of Income; however, the Company’s 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 Company’s carrying value in an equity method Investee company is reflected in the caption “Equity method investments” in the Company’s Consolidated Balance Sheets.
The Company’s 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 $5,016 and $3,769 for the years ended October 31, 2020 and 2019, respectively. The net value of this investment as presented on our consolidated balance sheet at October 31, 2020 and 2019 was $80,992 and $86,008, respectively. (2) On October 15, 2020 the Company acquired a 49% interest in Jordre Well LLC, a company that will produce CBD infused products. The investment was made in newly issued stock. The Company issued 139,250 shares to be paid at closing. The price of the stock on October 15, 2020 was $3.45 for a value of $480,413. As of October 31, 2020 there was no activity. |
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Recently Issued Accounting Pronouncements Affecting the Company |
12 Months Ended |
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Oct. 31, 2020 | |
| Accounting Changes and Error Corrections [Abstract] | |
| Recently Issued Accounting Pronouncements Affecting the Company | NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
Effective November 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”). The new guidance increases transparency by requiring the recognition of right to use assets and lease liabilities on the statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous US GAAP requirement, which did not require lease assets and lease liabilities to be recognized for most operating leases.
The recognition, measurement and presentation of expenses and cash flows arising from a lease, have not significantly changed from previous US GAAP requirements.
On November 1, 2019, the effective date of ASC 842, existing leases of the Company were required to be recognized and measured. Additionally any leases entered into during the year were also required to recognized and measured. In applying ASC 842, the Company made an accounting policy election not to recognize the right of use assets and lease liabilities relating to short-term leases. Implementation of ASC 842 included an analysis of contracts, including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of the right to use assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates to apply in determining the lease liabilities.
The new standard provides a number of transition practical expedients, which the Company has elected, including:
● A “package of three” expedients that must be taken together and allow entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases, and
● An implementation expedient which allows the requirements of the standard in the period of adoption with no restatement of prior periods.
The adoption of ASC 842 resulted in the recording of operating lease right of use assets of $2,512,022 and operating lease liabilities of $2,705,484 at November 1, 2019.
The Company implemented ASC 842 using the modified retrospective approach. In addition, at November 1, 2019, there was no impact to stockholder’s equity upon adoption.
The Company determines if an arrangement is or contains a lease at inception. The Company’s operating lease arrangement are comprised of real estate and facility leases. Right of use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right of use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As the Company’s leases do not provide an implicit rate and the implicit rate is not readily determinable, the Company estimates its incremental borrowing rate based on the information available at the measurement date in determining the present value of the lease payments. The present value of the lease payments was determined using a 4.75% incremental borrowing rate. Right of use assets also exclude lease incentives.
The Company presents the amortization of its right to use assets and payments of related lease liabilities originating in connection with operating leases as an adjustment to reconcile net income or loss to net cash generated or used in operating activities and an operating cash outflow, respectively within the operating section of the statement of cash flows. |
Inventories |
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | NOTE 4 - INVENTORIES:
Inventories at October 31, 2020 and 2019 consisted of the following:
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Equity Method Investment |
12 Months Ended |
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Oct. 31, 2020 | |
| Investments, Debt and Equity Securities [Abstract] | |
| Equity Method Investment | NOTE 5 – EQUITY METHOD INVESTMENT:
On October 15, 2020, The Ideation Lab, LLC (“TIL”), Jordre Well, LLC (“Jordre Well”), an entity created by TIL and the Company entered into a Contribution and Equity Purchase Agreement. TIL contributed 100% of its assets to Jordre Well in exchange for 100 common units. TIL, immediately following the contribution, sold 49 common units of Jordre Well to the Company for up to 278,500 shares of the Company’s common stock, payable as follows: (a) 139,250 shares of the Company’s common stock on October 15, 2020 and (b) an additional 139,250 shares of its common stock when Jordre Well generates $500,000 in revenue from the sale of its newly created brands. This was accounted for as an equity method investment. |
Machinery and Equipment |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Machinery and Equipment | NOTE 6 - MACHINERY AND EQUIPMENT:
Machinery and equipment at October 31, 2020 and 2019 consisted of the following:
Depreciation expense totaled $678,951 and $680,085 for the years ended October 31, 2020 and 2019, respectively. |
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Line of Credit |
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Oct. 31, 2020 | |
| Debt Disclosure [Abstract] | |
| Line of Credit | NOTE 7 - LINE OF CREDIT:
On April 25, 2017 the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.
On March 13, 2020, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement, among other things: (i) provides for a new maturity date of March 31, 2022 and (ii) decreases the interest rate per annum to LIBOR plus 1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A7R Loan Agreement and A&R Loan Facility remain the same.
Each of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany transactions. The Company was in compliance with all covenants as of October 31, 2020 and October 31, 2019.
Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all tangible and intangible assets of the Company. Other than as amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.
As of October 31, 2020 and October 31, 2019, the outstanding balance under the bank line of credit was $3,796,822 and $7,167,740, respectively. |
Income Taxes |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | NOTE 8 - INCOME TAXES:
The Company’s (benefit)/provision for income taxes in 2020 and 2019 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 Company’s 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, 2020 and 2019 are as follows:
A valuation allowance was not provided at October 31, 2020 or 2019. 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.
As of October 31, 2020 and 2019, the Company did not have any unrecognized tax benefits or open tax positions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of October 31, 2020 and 2019, 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, New York City, Virginia, Texas, Rhode Island, South Carolina, and Oregon state tax returns. The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for years before fiscal 2017. The Company’s California, Colorado and New Jersey and Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2016. The Company’s Oregon, New York, Kansas, South Carolina, Rhode Island, Connecticut and Michigan income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2017.
On March 27, 2020 Congress enacted the CARES Act (Coronavirus Aid, Relief and Economic Security Act). The Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding prior and future operation losses, temporary changes to prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property and enhanced recoverability of AMT tax credits. The Company is currently evaluating the impact of the CARES Act, but at present does not expect any impact.
As of October 31, 2020, and 2019, the Company had cumulative net operating loss carryforwards of approximately $334,642 and $395,111 respectively, which begin to expire in 2038. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards is subject to an annual limitation of $60,469. These net operating loss carryforwards may be may be further limited in the event of a change in ownership. |
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | NOTE 9 - COMMITMENTS AND CONTINGENCIES:
CLASS ACTION COMPLAINT
The Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Illinois on or about December 21, 2020. The plaintiffs, Eileen Brodsky and Rhonda Diamond, purporting to represent a class of individuals who purchased coffee products at Aldi, Inc. (“Aldi”), a supermarket chain, generally allege that Aldi sold private label coffee products manufactured by us and by Pan American Coffee Co., LLC (“Pan American”), which falsely described the number of cups of coffee that could be made from the amount of product purchased. Aldi and Pan American are also named as defendants in the action. The complaint asserts a variety of claims under New York and California consumer protection laws, and seeks unspecified monetary damages, including disgorgement and restitution, as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believes the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and the company intends to vigorously defend the action. As of the filing of this Form 10-K, the Company has not been served with the complaint. Therefore, the Company is unable to predict the ultimate outcome of this lawsuit.
A significant customer of the Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the District of Massachusetts on or about February 2, 2021, concerning the labeling on private label coffee productions we sold to the customer. The plaintiff, David Cohen, purporting to represent a class of individuals who purchased coffee products from our customer, generally allege that the customer sold private label coffee products manufactured by the Company which falsely described the number of cups of coffee that could be made from the amount of product purchased. The Company is not named as a defendant in the action, but has agreed to indemnify the customer for the costs and expenses incurred in defending the lawsuit and for any liability the customer may suffer as a result. The complaint asserts a variety of claims under Massachusetts consumer protection laws, and seeks unspecified monetary damages as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believes the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and intends to vigorously support the customer in defending the action. As of the filing of this Form 10-K, the Company is unable to predict the ultimate outcome of this lawsuit.
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. Operating lease costs amounted to $95,504 for the years ended October 31, 2020 and 2019.
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. Operating lease costs amounted to $175,640 and $143,171 for the years ended October 31, 2020 and 2019, respectively. 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, expired on March 31, 2017. The lease was extended, effective as of April 1, 2017 and expiring on March 31, 2019. The lease was extended, effective as of April 1, 2019 and expiring on March 31, 2021. Operating lease costs amounted to $41,150 and $39,960 for the years ended October 31, 2020 and 2019, respectively.
In December 2016, the Company entered into a lease for office and warehouse space in Burlington, WA. This lease, which is at a monthly rental beginning December 1, 2017, expired on December 31, 2018. The lease was extended, effective January 1, 2019 and expiring on December 31, 2020. The lease was extended, effective January 1, 2021 and expiring on December 21, 2021. Operating lease costs amounted to $32,924 and $47,143 for the years ended October 31, 2020 and 2019, respectively.
In April 2017, the Company entered into a lease for office and warehouse space in North Andover, MA. This lease, which is at a monthly rental beginning April 1, 2017, expires on May 31, 2028 and includes charges for common areas and utilities. Operating lease costs amounted to $235,710 and $233,754 for the years ended October 31, 2020 and 2019, respectively.
In April 2018, the Company through its joint venture Generations Coffee Company, LLC entered into a lease for office and warehouse space in Madison, WI. This lease, which is at a monthly rental beginning April 1, 2018, expires on September 30, 2024 and includes charges for common areas and utilities. Operating lease costs amounted to $169,244 and $117,149 for the years ended October 31, 2020 and 2019, respectively.
Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. Our material leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Total operating lease costs for the year ended October 31, 2020 was $750,172, of which, $131,730 was included within cost of goods sold and $618,442 was recorded in the selling and administrative expenses. The aggregate cash payments under these leasing agreements was $597,945 for the year ended October 31, 2020.
The following summarizes the Company’s operating leases:
Maturities of lease liabilities by year for our operating leases 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 $81,384 and $89,577 for the years ended October 31, 2020 and 2019, respectively. |
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Economic Dependency |
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| Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Economic Dependency | NOTE 10 - ECONOMIC DEPENDENCY:
Approximately 23% of the Company’s sales were derived from six customers during the year ended October 31, 2020. These customers also accounted for approximately $2,076,000 or 28% of the Company’s accounts receivable balance at October 31, 2020. Approximately 19% of the Company’s sales were derived from five customers during the year ended October 31, 2019. These customers also accounted for approximately $3,109,000 or 33% of the Company’s accounts receivable balance at October 31, 2019. 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, 2020, approximately 23% of the Company’s purchases were from six vendors. These vendors accounted for approximately $468,000 of the Company’s accounts payable at October 31, 2020. For the year ended October 31, 2019, approximately 26% of the Company’s purchases were from six vendors. These vendors accounted for approximately $1,005,000 of the Company’s accounts payable at October 31, 2019. Management does not believe the loss of any one vendor would have a material adverse effect of the Company’s operations due to the availability of many alternate suppliers.
The following table presents revenues by product line for the years ended October 31, 2020 and 2019.
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Related Party Transactions |
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Oct. 31, 2020 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | NOTE 11 - 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, 2020 and 2019 of $380,838 and $401,227, respectively.
An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately $5,300,000 and $8,300,000 for the years ended October 31, 2020 and 2019, respectively. The corresponding accounts payable balance to this vendor was approximately $0 and $840,000 at October 31, 2020 and 2019, 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, 2020 and 2019 was $276,548 and $378,453, respectively. Deferred compensation expenses included in officers’ salaries were $0 during the years ended October 31, 2020 and 2019, respectively. |
Stockholders' Equity |
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | NOTE 12 - STOCKHOLDERS’ EQUITY:
The stock options have an expected term of six years and will vest over a twelve month service period.
The stock options have an aggregate grant date fair value of approximately $233,050. The Company also granted stock option awards to certain officers and employees to purchase an aggregate of 941,000 shares of the Company’s common stock at an exercise price of $5.43 per share. The stock options have an expected term of six years and will vest over a three year service period. These stock options have an aggregate grant date fair value of approximately $2,277,220.
The following table represents stock option activity for the year ended October 31, 2020:
The Company recorded $868,477 and $476,899 of stock-based compensation during the years ended October 31, 2020 and 2019, respectively.
The unrecognized stock compensation expense as of October 31, 2020 was approximately $1,164,894. |
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Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | NOTE 13 - 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 Company’s deferred compensation plan is disclosed in Note 11.
The Company’s 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 Company’s 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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Subsequent Events |
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Oct. 31, 2020 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | NOTE 14 - 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 consolidated financial statements. |
Summary of Significant Accounting Policies (Policies) |
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| Basis of Presentation | BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”). All significant inter-company balances and transactions have been eliminated in consolidation. |
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| Use of Estimates | USE OF ESTIMATES:
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes, contingencies, and valuation of financial instruments. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts. |
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| Cash | CASH:
Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms. |
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| Accounts Receivable | ACCOUNTS RECEIVABLE:
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
The reserve for sales discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based discounts estimated to be incurred by the Company from its customers. The allowances are summarized as follows:
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| Inventories | INVENTORIES:
Inventories are stated at the lower of cost (first in, first out basis) or net realizable value, including provisions for obsolescence commensurate with known or estimated exposures. There are no reserves for obsolescence as of October 31, 2020 and 2019. |
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| Machinery and Equipment | 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 | COMMODITIES HELD BY BROKER:
The commodities held at broker represent the market value of the Company’s trading account, which consists of option and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings.
At October 31, 2020, the Company held 48 futures contracts (generally with terms of three to four months) for the purchase of 1,800,000 pounds of green coffee at a weighted average price of $1.158 per pound. The fair market value of coffee applicable to such contracts was $1.044 per pound at that date.
At October 31, 2019, the Company held 124 futures contracts (generally with terms of three to four months) for the purchase of 4,650,000 pounds of green coffee at a weighted average price of $.986 per pound. The fair market value of coffee applicable to such contracts was $1.02 per pound at that date.
