NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(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.
NOTE
2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY:
The
following (a) condensed consolidated balance sheet as of October 31, 2019, which has been derived from our audited financial statements,
and (b) the unaudited interim condensed financial statements have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) have been
condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate
to make the information not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the Company’s latest shareholders’ annual
report on Form 10-K filed with the SEC on January 29, 2020 for the fiscal year ended October 31, 2019 (“Form 10-K”).
In
the opinion of management, all adjustments (which include normal and recurring nature adjustments) necessary to present a fair
statement of the Company’s financial position as of July 31, 2020, and results of operations for the three and nine months
ended July 31, 2020 and the cash flows for the nine months ended July 31, 2020 as applicable, have been made.
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d):
The
results of operations for the three and nine months ended July 31, 2020 are not necessarily indicative of the operating results
for the full fiscal year or any future periods.
The
condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries, Organic Products
Trading Company, LLC (“OPTCO”), Sonofresco, LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and
Generations Coffee Company, LLC (“GCC”), the entity formed as a result of the Company’s joint venture with Caruso’s
Coffee, Inc. The Company owns a 60% equity interest in GCC. All significant inter-company transactions and balances have been
eliminated in consolidation.
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 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.
Significant
Accounting Policy
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.
Share-Based
Payment
The
Company accounts for share-based payments using the fair value method. For employees and directors, the fair value of the award
is measured, as discussed below, on the grant date. The Company has granted stock options at an exercise price equal to the closing
price of the Company’s common stock as reported by Nasdaq. Upon exercise of an option, the Company issues new shares of
common stock out of its authorized shares.
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d):
The
weighted-average fair value of options has been estimated on the grant date using the Black-Scholes pricing model. The fair value
of each instrument is estimated on the grant date utilizing certain assumptions for a risk-free interest rate, volatility and
expected remaining lives of the awards. The risk-free interest rate used is the United States Treasury rate for the day of the
grant having a term equal to the life of the equity instrument. Beginning with the current year quarter, the fair value of stock-based
payment awards issued was estimated using a volatility derived from comparable companies share price. The assumptions used in
calculating the fair value of share-based payment awards represents management’s best estimates, but these estimates involve
inherent uncertainties and the application of management judgement. As a result, if factors change and the Company uses different
assumptions, the Company’s stock-based compensation expense could be materially different in the future.
The
following assumptions were used as inputs to the Black Scholes option pricing model to estimate the fair value of option granted
during the quarter ended July 31 2019 which are currently being expensed over the requisite service period:
Expected
Life
|
|
10
years
|
|
Risk
free interest rate
|
|
2.42%
˗ 2.57
|
%
|
Expected
volatility
|
|
43.0%
˗ 64.2
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
Forfeiture
rate
|
|
|
0
|
%
|
Recently
Adopted Accounting Pronouncements
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.
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (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 expense for operating leases for the
three months and nine months ended July 31, 2020 was $138,682 and $416,045, respectively of which, $35,369 and $106,106 was included
within cost of goods sold and $103,313 and $309,939 was recorded in the selling and administrative expenses. The aggregate cash
payments under these leasing agreements was $149,556 and $448,190 for the three and nine months ended July 31, 2020.
The
following summarizes the Company’s operating leases:
|
|
July 31, 2020
|
|
|
|
|
|
Right-of-use operating lease assets
|
|
$
|
2,186,882
|
|
Current lease liability
|
|
$
|
464,517
|
|
Non-current lease liability
|
|
$
|
1,883,681
|
|
|
|
July 31, 2020
|
|
|
|
|
|
Average remaining lease term
|
|
|
3.6
|
|
Discount rate
|
|
|
4.75
|
%
|
Maturities
of lease liabilities by year for our operating leases are as follows:
2020
|
|
$
|
149,756
|
|
2021
|
|
|
547,788
|
|
2022
|
|
|
529,320
|
|
2023
|
|
|
531,807
|
|
2024
|
|
|
316,477
|
|
Thereafter
|
|
|
603,034
|
|
Total lease payments
|
|
$
|
2,678,182
|
|
Less: imputed interest
|
|
|
(329,984
|
)
|
Present value of operating lease liabilities
|
|
$
|
2,348,198
|
|
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
3 - 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:
|
|
July 31, 2020
|
|
|
October 31, 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
|
|
NOTE
4 - INVENTORIES:
Inventories
at July 31, 2020 and October 31, 2019 consisted of the following:
|
|
July 31, 2020
|
|
|
October 31, 2019
|
|
Packed coffee
|
|
$
|
4,221,207
|
|
|
$
|
4,044,279
|
|
Green coffee
|
|
|
11,783,830
|
|
|
|
12,515,124
|
|
Roasters and parts
|
|
|
408,592
|
|
|
|
419,077
|
|
Packaging supplies
|
|
|
2,128,347
|
|
|
|
1,862,745
|
|
Totals
|
|
$
|
18,541,976
|
|
|
$
|
18,841,225
|
|
NOTE
5 - 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 our cost of sales.
