SECURITIES & EXCHANGE COMMISSION EDGAR FILING
COFFEE HOLDING CO INC
Form: 10-K
Date Filed: 2015-01-23
Corporate Issuer CIK: 1007019
Symbol:
Fiscal Year End:
JVA
12/31
© Copyright 2015, 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, D.C. 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, 2014
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 o 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 o 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 x 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 o 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, 2014, was $41,119,887.
As of January 20, 2015, the registrant had 6,456,316 shares of common stock, par value $0.001 per share, outstanding.
Portions of the registrant’s proxy statement for the 2015 annual meeting of stockholders to be filed pursuant to Regulation 14A within
120 days after the registrant’s fiscal year ended October 31, 2014, 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
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
OPERATIONS
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
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
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.
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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 310% from 150 to 465. 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 20year relationship with GMCR, our largest wholesale green
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.
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 32 and 34 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. We believe 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.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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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.
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 without venturing into the highly competitive retail specialty
coffee environment. We believe that by utilizing our current strategy we can be as profitable or more profitable than our competitors
in this segment by selling “one bag at a time” rather than “one cup at a time.”
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,
2014, we supplied coffee under approximately 30 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, a specialty espresso coffee that targets espresso coffee drinkers and, in particular, the Hispanic consumer
market;
S&W, an upscale canned coffee established in 1921 and includes Premium, Premium Decaf, French Roast, Colombian,
Colombian Decaf, Swiss Water Decaf, Kona, Mellow’d Roast and IL CLASSICO lines;
Cafe Supremo, a specialty espresso that targets espresso drinkers of all backgrounds and tastes. It is designed to introduce
coffee drinkers to the tastes of dark roasted coffee;
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Don Manuel, is produced from the finest 100% Colombian coffee beans. Don Manuel is an upscale quality product which
commands a substantial premium compared to the more traditional brown coffee blends. We also use this known trademark in our
food service business because of the high brand quality;
Fifth Avenue, 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, an Italian espresso targeted at the more traditional espresso drinker; and
Il CLASSICO, 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, 2014 and 2013 were $1.88 and $1.08 per pound, respectively. Specialty green coffee, unlike
most coffee, is not tied directly to the commodities cash markets. Instead, it tends to trade on a negotiated basis at a substantial
premium over commodity coffee pricing, depending on the origin, supply and demand at the time of purchase. We are a licensed Fair
Trade dealer for Fair Trade certified coffee. Fair Trade certified coffee helps small coffee farmers to increase their incomes and
improve the prospects of their communities and families by guaranteeing farmers a minimum price of ten cents above the current
market price. Our Ohio Facility operated by Generations Coffee Company, LLC (“GCC”) 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 2014 and
2013, approximately 60% and 75% of all of our green coffee purchases were from ten suppliers. One of these suppliers, Rothfos
Corporation, accounted for approximately $17.5 million, or 19%, in 2014, and $31.2 million, or 25%, in 2013, 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.
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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
decrease in profitability or increased losses. See “Quantitative and Qualitative Disclosures About Market Risk—Commodity Price
Risks.”
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 $62 million or 60% of our net sales for the fiscal year ended October 31, 2014, and $80.1 million or 60%
for the fiscal year ended October 31, 2013.
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.
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Charitable Activities
We are also a supporter of several coffee-oriented charitable organizations and during fiscal 2014 and 2013, we donated
approximately $41,000 and $47,000, respectively, to charities.
•
For over 19 years, we have been members of Coffee Kids, an international non-profit organization that helps to improve the
quality of life of children and their families in coffee-growing communities in Mexico, Guatemala, Nicaragua and Costa Rica.
• We are members of Grounds for Health, an organization that educates, screens, and arranges treatment for women who
have cancer and live in the rural coffee growing communities of Mexico.
• We are a licensed Fair Trade dealer of Fair Trade certified coffee. Fair Trade certified coffee helps small coffee farmers to
increase their incomes and improve the prospects of their communities and families. It guarantees farmers a minimum price
of $1.25 per pound or ten cents above the current market price.
• We are the administrative benefactors to a non-profit organization called Cup for Education. After discovering the lack of
schools, teachers, and basic fundamental learning supplies in the poor coffee growing communities of Central and Latin
America, “Cup” was established by our employee, Karen Gordon, to help build schools, sponsor teachers, and purchase
basic supplies such as books, chalk and other necessities for a proper education.
Competition
The coffee market is highly competitive. We compete in the following areas:
Wholesale Green Coffee. There are many green coffee dealers throughout the United States. Many of these dealers have
greater financial resources than we do. However, we believe that we have both the knowledge and the capability to assist small
specialty gourmet coffee roasters with developing and growing their businesses. Our over 40 years of experience as a roaster and a
dealer of green coffee allows us to provide our roasting experience as a value added service to our gourmet roaster
customers. While other coffee merchants may be able to offer lower prices for coffee beans, we market ourselves as a value-added
supplier to small roasters, with the ability to help them market their specialty coffee products and develop a customer base. The
assistance we provide our customers includes training, coffee blending and market identification. Because specialty green coffee
beans are sold unroasted to small coffee shops and roasters that market their products to local gourmet customers, we do not believe
that our specialty green coffee customers compete with our private label or branded coffee lines of business. We believe that the
addition of Organic Products Trading Company, LLC (“OPTCO”) 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
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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 57 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.
Risks affecting our company
Because our business is highly dependent upon a single commodity, coffee, any decrease in demand for coffee
could materially adversely affect our revenues and profitability. Our business is centered on essentially one commodity:
coffee. Our operations have primarily focused on the following areas of the coffee industry:
•
•
•
the roasting, blending, packaging and distribution of private label coffee;
the roasting, blending, packaging and distribution of proprietary branded coffee; and
the sale of wholesale specialty green coffee.
