SECURITIES & EXCHANGE COMMISSION EDGAR FILING
COFFEE HOLDING CO INC
Form: 10-K
Date Filed: 2014-01-24
Corporate Issuer CIK: 1007019
Symbol:
SIC Code:
JVA
2080
© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
☑
❑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2013
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
(State or other jurisdiction of incorporation or
organization)
3475 Victory Boulevard, Staten Island, New
York
(Address of principal executive offices)
11-2238111
(I.R.S. Employer Identification No.)
10314
(Zip Code)
Registrant’s telephone number, including area code: (718) 832-0800
Securities registered under Section 12(b) of the Act:
Title of each class:
Common Stock, Par Value $0.001 Per Share
Name of each exchange on which registered:
Nasdaq Capital Market
Securities registered under Section 12(b) of the Exchange Act:
None
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ❑ No ☑
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ❑ No☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ❑
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ❑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained in, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ❑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
❑
❑
Non-accelerated filer
Smaller Reporting Company
❑
☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ❑ No ☑
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The aggregate market value of the common equity held by non-affiliates of the registrant, computed by reference to the closing price
of the registrant’s common stock on the Nasdaq Capital Market on April 30, 2013, was $38,799,482.
As of January 23, 2014, the registrant had 6,372,309 shares of common stock, par value $0.001 per share, outstanding.
Portions of the registrant’s proxy statement for the 2014 annual meeting of stockholders to be filed pursuant to Regulation 14A within
120 days after the registrant’s fiscal year ended October 31, 2013, are incorporated by reference in Part III of this Form 10-K.
Documents incorporated by reference
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
TABLE OF CONTENTS
Page
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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ITEM 1. BUSINESS
General Overview
PART I
Products and Operations. We are an integrated wholesale coffee roaster and dealer in the United States. Our core products
can be divided into three categories:
• Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small roasters and
coffee shop operators;
• Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including
supermarkets that want to have their own brand name on coffee to compete with national brands; and
• Branded Coffee: coffee roasted and blended to our own specifications and packaged and sold under our seven proprietary
and licensed brand names in different segments of the market.
Our private label and branded coffee products are sold throughout the United States and Canada to supermarkets, wholesalers,
and individually owned and multi-unit retail customers. Our unprocessed green coffee, which includes over 90 specialty coffee
offerings, is sold to specialty gourmet roasters.
We conduct our operations in accordance with strict freshness and quality standards. All of our private label and branded
coffees are produced from high quality coffee beans that are deep roasted for full flavor using a slow roasting process that has been
perfected utilizing our more than thirty years of experience in the coffee industry. In order to ensure freshness, our products are
delivered to our customers within 72 hours of roasting. We believe that our long history has enabled us to develop a loyal customer
base.
Our corporate offices are located at 3475 Victory Boulevard, Staten Island, New York 10314. Our telephone number is (718)
832-0800 and our website address is www.coffeeholding.com. The information on our website is not incorporated by reference into
this Annual Report on Form 10-K.
Our Competitive Strengths
To achieve our growth objectives described below, we intend to leverage the following competitive strengths:
Positioned to Profitably Grow Through Varying Cycles of the Coffee Market. We believe that we are one of the few coffee
companies to offer a broad array of branded and private label roasted ground coffees and wholesale green coffee across the
spectrum of consumer tastes, preferences and price points. While many of our competitors engage in distinct segments of the coffee
business, we sell products in each of the following areas:
• Retail branded coffee;
• Mainstream retail private label coffee;
• Specialty retail coffees both private label and branded;
• Wholesale specialty green and gourmet whole bean coffees;
• Food service;
• Instant coffees; and
• Niche products.
Our branded and private label roasted ground coffees are sold at competitive and value price levels while some of our other
branded and specialty coffees are sold predominantly at premium price levels. Premium price level coffee is high-quality gourmet
coffee, such as AA Arabica coffee, which sell at a substantial premium over traditional retail canned coffee, while competitive and
value price level coffee is mainstream or traditional canned coffee. Because of this diversification, we believe that our profitability is
not dependent on any one area of the coffee industry and, therefore, is less sensitive than our competition to potential coffee
commodity price and overall economic volatility.
Wholesale Green Coffee Market Presence. As a large roaster-dealer of green coffee, we believe that we are favorably
positioned to increase our specialty coffee sales. Since 1998, we have increased the number of our wholesale green coffee
customers, including coffee houses, single store operators, mall coffee stores and mail order sellers, by 286% from 150 to 429. We
are a charter member of the Specialty Coffee Association of America and one of the largest distributors of Swiss Water Processed
Decaffeinated Coffees along the East Coast. In addition, although we do not have any formalized, material agreements or long-term
contracts with Green Mountain Coffee Roasters (“GMCR”), we have a 20-year relationship with GMCR, our largest wholesale green
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coffee customer. Our over 40 years of experience as a roaster and a dealer of green coffee allows us to provide our roasting
experience as a value added service to our gourmet roaster customers. The assistance we provide to our customers includes
training, coffee blending and market identification. We believe that our relationships with wholesale green coffee customers and our
focus on selling green coffee as a wholesaler has enabled us to participate in the growth of the specialty coffee market while
mitigating the risks associated with the competitive retail specialty coffee environment.
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Diverse Portfolio of Differentiated Branded Coffees. We have amassed a portfolio of five proprietary name brands sold to
supermarkets, wholesalers and individually owned stores in the United States, including brands for specialty espresso, Latin
espresso, Italian espresso, 100% Colombian coffee and blended coffee. In addition, we have entered into a licensing agreement with
Del Monte Corporation for the exclusive right to use the S&W and IL CLASSICO trademarks in the United States and other countries
approved by Del Monte Corporation in connection with the production, manufacture and sale of roasted whole bean and ground
coffee for distribution to retail customers. We plan to broaden our customer base and increase penetration with existing customers by
expanding the S&W label from a well-known brand on the West Coast to a well-known brand throughout the United States. Our
existing portfolio of differentiated brands combined with our management expertise serve as a platform to add additional name
brands through acquisition or licensing agreements which target product niches and segments that do not compete with our existing
brands.
Management Has Extensive Experience in the Coffee Industry. We have been a family-operated business for three
generations. Throughout this time, we have remained strong through varying cycles in the coffee industry and the economy. Andrew
Gordon, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, and David Gordon, our Executive Vice
President – Operations, have worked with Coffee Holding for 31 and 33 years, respectively. David Gordon is an original member of
the Specialty Coffee Association of America. We believe that our employees and management are dedicated to our vision and
mission, which is to produce high quality products, as well as to provide quality and responsive service to our customers.
Our Growth Strategy
We believe that significant growth opportunities exist by selectively pursuing strategic acquisitions and alliances, targeting the
rapidly growing Hispanic market in the United States, increasing penetration with existing customers by adding new products, and
developing our food service business. By capitalizing on this strategy, we hope to continue to grow our business with our
commitment to quality and personalized service to our customers. We do not intend to compete on price alone nor do we intend to
expand sales at the expense of profitability.
Selectively Pursue Strategic Acquisitions and Alliances. We have expanded our operations by acquiring coffee
companies, entering into strategic alliances and acquiring or licensing brands, which complement our business objectives and we
intend to continue to seek such opportunities.
Grow Our Cafe Caribe and Cafe Supremo Products. The Hispanic population in the United States is the fastest growing and
now represents the largest minority demographic in the United States. We believe there is significant opportunity for our Café Caribe
and Café Supremo brands to gain market share among Hispanic consumers in the United States. Café Caribe, which has historically
been our leading brand by poundage, is a specialty espresso coffee that targets espresso coffee drinkers and, in particular, Hispanic
consumers. Café Supremo is a specialty espresso coffee which is priced for the more price sensitive Hispanic espresso coffee
drinker.
Further Market Penetration of Our Niche Products. We intend to capture additional market share through our existing
distribution channels by selectively adding or introducing new brand names and products across multiple price points, including:
• Specialty blends;
• Private label “value” blends and trial-sized mini-brick packages and
• Specialty instant coffees.
Develop Our Food Service Business. We plan to expand further into the food service business by developing new
distribution channels for our products. Currently, we have a limited presence in the food service market. Food service coffee
products tend to have a higher gross profit margin than our traditional supermarket product retail offerings. We have expanded our
food service offerings to include instant cappuccinos, tea products and an equipment program for our customers. We attend various
annual trade shows held by different buying groups, which provide us a national audience to market our food service products.
Expansion into China and other Pacific Rim Countries. During 2013, we (i) introduced our Don Manuel brand for sale in
the Shanghai market, (ii) commenced sales of green coffee into China and (iii) continued to build upon prior sales of our S&W coffee
in the Far East. We intend to pursue opportunities to increase sales of our green coffee, private label coffee and branded coffee in
the Far East.
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Our Core Products
Our core products can be divided into three categories:
•
roasters and coffee shop operators;
Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large, medium and small
• Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including
supermarkets that want to have their own brand name on coffee to compete with national brands; and
• Branded Coffee: coffee roasted and blended to our own specifications and packaged and sold under our seven proprietary
and licensed brand names in different segments of the market.
Wholesale Green Coffee. The specialty coffee market represents the fastest growing area of our industry. The number of
gourmet coffee houses have been increasing in all areas of the United States. The growth in specialty coffee sales has created a
marketplace for higher quality and differentiated products, which can be priced at a premium in the marketplace. As a large roaster-
dealer of green coffee, we are favorably positioned to increase our specialty coffee sales. We sell green coffee beans to small
roasters and coffee shop operators
the United States and carry over approximately 90 different
varieties. Specialty green coffee beans are sold unroasted, direct from warehouses to small roasters and gourmet coffee shop
operators, which then roast the beans themselves. We sell from as little as one bag (132 pounds) to a full truckload (44,000 pounds)
of specialty green coffee beans, depending on the size and need of the customer. We believe that we can increase sales of
wholesale green coffee without an increase in infrastructure as well as not venturing into the highly competitive retail specialty coffee
environment and utilizing our current strategy we can be as profitable or more profitable than our competitors in this segment by
selling “one bag at a time” rather than “one cup at a time.”
throughout
located
Private Label Coffee. We roast, blend, package and sell coffee under private labels for companies throughout the United
States and Canada. Our private label coffee is sold in cans, brick packages and instants in a variety of sizes. As of October 31,
2013, we supplied coffee under approximately 32 different labels to wholesalers and retailers. We produce private label coffee for
customers who desire to sell coffee under their own name but do not want to engage in the manufacturing process. Our private label
customers seek a quality similar to the national brands at a lower cost, which represents a better value for the consumer.
Branded Coffee. We roast and blend our branded coffee according to our own recipes and package the coffee at our facilities
in La Junta, Colorado and Brecksville, Ohio. We then sell the packaged coffee under our brand labels to supermarkets, wholesalers
and individually-owned stores throughout the United States.
We hold trademarks for each of our proprietary name brands and have the exclusive right to use the S&W, IL CLASSICO brand
names in the United States in connection with the production, manufacture and sale of roasted whole bean and ground coffee for
distribution at the retail level. For further information regarding our trademark rights, see “Business—Trademarks.”
Each of our name brands is directed at a particular segment of the coffee market. Our branded coffees are:
Cafe Caribe is a specialty espresso coffee that targets espresso coffee drinkers and, in particular, the Hispanic consumer
market;
S&W is an upscale canned coffee established in 1921 and includes Premium, Premium Decaf, French Roast, Colombian,
Colombian Decaf, Swiss Water Decaf, Kona, Mellow’d Roast and IL CLASSICO lines;
Cafe Supremo is a specialty espresso that targets espresso drinkers of all backgrounds and tastes. It is designed to introduce
coffee drinkers to the tastes of dark roasted coffee;
Don Manuel is produced from the finest 100% Colombian coffee beans. Don Manuel is an upscale quality product which
commands a substantial premium compared to the more traditional brown coffee blends. We also use this known trademark in our
food service business because of the high brand quality;
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Fifth Avenue is a blended coffee that has become popular as an alternative for consumers who purchase private label or
national branded coffee. We also market this brand to wholesalers who do not wish to undertake the expense of developing a private
label coffee program under their own name;
Via Roma is an Italian espresso targeted at the more traditional espresso drinker; and
Il CLASSICO is an S&W brand espresso product.
Other Products
We also offer several niche products, including:
• trial-sized mini-brick coffee packages and
• specialty instant coffees.
Raw Materials
Coffee is a commodity traded on the Commodities and Futures Exchange subject to price fluctuations. Over the past five years, the
average price per pound of coffee beans ranged from approximately $1.03 to $3.05. The price for coffee beans on the commodities
market as of October 31, 2013 and 2012 were $1.08 and $1.66 per pound, respectively. Specialty green coffee, unlike most coffee, is
not tied directly to the commodities cash markets. Instead, it tends to trade on a negotiated basis at a substantial premium over
commodity coffee pricing, depending on the origin, supply and demand at the time of purchase. We are a licensed Fair Trade dealer
for Fair Trade certified coffee. Fair Trade certified coffee helps small coffee farmers increase their incomes and improve the
prospects of their communities and families by guaranteeing farmers a minimum price of ten cents above the current market
price. Our Ohio Facility operated by GCC is certified organic by the Organic Crop Improvement Association (OCIA). All of our
specialty green coffees, as well as all of the other coffees we import for roasting, are subject to multiple levels of quality control.
We purchase our green coffee from dealers located primarily within the United States. The dealers supply us with coffee beans from
many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. For the fiscal years ended 2013 and 2012,
approximately 75% and 80% of all of our green coffee purchases were from ten suppliers. One of these suppliers, Rothfos
Corporation, accounted for approximately $31.2 million or 25% in 2013, and $31.9 million or 19% in 2012, of our total product
purchases. An employee of Rothfos Corporation is one of our directors. We do not have any formalized, material agreements or
long-term contracts with any of these suppliers. Rather, our purchases are typically made pursuant to individual purchase
orders. We do not believe that the loss of any one supplier, including Rothfos, would have a material adverse effect on our
operations due to the availability of alternate suppliers.
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our
control. Supply and price can be affected by factors such as weather, politics and economics within the countries that export
coffee. Increases in the cost of coffee beans can, to a certain extent, be passed on to our customers in the form of higher prices for
coffee beans and processed coffee. Drastic or prolonged increases in coffee prices may also adversely impact our business as it
could lead to a decline in overall consumption of coffee. Similarly, rapid decreases in the cost of coffee beans may force us to lower
our sale prices before realizing cost reductions in our purchases.
We subject all of our private unroasted green coffee to both a pre-shipment sample approval and an additional sample approval upon
arrival into the United States. Once the arrival sample is approved, we then bring the coffee to one of our facilities to roast and blend
according to our own strict specifications. During the roasting and blending process, samples are pulled off the production line and
tested on an hourly basis to ensure that each batch roasted is consistent with the others and meets the strict quality standards
demanded by our customers and us.
Our Use of Derivatives
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our
control. We have used and continue to use short-term coffee futures and options contracts for the purpose of hedging the effects of
changing green coffee prices. In addition, we acquire futures contracts with longer terms, generally three to four months, for the
purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures
contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options
and futures contracts increase our cost of sales. The use of these derivative financial instruments has generally enabled us to
mitigate the effect of changing prices. However, no strategy can entirely eliminate pricing risks and we generally remain exposed to
losses on futures contracts when prices decline significantly in a short period of time and we would generally remain exposed to
supply risk in the event of non-performance by the counterparties to any futures contracts. 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
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decrease in profitability or increased losses. See "Quantitative and Qualitative Disclosures About Market Risk—Commodity Price
Risks."
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Trademarks
We hold trademarks, registered with the United States Patent and Trademark Office, for all seven of our proprietary coffee brands
and an exclusive license for S&W, IL CLASSICO brands for sale in the United States. Trademark registrations are subject to periodic
renewal and we anticipate maintaining our registrations. We believe that our brands are recognizable in the marketplace and that
brand recognition is important to the success of our branded coffee business.
Customers
We sell our private label and our branded coffee to some of the largest retail and wholesale customers in the United States
(according to Supermarket News). We sell wholesale green coffee to Green Mountain Coffee Roasters “GMCR”. Sales to GMCR
accounted for approximately $80.1 million or 60% of our net sales for the fiscal year ended October 31, 2013 and $108.9 million or
62% for the fiscal year ended October 31, 2012.
Although our agreements with wholesale customers generally contain only pricing terms, our contracts with certain customers also
contain minimum and maximum purchase obligations at fixed prices. Because our profits on a fixed-price contract could decline if
coffee prices increased, we acquire futures contracts with longer terms (generally three to four months) primarily for the purpose of
guaranteeing an adequate supply of green coffee at favorable prices. Although the use of these derivative financial instruments has
generally enabled us to mitigate the effect of changing prices, no strategy can entirely eliminate pricing risks or increased losses and
we generally remain exposed to losses on futures contacts when prices decline significantly in a short period of time, and we would
generally remain exposed to supply risk in the event of non-performance by the counterparties to any futures contracts. See “- Our
Use of Derivatives”
Marketing
We market our private label and wholesale coffee through trade shows, industry publications, face-to-face contact and through the
use of our internal sales force and non-exclusive independent food and beverage sales brokers. We also use our web site
(www.coffeeholding.com) as a method of marketing our coffee products and ourselves.
For our private label and branded coffees, we will, from time to time, in conjunction with retailers and with wholesalers, conduct in-
store promotions, such as product demonstrations, coupons, price reductions, two-for-one sales and new product launches to capture
changing consumer taste preferences for upscale canned coffees.
We evaluate opportunities for growth consistent with our business objectives. In addition, we have established relationships with
independent sales brokers to market our products across the United States, in areas of the country where we have not had a high
penetration of sales and Canada. We utilize our in-house sales personnel to market our private label brands. We intend to capture
additional market share in our existing distribution channels by selectively adding or introducing new brand names and products
across multiple price points, including niche specialty blends, private label “value” blends and mini-brick, filter packages, and
peripheral products.
