SECURITIES & EXCHANGE COMMISSION EDGAR FILING
COFFEE HOLDING CO INC
Form: 10-K
Date Filed: 2018-01-29
Corporate Issuer CIK: 1007019
© Copyright 2018, 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
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2017
[ ] 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(g) of the Exchange Act: None
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically 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.
[X]
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 [ ]
Non-accelerated filer [ ]
Accelerated filer [ ]
Smaller Reporting Company [X]
Emerging Growth Company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the common equity held by non-affiliates of the registrant, computed by reference to the closing price of the registrant’s common
stock on the NASDAQ Capital Market on April 30, 2017, was $28,554,281.
As of January 20, 2018, the registrant had 5,742,894 shares of common stock, par value $0.001 per share, outstanding.
Documents incorporated by reference
Portions of the registrant’s proxy statement for the 2017 annual meeting of stockholders to be filed pursuant to Regulation 14A within 120 days after the
registrant’s fiscal year ended October 31, 2017, are incorporated by reference in Part III of this Form 10-K.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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PART I
TABLE OF CONTENTS
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
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
ITEM 6.
ITEM 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9.
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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, Canada and certain countries in Asia to supermarkets, wholesalers,
and individually owned and multi-unit retail customers. Our unprocessed green coffee, which includes over 90 specialty coffee offerings, is primarily sold to
specialty gourmet roasters.
We conduct our operations in accordance with strict freshness and quality standards. All of our private label and branded coffees are produced from high
quality coffee beans that are deep roasted for full flavor using a slow roasting process that has been perfected utilizing our more than 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.
In June 2016, we acquired substantially all of the assets of Coffee Kinetics LLC (doing business as Sonofresco) through our wholly-owned subsidiary
Sonofresco, LLC (“Sonofresco” or “SONO”), including equipment, inventory, customer lists, relationships and accounts payable. In addition to our wholesale
green coffee, private label coffee and branded coffee product offerings, we currently sell tabletop coffee roasting equipment to our customers through
Sonofresco.
On February 23, 2017, we purchased all the outstanding common stock of Comfort Foods, Inc. (“CFI”). CFI is a medium sized regional roaster,
manufacturing both branded and private label coffee for retail and foodservice customers located predominantly in the northeast United States marketplace.
We were incorporated on October 9, 1995 under the laws of the State of Nevada under the name Transpacific International Group Corp (“Transpacific”).
On April 16, 1998, Transpacific completed a merger with Coffee Holding Co., Inc., a New York corporation. Upon the consummation of the merger, Coffee
Holding Co., Inc. was merged into Transpacific and Transpacific changed its name to Coffee Holding Co., Inc.
Our corporate offices are located at 3475 Victory Boulevard, Staten Island, New York 10314. Our telephone number is (718) 832-0800 and our website
address is www.coffeeholding.com. The information on our website is not incorporated by reference into this Annual Report on Form 10-K.
Our Competitive Strengths
To achieve our growth objectives described below, we intend to leverage the following competitive strengths:
Positioned to Profitably Grow Through Varying Cycles of the Coffee Market. We believe that we are one of the few coffee companies to offer a broad
array of branded and private label roasted ground coffees and wholesale green coffee across the spectrum of consumer tastes, preferences and price points.
While many of our competitors engage in distinct segments of the coffee business, we sell products in each of the following areas:
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•
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;
Tea; and
Tabletop coffee roasting equipment.
Our branded and private label roasted ground coffees are sold at competitive and value price levels while some of our other branded and specialty coffees
are sold predominantly at premium price levels. Premium price level coffee is high-quality gourmet coffee, such as AA Arabica coffee, which sell at a substantial
premium over traditional retail canned coffee, while competitive and value price level coffee is mainstream or traditional canned coffee. Because of this
diversification, we believe that our profitability is not dependent on any one area of the coffee industry and, therefore, is less sensitive than our competition to
potential coffee commodity price and overall economic volatility.
Wholesale Green Coffee Market Presence. As a large roaster-dealer of green coffee, we believe that we are favorably positioned to increase our
specialty coffee sales. Since 1998, we have increased the number of our wholesale green coffee customers, including coffee houses, single store operators,
mall coffee stores and mail order sellers, by 547% from 150 to 971. We are a charter member of the Specialty Coffee Association of America and one of the
largest distributors of Swiss Water Processed Decaffeinated Coffees and Datteral specialty Brazil coffees along the east coast of the United States. Our over 40
years of experience as a roaster and a dealer of green coffee allows us to provide our roasting experience as a value added service to our gourmet roaster
customers. The assistance we provide to our customers includes training, coffee blending and market identification. We believe that our relationships with
wholesale green coffee customers and our focus on selling green coffee as a wholesaler has enabled us to participate in the growth of the specialty coffee
market while mitigating the risks associated with the competitive retail specialty coffee environment.
Diverse Portfolio of Differentiated Branded Coffees. We have amassed a portfolio of 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 and flavored coffees. In addition, we have entered into a licensing agreement with Del Monte Corporation for the exclusive right to use the S&W
trademark in the United States and other countries approved by Del Monte Corporation in connection with the production, manufacture and sale of roasted
whole bean and ground coffee for distribution to retail customers. Our existing portfolio of differentiated brands combined with our management expertise serve
as a platform to add additional name brands through acquisition or licensing agreements which target product niches and segments that do not compete with our
existing brands.
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 35 and 37 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.
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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:
•
•
•
•
•
New Licensing agreements;
Specialty blends and foodservice opportunities;
Teton tea;
Cold brew; and
Sales of our tabletop coffee roasting equipment.
Our Core Products
Our core products can be divided into three categories:
• Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large, medium and small roasters and coffee shop
operators;
•
•
Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want
to have their own brand name on coffee to compete with national brands; and
Branded Coffee: coffee roasted and blended to our own specifications and packaged and sold under our 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 located throughout the United States and carry over approximately 90 different
varieties. Specialty green coffee beans are sold unroasted, direct from warehouses to small roasters and gourmet coffee shop operators, which then roast the
beans themselves. We sell from as little as one bag (132 pounds) to a full truckload (44,000 pounds) of specialty green coffee beans, depending on the size and
need of the customer. We believe that we can increase sales of wholesale green coffee without an increase in infrastructure as well as without venturing into the
highly competitive retail specialty coffee environment. We believe that by utilizing our current strategy we can be as profitable or more profitable than our
competitors in this segment by selling “one bag at a time” rather than “one cup at a time.”
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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, 2017, we supplied coffee under approximately 26 different labels
to wholesalers and retailers. We produce private label coffee for customers who desire to sell coffee under their own name but do not want to engage in the
manufacturing process. Our private label customers seek a quality similar to the national brands at a lower cost, which represents a better value for the
consumer.
Branded Coffee. We roast and blend our branded coffee according to our own recipes and package the coffee at our facilities in La Junta, Colorado,
North Andover, Massachusetts and Brecksville, Ohio. We then sell the packaged coffee under our brand labels to supermarkets, wholesalers and individually-
owned stores throughout the United States.
We hold trademarks for each of our proprietary name brands and have the exclusive right to use the S&W, IL CLASSICO brand names in the United
States in connection with the production, manufacture and sale of roasted whole bean and ground coffee for distribution at the retail level. For further information
regarding our trademark rights, see “Business—Trademarks.”
Each of our name brands is directed at a particular segment of the coffee market. Our branded coffees are:
Cafe Caribe, a specialty espresso coffee that targets espresso coffee drinkers and, in particular, the Hispanic consumer market;
Don Manuel, is produced from the finest 100% Colombian coffee beans. Don Manuel is an upscale quality product which commands a substantial
premium compared to the more traditional brown coffee blends. We also use this known trademark in our food service business because of the high brand
quality;
S&W, an upscale canned coffee established in 1921 and includes Premium, Premium Decaf, French Roast, Colombian, Colombian Decaf, Swiss Water
Decaf, Kona, Mellow’d Roast and IL CLASSICO lines;
Cafe Supremo, a specialty espresso that targets espresso drinkers of all backgrounds and tastes. It is designed to introduce coffee drinkers to the tastes
of dark roasted coffee;
Via Roma, an Italian espresso targeted at the more traditional espresso drinker; and
Premier Roasters, a line of high quality retail and foodservice products packed in composite cans and poly bags.
Harmony Bay, an upscale line of both flavored beans and bags incorporating an array of unique flavors including hazelnut and winterspice.
Other Products
We also offer several niche products, including:
•
•
•
tea;
cold brew; and
table-top coffee roasters.
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, 2017 and 2016 was
$1.25 and $1.64 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.
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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 2017 and 2016, approximately 50% and 43%, respectively of all of
our green coffee purchases were from five suppliers. One of these suppliers, Rothfos Corporation, accounted for approximately $6.7 million, or 10%, in 2017,
and $8.5 million, or 13%, in 2016, 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, currency fluctuations and economics within the countries that export coffee. Increases in the cost of coffee beans
can, to a certain extent, be passed on to our customers in the form of higher prices for coffee beans and processed coffee. Drastic or prolonged increases in
coffee prices may also adversely impact our business as it could lead to a decline in overall consumption of coffee. Similarly, rapid decreases in the cost of
coffee beans may force us to lower our sale prices before realizing cost reductions in our purchases.
We subject all of our private unroasted green coffee to both a pre-shipment sample approval and an additional sample approval upon arrival into the
United States. Once the arrival sample is approved, we then bring the coffee to one of our facilities to roast and blend according to our own strict specifications.
During the roasting and blending process, samples are pulled off the production line and tested on an hourly basis to ensure that each batch roasted is consistent
with the others and meets the strict quality standards demanded by our customers and us.
Our Use of Derivatives
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have
used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects
of changing green coffee prices and to reduce our costs of sales, as further explained in Note 2 of the Notes to the Condensed Consolidated Financial
Statements in this Report. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months,
primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are
reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of
sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic
times, our hedging policies remain a vital element of our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the
inventory necessary to continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices. However, no
strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of
time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we
have had net gains on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some reporting
periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the
future materially increase our cost of sales and materially decrease our profitability and adversely affect our stock price. See “Item 1A – Risk Factors - If our
hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our
profitability may be reduced.” Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating
results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase,
resulting in a decrease in profitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and
are continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a
limited capacity going forward. See “Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risks.”
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Trademarks and Tradename
We hold trademarks, registered with the United States Patent and Trademark Office, for all 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 Keurig Green Mountain, Inc. “GMCR”. Sales to GMCR accounted for approximately $5.9 million or approximately 8%
of our net sales for the fiscal year ended October 31, 2017, and $22.6 million or 29% for the fiscal year ended October 31, 2016.
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 tea and our
own brands, filter packages, and peripheral products.
Charitable Activities
We are also a supporter of several coffee-oriented charitable organizations and during fiscal 2017 and 2016, we donated approximately $49,000 and
$46,000, respectively, to charities.
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•
For over 20 years, we have been members of Coffee Kids, an international non-profit organization that helps to improve the quality of life of children
and their families in coffee-growing communities in Mexico, Guatemala, Nicaragua and Costa Rica.
• We are members of Grounds for Health, an organization that educates, screens, and arranges treatment for women who have cancer and live in the
rural coffee growing communities of Mexico.
• We are a licensed Fair Trade dealer of Fair Trade certified coffee. Fair Trade certified coffee helps small coffee farmers to increase their incomes and
improve the prospects of their communities and families. It guarantees farmers a minimum price of $1.40 per pound or fifteen cents above the current
market price.
• We are the administrative benefactors to a non-profit organization called Cup for Education. After discovering the lack of schools, teachers, and basic
fundamental learning supplies in the poor coffee growing communities of Central and Latin America, “Cup” was established by our employee, Karen
Gordon, to help build schools, sponsor teachers, and purchase basic supplies such as books, chalk and other necessities for a proper education.
Competition
The coffee market is highly competitive. We compete in the following areas:
Wholesale Green Coffee. There are many green coffee dealers throughout the United States. Many of these dealers have greater financial resources
than we do. However, we believe that we have both the knowledge and the capability to assist small specialty gourmet coffee roasters with developing and
growing their businesses. Our over 40 years of experience as a roaster and a dealer of green coffee allows us to provide our roasting experience as a value
added service to our gourmet roaster customers. While other coffee merchants may be able to offer lower prices for coffee beans, we market ourselves as a
value-added supplier to small roasters, with the ability to help them market their specialty coffee products and develop a customer base. The assistance we
provide our customers includes training, coffee blending and market identification. Because specialty green coffee beans are sold unroasted to small coffee
shops and roasters that market their products to local gourmet customers, we do not believe that our specialty green coffee customers compete with our private
label or branded coffee lines of business. We believe that the addition of Organic Products Trading Company, LLC (“OPTCO”) and Sonofresco as well as our
external green coffee salespeople allows us to compete more effectively throughout the country and Canada.
Private Label Competition. There are several major producers of coffee for private label sales in the United States. Many other companies produce
coffee for sale on a regional basis. Our main competitor is the Massimo Zanetti Beverage Company. The Massimo Zanetti Beverage Company is larger and has
more financial and other resources than we do and, therefore, is able to devote more resources to product development and marketing. We believe that we
remain competitive by providing a higher level of quality and customer service. This service includes ensuring that the coffee produced for each label maintains a
consistent taste and is delivered on time and in the proper quantities.
Branded Competition. Our proprietary brand coffees compete with many other brands that are sold in supermarkets and specialty stores, primarily in the
Northeastern United States. The branded coffee market in both the Northeast and elsewhere is dominated by three large companies: Kraft General Foods, Inc.
(owner of the Maxwell House brand), J.M. Smucker Co. (owner of the Folgers and Café Bustelo brands) and Massimo Zanetti Beverage Group 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 and Café Supremo brands are 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.
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Government Regulation
Our coffee roasting operations are subject to various governmental laws and regulations, which require us to obtain licenses relating to customs, health
and safety, building and land use and environmental protection. Our roasting facility is subject to state and local air-quality and emissions regulation. If we
encounter difficulties in obtaining any necessary licenses or if we have difficulty complying with these laws and regulations, then we could be subject to fines and
penalties, which could have a material adverse effect on our profitability. In addition, our product offerings could be limited, thereby reducing our revenues.
We believe that we are in compliance in all material respects with all such laws and regulations and that we have obtained all material licenses and
permits that are required for the operation of our business. We are not aware of any environmental regulations that have or that we believe will have a material
adverse effect on our operations.
Employees
We have 74 full-time employees. None of our employees are represented by unions or collective bargaining agreements. Our management believes that
we maintain good working relationships with our employees. To supplement our internal sales staff, we sometimes engage independent national and regional
sales brokers as independent contractors who work on a commission basis.
ITEM 1A. RISK FACTORS
An investment in our common stock is subject to risks inherent in our business. Before making an investment decision, you should carefully consider the
risks and uncertainties described below together with all of the other information included in this report. In addition to the risks and uncertainties described below,
other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial
condition and results of operations. The value or market price of our common stock could decline due to any of these identified or other risks, and you could lose
all of your investment.