Demand for our products is affected by:
•
•
•
•
consumer tastes and preferences;
global economic conditions;
demographic trends; and
the type, number and location of competing products.
Because we rely on a single commodity, any decrease in demand for coffee would harm our business more than if we had
more diversified product offerings and could materially adversely affect our revenues and operating results.
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
•
•
•
•
distribution channels.
manage growth in administrative overhead and distribution costs likely to result from the planned expansion of our
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.
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 an increase in losses. Although we have had net
gains on options and futures contracts in the past, we have incurred losses on options and futures contracts during some reporting
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or an increase in losses. Such
losses have and could in the future materially increase our cost of sales and materially decrease our profitability or increase losses
and adversely affect our stock price.
7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 LLC (“GM”),
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 GM, 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 60% of our net sales for the fiscal
years ended October 31, 2014 and 2013, respectively. Although no other customer accounted for greater than 10% of our net sales
during 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.
8
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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.
Our indebtedness may adversely affect our ability to obtain additional funds and may increase our vulnerability to
economic or business downturns. From time to time, we utilize borrowings under our credit facility in connection with operations.
Outstanding debt could have important negative consequences to the holders of our securities, including the following:
•
•
•
•
•
general domestic and global economic conditions;
a portion of our cash flow from operations will be needed to pay debt service and will not be available to fund future
operations;
we have increased vulnerability to adverse general economic and coffee industry conditions;
we may be vulnerable to higher interest rates because interest expense on borrowings under our revolving line of credit is
based on variable rates; and
we may be subject to covenants that could restrict our operations.
Our ability to make payments on our indebtedness and to fund our operations depends on our ability to generate
cash in the future. Our future operating performance is subject to market conditions and business factors that are beyond
our control. If 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.
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.
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.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
9
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.
Prolonged negative economic conditions could adversely affect us, our customers and suppliers, which could harm
financial condition. We are subject to the risks arising from adverse changes in general economic and market
our
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.
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
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.
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.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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
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.
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
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 9.8% of our outstanding shares of common stock. As a
result, the Gordon family is able to influence the actions that require stockholder approval, including:
•
the election of a majority of our directors;
•
the amendment of our charter documents; and
•
the approval of mergers, sales of assets or other corporate transactions or matters submitted for stockholder approval.
As a result, our other stockholders may have reduced influence over matters submitted for stockholder approval. In addition,
the Gordon family’s influence could preclude any unsolicited acquisition of us and consequently materially adversely affect the price
of our common stock.
The market price of our common stock has been volatile over the year and may continue to be volatile. The market
price and trading volume of our common stock has been volatile over the past year and it may continue to be volatile. Over the past
year, our common stock has traded as low as $4.50 and as high as $8.58 per share. We cannot predict the price at which our
common stock will trade in the future and it may decline. The price at which our common stock trades may fluctuate significantly and
may be influenced by many factors, including our financial results, developments generally affecting the coffee industry, general
economic, industry and market conditions, the depth and liquidity of the market for our common stock, fluctuations in coffee prices,
investor perceptions of our business, reports by industry analysts, negative announcements by our customers, competitors or
suppliers regarding their own performances, and the impact of other “Risk Factors” discussed in this Annual Report.
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.
12
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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 $120,943 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.
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.
13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NASDAQ Capital Market under the symbol “JVA.” 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 December 27, 2012, the Company paid a cash dividend of $0.06 per share to all stockholders of
record as of December 15, 2012, and on June 13, 2013, the Company announced that the dividend program had been terminated.
As of January 23, 2015, we had 340 holders of record.
We repurchased 156,415 shares of our common stock during the year ended October 31, 2014.
ISSUER PURCHASES OF EQUITY SECURITIES (1)
Period
(a)
Total Number
of Shares (or
Unites)
Purchased
(b)
Average Price
Paid per Share
(or Unit)
(d)
Maximum
Number (or
Approximate
Dollar Value) of
Shares (or
Units) that May
Yet Be
Purchased
Under the
Plans or
Programs
(c)
Total Number
of Shares (or
Units)
Purchased as
Part of
Publicly
Announced
Plans or
Programs
August 1, 2014 to August 31, 2014
September 1, 2014 to September 30, 2014
October 1, 2014 to October 31, 2014
Total
(1) On January 24, 2014, we announced that our Board of Directors had approved a share repurchase program (the “Share
Repurchase Program”) pursuant to which we may repurchase up to $1 million of our outstanding common stock from time to time on
the open market and in privately negotiated transactions subject to market conditions, share price and other factors. The Share
Repurchase Program may be discontinued or suspended at any time.