Charitable Activities
We are also a supporter of several coffee-oriented charitable organizations and during fiscal 2013 and 2012, we donated
approximately $47,000 and $48,000, respectively to charities.
• For over 18 years, we have been members of Coffee Kids, an international non-profit organization that helps to improve the
quality of life of children and their families in coffee-growing communities in Mexico, Guatemala, Nicaragua and Costa Rica.
• We are members of Grounds for Health, an organization that educates, screens, and arranges treatment for women who
have cancer and live in the rural coffee growing communities of Mexico.
• We are a licensed Fair Trade dealer of Fair Trade certified coffee. Fair Trade helps small coffee farmers to increase their
incomes and improve the prospects of their communities and families. It guarantees farmers a minimum price of $1.25 per pound or
ten cents above the current market price.
• We are the administrative benefactors to a non-profit organization called Cup for Education. After discovering the lack of
schools, teachers, and basic fundamental learning supplies in the poor coffee growing communities of Central and Latin America,
“Cup” was established by our employee, Karen Gordon, to help build schools, sponsor teachers, and purchase basic supplies such
as books, chalk and other necessities for a proper education.
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Competition
The coffee market is highly competitive. We compete in the following areas:
Wholesale Green Coffee. There are many green coffee dealers throughout the United States. Many of these dealers have greater
financial resources than we do. However, we believe that we have both the knowledge and the capability to assist small specialty
gourmet coffee roasters with developing and growing their businesses. Our over 40 years of experience as a roaster and a dealer of
green coffee allows us to provide our roasting experience as a value added service to our gourmet roaster customers. While other
coffee merchants may be able to offer lower prices for coffee beans, we market ourselves as a value-added supplier to small roasters,
with the ability to help them market their specialty coffee products and develop a customer base. The assistance we provide our
customers includes training, coffee blending and market identification. Because specialty green coffee beans are sold unroasted to
small coffee shops and roasters that market their products to local gourmet customers, we do not believe that our specialty green
coffee customers compete with our private label or branded coffee lines of business. We believe that the addition of OPTCO as well
as our two green coffee salespersons in South Carolina and Oregon allows us to compete more effectively throughout the country.
Private Label Competition. There are several major producers of coffee for private label sales in the United States. Many other
companies produce coffee for sale on a regional basis. Our main competitor is the former retail coffee division of Sara Lee
Corporation, which was purchased by Segafredo Zanetti Group in 2006, now known as Massimo Zanetti Beverage. Massimo Zanetti
Beverage is larger and has more financial and other resources than we do and, therefore, is able to devote more resources to
product development and marketing. We believe that we remain competitive by providing a higher level of quality and customer
service. This service includes ensuring that the coffee produced for each label maintains a consistent taste and is delivered on time
and in the proper quantities. In addition, we provide our private label customers with information on the coffee market on a regular
basis.
Branded Competition. Our proprietary brand coffees compete with many other brands that are sold in supermarkets and specialty
stores, primarily in the Northeastern United States. The branded coffee market in both the Northeast and elsewhere is dominated by
three large companies: Kraft General Foods, Inc. (owner of the Maxwell House brand), Smuckers (owner of the Folgers Café Bustelo
brands) and Massimo Zanetti Beverage which also markets specialty coffee in addition to non-specialty coffee. Our large competitors
have greater access to capital and a greater ability to conduct marketing and promotions. We believe that, while our competitors’
brands may be more nationally recognizable, our Café Caribe brand is competitive in the fast growing Hispanic demographic and our
S&W brand has been a popular and recognizable brand on the West Coast for over 80 years.
Government Regulation
Our coffee roasting operations are subject to various governmental laws and regulations, which require us to obtain licenses relating
to customs, health and safety, building and land use and environmental protection. Our roasting facility is subject to state and local
air-quality and emissions regulation. If we encounter difficulties in obtaining any necessary licenses or if we have difficulty complying
with these laws and regulations, then we could be subject to fines and penalties, which could have a material adverse effect on our
profitability. In addition, our product offerings could be limited, thereby reducing our revenues.
We believe that we are in compliance in all material respects with all such laws and regulations and that we have obtained all
material licenses and permits that are required for the operation of our business. We are not aware of any environmental regulations
that have or that we believe will have a material adverse effect on our operations.
Employees
We have 69 full-time employees. None of our employees are represented by unions or collective bargaining agreements. Our
management believes that we maintain good working relationships with our employees. To supplement our internal sales staff, we
sometimes engage independent national and regional sales brokers as independent contractors who work on a commission basis.
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ITEM 1A. RISK FACTORS
An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should
carefully consider the risks and uncertainties described below together with all of the other information included in this report. In
addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value
or market price of our common stock could decline due to any of these identified or other risks, and you could lose all of your
investment.
Risk affecting our company
Because our business is highly dependent upon a single commodity, coffee, any decrease in demand for coffee could
materially adversely affect our revenues and profitability. Our business is centered on essentially one commodity: coffee. Our
operations have primarily focused on the following areas of the coffee industry:
• the roasting, blending, packaging and distribution of private label coffee;
• the roasting, blending, packaging and distribution of proprietary branded coffee; and
• the sale of wholesale specialty green coffee.
Demand for our products is affected by:
• consumer tastes and preferences;
• global economic conditions;
• demographic trends; and
• the type, number and location of competing products.
Because we rely on a single commodity, any decrease in demand for coffee would harm our business more than if we had more
diversified product offerings and could materially adversely affect our revenues and operating results.
If we are unable to geographically expand our branded and private label products, our growth will be impeded which could
result in reduced sales and profitability. Our business strategy emphasizes, among other things, geographic expansion of our
branded and private label products as opportunities arise. We may not be able to implement successfully this portion of our business
strategy. Our ability to implement this portion of our business strategy is dependent on our ability to:
• market our products on a national scale;
• increase our brand recognition on a national scale;
• enter into distribution and other strategic arrangements with third party retailers; and
• manage growth in administrative overhead and distribution costs likely to result from the planned expansion of our
distribution channels.
Our sales and profitability may be adversely affected if we fail to successfully expand the geographic distribution of our branded and
private label products. In addition, our expenses could increase and our profits could decrease as we implement our growth strategy.
If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than
market value for green coffee and our profitability may be reduced. The supply and price of coffee beans are subject to volatility
and are influenced by numerous factors which are beyond our control. We have used and expect to continue to use to a lesser
extent short-term coffee futures and options contracts for the purpose of hedging the effects of changing green coffee prices. In
addition, we have acquired and expect to continue to acquire to a lesser extent futures contracts with longer terms, generally three to
four months, for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on
options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and
losses on options and futures contracts increase our cost of sales.
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The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. However,
no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline
significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the
counterparties to any futures contracts. Historically, we generally have been able to pass green coffee price increases through to
customers, thereby maintaining our gross profits, however, we may not be able to pass price increases through to our customers in
the future. Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and
operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedging results in
losses, our cost of sales may increase, resulting in a decrease in profitability or increase losses. Although we have had net gains on
options and futures contracts in the past, we have incurred losses on options and futures contracts during some reporting periods. In
these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase losses. Such losses have and
could in the future materially increase our cost of sales and materially decrease our profitability or increase losses and adversely
affect our stock price.
Our revenues and profitability could be adversely affected if our joint ventures are not successful. In April 2006, we entered
into a joint venture with Caruso’s Coffee, Inc. of Brecksville, Ohio and formed GCC, which engages in the roasting, packaging and
sale of private label specialty coffee products. In addition, in November 2011, we invested in Global Mark, a new venture focusing on
supply of instant coffee and related products; this relationship was terminated in December 2012. We will continue to seek
opportunities for new joint ventures. While we believe that our joint ventures will be successful, losses in our joint ventures, including
our loss in connection with Global Mark, or any future joint ventures would hurt our profitability. In addition, we generally will not be in
a position to exercise sole decision-making authority regarding our joint ventures. Investments in joint ventures may under certain
circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might
become bankrupt or fail to fund their share of the required capital contributions. Joint venture partners may have business interests,
strategies or goals that are inconsistent with our business interests, strategies or goals and may be, in cases where we have a
minority interest, in a position to take actions contrary to our policies, strategies or objectives. Any disputes that may arise between
us and our joint venture partners may result in litigation or arbitration that could increase our expenses and could prevent our officers
and/or directors from focusing their time and effort exclusively on our business strategies. In addition, we may in certain
circumstances be liable for the actions of our third-party joint venture partners.
Any inability to successfully implement our strategy of growth through selective acquisitions, licensing arrangements and
other strategic alliances, including joint ventures, could materially affect our revenues and profitability. Part of our growth
strategy utilizes the selective acquisition of coffee companies, the selective acquisition or licensing of additional coffee brands and
other strategic alliances, including joint ventures, presents risks that could result in increased expenditures and could materially
adversely affect our revenues and profitability, including:
•
•
•
•
such acquisitions, licensing arrangements or other strategic alliances may divert our management’s attention from our
existing operations;
we may not be able to successfully integrate any acquired coffee companies or new coffee brands into our existing
business;
we may not be able to manage the contingent risks associated with the past operations of, and other unanticipated
problems arising in, any acquired coffee company; and
we may not be able to control unanticipated costs associated with such acquisitions, licensing arrangements or strategic
alliances.
In addition, any such acquisitions, licensing arrangements or strategic alliances may result in:
• potentially dilutive issuances of our equity securities;
• the incurrence of additional debt;
• restructuring charges; and
• the recognition of significant charges for depreciation and amortization related to intangible assets.
As has been our practice in the past, we will continuously evaluate any such acquisitions, licensing opportunities or strategic
alliances as they arise. However, we have not reached any new agreements or arrangements with respect to any such acquisition,
licensing opportunity or strategic alliance (other than those described herein) at this time and we may not be able to consummate any
acquisitions, licensing arrangements or strategic alliances on terms favorable to us or at all. The failure to consummate any such
acquisitions, licensing arrangements or strategic alliances may reduce our growth and expansion. In addition, if these acquisitions,
licensing opportunities or strategic alliances are not successful, our earnings could be materially adversely affected by increased
expenses and decreased revenues.
We are dependent on sales of wholesale green coffee to Green Mountain Coffee Roasters. The loss of any of our key
customers could negatively affect our revenues and decrease our earnings. We are dependent upon sales of wholesale green
coffee to one customer, GMCR. Sales to GMCR accounted for approximately 60% and 62% of our net sales for the fiscal years
ended October 31, 2013 and 2012, respectively. Although no other customer accounted for greater than 10% of our net sales during
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this period, other customers may account for more than 10% of our net sales in future periods. We generally do not have long-term
contracts with these or any of our customers. Accordingly, our customers can stop purchasing our products at any time without
penalty and are free to purchase products from our competitors. The loss of, or reduction in sales to, customers such as GMCR or
any of our other customers to which we sell a significant amount of our products or any material adverse change in the financial
condition of such customers would negatively affect our revenues and decrease our earnings.
If we lose our key personnel, including Andrew Gordon and David Gordon, our revenues and profitability could suffer. Our
success depends to a large degree upon the services of Andrew Gordon, our President, Chief Executive Officer, Chief Financial
Officer and Treasurer, and David Gordon, our Executive Vice President – Operations and Secretary. We also depend to a large
degree on the expertise of our coffee roasters. We do not have employment contracts with our coffee roasters. Our ability to source
and purchase a sufficient supply of high quality coffee beans and to roast coffee beans consistent with our quality standards could
suffer if we lose the services of any of these individuals. As a result, our business and operating results would be adversely
affected. We may not be successful in obtaining and retaining a replacement for either Andrew Gordon or David Gordon if they elect
to stop working for us. In addition, we do not have key-person insurance on the lives of Andrew Gordon or David Gordon.
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Our indebtedness may adversely affect our ability to obtain additional funds and may increase our vulnerability to
economic or business downturns. From time to time, we utilize borrowings under our credit facility in connection with operations.
Outstanding debt could have important negative consequences to the holders of our securities, including the following:
• general domestic and global economic conditions;
• a portion of our cash flow from operations will be needed to pay debt service and will not be available to fund future
operations;
• we have increased vulnerability to adverse general economic and coffee industry conditions; and
• we may be vulnerable to higher interest rates because interest expense on borrowings under our revolving line of credit is
based on variable rates.
Our ability to make payments on our indebtedness and to fund our operations depends on our ability to generate cash in the future.
Our future operating performance is subject to market conditions and business factors that are beyond our control. If our cash flows
and capital resources are insufficient to allow us to make scheduled payments on our debt, we may have to reduce or delay capital
expenditures, sell assets, seek additional capital or restructure or refinance our debt.
Our indebtedness contains covenants that restrict our operations and failure to comply with the terms of such
indebtedness could result in a default that could have material adverse consequences for us. Our revolving line of credit
contains covenants that place annual restrictions on our operations, including covenants related to debt restrictions, capital
expenditures, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, distribution restrictions
(common stock and preferred stock), dividend restrictions and restrictions on intercompany transactions. In addition, our revolving line
of credit requires that we maintain a minimum working capital at all times. Although we are currently in compliance with the
covenants, our ability to comply with these covenants may be affected by general economic and industry conditions, as well as
market fluctuations in coffee prices and other events beyond our control. We do not know if we will be able to satisfy all such
covenants in the future. Our breach of any of the covenants contained in our revolving line of credit could result in a default under
such agreement. In the event of a default, the lender could elect not to make additional loans to us, could require us to repay some of
our outstanding debt prior to maturity, and/or to declare all amounts borrowed by us, together with accrued interest, to be due and
payable. In the event that this occurs, we may be unable to repay all such accelerated indebtedness. Any indebtedness that we incur
under our revolving line of credit is secured by substantially all of our tangible and intangible assets. If we default under the
indebtedness secured by our assets, those assets would be available to the secured creditors to satisfy our obligations to the secured
creditors.
If our planned increase in marketing expenditures fails to promote and enhance our brands, the value of our brands could
decrease and our revenues and profitability could be adversely affected. We believe that promoting and enhancing our brands
is critical to our success. We intend to continue to increase our marketing expenditures to increase awareness of our brands, which
we expect will create and maintain brand loyalty. If our brand-building strategy is unsuccessful, these expenses may never be
recovered, and we may be unable to increase awareness of our brands or protect the value of our brands. If we are unable to
achieve these goals, our revenues and ability to implement our business strategy could be adversely affected.
Our success in promoting and enhancing our brands will also depend on our ability to provide customers with high quality products
and service. Although we take measures to ensure that we sell only fresh roasted coffee, we have no control over our roasted coffee
products once they are purchased by our customers. Accordingly, wholesale customers may store our coffee for longer periods of
time or resell our coffee without our consent, in each case, potentially affecting the quality of the coffee prepared from our
products. Although we believe we are less susceptible to quality control problems than many of our competitors because a majority
of our products are sold in cans or brick packs unlike whole bean coffees, if consumers do not perceive our products and service to
be of high quality, then the value of our brands may be diminished and, consequently, our operating results and ability to implement
our business strategy may be adversely affected.
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Our roasting methods are not proprietary, so competitors may be able to duplicate them, which could harm our
competitive position. If our competitive position is weakened, our revenues and profitability could be materially adversely
affected. We consider our roasting methods essential to the flavor and richness of our roasted coffee and, therefore, essential to our
brands of coffee. Because we do not hold any patents for our roasting methods, it may be difficult for us to prevent competitors from
copying our roasting methods if such methods become known. If our competitors copy our roasting methods, the value of our coffee
brands may be diminished, and we may lose customers to our competitors. In addition, competitors may be able to develop roasting
methods that are more advanced than our roasting methods, which may also harm our competitive position.
The success of our brand also depends in part on our intellectual property. We rely on a combination of trademarks,
copyrights, service marks, trade secrets and similar rights to protect our intellectual property. The success of our growth strategy
depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further
develop our brand in both domestic and international markets. If our efforts to protect our intellectual property are not adequate, or if
any third party misappropriates or infringes on our intellectual property, the value of our brand may be harmed, which could have a
material adverse effect on our business. We may become engaged in litigation to protect our intellectual property, which could result
in substantial costs to us as well as diversion of management attention.
Since we rely heavily on common carriers to ship our coffee on a daily basis, any disruption in their services or increase in
shipping costs could adversely affect our relationship with our customers, which could result in reduced revenues,
increased operating expenses, a loss of customers or reduced profitability. We rely on a number of common carriers to deliver
coffee to our customers and to deliver coffee beans to us. We have no control over these common carriers and the services provided
by them may be interrupted as a result of labor shortages, contract disputes and other factors. If we experience an interruption in
these services, we may be unable to ship our coffee in a timely manner, which could reduce our revenues and adversely affect our
relationship with our customers. In addition, a delay in shipping could require us to contract with alternative, and possibly more
expensive, common carriers and could cause orders to be cancelled or receipt of goods to be refused. Any significant increase in
shipping costs could lower our profit margins or force us to raise prices, which could cause our revenue and profits to suffer.