The commodities held at broker represent the market value of the Company’s trading account, which consists of options 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 condensed 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.
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
5 - COMMODITIES HELD BY BROKER (cont’d):
The
Company has open position contracts held by the broker, which are summarized as follows:
|
|
July 31, 2020
|
|
|
October 31, 2019
|
|
Option Contracts
|
|
$
|
374,874
|
|
|
$
|
(58,856
|
)
|
Future Contracts
|
|
|
81,236
|
|
|
|
159,887
|
|
Total Commodities
|
|
$
|
456,110
|
|
|
$
|
101,031
|
|
The
Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses
are included in earnings and not reflected as a net amount as a separate component of stockholders’ equity.
At
July 31, 2020, the Company held 35 options covering an aggregate of 1,312,500 pounds of green coffee beans. The fair market value
of these options, which was obtained from observable market data of similar instruments was $207,938.
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 $.9860 per pound. The fair market value of coffee applicable to such contracts
was $1.02 per pound at that date.
The
Company recorded realized and unrealized gains and losses respectively, on these contracts as follows:
|
|
Three Months Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Gross realized gains
|
|
$
|
150,972
|
|
|
$
|
364,076
|
|
Gross realized losses
|
|
|
(525,155
|
)
|
|
|
(450,602
|
)
|
Unrealized gain (loss)
|
|
|
674,015
|
|
|
|
529,730
|
|
Total
|
|
$
|
299,832
|
|
|
$
|
443,204
|
|
|
|
Nine Months Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Gross realized gains
|
|
$
|
992,875
|
|
|
$
|
1,078,627
|
|
Gross realized losses
|
|
|
(1,320,080
|
)
|
|
|
(2,422,128
|
)
|
Unrealized gain (loss)
|
|
|
355,079
|
|
|
|
(74,658
|
)
|
Total
|
|
$
|
27,874
|
|
|
$
|
(1,418,159
|
)
|
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
6 – DEBT:
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 July 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 July 31, 2020 and October 31, 2019, the outstanding balance under the bank line of credit was $3,796,822 and $7,167,740, respectively.
Payroll
Protection Program Loan
During
July 2020, the Company received the $634,400 unsecured Payroll Protection Program Loan (“PPP”) from
Newtek Small Business Finance, under the PPP which was established under the CARES Act and is administered by the U.S. Small Business
Administration. Loans obtained through the PPP are eligible to be forgiven as long as the proceeds are used for qualifying purposes
and certain other conditions are met. The receipt of the funds, and the forgiveness of the loan is dependent on the Company having
initially qualified for the loan and qualifying for the forgiveness of such loan based on its 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. The Company is using the proceeds from the
PPP Loan to fund payroll costs in accordance with the relevant terms and conditions of the CARES Act. The Company is following
the government guidelines and tracking costs to be eligible for 100% forgiveness of the loan. To the extent it is not forgiven,
the Company would be required to repay that portion at an interest rate of 1% over a period of two years.
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
7 - 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.
As
of July 31, 2020 and October 31, 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 July 31, 2020 and
October 31, 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, Louisiana, Montana, Massachusetts,
Michigan, New Jersey, New York, New York City, Oregon, Rhode Island, South Carolina, Tennessee, Virginia, and Texas state tax
returns. The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for
the years before fiscal 2017. The Company’s California, Colorado and New Jersey income tax returns are no longer subject
to examination by their respective taxing authorities for the years before fiscal 2016. The Company’s Oregon and New York
income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2016.