156,415 $
56,600 $
5.92
4,271
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
2014
5.57 $
8.58 $
8.19 $
7.40 $
2013
8.84 $
7.78 $
7.53 $
6.87 $
4.50
4.96
5.87
5.26
6.04
6.33
5.81
5.32
$
$
$
$
$
$
$
$
14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
2014
2013
2012
2011
2010
For the Years Ended October 31,
(Dollars in thousands, except per share data)
Income Statement Data:
Net sales
Cost of sales
Gross profit
Operating expenses
Income (loss) from operations
Other income (expense)
Income (loss) before income taxes
Provision (benefit) for income taxes
Minority interest
Net income (loss)
Net income (loss) per share – Basic
Net income (loss) per share – Diluted
$
$
$
$
108,863 $
93,334
15,529
7,527
8,002
(37)
7,965
2,947
(51)
4,967 $
0.78 $
0.78 $
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
$
$
At October 31,
$
146,755
138,210
8,545
7,345
1,200
(124)
1,076
230
(34)
812
$
0.15
0.14
$
$
2014
2013
2012
(Dollars in thousands, except per shares data)
2011
83,492
72,932
10,560
6,545
4,015
(143)
3,872
1,479
(4)
2,389
0.44
0.44
2010
Balance Sheet Data:
Total assets
Short-term debt
Long-term debt
Total liabilities
Stockholders’ equity
Book value per share
Per Common Share Data:
Basic EPS
Diluted EPS
Cash dividends declared
$
$
$
$
$
38,952 $
2,498
–
12,898
26,055
4.19 $
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
2014
2013
At October 31,
2012
2011
2010
.78 $
.78 $
0 $
(.23) $
(.23) $
387,379 $
.39 $
.37 $
774,756 $
.15 $
.14 $
694,658 $
.44
.44
333,978
15
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
OPERATIONS
Cautionary Note on Forward-Looking Statements
Some of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results
of Operation,” “Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements
upon information available to management as of the date of this Form 10-K and management’s expectations and projections about
future events, including, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our dependency on a single commodity could affect our revenues and profitability;
our success in expanding our market presence in new geographic regions;
the effectiveness of our hedging policy may impact our profitability;
the success of our joint ventures;
our success in implementing our business strategy or introducing new products;
our ability to attract and retain customers;
our ability to 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,” “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.
16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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 OPTCO 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.”
17
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Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in
the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the
allowance
loss
contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
taxes, commodities held and
inventories, assets held
for doubtful accounts,
for sale,
income
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
$154,000 for the year ended October 31, 2014. 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
$152,000 for the year ended October 31, 2014.
• The commodities held at broker represent the market value of the Company’s trading account, which consists of option and
futures contracts for coffee held with a brokerage firm. We use options and futures contracts, which are not designated or qualifying
as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts
are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions.
We classify options and futures contracts as trading securities and accordingly, unrealized holding gains and losses are included in
earnings. We record realized and unrealized gains and losses in our cost of sales in the statement of operations/income.
• We account for income taxes in accordance with the relevant authoritative guidance. Deferred tax assets and liabilities are
computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax rates in effect for the year in which the differences are expected to
reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will
be realized. Accordingly, our net deferred tax asset as of October 31, 2014 of $111,600 may require a valuation allowance if we do
not generate taxable income.
• Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, which has been
integrated into a structure that does not provide the basis for separate reporting units. Consequently, we are a single reporting unit for
goodwill impairment testing purposes. We also have intangible assets consisting of our customer list and relationships and
trademarks acquired from OPTCO. At October 31, 2014 our balance sheet reflected goodwill and intangible assets as set forth below:
Customer list and relationships, net
Trademarks
Goodwill
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
18
$
October 31,
2014
116,250
180,000
440,000
$
736,250
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Goodwill and the trademarks which are deemed to have indefinite lives are subject to annual impairment tests. Goodwill
impairment tests require the comparison of the fair value and carrying value of reporting units. We assess the potential impairment of
goodwill and intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Upon completion of such review, if impairment is found to have occurred, a corresponding
charge will be recorded. The value assigned to the customer list and relationships is being amortized over a twenty year period.
Because the Company is a single reporting unit, the closing NASDAQ Capital Market price of our common stock as of the
acquisition date was used as a basis to measure the fair value of goodwill. Goodwill and the intangible assets will be tested annually
at the end of each fiscal year to determine whether they have been impaired. Upon completion of each annual review, there can be
no assurance that a material charge will not be recorded. Impairment testing is required more often than annually if an event or
circumstance indicates that an impairment or decline in value may have occurred.
Year Ended October 31, 2014 (Fiscal Year 2014) Compared to the Year Ended October 31, 2013 (Fiscal Year 2013)
Net Income (Loss). We had net income of $4,967,535, or $0.78 per share basic and diluted, for the fiscal year ended
October 31, 2014 compared to a net loss of $(1,480,235), or $(0.23) per share basic and diluted for the fiscal year ended October 31,
2013. The increase in net income reflects the increased profitability of our sales and our realized and unrealized gains of $3,739,264
on hedging activities during the year.
Net Sales. Net sales totaled $108,863,097 for the fiscal year ended October 31, 2014, a decrease of $25,117,662, or 18.8%,
from $133,980,759 for the fiscal year ended October 31, 2013. The decrease in net sales primarily reflects a decrease of 20% in
pounds of green coffee sold during fiscal year 2014. We believe that the decrease in pounds of green coffee sold resulted from a
continued decrease in purchases by customers as a result of market volatility and a significant increase in coffee prices. Reduced
sales of green coffee to one customer were partially offset by increased sales to new smaller specialty gourmet roasters at improved
margins as we began reducing our inventory position into a rising market during the first half of 2014.
Cost of Sales. Cost of sales for the fiscal year ended October 31, 2014 was $93,334,118, or 85.7% of net sales, as
compared to $128,011,678, or 95.5% of net sales, for the fiscal year ended October 31, 2013. Cost of sales consists primarily of the
cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. The decrease in cost
of sales reflects favorable inventory positions and rising coffee prices, which allowed for improved margins during fiscal year 2014,
and increased realized and unrealized gains on hedging activities of $3,739,264.
Gross Profit. Gross profit for the fiscal year ended October 31, 2014 was $15,528,979, an increase of $9,559,898 from
$5,969,081 for the fiscal year ended October 31, 2013. Gross profit as a percentage of net sales increased to 14.3% for the fiscal
year ended October 31, 2014 from 4.5% for the fiscal year ended October 31, 2013. The increase in our margins reflects realized
and unrealized gains in our hedging activities and favorable inventory positions.