If there was a significant interruption in the operation of our Colorado facility, we may not have the capacity to
service all of our customers and we may not be able to service our customers in a timely manner, thereby reducing our
revenues and earnings. We are dependent on the continued operations of our Colorado coffee roasting and distribution
facility. Our ability to maintain our computer and telecommunications equipment in effective working order and to protect against
damage from fire, natural disaster, power loss, telecommunications failure or similar events. In addition, growth of our customer base
may strain or exceed the capacity of our systems and lead to degradations in performance or systems failure. Although we
continually review and consider upgrades to our order fulfillment infrastructure and provide for system redundancies to limit the
likelihood of systems overload or failure, substantial damage to our systems or a systems failure that causes interruptions for a
number of days could adversely affect our business. Additionally, if we are unsuccessful in updating and expanding our order
fulfillment infrastructure, our ability to grow may be constrained. As a result, our revenues and earnings could be materially adversely
affected.
condition. We are subject
Prolonged negative economic conditions could adversely affect us, our customers and suppliers, which could harm our
in general economic and market
financial
conditions. Uncertainty remains in the United States economy as it continues to recover from a severe economic recession. The
United States economy continues to experience market volatility, difficulties in the financial services sector, diminished liquidity and
availability of credit, concerns regarding inflation, increases in the costs of commodities, continuing high unemployment rates,
reduced consumer spending and consumer confidence and continuing economic uncertainties. If the United States economy were to
deteriorate significantly, our business could be negatively impacted.
from adverse changes
the risks arising
to
We intend to seek opportunities to obtain additional capital to continue to grow our business. Our business strategy
contemplates potential future access to financing to fund the expansion of our business. Recent events in the financial markets have
had an adverse impact on the credit markets and equity securities, including our common stock, have exhibited a high degree of
volatility. Although we intend to seek opportunities to obtain additional capital, we may not be able to do so. Our ability to obtain
additional financing in the future will depend in part upon the prevailing capital market conditions, as well as our business
performance. If additional financing is raised by the issuance of common stock you may suffer additional dilution and if additional
financing is raised through debt financing, it may involve significant restrictive covenants which could affect our ability to operate our
business. The inability to obtain sufficient capital to fund the expansion of our business could have a material adverse effect on us.
If we fail to continue to develop and maintain our brand, our business could suffer. We believe that maintaining and
developing our brand is critical to our success and that the importance of brand recognition may increase as a result of competitors
offering products similar to ours. If our brand building initiative is unsuccessful, we may never recover the expenses incurred in
connection with these efforts and we may be unable to increase our future revenue or implement our business strategy. Our
success in promoting and enhancing our brand will also depend on our ability to provide customers with high-quality products and
customer service. Although we take measures to ensure that we sell only fresh roasted coffee, we have no control over our coffee
products once purchased by customers. Accordingly, customers may prepare coffee from our brands inconsistent with our
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standards, store our coffee for long periods of time or resell our coffee without our consent, which in each case, potentially affects the
quality of the coffee prepared from our products. If customers do not perceive our products and service to be of high-quality, then the
value of our brand may be diminished and, consequently, our ability to implement our business strategy may be adversely affected.
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Risks related to the coffee industry
Increases in the cost of high quality Arabica or Robusta coffee beans could reduce our gross margin and profit. Green
coffee is our largest single cost of sales. Coffee is a traded commodity and, in general, its price can fluctuate depending on:
• weather patterns in coffee-producing countries;
• economic and political conditions affecting coffee-producing countries, including acts of terrorism in such countries;
• foreign currency fluctuations; and
• trade regulations and restrictions between coffee-producing countries and the United States.
If the cost of wholesale green coffee increases due to any of these factors, our margins could decrease and our profitability could
suffer accordingly. It is expected that coffee prices will remain volatile in the coming years. Although we have historically attempted
to raise the selling prices of our products in response to increases in the price of wholesale green coffee, when wholesale green
coffee prices increase rapidly or to significantly higher than normal levels, we are not always able to pass the price increases through
to our customers on a timely basis, if at all, which adversely affects our operating margins and cash flow. We may not be able to
recover any future increases in the cost of wholesale green coffee. Even if we are able to recover future increases, our operating
margins and results of operations may still be materially and adversely affected by time delays in the implementation of price
increases.
Disruptions in the supply of green coffee could result in a deterioration of our relationship with our customers,
decreased revenues or could impair our ability to grow our business. Green coffee is a commodity and its supply is subject to
volatility beyond our control. Supply is affected by many factors in the coffee growing countries including weather, pest damage,
economic conditions, acts of terrorism, as well as efforts by coffee growers to expand or form cartels or associations. In addition, the
political situation in many of the Arabica coffee growing regions, including Africa, Indonesia, and Central and South America, can be
unstable, and such instability could affect our ability to purchase coffee from those regions. If Arabica coffee beans from a region
become unavailable or prohibitively expensive, we could be forced to discontinue particular coffee types and blends or substitute
coffee beans from other regions in our blends. Frequent substitutions and changes in our coffee product lines could lead to cost
increases, customer alienation and fluctuations in our gross margins.
Some of the Arabica coffee beans of the quality we purchase do not trade directly on the commodity markets. Rather, we purchase
the high-end Arabica coffee beans that we use on a negotiated basis. We depend on our relationships with coffee brokers, exporters
and growers for the supply of our primary raw material, high quality Arabica coffee beans. If any of our relationships with coffee
brokers, exporters or growers deteriorate, we may be unable to procure a sufficient quantity of high quality coffee beans at prices
acceptable to us or at all. In such case, we may not be able to fulfill the demand of our existing customers, supply new retail stores or
expand other channels of distribution. A raw material shortage could result in a deterioration of our relationship with our customers,
decreased revenues or could impair our ability to expand our business.
The coffee industry is highly competitive and if we cannot compete successfully, we may lose our customers or experience
reduced sales and profitability. The coffee markets in which we do business are highly competitive and competition in these
markets could become increasingly more intense due to the relatively low barriers of entry. The industry in which we compete is
particularly sensitive to price pressure, as well as quality, reputation and viability for wholesale and brand loyalty for retail. To the
extent that one or more of our competitors becomes more successful with respect to any key competitive factor, our ability to attract
and retain customers could be materially adversely affected. Our private label and branded coffee products compete with other
manufacturers of private label coffee and branded coffees. These competitors, such as Kraft General Foods, Inc. (owner of the
Maxwell House brand), Smuckers (owner of the Folgers Café Bustelo brands) and Massimo Zanetti Beverage have much greater
financial, marketing, distribution, management and other resources than we do for marketing, promotions and geographic and market
expansion. In addition, there are a growing number of specialty coffee companies who provide specialty green coffee and roasted
coffee for retail sale. If we are unable to compete successfully against existing and new competitors, we may lose our customers or
experience reduced sales and profitability.
Besides coffee, we face exposure to other commodity cost fluctuations, which could impair our profitability. In
addition to the increase in coffee costs discussed in the risk factor above, we are exposed to cost fluctuation in other commodities,
including, in particular, steel, natural gas and gasoline. In addition, an increase in the cost of fuel could indirectly lead to higher
electricity costs, transportation costs and other commodity costs. Much like coffee costs, the costs of these commodities depend on
various factors beyond our control, including economic and political conditions, foreign currency fluctuations, and global weather
patterns. To the extent we are unable to pass along such costs to our customers through price increases, our margins and
profitability will decrease.
Adverse public or medical opinion about caffeine may harm our business. Coffee contains caffeine and other active
compounds, the health effects of some of which are not fully understood. A number of research studies conclude or suggest that
excessive consumption of caffeine may lead to increased heart rate, nausea and vomiting, restlessness and anxiety, depression,
headaches, tremors, sleeplessness and other adverse health effects. An unfavorable report on the health effects of caffeine or other
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compounds present in coffee could significantly reduce the demand for coffee, which could harm our business and reduce our sales
and profits. In addition, we could become subject to litigation relating to the existence of such compounds in our coffee; litigation that
could be costly and could divert management attention.
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Risks related to our common stock.
Our operating results may fluctuate significantly, which makes our results of operations difficult to predict and
could cause our results of operations to fall short of expectations. Our operating results may fluctuate from quarter to quarter
and year to year as a result of a number of factors, many of which are outside of our control. These fluctuations could be caused by
a number of factors including:
• fluctuations in purchase prices and supply of green coffee;
• fluctuations in the selling prices of our products;
• the level of marketing and pricing competition from existing or new competitors in the coffee industry;
• the success of our hedging strategy;
• our ability to retain existing customers and attract new customers; and
• our ability to manage inventory and fulfillment operations and maintain gross margins.
As a result of the foregoing, period-to-period comparisons of our operating results may not necessarily be meaningful and
those comparisons should not be relied upon as indicators of future performance. Accordingly, our operating results in future
quarters may be below market expectations. In this event, the price of our common stock may decline.
The Gordon family has the ability to influence action requiring stockholder approval. Members of the Gordon family,
including Andrew Gordon, our President, Chief Executive Officer, Chief Financial Officer and Treasurer, and David Gordon, our
Executive Vice President and Secretary, own, in the aggregate, approximately 11.4% of our outstanding shares of common stock. As
a result, the Gordon family is able to influence the actions that require stockholder approval, including:
• the election of a majority of our directors;
• the amendment of our charter documents; and
• the approval of mergers, sales of assets or other corporate transactions or matters submitted for stockholder approval.
As a result, our other stockholders may have reduced influence over matters submitted for stockholder approval.
Our share repurchase program could affect the price of our common stock and increase volatility.
Repurchases of our common stock pursuant to our share repurchase program could affect our share price and increase its
volatility. The existence of a share repurchase program could also cause our stock prices to be higher than it would be in
the absense of such a program and could potentially reduce that market liquidity for our stock. There can be no assurance
that any stock repurchases will enhance stockholder value because the market price of our common stock may decline
below the levels at which we repurchased shares of common stock. Although our share repurchase program is intended to
enhance long-term stockholder value, short-term price fluctuations could reduce the program's effectiveness.
The market price of our common stock has been volatile during our past history and may continue to be volatile. The
market price and trading volume of our common stock has been volatile during our past history and it may continue to be volatile.
From May 1, 2011 through January 23, 2014, our common stock has traded as low as $4.51 and as high as $30.98. We cannot
predict the price at which our common stock will trade in the future and it may decline. The price at which our common stock trades
may fluctuate significantly and may be influenced by many factors, including our financial results, developments generally affecting
the coffee industry, general economic, industry and market conditions, the depth and liquidity of the market for our common stock,
fluctuations in coffee prices, investor perceptions of our business, reports by industry analysts, negative announcements by our
customers, competitors or suppliers regarding their own performances.
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Provisions in our articles of incorporation, bylaws and of Nevada law have anti-takeover effects that could
prevent a change in control that could be beneficial to our stockholders, which could depress the market price of shares of
our common stock. Our articles of incorporation, bylaws and Nevada corporate law contain provisions that could delay, defer or
prevent a change in control of us or our management that could be beneficial to our stockholders. These provisions could also
discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. These
provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a
price above the then current market price for shares of our common stock. These provisions:
• provide that directors may only be removed upon a vote of at least eighty percent of the shares outstanding;
• establish advance notice requirements for nominating directors and proposing matters to be voted on by shareholders at
shareholder meetings;
• limit the right of our stockholders to call a special meeting of stockholders;
• authorize our board of directors to issue preferred stock and to determine the rights and preferences of those shares, which
would be senior to our common stock, without prior stockholder approval;
• require amendments to our articles of incorporation to be approved by the holders of at least eighty percent of our outstanding
shares of common stock;
• a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the
membership of a majority of our board of directors; and
• provide a prohibition on stockholder action by written consent, thereby only permitting stockholder action to be taken at an
annual or special meeting of our stockholders.
We are also subject to certain anti-takeover provisions under Nevada law. Under Nevada law, a corporation may not, in
general, engage in a business combination with any “interested stockholder” which includes, among other things, a holder of 10% or
more of its common stock unless the holder has held the stock for three years or, among other things, the board of directors has
approved the transaction.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We are headquartered at 3475 Victory Boulevard, Staten Island, New York, where we lease office and warehouse space. We pay
annual rent of $117,007 under the terms of the lease, which expires on October 31, 2023.
We lease a 50,000 square foot facility located at 27700 Frontage Road in La Junta, Colorado from the City of La Junta. We pay
annual rent of $100,093 under the terms of the lease, which expires in January 2024.
We lease office space in Vancouver, Washington. We pay annual rent of $35,438 under the terms of a lease, which expires in May
2015.
We also use a variety of independent, bonded commercial warehouses to store our green coffee beans. Our management believes
that our facilities are adequate for our current operations and for our contemplated operations in the foreseeable future.
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ITEM 3. LEGAL PROCEEDINGS
We are not a party to, and none of our property is the subject of, any pending legal proceedings other than routine litigation that is
incidental to our business. To our knowledge, no governmental authority is contemplating initiating any such proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
Our common stock trades on Nasdaq under the symbol “JVA.” On June 25, 2010, our Board of Directors approved a regular
dividend program of $0.03 per share to shareholders (each, a “Quarterly Dividend”) and paid a Quarterly Dividend through December
28, 2012. On June 13, 2013, the Company announced that the dividend program had been terminated.
As of January 23, 2014, we had 335 holders of record.
We did not repurchase any of our common stock during the quarter ended October 31, 2013.
The following table sets forth the high and low sales prices of our common stock for each quarter of the last two fiscal years.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
Low
$
$
$
$
$
$
$
$
2013
8.84 $
7.78 $
7.53 $
6.87 $
2012
11.65 $
14.93 $
9.54 $
9.07 $
6.04
6.33
5.81
5.32
7.50
7.65
4.88
5.50
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years from the consolidated financial statements of Coffee
Holding Co., Inc. The following information is only a summary, and you should read it in conjunction with our consolidated financial
statements and notes beginning on page F-1.
$
Income Statement Data:
Net sales
Cost of sales
Gross profit
Operating expenses
(Loss) Income from operations
Other (expense) income
(Loss) income before income taxes
(Benefit) provision for income taxes
Minority interest
Net (loss) income
$
Net (loss) income per share –
Basic
Net (loss) income per share –
Diluted
Balance Sheet Data:
Total assets
Short-term debt
Long-term debt
Total liabilities
Stockholders’ equity
Book value per share
$
$
$
$
For the Years Ended October 31,
2013
2012
2011
2010
2009
(Dollars in thousands, except per share data)
133,981
128,012
5,969
7,522
(1,553)
(169)
(1,722)
(393)
(152)
(1,481)
(0.23)
(0.23)
$
$
$
$
173,656 $
161,649
12,007
7,607
4,400
(345)
4,055
1,471
(98)
2,486 $
0.39 $
0.37 $
146,755
138,210
8,545
7,345
1,200
(124)
1,076
230
(34)
812
0.15
0.14
$
$
$
$
83,492 $
72,932
10,560
6,545
4,015
(143)
3,872
1,479
(4)
2,389 $
74,452
64,440
10,012
6,389
3,623
1,869
5,492
2,159
(42)
3,291
0.44 $
0.60
0.44 $
0.60
2013
2012
2011
2010
2009
(Dollars in thousands, except per shares data)
At October 31,
32,399
1,229
–
10,315
22,084
3.47
$
$
38,248 $
563
–
14,448
23,800
3.73 $
38,779
1,820
–
16,789
21,990
3.45
$
$
23,921 $
2,307
–
9,707
13,482
2.46 $
19,804
792
–
8,625
11,133
2.05
2013
2012
2011
2010
2009
At October 31,
Per Common Share Data:
Basic EPS
Diluted EPS
Cash dividends declared
$
$
$
(.23) $
(.23) $
387,379 $
.39 $
.37 $
774,756 $
.15 $
.14 $
694,658 $
.44 $
.44 $
.60
.60
333,978 $ 1,544,568
18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Cautionary Note on Forward-Looking Statements
Some of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of
Operation,” “Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements
upon information available to management as of the date of this Form 10-K and management’s expectations and projections about
future events, including, among other things:
• our dependency on a single commodity could affect our revenues and profitability;
• our success in expanding our market presence in new geographic regions;
• the effectiveness of our hedging policy may impact our profitability;
• the success of our joint ventures;
• our success in implementing our business strategy or introducing new products;
• our ability to attract and retain customers;
• our ability to retain key personnel;
• our ability to obtain additional financing;
• our ability to comply with the restrictive covenants we are subject to under our current financing;
• the effects of competition from other coffee manufacturers and other beverage alternatives;
• the impact to the operations of our Colorado facility;
• general economic conditions and conditions which affect the market for coffee;
• the macro global economic environment;
• our ability to maintain and develop our brand recognition;
• the impact of rapid or persistent fluctuations in the price of coffee beans;
• fluctuations in the supply of coffee beans;
• the volatility of our common stock; and
• other risks which we identify in future filings with the Securities and Exchange Commission (the “SEC”).
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,”
“predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate” and similar expressions (or the
negative of such expressions). Any or all of our forward looking statements in this annual report and in any other public statements
we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Consequently, no forward-looking statement can be guaranteed. In addition, we undertake no responsibility to
update any forward-looking statement to reflect events or circumstances, that occur after the date of this annual report.
19
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Overview
We are an integrated wholesale coffee roaster and dealer in the United States and one of the few coffee companies that offers a
broad array of coffee products across the entire spectrum of consumer tastes, preferences and price points. As a result, we believe
that we are well-positioned to increase our profitability and endure potential coffee price volatility throughout varying cycles of the
coffee market and economic conditions.
Our operations have primarily focused on the following areas of the coffee industry:
• the sale of wholesale specialty green coffee;
• the roasting, blending, packaging and sale of private label coffee; and
• the roasting, blending, packaging and sale of our seven brands of coffee.
Our operating results are affected by a number of factors including:
• the level of marketing and pricing competition from existing or new competitors in the coffee industry;
• our ability to retain existing customers and attract new customers;
• our hedging policy;
• fluctuations in purchase prices and supply of green coffee and in the selling prices of our products; and
• our ability to manage inventory and fulfillment operations and maintain gross margins.
Our net sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and
attract new customers. For this reason, we have made, and will continue to evaluate, strategic decisions to invest in measures that
are expected to increase net sales. These transactions include our acquisitions of Premier Roasters, LLC, including equipment and a
roasting facility in La Junta, Colorado, a West Coast Brand Manager to market our S&W brand and to increase sales of S&W coffee
to new customers, our joint venture with Caruso’s Coffee, Inc. of Brecksville, Ohio the transaction with Organic Products and the
addition of three sales persons from the Café Bustelo division of Folgers to assist with the expansion of our Café Caribe and Supremo
brands. We believe these efforts will allow us to expand or business.
