UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED July 31, 2024

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

 

COMMISSION FILE 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)

 

(718) 832-0800

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities to be registered pursuant to Section 12(b) of the Act: None

 

Securities to be registered pursuant to Section 12(g) of the Act:

 

Title of each class

Common Stock, par value $0.001 per share

 

Trading Symbol(s)

JVA

 

Name of each exchange on which registered

The Nasdaq Capital Market

 

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

	Large accelerated filer	☐	Accelerated filer	☐
	Non-accelerated filer	☒	Smaller reporting company	☒
			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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

5,708,599 shares of common stock, par value $0.001 per share, are outstanding at September 10, 2024.

 

 

 

TABLE OF CONTENTS

 

		PAGE
PART I	FINANCIAL INFORMATION	F-1
ITEM 1.	Unaudited Condensed Consolidated Financial Statements	F-1
	Unaudited Condensed Consolidated Balance Sheets as of July 31, 2024 and October 31, 2023	F-1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended July 31, 2024, and 2023	F-2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended July 31, 2024, and 2023	F-3
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2024, and 2023	F-4
	Notes to the Unaudited Condensed Consolidated Financial Statements	F-5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	7
ITEM 4.	Controls and Procedures	7
PART II	OTHER INFORMATION	9
ITEM 1.	Legal Proceedings	9
ITEM 1A.	Risk Factors	9
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9
ITEM 3.	Defaults Upon Senior Securities	9
ITEM 4.	Mine Safety Disclosures	9
ITEM 5.	Other Information	9
ITEM 6.	Exhibits	10
SIGNATURES		11

 

 

PART I. FINANCIAL INFORMATION

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		July 31, 2024				October 31, 2023
			(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	3,098,158			$	2,733,977
Accounts receivable, net of allowances for credit losses of $144,000 for 2024 and 2023			7,449,547				7,983,032
Receivable from sale of investment			—				3,150,000
Inventories			14,506,015				18,986,539
Due from broker			1,263,603				345,760
Prepaid expenses and other current assets			213,443				413,752
Prepaid and refundable income taxes			311,306				365,876
TOTAL CURRENT ASSETS			26,842,072				33,978,936
Building, machinery, and equipment, net			3,329,576				3,494,450
Customer list and relationships, net of accumulated amortization of $278,125 and $310,383 for 2024 and 2023, respectively			161,875				184,750
Trademarks and tradenames			327,000				327,000
Equity method investments			39,676				39,676
Right-of-use asset			1,192,834				2,696,159
Deferred income tax assets, net			1,017,453				1,341,407
Deposits and other assets			141,529				129,523
TOTAL ASSETS		$	33,052,015			$	42,191,901
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	4,535,476			$	5,206,442
Line of credit			1,900,000				9,620,000
Due to broker			275,276				292,407
Note payable - current portion			—				4,200
Lease liabilities - current portion			636,534				255,625
TOTAL CURRENT LIABILITIES			7,347,286				15,378,674
Note payable, net of current			2,860				3,034
Lease liabilities, net of current			903,821				2,974,579
Deferred compensation payable			126,978				120,523
TOTAL LIABILITIES			8,380,945				18,476,810
Commitments and Contingencies (Note 8)			-				-
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 shares issued for 2024 and 2023; 5,708,599 shares outstanding for 2024 and 2023			6,634				6,634
Additional paid in capital			19,094,618				19,094,618
Retained earnings			10,447,840				9,491,861
Less: common stock held in treasury, at cost; 925,331 shares for 2024 and 2023			(4,633,560	)			(4,633,560	)
Total Coffee Holding Co., Inc. stockholders’ equity			24,915,532				23,959,553
Noncontrolling interest			(244,462	)			(244,462	)
TOTAL STOCKHOLDERS’ EQUITY			24,671,070				23,715,091
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	33,052,015			$	42,191,901

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		2024				2023				2024				2023
		Nine months ended July 31,								Three months ended July 31,
		2024				2023				2024				2023
NET SALES		$	57,349,477			$	49,411,183			$	18,813,162			$	15,764,365
COST OF SALES			46,239,134				41,810,204				14,887,098				13,315,602
GROSS PROFIT			11,110,343				7,600,979				3,926,064				2,448,763
OPERATING EXPENSES
Selling and administrative			9,365,236				8,722,156				3,045,611				2,709,238
Officers’ salaries			474,983				467,548				160,590				142,772
TOTAL			9,840,219				9,189,704				3,206,201				2,852,010
INCOME (LOSS) FROM OPERATIONS			1,270,124				(1,588,725	)			719,863				(403,247	)
OTHER INCOME (EXPENSE)
Interest income			34,669				3,120				256				7
Interest expense			(235,427	)			(393,590	)			(44,641	)			(144,024	)
Loss from equity method investments			—				(14,310	)			—				(5,007	)
Gain on extinguishment of lease			210,567				—				210,567				—
Other income			—				634,181				—				400,140
TOTAL			9,809				229,401				166,182				251,116
INCOME (LOSS) BEFORE EXPENSE (BENEFIT) FOR INCOME TAXES			1,279,933				(1,359,324	)			886,045				(152,131	)
Expense (benefit) for income taxes			323,954				(355,500	)			259,249				(40,250	)
NET INCOME (LOSS)		$	955,979			$	(1,003,824	)		$	626,796			$	(111,881	)
Basic and diluted earnings (loss) per share		$	0.17			$	(0.18	)		$	0.11			$	(0.02	)
Weighted average common shares outstanding:
Basic and diluted			5,708,599				5,708,599				5,708,599				5,708,599