Risks affecting our Company
Because our business is highly dependent upon a single commodity, coffee, any decrease in demand for coffee could materially adversely
affect our revenues and profitability. Our business is centered on essentially one commodity: coffee. Our operations have primarily focused on the following
areas of the coffee industry:
•
•
•
the roasting, blending, packaging and distribution of private label coffee;
the roasting, blending, packaging and distribution of proprietary branded coffee; and
the sale of wholesale specialty green coffee.
Demand for our products is affected by:
•
•
•
•
consumer tastes and preferences;
global economic conditions;
demographic trends; and
the type, number and location of competing products.
Because we rely on a single commodity, any decrease in demand for coffee would harm our business more than if we had more diversified product
offerings and could materially adversely affect our revenues and operating results.
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:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
• market our products on a national scale;
•
•
increase our brand recognition on a national scale;
enter into distribution and other strategic arrangements with third party retailers; and
• manage growth in administrative overhead and distribution costs likely to result from the planned expansion of our distribution channels.
Our sales and profitability may be adversely affected if we fail to successfully expand the geographic distribution of our branded and private label
products. In addition, our expenses could increase and our profits could decrease as we implement our growth strategy.
If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for
green coffee and our profitability may be reduced. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which
are beyond our control. We have used and expect to continue to use to a lesser extent short-term coffee futures and options contracts for the purpose of hedging
the effects of changing green coffee prices. In addition, we have acquired and expect to continue to acquire to a lesser extent futures contracts with longer terms,
generally three to four months, for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and
futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts
increase our cost of sales.
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 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.
Our revenues and profitability could be adversely affected if our joint ventures or acquisitions are not successful. We have historically utilized
acquisitions and joint ventures to grow our business and we intend to continue to seek opportunities for new joint ventures and acquisitions that will be
complimentary to our business. While we believe that our joint ventures will be successful, losses in our joint ventures or any future joint ventures would hurt our
profitability. In addition, we generally will not be in a position to exercise sole decision-making authority regarding our joint ventures. Investments in joint ventures
may under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might become
bankrupt or fail to fund their share of the required capital contributions. Joint venture partners may have business interests, strategies or goals that are
inconsistent with our business interests, strategies or goals and may be, in cases where we have a minority interest, in a position to take actions contrary to our
policies, strategies or objectives. Any disputes that may arise between us and our joint venture partners may result in litigation or arbitration that could increase
our expenses and could prevent our officers and/or directors from focusing their time and effort exclusively on our business strategies. In addition, we may in
certain circumstances be liable for the actions of our third-party joint venture partners.
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Acquisitions including strategic investments or alliances entail numerous risks, which may include:
•
•
•
•
•
difficulties in integrating acquired operations or products, including the loss of key employees from, or customers of, acquired businesses;
diversion of management’s attention from our existing businesses;
adverse effects on existing business relationships with suppliers and customers;
adverse impacts of margin and product cost structures different from those of our current mix of business; and
risks of entering distribution channels, categories or markets in which we have limited or no prior experience.
Our failure to successfully complete the integration of any acquired business, and any adverse consequences associated with our acquisition activities,
could have a material adverse effect on our business, financial condition and operating results.
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.
The loss of any of our key customers, could negatively affect our revenues and decrease our earnings. We are dependent upon sales of our
products to our key customers, including GMCR, which accounted for approximately 8% and 29% of our net sales for the fiscal years ended October 31, 2017
and 2016, respectively. No other customer accounted for greater than 10% of our net sales during our 2017 and 2016 fiscal years. We generally do not enter
long-term contracts with our customers that are material to our business. Accordingly, some of our customers can stop purchasing our products at any time
without penalty and are free to purchase products from our competitors. The loss of, or reduction in sales to any of our other customers to which we sell a
significant amount of our products or any material adverse change in the financial condition of such customers would negatively affect our revenues and
decrease our earnings.
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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.
Our credit facility contains covenants that place annual restrictions on our operations, including covenants relating to debt restrictions, capital
expenditures, minimum deposit restrictions, tangible net worth, net profit, leverage, employee loan restrictions, distribution restrictions (common stock and
preferred stock), dividend restrictions and restrictions on intercompany transactions. The credit facility also requires that we maintain a minimum working capital
at all times. There can be no assurance that we will be in compliance with all covenants in the future or that we will be able to modify the terms of the credit
facility should that become necessary. Failure to comply with any of these covenants and restrictions would result in an event of default under the loan
agreement.
If we fail to promote, enhance and maintain our brands, the value of our brands could decrease and our revenues and profitability could be
adversely affected. We believe that promoting and enhancing our brands is critical to our success. If our brand-building strategy is unsuccessful, these
expenses may never be recovered, and we may be unable to increase awareness of our brands or protect the value of our brands. If we are unable to achieve
these goals, our revenues and ability to implement our business strategy could be adversely affected.
Our success in promoting and enhancing our brands will also depend on our ability to provide customers with high quality products and service. Although
we take measures to ensure that we sell only fresh roasted coffee, we have no control over our roasted coffee products once they are purchased by our
customers. Accordingly, wholesale customers may store our coffee for longer periods of time or resell our coffee without our consent, in each case, potentially
affecting the quality of the coffee prepared from our products. Although we believe we are less susceptible to quality control problems than many of our
competitors because our products are processed in-house under strict quality control guidelines which have been in place for more than 30 years, if consumers
do not perceive our products and service to be of high quality, then the value of our brands may be diminished and, consequently, our operating results and
ability to implement our business strategy may be adversely affected.
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Our roasting methods are not proprietary, so competitors may be able to duplicate them, which could harm our competitive position. If our
competitive position is weakened, our revenues and profitability could be materially adversely affected. We consider our roasting methods essential to
the flavor and richness of our roasted coffee and, therefore, essential to our brands of coffee. Because we do not hold any patents for our roasting methods, it
may be difficult for us to prevent competitors from copying our roasting methods if such methods become known. If our competitors copy our roasting methods,
the value of our coffee brands may be diminished, and we may lose customers to our competitors. In addition, competitors may be able to develop roasting
methods that are more advanced than our roasting methods, which may also harm our competitive position.
The success of our brand also depends in part on our intellectual property. We rely on a combination of trademarks, copyrights, service marks, trade
secrets and similar rights to protect our intellectual property. The success of our growth strategy depends on our continued ability to use our existing trademarks
and service marks in order to increase brand awareness and further develop our brand in both domestic and international markets. If our efforts to protect our
intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, the value of our brand may be harmed, which
could have a material adverse effect on our business. We may become engaged in litigation to protect our intellectual property, which could result in substantial
costs to us as well as diversion of management attention.
Since we rely heavily on common carriers to ship our coffee on a daily basis, any disruption in their services or increase in shipping costs
could adversely affect our relationship with our customers, which could result in reduced revenues, increased operating expenses, a loss of
customers or reduced profitability. We rely on a number of common carriers to deliver coffee to our customers and to deliver coffee beans to us. We have no
control over these common carriers and the services provided by them may be interrupted as a result of labor shortages, contract disputes and other factors. If
we experience an interruption in these services, we may be unable to ship our coffee in a timely manner, which could reduce our revenues and adversely affect
our relationship with our customers. In addition, a delay in shipping could require us to contract with alternative, and possibly more expensive, common carriers
and could cause orders to be cancelled or receipt of goods to be refused. Any significant increase in shipping costs could lower our profit margins or force us to
raise prices, which could cause our revenue and profits to suffer.
If there was a significant interruption in the operation of our Colorado, Ohio or Massachusetts facilities, we may not have the capacity to
service all of our customers and we may not be able to service our customers in a timely manner, thereby reducing our revenues and earnings. We
are dependent on the continued operations of our Colorado and Massachusetts coffee roasting and distribution facilities. Our ability to maintain our computer and
telecommunications equipment in effective working order and to protect against damage from fire, natural disaster, power loss, telecommunications failure or
similar events. In addition, growth of our customer base may strain or exceed the capacity of our systems and lead to degradations in performance or systems
failure. Although we continually review and consider upgrades to our order fulfillment infrastructure and provide for system redundancies to limit the likelihood of
systems overload or failure, substantial damage to our systems or a systems failure that causes interruptions for a number of days could adversely affect our
business. Additionally, if we are unsuccessful in updating and expanding our order fulfillment infrastructure, our ability to grow may be constrained. As a result,
our revenues and earnings could be materially adversely affected.
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.
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If the cost of wholesale green coffee increases due to any of these factors, our margins could decrease and our profitability could suffer accordingly. It is
expected that coffee prices will remain volatile in the coming years. Although we have historically attempted to raise the selling prices of our products in response
to increases in the price of wholesale green coffee, when wholesale green coffee prices increase rapidly or to significantly higher than normal levels, we are not
always able to pass the price increases through to our customers on a timely basis, if at all, which adversely affects our operating margins and cash flow. We
may not be able to recover any future increases in the cost of wholesale green coffee. Even if we are able to recover future increases, our operating margins and
results of operations may still be materially and adversely affected by time delays in the implementation of price increases.
Disruptions in the supply of green coffee could result in a deterioration of our relationship with our customers, decreased revenues or could
impair our ability to grow our business. Green coffee is a commodity and its supply is subject to volatility beyond our control. Supply is affected by many
factors in the coffee growing countries including weather, pest damage, economic conditions, acts of terrorism, as well as efforts by coffee growers to expand or
form cartels or associations. In addition, the political situation in many of the Arabica coffee growing regions, including Africa, Indonesia, and Central and South
America, can be unstable, and such instability could affect our ability to purchase coffee from those regions. If Arabica coffee beans from a region become
unavailable or prohibitively expensive, we could be forced to discontinue particular coffee types and blends or substitute coffee beans from other regions in our
blends. Frequent substitutions and changes in our coffee product lines could lead to cost increases, customer alienation and fluctuations in our gross margins.
Some of the Arabica coffee beans of the quality we purchase do not trade directly on the commodity markets. Rather, we purchase the high-end Arabica
coffee beans that we use on a negotiated basis. We depend on our relationships with coffee brokers, exporters and growers for the supply of our primary raw
material, high quality Arabica coffee beans. If any of our relationships with coffee brokers, exporters or growers deteriorate, we may be unable to procure a
sufficient quantity of high quality coffee beans at prices acceptable to us or at all. In such case, we may not be able to fulfill the demand of our existing
customers, supply new retail stores or expand other channels of distribution. A raw material shortage could result in a deterioration of our relationship with our
customers, decreased revenues or could impair our ability to expand our business.
The coffee industry is highly competitive and if we cannot compete successfully, we may lose our customers or experience reduced sales and
profitability. The coffee markets in which we do business are highly competitive and competition in these markets could become increasingly more intense due
to the 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), J.M. Smucker Co. (owner
of the Folgers and Café Bustelo brands), and Massimo Zanetti Beverage Group, have much greater financial, marketing, distribution, management and other
resources than we do for marketing, promotions and geographic and market expansion. In addition, there are a growing number of specialty coffee companies
who provide specialty green coffee and roasted coffee for retail sale. If we are unable to compete successfully against existing and new competitors, we may
lose our customers or experience reduced sales and profitability.
Besides coffee, we face exposure to other commodity cost fluctuations, which could impair our profitability. In addition to the increase in coffee
costs discussed in the risk factor above, we are exposed to cost fluctuation in other commodities, including, in particular, steel, natural gas and gasoline. In
addition, an increase in the cost of fuel could indirectly lead to higher electricity costs, transportation costs and other commodity costs. Much like coffee costs,
the costs of these commodities depend on various factors beyond our control, including economic and political conditions, foreign currency fluctuations, and
global weather patterns. To the extent we are unable to pass along such costs to our customers through price increases, our margins and profitability will
decrease.
Adverse public or medical opinion about caffeine may harm our business. Coffee contains caffeine and other active compounds, the health effects of
some of which are not fully understood. A number of research studies conclude or suggest that excessive consumption of caffeine may lead to increased heart
rate, nausea and vomiting, restlessness and anxiety, depression, headaches, tremors, sleeplessness and other adverse health effects. An unfavorable report on
the health effects of caffeine or other compounds present in coffee could significantly reduce the demand for coffee, which could harm our business and reduce
our sales and profits. In addition, we could become subject to litigation relating to the existence of such compounds in our coffee; litigation that could be costly
and could divert management attention.
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Risks related to our common stock
Our operating results may fluctuate significantly, which makes our results of operations difficult to predict and could cause our results of
operations to fall short of expectations. Our operating results may fluctuate from quarter to quarter and year to year as a result of a number of factors, many of
which are outside of our control. These fluctuations could be caused by a number of factors including:
•
•
•
•
•
•
fluctuations in purchase prices and supply of green coffee;
fluctuations in the selling prices of our products;
the level of marketing and pricing competition from existing or new competitors in the coffee industry;
the success of our hedging strategy;
our ability to retain existing customers and attract new customers; and
our ability to manage inventory and fulfillment operations and maintain gross margins.
As a result of the foregoing, period-to-period comparisons of our operating results may not necessarily be meaningful and those comparisons should not
be relied upon as indicators of future performance. Accordingly, our operating results in future quarters may be below market expectations. In this event, the price
of our common stock may decline.
The Gordon family has the ability to influence action requiring stockholder approval. Members of the Gordon family, including Andrew Gordon, our
President, Chief Executive Officer, Chief Financial Officer and Treasurer, and David Gordon, our Executive Vice President and Secretary, own, in the aggregate,
approximately 11.9% 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 $3.76 and as
high as $5.68 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:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
•
•
•
•
•
•
•
provide that directors may only be removed upon a vote of at least eighty percent of the shares outstanding;
establish advance notice requirements for nominating directors and proposing matters to be voted on by shareholders at shareholder meetings;
limit the right of our stockholders to call a special meeting of stockholders;
authorize our board of directors to issue preferred stock and to determine the rights and preferences of those shares, which would be senior to our
common stock, without prior stockholder approval;
require amendments to our articles of incorporation to be approved by the holders of at least eighty percent of our outstanding shares of common
stock;
a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of
our board of directors; and
provide a prohibition on stockholder action by written consent, thereby only permitting stockholder action to be taken at an annual or special meeting
of our stockholders.
We are also subject to certain anti-takeover provisions under Nevada law. Under Nevada law, a corporation may not, in general, engage in a business
combination with any “interested stockholder” for two (2) years after the date the person first became an interested stockholder, unless the combination meets
all of the requirements of our articles of incorporation and (i) the purchase of shares by the interested stockholder is approved by our board of directors before
that date or (ii) the combination is approved by our board of directors and, at or after that time, the combination is approved at an annual or special meeting of
our stockholders, and not by written consent, by the affirmative vote of the holders of stock representing at least sixty percent (60%) of our outstanding voting
power not beneficially owned by the interested stockholder or the affiliates or associates of the interested stockholder.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We are headquartered at 3475 Victory Boulevard, Staten Island, New York, where we lease office and warehouse space. We pay annual rent of $129,420
under the terms of the lease, which expires on October 31, 2023.
We lease a 50,000 square foot facility located at 27700 Frontage Road in La Junta, Colorado from the City of La Junta. We pay annual rent of $100,093
under the terms of the lease, which expires in January 2024.
We lease production, warehouse and office space in North Arlington, MA. We pay annual rent of $168,288 under the terms of a lease, which expires in
May 2028.
We 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.