Operating Expenses. Total operating expenses increased $5,542 to $7,527,452 for the fiscal year ended October 31, 2014
from $7,521,910 for the fiscal year ended October 31, 2013. Selling and administrative expenses decreased $71,767, or 1.03%, to
$6,868,052 for the fiscal year ended October 31, 2014 from $6,939,819 for the fiscal year ended October 31, 2013. Officers’ salary
increased $77,309 or 13.3% to $659,400 for the fiscal year ended October 31, 2014 from $582,091 for the fiscal year ended October
31, 2013.
Other Income (Expense). Other expense for the fiscal year ended October 31, 2014 was $36,305, a decrease of $132,516
from $168,821 for the fiscal year ended October 31, 2013. The decrease in other expense was attributable to an increase in interest
and other income of $1,818 and a decrease in our loss from our equity investments of $105,007 and a decrease in interest expense
of $25,691 during the fiscal year ended October 31, 2014.
Income (Loss) Before Taxes and Non-controlling Interest in Subsidiary. We had income of $7,965,222 before income
taxes and non-controlling interest in subsidiary for the fiscal year ended October 31, 2014 compared to a loss of $1,721,650 for the
fiscal year ended October 31, 2013 resulting in an increase of $9,686,872 for the year ended October 31, 2014. The increase was
primarily attributable to our decreased realized trading gains.
Income Taxes. Our provision (benefit) for income taxes for the fiscal year ended October 31, 2014 totaled $2,947,102
compared to a benefit of $(393,767) for the fiscal year ended October 31, 2013. The change was attributable to a higher total
income. The Company’s effective tax rate for the year ended October 31, 2014 was 37% compared to (23%) for the year ended
October 31, 2013.
19
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Liquidity and Capital Resources
As of October 31, 2014, we had working capital of $23,476,802, which represented a $4,056,600 increase from our working
capital of $19,420,202 as of October 31, 2013, and total stockholders’ equity of $25,721,871 which increased by $3,971,806 from our
total stockholders’ equity of $21,750,065 as of October 31, 2013. Our working capital increased primarily due to increases of
$3,057,068 in accounts receivable, $5,837,135 in inventory, 27,865 in prepaid green coffee and decreases in due to broker of
$499,116, partially offset by decreases of $76,382 in prepaid expenses and other current assets, $999,558 in prepaid and refundable
income taxes, $987,009 in deferred income tax asset, $253,030 in cash, and increases in accounts payable and accrued expenses of
$1,448,278, $331,051 in income taxes payable and an increase in our line of credit of $1,269,276. As of October 31, 2014, the
outstanding balance on our line of credit was $2,498,458 compared to $1,229,182 as of October 31, 2013. Total stockholders’ equity
increased due to our net income, partially offset by our Share Repurchase Program.
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 3.75% and 4.25% at October 31, 2014 and 2013, respectively.
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. We are currently in discussions with Sterling to extend the term of the
credit facility and we expect to finalize an extension prior to February 17, 2015. There is currently no assurance that the term of the
credit facility will be extended or if the extended term of the credit facility will be acceptable to the Company. The credit facility is
secured by all of 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, 2014 and 2013.
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.
As of October 31, 2014 and 2013 the outstanding balance under the bank line of credit was $2,498,458 and $1,229,182,
respectively. As of January 19, 2015 the outstanding balance under the line of credit was $4,500,000.
For the fiscal year ended October 31, 2014, our operating activities provided net cash of $30,066 as compared to the fiscal
year ended October 31, 2013 when operating activities used net cash of $3,276,259. The increased cash flow from operations for the
fiscal year ended October 31, 2014 was primarily due to net income increasing from $(1,327,883) to $5,018,120, prepaid and
refundable income taxes of $999,558, income taxes payable of $331,051, deferred income taxes of $1,006,500, accounts payable
and accrued expenses of $1,448,278, which was partially offset by increases of $3,057,068 in accounts receivable and $5,837,135 in
inventory.
For the fiscal year ended October 31, 2014, our investing activities used net cash of $504,644 as compared to the fiscal year
October 31, 2013 when net cash used by investing activities was $535,960. The decrease in our uses of cash in investing activities
was primarily due to the decrease in the proceeds from the disposition of our equity method investments of $232,069 offset by our
reduced outlays for equipment of $263,385 during fiscal year 2014.
For the fiscal year ended October 31, 2014, our financing activities provided net cash of $221,548 compared to net cash
provided by financing activities of $279,305 for the fiscal year ended October 31, 2013. The change in cash flow from financing
activities for the fiscal year ended October 31, 2014 was due to our increased borrowing of $602,595 and a decrease of $335,377 in
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
our dividend payments offset by our treasury stock purchases of $995,729.
We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments
on our indebtedness, through October 31, 2015 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.
20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on
our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to investors.
ITEM 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, 2014,
our debt consisted of $2,498,458 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 an increase in losses. Such losses have and could in the future materially increase our cost of sales and
materially decrease our profitability or increase losses and adversely affect our stock price. 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, 2014, we held 60 futures contracts for the purchase of 2,250,000 pounds of coffee at a weighted average
price of $2.00 per pound compared to 149 futures contracts for the purchase of 5,587,500 pounds of coffee at a weighted average
price of $1.19 per pound for the fiscal year ended October 31, 2013. The fair market value of coffee applicable to such contracts was
$1.88 and $1.08 per pound, respectively. At October 31, 2013, 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 $(188,819) at October 31, 2013. We did not
hold any options that were in the money at October 31, 2014.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect transactions and dispositions of assets, provide reasonable assurances that
transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts
and expenditures are being made only in accordance with authorizations of our management and the directors, and provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of its internal control over financial reporting as of October 31, 2014. 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 our management believes that, as of October 31, 2014, 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.