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

 

		Shares				Amount				Shares				Amount				Capital				Earnings				Interest				Total
		Common Stock								Treasury Stock								Additional Paid-in				Retained				Non-controlling
		Shares				Amount				Shares				Amount				Capital				Earnings				Interest				Total
Balance, October 31, 2022			5,708,599			$	6,634				925,331			$	(4,633,560	)		$	19,094,618			$	10,327,437			$	(244,462	)		$	24,550,667
Net loss			—				—				—				—				—				(532,103	)			—				(532,103	)
Balance, January 31, 2023			5,708,599				6,634				925,331				(4,633,560	)			19,094,618				9,795,334				(244,462	)			24,018,564
Net loss			—				—				—				—				—				(359,840	)			—				(359,840	)
Balance, April 30, 2023			5,708,599				6,634				925,331				(4,633,560	)			19,094,618				9,435,494				(244,462	)			23,658,724
Net loss			—				—				—				—				—				(111,881	)			—				(111,881	)
Balance, July 31, 2023			5,708,599			$	6,634				925,331			$	(4,633,560	)		$	19,094,618			$	9,323,613			$	(244,462	)		$	23,546,843
Balance October 31, 2023			5,708,599			$	6,634				925,331			$	(4,633,560	)		$	19,094,618			$	9,491,861			$	(244,462	)		$	23,715,091
Net income			—				—				—				—				—				351,024				—				351,024
Balance January 31, 2024			5,708,599				6,634				925,331				(4,633,560	)			19,094,618				9,842,885				(244,462	)			24,066,115
Net loss			—				—				—				—				—				(21,841	)			—				(21,841	)
Balance, April 30, 2024			5,708,599				6,634				925,331				(4,633,560	)			19,094,618				9,821,044				(244,462	)			24,044,274
Balance			5,708,599				6,634				925,331				(4,633,560	)			19,094,618				9,821,044				(244,462	)			24,044,274
Net loss			—				—				—				—				—				626,796				—				626,796
Net income (loss)			—				—				—				—				—				626,796				—				626,796
Balance, July 31, 2024			5,708,599			$	6,634				925,331			$	(4,633,560	)		$	19,094,618			$	10,447,840			$	(244,462	)		$	24,671,070
Balance			5,708,599			$	6,634				925,331			$	(4,633,560	)		$	19,094,618			$	10,447,840			$	(244,462	)		$	24,671,070

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

COFFEE HOLDING CO., INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		2024				2023
		Nine months ended July 31,
		2024				2023
OPERATING ACTIVITIES:
Net income (loss)		$	955,979				(1,003,824	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			458,429				436,669
Unrealized gain on commodities			(934,974	)			(776,521	)
Loss on equity method investments			—				14,310
Amortization of right-of-use asset			203,268				240,504
Gain on extinguishment of lease liability			(210,567	)			—
Deferred income taxes			323,954				(355,500	)
Changes in operating assets and liabilities:
Accounts receivable			533,485				1,334,319
Inventories			4,480,524				2,113,830
Prepaid expenses and other current assets			200,309				(9,306	)
Prepaid and refundable income taxes			54,570				—
Lease liabilities			(179,225	)			(203,908	)
Deposits and other assets			(12,006	)			—
Accounts payable, accrued expenses, and deferred compensation payable			(664,511	)			(991,411	)
Net cash provided by operating activities			5,209,235				799,162
Cash flows from investing activities:
Purchases of machinery and equipment			(270,680	)			(721,696	)
Proceeds from sale of investment			3,150,000				—
Net cash provided by (used in) investing activities			2,879,320				(721,696	)
Cash flows from financing activities:
Advances under bank line of credit			—				2,434,783
Cash overdraft			—				(876,148	)
Principal payments on note payable			(4,374	)			(4,641	)
Principal payments under bank line of credit			(7,720,000	)			(1,728,783	)
Net cash used in financing activities			(7,724,374	)			(174,789	)
Net change in cash and cash equivalents			364,181				(97,323	)
Cash and cash equivalents, beginning of period			2,733,977				2,515,873
Cash and cash equivalents, end of period		$	3,098,158			$	2,418,550
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid			$281,841				$243,100
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Initial recognition of operating lease right-of-use asset			$547,975				$146,416

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 also manufactures and sells coffee roasters. 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.