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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.” We do not currently pay cash dividends on our common stock. We
do not intend to declare or pay cash dividends on our common stock for the foreseeable future, but currently intend to retain any future earnings for use in the
operation and expansion of our business. The payment of cash dividends if any, on the common stock will rest solely within the discretion of our board of
directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors.
As of January 20, 2018, we had 174 holders of record.
We repurchased 57,367 shares of our common stock during the year ended October 31, 2017.
We repurchased 337,269 shares of our common stock during the year ended October 31, 2016.
ISSUER PURCHASES OF EQUITY SECURITIES (1)
(a)
Total
Number of
Shares (or
Unites)
Purchased
(b)
Average
Price Paid
per Share
(or Unit)
(c)
Total
Number of
Shares (or
Units) Purchased
as Part of
Publicly
Announced
Plans or
Programs
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
-
11,345
42,638
53,983
$
$
-
4.40
4.44
-
-
11,345
42,638
53,983
$
$
$
$
2,000,000
1,950,045
1,760,908
1,760,908
Period
August 1, 2017 to August 31, 2017
September 1, 2017 to September 30, 2017
October 1, 2017 to October 31, 2017
Total
(1) O n September 13, 2017, we announced that the Board of Directors had approved a share repurchase program (the “2017 Share Repurchase Program”)
pursuant to which we may repurchase up to $2 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 2017 Share Repurchase Program may be discontinued or suspended at any
time.
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
$
$
$
$
$
$
$
$
2017
$
$
$
$
5.68
5.09
4.99
4.65
2016
$
$
$
$
4.90
4.49
6.15
6.00
4.35
4.32
4.15
3.76
3.00
3.05
3.50
5.01
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ITEM 6.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years from the consolidated financial statements of Coffee Holding Co., Inc. The
following information is only a summary, and you should read it in conjunction with our consolidated financial statements and notes beginning on page F-1.
Income Statement Data:
Net sales
Cost of sales
Gross profit
Operating expenses
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
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
For the Years Ended October 31,
2017
2016
2015
2014
2013
(Dollars in thousands, except per share data)
$
$
$
$
$
$
$
$
$
77,128
64,978
12,150
10,927
1,223
(246)
977
244
(266)
467
0.08
0.08
2017
40,132
8,408
–
14,541
25,591
4.41
2017
.08
.08
0
$
$
$
$
$
$
$
$
$
17
78,948
67,066
11,882
8,019
3,863
(147)
3,716
1,366
(138)
2,212
0.36
0.36
$
$
$
$
118,154
112,437
5,717
7,654
(1,937)
(156)
(2,093)
(764)
(84)
(1,413)
(0.23)
(0.23)
$
$
$
$
108,863
93,334
15,529
7,527
8,002
(37)
7,965
2,947
(51)
4,967
0.78
0.78
At October 31,
2016
2014
2015
(Dollars in thousands, except per shares data)
37,023
6,958
–
11,910
25,113
4.28
$
$
35,274
5,554
–
10,856
24,418
3.96
At October 31,
2016
2015
.36
.36
0
$
$
$
(.23)
(.23)
0
$
$
$
$
$
38,952
2,498
–
12,898
26,055
4.19
2014
.78
.78
0
$
$
$
$
$
$
$
$
$
133,981
128,012
5,969
7,522
(1,553)
(169)
(1,722)
(393)
(152)
(1,481)
(0.23)
(0.23)
2013
32,399
1,229
–
10,315
22,084
3.47
2013
(.23)
(.23)
387,379
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 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.
18
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;
the roasting, blending, packaging and sale of our eight brands of coffee; and
sales of our tabletop coffee roasting equipment.
Our operating results are affected by a number of factors including:
•
•
•
•
•
the level of marketing and pricing competition from existing or new competitors in the coffee industry;
our ability to retain existing customers and attract new customers;
our hedging policy;
fluctuations in purchase prices and supply of green coffee and in the selling prices of our products; and
our ability to manage inventory and fulfillment operations and maintain gross margins.
Our net sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract new
customers. For this reason, we have made, and will continue to evaluate, strategic decisions to invest in measures that are expected to increase net sales.
These transactions include our acquisition of Premier Roasters, LLC, including equipment and a roasting facility in La Junta, Colorado, the addition of a west
coast sales manager to increase sales of our private label and branded coffees to new customers, our joint venture with Caruso’s Coffee, Inc. of Brecksville,
Ohio, the transaction with OPTCO, the transaction with Sonofresco and the transaction with Comfort Foods. 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.
The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have
used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects
of changing green coffee prices, as further explained in Note 2 of the Notes to the Condensed Consolidated Financial Statements in this Report. In addition, we
acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose of guaranteeing an
adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options
and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial
instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain a vital
element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to continue to grow our
sales while trying to minimize margin compression during a time of historically high coffee prices. However, no strategy can entirely eliminate pricing risks and we
generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to
supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we have had net gains on options and futures
contracts in the past, we have incurred significant losses on options and futures contracts during some recent reporting periods. In these cases, our cost of sales
has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase our cost of sales
and materially decrease our profitability and adversely affect our stock price. See “Item 1A – Risk Factors - If our hedging policy is not effective, we may not be
able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced.” Failure to properly
design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not
adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability or
increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of
hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward.
19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventories, assets held for sale, income
taxes, commodities held and loss contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions and estimates used in the
preparation of the financial statements:
• W e 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 $134,000 for the year ended October 31, 2017. The reserve for sales
discounts represents the estimated discount that customers will take upon payment. The reserve for other allowances represents the estimated
amount of returns, slotting fees and volume based discounts estimated to be incurred by us from our customers.
•
•
Inventories are stated at lower of cost (determined on a first-in, first-out basis) or market. Based on our assumptions about future demand and
market conditions, inventories are subject to be written-down to market value. If our assumptions about future demand change and/or actual market
conditions are less favorable than those projected, additional write-downs of inventories may be required. Each additional one percent of potential
inventory write-down would have decreased operating income by approximately $163,000 for the year ended October 31, 2017.
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.
• Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, Sonofresco and Comfort Foods, which has
been integrated into a structure that does not provide the basis for separate reporting units. Consequently, we are a single reporting unit for goodwill
impairment testing purposes. We also have intangible assets consisting of our customer lists and relationships and trademarks acquired from
OPTCO, Sonofresco and Comfort Foods. At October 31, 2017 our balance sheet reflected goodwill and intangible assets as set forth below:
20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Customer list and relationships, net
Other intangible assets
Goodwill
Trademarks and tradenames
October 31, 2017
367,750
331,124
1,794,265
820,000
3,313,139
$
$
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, 2017 (Fiscal Year 2017) Compared to the Year Ended October 31, 2016 (Fiscal Year 2016)
Net Sales. Net sales totaled $77,127,595 for the fiscal year ended October 31, 2017, a decrease of $1,820,633, or 2.3%, from $78,948,228 for the fiscal
year ended October 31, 2016. The decrease in net sales reflects reduced wholesale transactions with our largest wholesale green coffee customer during fiscal
2017 of approximately $16,775,000, partially offset by increased sales to both new and existing customers including a fourth quarter increase in revenues of
$4,300,000 or 25.0%.
Cost of Sales. Cost of sales for the fiscal year ended October 31, 2017 was $64,977,632, or 84.3% of net sales, as compared to $67,066,050, or 85.0%
of net sales, for the fiscal year ended October 31, 2016. 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 the change in the product mix due to our reduced wholesale transactions
with our largest wholesale green coffee customer.
Gross Profit. Gross profit for the fiscal year ended October 31, 2017 was $12,149,963, an increase of $267,785 from $11,882,178 for the fiscal year
ended October 31, 2016. Gross profit as a percentage of net sales increased to 15.8% for the fiscal year ended October 31, 2017 from 15.0% for the fiscal year
ended October 31, 2016. Although we experienced improved margins on our wholesale and roasted business during the year our margins have not increased as
expected due to our integration of our acquisition of Comfort Foods and reduced profitability of our OPTCO subsidiary.
21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Operating Expenses. Total operating expenses increased by $2,908,136 to $10,927,246 for the fiscal year ended October 31, 2017 from $8,019,110
for the fiscal year ended October 31, 2016. Selling and administrative expenses increased $2,864,796, or 39.0%, to $10,228,506 for the fiscal year ended
October 31, 2017 from $7,363,710 for the fiscal year ended October 31, 2016. The primary reasons for this increase were the acquisition of Comfort Foods, the
full year of integration of Sonofresco and the increase in our freight costs as we increased and expanded our product distribution. Officers’ salary increased by
$43,340 or 6.6% to $698,740 for the fiscal year ended October 31, 2017 from $655,400 for the fiscal year ended October 31, 2016.
Other Income (Expense). Other expense for the fiscal year ended October 31, 2017 was $245,781, an increase of $98,675 from $147,106 for the fiscal
year ended October 31, 2016. The increase in other expense was attributable to an increase in interest expense of $76,951 and a decrease in interest income
of $21,740, partially offset by a decrease in our loss from our equity investments of $16, during the fiscal year ended October 31, 2017.
Income (Loss) Before Taxes and Non-controlling Interest in Subsidiary. We had income of $976,936 before income taxes and non-controlling
interest in subsidiary for the fiscal year ended October 31, 2017 compared to income of $3,715,962 for the fiscal year ended October 31, 2016, resulting in a net
change of $2,739,026 for the year ended October 31, 2017. The decrease was primarily attributable to the reasons described above.
Income Taxes. Our provision for income taxes for the fiscal year ended October 31, 2017 totaled $244,096 compared to a provision of $1,365,920 for
the fiscal year ended October 31, 2016. The change was attributable to the difference in the gain for the year ended October 31, 2017 versus fiscal year ended
October 31, 2016. The Company’s effective tax rate for the year ended October 31, 2017 was 34.0% compared to 37.0% for the year ended October 31, 2016.
Net Income (Loss). We had net income of $467,262 or $0.08 per share basic and diluted, for the fiscal year ended October 31, 2017 compared to a net
income of $2,212,288, or $0.36 per share basic and diluted for the fiscal year ended October 31, 2016. The decrease in net income was due primarily to the
reasons described above.
Liquidity and Capital Resources
As of October 31, 2017, we had working capital of $20,605,400, which represented a $1,064,042 decrease from our working capital of $21,669,442 as of
October 31, 2016, and total stockholders’ equity of $24,951,549 which increased by $412,346 from our total stockholders’ equity of $24,539,203 as of October
31, 2016. Our working capital decreased primarily due to decreases of $902,331 in cash, $76,090 in accounts receivable, $264,227 in prepaid green coffee,
$9,163 in prepaid and refundable income taxes, $345,584 in due from broker, an increase of $368,053 in accounts payable and accrued expenses, $1,449,152
in our line of credit, $296 in income taxes payable, partially offset by increases of $2,034,282 in inventory, $58,369 in prepaid expenses and other current assets
and $258,203 deferred income tax asset. As of October 31, 2017, the outstanding balance on our line of credit was $8,407,527 compared to $6,958,375 as of
October 31, 2016. Total stockholders’ equity increased due to our net income, partially offset by our Share Repurchase Program.
On April 25, 2017, the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended
and Restated Loan and Security Agreement (the “A&R Loan Agreement”) with Sterling, which consolidated the Company Financing Agreement and the OPTCO
Financing Agreement.
Pursuant to the A&R Loan Agreement, the terms of each of the Company Financing Agreement and the OPTCO Financing Agreement were amended
and restated to, among other things: (i) provide for a new Maturity Date of February 28, 2018; (ii) consolidate the principal amounts of the Company Financing
Agreement and the OPTCO Financing Agreement to provide for a maximum principal amount limit of $12,000,000 for the Borrowers, collectively, provided that
OPTCO is limited to a $3,000,000 maximum principal amount sublimit; (iii) expand the borrowing base to include, along with 85% of eligible accounts receivable,
up to the lesser of $2,000,000 as to the Company and $1,500,000 as to OPTCO; (iv) effective March 1, 2017, converted the interest rate on the average unpaid
balance of the A&R Loan Facility from an interest rate per annum equal to the Wall Street Journal Prime Rate to an interest rate per annum equal to the sum of
the LIBOR rate plus 2.4%; (v) require the Company and OPTCO to pay, collectively, upon the occurrence of certain termination events, a prepayment premium
of 1.0% (as opposed to the 0.5% under the OPTCO Financing Agreement) of the maximum amount of the A&R Loan Facility in effect as of the date of the
termination event; (vi) eliminate the overadvance fee; and (vii) establish a Letter of Credit Facility (as defined in the A&R Loan Agreement) with a maximum
obligation amount of $1,000,000, and subject to other terms and conditions described therein. The Company is currently negotiating the terms of a new facility
with Sterling and the Company expects to enter into a new facility on or before February 28, 2018 or extend the line further until the terms of the new facility
have been finalized.
22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Also on April 25, 2017, SONO and CFI (collectively referred to herein as the “Guarantors”), entered into a Guaranty Agreement (the “Guaranty
Agreement”) in connection with the A&R Loan Agreement. The Guaranty Agreement was provided as an inducement to Sterling to extend credit to Borrowers in
exchange for the Guarantors’ unconditional guarantee of the payment and performance obligations of the Borrowers under the A&R Loan Agreement, as further
defined in the Guaranty Agreement.
Each of the Company Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the
Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net worth, net
profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on intercompany
transactions. The Loan Facility also requires that we maintain a minimum working capital at all times, and the A&R Loan Agreement requires that the Borrowers,
on a consolidated basis, maintain a minimum working capital at all times and achieve a minimum net profit amount as of fiscal year end during the term of the
A&R Loan Agreement. The Company and OPTCO, as applicable were in compliance with all required financial covenants at October 31, 2017 and 2016.
Each of the Company Loan Facility and the A&R Loan Agreement is secured by all tangible and intangible assets of the Company. Other than as
amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and effect.
As of October 31, 2017 and 2016, the outstanding balance under the bank line of credit was $8,407,527 and $6,958,375, respectively.
For the fiscal year ended October 31, 2017, our operating activities provided net cash of $1,476,633 as compared to the fiscal year ended October 31,
2016 when operating activities provided net cash of $1,607,788. The decreased cash flow from operations for the fiscal year ended October 31, 2017 was
primarily due to our net income.
For the fiscal year ended October 31, 2017, our investing activities used net cash of $3,573,196 as compared to the fiscal year ended October 31, 2016
when net cash used by investing activities was $1,782,999. The increase in our uses of cash in investing activities was due to our increased outlays for the
acquisition of our subsidiary, partially offset by the decrease in outlays for equipment during the fiscal year ended October 31, 2017.
For the fiscal year ended October 31, 2017, our financing activities provided net cash of $1,194,232 compared to net cash used in financing activities of
$450,624 for the fiscal year ended October 31, 2016. The change in cash flow from financing activities for the fiscal year ended October 31, 2017 was due to
our decreased purchases of treasury stock.
We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness,
through October 31, 2017 with cash provided by operating activities and the use of our credit facility. In addition, an increase in eligible accounts receivable and
inventory would permit us to make additional borrowings under our line of credit.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in interest rates and commodity prices as further described below.