Our net sales are affected by the price of green coffee. We purchase our green coffee from dealers located primarily within the
United States. The dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil
and Uganda. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond
our control. For example, in Brazil, which produces approximately 40% of the world’s green coffee, the coffee crops are historically
susceptible to frost in June and July and drought in September, October and November. However, because we purchase coffee from
a number of countries and are able to freely substitute one country’s coffee for another in our products, price fluctuations in one
country generally have not had a material impact on the price we pay for coffee. Accordingly, price fluctuations in one country
generally have not had a material effect on our results of operations, liquidity and capital resources. Historically, because we
generally have been able to pass green coffee price increases through to customers, increased prices of green coffee generally result
in increased net sales.
We have used, and continue to use, 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. In addition, we acquire futures contracts with
longer terms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee at
favorable prices. Although the use of these derivative financial instruments has generally enabled us to mitigate the effect of
changing prices, no strategy can entirely eliminate pricing risks and we generally remain exposed to loss when prices decline
significantly in a short period of time. In addition, we would remain exposed to supply risk in the event of non-performance by the
counterparties to any futures contracts. If the hedges that we enter into 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 increase of our
losses. See “Item 1 – Business - Our Use of Derivatives.”
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for
doubtful accounts, inventories, assets held for sale, income taxes and loss contingencies. Management bases its estimates on
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results
could differ from these estimates under different assumptions or conditions.
20
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We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions
and estimates used in the preparation of the financial statements:
• We recognize revenue in accordance with the relevant authoritative guidance. Revenue is recognized at the point title and
risk of ownership transfers to its customers which is upon the shippers taking possession of the goods because i) title passes in
accordance with the terms of the purchase orders and with our agreements with our customers, ii) any risk of loss is covered by the
customers’ insurance, iii) there is persuasive evidence of a sales arrangement, iv) the sales price is determinable and v) collection of
the resulting receivable is reasonably assured. Thus, revenue is recognized at the point of shipment.
• Our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required
payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the
receivables are past due greater than the historical assumptions used, additional allowances may be required. For example, every
additional one percent of our accounts receivable that becomes uncollectible, would decrease our operating income by approximately
$124,000 for the year ended October 31, 2013. The reserve for sales discounts represents the estimated discount that customers will
take upon payment. The reserve for other allowances represents the estimated amount of returns, slotting fees and volume based
discounts estimated to be incurred by us from our customers.
• Inventories are stated at lower of cost (determined on a first-in, first-out basis) or market. Based on our assumptions about
future demand and market conditions, inventories are subject to be written-down to market value. If our assumptions about future
demand change and/or actual market conditions are less favorable than those projected, additional write-downs of inventories may
be required. Each additional one percent of potential inventory writedown would have decreased operating income by approximately
$94,000 for the year ended October 31, 2013.
• In accordance with ASC 740 “Income Taxes” (“ASC 740”), management routinely evaluates the likelihood of the realization
of its income tax benefits and the recognition of its deferred tax assets. In evaluating the need for any valuation allowance,
management will assess whether it is more likely than not that some portion, or all, of the deferred tax asset may not be realized.
Ultimately, the realization of deferred tax assets is dependent upon the generation of future taxable income during those periods in
which temporary differences become deductible and/or tax credits and tax loss carry-forwards can be utilized. In performing its
analyses, management considers both positive and negative evidence including historical financial performance, previous earnings
patterns, future earnings forecasts, tax planning strategies, economic and business trends and the potential realization of net
operating loss carry-forwards within a reasonable timeframe. To this end, management considered (i) that the Company had taxable
income from 2011 through 2012 of approximately $6,700,000 million and anticipates generating a sufficient level of future profits in
order to realize the benefits of its deferred tax asset; (ii) tax planning strategies; and (iii) the adequacy of future income to realize the
benefits of its remaining recorded deferred tax assets. The Company believes that the continued growth of its business will produce
positive operating results. Furthermore, the Company will be filing for a net operating loss carryback, which will immediately utilize
approximately $2,500,000 of its net operating losses, which will have the effect of realizing approximately $866,000 (through its
anticipated income tax refund) of its deferred tax assets. As of and for the year ended October 31, 2013, management has not
established any valuation allowance.
• A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax filings that do not
meet these recognition and measurement standards. As of October 31, 2013 and October 31, 2012, no liability for unrecognized tax
benefits was required to be reported. The guidance also discusses the classification of related interest and penalties on income taxes.
The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No
interest or penalties were recorded during the years ended October 31, 2013 and October 31, 2012.
• Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, which has been
integrated into a structure that does not provide the basis for separate reporting units. Consequently, we are a single reporting unit for
goodwill impairment testing purposes. We also have intangible assets consisting of our customer list and relationships and
trademarks acquired from OPTCO. At October 31, 2013 our balance sheet reflected goodwill and intangible assets as set forth below:
Customer list and relationships, net
Trademarks
Goodwill
October 31,
2013
$
123,750
180,000
440,000
$
743,750
Goodwill and the trademarks which are deemed to have indefinite lives are subject to annual impairment tests.
Goodwill impairment tests require the comparison of the fair value and carrying value of reporting units. We assess
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the potential impairment of goodwill and intangible assets annually and on an interim basis whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. Upon completion of such review, if
impairment is found to have occurred, a corresponding charge will be recorded. The value assigned to the customer
list and relationships is being amortized over a twenty year period.
Because the Company is a single reporting unit, the closing NASDAQ Capital Market price of our common stock as
of the acquisition date was used as a basis to measure the fair value of goodwill. Goodwill and the intangible assets
will be tested annually at the end of each fiscal year to determine whether they have been impaired. Upon completion
of each annual review, there can be no assurance that a material charge will not be recorded. Impairment testing is
required more often than annually if an event or circumstance indicates that an impairment or decline in value may
have occurred.
21
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Year Ended October 31, 2013 (Fiscal Year 2013) Compared to the Year Ended October 31, 2012 (Fiscal Year 2012)
Net Income (Loss). We had a net loss of $1,480,235, or $0.23 per share basic and diluted, for the fiscal year ended October 31,
2013 compared to a net income of $2,485,677, or $0.39 per share basic and $0.37 diluted for the fiscal year ended October 31, 2012.
The decrease in net income reflects the increased realized loss and decreased unrealized gains on hedging activities during the
fiscal year.
Net Sales. Net sales totaled $133,980,759 for the fiscal year ended October 31, 2013, a decrease of $39,675,456, or 22.8%,
from $173,656,215 for the fiscal year ended October 31, 2012. The decrease in net sales reflects an approximate 60% lower
commodity price during the fiscal year which resulted in a decrease in the price per pound of coffee sold by us.
Cost of Sales. Cost of sales for the fiscal year ended October 31, 2013 was $128,011,678, or 95.5% of net sales, as compared to
$161,649,282, or 93.1%, of net sales for the fiscal year ended October 31, 2012. Cost of sales consists primarily of the cost of green
coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The increase in cost of sales
primarily reflects our lower green coffee prices offset by increased realized losses and decreased unrealized gains on hedging
activities. Cost of sales includes purchases of approximately $31.2 million and $31.9 million in fiscal years 2013 and 2012,
respectively, from a related party.
Gross Profit. Gross profit for the fiscal year ended October 31, 2013 was $5,969,081, a decrease of $6,037,852 from $12,006,933
for the fiscal year ended October 31, 2012. Gross profit as a percentage of net sales decreased to 4.5% for the fiscal year ended
October 31, 2013 from 6.9% for the fiscal year ended October 31, 2012 due to net realized hedging losses and unrealized hedging
gains of $6,208,648 and $383,349, respectively, during fiscal 2013 as compared to net realized and unrealized hedging losses and
gains of $667,302 and $500,169, respectively, during fiscal 2012.
Operating Expenses. Total operating expenses decreased $85,359, or 1.1%, to $7,521,910 for the fiscal year ended October 31,
2013 from $7,607,269 for the fiscal year ended October 31, 2012. Selling and administrative expenses increased $39,620, or 0.6%,
to $6,939,819 for the year ended October 31, 2013 from $6,900,199 for the year ended October 31, 2012. Officers’ salary
decreased $124,979 or 17.7% to $582,091 for the year ended October 31, 2013 from $707,070 for the year ended October 31, 2012.
Other Income (Expense). Other expense for the fiscal year ended October 31, 2013 was $168,821, a decrease of $176,064 from
$344,885 for the fiscal year ended October 31, 2012. The decrease in other expense was attributable to an increase in interest and
other income of $10,177 and a decrease in our loss from our equity investments of $62,288, and a decrease in our loss from MF
Global of $14,690, and a decrease in interest expense of $88,909.
Income (Loss) Before Taxes and Non-controlling Interest in Subsidiary. We had a loss of $1,721,650 before income taxes and
non-controlling interest in subsidiary for the fiscal year ended October 31, 2013 compared to income of $4,054,779 for the fiscal year
ended October 31, 2012 resulting in a decrease of $5,776,429 for the year ended October 31, 2013. The decrease was primarily
attributable to our decreased realized trading gains.
Income Taxes. Our (benefit) provision for income taxes for the fiscal year ended October 31, 2013 totaled $(393,767) compared to
a provision of $1,470,381 for the fiscal year ended October 31, 2012. The change was attributable to a lower total income.
Liquidity and Capital Resources
As of October 31, 2013, we had working capital of $19,420,202, which represented a $15,597 increase from our working capital of
$19,404,605 as of October 31, 2012, and total stockholders’ equity of $21,750,065 which decreased by $1,867,614 from our total
stockholders’ equity of $23,617,679 as of October 31, 2012. Our working capital increased primarily due to an increase of $289,290
in prepaid green coffee, $937,554 in prepaid and refundable income taxes, $628,011 in deferred income tax asset and a decrease in
account payable and accrued expenses of $4,524,285, and a decrease in due to broker of $383,349, a decrease in income taxes
payable of $21,122, partially offset by a decrease of $3,532,914 in cash, $270,336 in accounts receivable, $1,930,563 in inventory,
$367,519 in prepaid expenses and other current assets, and an increase of $666,682 in our line of credit. As of October 31, 2013,
the outstanding balance on our line of credit was $1,229,182 compared to $562,500 as of October 31, 2012. Total stockholders’
equity decreased primarily due to our net loss and our dividends paid for fiscal year ended October 31, 2013.
On February 17, 2009, we entered into a financing agreement with Sterling National Bank (“Sterling”) for a $5,000,000 credit
facility. The credit facility is a revolving $5,000,000 line of credit and we can draw on the line at an amount up to 85% of eligible
accounts receivable and 25% of eligible inventory consisting of green coffee beans and finished coffee not to exceed
$1,000,000. Sterling shall have the right from time to time to adjust the foregoing percentages based upon, among other things,
dilution, its sole determination of the value or likelihood of collection of eligible accounts receivables owed to us and considerations
regarding inventory. The credit facility is payable monthly in arrears on the average unpaid balance of the line of credit at an interest
rate equal to a per annum reference rate of 4.25% at October 31, 2013 and 2012.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
On July 22, 2010, we had the credit facility increased to $7,000,000. In addition, OPTCO was added as a co-borrower and
the inventory sublimit was raised from $1,000,000 to $2,000,000. Subsequent to July 31, 2010, $1,800,000 of the credit facility was
allocated to OPTCO.
The initial term of the credit facility was for three years and expired on February 17, 2012. The initial terms of the credit
facility provided that the credit facility may be automatically extended for successive periods of one year each unless one party shall
have provided the other party with a written notice of termination at least ninety days prior to the expiration of the then current
term. Prior to the expiration of the initial term, and effective as of February 12, 2012, the term was extended until February 17, 2014
and the interest rate was reduced to the Wall Street Journal Prime rate (which is currently 3.25%) plus one percent (1%). On May 10,
2013, the Credit Facility was extended until February 17, 2015. The credit facility is secured by all our tangible and intangible assets.
The credit facility contains covenants that place annual restrictions on our operations, including covenants relating to debt
restrictions, capital expenditures, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions,
distribution restrictions (common stock and preferred stock), dividend restrictions, and restrictions on intercompany transactions. The
credit facility also requires that we maintain a minimum working capital at all times. We were in compliance with all required financial
covenants at October 31, 2013 and 2012.
On February 3, 2011, we amended the credit facility regarding the creation of a sublimit within the revolving line of credit in
the form of a $300,000 term loan for the benefit of GCC. We provided a corporate guarantee to Sterling in connection with the
amendment.
For the fiscal year ended October 31, 2013, our operating activities used net cash of $3,276,259 as compared to the fiscal year
ended October 31, 2012 when operating activities provided net cash of $8,026,512. The decreased cash flow from operations for the
fiscal year ended October 31, 2013 was primarily due to decreases in net income of $3,912,281, decreases in accounts receivable of
$3,118,117, prepaid green coffee of $528,044, prepaid and refundable income taxes of $1,257,763, deferred income taxes of
$705,500 and increases in account payable of $2,921,578, partially offset by increases in inventory of $261,789, prepaid expenses
and other current assets of $795,853.
For the fiscal year ended October 31, 2013, our investing activities used net cash of $535,960 as compared to the fiscal year
October 31, 2012 when net cash used by investing activities was $2,669,899. The decrease in our uses of cash in investing
activities was primarily due to our equity method investments of $2,100,000.
For the fiscal year ended October 31, 2013, our financing activities provided net cash of $279,305 compared to net cash used in
financing activities of $2,032,365 for the fiscal year ended October 31, 2012. The change in cash flow from financing activities for the
fiscal year ended October 31, 2013 was primarily due to our reduced borrowing and dividend payments.
We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our
debts, through October 31, 2014 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.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in interest rates and commodity prices as further described
below.
Interest Rate Risks. We are subject to market risk from exposure to fluctuations in interest rates. As of October 31, 2013, our debt
consisted of $1,229,182 of variable rate debt under our revolving line of credit. Our line of credit provides for a maximum of
$7,000,000 and is payable monthly in arrears on the average unpaid balance of the line of credit at an interest rate equal to a per
annum reference rate (currently 3.25%) plus 1%. This loan is secured by all tangible and intangible assets of the Company.
Commodity Price Risks. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors
which are beyond our control. We have used, and continue to use, short-term coffee futures and options contracts for the purpose of
hedging the effects of changing green coffee prices as further explained in Note 2 of the notes to financial statements in this
report. In addition, we acquire futures contracts with longer terms, generally three to four months, for the purpose of guaranteeing an
adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost
of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our
cost of sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing
prices. 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 increases in losses on our futures contracts when prices decline significantly in a
short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to
any futures contracts. Although we have had net gains on options and futures contracts in the past, we have incurred losses on
options and futures contracts during some reporting periods. In these cases, our cost of sales has increased, resulting in a decrease
in our profitability or increase losses. Such losses have and could in the future materially increase our cost of sales and materially
decrease our profitability or increase losses and adversely affect our stock price. See “Item 1A – Risk Factors – If our hedging policy
is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee
and our profitability may be reduced.”
As of October 31, 2013, we held 149 future contracts for the purchase of 5,587,500 pounds of coffee at a weighted average price of
$1.19 per pound compared to 319 future contracts for the purchase of 11,962,500 pounds of coffee at a weighted average price of
$1.66 per pound for the fiscal year ended October 31, 2012. The fair market value of coffee applicable to such contracts was $1.08
and $1.55 per pound, respectively. We also held 120 options covering an aggregate of 4,500,000 pounds of green coffee beans at
$1.10 per pound. The fair market value of these options was $244,800 at October 31, 2013. We did not hold any options at October
31, 2012.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-31 following the Exhibit Index of this Annual Report on Form 10-K.
24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On April 12, 2013, Coffee Holding Co., Inc. (“Coffee Holding” or the “Company”) engaged Marcum LLP (“Marcum”) as the
Company’s new independent registered public accounting firm for the fiscal year ending October 31, 2013. The engagement of
Marcum by the Company was approved by the Audit Committee of the Company’s Board of Directors.
On April 12, 2013, following Coffee Holding’s engagement of Marcum, the Company dismissed its former accounting firm
ParenteBeard LLC (“ParenteBeard”). The reports of ParenteBeard on the Company's consolidated financial statements for the fiscal
years ended October 31, 2011 and October 31, 2012 did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended October 31, 2011 and
October 31, 2012 and periods subsequent through dismissal, there were no disagreements with ParenteBeard on any matter of
accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not
resolved to ParenteBeard’s satisfaction, would have caused ParenteBeard to make reference to the subject matter of the
disagreement in connection with its report. During the fiscal years ended October 31, 2011 and October 31, 2012 and periods
subsequent through dismissal, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.
During the fiscal years ended October 31, 2012 and 2011 and through the date of the Audit Committee's decision, the
Company nor anyone on its behalf, consulted Marcum regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to the consolidated
financial statements of the Company, in any case where a written report or oral advice was provided to the Company by Marcum that
Marcum concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or
financial reporting issue; or (ii) any matter that was the subject of a “disagreement” (as that term is used in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Management, which includes our President, Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this
report. Based upon that evaluation, our President, Chief Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective to ensure that information required to be disclosed in the reports that we file and submit under
the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and
communicated, as is appropriate, to our management, including its principal executive officer and financial officer to allow timely
decisions regarding disclosure.
Management Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal control system is a process designed to provide reasonable assurance
to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and dispositions of assets, provide reasonable assurances that
transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with
authorizations of our management and the directors, and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of its internal control over financial reporting as of October 31, 2013. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Based on our assessment management believes that, as of October 31, 2013, our internal
control over financial reporting was effective based on those criteria.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred
during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over
financial reporting.
Attestation Report of the Registered Public Accounting Firm.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to section
989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permits us to provide only management’s report in
this annual report.