 

On September 29, 2022, the Company entered into a Merger and Share Exchange Agreement (the “Merger Agreement”), by and among the Company, Delta Corp Holdings Limited, a Cayman Islands exempted company (“Pubco”), Delta Corp Holdings Limited, a company incorporated in England and Wales (“Delta”), CHC Merger Sub Inc., a Nevada corporation and wholly owned subsidiary of Pubco (“Merger Sub”), and each of the holders of ordinary shares of Delta as named therein. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub would merge with and into the Company, with the Company surviving as a direct, wholly-owned subsidiary of Pubco (the “Merger”). As a result of the Merger, each issued and outstanding share of the Company’s common stock, $0.001 par value per share, would be cancelled and converted for the right of the holder thereof to receive one ordinary share, par value $0.0001 of Pubco. There was a shareholder vote in April 2024 on the Merger Agreement that did not pass. On June 21, 2024, the Company terminated the Merger Agreement. No early termination penalties were payable by the Company upon termination of the Merger Agreement.

 

Going Concern and Liquidity

 

The Company’s line of credit will become due June 29, 2025 (see Note 5). The agreement requires the Company to maintain compliance with certain financial covenants computed on a quarterly and annual basis. In previous periods, the Company was not in compliance with these requirements. However, a waiver of all past defaults was received on May 24, 2024. As of July 31, 2024, the Company is in compliance with those financial covenants. The Company has paid down a substantial portion of the line of credit and the current balance outstanding as of July 31, 2024 was $1,900,000. Additionally, the Company is in a net income position for the three and nine months ended July 31, 2024 of $626,796 and $955,979, respectively, has cash from operating activities of $5,209,235, and a net working capital surplus of $19,494,786. As a result, the Company does not believe that substantial doubt is raised regarding the Company’s ability to continue as a going concern and the ability to meet its obligations as they become due within the twelve months from the date the condensed consolidated financial statements are issued.

 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 2 – Basis of Presentation and Significant Accounting Policy

 

The Company’s fiscal year ends on October 31 of each calendar year. The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as its annual consolidated financial statements for the fiscal year ended October 31, 2023. In the opinion of the Company’s management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of its financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The October 31, 2023 year-end condensed consolidated balance sheet data in this document was derived from audited consolidated financial statements. These condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended October 31, 2023 and notes thereto included in the Company’s fiscal 2023 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 9, 2024 (the “2023 10-K”). The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

 

The condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco, LLC (“SONO”), and Comfort Foods, Inc. All significant inter-company transactions and balances have been eliminated in consolidation.

 

Significant Accounting Policies

 

The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in the Company’s 2023 10-K, and there have been no changes to the Company’s significant accounting policies during the three and nine months ended July 31, 2024.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the five-step model as prescribed by the Financial Accounting Standards Board (“FASB”) Accounting Codification (“ASC”) Topic 606 (“ASC 606”) in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

 

The following table presents revenues by product line for the three and nine months ended July 31, 2024 and 2023:

 

Schedule of Revenue 

		July 31, 2024				July 31, 2023				July 31, 2024				July 31, 2023
		Nine Months Ended								Three Months Ended
		July 31, 2024				July 31, 2023				July 31, 2024				July 31, 2023
Green		$	25,505,606			$	21,078,402			$	10,795,701			$	6,645,606
Packaged			31,843,871				28,332,781				8,017,461				9,118,759
Totals		$	57,349,477			$	49,411,183			$	18,813,162			$	15,764,365
Revenues		$	57,349,477			$	49,411,183			$	18,813,162			$	15,764,365

 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Recent Accounting Pronouncements – Adopted

 

The Company follows the FASB Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326).” This guidance requires entities to use a current expected credit loss impairment model rather than incurred losses. The Company considers factors such as credit quality, age of balances, historical experience and current and future economic conditions that may affect the Company’s expectation of collectability in determining the allowance for credit losses. The standard became effective for the Company on November 1, 2023. The adoption of this new guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

Recent Accounting Pronouncements – Not Yet Adopted

 

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements – Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This standard affects a wide variety of Topics in the Codification. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements and related disclosures.