22
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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.
STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
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.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of Documents filed as part of this Report
(1) Financial Statements
The financial statements and related notes, together with the report of Marcum LLP appear at pages F-1 through F-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
The Company has filed with this report or incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-
32 under the Exchange Act. 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
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 (incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for
the year ended October 31, 2012 filed on January 28, 2013 (File No. 001-32491)).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.5
10.6
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 10.19
of the Company’s Quarterly Report on Form 10-QSB filed on June 14, 2005 (File No. 001-32491)).
10.8
10.9
10.10
10.11
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)).
First Amendment to Loan and Security Agreement between Coffee Holding Co., Inc. and Sterling National Bank, dated
July 23, 2010 (incorporated herein by reference to Exhibit 103 to the Company’s Annual Report on Form 10-K filed on
January 31, 2011 (File No. 001-32491)).
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)).
10.12
2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement
filed on February 28, 2013 (File No. 13653320)).
10.13
Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding
Co., Inc. (incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on
January 24, 2014 (File No. 001-32491)).
21.1
List of Significant Subsidiaries.*
31.1
Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
32.1
Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
____________
* Filed herewith
26
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 23, 2015.
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.
Signature
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, Treasurer and
January 23, 2015
Director
(principal executive officer and principal financial and accounting officer)
Executive Vice President – Operations, Secretary and Director
January 23, 2015
Director
Director
Director
Director
Director
27
January 23, 2015
January 23, 2015
January 23, 2015
January 23, 2015
January 23, 2015
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 a approval of the Company’s request
for confidential treatment through January 28, 2023. The omitted portions were filed separately with the SEC on a
confidential basis (incorporated herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for
the year ended October 31, 2012 filed on January 28, 2013 (File No. 001-32491)).
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)).
28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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
10.9
10.10
10.11
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)).
First Amendment to Loan and Security Agreement between Coffee Holding Co., Inc. and Sterling National Bank, dated
July 23, 2010 (incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on
January 31, 2011 (File No. 001-32491).
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)).
10.12
2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement
filed on February 28, 2013 (File No. 13653320)).
10.13
Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding
Co., Inc. (incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on
January 24, 2014 (File No. 001-32491)).
21.1
List of Significant Subsidiaries.*
31.1
Principal Executive Officer and Principal Financial Officer’s Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
32.1
Principal Executive Officer and Principal Financial Officer’s Certification furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
____________
* Filed herewith
29
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 FIRM
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2014 AND 2013
CONSOLIDATED STATEMENTS OF OPERATIONS - YEARS ENDED OCTOBER 31, 2014 AND 2013
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - YEARS ENDED OCTOBER 31,
2014 AND 2013
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED OCTOBER 31, 2014 AND 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
F-2
F-3
F-5
F-7
F-8
F-10
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
Coffee Holding Co., Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Coffee Holding Co., Inc. and Subsidiaries (the “Company”) as of
October 31, 2014 and 2013 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for
each of the years 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 audits 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 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 audits provide 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, 2014 and 2013, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum LLP
New York, NY
January 23, 2015
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2014 AND 2013
- ASSETS -
CURRENT ASSETS:
Cash
Accounts receivable, net of allowances of $144,000 for 2014 and 2013
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 $3,704,802 and $3,130,902
for 2014 and 2013, respectively
Customer list and relationships, net of accumulated amortization of $33,750 and $26,250 for 2014
and 2013, respectively
Trademarks
Goodwill
Equity method investments
Deposits and other assets
TOTAL ASSETS
2014
2013
$ 3,782,639
15,419,860
15,210,153
467,155
260,112
759
343,657
35,484,335
$ 4,035,669
12,362,792
9,373,018
439,290
336,494
1,000,317
1,330,666
28,878,246
1,991,094
2,060,350
116,250
180,000
440,000
97,404
643,549
$ 38,952,632
123,750
180,000
440,000
98,178
618,498
$ 32,399,022
See Notes to Consolidated Financial Statements
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
$ 8,693,100
2,498,458
484,924
331,051
12,007,533
$ 7,244,822
1,229,182
984,040
-
9,458,044
165,157
209,640
515,549
12,897,879
145,666
195,452
515,498
10,314,660
-
-
6,456
15,904,109
11,079,168
(1,267,862)
25,721,871
332,882
26,054,753
$ 38,952,632
6,456
15,904,109
6,111,633
(272,133)
21,750,065
334,297
22,084,362
$ 32,399,022
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2014 AND 2013
- 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; 6,215,894 and 6,372,309 shares outstanding for 2014 and 2013
Additional paid-in capital
Retained earnings
Less: Treasury stock, 240,422 and 84,007 common shares, at cost for 2014 and 2013
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.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED OCTOBER 31, 2014 AND 2013
NET SALES
2014
2013
$108,863,097 $133,980,759
COST OF SALES (which include purchases of approximately $17.5 million and $31.2 million in fiscal
years 2014 and 2013, respectively, from a related party)
93,334,118 128,011,678
GROSS PROFIT
15,528,979
5,969,081
OPERATING EXPENSES:
Selling and administrative
Officers’ salaries
TOTAL
INCOME (LOSS) FROM OPERATIONS
OTHER INCOME (EXPENSE):
Interest income
Loss from equity method investments
Interest expense
TOTAL
6,868,052
659,400
7,527,452
8,001,527
6,939,819
582,091
7,521,910
(1,552,829)
44,962
(774)
(80,493)
(36,305)
43,144
(105,781)
(106,184)
(168,821)
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 STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED OCTOBER 31, 2014 AND 2013
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND
NON-CONTROLLING INTEREST IN SUBSIDIARY
Provision (benefit) for income taxes
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY
Less: Net income attributable to the non-controlling interest in subsidiary
7,965,222
(1,721,650)
2,947,102
(393,767)
5,018,120
(50,585)
(1,327,883)
(152,352)
NET INCOME (LOSS) ATTRIBUTABLE TO COFFEE HOLDING CO., INC.