ITEM 9B. OTHER INFORMATION
None.
26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required by this item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information required by this item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is incorporated by reference to our Proxy Statement for the 2014 Annual Meeting of Stockholders.
27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) List of Documents filed as part of this Report
(1) Financial Statements
The financial statements and related notes, together with the report of Marcum LLP appear at pages F-1 through F-31 following the
Exhibit List as required by Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.
(2) Financial Statement Schedules
None.
(3) List of Exhibits
(a) Exhibits
We have filed with this report or incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-32 under
the Exchange Act. See Exhibit Index following the signature page to this report for a complete list of documents filed with this report.
Exhibit No.
2.1
Description
Agreement and Plan of Merger, dated October 31, 1997, by and among Transpacific International Group Corp. and
Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 1 to the
Company’s Registration Statement on Form SB-2 filed on November 10, 1997 (File No. 333-00588-NY)).
2.2
3.1
Asset Purchase Agreement, dated February 4, 2004, by and between Coffee Holding Co., Inc. and Premier Roasters
LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 20,
2004 (File No. 333-00588-NY)).
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the
Company’s Registration Statement on Form 8-A the “2005 Registration Statement” filed on May 2, 2005 (File No. 001-
32491)).
3.2
ByLaws of the Company (incorporated herein by reference to Exhibit 3.2 to the 2005 Registration Statement (File No.
001-32491)).
4.1
Form of Stock Certificate of the Company (incorporated herein by reference to the Company’s Registration Statement
on Form SB-2 filed on June 24, 2004 (Registration No. 333-116838)).
10.1
10.2
10.3
10.4
10.5
Loan and Security Agreement, dated February 17, 2009, by and between Sterling National Bank and Coffee Holding
Co., Inc. (incorporated herein by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K filed on
February 23, 2009 (File No. 001-32491)).
Lease, dated February 4, 2004, by and between Coffee Holding Co., Inc. and the City of La Junta, Colorado
(incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Registration Statement on
Form SB-2/A filed on August 12, 2004 (Registration No. 333-116838)).
Trademark License Agreement, dated February 4, 2004, between Del Monte Corporation and Coffee Holding Co., Inc.
(incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-QSB/A for the quarter
ended April 30, 2004 filed on August 26, 2004 (File No. 333-00588-NY)) as amended by that First Amendment to
Trademark License Agreement, dated January 4, 2013.
First Amendment to Trademark License Agreement, dated January 4, 2013, by and between Del Monte Corporation and
Coffee Holding Co., Inc. Certain portions of Exhibit 10.4 are omitted based upon approval of the Company’s request for
confidential treatment through January 28, 2023. The omitted portions were filed separately with the SEC on a
confidential basis.
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and
Andrew Gordon (incorporated herein by reference to Exhibit 10.14 of the Company’s Current Report on Form 8-K filed
on April 16, 2008 (File No. 001-32491)).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.6
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and
David Gordon (incorporated herein by reference to Exhibit 10.15 of the Company’s Current Report on Form 8-K filed on
April 16, 2008 (File No. 001-32491)).
10.7
Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.19
of the Company’s Quarterly Report on Form 10-QSB filed on June 14, 2005 (File No. 001-32491)).
10.8
Contract of Sale, dated April 14, 2009, by and between Coffee Holding Co., Inc. and 4401 1st Ave LLC (incorporated
herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K filed on January 28, 2010 (File No.
001-32491)).
10.9
Loan Modification Agreement, dated as of July 22, 2010, by and between Sterling National Bank and Coffee Holding
Co., (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on
September 14, 2010 (File No. 001-32491)).
10.10
First Amendment to Loan and Security Agreement between Coffee Holding Co., Inc. and Sterling National Bank, dated
July 23, 2010 (incorporated herein by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on
January 31, 2011 (File No. 001-32491)).
28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.11
Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding
Co., Inc.*
10.12
10.13
Placement Agency Agreement, dated as of September 27, 2011, by and among the Company, the selling stockholders
named therein, Roth Capital Partners, LLC and Maxim Group, LLC (incorporated herein by reference to Exhibit 10.1 to
the Company’s Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)).
Subscription Agreement, dated as of September 27, 2011, by and between the Company, the selling stockholders
named therein and each of the purchasers identified on the signature pages thereto (incorporated herein by reference
to Exhibit 10.2 to the Company’s Current Report on form 8-K filed on September 27, 2011 (File No. 001-32491)).
10.14
2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement
filed on February 28, 2013 (File No. 13653320)).
11.1
Calculation of Earnings Per Share.
21.1
List of Significant Subsidiaries*
23.1
Consent of Marcum LLP*
23.2
Consent of ParenteBeard LLC*
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 302 of the
Sarbanes-Oxley Act of 2002.*
__________
* Filed herewith
29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on January 24, 2014.
SIGNATURES
COFFEE HOLDING CO., INC.
By: /s/ Andrew Gordon
Andrew Gordon
President, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name
Title
Date
/s/ Andrew Gordon
Andrew Gordon
/s/ David Gordon
David Gordon
/s/ Gerard DeCapua
Gerard DeCapua
/s/ Daniel Dwyer
Daniel Dwyer
/s/ Barry Knepper
Barry Knepper
/s/ John Rotelli
John Rotelli
/s/ Robert M. Williams
Robert M. Williams
President, Chief Executive Officer, Chief Financial Officer,
January 24, 2014
Treasurer and Director (principal executive officer and
principal financial and accounting officer)
Executive Vice President – Operations, Secretary and
January 24, 2014
Director
Director
Director
Director
Director
Director
30
January 24, 2014
January 24, 2014
January 24, 2014
January 24, 2014
January 24, 2014
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT INDEX
Exhibit No.
2.1
Description
Agreement and Plan of Merger, dated October 31, 1997, by and among Transpacific International Group Corp. and
Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 2 to Post-Effective Amendment No. 1 to the
Company’s Registration Statement on Form SB-2 filed on November 10, 1997 (File No. 333-00588-NY)).
2.2
3.1
Asset Purchase Agreement, dated February 4, 2004, by and between Coffee Holding Co., Inc. and Premier Roasters
LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 20,
2004 (File No. 333-00588-NY)).
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the
Company’s Registration Statement on Form 8-A the “2005 Registration Statement” filed on May 2, 2005 (File No. 001-
32491)).
3.2
ByLaws of the Company (incorporated herein by reference to Exhibit 3.2 to the 2005 Registration Statement (File No.
001-32491)).
4.1
Form of Stock Certificate of the Company (incorporated herein by reference to the Company’s Registration Statement
on Form SB-2 filed on June 24, 2004 (Registration No. 333-116838)).
10.1
10.2
10.3
10.4
10.5
10.6
Loan and Security Agreement, dated February 17, 2009, by and between Sterling National Bank and Coffee Holding
Co., Inc. (incorporated herein by reference to Exhibit 10.21 to the Company’s Current Report on Form 8-K filed on
February 23, 2009 (File No. 001-32491)).
Lease, dated February 4, 2004, by and between Coffee Holding Co., Inc. and the City of La Junta, Colorado
(incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Registration Statement on
Form SB-2/A filed on August 12, 2004 (Registration No. 333-116838)).
Trademark License Agreement, dated February 4, 2004, between Del Monte Corporation and Coffee Holding Co., Inc.
(incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-QSB/A for the quarter
ended April 30, 2004 filed on August 26, 2004 (File No. 333-00588-NY)) as amended by that First Amendment to
Trademark License Agreement, dated January 4, 2013.
First Amendment to Trademark License Agreement, dated January 4, 2013, by and between Del Monte Corporation and
Coffee Holding Co., Inc. Certain portions of Exhibit 10.4 are omitted based upon approval of the Company’s request for
confidential treatment through January 28, 2023. The omitted portions were filed separately with the SEC on a
confidential basis.
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and
Andrew Gordon (incorporated herein by reference to Exhibit 10.14 of the Company’s Current Report on Form 8-K filed
on April 16, 2008 (File No. 001-32491)).
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and
David Gordon (incorporated herein by reference to Exhibit 10.15 of the Company’s Current Report on Form 8-K filed on
April 16, 2008 (File No. 001-32491)).
10.7
Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.9
of the Company’s Quarterly Report on Form 10-QSB filed on June 14, 2005 (File No. 001-32491)).
10.8
Contract of Sale, dated April 14, 2009, by and between Coffee Holding Co., Inc. and 4401 1st Ave LLC (incorporated
herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K filed on January 28, 2010 (File No.
001-32491)).
10.9
Loan Modification Agreement, dated as of July 22, 2010, by and between Sterling National Bank and Coffee Holding
Co., (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on
September 14, 2010 (File No. 001-32491)).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.10
First Amendment to Loan and Security Agreement between Coffee Holding Co., Inc. and Sterling National Bank, dated
July 23, 2010 (incorporated herein by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on
January 31, 2011 (File No. 001-32491)).
10.11
Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding
Co., Inc.*
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.12
10.13
Placement Agency Agreement, dated as of September 27, 2011, by and among the Company, the selling stockholders
named therein, Roth Capital Partners, LLC and Maxim Group, LLC (incorporated herein by reference to Exhibit 10.1 to
the Company’s Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)).
Subscription Agreement, dated as of September 27, 2011, by and between the Company, the selling stockholders
named therein and each of the purchasers identified on the signature pages thereto (incorporated herein by reference
to Exhibit 10.2 to the Company’s Current Report on form 8-K filed on September 27, 2011 (File No. 001-32491)).
10.14
2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement
filed on February 28, 2013 (File No. 13653320)).
11.1
Calculation of Earnings Per Share.
21.1
List of Significant Subsidiaries*
23.1
Consent of Marcum LLP*
23.2
Consent of ParenteBeard LLC*
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 302 of the
Sarbanes-Oxley Act of 2002.*
____________
* Filed herewith
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2013 AND 2012
CONSOLIDATED STATEMENTS OF OPERATIONS - YEARS ENDED OCTOBER 31, 2013 AND 2012
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - YEARS ENDED OCTOBER 31,
2013 AND 2012
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED OCTOBER 31, 2013 AND 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
F-2
F-4
F-5
F-6
F-7
F-9
F-1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders
of Coffee Holding Co., Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Coffee Holding Co., Inc. and Subsidiaries (the “Company”) as of
October 31, 2013, and the related consolidated statements of operation, stockholders’ equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Coffee Holding Co., Inc. and Subsidiaries as of October 31, 2013, and the consolidated results of its operation
and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of
America.
/s/ Marcum LLP
Marcum LLP
New York, New York
January 24, 2014
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Report of Independent Registered Public Accounting Firm
Board of Directors
Coffee Holding Co., Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of the Coffee Holding Co., Inc. and Subsidiaries (the "Company”) as
of October 31, 2012 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Coffee Holding Co., Inc. and Subsidiaries as of October 31, 2012 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ ParenteBeard LLC
Clark, New Jersey
January 28, 2013
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2013 AND 2012
CURRENT ASSETS:
Cash
Accounts receivable, net of allowances of $144,000 and $213,674 for 2013 and 2012,
- ASSETS -
respectively
Inventories
Prepaid green coffee
Prepaid expenses and other current assets
Prepaid and refundable income taxes
Deferred income tax asset
TOTAL CURRENT ASSETS
Machinery and equipment, at cost, net of accumulated depreciation of $3,130,902 and $2,631,468
for 2013 and 2012, respectively
Customer list and relationships, net of accumulated amortization of $26,250 and $18,750 for 2013
and 2012, respectively
Trademarks
Goodwill
Equity method investments
Deposits and other assets
TOTAL ASSETS
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses
Line of credit
Due to broker
Income taxes payable
TOTAL CURRENT LIABILITIES
Deferred income tax liabilities
Deferred rent payable
Deferred compensation payable
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY:
Coffee Holding Co., Inc. stockholders’ equity:
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued
Common stock, par value $.001 per share; 30,000,000 shares authorized, 6,456,316 shares
issued; 6,372,309 shares outstanding for 2013 and 2012
Additional paid-in capital
Contingent consideration
Retained earnings
Less: Treasury stock, 84,007 common shares, at cost for 2013 and 2012
Total Coffee Holding Co., Inc. Stockholders’ Equity
Noncontrolling interest
TOTAL EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See Notes to Consolidated Financial Statements
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2013
2012
$
4,035,669
$ 7,568,583
12,362,792
9,373,018
439,290
336,494
1,000,317
1,330,666
28,878,246
12,633,128
11,303,581
150,000
704,013
62,763
702,655
33,124,723
2,060,350
1,791,754
123,750
180,000
440,000
98,178
618,498
$ 32,399,022
131,250
180,000
440,000
1,931,931
648,094
$ 38,247,752
$
7,244,822
1,229,182
984,040
-
9,458,044
$ 11,769,107
562,500
1,367,389
21,122
13,720,118
145,666
195,452
515,498
10,314,660
32,655
166,668
528,687
14,448,128
-
-
6,456
6,111,633
(272,133)
6,456
15,904,109 15,904,109
-
-
7,979,247
(272,133)
21,750,065 23,617,679
181,945
22,084,362 23,799,624
$ 32,399,022 $ 38,247,752
334,297
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED OCTOBER 31, 2013 AND 2012
NET SALES
2013
2012
$133,980,759 $173,656,215
COST OF SALES (which include purchases of approximately $31.2 million and $31.9 million in fiscal
years 2013 and 2012, respectively, from a related party)
128,011,678 161,649,282
GROSS PROFIT
OPERATING EXPENSES:
Selling and administrative
Officers’ salaries
TOTAL
(LOSS) INCOME FROM OPERATIONS
OTHER INCOME (EXPENSE):
Interest income
Other income and losses
Loss from equity method investments
Interest expense
TOTAL
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND
NON-CONTROLLING INTEREST IN SUBSIDIARY
(Benefit) provision for income taxes
NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY
Less: Net income attributable to the non-controlling interest in subsidiary
5,969,081 12,006,933
6,939,819
582,091
7,521,910
(1,552,829)
6,900,199
707,070
7,607,269
4,399,664
43,144
(105,781)
(106,184)
(168,821)
32,967
(14,690)
(168,069)
(195,093)
(344,885)
(1,721,650)
4,054,779
(393,767)
1,470,381
(1,327,883)
(152,352)
2,584,398
(98,721)
NET (LOSS) INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC.
$ (1,480,235) $
2,485,677
Basic (loss) earnings per share
Diluted (loss) earnings per share
Dividends declared per share
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
(.23) $
(.23) $
.06 $
.39
.37
.12
6,372,309
6,372,309
6,372,309
6,639,309
See Notes to Consolidated Financial Statements
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FISCAL YEARS ENDED OCTOBER 31, 2013 AND 2012
Common Stock
$.001 Par Value
Treasury Stock
Additional
Paid-in
Capital
Retained
Earnings
Contingent
Consideration
Non-
Controlling
Interest
Total
Number of
Shares
Amount
Number of
Shares
Amount
6,372,309 $
6,456
84,007 $ (272,133) $15,884,609 $ 6,268,326 $
19,500 $ 83,224 $21,989,982
19,500
(19,500)
-
(774,756)
(774,756)
2,485,677
2,485,677
-
-
-
-
-
-
-
98,721
98,721
Balance,
10/31/11
OPTCO
Dividend
Net income
Non-
Controlling
Interest
Balance,
10/31/12
6,372,309 $
6,456
84,007 $ (272,133) $15,904,109 $ 7,979,247 $
- $ 181,945 $23,799,624
Dividend
Net loss
Non-
Controlling
Interest
(387,379)
(387,379)
(1,480,235)
(1,480,235)
-
-
-
-
-
-
- 152,352
152,352
Balance,
10/31/13
6,372,309 $
6,456
84,007 $ (272,133) $15,904,109 $ 6,111,633 $
$ 334,297 $22,084,362
See Notes to Consolidated Financial Statements
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED OCTOBER 31, 2013 AND 2012
OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
2013
2012
$ (1,327,883) $
2,584,398
506,934
(383,349)
105,781
28,784
(515,000)
270,336
2,434,063
367,519
(289,290)
(937,554)
(3,531,885)
16,407
(21,122)
(3,276,259)
447,404
(500,169)
168,069
19,747
190,500
3,388,453
2,172,274
(428,334)
238,754
315,209
(610,307)
19,492
21,022
8,026,512
-
232,069
(768,029)
(535,960)
(2,100,000)
-
(569,899)
(2,669,899)
6,821,366 134,801,724
(6,154,684) (136,059,333)
(774,756)
(2,032,365)
(387,377)
279,305
(3,532,914)
3,324,248
7,568,583
4,244,335
$
4,035,669 $
7,568,583
2013
2012
$
$
108,608 $
208,064
803,626 $
879,756
activities:
Depreciation and amortization
Unrealized (gain) on commodities
Loss on equity method investments
Deferred rent
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Prepaid green coffee
Prepaid and refundable income taxes
Accounts payable and accrued expenses
Deposits and other assets
Income taxes payable
Net cash (used in) provided by operating activities
INVESTING ACTIVITIES:
Purchases of equity method investments
Proceeds from disposition of equity method investment
Purchases of machinery and equipment
Net cash used in investing activities
FINANCING ACTIVITIES:
Advances under bank line of credit
Principal payments under bank line of credit
Payment of dividend
Net cash provided by (used in) financing activities
NET (DECREASE) INCREASE IN CASH
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid
Income taxes paid
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OCTOBER 31, 2013 AND 2012
Schedule of noncash investing and financing activities:
Proceeds from disposition of equity method investment:
Inventory received
Settlement of accounts payable
Total noncash proceeds
2013
2012
$
503,500 $
992,402
$ 1,495,902 $
-
-
-
See Notes to Consolidated Financial Statements
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 1 - BUSINESS ACTIVITIES:
Coffee Holding Co., Inc. (the “Company”) conducts wholesale coffee operations, including manufacturing, roasting,
packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and it
sells green coffee. The Company’s core product, coffee, can be summarized and divided into three product categories
(“product lines”) as follows:
Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small
roasters and coffee shop operators;
Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others,
including supermarkets that want to have their own brand name on coffee to compete with national brands; and
Branded Coffee: coffee roasted and blended to the Company’s own specifications and packaged and sold under the
Company’s seven 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 the Far East. 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 April 26, 2012, the Company entered into a stock purchase agreement with Healthwise Gourmet Coffees, LLC (“HGC”)
to purchase an additional 10% interest in HGC. HGC is a coffee distributor specializing in a TechnoRoasting process that
results in a coffee with lower acidity levels. The Company invested $100,000 for the additional 10% interest. Previously,
the Company was awarded a 10% interest in HGC in return for setting up the production process in Colorado as well as
other technical support.