Included in cost of sales for the years ended October 31, 2020 and 2019, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
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| Goodwill and Trademarks | GOODWILL AND TRADEMARKS:
The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill and trademarks are not amortized but are assigned to a specific reporting unit or asset class and tested for impairment at least annually or upon the occurrence of an event or when circumstances indicate that the reporting unit’s carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2020 and 2019, the Company has determined by using a qualitative assessment that an impairment did not exist. |
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| Customer List and Relationships | CUSTOMER LIST AND RELATIONSHIPS:
Customer list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition of OPTCO, Comfort Foods, Sonofresco and Steep & Brew which are being amortized on the straight-line method over their estimated useful life of twenty years. |
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| Advertising | ADVERTISING:
The Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled $149,505 and $449,678 for the years ended October 31, 2020 and 2019, respectively. |
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| Income Taxes | INCOME TAXES:
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change during the period in deferred tax assets and liabilities. |
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| Earnings Per Share | EARNINGS PER SHARE:
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution. The Company has issued 1,000,000 options as of October 31, 2019, they have not been included in the calculation of diluted earnings per share because of their anti-dilutive value for the years presented in this financial statement.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,575,453 and 5,569,349 for the years ended October 31, 2020 and 2019, respectively. |
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| Fair Value of Financial Instruments | 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 | REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 606 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 10 for revenue disaggregated by product line. |
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| Paycheck Protection Program | PAYCHECK PROTECTION PROGRAM:
On July 22, 2020, the Company received loan proceeds of $634,400 under the Paycheck Protection Program (“PPP”). The PPP, which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels, as defined by the PPP. At least 60% of the amount forgiven must be attributable to payroll costs, as defined by the PPP.
The PPP loan matures five years from the date of the first disbursement of proceeds to the Company and accrues interest at a fixed rate of 1%. Payments are deferred for at least the first six months and payable in 54 equal consecutive monthly installments of principal and interest commencing upon expiration of the deferral period of the PPP loan date.
U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances outlined below, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a forgivable loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”, however, based on certain interpretations, it is analogous to “probable” as defined in FASB ASC 450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a more clear distinction in its financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all period presented.
The following table provided the balance and activity related to the PPP Loan:
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| Shipping and Handling Fees and Costs | SHIPPING AND HANDLING FEES AND COSTS:
Revenue earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to customers aggregating approximately $2,780,000 and $3,214,000 for the years ended October 31, 2020 and 2019, respectively, is included in selling and administrative expenses. |
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| Concentration of Risk | CONCENTRATION OF RISK:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions and brokerage firms.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At October 31, 2020 and 2019, the Company had approximately $816,000 and $1,490,000 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, 2020 and 2019, the Company had approximately $1,421,000 and $706,000 in excess of SIPC insured limits, respectively. |
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| Reclassification | RECLASSIFICATION:
Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation. These reclassification adjustments had no effect on the Company’s previously reported net income. |
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| Equity Method of Accounting | EQUITY METHOD OF ACCOUNTING:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Consolidated Statements of Income; however, the Company’s 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 Company’s carrying value in an equity method Investee company is reflected in the caption “Equity method investments” in the Company’s Consolidated Balance Sheets.
The Company’s 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 $5,016 and $3,769 for the years ended October 31, 2020 and 2019, respectively. The net value of this investment as presented on our consolidated balance sheet at October 31, 2020 and 2019 was $80,992 and $86,008, respectively. (2) On October 15, 2020 the Company acquired a 49% interest in Jordre Well LLC, a company that will produce CBD infused products. The investment was made in newly issued stock. The Company issued 139,250 shares to be paid at closing. The price of the stock on October 15, 2020 was $3.45 for a value of $480,413. As of October 31, 2020 there was no activity. |
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Summary of Significant Accounting Policies (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Receivable | The allowances are summarized as follows:
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| Schedule of Commodities Held by Broker | The Company has open position contracts held by the broker, which are summarized as follows:
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| Schedule of Realized and Unrealized Gains and Losses on Contracts | Included in cost of sales for the years ended October 31, 2020 and 2019, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
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| Schedule of Balance and Activity Related to PPP Loan | The following table provided the balance and activity related to the PPP Loan:
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Inventories (Tables) |
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Oct. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories at October 31, 2020 and 2019 consisted of the following:
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Machinery and Equipment (Tables) |
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Oct. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Machinery and Equipment | Machinery and equipment at October 31, 2020 and 2019 consisted of the following:
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Provision for Income Tax | The Company’s (benefit)/provision for income taxes in 2020 and 2019 consisted of the following:
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| Schedule of Effective Income Tax Rate | A reconciliation of the difference between the expected income tax rate using the statutory U.S. federal tax rate and the Company’s effective tax rate is as follows:
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| Schedule of Deferred Tax Assets and Liabilities | The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2020 and 2019 are as follows:
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Commitments and Contingencies (Tables) |
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Oct. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Leases | The following summarizes the Company’s operating leases:
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| Schedule of Minimum Future Lease Payments | Maturities of lease liabilities by year for our operating leases are as follows:
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Economic Dependency (Tables) |
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Oct. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Risks and Uncertainties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenues by Product Line | The following table presents revenues by product line for the years ended October 31, 2020 and 2019.