Interest Rate Risks. We are subject to market risk from exposure to fluctuations in interest rates. As of October 31, 2017, our debt consisted of $8,407,527 of
variable rate debt under our revolving line of credit. Our line of credit provides for a maximum of $12,000,000 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 3.6%). 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.
Historically, we have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially
hedging the effects of changing green coffee prices, as further explained in Note 2 of the Notes to the Condensed Consolidated Financial Statements in this
Report. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose
of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales.
Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these
derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging
policies remain a vital element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to
continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices. However, no strategy can entirely
eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would
generally remain exposed to supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we have had net gains
on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some reporting periods. In these cases,
our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase
our cost of sales and materially decrease our profitability and adversely affect our stock price. See “Item 1A – Risk Factors - If our hedging policy is not effective,
we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced.” Failure
to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do
not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability
or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of
hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward. See
“Quantitative and Qualitative Disclosures About Market Risk—Commodity Price Risks.”
As of October 31, 2017, we held 145 futures contracts for the purchase of 5,437,500 pounds of green coffee at a weighted average price of $1.31 per
pound compared to 22 futures contracts for the purchase of 825,000 pounds of coffee at a weighted average price of $1.45 per pound for the fiscal year ended
October 31, 2016. The fair market value of coffee applicable to such contracts was $1.25 and $1.64 per pound, respectively.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-21 following the Exhibit Index of this Annual Report on Form 10-K.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Management, which includes our President, Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Executive Officer and
Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that
we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated,
as is appropriate, to our management, including its principal executive officer and financial officer to allow timely decisions regarding disclosure.
Management Report on Internal Control Over Financial Reporting . Management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system is a process designed to provide reasonable assurance to our management and Board of Directors
regarding the preparation and fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of assets, provide reasonable assurances that transactions are recorded as necessary to permit
preparation of financial statements in accordance with 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, 2017. 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, 2017, 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.
25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required by this item is incorporated by reference to our Proxy Statement for the 2017 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to our Proxy Statement for the 2017 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this item is incorporated by reference to our Proxy Statement for the 2017 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 2017 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 2017 Annual Meeting of Stockholders.
26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(1)
List of Documents filed as part of this Report
Financial Statements
PART IV
The financial statements and related notes, together with the report of Marcum LLP appear at pages F-1 through F-21 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)
(a)
List of Exhibits
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
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)).
3.1
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
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.
27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.4
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)).
10.5
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)).
10.6
Amended and Restated Employment Agreement, dated April 11, 2008, by and between Coffee Holding Co., Inc. and David Gordon (incorporated
herein by reference to Exhibit 10.15 of the Company’s Current Report on Form 8-K filed on April 16, 2008 (File No. 001-32491)).
10.7
Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.19 of the Company’s
Quarterly Report on Form 10-QSB filed on June 14, 2005 (File No. 001-32491)).
10.8
Contract of Sale, dated April 14, 2009, by and between Coffee Holding Co., Inc. and 4401 1st Ave LLC (incorporated herein by reference to
Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed on January 28, 2010 (File No. 001-32491)).
10.9
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)).
10.10
10.11
10.12
10.13
10.14
10.15
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)).
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)).
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)).
Loan Modification Agreement, dated March 10, 2015, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
Loan Agreement, dated March 10, 2015, by and between Sterling National Bank and Organic Products Trading Company LLC (incorporated
herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
10.16
Security Agreement, dated March 10, 2015, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 31, 2015).
28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.17
Guarantee, dated March 10, 2015, by Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K filed on March 31, 2015).
10.18
Amended and Restated Loan and Security Agreement, dated April 25, 2017, by and among Coffee Holding Co., Inc., Organic Products Trading
Company LLC and Sterling National Bank (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on April 28, 2017).
10.19
Guaranty Agreement, dated April 25, 2017, made by each of Sonofresco and Comfort Foods in favor of Sterling National Bank (incorporated
herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 28, 2017).
10.20
Lease, dated December 6, 2000, by and between Comfort Foods, Inc. and One Clark Street North Andover LLC.*
10.21
Second Amendment to Lease, dated March 23, 2017, by and between Coffee Holding Co., Inc. and 25 COMM NAM, LLC.*
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
**Furnished herewith
29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on January 29, 2018.
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
Daniel Dwyer
/s/ Barry Knepper
Barry Knepper
/s/ John Rotelli
John Rotelli
/s/ George Thomas
George Thomas
President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director
January 29, 2018
(principal executive officer and principal financial and accounting officer)
Executive Vice President – Operations, Secretary and Director
January 29, 2018
Director
Director
Director
Director
Director
30
January 29, 2018
January 29, 2018
January 29, 2018
January 29, 2018
January 29, 2018
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2017 AND 2016
CONSOLIDATED STATEMENTS OF INCOME - YEARS ENDED OCTOBER 31, 2017 AND 2016
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - YEARS ENDED OCTOBER 31, 2017 AND 2016
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED OCTOBER 31, 2017 AND 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
PAGE
F-2
F-3
F-4
F-5
F-6
F-8
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, 2017 and 2016
and the related consolidated statements of income, 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, 2017 and 2016, 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 29, 2018
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, 2017 AND 2016
CURRENT ASSETS:
- ASSETS -
Cash
Accounts receivable, net of allowances of $144,000 for 2017 and 2016
Inventories
Prepaid green coffee
Prepaid expenses and other current assets
Prepaid and refundable income taxes
Due from broker
Deferred income tax asset
TOTAL CURRENT ASSETS
Machinery and equipment, at cost, net of accumulated depreciation of $5,557,899 and $4,819,828 for
2017 and 2016, respectively
Customer list and relationships, net of accumulated amortization of $72,250 and $50,250 for 2017 and
2016, respectively
Trademarks and tradenames
Other intangible assets
Goodwill
Equity method investments
Deposits and other assets
TOTAL ASSETS
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses
Line of credit
Due to broker
Income taxes payable
TOTAL CURRENT LIABILITIES
Deferred income tax liabilities
Deferred rent payable
Deferred compensation payable
TOTAL LIABILITIES
Redeemable common stock:
Common stock subject to possible redemption, at $200,004; -0- and 38,364 shares issued and
outstanding at redemption value as of October 31, 2017 and 2016, respectively
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Coffee Holding Co., Inc. stockholders’ equity:
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued
Common stock, par value $.001 per share; 30,000,000 shares authorized, 6,494,680 shares issued;
5,805,935 and 5,824,938 shares outstanding for 2017 and 2016
Additional paid-in capital
Retained earnings
Less: Treasury stock, 688,745 and 631,378 common shares, at cost for 2017 and 2016
Total Coffee Holding Co., Inc. Stockholders’ Equity
Noncontrolling interest
TOTAL EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See Notes to Consolidated Financial Statements
F-3
2017
2016
$
2,325,650
13,441,802
16,310,572
171,350
593,825
472,814
-
339,748
33,655,761
3,227,981
13,517,892
14,276,290
435,577
535,456
481,977
134,722
81,545
32,691,440
2,439,338
2,269,863
$
$
367,750
820,000
331,124
1,794,265
94,643
497,529
40,000,410
4,430,626
8,407,527
210,862
1,346
13,050,361
629,680
240,379
488,529
14,408,949
-
-
6,494
16,104,075
12,345,490
(3,504,510)
24,951,549
639,912
25,591,461
40,000,410
$
219,750
180,000
-
1,017,905
95,598
549,337
37,023,893
4,062,573
6,958,375
-
1,050
11,021,998
167,470
231,216
489,668
11,910,352
200,004
-
6,456
15,904,109
11,878,228
(3,249,590)
24,539,203
374,334
24,913,537
37,023,893
$
$
$
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 2017 AND 2016
NET SALES
COST OF SALES (which include purchases of approximately $6.7 million and $8.5 million in fiscal
years 2017 and 2016, respectively, from a related party)
GROSS PROFIT
OPERATING EXPENSES:
Selling and administrative
Officers’ salaries
TOTAL
INCOME FROM OPERATIONS
OTHER INCOME (EXPENSE):
Interest income
Loss from equity method investments
Interest expense
TOTAL
INCOME BEFORE PROVISION FOR INCOME TAXES
AND NON-CONTROLLING INTEREST IN SUBSIDIARY
Provision for income taxes
NET INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY
Less: Net income attributable to the non-controlling interest in subsidiary
NET INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC.
Basic and diluted earnings per share
Weighted average common shares outstanding:
Basic and diluted
2017
2016
$
77,127,595
$
78,948,228
64,977,632
67,066,050
12,149,963
11,882,178
10,228,506
698,740
10,927,246
1,222,717
19,436
(956)
(264,261)
(245,781)
976,936
244,096
732,840
(265,578)
467,262
.08
$
$
$
$
7,363,710
655,400
8,019,110
3,863,068
41,176
(972)
(187,310)
(147,106)
3,715,962
1,365,920
2,350,042
(137,754)
2,212,288
.36
5,858,376
6,082,777
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 STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED OCTOBER 31, 2017 AND 2016
Redeemable
Common Stock
Common Stock
Treasury Stock
$.001 Par Value
Number of
Shares
Amount
Number of
Shares
Number of
Amount
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Non-
Controlling
Interest
Total
Balance, 10/31/15
Treasury Stock
Dividend
Net income
6,162,207
(337,269)
$
6,456
294,109
337,269
$ (1,494,712)
(1,754,878)
$ 15,904,109
$ 9,665,940
$
336,580
2,212,228
(100,000)
$ 24,418,373
(1,754,878)
(100,000)
2,212,228
Stock issued in connection with Acquisition
38,364
200,004
Non-Controlling Interest
-
-
-
-
-
-
-
-
137,754
137,754
38,364
$
200,004
5,824,938
$
6,456
631,378
$ (3,249,590)
$ 15,904,109
$ 11,878,228
$
374,334
$ 24,913,537
(57,367)
57,367
(254,920)
Balance, 10/31/16
Treasury Stock
Net income
Non-Controlling
Interest
Balance, 10/31/17
Stock issued in connection with
Acquisition
(38,364)
(200,004)
38,364
38
-
467,262
199,966
(254,920)
467,262
200,004
-
-
-
-
-
265,578
265,578
$ 5,805,935
$
6,494
688,745
$ (3,504,510)
$ 16,104,075
$ 12,345,490
$
639,912
$ 25,591,461
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 CASH FLOWS
YEARS ENDED OCTOBER 31, 2017 AND 2016
OPERATING ACTIVITIES:
2017
2016
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
732,840
$
2,350,042
Depreciation and amortization
Unrealized loss (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 operating activities
INVESTING ACTIVITIES:
Purchase of business net of cash acquired
Purchases of machinery and equipment
Net cash used in investing activities
FINANCING ACTIVITIES:
Line of credit
Purchase of treasury stock
Payment of dividend
Net cash provided by (used in) financing activities
NET DECREASE IN CASH
CASH, BEGINNING OF PERIOD
CASH, END OF PERIOD
762,043
345,584
955
9,163
(183,975)
661,008
(917,376)
(25,688)
264,227
9,163
(258,827)
77,220
296
1,476,633
(2,893,275)
(679,921)
(3,573,196)
1,449,152
(254,920)
-
1,194,232
587,572
(618,557)
973
9,161
991,275
(2,465,513)
(143,907)
(279,254)
184,875
952,600
(30,860)
68,331
1,050
1,607,788
(819,564)
(963,435)
(1,782,999)
1,404,254
(1,754,878)
(100,000)
(450,624)
(902,331)
(625,835)
3,227,981
3,853,816
$
2,325,650
$
3,227,981
See Notes to Consolidated Financial Statements
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2017 AND 2016
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid
Income taxes paid
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On June 29, 2016 Coffee Holding Co., Inc. acquired certain assets of Coffee Kinetics, LLC:
Fair value of assets acquired
Less: liabilities assumed
Net assets acquired:
Common stock, par value $.001 per share, 38,364 shares
Additional paid-in capital
Non-cash payment
Net cash paid
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On February 23, 2017 Coffee Holding Co., Inc. acquired the assets of Comfort Foods, Inc.:
Accounts receivable
Inventory
Equipment
Prepaid expenses
Customer lists
Other intangible assets
Goodwill
Other asset
Less: liabilities
Net cash paid
$
$
$
$
$
2017
2016
261,485
391,933
$
$
181,007
34,183
1,091,612
(72,044)
1,019,568
39
199,965
200,004
819,564
584,918
1,116,906
229,597
32,681
170,000
971,124
388,378
26,551
626,880
$
2,893,275
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2017 AND 2016
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 certain countries in Asia. Such customers include supermarkets, wholesalers, and individually-owned and multi-unit retailers. The
Company’s unprocessed green coffee, which includes over 90 specialty coffee offerings, is sold primarily to specialty gourmet roasters and to coffee
shop operators in the United States with limited sales in Australia, Canada, England and China.
The Company’s wholesale green, private label, and branded coffee product categories generate revenues and cost of sales individually but incur selling,
general and administrative expenses in the aggregate. There are no individual product managers and discrete financial information is not available for
any of the product lines. The Company’s product portfolio is used in one business and it operates and competes in one business activity and economic
environment. In addition, the three product lines share customers, manufacturing resources, sales channels, and marketing support. Thus, the Company
considers the three product lines to be one single reporting segment.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Company, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco LLC
(“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”). All significant inter-company balances and transactions have
been eliminated in consolidation.
USE OF ESTIMATES:
The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America
(GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Significant estimates include
allowance for uncollectible accounts receivable and reserves, inventory obsolescence, depreciation, intangible asset valuations and useful lives, taxes,
contingencies, and valuation of financial instruments. These estimates may be adjusted as more current information becomes available, and any
adjustment could have a significant impact on recorded amounts.
CASH:
Cash consists primarily of unrestricted cash on deposit at financial institutions and brokerage firms.
F-8
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, 2017 AND 2016
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 $19,430 and $41,176 as
of October 31, 2017 and 2016, respectively. The prepaid coffee balance was $171,350 and $435,577 as of October 31, 2017 and 2016, 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:
$
$
2017
2016
65,000 $
35,000
44,000
65,000
35,000
44,000
144,000 $
144,000
Inventories are stated at the lower of cost (First in, first out basis) or net realizable value, including provisions for obsolescence commensurate with
known or estimated exposures. There are no reserves for obsolescence as of October 31, 2017 and 2016.
MACHINERY AND EQUIPMENT:
Machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Purchases of
machinery and equipment and additions and betterments which substantially extend the useful life of an asset are capitalized at cost. Expenditures which
do not materially prolong the normal useful life of an asset are charged to operations as incurred. The Company also provides for amortization of
leasehold improvements.
F-9
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, 2017 AND 2016
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
COMMODITIES HELD BY BROKER:
The commodities held at broker represent the market value of the Company’s trading account, which consists of option and future contracts for coffee
held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially
hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated
financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may
increase earnings volatility in any particular period.
The Company has open position contracts held by the broker, which are summarized as follows:
Option contracts
Future contracts
2017
2016
$
166,945 $
(377,807)
(83,753)
218,475
Commodities due (to) from broker
$
(210,862) $
134,722
The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in
earnings.