$ 4,967,535 $ (1,480,235)
Basic and diluted earnings (loss) per share
Dividends declared per share
Weighted average common shares outstanding:
Basic and diluted
$
$
.78 $
(.23)
.00 $
.06
6,333,212
6,372,309
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 STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FISCAL YEARS ENDED OCTOBER 31, 2014 AND 2013
Common Stock
$.001 Par Value
Treasury Stock
Number of
Shares
Amount
Number of
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Non-
Controlling
Interest
Total
Balance,10/31/012 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
Treasury Stock
(156,415)
156,415
(995,729)
Dividend
Net income
Non-Controlling
Interest
(995,729)
(52,000)
(52,000)
4,967,535
4,967,535
-
-
-
-
-
-
50,585
50,585
Balance, 10/31/14 6,215,894
$
6,456
240,422
$ (1,267,862) $ 15,904,109
$ 11,079,168 $ 332,882 $ 26,054,753
See Notes to Consolidated Financial Statements
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
FISCAL YEARS ENDED OCTOBER 31, 2014 AND 2013
OPERATING ACTIVITIES:
Net income (loss)
$
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating 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 provided by (used in) operating activities
INVESTING ACTIVITIES:
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
Purchase of treasury stock
Payment of dividend
Net cash provided by financing activities
NET DECREASE IN CASH
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid
Income taxes paid
See Notes to Consolidated Financial Statements
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2014
2013
5,018,120 $ (1,327,883)
581,400
(499,116)
774
14,188
1,006,500
506,934
(383,349)
105,781
28,784
(515,000)
(3,057,068)
(5,837,135)
76,382
(27,865)
999,558
1,448,278
(25,001)
331,051
30,066
270,336
2,434,063
367,519
(289,290)
(937,554)
(3,531,885)
16,407
(21,122)
(3,276,259)
-
(504,644)
(504,644)
232,069
(768,029)
(535,960)
4,051,522
(2,782,245)
(995,729)
(52,000)
221,548
6,821,366
(6,154,684)
-
(387,377)
279,305
(253,030)
(3,532,914)
4,035,669
7,568,583
$
3,782,639 $ 4,035,669
2014
2013
$
73,692 $
108,608
$ 1,432,777 $
803,626
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED OCTOBER 31, 2014 AND 2013
Schedule of noncash investing and financing activities:
Proceeds from disposition of equity method investment:
Inventory received
Settlement of accounts payable
Total noncash proceeds
2014
2013
$
$
503,500
- $
-
992,402
- $ 1,495,902
See Notes to Consolidated Financial Statements
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, 2014 AND 2013
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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (“OPTCO”)
and Generations Coffee Company, LLC (“GCC”). All significant inter-company balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES:
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United
States of America (“U.S. 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, 2014 AND 2013
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 $40,334 and $35,564 as of October 31, 2014 and 2013, respectively. The prepaid coffee balance was $467,155 and
$439,290 as of October 31, 2014 and 2013, respectively.
ACCOUNTS RECEIVABLE:
Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the
following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction
history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 60
days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the 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:
2014
65,000
35,000
44,000
144,000
$
$
2013
65,000
35,000
44,000
144,000
$
$
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.
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, 2014 AND 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
MACHINERY AND EQUIPMENT:
Machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the
assets. Purchases of machinery and equipment and additions and betterments which substantially extend the useful life of an asset
are capitalized at cost. Expenditures which do not materially prolong the normal useful life of an asset are charged to operations as
incurred. The Company also provides for amortization of leasehold improvements.
COMMODITIES HELD BY BROKER:
The commodities held at broker represent the market value of the Company’s trading account, which consists of option and futures
contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or
qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures
contracts are 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
2014
(217,624) $
(267,300)
(484,924) $
2013
(188,819)
(795,221)
(984,040)
$
$
The Company classifies its options and futures contracts as trading securities and accordingly, unrealized holding gains and losses
are included in earnings.
At October 31, 2014, the Company held 60 futures contracts (generally with terms of three to four months) for the purchase of
2,250,000 pounds of green coffee at a weighted average price of $2.00 per pound. The fair market value of coffee applicable to such
contracts was $1.88 per pound at that date. The Company did not hold any options that were in the money at October 31, 2014.
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 $(188,819).
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, 2014 AND 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
Included in cost of sales for the years ended October 31, 2014 and 2013, the Company recorded realized and unrealized gains and
losses respectively, on these contracts as follows:
Gross realized gains
Gross realized (losses)
Unrealized gains
Total
GOODWILL AND TRADEMARKS:
Year Ended October 31,
2014
2013
$ 5,294,449 $ 1,836,103
(8,044,751)
383,349
$ 3,739,264 $ (5,825,299)
(2,054,301)
499,116
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, 2014 and 2013, the Company has determined by using a qualitative
assessment that an impairment did not exist. In 2011, the Company adopted Financial Accounting Standards No. 2011-08
Intangibles – Goodwill and Other – Testing Goodwill for Impairment, which allows an entity to first assess qualitative factors to
determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity
would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment,
that it is more likely than not that its fair value is less than its carrying amount. The amendment includes a number of events and
circumstances for an entity to consider in conducting the qualitative assessment.
CUSTOMER LIST AND RELATIONSHIPS:
The Company’s customer list 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 $142,552
and $169,853 for the years ended October 31, 2014 and 2013, respectively.