 

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting – Improving Reportable Segment Disclosures (Topic 280).” The standard is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The standard requires disclosure to include significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. The standard also requires all annual disclosures currently required by ASC Topic 280 to be included in interim periods. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

 

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” a final standard on improvements to income tax disclosures, The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted and should be applied prospectively. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

 

Note 3 - Inventories

 

Inventories at July 31, 2024 and October 31, 2023 consisted of the following:

 

Schedule of Inventories 

		July 31, 2024				October 31, 2023
Packed coffee		$	2,076,739			$	3,582,935
Green coffee			10,232,622				13,151,993
Roasters and parts			476,313				537,108
Packaging supplies			1,720,341				1,714,503
Totals		$	14,506,015			$	18,986,539
Inventories		$	14,506,015			$	18,986,539

 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 4 - Commodities Held by Broker

 

The Company has used, and intends to continue to use in a limited capacity, short term coffee futures and options contracts primarily for the purpose of partially hedging and minimizing the effects of changing green coffee prices and to reduce cost of sales.

 

The commodities held by broker represent the market value of the Company’s trading account, which consists of options and futures contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are level 1 investments recognized at fair value in the condensed consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may impact earnings volatility in any particular period. The Company records all open contract positions on the condensed consolidated balance sheets at fair value in the due from and due to broker line items and typically do not offset these assets and liabilities.

 

The Company classifies its options and future contracts as trading securities and accordingly, realized and unrealized holding gains and losses are included in the statement of operations as a component of cost of sales.

 

The Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:

Schedule of Realized and Unrealized Gains and Losses on Contracts

		2024		2023
		Three Months Ended July 31,
		2024		2023
Gross realized gains		$405,608		$265,801
Gross realized losses		(133,392)		(236,404)
Unrealized gains (losses), net		464,272		(159,955)
Total		$736,488		$(130,558)
Gain (Loss) on Investments		$736,488		$(130,558)

 

		2024		2023
		Nine Months Ended July 31,
		2024		2023
Gross realized gains		$1,187,382		$642,709
Gross realized losses		(903,162)		(1,528,765)
Unrealized gains, net		934,974		776,521
Total		$1,219,194		$(109,535)
Gain (Loss) on Investments		$1,219,194		$(109,535)

 

Note 5 - 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”) (later acquired by Webster Financial Corp. (“Webster”), which consolidated (i) the financing agreement between the Company and Sterling, dated February 17, 2009, as modified, and (ii) the financing agreement between the Company, as guarantor, OPTCO and Sterling, dated March 10, 2015, amongst other things.

 

On March 17, 2022, the Company reached an agreement for a new loan modification agreement and credit facility which extended the maturity date to June 29, 2022. The facility was then approved for a two-year extension. All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.

 

On June 28, 2022, the Company reached an agreement for a new loan modification agreement and credit facility with Webster. The terms of the new agreement, among other things: (i) provided for a new maturity date of June 30, 2024, and (ii) changed the interest rate per annum to SOFR plus 1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company is required to maintain certain financial covenants with respect to the A&R Loan Agreement. The Company was not in compliance with such requirements as of October 31, 2023. The Company received a waiver from the lender on May 24, 2024 for all past defaults. The A&R Loan Agreement was also modified on March 15, 2023 to, among other things: (i) provide for a requirement for subordination agreements, if necessary, (ii) change the terms of transactions with affiliates from a dollar limitation to allowable in the ordinary course of business, and (iii) established a new covenant for a fixed charge coverage ratio.

 

On June 27, 2024, the Borrowers entered into the Tenth Loan Modification Agreement with Webster which amended the A&R Loan Agreement to, among other things: (i) provide for a new loan maturity date of June 29, 2025, (ii) provide that the applicable margin requirement for any revolving loan outstanding under the A&R Loan Agreement to 2.25%, (iii) provide that the maximum facility amount shall be $10,000,000 and (iv) to adjust certain definitions and terms related to the borrowing base and leverage ratios applicable to the A&R Loan Agreement.

 

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 outstanding balance on the Company’s line of credit was $1,900,000 and $9,620,000 as of July 31, 2024 and October 31, 2023, respectively.

 

Note 6 – 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 net operating loss carryforwards and 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.

 

As of July 31, 2024 and October 31, 2023, 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 July 31, 2024 and October 31, 2023, 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, Florida, Idaho, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Montana, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Virginia state tax returns.

 

Note 7 – Earnings (Loss) Per Share

 

The Company presents “basic” and “diluted” earnings per common share pursuant to the provisions included in ASC Topic 260, “Earnings per Share,” and certain other financial accounting pronouncements. Basic earnings per common share is computed by dividing net income (loss) by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.

 

The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,708,599 for the three and nine months ended July 31, 2024 and 2023. The Company had granted options for 1,000,000 shares in the second quarter of 2019, which have not been included in the calculation of diluted earnings per share due to their anti-dilutive nature, as the options were out of the money (the exercise price is higher than the market price).