At October 31, 2017, the Company held 145 futures contracts (generally with terms of three to four months) for the purchase of 5,437,500 pounds of
green coffee at a weighted average price of $1.31 per pound. The fair market value of coffee applicable to such contracts was $1.25 per pound at that
date. At October 31, 2017, the Company did not have any options.
At October 31, 2016, the Company held 22 futures contracts (generally with terms of three to four months) for the purchase of 825,000 pounds of green
coffee at a weighted average price of $1.45 per pound. The fair market value of coffee applicable to such contracts was $1.64 per pound at that date. At
October 31, 2016, the Company did not have any options.
Included in cost of sales for the years ended October 31, 2017 and 2016, the Company recorded realized and unrealized gains and losses respectively,
on these contracts as follows:
Gross realized gains
Gross realized (losses)
Unrealized gains (losses)
Total
Year Ended October 31,
2017
2016
1,655,269 $
(1,636,487)
(345,584)
(326,802) $
1,443,046
(1,000,976)
618,558
1,060,628
$
$
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, 2017 AND 2016
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d):
GOODWILL AND TRADEMARKS:
The Company has determined that its goodwill and trademarks, which consist of product lines, trade names and packaging designs have an indefinite
useful life. The value of the goodwill and trademarks was allocated based on an independent valuation. Goodwill and trademarks are not amortized but
are assigned to a specific reporting unit or asset class and tested for impairment at least annually or upon the occurrence of an event or when
circumstances indicate that the reporting unit’s carrying amount of goodwill and trademarks is greater than its fair value. As of October 31, 2017 and
2016, the Company has determined by using a qualitative assessment that an impairment did not exist. In 2011, the Company adopted Financial
Accounting Standard ASB ASU 2011-08 Intangibles – Goodwill and Other – Testing Goodwill for Impairment, which allows an entity to first assess
qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity
would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely
than not that its fair value is less than its carrying amount. The amendment includes a number of events and circumstances for an entity to consider in
conducting the qualitative assessment.
CUSTOMER LIST AND RELATIONSHIPS:
Customer list and relationships consist of a specific customer lists and customer contracts obtained by the Company in the acquisition of OPTCO,
Comfort Foods and Sonofresco 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 $243,658 and $170,774 for
the years ended October 31, 2017 and 2016, 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 5,858,376 and 6,082,777 for
the years ended October 31, 2017 and 2016, respectively.
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, 2017 AND 2016
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-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, 2017 AND 2016
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 $2,412,000 and $1,506,000 for the years ended October 31, 2017 and 2016, 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, 2017 and 2016, the
Company had approximately $176,000 and $1,539,429 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, 2017 and 2016, the Company had approximately $1,122,000 and $348,041 in excess of SIPC
insured limits, respectively.
See Note 10 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 $240,379 and $231,216 is included as deferred rent
payable as of October 31, 2017 and 2016, respectively.
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, 2017 AND 2016
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 the following: (1) 20% interest in
Healthwise Gourmet Coffees, LLC, a distributor of low acidity coffees. The investments in this company amounted to $100,000. The loss recognized
amounted to $955 and $972 for the years ended October 31, 2017 and 2016, respectively. The net value of this investment as presented on our
consolidated balance sheet at October 31, 2017 and 2016 was $94,643 and $95,598, respectively.
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY:
The FASB has issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which changes how deferred
taxes are classified on organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and
assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as
noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for
financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private
companies, not-for-profit organizations, and employee benefit plans, the amendments are effective for financial statements issued for annual periods
beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The adoption of this standard is not
expected to have a material impact on the Company’s consolidated financial position and results of operations.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which applies to inventory that is
measured using first-in, first-out (“FIFO”) or average cost. Under the updated guidance, an entity should measure inventory that is within scope at the
lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal and transportation. Subsequent measurement is unchanged for inventory that is measured using last-in, last-out (“LIFO”). This ASU
is effective for annual and interim periods beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the
beginning of an interim or annual reporting period. The Company is currently evaluating the impact of adopting this guidance.
The FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating
leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an
accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required
to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Nonpublic business entities should apply the amendments for fiscal years
beginning after December 15, 2019 (i.e., January 1, 2020, for a calendar year entity), and interim periods within fiscal years beginning after December
15, 2020. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company is currently
evaluating the impact of adopting this guidance.
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, 2017 AND 2016
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY (cont’d):
In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which is a new standard related to revenue recognition. Under
the new standard, recognition of revenue occurs when a customer obtains control of promised services or goods in an amount that reflects the
consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The standard must be adopted using either a full
retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. In July 2015, the FASB issued ASU
2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date , which defers the implementation of this new standard to be effective
for fiscal years beginning after December 15, 2017. Early adoption is permitted effective January 1, 2017. In March 2016, the FASB issued ASU 2016-
08, Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations in the new revenue
recognition standard pursuant to ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing, and in
May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, which amend certain aspects of the new revenue
recognition standard pursuant to ASU 2014-09. We are currently evaluating which transition approach we will utilize and the impact of adopting this
accounting standard on our financial statements.
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and
Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception” which addresses narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles for
certain financial instruments with characteristics of liabilities and equity. Part I of this Update addresses the complexity of accounting for certain financial
instruments with down round features. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as
warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II
of this Update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending
content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about
mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments
in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.
When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes
equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure
requirements for equity-classified instruments. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of
Topic 480 that now are presented as pending content in the Codification, to a scope exception. These amendments in Part I of this update are effective
for annual and interim periods beginning after December 15, 2018, early adoption is permitted, including adoption in an interim period. If an entity early
adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The amendments in Part I of this Update should be applied in either of the following ways: (1) Retrospectively to outstanding financial instruments with a
down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and
interim period(s) in which the pending content that links to this paragraph is effective. (2) Retrospectively to outstanding financial instruments with a down
round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-
10. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.
NOTE 4 - INVENTORIES:
Inventories at October 31, 2017 and 2016 consisted of the following:
Packed coffee
Green coffee
Roaster parts
Packaging supplies
Totals
$
$
2017
2,242,714 $
12,317,394
286,515
1,463,949
16,310,572 $
2016
1,804,633
11,434,024
210,007
827,626
14,276,290
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, 2017 AND 2016
NOTE 5 - FORMATION OF SUBSIDIARY:
On June 23, 2016, the Company formed a wholly-owned subsidiary named Sonofresco, LLC a Delaware limited liability company.
Pursuant to the terms of an Agreement for Purchase and Sale of Assets dated June 23, 2016 (the “SONO Agreement”), by and among the Company,
Coffee Kinetics LLC, a Washington limited liability company (the “Seller”), the members of the Seller and SONO (the “Buyer”), the Company, through its
wholly-owned subsidiary SONO, purchased substantially all the assets, including equipment, inventory, customer list and relationships (the “Assets”) of
the Seller. The acquisition was accounted for using the purchase method in accordance with ASC 805, “Business Combinations.” The Buyer purchased
the Assets for a purchase price consisting of $819,564 in cash and 38,364 shares of the Company’s redeemable common stock (the “Sono Shares”) with
a value of $200,004 (the “Common Stock Payment Amount”) issued on June 29, 2016.
As part of the transaction, all of the employees of the Seller became employees of the Buyer. In addition, on June 29, 2016, the Company entered into a
one-year advisory agreement (the “Advisory Agreement”), with one of the Seller’s executives (the “Executive”), on an independent contractor basis, to
ensure continuity of the business and to continue to operate the business located in Washington. The Advisory Agreement will automatically renew for
an additional one year term upon the expiration of the first year term unless terminated by the Company. After completion of the first year term, the
Advisory Agreement is subject to renewal by mutual agreement of the parties. Pursuant to the terms of the Advisory Agreement, the Executive is entitled
to cash compensation of $50,000 per annum. If the Advisory Agreement is terminated prior to the end of the first year term, the Executive is entitled to
receive an additional $50,000 termination fee. If the term of the Advisory Agreement is extended past the first year term, subject to certain exceptions,
the Executive will be entitled to the $50,000 termination fee upon termination of the Advisory Agreement.
The following table summarizes the estimated fair value of the assets and liabilities assumed at acquisition:
Assets acquired:
Accounts receivable
Inventory
Equipment
Customer list
Goodwill
Less: liabilities assumed
Net assets acquired:
Purchase of assets funded by:
Cash paid
Redeemable Common Stock
$
$
$
$
84,142
269,565
40,000
120,000
577,905
(72,044)
1,019,568
819,564
200,004
1,019,568
Pursuant to the terms of the Sono Agreement, the value of the Sono Shares was based on the three day average of the closing price of the Company’s
common stock for the three trading days immediately prior to June 23, 2016. In addition, pursuant to the terms of the Sono Agreement, during the twelve
month period commencing on June 29, 2016 (the “Closing Date”), if Seller informs Buyer of its desire to sell all, but not less than all of the Sono Shares
to the Company, Buyer agrees to repurchase all but not less than all of the Sono Shares at the Common Stock Payment amount.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2017 AND 2016
NOTE 6 - PURCHASE OF BUSINESS:
Pursuant to the terms of a Stock Purchase Agreement dated February 23, 2017, by and among the Company, Comfort Foods, Inc., a Massachusetts
corporation (“CFI”), Stephen J. Beattie (the “Trustee”), as trustee of the Stephen J. Beattie Revocable Trust of 2013 (the “Trust”) and Victor Janovich
(together, with the Trustee on behalf of the Trust, the “Sellers”), the Company, acquired all of the outstanding capital stock of CFI. The transaction was
accounted for as a business combination and was not a significant acquisition for the Company. The purpose of the transaction was to expand the
Company’s presence in the northeast. The Company purchased the shares of capital stock for a purchase price of $2,300,000 in cash, subject to the
holdback of $25,000 for a six month period following the consummation of the transaction to secure the Sellers’ indemnification obligations. In addition,
immediately following consummation of the transaction, the Company also paid all of the existing bank debt of CFI, totaling approximately $605,173.
As part of the transaction, the employees of CFI remained employees of CFI, with the exception of Stephen Beattie, CFI’s then Chief Executive Officer.
Mr. Beattie entered into an advisory agreement (the “Advisory Agreement”) with CFI, dated as of February 23, 2017, pursuant to which Mr. Beattie
agreed to provide services to CFI on an independent contractor basis, to ensure continuity of the business and its operations in Massachusetts. The
initial term of the Advisory Agreement commenced on April 1, 2017 and was set to expire on December 31, 2017, unless terminated earlier in
accordance with the terms and conditions of the Advisory Agreement. On September 6, 2017, the Company terminated the Advisory Agreement.
Pursuant to the terms of the Advisory Agreement, Mr. Beattie was paid $5,000 per month.
The following table summarizes the assets purchased and liabilities assumed:
Assets acquired:
Accounts receivable
Inventory
Prepaid expenses
Equipment
Customer List
Tradename
Other intangible assets
Goodwill
Security deposit
Less: liabilities assumed
Net assets acquired:
Purchase of assets funded by:
Cash paid
$
$
$
584,918
1,116,906
32,681
229,597
170,000
640,000
331,124
388,378
26,551
(626,880)
2,893,275
2,893,275
The operations of CFI have been included in the Company’s consolidated statement of operations since the date of the acquisition on February 23,
2017. Goodwill generated from the acquisition is not deductible for tax purposes. Proforma information is not required due to immateriality of the
amounts.
NOTE 7 - MACHINERY AND EQUIPMENT:
Machinery and equipment at October 31, 2017 and 2016 consisted of the following:
Improvements
Machinery and equipment
Furniture and fixtures
Less, accumulated depreciation
Estimated
Useful Life
15-30 years
7 years
7 years
2017
2016
202,285 $
6,809,944
985,008
7,997,237
5,557,899
2,439,338 $
202,285
6,004,156
883,250
7,089,691
4,819,828
2,269,863
$
$
Depreciation expense totaled $740,043 and $578,572 for the years ended October 31, 2017 and 2016, 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, 2017 AND 2016
NOTE 8 - LINE OF CREDIT:
On April 25, 2017 the Company and OPTCO (together with the Company, collectively referred to herein as the “Borrowers”) entered into an Amended
and Restated Loan and Security Agreement (the “A&R Loan Agreement”) with Sterling, which consolidated the Company Financing Agreement and the
OPTCO Financing Agreement.
Pursuant to the A&R Loan Agreement, the terms of each of the Company Financing Agreement and the OPTCO Financing Agreement were amended
and restated to, among other things: (i) provide for a new Maturity Date of February 28, 2018; (ii) consolidate the principal amounts of the Company
Financing Agreement and the OPTCO Financing Agreement to provide for a maximum principal amount limit of $12,000,000 for the Borrowers,
collectively, provided that OPTCO is limited to a $3,000,000 maximum principal amount sublimit; (iii) expand the borrowing base to include, along with
85% of eligible accounts receivable, up to the lesser of $2,000,000 as to the Company and $1,500,000 as to OPTCO; (iv) effective March 1, 2017,
converted the interest rate on the average unpaid balance of the A&R Loan Facility from an interest rate per annum equal to the Wall Street Journal
Prime Rate to an interest rate per annum equal to the sum of the LIBOR rate plus 2.4%; (v) require the Company and OPTCO to pay, collectively, upon
the occurrence of certain termination events, a prepayment premium of 1.0% (as opposed to the 0.5% under the OPTCO Financing Agreement) of the
maximum amount of the A&R Loan Facility in effect as of the date of the termination event; (vi) eliminate the overadvance fee; and (vii) establish a Letter
of Credit Facility (as defined in the A&R Loan Agreement) with a maximum obligation amount of $1,000,000, and subject to other terms and conditions
described therein. The Company is currently negotiating the terms of a new facility with Sterling and the Company expects to enter into a new facility on
or before February 28, 2018 or extend the line further until the terms of the new facility have been finalized.
Also on April 25, 2017, SONO and CFI (collectively referred to herein as the “Guarantors”), entered into a Guaranty Agreement (the “Guaranty
Agreement”) in connection with the Loan Agreement. The Guaranty Agreement was provided as an inducement to Sterling to extend credit to Borrowers
in exchange for the Guarantors’ unconditional guarantee of the payment and performance obligations of the Borrowers under the Loan Agreement, as
further defined in the Guaranty Agreement.
Each of the Company Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions on the
Borrowers’ operations, including covenants relating to debt restrictions, capital expenditures, indebtedness, minimum deposit restrictions, tangible net
worth, net profit, leverage, employee loan restrictions, dividend and repurchase restrictions (common stock and preferred stock), and restrictions on
intercompany transactions. The Loan Facility also requires that we maintain a minimum working capital at all times, and the A&R Loan Agreement
requires that the Borrowers, on a consolidated basis, maintain a minimum working capital at all times and achieve a minimum net profit amount as of
fiscal year end during the term of the A&R Loan Agreement. The Company and OPTCO, as applicable were in compliance with all required financial
covenants at October 31, 2017 and 2016.
Each of the Company Loan Facility and the A&R Loan Agreement is secured by all tangible and intangible assets of the Company. Other than as
amended and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and
effect.
As of October 31, 2017 and 2016, the outstanding balance under the bank line of credit was $8,407,626 and $6,958,375, respectively.