On November 30, 2011, the Company entered into a stock purchase agreement with Global Mark LLC, Peter Schmalfeld
and Lawrence Elsie to purchase a 40% interest in Global Mark LLC (“GM”). The terms of the agreement provided for the
Company to pay up to an aggregate of $2,000,000 in cash to fund operations and for GM to provide to the Company a
preferred pricing arrangement for the supply of instant coffee. On December 10, 2012, the Company entered into an
agreement with GM and other members of GM, whereby the Company withdrew as a member of GM.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 1 - BUSINESS ACTIVITIES (cont’d):
As a result of GM’s inability to successfully develop a significant customer base (other than the Company) and the
Company’s evaluation of the long term prospects of the GM relationship, the Company determined that it was in the best
interests of the parties to terminate the relationship. In connection with withdrawing from GM, the Company received
assets comprised of cash, receivables and inventory equal to approximately $1.8 million, resulting in a write down of
approximately $130,000, which was recognized as of October 31, 2012. Subsequent to the end of the first quarter of 2013,
the Company received the final accounting of the GM business. The amount of cash received was approximately $104,000
less than originally expected, resulting in the final write down that was recognized as of January 31, 2013.
On May 17, 2010, the Company entered into an asset purchase agreement with Organic Products Trading Company, Inc.
to purchase certain assets. The Company formed a wholly-owned subsidiary Coffee Holding Acquisition Company, LLC
to purchase the assets. Subsequent to the closing, the Company changed the name of the subsidiary to Organic Products
Trading Company, LLC (“OPTCO”). The financial statements of OPTCO are consolidated with those of the Company.
On April 7, 2006, the Company entered into a joint venture with Caruso’s Coffee, Inc. and formed Generations Coffee
Company, LLC (“GCC”). The Company now owns a 60% equity interest in GCC. GCC operates the facility located in
Brecksville, Ohio and is in the same general business as the Company. The Company also exercises control of
GCC. As a result of its 60% equity interest and control of GCC, the financial statements of GCC are consolidated with
those of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, OPTCO and GCC. All significant inter-company
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. Significant estimates include allowance for uncollectible accounts receivable and reserves,
inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes, contingencies, and valuation of
financial instruments. These estimates may be adjusted as more current information becomes available, and any adjustment
could have a significant impact on recorded amounts.
CASH:
Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
PREPAID GREEN COFFEE:
Prepaid coffee is an item that emanates from OPTCO. The balance represents advance payments made by OPTCO to
several coffee growing cooperatives for the purchase of green coffee. Interest is charged to the cooperatives for these
advances. Interest earned was $35,564 and $21,857 as of October 31, 2013 and 2012, respectively. The prepaid coffee
balance was $439,290 and $150,000 as of October 31, 2013 and 2012, respectively.
ACCOUNTS RECEIVABLE:
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances
for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
Management considers the following factors when determining the collectibility 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 collectibility. 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:
Allowance for doubtful accounts
Reserve for other allowances
Reserve for sales discounts
Totals
INVENTORIES:
2013
65,000 $
35,000
44,000
144,000 $
2012
126,674
47 ,000
40,000
213,674
$
$
Inventories are stated at the lower of cost (first in, first out basis) or market, including provisions for obsolescence
commensurate with known or estimated exposures.
MACHINERY AND EQUIPMENT:
Machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful
lives of the assets. Purchases of machinery and equipment and additions and betterments which substantially extend the
useful life of an asset are capitalized at cost. Expenditures which do not materially prolong the normal useful life of an
asset are charged to operations as incurred. The Company also provides for amortization of leasehold improvements.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
COMMODITIES HELD BY BROKER:
The commodities held at broker represent the market value of the Company’s trading account, which consists of option and
future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not
designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee
beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current
recognition of gains and losses on such positions. The Company's accounting for options and futures contracts may
increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
Option contracts
Future contracts
Commodities due to broker
2013
2012
$ (188,819) $
253,369
(795,221) (1,620,758)
$ (984,040) $(1,367,389)
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and
losses are included in earnings.
At October 31, 2013, the Company held 149 futures contracts (generally with terms of three to four months) for the
purchase of 5,587,500 pounds of green coffee at a weighted average price of $1.19 per pound. The fair market value of
coffee applicable to such contracts was $1.08 per pound at that date. The Company also held 120 options (generally with
terms of two months or less) covering an aggregate of 4,500,000 pounds of green coffee beans at $1.10 per pound. The
fair market value of these options, which was obtained from observable market data of similar instruments was $244,800.
At October 31, 2012, the Company held 319 futures contracts (generally with terms of three to four months) for the
purchase of 11,962,500 pounds of green coffee at a weighted average price of $1.66 and $1.86 per pound. The fair market
value of coffee applicable to such contracts was $1.55 to $1.65 per pound at that date.
Included in cost of sales for the years ended October 31, 2013 and 2012, the Company recorded realized and unrealized
gains and losses respectively, on these contracts as follows:
Gross realized gains
Gross realized (losses)
Unrealized gains (losses)
Total
Year Ended October 31,
2013
2012
$
$
1,836,103 $
(8,044,751)
383,349
(5,825,299) $
4,112,394
(4,779,697)
500,169
(167,134)
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
GOODWILL AND TRADEMARKS:
The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging
designs have an indefinite useful life. The value of the goodwill and trademarks was allocated based on an independent
valuation. Goodwill and trademarks are not amortized but are assigned to a specific reporting unit or asset class and
tested for impairment at least annually or upon the occurrence of an event or when circumstances indicate that the
reporting unit’s carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2013 and 2012,
the Company has determined that an impairment did not exist.
In 2011, the Company adopted Financial Accounting Standard ASB ASU 2011-08 Intangibles – Goodwill and Other –
Testing Goodwill for Impairment, which allows an entity to first assess qualitative factors to determine whether it is
necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity would not be
required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that
it is more likely than not that its fair value is less than its carrying amount. The amendment includes a number of events
and circumstances for an entity to consider in conducting the qualitative assessment. There was no material impact on the
Company's results of operations or financial condition upon adoption of the new standard.
CUSTOMER LIST AND RELATIONSHIPS:
The Company’s customer lists and relationships consist of specific customer lists and customer contracts obtained by the
Company in the acquisition of OPTCO which are being amortized on the straight-line method over their estimated useful
life of twenty years.
ADVERTISING:
The Company expenses the cost of advertising and promotion as incurred. Advertising costs charged to operations totaled
$169,853 and $85,382 for the years ended October 31, 2013 and 2012, respectively.
INCOME TAXES:
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax
assets and liabilities to be computed for temporary differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income. Deferred tax assets and liabilities are individually
classified as current or non-current based on their characteristics. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. The income tax provision or benefit is the tax incurred
for the period plus or minus the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE:
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of
common shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-
average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of
potential sources of dilution.
The weighted average common shares outstanding used in the computation of basic earnings per share were 6,372,309 for
the years ended October 31, 2013 and 2012. The weighted average common shares outstanding used in the computation
of diluted earnings per share were 6,372,309 and 6,639,309 at October 31, 2013 and 2012, respectively. The 267,000
shares that could be exercised pursuant to the warrant agreement attached to the units issued in September 2011 have
been included in the October 31, 2012 diluted earnings per share calculation because of their dilutive impact.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-13
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
Net (Loss) income
BASIC EARNINGS:
Weighted average number of common shares
outstanding
2013
2012
$ (1,480,235) $ 2,485,677
6,372,309
6,372,309
Basic (loss) earnings per common share
$
(0.23) $
0.39
DILUTED EARNINGS:
Weighted average number of common shares
outstanding
Warrants
Weighted average number of common shares
outstanding - as adjusted
6,372,309
-
6,372,309
267,000
6,372,309
6,639,309
Diluted (loss) earnings per common share
$
(0.23) $
0.37
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses
approximate fair value because of the short-term nature of these instruments. The carrying amount of the bank line of
credit borrowings approximates fair value because the debt is based on current rates at which the Company could borrow
funds with similar remaining maturities. Fair value estimates are made at a specific point in time, based on relevant market
information about the financial instruments when available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the authoritative guidance. Revenue is recognized at the point title
and risk of ownership transfers to its customers upon the Company’s shippers taking possession of the goods at the time of
shipment because i) title passes in accordance with the terms of the Company’s purchase orders and with its agreements
with its customers, ii) any risk of loss is covered by the Company’s customers’ insurance, iii) there is persuasive evidence of
a sales arrangement, iv) the sales price is determinable and v) collection of the resulting receivable is reasonably
assured. Thus, revenue is recognized at the point of shipment to its customers.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
Returns: The Company does not accept returns for damaged goods on packaged coffee and usable green coffee, as the
customer takes possession of our product at the point of shipment. In the event a customer claims receipt of damaged
goods, the Company, acting as an agent on behalf of the customer, may file a claim for reimbursement with the shipper.
The Company is not obligated or required to act as an agent on behalf of its customers, but may make the business
decision to do so as a convenience to its customers. The shipper keeps the damaged product. The Company will then ship
a completely new order to the customer once a claim has been filed and the Company receives reimbursement or credit
from the shipper for the initial shipment. The Company does evaluate the need, if any, of an accrual for returns for
damaged goods. To date, returns for damaged goods have been immaterial. The Company estimates that, based on
historical trends, that future returns for damaged goods should also be immaterial.
In the event that the Company ships an incorrect order or has returns for short dated product, the Company will accept
those two types of items back as returns. The amount for these two types of returns are estimated, accrued and recognized
at the date of sale. These amounts are included in the determination of net sales.
Slotting fees: Certain retailers require the payment of slotting fees in order to obtain space for the Company’s products on
the retailer’s store shelves. The cost of these fees are estimated, accrued and recognized at the earlier of the date cash is
paid or a liability to the retailer is created. The amounts are included in the determination of net sales.
Sales discounts: The amount of sales discounts are estimated, accrued and recognized at the date of the sale. These
amounts are included in the determination of net sales.
Volume-based incentives: These incentives typically involve rebates or refunds of a specific amount of cash consideration
that are redeemable only if the reseller completes a specified cumulative level of sales transactions. Under incentive
programs of this nature, the Company estimates and accrues the cost of the rebate when it is taken by the reseller. These
amounts are included in the determination of net sales.
Cooperative advertising: Under these arrangements, the Company will agree to reimburse the reseller for a portion of the
costs incurred by the reseller to advertise and promote certain of the Company’s products. The Company estimates,
accrues and recognizes the cost of cooperative advertising programs in the period in which the advertising and promotional
activity first takes place. The costs of these incentives are included in advertising expense.
SHIPPING AND HANDLING FEES AND COSTS:
Revenue earned from shipping and handling fees is reflected in net sales. Costs associated with shipping product to
customers aggregating approximately $1,432,000 and $1,464,000 for the years ended October 31, 2013 and 2012,
respectively, is included in selling and administrative expenses.
CONCENTRATION OF RISK:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash
deposits at financial institutions and brokerage firms.
Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. At
October 31, 2013 and 2012, the Company had approximately $2,038,638 and $4,707,815 in excess of FDIC insured
limits, respectively.
The accounts at the brokerage firm contain cash and securities. Balances are insured up to $500,000, with a limit of
$100,000 for cash, by the Securities Investor Protection Corporation (SIPC). At October 31, 2013 and 2012, the Company
had approximately $1,706,745 and $2,211,371 in excess of SIPC insured limits, respectively.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
See Note 9 for concentration of risks with respect to trade receivables and purchases from accounts payable vendors.
OPERATING LEASES:
The Company has operating lease agreements for its corporate office and warehouses, some of which contain provisions
for future rent increases or periods in which rent payments are abated. Operating leases which provide for lease payments
that vary materially from the straight-line basis are adjusted for financial accounting purposes to reflect rental income or
expense on the straight-line basis in accordance with the authoritative guidance issued by the FASB. The excess of
straight-line rent over actual payments by the Company of $195,452 and $166,668 is included as deferred rent payable as
of October 31, 2013 and 2012, respectively.
EQUITY METHOD OF ACCOUNTING:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted
for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an
Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s
board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee
company. All intercompany profits are eliminated. Under the equity method of accounting, an Investee company’s
accounts are not reflected within the Company’sConsolidated Balance Sheets and Consolidated Statements of Income;
however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Loss from
equity method investments” in the Consolidated Statements of Income. The Company’s carrying value in an equity method
Investee company is reflected in the caption “Equity method investments” in the Company’s Consolidated Balance Sheets.
The Company’s investments in companies that are accounted for on the equity method of accounting consist of the
following: (1) 40% interest in Global Mark LLC, which is engaged in the supply of instant coffee and related products, which
interest was terminated on December 10, 2012 as described in Note 1; and (2) 20% interest in Healthwise Gourmet
Coffees, LLC, a distributor of low acidity coffees. The investments in these companies amounted to $2,100,000. The loss
recognized amounted to $105,781 and $168,069 for the years ended October 31, 2013 and 2012, respectively. The net
value of these investments as presented on the Company’s consolidated balance sheet at October 31, 2013 and 2012 was
$98,178 and $1,931,931, respectively.
NOTE 3 -RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
During the first quarter, the Financial Accounting Standards Board has issued Accounting Standards Update (ASU) No.
2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. Upon adoption an entity is
required to disclose information about offsetting and related arrangements to enable users of its financial statements to
understand the effect of those arrangements on its financial position. The amendments in this guidance are effective for
the Company for the first annual reporting period beginning on or after January 1, 2013, and interim periods within those
annual periods. Management is still evaluating the effects of adoption.
The FASB has issued Accounting Standards Update (ASU) No. 2012-02, Intangibles--Goodwill and Other (Topic 350):
Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY (cont’d):
option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is
more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and
circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then
the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the
fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with
the carrying amount in accordance with Codification Subtopic 350-30, Intangibles--Goodwill and Other, General Intangibles
Other than Goodwill.
Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived
intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to
resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for
annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is
permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s
financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not
yet been made available for issuance. There has not been a material effect to the Company.
In January 2013, the Financial Accounting and Standards Board (FASB) issued Accounting Standards Update (“ASU”) ASU
2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosure about Offsetting Assets and Liabilities. The ASU
clarifies disclosures required for derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including
bifurcated embedded derivatives, repurchase agreements, and securities borrowing and lending transactions that are either
offset in accordance with Section 310-20-45 or Section 815-10-46 or subject to an enforceable master netting arrangement or
similar agreement. The ASU is effective for annual and interim periods beginning after January 1, 2013. The Company
adopted this guidance in 2013 without material impact on its financial position, results of operations or cash flows.
NOTE 4 - INVENTORIES:
Inventories at October 31, 2013 and 2012 consisted of the following:
Packed coffee
Green coffee
Packaging supplies
Totals
2013
2012
$ 1,873,982 $ 1,753,314
8,989,763
560,504
$ 9,373,018 $ 11,303,581
6,818,261
680,775
NOTE 5 - MACHINERY AND EQUIPMENT:
Machinery and equipment at October 31, 2013 and 2012 consisted of the following:
Improvements
Machinery and equipment
Furniture and fixtures
Less, accumulated depreciation
Estimated
Useful Life
3-31.5 years
7 years
7 years
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
$
2013
172,506 $
4,481,050
537,696
5,191,252
3,130,902
2012
164,006
3,767,500
491,716
4,423,222
2,631,468
$ 2,060,350 $ 1,791,754
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 5 - MACHINERY AND EQUIPMENT (cont’d):
Depreciation expense totaled $506,934 and $447,404 for the years ended October 31, 2013 and 2012, respectively.
NOTE 6 -LINE OF CREDIT:
On February 17, 2009, the Company entered into a financing agreement with Sterling National Bank (“Sterling”) for a
$5,000,000 credit facility. The credit facility is a revolving $5,000,000 line of credit and the Company can draw on the line
at an amount up to 85% of eligible accounts receivable and 25% of eligible inventory consisting of green coffee beans and
finished coffee not to exceed $1,000,000. Sterling shall have the right from time to time to adjust the foregoing percentages
based upon, among other things, dilution, its sole determination of the value or likelihood of collection of eligible accounts
receivables owed to the Company, considerations regarding inventory. The credit facility is payable monthly in arrears on
the average unpaid balance of the line of credit at an interest rate equal to a per annum reference rate (4.25% at October
31, 2013 and 2012).
On July 22, 2010, the credit facility was increased to $7,000,000. In addition, OPTCO was added as a co-borrower and the
inventory sublimit was raised from $1,000,000 to $2,000,000. Subsequent to July 31, 2010, $1,800,000 of the credit facility
was allocated to OPTCO.
The initial term of the credit facility was for three years and expired on February 17, 2012. The initial terms of the credit
facility provided that the credit facility may be automatically extended for successive periods of one year each unless one
party shall have provided the other party with a written notice of termination at least ninety days prior to the expiration of the
then current term. Prior to the expiration of the initial term, and effective as of February 12, 2012, the term was extended
until February 17, 2014 and the interest rate was reduced to the Wall Street Journal Prime rate (which is currently 3.25%)
plus one percent (1%). On May 10, 2013, the credit facility was extended until February 17, 2015. The credit facility is
secured by all tangible and intangible assets of the Company.