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
8 - EARNINGS PER SHARE:
The
Company presents “basic” and “diluted” earnings per common share pursuant to the provisions included in
the authoritative guidance issued by FASB, “Earnings per Share,” and certain other financial accounting pronouncements.
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common shares
outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of common
shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.
The
weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,569,349 for
the nine and three months ended July 31, 2020 and 2019. The Company has granted 1,000,000 options which have not been included
in the calculation of diluted earnings per share due to their anti-dilutive nature.
NOTE
9 - ECONOMIC DEPENDENCY:
Approximately
23% of the Company’s sales were derived from six customers during the nine months ended July 31, 2020. These customers also
accounted for approximately $1,907,000 of the Company’s accounts receivable balance at July 31, 2020. Approximately 19%
of the Company’s sales were derived from five customers during the nine months ended July 31, 2019. These customers also
accounted for approximately $1,813,000 of the Company’s accounts receivable balance at July 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 that management believes will adequately
provide for credit losses.
For
the nine months ended July 31, 2020, approximately 26% of the Company’s purchases were from six vendors. These vendors accounted
for approximately $508,000 of the Company’s accounts payable at July 31, 2020. For the nine months ended July 31, 2019,
approximately 25% of the Company’s purchases were from five vendors. These vendors accounted for approximately $496,000
of the Company’s accounts payable at July 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.
For
the three months ended July 31, 2020, approximately 21% of the Company’s sales were derived from six customers. Approximately
17% of the Company’s sales were derived from six customers during the three months ended July 31, 2019.
For
the three months ended July 31, 2020, approximately 23% of the Company’s purchases were from six vendors. For the three
months ended July 31, 2019, approximately 18% of the Company’s purchases were from six vendors.
The
following table presents revenues by product line in the nine and three months ended July 31, 2020 and 2019.
|
|
Nine Months Ended
July 31, 2020
|
|
|
Three Months
Ended
July 31, 2020
|
|
|
Nine Months Ended
July 31, 2019
|
|
|
Three Months
Ended
July 31, 2019
|
|
Green
|
|
$
|
18,453,377
|
|
|
$
|
5,765,246
|
|
|
$
|
25,573,649
|
|
|
$
|
8,394,907
|
|
Packaged
|
|
$
|
38,272,009
|
|
|
$
|
11,578,763
|
|
|
$
|
40,370,934
|
|
|
$
|
13,199,378
|
|
Totals
|
|
$
|
56,725,386
|
|
|
$
|
17,344,009
|
|
|
$
|
65,944,583
|
|
|
$
|
21,594,285
|
|
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
10 - RELATED PARTY TRANSACTIONS:
The
Company has engaged its 40% partner in GCC as an outside contractor (the “Partner”). Included in contract labor expense
are expenses incurred from the Partner during the three and nine months ended July 31, 2020 of $110,369 and $307,569, respectively
and $102,524 and $309,898, respectively, for the three and nine months ended July 31, 2019, for the processing of finished goods.
An
employee of one of the top five vendors is a director of the Company. Purchases from that vendor totaled approximately $1,461,000
and $4,466,000 for the three and nine months ended July 31, 2020, respectively, and $1,782,000 and $5,877,000 for the three and
nine months ended July 31, 2019, respectively. The corresponding accounts payable balance to this vendor was approximately $204,000
and $231,000 at July 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: 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 an officer of the Company. The assets are included in the Deposits and other assets in the accompanying
balance sheets. The deferred compensation asset and liability at July 31, 2020 and October 31, 2019 were $303,609 and $378,453,
respectively.
NOTE
11 - 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 three and nine months ended July 31,
2020 and the year ended October 31, 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.
|
COFFEE
HOLDING CO., INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2020
(UNAUDITED)
NOTE
11 - STOCKHOLDERS’ EQUITY (cont’d):
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 nine months ended July 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 July 31, 2020
|
|
|
1,000,000
|
|
|
|
-
|
|
|
$
|
5.43
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
The
Company recorded $678,709 and $476,899 of stock-based compensation in the nine months ended July 31, 2020 and the year ended October
31, 2019, respectively.
The
unrecognized stock compensation expense as of July 31, 2020 was approximately $1,354,663.
NOTE
12 - SUBSEQUENT EVENTS:
The
Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based
upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required
further adjustment or disclosure in the condensed consolidated financial statements.