 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 8 - Commitments and Contingencies

 

Legal Proceedings

 

The Company and its subsidiaries are not involved in any pending proceedings other than ordinary routine litigation incidental to their business. Management believes none of these proceedings, if determined adversely, would have a material effect on the business or financial condition of the Company or its subsidiaries.

 

Note 9 – Leases

 

The following summarizes the Company’s operating leases:

 

Schedule Of Operating Leases 

Assets		2024				2023
Right-of-use operating lease assets		$	1,192,834			$	2,696,159
Total lease assets		$	1,192,834			$	2,696,159

 

Liabilities			2024				2023
Current lease liability		$	636,534			$	255,625
Non-current lease liability			903,821				2,974,579
Total lease liability		$	1,540,355			$	3,230,204

 

The amortization of the right-of-use asset for the three months ended July 31, 2024 and 2023 was $79,812 and $80,662, respectively. The amortization of the right-of-use asset for the nine months ended July 31, 2024 and 2023 was $203,268 and $240,504, respectively.

 

 

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:

 

Schedule Of Maturity Lease Liability 

For the Years Ending October 31,
Remainder of fiscal 2024		$	463,319
2025			334,784
2026			308,624
2027			295,762
2028			229,466
Thereafter			66,571
Total lease payments			1,698,526
Less: imputed interest			(158,171	)
Present value of operating lease liabilities		$	1,540,355

 

In June 2021, the Company purchased a facility in Colorado for $900,321 that it was previously leasing. On the date of purchase, the Company wrote off the carrying value of the right-of-use asset and lease liability associated with this facility of $242,888.

 

In December 2022, the Company extended SONO’s lease in Washington through December 2023. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $40,797 as of January 31, 2023. In December 2023, the Company extended SONO’s lease in Washington through December 2024. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $41,962 as of January 31, 2024.

 

In March 2023, the Company extended OPTCO’s lease in Washington through March 2026. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $105,619.

 

 

COFFEE HOLDING CO., INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In May 2024, the Company modified its existing lease agreement pertaining to a portion of its office facility. The Company wrote off $1,848,032 in right-of-use assets and $2,058,599 lease liability associated with this agreement, resulting in a gain on extinguishment of lease of $210,567. On May 1, 2024, the Company entered into an amended lease agreement for the remaining portion of its office facility in Staten Island, NY, which changed the lease modification date to April 30, 2029. The amended lease commenced on May 1, 2024. The Company recognized a right-of-use asset and lease liability associated with this modified agreement of $547,975. As a result of the modification, the Company decreased its right-of-use asset by $1,300,057 and lease liability by $1,510,624 as of July 31, 2024.

 

Note 10 – Related Party Transactions

 

The Company has engaged its 40% former partner in Generation Coffee Company LLC as an outside contractor (the “Partner”). Included in contract labor expense are expenses incurred by the Partner for the nine months ended July 31, 2023 of $56,851 for the processing of finished goods. There were no expenses incurred by the Partner in the three and nine months ended July 31, 2024 or the three months ended July 31, 2023.

 

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: the Company’s Chief Executive Officer. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The assets are held in a separate trust. The deferred compensation payable represents the liability due to the Chief Executive Officer of the Company. The assets were $126,979 and $120,523 at July 31, 2024 and October 31, 2023, respectively, and are included in Deposits and other assets in the accompanying balance sheets. The deferred compensation liability at July 31, 2024 and October 31, 2023 was $126,979 and $120,523, respectively.

 

Note 11 - Stockholders’ Equity

 

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 three and nine months ended July 31, 2024 and the year ended October 31, 2023.

 

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 for 1,000,000 shares to employees, officers and non-employee directors from the 2013 Plan with an exercise price of $5.43. 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. No options were granted, forfeited or expired during the three and nine months ended July 31, 2024 or for the year ended October 31, 2023.

 

The Company recorded no stock-based compensation expense for the three and nine months ended July 31, 2024 and 2023, as all stock option awards were fully vested as of the beginning of the reporting period.

 

 

ITEM 2. 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,” “Risk Factors” and elsewhere in this quarterly 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-Q 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;
	●	our expectations regarding, and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of green coffee;
	●	the macro global economic environment;
	●	our ability to maintain and develop our brand recognition;
	●	the impact of rapid or persistent fluctuations in the price of coffee beans;
	●	fluctuations in the supply of coffee beans;
	●	the volatility of our common stock; and
	●	other risks which we identify in future filings with the Securities and Exchange Commission (the “SEC”).

 

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 quarterly 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 quarterly report.

 

Overview

 

We are an integrated wholesale coffee roaster and dealer primarily 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 acquire and invest in measures that are expected to increase net sales.