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
COFFEE HOLDING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2017 AND 2016
NOTE 9 - INCOME TAXES:
The Company’s provision for income taxes in 2017 and 2016 consisted of the following:
Current
Federal
State and local
Deferred
Federal
State and local
Income tax (benefit) expense
2017
2016
$
$
392,354 $
35,717
428,071
(199,550)
15,575
(183,975)
244,096 $
219,562
155,083
374,645
941,150
50,125
991,275
1,365,920
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
Provision for income taxes
Effective income tax rate
$
2017
2016
$
241,862
(21,289)
23,523
1,263,427
(32,944)
135,437
$
244,096
$
1,365,920
34%
37%
F-19
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, 2017 AND 2016
NOTE 9 - 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, 2017 and 2016 are as follows:
Current deferred tax assets:
Accounts receivable
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
Current deferred tax liability:
Unrealized gain
Non-current deferred tax liability:
Intangible assets acquired
Fixed assets
2017
2016
$
57,904 $
138,963
142,881
67,034
64,384
$
339,748 $
131,418
$
$
$
96,659
196,443
107,635
227,947
293,102 $
335,582
632,850 $
467,000
$
49,873
387,982
534,800 $
503,052
Total deferred tax liabilities
$
922,782 $
552,925
A valuation allowance was not provided at October 31, 2017 or 2016. 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, 2017 and 2016, 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, 2017 and 2016, the Company had no accrued
interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress.
The Company files a U.S. federal income tax return and California, Colorado, Connecticut, Idaho, Kansas, Michigan, New Jersey, New York, New York
City, Virginia, Texas, Rhode Island, South Carolina, and Oregon state tax returns. The Company’s federal income tax return is no longer subject to
examination by the federal taxing authority for years before fiscal 2014. 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 2011. 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 2012.
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, 2017 AND 2016
NOTE 10 - 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, 2017
and 2016.
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 $143,171 for the
years ended October 31, 2017 and 2016. The Company also uses a variety of independent, bonded commercial warehouses to store its green coffee
beans.
In March 2015, the Company entered into a lease for office space in Vancouver, WA. This lease, which is at a monthly rental beginning April 1, 2015,
expired on March 31, 2017. The lease was extended, effective as of April 1, 2017 and expiring on March 31, 2019. Rent charged to operations
amounted to $37,130 and $37,745 for the years ended October 31, 2017 and 2016, respectively.
In December 2016, the Company entered into a lease for office and warehouse space in Burlington, WA. This lease, which is at a monthly rental
beginning December 1, 2016, expired on December 31, 2017. The lease was extended, effective January 1, 2018 and expiring on December 31, 2018.
Rent charged to operations amounted to $43,988 for the year ended October 31, 2017.
In April 2017, the Company entered into a lease for office and warehouse space in North Andover, MA. This lease, which is at a monthly rental
beginning April 1, 2017, expires on March 31, 2027 and includes charges for common areas and utilities. Rent charged to operations amounted to
$172,627 for the year ended October 31, 2017.
The aggregate minimum future lease payments as of October 31, 2017 for each of the next five years and thereafter are as follows:
October 31,
2018
2019
2020
2021
2022
Thereafter
401 (K) RETIREMENT PLAN:
$
492,474
450,454
438,820
447,342
456,290
1,065,701
$
3,351,081
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 $71,701 and $67,083 for the years ended October 31, 2017 and
2016, respectively.
NOTE 11 - ECONOMIC DEPENDENCY:
Approximately 25% of the Company’s sales were derived from four customers during the year ended October 31, 2017. These customers also
accounted for approximately $6,175,000 or 46% of the Company’s accounts receivable balance at October 31, 2017. Approximately 29% of the
Company’s sales were derived from one customer during the year ended October 31, 2016. This customer also accounted for approximately $3,661,000
or 27% of the Company’s accounts receivable balance at October 31, 2016. 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, 2017, approximately 28% of the Company’s purchases were from five vendors. These vendors accounted for
approximately $145,000 of the Company’s accounts payable at October 31, 2017. For the year ended October 31, 2016, approximately 43% of the
Company’s purchases were from four vendors. These vendors accounted for approximately $609,000 of the Company’s accounts payable at October
31, 2016. 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, 2017 AND 2016
NOTE 12 - RELATED PARTY TRANSACTIONS:
The Company has engaged its 40% partner in Generation Coffee Company, LLC as an outside contractor (the “Partner”). Included in contract labor
expense, which is a component of cost of sales, are expenses incurred from the Partner during the years ended October 31, 2017 and 2016 of $427,931
and $459,345, respectively.
An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately $6,700,000 and $8,475,000
for the years ended October 31, 2017 and 2016, respectively. The corresponding accounts payable balance to this vendor was approximately $72,000
and $237,000 at October 31, 2017 and 2016, respectively.
In January 2005, the Company established the “Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan.” Currently, there is only one
participant in the plan: Andrew Gordon, the CEO. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The
deferred compensation payable represents the liability due to an officer of the Company. The deferred compensation liability at October 31, 2017 and
2016 was $488,529 and $489,668, respectively. Deferred compensation expenses included in officers’ salaries were $0 during the years ended October
31, 2017 and 2016, respectively.
NOTE 13 - STOCKHOLDERS’ EQUITY :
a.
b.
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 55,667 shares for $247,382 during the year ended October 31, 2017 and 337,269 shares for
$1,754,878 during the year ended October 31, 2016.
Share Repurchase Program. On January 24, 2014, the Company announced that the Board of Directors had approved a share repurchase
program (the “2014 Share Repurchase Program”) pursuant to which the Company may repurchase up to $1 million of its outstanding shares of
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 2014 Share Repurchase Program may be discontinued or suspended at any time. The Company does not intend to make any
further repurchases under the 2014 Share Repurchase Program and the 2014 Share Repurchase Program is terminated. As of October 31,
2016, pursuant to the terms of the 2014 Share Repurchase Program, the Company had repurchased 156,415 shares of outstanding common
stock in an amount equal in value to $995,729. On September 29, 2015, the Company announced that the Board of Directors had approved a
share repurchase program (the “2015 Share Repurchase Program”) pursuant to which the Company may repurchase up to $2 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 timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market
conditions and other factors. The 2015 Share Repurchase Program may be discontinued or suspended at any time. Pursuant to the terms of the
2015 Share Repurchase Program, the Company purchased 3,384 and 337,269 shares respectively for $15,829 and $1,754,878, respectively
during the year ended October 31, 2017 and 2016. On September 10, 2017, the Company announced that the Board of Directors had approved
a share repurchase program (the “2017 Share Repurchase Program”) pursuant to which the Company may repurchase up to $2 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 timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market
conditions and other factors. The 2017 Share Repurchase Program may be discontinued or suspended at any time. Pursuant to the terms of the
2017 Share Repurchase Program, the Company purchased 53,983 shares for $239,091 during the year ended October 31, 2017.
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, 2017 AND 2016
NOTE 14 - FAIR VALUE MEASUREMENTS:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, not adjusted for transaction costs. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3) as described below:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company;
Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or
indirectly;
Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.
The Company determines fair values for its investment assets as follows:
Investments at fair value consist of commodity securities and deferred compensation plan assets.
The Company maintains a deferred compensation plan. The fair value of the plan assets are classified within Level 1 as the assets are valued using
quoted prices in active markets. The assets are included with Deposits and other assets in the accompanying balance sheets. Additional information
related to the Company’s deferred compensation plan is disclosed in Note 11.
The Company’s commodity securities are classified within Level 2 and include coffee futures and options contracts. To determine fair value, the
Company utilizes the market approach valuation technique for the coffee futures and options contracts. The Company uses Level 2 inputs that are based
on market data of similar instruments that are in observable markets. All commodities on the balance sheet are recorded at fair value with changes in
fair value included in earnings.
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair
value hierarchy.
Assets:
Money market
Commodities – Options
Total Assets
Liabilities:
Commodities – Futures
Total Liabilities
Assets:
Money market
Commodities – Futures
Total Assets
Liabilities:
Commodities – Options
Total Liabilities
Total
Level 1
Level 2
Level 3
Fair Value Measurements as of October 31, 2017
488,529
166,945
655,474
(377,807)
(377,807)
488,529
$
488,529
$
–
166,945
166,945
–
–
$
(377,807)
(377,807)
Total
Level 1
Level 2
Level 3
Fair Value Measurements as of October 31, 2016
489,826
$
489,826
$
–
218,475
218,475
–
–
$
(83,753)
(83,753)
489,826
218,475
708,301
(83,753)
(83,753)
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, 2017 AND 2016
NOTE 15 - SUBSEQUENT EVENTS:
The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the
evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required further adjustment or disclosure
in the condensed consolidated financial statements.
F-24
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
TABLE OF CONTENTS
Exhibit 10.20
1
2
2
3
3
3
3
3
4
4
4
4
5
5
5
6
6
6
7
7
7
8
8
8
9
9
10
10
10
10
11
11
11
11
12
12
12
12
12
12
12
13
14
EX-10.20 2 ex10-20.htm
Section 1 - Premises
Section 2 - Term
Section 3 - Rent
Section 4 - Additional Rent
Section 5 - Late Charges
Section 6 - Security Deposit
Section 7 - Taxes and Assessments
Section 8 - Quiet Enjoyment
Section 9 - Signs
Section 10 - Repairs by Tenant
Section 11 - Landlord’s Maintenance
Section 12 - Alterations and Additions
Section 13 - Machinery, Equipment and Trade Fixtures
Section 14 - Utilities, Cleaning and Trash Removal
Section 15 - Use of the Premises
Section 16 - Assignment and Subleasing
Section 17 - Mechanics Liens
Section 18 - Liability
Section 19 - Tenant’s Liability Insurance
Section 20 - Fire and Extended Coverage Insurance
Section 21 - Condemnation, Destruction or Damage
Section 22 - Repossession by Landlord
Section 23 - Mortgage Lien
Section 24 - Environmental Matters
Section 25 - Americans With Disabilities Act
Section 26 - Default
Section 27 - Expense Reimbursement
Section 28 - Access to Premises
Section 29 - Holding Over
Section 30 - Notices
Section 31 - Succession
Section 32 - Waiver
Section 33 - Representations
Section 34 - Brokerage
Section 35 - Governing Law
Section 36 - Jury Trial Waiver
Section 37 - Force Majeure
Section 38 - Invalidity of Particular Provisions
Section 39 - Recording
Section 40 - Status Report
Section 41 - Option to Extend
Section 42 - Miscellaneous Matters
Guaranty of Lease
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LEASE
THIS INDENTURE OF LEASE dated as of the 6th day of December 2000, is made by and between One Clark Street North Andover LLC, a
Massachusetts limited liability company with offices c/o Aries Property Company, LLC, 121 Middle Street, Portland, Maine 04101 (hereinafter called the
“Landlord”) and Comfort Foods, Inc., a Massachusetts corporation with a place of business at 844 Woburn Street, Wilmington, MA 01887 (hereinafter called the
“Tenant”).
WITNESSETH that for and in consideration of the rents herein reserved and the covenants and agreements herein contained and expressed and to be
kept, performed and fulfilled, the parties agree as follows:
Section 1 - Premises. Landlord hereby demises and lets unto Tenant, and Tenant hereby leases from Landlord a portion of the building at TWENTY
FIVE COMMERCE WAY, North Andover, Massachusetts (the “Building”), the leased premises is deemed to contain 49,018 square feet of space and being
designated as Unit 5, and shown as the building space highlighted on Exhibit A annexed hereto (the “Premises”) and use, in common with others of such
easements and appurtenances, necessary for access to the Premises (as defined herein). All of the land, buildings and improvements owned by Landlord in the
vicinity of the Premises, including any additional buildings which may be hereafter constructed and all rights of way and easements appurtenant thereto are
herein referred to as the “Property”.
(a) Landlord shall, at Landlord’s cost and expense, construct approximately 5,200 square feet of office space in the Premises in accordance with the
floor plan attached hereto as Exhibit B-l. The office space shall be fully air conditioned. The Landlord’s work shall also include floor sealant in the manufacturing
area and electric/gas upgrades for production equipment. The Landlord’s work shall be in accordance with the specifications on the attached Exhibit B (the
“Landlord’s Work”) as long as the hard and soft cost of the Landlord’s Work does not exceed $334,349.00 based on $6.83 per square foot (as adjusted by
Landlord’s architect’s measurements of the actual square footage). If such costs exceed $334,349.00, (based on a $6.83 per square foot allowance and a
Premises of 49,018 square feet) Tenant shall pay the Landlord overage (the “Excess Cost”) within ten (10) days of being invoiced for the Excess Cost by
Landlord. Landlord shall provide Tenant with the contractor’s proposed construction schedule including the proposed date of substantial completion and shall
keep Tenant updated with respect to any changes in such construction schedule. Landlord presently expects that such proposed date of substantial completion
will be on or before February 1, 2001. The date of substantial completion shall be the date upon which a temporary or permanent certificate of occupancy is
issued with respect to the Premises (the “Commencement Date”). In the event that the Commencement Date is extended beyond March 15, 2001, for a reason
other than the fault of or delay caused in whole or in part by the Tenant (or its agents, employees, or contractors) or Force Majeure (as defined in Section 37
below), the Landlord agrees to provide Tenant with one day of free base Rent for every 3 days of delay.
(b) During the course of the construction the Tenant shall have the right to request changes to the Project Plans relating to the interior of the Premises
provided that (i) such changes do not adversely affect the portions of the Property other than the Premises, (ii) in the event that such changes shall increase the
total cost of the Premises or the Property, the Tenant shall pay to Landlord any increased costs (direct or indirect) attributable to such changes and (iii) in the
event that such changes delay the substantial completion of the Premises or the Property Landlord’s increased cost attributable to such changes shall include
any lost rent caused by such delay. In addition, fifteen days prior to the Commencement Date, the Tenant shall have the right to concurrently perform Tenant’s
Work provided that (i) Tenant shall coordinate the performance of Tenant’s Work with Landlord’s construction manager and heed the construction manager’s
scheduling decisions and (ii) the performance of Tenant’s Work shall not adversely impact the performance of Landlord’s Work or the construction schedule for
Landlord’s Work. In the event that conditions (i) or (ii) above are not met. Landlord shall have the right to revoke Tenant’s right to perform Tenant’s Work prior to
substantial completion of Landlord’s Work
(c) Within thirty (30) days after the Commencement Date of this Lease the Tenant shall provide the Landlord with a “punch list” of any items of
incomplete work or work that does not conform with the Project Plans relating to the Premises and Landlord shall cause its contractor to complete or correct such
items within a reasonable time after receipt of such notice. Other than completion of such punch list items the Landlord shall not be responsible for any further
work or improvements with respect to the Project except that Landlord shall, upon Tenant’s request, cause any items of defective work covered by contractor’s
or manufacturer’s warranties or guaranties to be corrected pursuant to the terms of the applicable warranty or guaranty. Landlord shall only be responsible for
performing the fit-up work described in the Project Plans, and all additional work necessary to make the Premises suitable for Tenant’s intended use thereof shall
be performed by Tenant at its sole cost and expense and in accordance with Section 12 hereof.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Section 2 - Term. The term of this Lease shall be for a period of ten (10) years two months commencing on the earlier of (i) the date that Tenant enters
into occupancy of the Premises or (ii) the date of substantial completion of the Premises and expiring on the last day of the month which includes the one
hundred twenty second (122nd) month anniversary of said term Commencement Date.