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Stockholders' Equity (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock Option Activity | The following table represents stock option activity for the year ended October 31, 2020:
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Fair Value Measurements (Tables) |
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Oct. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Assets and Liabilities Measured at Fair Value | The following tables present the Company’s 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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Business Activities (Details Narrative) - Paycheck Protection Program [Member] |
3 Months Ended |
|---|---|
|
Oct. 31, 2020
USD ($)
| |
| Proceeds from unsecured loan | $ 634,400 |
| Maximum [Member] | |
| Non- payroll costs forgiven amount, percentage | 40.00% |
| Exclude Compensation of Individual Employee [Member] | |
| Payroll costs | $ 100,000 |
Summary of Significant Accounting Policies (Details Narrative) |
12 Months Ended | ||||
|---|---|---|---|---|---|
|
Oct. 15, 2020
USD ($)
$ / shares
shares
|
Oct. 15, 2020
USD ($)
$ / shares
shares
|
Jul. 22, 2020
USD ($)
|
Oct. 31, 2020
USD ($)
Integer
lb
$ / shares
shares
|
Oct. 31, 2019
USD ($)
Integer
lb
$ / shares
shares
|
|
| Reserves for inventory obsolescence | |||||
| Number of futures contracts | Integer | 48 | 124 | |||
| Purchase of futures contracts | lb | 1,800,000 | 4,650,000 | |||
| Futures contracts weighted average price per pound | $ / shares | $ 1.158 | $ 0.986 | |||
| Fair market value of futures contract per pound | $ / shares | $ 1.044 | $ 1.02 | |||
| Advertising cost | $ 149,505 | $ 449,678 | |||
| Anti-dilutive diluted earnings per share | shares | 1,000,000 | ||||
| Weighted average common shares outstanding: basic and diluted | shares | 5,575,453 | 5,569,349 | |||
| Shipping and handling fees | $ 2,780,000 | $ 3,214,000 | |||
| Cash excess of FDIC insured limits | 816,000 | 1,490,000 | |||
| Cash excess of SIPC insured limits | 1,421,000 | 706,000 | |||
| Investments | 100,000 | ||||
| Loss on equity method investments | 5,016 | 3,769 | |||
| Equity method investments | 561,405 | $ 86,008 | |||
| Number of common stock shares issued, shares | shares | 139,250 | ||||
| Number of common stock shares issued | $ 480,413 | ||||
| Healthwise Gourmet Coffees, LLC [Member] | |||||
| Equity method investment, ownership percentage | 20.00% | ||||
| Jordre Well LLC [Member] | |||||
| Equity method investment, ownership percentage | 49.00% | 49.00% | |||
| Number of common stock shares issued, shares | shares | 139,250 | 139,250 | |||
| Share price | $ / shares | $ 3.45 | $ 3.45 | |||
| Number of common stock shares issued | $ 500,000 | $ 480,413 | |||
| Board of Directors [Member] | |||||
| Equity method interest voting securities of investee company | Investee company's board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. | ||||
| Paycheck Protection Program [Member] | |||||
| Proceeds from loan | $ 634,400 | ||||
| Debt description | The PPP, which was established under the Coronavirus Aid, Relief and Economic Security Act ("the CARES Act"), provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels, as defined by the PPP. At least 60% of the amount forgiven must be attributable to payroll costs, as defined by the PPP. | ||||
| Debt term | 5 years | ||||
| Debt interest fixed rate | 1.00% | ||||
| Customer List and Relationships [Member] | |||||
| Finite-lived intangible asset, useful life | 20 years | ||||
| Minimum [Member] | |||||
| Futures contracts term | 3 months | 3 months | |||
| Cash, SIPC insured amount | $ 500,000 | ||||
| Maximum [Member] | |||||
| Futures contracts term | 4 months | 4 months | |||
| Cash, SIPC insured amount | $ 100,000 | ||||
Summary of Significant Accounting Policies - Schedule of Accounts Receivable (Details) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| 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 |
Summary of Significant Accounting Policies - Schedule of Commodities Held by Broker (Details) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Option Contracts | $ (164,475) | $ (58,856) |
| Future Contracts | (287,850) | 159,887 |
| Commodities due (to) from broker | $ (452,325) | $ 101,031 |
Summary of Significant Accounting Policies - Schedule of Realized and Unrealized Gains and Losses on Contracts (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Accounting Policies [Abstract] | ||