 

Our 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. 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. 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.

 

 

Recent Developments

 

On September 29, 2022, Coffee Holding Co., Inc, a Nevada corporation (“JVA”), entered into a Merger and Share Exchange Agreement (the “Merger Agreement”), by and among JVA, Delta Corp Holdings Limited, a Cayman Islands exempted company (“Pubco”), Delta Corp Holdings Limited, a company incorporated in England and Wales (“Delta”), CHC Merger Sub Inc., a Nevada corporation and wholly owned subsidiary of Pubco (“Merger Sub”), and each of the holders of ordinary shares of Delta as named therein. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub would merge with and into JVA, with JVA surviving as a direct, wholly-owned subsidiary of Pubco (the “Merger”). In April 2024, the Company held a special meeting of stockholders at which approval of the Merger Agreement and the Merger did not receive the requisite votes. On June 21, 2024, JVA terminated the Merger Agreement. No early termination penalties were payable by JVA upon termination of the Merger Agreement.

 

Critical Accounting Estimates

 

There have been no changes to our critical accounting policies during the three and nine months ended July 31, 2024. Critical accounting policies and the significant estimates in accordance with such policies are regularly discussed with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our consolidated financial statements and notes thereto, each included in our annual report on Form 10-K filed with the SEC on February 9, 2024 for the fiscal year ended October 31, 2023.

 

 

Three Months Ended July 31, 2024 Compared to the Three Months Ended July 31, 2023

 

Net Sales. Net sales totaled $18,813,162 for the three months ended July 31, 2024, an increase of $3,048,797, or 19%, from $15,764,365 for the three months ended July 31, 2023. The increase in net sales was due to increased sales to new private label customers.

 

Cost of Sales. Cost of sales for the three months ended July 31, 2024 was $14,887,098, or 79.1% of net sales, as compared to $13,315,602, or 84.5% of net sales, for the three months ended July 31, 2023, an increase of $1,571,496. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. This increase in gross margin was due to price increases that were initiated during the three months ended July 31, 2024 for our roasted coffee customers as well as a favorable inventory position which resulted in higher gross margins related to our wholesale green coffee customers.

 

Gross Profit. Gross profit for the three months ended July 31, 2024 amounted to $3,926,064 or 20.9% of net sales, as compared to $2,448,763 or 15.5% of net sales, for the three months ended July 31, 2023. The increase in gross profits on a percentage and dollar basis was attributable to the factors listed above.

 

Operating Expenses. Total operating expenses increased by $354,191 to $3,206,201 for the three months ended July 31, 2024 from $2,852,010 for the three months ended July 31, 2023. Selling and administrative expenses increased by $336,373 and officers’ salaries increased by $17,818. The increase in selling and administrative expenses was due to higher payroll costs, professional fees, and insurance expense, partially offset by decreases in medical expenses. automobile costs, and advertising costs.

 

Other Income (Expense). Other income for the three months ended July 31, 2024 was $166,182, a decrease of $84,934 from other income of $251,116 for the three months ended July 31, 2023. The change was attributable to a decrease in interest expense of $99,383, an increase in interest income of $249, a decrease in loss from our equity method investments of $5,007, and a gain on extinguishment of lease of $210,567, partially offset by a decrease in other income of $400,140 related to an insurance claim.

 

Income Taxes. Our expense for income taxes for the three months ended July 31, 2024 totaled $259,249 compared to a benefit of $40,250 for the three months ended July 31, 2023. The change was primarily attributable to the difference in the income for the three months ended July 31, 2024 versus the loss for the three months ended July 31, 2023.

 

Net Income (Loss). We had net income of $626,796, or $0.11 per share basic and diluted, for the three months ended July 31, 2024 compared to a net loss of $111,881, or $0.02 per share basic and diluted, for the three months ended July 31, 2023.

 

Nine Months Ended July 31, 2024 Compared to the Nine Months Ended July 31, 2023

 

Net Sales. Net sales totaled $57,349,477 for the nine months ended July 31, 2024, an increase of $7,938,294, or 16%, from $49,411,183 for the nine months ended July 31, 2023. The increase in net sales was due to increased sales to new private label customers.

 

Cost of Sales. Cost of sales for the nine months ended July 31, 2024 was $46,239,134, or 80.6% of net sales, as compared to $41,810,204, or 84.6% of net sales, for the nine months ended July 31, 2023. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. This increase in gross margin was due to price increases for our roasted coffee customers as well as a favorable inventory position which resulted in higher gross margins related to our wholesale green coffee customers.

 

 

Gross Profit. Gross profit for the nine months ended July 31, 2024 amounted to $11,110,343 or 19.4% of net sales, as compared to $7,600,979 or 15.4% of net sales, for the nine months ended July 31, 2023. The increase in gross profits on a percentage basis was attributable to the factors listed above.