Section 3 - Rent. During the original term Tenant shall pay to Landlord rent for the Premises monthly, in advance, on or before the first day of each
month (prorated for any partial month) as follows (assuming the Commencement Date is February 1, 2001):
Period
Rent per square foot
Annual Rent
Monthly Rent
Lease Year 1
Lease Years 2 & 3
Lease Years 4, 5, 6 & 7
Lease Year 8, 9 & 10 plus the additional
two months after the end of the 10th
Lease Year
$
$
$
$
6.50 NNN $
6.85 NNN $
7.10 NNN $
318,617.04* $
335,773.32 $
348,027.84 $
26,551.42
27,981.11
29,002.32
7.35 NNN $
360,282.36 $
30,023.53
The Annual Rent and Monthly Rent shall be adjusted as applicable, based on Landlord’s architect’s as built measurement. Landlord shall advise Tenant
in writing of substantial completion, which writing shall also set forth the square footage of the Premises, the rent, and the Commencement Dale. Said writing
shall be binding on the parties, absent bad faith.
The foregoing rent amounts include $184,797.86 ($3.77 per square foot) in tenant improvement amortization over the standard tenant allowance of
$2.00 per square foot (the “Excess Tenant Improvement Amortization Amount”) assuming these costs are amortized over years 2 through 10 at an interest rate
of 10% per annum. Tenant will have the option, at any time during the lease, to prepay the remaining Excess Tenant Improvement Amortization Amount. After
Tenant has made such payment, the rent shall be prospectively adjusted as follows: a) if payment is made in years 1 through 5, the annual Rent per Square
Foot shall be prospectively adjusted to $6.50 per square foot, NNN, for the period beginning as of the first month after the payment and continuing through year 5
then increasing to $7.10 per square foot, NNN, for years 6 through 10, and, b) if payment is made in years 6 through 10, the annual Rent per Square Foot shall
be prospectively adjusted to $7.10 per square foot, NNN for the period beginning as of the first month after the payment and continuing thereafter through year
10.
* The first three (3) months of base rent shall be forgiven in the first Lease Year. In addition, if and only if the Tenant has not then been released from
its current Leasehold obligations in Wilmington, Massachusetts, for the five (5) months beginning on May 1, 2001 and ending on September 30, 2001, the
Monthly Rent shall be reduced by $10,000 per month in each of said five (5) months during which the Tenant remains obligated to pay its full rent at the
Wilmington, Massachusetts facility. Beginning on October 2001, no reductions in the Rent shall be permitted or in effect.
-2-
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Section 4 - Additional Rent. Tenant shall pay to Landlord, as additional rent, Tenant’s Proportionate Share (as hereinafter defined) of all of the costs of
the Property, which costs may include but shall not be limited to i) cleaning and maintenance of the common areas, ii) clearing and snow removal from parking
area and access drives, iii) trash removal, iv) insurance carried by Landlord with respect to the Property, v) real estate taxes, vi) landscaping, vii) management
fees, viii) repairs and maintenance of the buildings and improvements on the Property, ix) maintenance and other costs related to water, sewer, storm drainage
and other utility service provided to the Property to the extent such utilities are not separately metered to the Premises and other tenant premises in the Property
and x) other expenses as deemed necessary by Landlord. This lease is a triple net lease. The term “real estate taxes” as used in the paragraph shall be deemed
to include all assessments, impositions and other governmental charges, ordinary and extraordinary, which may be levied, assessed or otherwise become a lien
upon or charge against the Property. Additional rent will be in monthly installments, due with the monthly payments of the base rent, based on the budget
provided by Landlord to Tenant. During calendar year 2000 such budgeted monthly installments shall be at the annual rate of $1.80 per square foot. Landlord
shall reconcile actual costs and expenses with the budget figures at least annually and make appropriate adjustments with Tenant. As part of such annual
reconciliation, the Landlord shall provide Tenant with a statement of actual costs and expenses, which statement shall be deemed accurate by Tenant unless
Landlord receives written objection from Tenant within sixty (60) days of receipt by Tenant of such statement.
For the purposes of this Lease, Tenant’s Proportionate Share is the product of the area of the Premises divided by the leasable area of all buildings on
the Property. At the time of signing of this Lease, such Tenant’s Proportionate Share is expected to be twenty seven and seventy one hundredths percent
(27.71%), based on 49,018 square feet divided by 176,916 square feet.
Section 5 - Payment of Rent and Late Charges . Payments due under Sections 3 and 4 above shall be made at Landlord’s office at the address set forth
in Section 30, or such other place as Landlord may designate in writing, on or before the first of each month. If the payment is not received by Landlord on the
first day of each month, Landlord shall be entitled to, and Tenant shall pay to Landlord a late fee equal to five percent (5%) of the late payments and if payment is
not received by the 10th of the month, it shall bear interest from the first of the month at the prime rate published in the Wall Street Journal, as it may be adjusted
from time to time, plus 4% per annum, but in no event more than the highest rate of interest allowed by applicable law. All payments under this Lease shall be
paid to Landlord without notice or demand, and without abatement, deduction, counterclaim or set-off.
Section 6 - Security Deposit. Simultaneously with the execution of this Lease, Tenant has deposited the sum of Twenty Six Thousand Five Hundred
Fifty One and 42/100 Dollars ($26,551.42) (the “Deposit”) with Landlord as security for the full and faithful performance by Tenant of all of the terms and
conditions of this Lease required to be paid or performed by Tenant. Landlord may apply any portion of the Deposit for the payment of any payments of rent,
additional rent or sums due to Landlord hereunder for which Tenant is in default, to discharge any liens which Tenant fails to discharge as required by Section 12
and Section 17 and for any damages to the Premises (excluding reasonable wear and tear) caused by any affirmative or negligent act by Tenant, its employees,
servants or invitees. Promptly following any application of the Deposit, Tenant shall pay to Landlord an amount needed to restore the Deposit to its original
amount. Upon the expiration of this Lease and Tenant’s vacating of the Premises, Landlord shall return the Deposit to Tenant less any amounts applied by
Landlord to said rent or damages within 60 days.
Section 7 - Taxes and Assessments. Landlord shall pay and discharge all real estate taxes and levies, and charges and governmental impositions,
duties and charges of like kind and nature, which shall or may during the term of this Lease be charged, laid, levied or imposed upon or become a lien or liens
upon the Building and the Property, subject to Tenant making the payments of Additional Rent as required in Section 4 above. Landlord shall, upon written
request by Tenant, provide the Tenant with a copy of the Landlord’s latest real estate tax bill on the Property. If the Landlord contests real estate tax bills with
the municipality and obtains an abatement, the Tenant shall be entitled to receive its pro-rata share of the abatement after Landlord deducts from such
abatement all costs and expenses incurred by Landlord, including its attorneys’ fees, in obtaining the abatement. Tenant shall pay all personal property taxes
and other governmental impositions on its personal property and fixtures located at the Premises.
Section 8 - Quiet Enjoyment. Landlord shall put Tenant in possession of the Premises at the Commencement of the term hereof, and Tenant, upon
paying the rent and observing the other covenants and conditions herein upon its part to be observed, shall peaceably and quietly hold and enjoy the Premises
without hindrance by, from or through Landlord, subject to the terms of this Lease.
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Section 9 - Signs. Tenant shall not install or alter any exterior signs on the Premises without the prior written approval of Landlord. Any signs shall be in
compliance with all federal, state and local laws and ordinances and shall conform with a uniform sign policy which Landlord may establish with respect to the
Property. Tenant shall maintain a sign identifying the name of its business in a location designated by Landlord at the Premises.
Section 10 - Repairs, (a) Tenant shall, at its own expense, be responsible for all maintenance and repairs to the Premises, including, without limitation,
light bulbs, ballasts, the heating, ventilating and air conditioning systems, electrical systems and lighting, plumbing fixtures, windows and doors, loading docks
and doors, sprinkler and alarm systems exclusively serving the Premises, and for all interior painting desired by Tenant and for the replacement of broken glass
within the Premises (which includes the exterior windows). Tenant shall employ suitable contractors (approved by Landlord) to perform maintenance of all such
systems, including without limitation, said heating, ventilating and air conditioning systems, sprinkler system and alarm system. Tenant shall also promptly make
any repairs lawfully required by any public authority as a result of changes in statutes or regulations which become effective subsequent to the beginning of the
term of this Lease and which repairs are required because of the nature of the occupancy of the Premises by Tenant or the manner in which it conducts its
business therein. At the expiration of this Lease or earlier termination hereof for any cause herein provided for, Tenant shall deliver up the Premises to Landlord
broom clean and in the same sanitary and attractive condition and state of repair as at the beginning of the term hereof, reasonable wear and tear, taking by
eminent domain and damage due to fire or other casualty insured against excepted.
(b) Landlord shall perform the following items, which items shall be included as additional rent as operating expenses: roof repairs, inspection and
testing of the fire protection system, repairs to common plumbing lines and common area electrical systems.
(c) The following will be performed by Landlord at its cost and expense and not included as additional rent: roof replacements, HVAC replacements and
structural repairs (unless such costs are incurred because of the act or negligence of Tenant.)
In the event Tenant fails to make promptly any repairs required of Tenant hereunder, or fails to perform any of its other obligations, Landlord may, at its
option, if such failure continues for more than five (5) days after Landlord has provided notice to Tenant, make such repairs or perform such obligations to
Tenant’s account and the cost thereof will become an obligation of Tenant under this Lease, payable within thirty (30) days of demand and any such amount
shall bear interest at the prime rate published in the Wall Street Journal plus 10% per annum, as may from time to time be determined, from the date of demand.
Section 11 - Landlord’s Maintenance. Landlord shall be responsible for structural maintenance (roof replacement, foundation repair and exterior wall
repair) of the Building. Non-capital expenditures relating to such maintenance may be included in the costs described in clause (viii) of Section 4. The parties
acknowledge that it is their intention that this Lease shall otherwise be an absolute net lease, so-called, and that Tenant has responsibility for all non-structural
maintenance and repair to the Premises, together with payment of all reasonable costs and expense associated with the Premises excepting only any
responsibility specifically accepted by Landlord hereunder.
Section 12 - Alterations and Additions. Tenant shall not make structural alterations or additions to the Premises, but may make non-structural
alterations provided Landlord consents thereto in writing, which consent shall not be unreasonably withheld or delayed. Tenant shall not make any penetrations
of the roof or exterior wall except for roof penetrations at a location approved by Landlord and performed by a contractor approved by Landlord. Landlord may
require satisfactory evidence of available financing for any such alterations or additions. All such allowed alterations shall be at Tenant’s expense and shall be in
quality at least equal to the present construction. Tenant shall not permit any mechanics’ liens, or similar liens, to remain upon the Premises for labor and
material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed
at the direction of Tenant and shall cause any such lien to be released of record forthwith without cost to Landlord. Any alterations or improvements made by
Tenant shall become the property of Landlord at the termination of occupancy as provided herein. Landlord reserves the right to require that Tenant demolish
and remove, at Tenant’s sole expense, any alterations or improvements made by Tenant. Such demolition and removal will be completed prior to Tenant
vacating the premises upon the expiration or termination of this Lease. Tenant shall provide the Landlord with plans and specifications for all alterations and will
provide Landlord with bi-weekly lien waivers from all materialmen, contractors and subcontractors.
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Section 13 - Machinery, Equipment and Trade Fixtures . Tenant agrees that it shall not install any machinery, equipment, trade fixtures or appurtenances
thereto in the Premises which cannot be removed from the Premises without damage to the Premises. Tenant agrees that (a) all machinery and equipment, and
appurtenances thereto, installed in the Premises by Tenant, or by any employee, agent or subcontractor of Tenant, or by any subtenant of Tenant, which may
be removed from the Premises without substantial damage to the Premises, and (b) all furniture, furnishings and movable trade fixtures installed in the Premises,
shall be deemed to remain personal property of Tenant and that all such machinery, equipment, appurtenances, furniture and movable trade fixtures of Tenant
or of any employee, agent or subcontractor or subtenant of Tenant, must be removed, prior to the expiration of this Lease or its earlier termination for any cause
herein provided for. Tenant shall repair any damage occasioned by such removal and shall restore the Premises to its condition as at the beginning of the term
hereof, reasonable wear and tear, taking by eminent domain and damage due to fire or other casualty insured against excepted. Any such property which is
required to be removed pursuant to the provisions hereof and which is not so removed prior to the expiration or earlier termination of this Lease may be
removed from the Premises by Landlord and stored for the account of Tenant: and if Tenant shall fail to reclaim such property within sixty (60) days following
such expiration or earlier termination of this Lease, such property shall be deemed to have been abandoned by Tenant and may be appropriated, sold,
destroyed, or otherwise disposed of by Landlord without notice to Tenant and without obligation to account therefor. Tenant shall pay to Landlord all reasonable
costs incurred by Landlord in removing, storing, selling, destroying or otherwise disposing of any such property.
Section 14 - Utilities, Cleaning and Trash Removal . Tenant shall make arrangements for, and shall pay when due all charges for (i) all utilities, including
but not limited to gas, electricity, heat, power, telephone (ii) cleaning and janitorial services for the interior of the Premises, (iii) trash removal services for all
wastes from the Premises and (iv) any other services supplied to Tenant at the Premises, and shall hold and save Landlord harmless from any expense or
liability connected therewith. Landlord shall be under no responsibility to supply either heat or hot water to the Premises at any time whatsoever. Landlord will
provide utility connections up to the premises. In no event shall Landlord be responsible or liable to Tenant or anyone claiming under Tenant for failure or
cessation of supply of any utilities.
Section 15 - Use of the Premises .
(a) The Premises shall be used for roasting, flavoring, packaging, warehousing and distribution of coffee, cocoa, and tea and the warehousing and
distribution of other food products and food product equipment and related administrative uses, and for no other purposes. In its use of the Premises, Tenant
shall comply with all statutes, ordinances and regulations applicable to the use thereof, including, without limiting the generality of the foregoing, the Zoning
Ordinance of the Town of North Andover, Massachusetts, as now in effect or as hereafter amended.
(b) Tenant shall not injure or deface, or commit waste with respect to the Premises, nor occupy or use the Premises in such manner as to constitute a
nuisance of any kind, nor for any purpose nor in any manner in violation of any present or future laws, rules, requirements, orders, directions, ordinances or
regulations of any governmental or lawful authority including Boards of Fire Underwriters. Tenant shall, immediately upon the discovery of any unlawful, illegal,
disreputable or extra hazardous use, take all necessary steps to discontinue such use. Without limiting the foregoing, Tenant acknowledges that the operation or
storage of motor vehicles within the Premises is an extra hazardous use and is therefore prohibited. Tenant shall pay all extra insurance premiums which may be
caused by the use which Tenant may make of the Premises. Tenant shall not operate any roasting machines in the Premises unless “after burners” have been
installed and are in use on such machines and are functioning such that the emissions from the roasting machines are not an annoyance or nuisance to other
tenants or occupants on the Property, in the industrial park of which the Property is a part or the neighborhoods adjacent to such industrial park.