INCOME TAXES:
The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and
liabilities to be computed for temporary differences between the financial statement and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets and liabilities are individually classified as current or non-
current based on their characteristics. Valuation allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The income tax provision or benefit is the tax incurred for the period plus or minus the change
during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE:
Basic earnings per common share were computed by dividing net income by the sum of the weighted-average number of common
shares outstanding. Diluted earnings per common share is computed by dividing the net income by the weighted-average number of
common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution.
The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 6,333,212
and 6,372,309 for the years ended October 31, 2014 and 2013, respectively. For fiscal 2014, the 267,000 shares that could be
exercised pursuant to the warrant agreement attached to the units issued in September 2011 with exercise prices greater than the
annual average fair market value of the common shares of $6.27 have not been included in the October 31, 2014 diluted earnings per
share calculation because the effect would be anti-dilutive.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-13
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, 2014 AND 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, accounts receivable, notes receivable, accounts payable and accrued expenses approximate fair value
because of the short-term nature of these instruments. The carrying amount of the bank line of credit borrowings approximates fair
value because the debt is based on current rates at which the Company could borrow funds with similar remaining maturities. Fair
value estimates are made at a specific point in time, based on relevant market information about the financial instruments when
available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore,
cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the 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.
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.
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, 2014 AND 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
REVENUE RECOGNITION (cont’d):
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 $1,374,000 and $1,432,000 for the years ended October 31, 2014 and 2013, 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, 2014
and 2013, the Company had approximately $171,091 and $2,038,638 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, 2014 and 2013, the Company had approximately
$2,730,404 and $1,706,745 in excess of SIPC insured limits, respectively.
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 $209,640 and $195,452 is included as deferred rent payable as of October 31, 2014 and 2013, 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, 2014 AND 2013
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
EQUITY METHOD OF ACCOUNTING:
Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under
the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends
on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and
ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method
of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and
Consolidated Statements of Income; however, the Company’s share of the earnings or losses of the Investee company is reflected in
the caption “Loss from equity method investments” in the Consolidated Statements of Income. The Company’s carrying value in an
equity method Investee company is reflected in the caption “Equity method investments” in the Company’s Consolidated Balance
Sheets.
The Company’s investment in a company that is accounted for on the equity method of accounting consist of a 20% interest in
Healthwise Gourmet Coffees, LLC, a distributor of low acidity coffees. The investments in this company amounted to $100,000. The
loss recognized amounted to $774 and $105,781 for the years ended October 31, 2014 and 2013, respectively. The net value of this
investment as presented on our consolidated balance sheet at October 31, 2014 and 2013 was $97,404 and $98,178, respectively.
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
During the first quarter of fiscal year 2012, the Financial Accounting Standards Board (“FASB”) 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.
During the third quarter of fiscal year 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.
The amendments in this ASU provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial
statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.
To the extent that a net operating loss carryforward, similar tax loss, or a tax credit carryforward is not available at the reporting date
to settle ant additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to
use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be
presented as a liability and should not be combined with deferred tax assets.
Effective: For fiscal years, and interim periods within those years, beginning after December 15, 2013 for public entities. The
amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective
application is also permitted.
NOTE 4 - INVENTORIES:
Inventories at October 31, 2014 and 2013 consisted of the following:
Packed coffee
Green coffee
Packaging supplies
Totals
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2014
2013
$ 1,578,248 $ 1,873,982
6,818,261
12,987,257
680,775
644,648
$ 15,210,153 $ 9,373,018
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2014 AND 2013
NOTE 5 - MACHINERY AND EQUIPMENT:
Machinery and equipment at October 31, 2014 and 2013 consisted of the following:
Improvements
Machinery and equipment
Furniture and fixtures
Less, accumulated depreciation
Estimated
Useful Life
15-30 years
7 years
7 years
$
2014
172,506 $
4,937,017
586,373
5,695,896
3,704,802
2013
172,506
4,481,050
537,696
5,191,252
3,130,902
$ 1,991,094 $ 2,060,350
Depreciation expense totaled $573,900 and $506,934 for the years ended October 31, 2014 and 2013, 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 (3.75% and 4.25% at October 31, 2014 and October 31, 2013,
respectively).
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. We are currently in discussions with Sterling to extend the term of the credit
facility and we expect to finalize an extension prior to February 17, 2015. There is currently no assurance that the term of the credit
facility will be extended or if the extended term of the credit facility will be acceptable to the Company. 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, 2014 and October 31, 2013.
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.
As of October 31, 2014 and October 31, 2013, the outstanding balance under the bank line of credit was $2,498,458 and $1,229,182,
respectively.
F-17
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, 2014 AND 2013
NOTE 7 - INCOME TAXES:
The Company’s provision (benefit) for income taxes in 2014 and 2013 consisted of the following:
Current
Federal
State and local
Deferred
Federal
State and local
Income tax (benefit) expense
2014
2013
$ 1,607,952 $
332,199
1,940,151
(60,108)
181,341
121,233
886,060
120,891
1,006,951
$ 2,947,102 $
(516,000)
1,000
(515,000)
(393,767)
A reconciliation of the difference between the expected income tax rate using the statutory U.S. federal tax rate and the Company’s
effective tax rate is as follows:
Tax at the federal statutory rate of 34%
Other permanent differences
State and local tax, net of federal benefit
Provision for income taxes
Effective income tax rate
F-18
2014
$ 2,708,175
$
(62,348)
301,278
2013
(585,362)
71,910
119,685
$ 2,947,102
$
37%
(393,767)
(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, 2014 AND 2013
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, 2014 and 2013
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
F-19
2014
2013
$
54,407 $
27,807
183,216
78,227
54,553
866,000
372,791
37,322
$
343,657 $ 1,330,666
79,575
194,768
74,044
195,290
$
274,343 $
269,334
$
618,000 $ 1,600,000
439,500
415,000
$
439,500 $
415,000
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, 2014 AND 2013
NOTE 7 - INCOME TAXES (cont’d):
As of October 31, 2014 the Company had U.S. federal and state net operating loss carryovers (“NOLs”) of $0 and $735,000
respectively. As of October 31, 2013 the Company had U.S. federal and state NOLs $2,417,000. The Company’s U.S. federal NOL
was fully utilized during the year ended October 31, 2014 since the Company was able to carry it back to offset taxable income in a
prior year. No carryback was allowed for state income tax purposes.