 

Operating Expenses. Total operating expenses increased by $650,515 to $9,840,219 for the nine months ended July 31, 2024 from $9,189,704 for the nine months ended July 31, 2023. Selling and administrative expenses increased by $643,080 and officers’ salaries increased by $7,435. Operating expenses increased due to higher payroll costs, professional fees, and insurance expense, partially offset by decreases in medical expenses. automobile costs, and advertising costs. for the nine months ended July 31, 2024 compared to the nine months ended July 31, 2023.

 

Other Income (Expense). Other income for the nine months ended July 31, 2024 was $9,809, a decrease of $219,592 from other income of $229,401 for the nine months ended July 31, 2023. The decrease was attributable to a decrease in other income of $634,181 related to an insurance claim, partially offset by an increase of gain on extinguishment of lease of $210,567, decrease in interest expense of $158,163, an increase in interest income of $31,549, and a decrease in loss from equity method investments.

 

Income Taxes. Our expense for income taxes for the nine months ended July 31, 2024 totaled $323,954 compared to a benefit of $355,500 for the nine months ended July 31,2023. The change was primarily attributable to the difference in the income for the nine months ended July 31, 2024 versus the loss for the nine months ended July 31, 2023.

 

Net Income (Loss). We had net income of $955,979, or $0.17 per share basic and diluted, for the nine months ended July 31, 2024 compared to a net loss of $1,003,824, or $0.18 per share basic and diluted, for the nine months ended July 31, 2023. The increase in net income was due primarily to the reasons described above.

 

Liquidity, Capital Resources and Going Concern

 

As of July 31, 2024, we had working capital of $19,494,786, which represented a $894,524 increase from our working capital of $18,600,262 as of October 31, 2023. Our working capital increased primarily due to the decrease of the outstanding balance on our line of credit to $1,900,000 from $9,620,000 as of July 31, 2024 and October 31, 2023, respectively, along with a decrease of $670,966 in accounts payable and accrued expenses, a $917,843 increase in due from broker, a $364,181 increase in cash and cash equivalents, and a $17,131 decrease in due to broker. This was partially offset by $533,485 decrease in accounts receivable, a $4,480,524 decrease in inventories, a $3,150,000 decrease in receivable from sale of investment, a $200,309 decrease in prepaid expenses and other current assets, and an increase of $380,909 in lease liabilities - current portion.

 

On April 25, 2017, we and one of our subsidiaries, Organic Products Trading Company, LLC (“OPTCO” and together with us, 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 was later acquired by Webster Financial Corp. (“Webster”), which consolidated (i) the financing agreement between us and Sterling, dated February 17, 2009, as modified, and (ii) the financing agreement between us, as guarantor, OPTCO and Sterling, dated March 10, 2015, amongst other things.

 

On March 17, 2022, we reached an agreement for a new loan modification agreement and credit facility which extended the maturity date to June 29, 2022. The facility was then approved for a two-year extension. All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.

 

On June 28, 2022, we reached an agreement for a new loan modification agreement and credit facility with Webster. The terms of the new agreement, among other things: (i) provided for a new maturity date of June 30, 2024, and (ii) changed the interest rate per annum to SOFR plus 1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.

 

 

On March 15, 2023, the A&R Loan Agreement was also modified to, among other things: (i) provide for a requirement for subordination agreements, if necessary, (ii) change the terms of transactions with affiliates from a dollar limitation to allowable in the ordinary course of business, and (iii) establish a new covenant for a fixed charge coverage ratio. As further explained in Note 5 to the unaudited condensed consolidated financial statements, we are required to maintain certain financial covenants with respect to our line of credit agreement. We were not in compliance with these requirements as of October 31, 2023. We have since received a waiver from the lender on May 24, 2024 and are in compliance with all requirements.

 

On June 27, 2024, the Borrowers entered into the Tenth Loan Modification Agreement with Webster which amended the A&R Loan Agreement to, among other things: (i) provide for a new loan maturity date of June 29, 2025, (ii) provide that the applicable margin requirement for any revolving loan outstanding under the A&R Loan Agreement to 2.25%, (iii) provide that the maximum facility amount shall be $10,000,000 and (iv) to adjust certain definitions and terms related to the borrowing base and leverage ratios applicable to the A&R Loan Agreement.

 

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 outstanding balance on our line of credit was $1,900,000 and $9,620,000 as of July 31, 2024 and October 31, 2023, respectively.