| Gross realized gains | $ 1,678,995 | $ 1,307,816 |
| Gross realized (losses) | (1,451,761) | (2,642,537) |
| Unrealized (losses) gains | (553,356) | 123,077 |
| Total | $ (326,122) | $ (1,211,644) |
Summary of Significant Accounting Policies - Schedule of Balance and Activity Related to PPP Loan (Details) |
Oct. 31, 2020
USD ($)
|
|---|---|
| Unrecognized government grant income | $ 0 |
| PPP Loan [Member] | |
| Unrecognized government grant income | 634,400 |
| Qualified Expenses Incurred to Date [Member] | |
| Unrecognized government grant income | $ 634,400 |
Recently Issued Accounting Pronouncements Affecting the Company (Details Narrative) - USD ($) |
Oct. 31, 2020 |
Nov. 02, 2019 |
Oct. 31, 2019 |
|---|---|---|---|
| Operating lease right of use assets | $ 2,114,228 | ||
| Operating lease liabilities | $ 2,264,469 | ||
| Adoption of ASC 842 [Member] | |||
| Operating lease right of use assets | $ 2,512,022 | ||
| Operating lease liabilities | $ 2,705,484 | ||
| Incremental borrowing rate | 4.75% |
Inventories - Schedule of Inventories (Details) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Totals | $ 17,102,993 | $ 18,841,225 |
| Packed Coffee [Member] | ||
| Totals | 3,590,709 | 4,044,279 |
| Green Coffee [Member] | ||
| Totals | 11,390,668 | 12,515,124 |
| Roaster Parts [Member] | ||
| Totals | 381,617 | 419,077 |
| Packaging Supplies [Member] | ||
| Totals | $ 1,739,999 | $ 1,862,745 |
Equity Method Investment (Details Narrative) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Oct. 15, 2020 |
Oct. 15, 2020 |
Oct. 31, 2020 |
|
| Number of common stock shares issued, shares | 139,250 | ||
| Number of common stock shares issued | $ 480,413 | ||
| The Ideation Lab, LLC [Member] | |||
| Equity method investment, ownership percentage | 100.00% | 100.00% | |
| Sale of common units | 49 | ||
| The Ideation Lab, LLC [Member] | Maximum [Member] | |||
| Number of common stock shares issued, shares | 278,500 | ||
| Jordre Well LLC [Member] | |||
| Equity method investment, ownership percentage | 49.00% | 49.00% | |
| Number of common stock unit exchange | 100 | 100 | |
| Number of common stock shares issued, shares | 139,250 | 139,250 | |
| Number of common stock shares issued | $ 500,000 | $ 480,413 | |
Machinery and Equipment (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 678,951 | $ 680,085 |
Machinery and Equipment - Schedule of Machinery and Equipment (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Improvements | $ 233,766 | $ 228,201 |
| Machinery and equipment | 8,492,395 | 8,035,223 |
| Furniture and fixtures | 1,082,022 | 1,082,022 |
| Property plant and equipment gross | 9,808,183 | 9,345,446 |
| Less, accumulated depreciation | 7,610,864 | 6,931,913 |
| Property plant and equipment net | $ 2,197,319 | $ 2,413,533 |
| Improvements [Member] | Minimum [Member] | ||
| Estimated useful life | 15 years | |
| Improvements [Member] | Maximum [Member] | ||
| Estimated useful life | 30 years | |
| Machinery and Equipment [Member] | ||
| Estimated useful life | 7 years | |
| Furniture and Fixtures [Member] | ||
| Estimated useful life | 7 years |
Line of Credit (Details Narrative) - USD ($) |
Mar. 13, 2020 |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|---|
| Line of credit, maximum principal amount | $ 3,796,822 | ||
| Bank Line of Credit [Member] | |||
| Line of credit, maximum principal amount | $ 3,796,822 | $ 7,167,740 | |
| New Loan Modification Agreement and Credit Facility [Member] | |||
| Line of credit expire date | Mar. 31, 2022 | ||
| New Loan Modification Agreement and Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | |||
| Line of credit interest rate | 1.75% | ||
| New Loan Modification Agreement and Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | Maximum [Member] | |||
| Line of credit interest rate | 3.50% |
Income Taxes (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Unrecognized tax benefits | ||
| Accrued interest or penalties | ||
| Net operating loss carryforwards | $ 334,642 | $ 395,111 |
| Net operating loss carryforwards expiration year description | Begin to expire in 2038 | |
| Internal Revenue Code [Member] | ||
| Net operating loss carryforwards annual limitation | $ 60,469 |
Income Taxes - Schedule of Provision for Income Tax (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Income Tax Disclosure [Abstract] | ||
| Current: Federal | $ 187,140 | $ 10,172 |