The credit facility contains covenants that place annual restrictions on the Company’s operations, including covenants
relating to debt restrictions, capital expenditures, minimum deposit restrictions, tangible net worth, net profit, leverage,
employee loan restrictions, distribution restrictions (common stock and preferred stock), dividend restrictions, and
restrictions on intercompany transactions. The credit facility also requires that the Company maintain a minimum working
capital at all times. The Company was in compliance with all required financial covenants at October 31, 2013 and 2012.
On February 3, 2011, the Company amended their credit facility regarding the creation of a sublimit within the revolving line
of credit in the form of a $300,000 term loan for the benefit of GCC. The Company provided a corporate guarantee to
Sterling in connection with the amendment.
The Company previously was a party to a Guarantee Agreement with CORDAID, a non-profit organization that supports
development projects in developing countries, registered under the laws of the Netherlands, in which it had agreed to make
available $1,800,000 (which was subsequently reduced to $1,500,000) to be used as collateral for a loan facility from
Sterling to the Company under a Guarantee Agreement. The Guarantee Agreement expired on March 31, 2012 and the
parties did not renew this agreement.
Triodos Bank is one of the world’s leading sustainable banks, with a mission to make money work for positive social,
environmental and cultural change. Triodos has offices in the Netherlands, Germany, Spain, UK and Belgium. The
Company initiated a corporate guarantee on April 15, 2011 to Triodos Sustainable Trade Fund (“TSTF”) up to a maximum
amount of $250,000. TSTF provides financing to two coffee growing cooperatives up to a maximum of $1,000,000 based
upon relationships established with OPTCO.
As of October 31, 2013 and October 31, 2012, the outstanding balance under the bank line of credit was $1,229,182 and
$562,500, respectively.
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 7 - INCOME TAXES:
The Company’s (benefit) provision for income taxes in 2013 and 2012 consisted of the following:
Current
Federal
State and local
Deferred
Federal
State and local
Income tax (benefit) expense
2013
2012
$
(60,108) $ 1,145,145
134,736
181,341
1,279,881
121,233
211,000
(516,000)
(20,500)
1,000
(515,000)
190,500
(393,767) $ 1,470,381
$
A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the
Company’s effective tax rate is as follows:
Tax at the federal statutory rate of 34%
Non controlling interest
Amortization
Section 199
Accrual adjustments
Other permanent differences
State and local tax, net of federal
Provision for income taxes
Effective income tax rate
F-19
$
2013
(585,362)
(51,800)
(14,903)
(20,400)
(60,108)
219,121
119,685
2012
$ 1,378,625
(33,600)
(14,900)
(23,100)
50,430
24,000
88,926
$
(393,767)
$ 1,470,381
(23)%
36%
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 7 - INCOME TAXES (cont’d):
The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of October 31, 2013
and 2012 are as follows:
Current deferred tax assets:
Accounts receivable
Net operating loss
Unrealized loss
Inventory
Total current deferred tax asset
Non-current deferred tax assets:
Deferred rent
Deferred compensation
Total non-current deferred tax asset
Total deferred tax asset
Non-current deferred tax liability:
Fixed assets
Total deferred tax liabilities
2013
2012
$
54,553 $
866,000
372,791
37,322
77,543
-
580,390
44,722
$ 1,330,666 $
702,655
74,044
195,290
60,484
191,861
$
269,334 $
252,345
$ 1,600,000 $
955,000
415,000
285,000
$
415,000 $
285,000
As of October 31, 2013 and 2012, the company has approximately $2,500,000 and $0 respectively, of federal and state net
operating loss (“NOLs”) carryovers available to offset future taxable income, which expire beginning in October 31,
2033. In accordance with section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss
carryovers may be subject to annual limitations in the event of a change in control.
A valuation allowance was not provided at October 31, 2013 or 2012. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon
the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax
assets are expected to be deductible, management believes it is more likely than not the Company will realize the benefits
of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income are reduced.
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 7 - INCOME TAXES (cont’d):
As of October 31, 2013 and 2012, the Company did not have any unrecognized tax benefits or open tax positions. The
Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of
October 31, 2013 and 2012, 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, Kansas, New Jersey, New York, Texas,
Rhode Island, South Carolina and Oregon state tax returns. The Company’s federal income tax return is no longer subject
to examination by the federal taxing authority for years before fiscal 2010. 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 2007. The Company’s Oregon, New York, Kansas and Texas income tax returns are no longer subject to
examination by their respective taxing authorities for the years before fiscal 2008.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES:
In February 2004, the Company entered into a lease for office and warehouse space in La Junta City, Colorado. This lease,
which is at a monthly rental of $8,341 beginning January 2005, expires on January 31, 2024. Rent charged to operations
amounted to $95,504 for the years ended October 31, 2013 and 2012.
In October 2008, the Company entered into a lease for office and warehouse space in Staten Island, NY. This lease, which
is at a monthly rental beginning November 2008, expires on October 31, 2023 and includes annual rent increases. Rent
charged to operations amounted to $146,423 and $147,696 for the years ended October 31, 2013 and 2012,
respectively. The Company also uses a variety of independent, bonded commercial warehouses to store its green coffee
beans.
In May 2010, the Company entered into a lease for office space in Vancouver, WA. This lease, which is at a monthly rental
beginning May 17, 2010, expired on June 1, 2012. Rent charged to operations amounted to $15,900 for the year ended
October 31, 2012.
In March 2012, the Company entered into a lease for office space in Vancouver, WA. This lease, which is at a monthly rental
beginning April 1, 2012, expires on March 31, 2015. Rent charged to operations amounted to $35,362 and $23,392 for the
years ended October 31, 2013 and 2012, respectively.
The aggregate minimum future lease payments as of October 31, 2013 for each of the next five years and thereafter are as
follows:
October 31,
2014
2015
2016
2017
2018
Thereafter
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
$
268,276
252,643
243,021
248,738
254,683
1,422,404
$ 2,689,765
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 8 - COMMITMENTS AND CONTINGENCIES (cont’d):
401 (K) RETIREMENT PLAN:
The Company has a 401(k) Retirement Plan, which covers all the full time employees who have completed one year of
service and have reached their 21st birthday. The Company matches 100% of the aggregate salary reduction contribution up
to the first 3% of compensation and 50% of aggregate contribution of the next 2% of compensation. Contributions to the plan
aggregated $60,759 and $64,327 for the years ended October 31, 2013 and 2012, respectively.
NOTE 9 - ECONOMIC DEPENDENCY:
Approximately 60% of the Company’s sales were derived from one customer during the year ended October 31, 2013. This
customer also accounted for approximately $6,277,000 or 51% of the Company’s accounts receivable balance at October
31, 2013. Approximately 62% of the Company’s sales were derived from one customer during the year ended October 31,
2012. This customer also accounted for approximately $6,257,000 or 49% of the Company’s accounts receivable balance at
October 31, 2012. Concentration of credit risk with respect to other trade receivables is limited due to the short payment
terms generally extended by the Company, by ongoing credit evaluations of customers, and by maintaining an allowance for
doubtful accounts and other allowances that management believes will adequately provide for credit losses.
For the year ended October 31, 2013, approximately 75% of the Company’s purchases were from ten vendors. Two of these
vendors accounted for 53% of total purchases. These two vendors accounted for approximately $4,122,000 of the
Company’s accounts payable at October 31, 2013. For the year ended October 31, 2012, approximately 80% of the
Company’s purchases were from ten vendors. Two of these vendors accounted for 49% of total purchases. These
two vendors accounted for approximately $6,095,000 of the Company’s accounts payable at October 31, 2012. 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.
NOTE 10 - RELATED PARTY TRANSACTIONS:
The Company has engaged its 40% partner in Generation Coffee Company, LLC as an outside contractor (the
“Partner”). Included in contract labor expense, which is a component of cost of sales, are expenses incurred from the
Partner during the years ended October 31, 2013 and 2012 of $475,620 and $577,446, respectively.
An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately
$31,183,000 and $31,900,000 for the years ended October 31, 2013 and 2012, respectively. The corresponding accounts
payable balance to this vendor was approximately $1,139,000 and $2,460,000 at October 31, 2013 and 2012, respectively.
In January 2005, the Company established the “Coffee Holding Co., Inc. Non-Qualified Deferred Compensation
Plan.” Currently, there is only one participant in the plan: Andrew Gordon, the CEO. Within the plan guidelines, this
employee is deferring a portion of his current salary and bonus. The deferred compensation payable represents the liability
due to an officer of the Company. The deferred compensation liability at October 31, 2013 and 2012 was $515,498 and
$528,687, respectively. Deferred compensation expenses included in officers’ salaries were $0 during the years ended
October 31, 2013 and 2012, respectively.
F-22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 11 -STOCKHOLDERS’ EQUITY:
The Company concluded an offering to selected investors of 890,000 units, each of which consisted of one share of our
common stock, par value $0.001 per share, and three-tenths (3/10ths) of a warrant, each to purchase one share of our
common stock at an exercise price of $13.59 per share. The units were sold at a per unit price of $10.40. No units were
issued, however, and investors received only shares of common stock and warrants. The common stock and the warrants
were transferrable separately immediately upon issuance. The warrants are currently exercisable and will expire on April 1,
2017. The gross proceeds of the offering amounted to $9,256,000. The offering costs consisted of placement agent fee of
$647,920, underwriter fee of $77,456, regulatory fee of $12,223 and legal and professional fees of $186,610, resulting in net
proceeds received of $8,331,791.
The Warrants issued in the subscription agreement are linked to 267,000 shares of common stock with an exercise price of
$13.59 per share. The Warrants became exercisable on April 1, 2012 and remain exercisable through April 1, 2017. The
exercise price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar
recapitalization transactions. The Warrants may also be exercised on a cashless basis under a formula that explicitly limits
the number of issuable common shares. Further, the exercisability of the Warrants may be limited if, upon exercise, the
holder or any of its affiliates would beneficially own more than 4.9% and 9.9% of the Company’s Common Stock.
The principal concepts underlying accounting for warrants provide a series of conditions, related to the potential for net cash
settlement, which must be met in order to achieve equity classification. Management evaluated the terms and conditions of
the Warrants and determined that i) the Warrants did not embody any of the conditions for liability classification under ASC
480 and ii) they were considered to be solely indexed to the Company’s own stock and met all the established criteria for
equity classification set forth in ASC 815. Accordingly, the Warrants achieved equity classification at inception. The
classification of the Warrants will be re-evaluated each reporting period.
a. Treasury Stock. The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is
determined under the last-in, first-out method. The Company did not purchase any shares during the years ended October
31, 2013 and 2012.
b. Dividends. On December 27, 2012, the Company paid a cash dividend of $387,379 ($0.06 per share) to all stockholders of
record as of December 15. On October 26, 2012, July 26, 2012, April 30, 2012 and January 26, 2012 the Company paid a
cash dividend of $193,689 ($0.03 per share) to all stockholders of record as of October 16, 2012, July 16, 2012, April 17,
2012 and January 16, 2012. On June 30, 2013, the Company announced that the Board elected to terminate the dividend
program.
NOTE 12 -FAIR VALUE MEASUREMENTS:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date, not adjusted for transaction costs. The guidance also establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the
highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3) as described below:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the
Company;
F-23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 12 - FAIR VALUE MEASUREMENTS (cont’d):
Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are
observable, either directly or indirectly
Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other
market participants.
The Company determines fair values for its investment assets as follows:
Investments at fair value consist of commodity securities and deferred compensation plan assets.
The Company maintains a deferred compensation plan. The fair value of the plan assets are classified within Level 1 as the
assets are valued using quoted prices in active markets. The assets are included with Deposits and other assets in the
accompanying balance sheets. Additional information related to the Company’s deferred compensation plan is disclosed in
Note 10.
The Company’s commodity securities are classified within Level 2 and include coffee futures and options contracts. To
determine fair value, the Company utilizes the market approach valuation technique for the coffee futures and options
contracts. The Company uses Level 2 inputs that are based on market data of similar instruments that are in observable
markets. All commodities on the balance sheet are recorded at fair value with changes in fair value included in earnings.
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are
categorized using the fair value hierarchy.
Assets:
Money market
Total Assets
Liabilities:
Commodities – Options
Commodities – Futures
Total Liabilities
Assets:
Money market
Equities
Commodities – Options
Total Assets
Liabilities:
Commodities – Futures
Total Liabilities
Fair Value Measurements as of October 31, 2013
Total
Level 1
Level 2
Level 3
515,498
515,498 $
515,498
515,498
$
–
–
(188,819)
(795,221)
(984,040)
$
(188,819)
(795,221)
(984,040)
–
– $
–
–
–
–
Fair Value Measurements as of October 31, 2012
Total
Level 1
Level 2
Level 3
$
$
334,221 $
194,466
253,369
782,056 $
334,221
194,466
–
528,687 $
–
–
253,369
253,369
(1,620,758)
$ (1,620,758)
–
(1,620,758)
– $ (1,620,758)
–
–
–
–
–
–
F-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2013 AND 2012
NOTE 13 - SUBSEQUENT EVENT:
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.
F-25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 10.11
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT, made as of May 10, 2013, by and between STERLING NATIONAL BANK, a national
banking association, having an office located at 500 Seventh Avenue, New York, New York 10018 (hereinafter referred to as the
"Bank" or "Secured Party"), and COFFEE HOLDING CO., INC. ("Coffee Holding"), a Nevada corporation, with its principal and
executive offices located at 3475 Victory Boulevard, Staten Island, New York 10314 and ORGANIC PRODUCTS TRADING
COMPANY LLC ("Organic Products"), a Delaware limited liability company, with its principal and executive offices located at 3475
Victory Boulevard, Staten Island, New York 10314, as co-borrowers (hereinafter collectively referred to as the "Borrower" or "Debtor");
W I T N E S S E T H
WHEREAS, Borrower executed and delivered to the Bank various loan documents, instruments and agreements,
in connection with a $7,000,000.00 revolving line of credit loan facility (the "Loan Facility") including, but not limited to, a Loan and
Security Agreement dated as of February 17,2009 (the "Loan and Security Agreement"), a Validity Guaranty executed by Andrew
Gordon and David Gordon (the "Validity Guarantors") dated March 4,2010, a Loan Modification Agreement dated July 22,2010, a
First Amendment To Loan and Security Agreement dated July 23,2010, and a Loan Modification Agreement dated February 14, 2012
(all such documents, agreements, and instruments executed by the Borrower and the Validity Guarantors, including all extensions
and/or modifications, if any, hereinafter collectively referred to as the "Original Loan Documents");
WHEREAS, extensions of credit were made by the Bank pursuant to the Loan Documents; and
WHEREAS, the Borrower and the Validity Guarantors have requested certain modifications to the Revolving Loan Facility;
and
WHEREAS, the Bank has agreed to the requests of the Borrower and the Validity Guarantors, and has agreed to modify and
continue the Loan Facility in accordance with such terms as are agreeable to the Borrower and the Validity Guarantors as evidenced
by their execution of this Loan Modification Agreement and all agreements, instruments, and documents executed and to be executed
in conjunction herewith (the Original Loan Documents, the within Loan Modification Agreement, and all such agreements,
instruments, and documents collectively referred to hereafter as the "Loan Documents");
NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions
1.1 As used in this Loan Modification Agreement, the following terms shall have the meanings ascribed to them as follows:
"Agreement" shall mean this Loan Modification Agreement.
"Borrower" shall mean COFFEE HOLDING CO., INC. and ORGANIC PRODUCTS TRADING COMPANY LLC, and any
other Person designated or signing this Agreement as Borrower, together with all successors and assigns thereof (also referred to
herein as "Debtor" and "Obligor").
"Line of Credit" shall mean the revolving line of credit established for the benefit of the Borrower under the Original Loan
Documents in the amount of $7,000,000.00 (the "Maximum Revolving Advance Amount") and continued hereunder.
"Loan Documents" shall mean the Original Loan Documents, the within Agreement, and all agreements, instruments, and
documents executed in conjunction herewith.
"Loan Facility" shall mean the Line of Credit.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
"Maximum Revolving Advance Amount" shall mean $7,000,000.00.
"Obligations" shall mean any and all loans, Advances, debts, liabilities, obligations, covenants and duties owing by Borrower
to Bank or to any other direct or indirect subsidiary or affiliate of Bank of any kind or nature, present or future (including, without
limitation, any interest accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, whether arising under any
agreement, instrument or document (including, without limitation, this Agreement and the other Loan Documents), whether or not for
the payment of money, whether arising by reason of an extension of credit, opening of a letter of credit, loan, equipment lease or
guarantee, under any interest or currency swap, future, option or other similar agreement, or in any other manner, whether arising out
of overdrafts or deposit or other accounts or electronic funds transfers (whether through automated clearing houses or otherwise) or
out of Bank's non-receipt of or inability to collect funds or otherwise not being made whole in connection with depository transfer
check or other similar arrangements, whether direct or indirect (including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated,
regardless of how such indebtedness or liabilities arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to, any and all of Borrower's Indebtedness and/or liabilities
under this Agreement, the other Loan Documents or under any other agreement between Bank and Borrower and any amendments,
extensions, renewals or increases and all costs and expenses of Bank incurred in the documentation, negotiation, modification,
enforcement, collection or otherwise in connection with any of the foregoing, including but not limited to reasonable attorneys' fees
and expenses, and expenses arising from all obligations of Borrower to perform acts or refrain from taking any action, and the Bank's
enforcement thereof.
"Obligor" shall mean the Borrower and the Validity Guarantors, together with all successors and assigns thereof.
"Original Loan Documents" shall mean all documents, agreements, and instruments as described in the preamble of this
Agreement.