 

For the nine months ended July 31, 2024, our operating activities provided net cash of $5,209,235 as compared to the nine months ended July 31, 2023 when operating activities provided net cash of $799,162. The increase in cash flow from operations was partially due to net income of $955,979 for the nine months ended July 31, 2024, compared to a net loss of $1,003,824 for the nine months ended July 31, 2023. Non-cash charges, including depreciation and amortization, unrealized gain on commodities, loss on equity method investments, amortization of right-of-use assets, gain on extinguishment of lease liability, and deferred income taxes, resulted in cash used of $159,890 for the nine months ended July 31, 2024 and cash used of $440,538 for the nine months ended July 31, 2023. The aggregate change in operating assets and liabilities provided $4,413,146 and $2,243,524 in operating cash flow for the nine months ended July 31, 2024 and 2023, respectively.

 

For the nine months ended July 31, 2024, our investing activities provided net cash of $2,879,320 as compared to the nine months ended July 31, 2023 when net cash used in investing activities was $721,696. The increase in our cash provided by investing activities was due to proceeds from the sale of an investment and decreased purchases of machinery and equipment during the nine months ended July 31, 2024.

 

For the nine months ended July 31, 2024, our financing activities used net cash of $7,724,374 compared to net cash used in financing activities of $174,789 for the nine months ended July 31, 2023. The change in cash flow from financing activities for the nine months ended July 31, 2024 was primarily due to our credit line activity.

 

We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness, through at least the next twelve months from the date these condensed consolidated financial statements are issued, 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.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. 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 our disclosure controls and procedures were not effective due to the existence of material weaknesses in our internal control over financial reporting.

 

Material Weakness Over Financial Reporting

 

During the year ended October 31, 2020, our controls were inadequate to prevent and detect misstatements of stock-based compensation awards, quantities of inventory at one of our subsidiaries and inaccurately accounted for certain intercompany eliminations in our consolidated statements of operations. Accordingly, management determined that this control deficiency constituted a material weakness.

 

During the year ended October 31, 2021, we identified inappropriate system access controls over our financial reporting system. These controls were not designed to prevent or detect unauthorized changes to source information, or implement an appropriate level of segregation of duties. During this same period, we determined that we lacked adequate controls with respect to identifying and accounting for material contracts. This was evidenced by our failure to properly identify and account for a material lease amendment. Accordingly, management determined that the foregoing were control deficiencies that constituted material weaknesses.

 

Further, during the year ended October 31, 2022, we concluded that we lacked adequate controls with respect to the preparation and review of journal entries and account reconciliations during the year-end financial statement closing process. Accordingly, management determined that this control deficiency constituted a material weakness.

 

Further, during the year ended October 31, 2023, we concluded that we lacked adequate controls with respect to recording year end accruals for vendor liabilities and properly calculating required loan covenants. Accordingly, management determined that this control deficiency constituted a material weakness.

 

Notwithstanding such material weaknesses, we believe the financial information presented herein is materially correct and fairly presents the financial position and operating results for the three and nine months ended July 31, 2024 in conformity with U.S. generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the SEC.

 

 

Remediation Plan for the Material Weaknesses

 

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, management has identified material weaknesses as of that date. 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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis. To remediate the material weaknesses identified above, we are initiating controls and procedures in order to:

 

	●	educate control owners concerning the principles and requirements of each control, with a focus on those related to user access to our financial reporting systems impacting financial reporting;
	●	develop and maintain documentation to promote knowledge transfer upon personnel and function changes;
	●	develop enhanced controls and reviews related to our financial reporting systems;
	●	perform an in-depth analysis of who should have access to perform key functions within our financial reporting system that impact financial reporting and redesign aspects of the system to better allow the access rights to be implemented.
	●	perform a cross-reference analysis on a quarterly basis; and
	●	implement additional levels of internal review of financial statements and any adjustments made thereto.

 

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.

 

Management will seek to remediate such deficiencies over the coming quarters.

 

Changes in Internal Control over Financial Reporting

 

Other than the changes intended to remediate the material weaknesses as discussed above and in Part II, Item 9A of our Annual Report on Form 10-K for the year ended October 31, 2023, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended July 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 2023 filed with the SEC on February 9, 2024. There have been no material changes to our risk factors since the Company’s Annual Report on Form 10-K for the year ended October 31, 2023.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

(a) None.

 

(b) None.

 

(c) During the fiscal quarter ended July 31, 2024, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(c) of Regulation S-K.

 

 

ITEM 6. EXHIBITS

 

Exhibit Number		Description
31.1		Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS		Inline XBRL Instance Document *
101.SCH		Inline XBRL Taxonomy Extension Schema Document *
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document *
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

* Filed herewith

 

** Furnished herewith

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		Coffee Holding Co., Inc.
Date: September 13, 2024	By:	/s/ Andrew Gordon
	Name:	Andrew Gordon
	Title:	President, Chief Executive Officer and Chief Financial Officer