| Current: State and local | 62,499 | 68,974 |
| Total Current | 249,639 | 79,146 |
| Deferred: Federal | (229,355) | (45,323) |
| Deferred: State and local | (61,997) | (4,615) |
| Total Deferred | (291,352) | (49,938) |
| Income tax (benefit)/expense | $ (41,713) | $ 29,208 |
Income Taxes - Schedule of Effective Income Tax Rate (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Income Tax Disclosure [Abstract] | ||
| (Benefit) tax at the federal statutory rate | $ (79,329) | $ 61,575 |
| Other permanent differences | 52,537 | (45,107) |
| State and local tax, net of federal | (14,921) | 12,740 |
| (Benefit) provision for income taxes | $ (41,713) | $ 29,208 |
| Effective income tax rate | 11.00% | 10.00% |
Income Taxes - Schedule of Deferred Tax Assets and Liabilities (Details) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Income Tax Disclosure [Abstract] | ||
| Deferred tax assets: Accounts receivable | $ 36,468 | $ 36,802 |
| Deferred tax assets: Unrealized loss | 140,136 | |
| Deferred tax assets: Deferred rent | 36,810 | 49,442 |
| Deferred tax assets: Deferred compensation | 70,035 | 96,720 |
| Deferred tax assets: Net operating loss | 70,275 | 82,973 |
| Deferred tax assets: Stock-based compensation | 340,715 | 121,880 |
| Deferred tax assets: Inventory | 87,736 | 92,656 |
| Total deferred tax asset | 782,175 | 480,473 |
| Deferred tax liability: Intangible assets acquired | 484,932 | 484,932 |
| Deferred tax liability: Unrealized gain | 32,656 | |
| Deferred tax liability: Fixed assets | 397,650 | 354,644 |
| Total deferred tax liabilities | $ 882,582 | $ 872,232 |
Commitments and Contingencies (Details Narrative) - USD ($) |
1 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Apr. 30, 2018 |
Apr. 30, 2017 |
Dec. 31, 2016 |
Mar. 31, 2015 |
Oct. 30, 2008 |
Feb. 28, 2004 |
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Total Operating lease Cost | $ 750,172 | |||||||
| Cost of goods sold | 131,730 | |||||||
| Selling and administrative expenses | $ 618,442 | |||||||
| Retirement plan description | 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. | |||||||
| Aggregate contribution of retirement plan | $ 81,384 | $ 89,577 | ||||||
| Leasing Agreements [Member] | ||||||||
| Cash payments | 597,945 | |||||||
| Colorado [Member] | ||||||||
| Monthly rent expenses | $ 8,341 | |||||||
| Lease expiration date | Jan. 31, 2024 | |||||||
| Operating lease cost | 95,504 | 95,504 | ||||||
| Staten Island [Member] | ||||||||
| Lease expiration date | Oct. 31, 2023 | |||||||
| Operating lease cost | 175,640 | 143,171 | ||||||
| Vancouver [Member] | ||||||||
| Lease expiration date | Mar. 31, 2019 | |||||||
| Operating lease cost | 41,150 | 39,960 | ||||||
| Lease extended expiration date | Mar. 31, 2021 | |||||||
| Burlington [Member] | ||||||||
| Lease expiration date | Dec. 31, 2020 | |||||||
| Operating lease cost | 32,924 | 47,143 | ||||||
| Lease extended expiration date | Dec. 31, 2021 | |||||||
| North Andover [Member] | ||||||||
| Lease expiration date | May 31, 2028 | |||||||
| Operating lease cost | 235,710 | 233,754 | ||||||
| Madison [Member] | ||||||||
| Lease expiration date | Sep. 30, 2024 | |||||||
| Operating lease cost | $ 169,244 | $ 117,149 | ||||||
Commitments and Contingencies - Schedule of Operating Leases (Details) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Right-of-use operating lease assets | $ 2,114,228 | |
| Current lease liability | 484,163 | |
| Non-current lease liability | $ 1,780,306 | |
| Average remaining lease term | 3 years | |
| Discount rate | 4.75% |
Commitments and Contingencies - Schedule of Minimum Future Lease Payments (Details) |
Oct. 31, 2020
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2021 | $ 580,788 |
| 2022 | 535,920 |
| 2023 | 531,807 |
| 2024 | 316,477 |
| 2025 | 168,288 |
| Thereafter | 434,744 |
| Total lease payments | 2,568,024 |
| Less: imputed interest | (303,555) |
| Present value of operating lease liabilities | $ 2,264,469 |
Economic Dependency (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Accounts receivable | $ 144,000 | $ 144,000 |
| Six Vendors [Member] | ||
| Accounts payable | $ 468,000 | |
| Five Vendors [Member] | ||
| Accounts payable | $ 1,005,000 | |
| Accounts Payable [Member] | Six Vendors [Member] | ||
| Concentration risk percentage | 23.00% | |
| Accounts Payable [Member] | Five Vendors [Member] | ||
| Concentration risk percentage | 26.00% | |