A valuation allowance was not provided at October 31, 2014 or 2013. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax assets are expected to be deductible, management
believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
As of October 31, 2014 and 2013, 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, 2014 and
2013, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax
examinations in progress.
The Company files a U.S. federal income tax return and California, Colorado, Connecticut, Kansas, Michigan, 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 2011. 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 2008. The
Company’s Oregon, New York, Kansas, South Carolina, Rhode Island, Connecticut and Michigan and Texas income tax returns are
no longer subject to examination by their respective taxing authorities for the years before fiscal 2009.
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, 2014 and 2013.
In October 2008, the Company entered into a lease for office and warehouse space in Staten Island, NY. This lease, which is at a
monthly rental beginning November 2008, expires on October 31, 2023 and includes annual rent increases. Rent charged to
operations amounted to $146,423 for the years ended October 31, 2014 and 2013. The Company also uses a variety of
independent, bonded commercial warehouses to store its green coffee beans.
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 $36,721 and $35,362 for the years
ended October 31, 2014 and 2013, respectively.
The aggregate minimum future lease payments as of October 31, 2014 for each of the next five years and thereafter are as follows:
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, 2014 AND 2013
NOTE 8 - COMMITMENTS AND CONTINGENCIES (cont’d):
October 31,
2015
2016
2017
2018
2019
Thereafter
401 (K) RETIREMENT PLAN:
$
$
252,643
243,021
248,738
254,683
262,413
1,159,991
2,421,489
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 $77,822 and
$60,759 for the years ended October 31, 2014 and 2013, respectively.
NOTE 9 - ECONOMIC DEPENDENCY:
Approximately 60% of the Company’s sales were derived from one customer during the year ended October 31, 2014. This customer
also accounted for approximately $7,423,000 or 48% of the Company’s accounts receivable balance at October 31,
2014. 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. 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, 2014, approximately 61% of the Company’s purchases were from four vendors. These four vendors
accounted for approximately $4,104,000 of the Company’s accounts payable at October 31, 2014. 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. 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.
F-21
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, 2014 AND 2013
NOTE 10 - RELATED PARTY TRANSACTIONS:
The Company has engaged its 40% partner in GCC as an outside contractor (the “Partner”). Included in contract labor expense,
which is a component of cost of sales, are expenses incurred from the Partner during the years ended October 31, 2014 and 2013 of
$443,518 and $475,620, respectively.
An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately
$17,495,000 and $31,183,000 for the years ended October 31, 2014 and 2013, respectively. The corresponding accounts payable
balance to this vendor was approximately $884,000 and $1,139,000 at October 31, 2014 and 2013, 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 Company’s Chief Executive Officer. 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, 2014 and 2013 was $515,549 and $515,498,
respectively. Deferred compensation expenses included in officers’ salaries were $0 during the years ended October 31, 2014 and
2013, respectively.
NOTE 11 - STOCKHOLDERS’ EQUITY:
a. Treasury Stock. The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is
determined under the last-in, first-out method. The Company purchased 156,415 shares for $995,729 during the year ended
October 31, 2014. The Company did not purchase any shares during the year ended October 31, 2013.
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, 2012. On June 30, 2013, the Company announced that the Board elected to terminate the dividend
program.
c. Share Repurchase Program. On January 24, 2014, the Company announced that the Board of Directors had approved a share
repurchase program (the “Share Repurchase Program”) pursuant to which the Company may repurchase up to $1 million of the
outstanding common stock from time to time on the open market and in privately negotiated transactions subject to market
conditions, share price and other factors. The Share Repurchase Program may be discontinued or suspended at any time.
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;
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.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Company’s commodity securities are classified within Level 2 and include coffee futures and options contracts. To determine fair
value, the Company utilizes the market approach valuation technique for the coffee futures and options contracts. The Company
uses Level 2 inputs that are based on market data of similar instruments that are in observable markets. All commodities on the
balance sheet are recorded at fair value with changes in fair value included in earnings.
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are
categorized using the fair value hierarchy.
F-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, 2014 AND 2013
NOTE 12 - FAIR VALUE MEASUREMENTS (cont’d):
Assets:
Money market
Total Assets
Liabilities:
Commodities – Options
Commodities – Futures
Total Liabilities
Assets:
Money market
Total Assets
Liabilities:
Commodities – Options
Commodities – Futures
Total Liabilities
Fair Value Measurements as of October 31, 2014
Total
Level 1
Level 2
Level 3
515,549
515,549 $
515,549
515,549
$
–
–
(217,624)
(267,300)
(484,924)
$
(217,624)
(267,300)
(484,924)
–
– $
–
–
–
–
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)
–
– $
–
–
–
–
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, 2014 AND 2013
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-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC.
Significant Subsidiaries
Name of Entity
Organic Products Trading Company, LLC
Jurisdiction
United States, Washington
Exhibit 21.1
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, 2014 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
registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
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 23, 2015
/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.
Statement Furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Exhibit 32.1
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, 2014 (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 23, 2015
/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.