"Wall Street Prime Rate" shall mean the rate of interest designated as the "Prime Rate" which appears in each publication of
The Wall Street Journal under the designation entitled "Money Rates". This rate of interest fluctuates and is subject to change without
prior notice. In the event that the Wall Street Prime Rate cannot be ascertained from publication of The Wall Street Journal, the rate
of interest which shall be used in substitution thereof and until such time as the Wall Street Prime Rate can be ascertained by
reference to The Wall Street Journal shall be a rate equal to the average of the prime rate of interest announced from time to time by
three New York banks selected by the Bank in its discretion. The effective interest rate applicable to the unpaid principal amount
hereunder shall change on the date of each change in the Wall Street Prime Rate. Any change in the Wall Street Prime Rate will
take effect at the opening of business on the day of a change in the Wall Street Prime Rate.
1.2 If not otherwise defined in this Agreement, terms used herein which are defined by the Original Loan Documents shall
have the same meaning as prescribed therein. Whenever the context of use of a particular term suggests that such term be in the
plural or of a different gender, said term shall be deemed to have such other meaning in the event that such term does not appear in
the plural or reflect such other gender.
SECTION 2. Modifications and Restatement of Certain Conditions.
2.1 The Maturity Date of the Loan Facility is hereby extended by an additional Renewal Term ending on February 17, 2015,
on which date there shall be due and payable all principal, interest, fees, charges and all other sums outstanding in connection with
the Loan Facility under the Loan Documents. The liability of the Borrower and any other party liable for the Borrower's obligations to
the Bank with respect to any other document, instrument or obligation arising from the Loan Documents which matures beyond the
Maturity Date, if any, shall continue until all obligations of the Borrower thereunder and under the Loan Documents to the Bank have
been satisfied in full. If the Maturity Date shall fall on a day, or any payment hereunder becomes due on a day, which is not a
Business Day, the due date for payment hereunder shall be extended to the next succeeding Business Day, and such extension of
time shall be included in computing interest and fees in connection with such payment.
2.2 The two (2) Business Days allowed under the Original Loan Documents subsequent to receipt of remittances from
Account Debtors of the Borrower to permit bank clearance and collection is hereby reduced to zero days.
2.3 The Borrower shall pay to the Bank monthly in arrears, on the first day of each month, an unused line fee, chargeable
to the Borrower's revolving loan account, equal to one half of one percent (0.50%) per annum of the daily average amount by which
the Maximum Revolving Advance Amount exceeds the outstanding principal balance of the Revolving Credit Loans as determined
by Bank in sole discretion.
2.4 Borrower will permit the Bank and its agents and representatives, at any time and from time to time during normal
business hours and without undue disruption to Borrower's business, to (i) visit and inspect the premises and the properties of
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Borrower and the Collateral, (ii) inspect and make extracts from the books and records of Borrower, and (iii) discuss with Borrower's
officers, employees and accountants any and all matters with respect to the business, assets, liabilities, financial condition, results
of operations and business prospects of the Borrower. Such audits or field examinations are expressly authorized by Borrower, and
shall include one (1) field examination per year unless an Event of Default has occurred. The cost of any activities of the Bank
hereunder shall be paid by Borrower as invoiced by the Bank. The cost of all field examinations thereafter required by the Bank
shall be borne by the Borrower based on $850.00 per man per day plus out of pocket expenses.
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.5 All reporting requirement set forth in the Original Loan Documents shall remain in full force and effect except for
the following modifications to Section 6.3 of the Loan and Security Agreement:
2.5.1 Borrower shall provide to the Bank, on the last day of each month, a detailed aging report setting forth the
amount due and owing on each of Borrower's Accounts Receivable on Borrower's books at such time, together with a reconciliation
report satisfactory to the Bank showing all sales, collections, payments and adjustments to accounts receivable on Borrower's books
at such time.
2.5.2 Borrower shall provide to the Bank, on the last day of each month, a detailed listing and summary of the
Inventory on Borrower's books at such time, and including quantities, values, and location.
2.5.3 Borrower shall provide to the Bank, on the last day of each month, Borrower's sales journal, cash receipts
journal, and credit memos.
2.5.4 Borrower shall provide to the Bank, on the last day of each month, a Borrowing Base Certificate together with
Borrower's Accounts Receivable aging and Inventory report.
2.5.5 Borrower shall provide to the Bank, within 15 days of the end of the previous month, a detailed aging report
setting forth the amount due and owing on each of Borrower's accounts payable on Borrower's books as of the close of the preceding
month.
2.5.6 Borrower shall provide to the Bank prompt notice of any change in the status of an Account Receivable from
that which is Eligible to that which is not, and the rejection of goods, delay in performance, or claims made in regard to Accounts
Receivable.
2.6 Except as modified in this Agreement and any agreement, instrument or document executed in Conjunction herewith,
each of the Original Loan Documents, and the provisions thereof, remain in fulI force and effect including, but not limited the, all
recordings and filings. In the event that there is a conflict between any provision of the Original Loan Documents on the one hand,
and this Agreement and any agreements, instruments and documents executed in conjunction herewith on the other hand, the
provisions of the latter shall govern, it being acknowledged and agreed that nothing in the Loan Documents shall in any way
adversely affect any prior recordings or filings made in connection with the Original Loan Documents.
SECTION 3. Security
3.1 As security for the payment and discharge of all Obligations, Borrower has heretofore granted, and continues to grant,
to the Bank a security interest in and lien on property as more particularly set forth in the Original Loan Documents, all of which
constitutes Collateral as security in favor of the Bank for the payment and discharge of all Obligations. If parties other than the
Borrower have heretofore granted to the Bank a security interest in and lien on property as more particularly set forth in the
Original Loan Documents, such security interests and liens on such property constitute collateral as security in favor of the Bank
for the payment and discharge of all Obligations of the Borrower to the Bank. All prior granting of security interests, pledges, liens,
mortgages, assignments, hypothecations, filings and recordings, if any, shall continue to remain in full force and effect.
SECTION 4. The Collateral
4.1 The Obligors reaffirm all warranties, covenants and representations set forth in the Original Loan Documents regarding
all property of any kind or nature and wheresoever situate pledged, assigned, mortgaged, or hypothecated to the Bank, or in which
the Bank was granted a security interest, lien or interest of any kind under the Original Loan Documents, this Agreement or any of
the other Loan Documents.
4.2 Cross-Collateralization and Cross-Default. All Collateral heretofore, herein or hereafter given or granted to the Bank
shall secure payment and performance of all of the Obligations, including any Collateral given or granted to the Bank by Borrower.
All Loans, Advances and all other Obligations shall be and are hereby declared to be crosscollateralized, cross-defaulted and cross-
guaranteed. All property of Borrower of any kind or nature in which Bank has been, is hereunder, or shall hereafter be granted a
security interest or a Lien of any kind shall constitute Collateral for all Obligations. Any event of default in connection with any loan,
advance or extension of credit made at any time by Bank to Borrower under any documents executed in connection therewith shall
automatically and without further acts on the part of the Bank constitute an event o f default under all loans, advances and
extensions of credit made at any time by Bank to Borrower. In such event, Bank shall have available to it all rights and remedies
including, but not limited to, acceleration of any or all loans, advances and extensions of credit made af any time by Bank to
Borrower. It shall not be necessary for cross-collateralization, crossdefault, cross-acceleration or cross-guarantee language to be
inserted into any other previously existing or hereafter created instrument, document or agreement for this section to be fully
enforceable by Bank against Borrower and all of their property of any kind or nature, including such property as is specifically
described in this Agreement, any of the other Loan Documents, or any other documents executed by Borrower.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SECTION 5. Representations and Warranties of the Borrower
5.1 Borrower hereby reaffirms all warranties, covenants, agreements, representations, and undertakings set forth in the
Original Loan Documents except as may be modified by the express provisions of this Agreement.
5.2 Each entity Obligor was duly formed and is in good standing under the laws of the state of its formation, and utilizes
no names other than as set forth in the Loan Documents. Each Obligor has all requisite power and authority (i) to execute and
deliver this Agreement and all other Loan Documents, and to consummate the transactions and perform its obligations
thereunder; (ii) to own and operate its properties and assets and to carry on the business now conducted or as now contemplated;
and (iii) is qualified or authorized to do business and is in good standing in all jurisdictions wherein the character of the property
owned or the nature of the business conducted by Obligor makes such qualification or authorization necessary.
5.3 The execution and delivery of, and the consummation of the transactions contemplated under, this Agreement and all
of the other Loan Documents, have been duly authorized and approved and no other proceedings on the part of the Obligors are
necessary or required under the laws of the State of New York and all other jurisdictions which may have an effect on the validity
and enforceability of the Loan Documents.
5.4 The Loan Documents delivered or to be delivered by the Obligors are legal, valid and binding obligations of the
Obligors, enforceable against the Obligors in accordance with their respective terms.
5.5 As of the date hereof, the Obligors represent and warrant as follows: (a) the representations and warranties of the
Obligors set forth in the Loan Documents are true and correct; (b) the Obligors are in compliance with all the terms and provisions
set forth in the Loan Documents; (c) neither a Default nor an Event of Default under the Loan Documents exists; and (d) the Bank
is in full compliance with its obligations under the Loan Documents and there exist no claims, defenses, offsets, counterclaims, or
causes of action of any kind in favor of the 'Obligors and against the Bank, its agents, servants, representatives, and employees,
and that any such claims in any event are hereby irrevocably waived.
SECTION 6. Additional Provisions
6.1 Borrower may have executed or may hereafter execute instruments, agreements and documents evidencing
indebtedness to the Bank not referenced in the Original Loan Documents or this Agreement. This Agreement does not modify, nor
is Borrower released from, all obligations of Borrower under such instruments, agreements, and documents which remain in full
force and effect.
6.2 This Agreement sets forth the entire agreement of the parties hereto modifying the Original Loan Documents as of the
date hereof.
SECTION 7. Miscellaneous
7.1 Concerning Successors and Assigns. All covenants, agreements, representations and warranties made herein shall
survive execution of the Loan Documents, and shall continue in full force and effect so long as the Obligations under the Loan
Documents are outstanding. Whenever in this Agreement any ofthe parties hereto is referred to, such reference shall be deemed
to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Obligors
which are contained in this Agreement shall bind its successors and assigns and inure to the benefit of the successors and
assigns of the Bank.
7.2 New York Law Governs. This Agreement shall be governed by and construed in accordance with the laws of the State
of New York applied to contracts to be perfonmed wholly within the State of New York (and excluding the laws applicable to
conflicts or choice of law). Any judicial proceeding brought by any of the Obligors with respect to any of the Obligations, this
Agreement, the other Loan Documents or any related agreement shall be brought in any state or federal court of competent
jurisdiction located in the City of New York, New York County, State of New York, and, by execution and delivery of this
Agreement, each of the Obligors accepts for itself and in connection with its properties, generally and unconditionally, the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. Service of process of any such proceeding may be made upon any of the Obligors by mail at the address set
forth in the Loan Documents for such party. Nothing herein shall affect the right to serve process in any manner permitted by law
or shall limit the right of the Bank to bring proceedings against any of the Obligors or other party in the courts of any other
jurisdiction. Each of the Obligors waives any objection to jurisdiction and venue of any action instituted hereunder and shall not
assert any 'defense based on lack of jurisdiction or venue or based upon forum non conveniens.' Each of the Obligors waives the
right to remove any judicial proceeding brought against such Obligor in any state court to any federal court.
7.3 Modifications in Writing. Modification or the waiver of any provisions of this Agreement or the Loan Documents shall in
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
no event be effective unless the same shall be in writing and signed by the Bank and the Obligors, and then such modification or
waiver shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the
Obligors in any case shall entitle it to any other or further notice or demand in the same circumstances.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7.4 Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
7.5 Severability. In the event any provision of this Agreement or the other Loan Documents shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision
hereof or thereof.
7.6 Other Documents. In the event that any provision of the Loan Documents conflict with each other, the interpretation
agreed upon is that which will most effectively protect the Bank's security.
7.7 Multiple Parties. If more than one party is included in the term "Borrower" or "Validity Guarantor" or "Obligor" as defined
under this Agreement, all references to the term "Borrower" or" Validity Guarantor" or "Obligor" shall include each and every party
so named, and their obligations under the Loan Documents shall be joint and several.
7 . 8 Jury Waiver and Others. THE OBLIGORS AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF,
UNDER OR I N CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE
EXECUTED I N CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY "COURSE OF
CONDUCT, COURSE OF DEALINGS. STATEMENTS OR ACTIONS OF BANK RELATING TO THE ADMINISTRATION OF THE
LOAN OR ENFORCEMENT OF THE LOAN DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. EXCEPT AS PROHIBITED BYLAW, EACH OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES ORANY DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE OBLIGORS CERTIFY THAT NO REPRESENTATIVE, AGENT
OR ATTORNEY OF BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE ANY LOAN.
7.9 Indemnification, Borrower agrees to pay, reimburse, indemnify and hold harmless, the Bank, its directors, officers,
employees, agents and representatives from and against any and all actions, costs, damages, disbursements, expenses (including
reasonable attorneys' fees), judgments, liabilities, losses, obligations, penalties and suits of any kind or nature whatsoever with
respect to: (i) the administration, enforcement, interpretation, preparation, amendment, modification, waiver or consent of any of the
Loan Documents; (ii) the exercise of any right or remedy granted in any of the Loan Documents, the collection or enforcement of any
of the Obligations and the proof or allowability of any claim arising under any of the Loan Documents, whether in any bankruptcy or
receivership proceeding or otherwise; and (iii) any claim of third parties, and the prosecution or defense thereof, arising out of or in
any way connected with any of the Loan Documents or any Collateral.
7.10 Further Assurances and Corrective Instrument. The Borrower and each Obligor agrees that it will, from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further
instruments as may reasonably be required for carrying out the intention of or facilitating the performance of the Loan Documents or
as requested by the Bank to perfect or preserve the security interests or liens granted to it pursuant to the Loan Documents.
7.11 Construction, The Borrower and each Obligor acknowledges that this Agreement is not to be construed as payment or
discharge of the obligations of the Borrower or any Obligor under the Original Loan Documents, but rather a renewal and
modification thereof, same to relate back to the Original Loan Documents to the fullest extent possible,
7.12 Non-signing Parties. The parties hereto agree that this Agreement is made on the express condition that it shall not be
construed as precluding the Bank, its successors and assigns, from enforcing any and all rights against any other party liable under
the Original Loan Documents, as maker, endorser, guarantor, surety or in any other capacity Whatsoever, whose written assent
hereto has not been obtained, for which purpose the obligations under the Original Loan Documents may be treated as overdue and
collectible immediately in accordance with the terms thereof as if this Agreement had not been made.
7.13 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures
thereto and hereto were upon the same instrument.
7.14 Effective Date and Term. This Agreement shall become effective upon the date set forth on page 1 hereof.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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IN WITNESS WHEREOF, the parties hereto have duly executed this document as of the day and year first above written.
WITNESS OR ATTEST:
By: /s/ David Gordon
Name: David Gordon
Title: Secretary
COFFEE HOLDING CO., INC
By: /s/ Andrew Gordon
Name: Andrew Gordon
Title: President
ORGANIC PRODUCTS TRADING
COMPANY LLC
By: /s/ Andrew Gordon
Name: Andrew Gordon
Title: Manager
By: /s/ David Gordon
Name: David Gordon
Title: Manager
STERLING NATIONAL BANK
By: /s/ Murray R. Markowitz
Name: Murray R. Markowitz
Title: First Vice President
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 21.1
COFFEE HOLDING CO., INC.
Significant Subsidiaries
Name of Entity
Jurisdiction
Organic Products Trading
Company, LLC
United States, Washington
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of Coffee Holding Co., Inc. on Form S-3 (FILE NO. 333-
176412) of our report dated January 24, 2014, with respect to our audit of the consolidated financial statements of Coffee Holding Co.,
Inc. as of October 31, 2013 and for the year then ended, which report is included in this Annual Report on Form 10-K of Coffee
Holding Co., Inc. for the year ended October 31, 2013.
Exhibit 23.1
/s/ Marcum LLP
Marcum LLP
New York, New York
January 24, 2014
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 33-176412) of Coffee Holding
Co., Inc. of our report dated January 28, 2013, relating to the consolidated financial statements as of and for the year ended October
31, 2012, which appears in this Annual Report on Form 10-K.
/s/ ParenteBeard LLC
Clark, New Jersey
January 24, 2014
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
Certification of Principal Executive Officer and Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Andrew Gordon, certify that:
1.
I have reviewed this annual report on Form 10-K for the period ended October 31, 2013 of Coffee Holding Co., Inc.;
2.
3.
4.
(a)
(b)
(c)
(d)
5.
(a)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to me by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be
designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
period covered by the quarterly report that has materially affected, or is reasonably likely to materially affect, the registrant
internal control over financial reporting; and
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: January 24, 2014
/s/ Andrew Gordon
Andrew Gordon
President, Chief Executive Officer and Chief Financial Officer
(Principal Executive and Accounting Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.2
Statement Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
The undersigned, Andrew Gordon, is the President, Chief Executive Officer and Chief Financial Officer of Coffee Holding Co.,
Inc. (the “Company”).
This statement is being furnished in connection with the filing by the Company of the Company’s Annual Report on Form 10-
K for the period ended October 31, 2013 (the “Report”).
By execution of this statement, I certify that:
A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m(a) or 78o(d)); and
B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods covered by the Report.
This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time
as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of
1934, as amended.
A signed original of this written statement required by Section 906 has been provided to Coffee Holding Co., Inc. and will be retained
by Coffee Holding Co., Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Date: January 24, 2014
/s/ Andrew Gordon
Andrew Gordon
President, Chief Executive Officer and Chief
Financial Officer
(Principal Executive and Accounting Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.