| Six Customers [Member] | ||
| Concentration risk percentage | 28.00% | |
| Accounts receivable | $ 2,076,000 | |
| Six Customers [Member] | Sales Revenue [Member] | ||
| Concentration risk percentage | 23.00% | |
| Five Customers [Member] | ||
| Concentration risk percentage | 33.00% | |
| Accounts receivable | $ 3,109,000 | |
| Five Customers [Member] | Sales Revenue [Member] | ||
| Concentration risk percentage | 19.00% | |
Economic Dependency - Schedule of Revenues by Product Line (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Totals | $ 74,335,815 | $ 86,467,432 |
| Green Coffee Beans [Member] | ||
| Totals | 23,912,022 | 32,849,195 |
| Packaged Coffee [Member] | ||
| Totals | $ 50,423,793 | $ 53,618,237 |
Related Party Transactions (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Contract labor expense | $ 380,838 | $ 401,227 |
| Purchases from related party vendor | 5,300,000 | 8,300,000 |
| Accounts payable to related party vendor | 0 | 840,000 |
| Deferred compensation payable | 276,548 | 378,453 |
| Deferred compensation expenses | $ 0 | $ 0 |
| Generation Coffee Company, LLC [Member] | ||
| Related party transaction percentage | 40.00% | |
Stockholders' Equity (Details Narrative) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
Jan. 31, 2020 |
|
| Number of treasury stock shares | |||
| Stock options granted | 1,000,000 | ||
| Stock options purchase price per share | $ 5.43 | ||
| Stock-based compensation | $ 868,477 | $ 476,899 | |
| Unrecognized stock compensation expense | $ 1,164,894 | ||
| Board of Directors [Member] | |||
| Share-based compensation, options, number of shares authorized | 1,000,000 | ||
| Five Board Members [Member] | |||
| Stock options granted | 59,000 | ||
| Stock options purchase price per share | $ 5.43 | ||
| Stock options expected term | P6Y | ||
| Stock options vesting period | 12 months | ||
| Stock options aggregate grant date fair value | $ 233,050 | ||
| Certain Officers and Employees [Member] | |||
| Stock options granted | 941,000 | ||
| Stock options purchase price per share | $ 5.43 | ||
| Stock options expected term | P6Y | ||
| Stock options vesting period | 3 years | ||
| Stock options aggregate grant date fair value | $ 2,277,220 | ||
Stockholders' Equity - Summary of Stock Option Activity (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Oct. 31, 2020 |
Oct. 31, 2019 |
|
| Equity [Abstract] | ||
| Stock Options, Beginning balance | 1,000,000 | |
| Stock Options, Exercisable Beginning balance | ||
| Stock Options, Granted | 1,000,000 | |
| Stock Options, Exercised | ||
| Stock Options, Cancelled | ||
| Stock Options, Ending balance | 1,000,000 | 1,000,000 |
| Stock Options, Exercisable Ending balance | ||
| Exercise Price, Beginning balance | $ 5.43 | |
| Exercise Price, Exercisable Beginning balance | ||
| Exercise Price, Granted | 5.43 | |
| Exercise Price, Exercised | ||
| Exercise Price, Cancelled | ||
| Exercise Price, Ending balance | 5.43 | 5.43 |
| Exercise Price, Exercisable Ending balance | ||
| Contractual Life (Years), Beginning balance | 10 years | |
| Contractual Life (Years), Granted | 10 years | |
| Contractual Life (Years), Ending balance | 10 years | 10 years |
| Aggregate Intrinsic Value, Beginning balance | ||
| Aggregate Intrinsic Value, Ending balance | ||
Fair Value Measurements - Schedule of Assets and Liabilities Measured at Fair Value (Details) - USD ($) |
Oct. 31, 2020 |
Oct. 31, 2019 |
|---|---|---|
| Assets: Money market | $ 276,548 | $ 378,453 |
| Assets: Commodities - Futures | 159,887 | |
| Total Assets | 276,548 | 538,340 |
| Liabilities: Commodities - Futures | (287,850) | |
| Liabilities: Commodities - Options | (164,475) | (58,856) |
| Total Liabilities | (452,325) | (58,856) |
| Fair Value Inputs Level1 [Member] | ||
| Assets: Money market | 276,548 | 378,453 |
| Assets: Commodities - Futures | ||
| Total Assets | 276,548 | 378,453 |
| Liabilities: Commodities - Options | ||
| Total Liabilities | ||
| Fair Value Inputs Level2 [Member] | ||
| Assets: Money market | ||
| Assets: Commodities - Futures | 159,887 | |
| Total Assets | 159,887 | |
| Liabilities: Commodities - Futures | (287,850) | |
| Liabilities: Commodities - Options | (164,475) | (58,856) |
| Total Liabilities | (452,325) | (58,856) |
| Fair Value Inputs Level3 [Member] | ||
| Assets: Money market | ||
| Assets: Commodities - Futures | ||
| Total Assets | ||
| Liabilities: Commodities - Options | ||
| Total Liabilities |