(c) Tenant shall procure all licenses or permits required by any use of the Premises by Tenant.
(d) Tenant’s use of the access roads, parking areas and loading areas on the Property shall be subject to any reasonable rules or regulations which
may be established from time to time by Landlord. Tenant shall not park storage trailers or store any items of its property on said exterior common areas.
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(e) Tenant shall not permit any employee, servant, invitee or visitor of Tenant to violate the covenants or obligations of Tenant hereunder.
Section 16- Subleasing - Assignment.
(a) Tenant shall not, without the prior written consent of Landlord, assign this Lease in whole or in part, sublet the Premises or any portion thereof or
mortgage, pledge or encumber its leasehold interest hereunder. With respect to a sublet, the Landlord’s consent will not be unreasonably withheld. Any request
for such consent shall be accompanied with reasonably detailed information regarding the creditworthiness and business experience of the proposed assignee
or subtenant. Tenant shall reimburse Landlord for its reasonable legal fees incurred in connection with any such consent requested by Tenant. In the event of
such assignment or sublease, Tenant shall remain liable to Landlord for all the rentals called for under the terms of this Lease and for the performance of all
covenants herein to be performed by Tenant.
(b) It is agreed that if Landlord shall consent to such assignment or subletting, and Tenant shall thereupon assign this Lease or sublet all or any portion
of the Premises, then and in that event Tenant shall pay to Landlord, as additional rent, (i) in the event of an assignment, the amount fifty percent (50%)of all
monies, if any, which the assignee has agreed to and does pay to Tenant in consideration of the making of such assignment less however all out of pocket costs
actually incurred by Tenant in connection with the making of such assignment, including but not limited to any brokerage fees, advertising and alteration costs;
and (ii) in the event of a subletting, fifty percent (50%) the amount, if any, by which the fixed base rent plus additional rent payable by the subtenant to Tenant
shall exceed the fixed base rent plus additional rent allocable to that part of the Premises affected by such sublease pursuant to the provisions of this Lease, plus
the amounts, if any, payable by such subtenant to Tenant pursuant to any side agreement as consideration (partial or otherwise) for Tenant making such
subletting.
(c) Notwithstanding anything in this section 16 to the contrary, Tenant shall have the right to assign or sublet this Lease to any entity controlled by, or
under common control with, Tenant, after notice to Landlord but without the consent of Landlord, provided that Tenant shall remain fully liable for all obligations
hereunder.
Landlord shall have the right to assign this Lease or any of the rights and benefits accruing to it thereunder.
Section 17 - Mechanic’s Liens. In the event of the filing in the Essex North District Registry of Deeds of any notice of a builder’s, supplier’s or
mechanic’s lien on the Premises arising out of any work performed by or on behalf of Tenant, Tenant shall cause said lien to be released and discharged without
delay.
Section 18 - Liability. (a) Subject to the provisions of Subsections 18(b) and 18 (c) below, and except for injury or damage caused by the willful or
negligent act of Landlord, its servants or agents. Landlord shall not be liable for any injury or damage to any person happening on or about the Premises or for
any injury or damage to the Premises or to any property of Tenant or to any property of any third person, firm, association or corporation on or about the
Premises. Tenant shall, except for injury or damage caused as aforesaid, indemnify and save Landlord harmless from and against any and all liability and
damages, costs and expenses, including reasonable counsel fees, and from and against any and all suits, claims and demands of any kind or nature, by and on
behalf of any person, firm, association or corporation, arising out of or based upon any incident, occurrence, injury or damage which shall or may happen on or
about the Premises and from and against any matter or thing growing out of the condition, maintenance, repair, alteration, use, occupation or operation of the
Premises or the installation of any property therein or the removal of any property therefrom.
(b) Tenant agrees to look solely to Landlord’s interest in the Property for recovering of any judgment or claim against Landlord. It is understood and
agreed that all covenants of Landlord contained in this Lease shall be binding upon Landlord and Landlord’s successors only with respect to breaches during
Landlord’s and Landlord’s successors’ respective ownership of Landlord’s interest hereunder. In no event shall Landlord ever be liable to Tenant for any indirect,
special, or consequential damages suffered by Tenant or any other party from whatever cause.
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(c) To the extent that such event is a covered event by Landlord’s comprehensive liability insurance on the Property, as such policy is described in
Section 33(g) below, and limited to any award obtained from such insurance policy. Landlord shall, except for injury or damage caused in whole or in part by the
willful or negligent act of Tenant, its servants, agents, employees, or contractors, indemnify and save Tenant harmless from and against any and all liability and
damages, costs and expenses, including reasonable counsel fees, and from suits, claims and demands of any kind or nature, by and behalf of any person, firm,
association, corporation, arising out of or based on any incident, occurrence, injury or damage caused by Landlord’s willful or negligent act.
Section 19 - Liability Insurance. Tenant shall throughout the term hereof procure and carry, at its expense, comprehensive liability insurance on the
Premises with an insurance company authorized to do business in Massachusetts and acceptable to Landlord. Such insurance shall be carried in the name of
and for the benefit of Tenant and Landlord; shall be written on an “occurrence” basis; and shall provide coverage of at least $2,000,000.00 in case of death of or
injury to one person; at least $3,000,000.00 in case of death of or injury to more than one person in the same occurrence; and at least $ 1,000,000.00 in case of
loss, destruction or damage to property. Tenant shall also maintain workers’ compensation insurance and commercial automobile insurance as required by
applicable law. Tenant shall furnish to Landlord a certificate of such insurance which shall provide that the insurance indicated therein shall not be canceled
without at least thirty (30) days’ written notice to Landlord.
Section 20 - Fire and Extended Coverage Insurance. Landlord shall procure and continue in force during the term hereof fire and extended coverage
insurance on the building containing the Premises. Tenant shall procure and continue in force during the term hereof, fire and extended coverage insurance on
any and all personal property and fixtures of Tenant which are situated in the Premises.
All insurance policies carried by either party covering the demised premises, including but not limited to contents, fire and casualty insurance, shall
expressly waive any right on the part of the insurer against the other party. The parties hereto agree that their policies will include such waiver clause or
endorsement so long as the same shall be obtainable without extra cost, or if extra cost shall be charged therefor, so long as the other party pays such extra
cost. If extra cost shall be chargeable therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its election,
may pay the same, but shall not be obligated to do so. Each of the parties hereby waives all claims for recovery from the other party for any loss or damage to
any of its property insured under such insurance policies not containing such subrogation waivers.
Section 21 - Condemnation, Destruction or Damage.
(a) If the Premises, or any material portion thereof, are taken by eminent domain, or condemned for public use, this Lease may be terminated by either
party, and any and all awards for such taking shall be the exclusive property of Landlord. Nothing contained herein shall be construed to preclude Tenant from
prosecuting any claim directly against the condemning authority in such condemnation proceedings for loss of business or depreciation to, damage to, or cost of
removal of, equipment and other personal property belonging to Tenant, provided, however, that no such claim shall diminish or otherwise adversely affect
Landlord’s award or the award to any mortgagee.
(b) In the event that the building of which the Premises are a part shall be totally destroyed by fire or other casualty insured against, or shall be so
damaged that repairs and restoration cannot be accomplished within a period of sixty (60) days from the date of such destruction or damage, this Lease shall
terminate at the election of Landlord and each party shall be relieved of any further obligation to the other, except that Tenant shall be liable for and shall
promptly pay Landlord any rent then in arrears or Landlord shall promptly rebate to Tenant a pro rata portion of any rent paid in advance. In the event the
premises shall be so damaged that repairs and restoration can be accomplished within a period of sixty (60) days from the date of such destruction or damage
or if Landlord does not elect to terminate this Lease, this Lease shall continue in effect in accordance with its terms; such repairs and restoration shall, unless
otherwise agreed by Landlord and Tenant, be performed promptly by Landlord as closely as practicable to the condition which existed as of the date of the
damage (utilizing therefor the proceeds of the insurance applicable thereto), and until such repairs and restoration have been accomplished, a portion of the rent
shall abate equal to the proportion of the Premises rendered unusable by the damage. Landlord’s obligation to restore shall not extend to any of Tenant’s
personal property or trade fixtures or to any alterations, improvements or additions made by Tenant, the restoration of which will be Tenant’s obligation. It is
understood that Landlord’s obligation to restore, replace or rebuild shall not exceed in amount the sum of the insurance proceeds paid to it and/or released to it
by any mortgagee with which settlement was made. Tenant agrees to execute and deliver to Landlord all instruments and documents necessary to evidence the
fact that the right to such insurance proceeds is vested in Landlord by the damage.
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(c) If the destruction or damage to the Premises has not been substantially restored or repaired within one hundred eighty (180) days after the Landlord
has received its insurance award, the Tenant may elect to terminate this Lease upon notice to the Landlord: provided that the Tenant shall not have the right to
terminate if the destruction or damage has been substantially restored or repaired prior to the date of Tenant’s notification.
Section 22 - Repossession by Landlord . At the expiration of this Lease or upon the earlier termination of this Lease for any cause herein provided for,
Tenant shall peaceably and quietly quit the Premises and deliver possession of the same to Landlord.
Section 23 - Mortgage Lien. Tenant agrees that this Lease and all rights of Tenant hereunder are and shall be subject and subordinate to the lien of (1)
any mortgage constituting a lien of the Property, or any part thereof, at the date hereof, (2) the lien of any mortgage hereafter executed to a bank, trust company
or other recognized lending institution to provide permanent financing or refinancing of the land and improvements containing the Premises, and (3) any renewal,
modification, consolidation or extension of any mortgage referred to in clause (1) and (2). Tenant shall, upon demand at any time or times, execute,
acknowledge and deliver to Landlord without any expense to Tenant, any and all instruments that may be necessary or proper to subordinate this Lease and all
rights of Tenant hereunder to the lien of a mortgage referred to in (2) or (3) of the preceding sentence as a condition precedent to the effectiveness of this Lease.
Landlord agrees to provide Tenant with a Non Disturbance Agreement from its lender.
Section 24 - Environmental Matters.
(a) Tenant represents and warrants that it shall not use the Premises for the Storage, Treatment or Disposal of Hazardous Wastes, except in full
compliance with all applicable laws, regulations and requirements of Governmental Authorities (as hereinafter defined). For the purposes of this Lease, the
terms Hazardous Waste, Storage, Treatment and Disposal are defined by cumulative reference to the following sources, as amended from time to time: (1) The
Resource Conservation and Recovery Act of 1976, 42 USC §6901 et seq (RCRA); (2) EPA Federal Regulations promulgated thereunder and codified in 40
C.F.R. Parts 260-265 and Parts 122-124; (3) Chapter 21C and 21E of the Massachusetts General Laws; and regulations promulgated thereunder by any agency
or department of the Commonwealth of Massachusetts. Promptly, upon the request of Landlord, Tenant shall provide Landlord with a list of all Hazardous
Materials generated, stored, treated, or used on the Premises.
(b) As used in this Section, the term “Hazardous Material” shall mean any substance, water or material which has been determined by any state, federal
or local government authority to be capable of posing a risk of injury to health, safety and property, including, but not limited to, all of those materials, wastes and
substances designated as hazardous or toxic by the U.S. Environmental Protection Agency, the U.S. Department of Labor, the U.S. Department of
Transportation, and/or any other governmental agency, federal, state, or local, now or hereafter authorized to regulate materials and substances in the
environment (collectively “Governmental Authority(ies)”).
(c) Tenant agrees to take responsibility for any remedial action required by Government Authorities having jurisdiction regarding any Hazardous Material
or Hazardous Waste owned, controlled, used or manufactured by Tenant, or for which Tenant is otherwise legally responsible. Tenant shall pay all costs in
connection with any such investigation or remedial activity including, without limitation, all installation, operation, maintenance, testing, and monitoring costs, all
power and utility costs and any and all pumping taxes or fees that may be applicable to Tenant’s activities. Tenant shall perform all such work in a good, safe
and workmanlike manner, in compliance with all laws and regulations thereto, and shall diligently pursue any required investigation and remedial activity until
Tenant is allowed to terminate these activities by those Government Authorities having jurisdiction.
(d) Tenant shall conduct any testing, monitoring, reporting and remedial activities in connection with the Premises in a good, safe and workmanlike
manner, and in compliance with all laws and regulations applicable thereto. Tenant shall promptly provide Landlord with copies of any testing results and reports
that are generated in connection with Tenant’s activities and that are submitted to any Government Authority.
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(e) Tenant shall indemnify, hold harmless, and defend Landlord, its officers, members, employees and agents (collectively “Indemnitees”) against all
claims, demands, losses, liabilities, costs and expenses, including attorneys’ fees, (collectively “Liabilities”) imposed upon or accruing against Indemnitees as
actual and direct costs of investigatory or remedial action required by any Government Authority having jurisdiction or as damages to third persons for personal
injury or property damage arising from the existence of Hazardous Material or Hazardous Waste referred to in subparagraph (c). Such Liabilities shall include,
without limitation: (i) injury or death to any person, (ii) damage to or loss of use of any other property, (iii) the cost of any demolition and rebuilding of the
improvements containing the Premises, repair, or remediation and the preparation of any closure or other activity required by any Governmental Authority,
(iv) any lawsuit brought or threatened, good faith settlement reached, or governmental order relating to the presence, disposal, release or threatened release of
any Hazardous Material or Hazardous Waste referred to in subparagraph (c), on, from or under the land and building containing the Premises and (v) the
imposition of any liens on the land and building containing the Premises arising from Tenant’s activities on or about the Premises or from the existence of
Hazardous Material or Hazardous Waste referred to in subparagraph (c).
(f) Tenant shall have no responsibility for Hazardous Waste or Hazardous Materials existing on the Premises on the date that Tenant first takes
occupancy of the Premises or for such Hazardous Waste or Hazardous materials deposited by Landlord or any other tenant; except that Tenant shall be
responsible for any costs and expenses incurred by or assessed against Landlord which result from Tenant’s activities or from aggravation of such preexisting or
future conditions during the tenancy of Tenant.
(g) Tenant shall use its best efforts (including payment of money) not to cause or suffer any lien to be recorded against the land and building containing
the Premises as a consequence of, or in any way related to, the presence, remediation or disposal of Hazardous Material or Hazardous Waste in or about the
Premises, including any mechanics’ liens and any so-called state, federal or local “superfund” lien relating to such matters.
Section 25 - Americans With Disabilities Act. Landlord warrants that upon the Commencement Date, the Premises will comply with all applicable codes,
including the ADA (as defined below) and OSHA. After the Commencement Date, Tenant shall comply with all applicable provisions of the Americans with
Disabilities Act of 1990 (“ADA”) and the regulations promulgated thereunder. Tenant hereby expressly assumes all responsibility for compliance with the ADA
relating to the Premises and the activities conducted by Tenant within the Premises. Any alterations to the Premises made by Tenant for the purpose of
complying with the ADA or which otherwise require compliance with the ADA shall be done in accordance with this Lease; provided, that Landlord’s consent to
such alterations shall not constitute either Landlord’s assumption in whole or in part, of Tenant’s responsibility for compliance with the ADA, or representation or
confirmation by Landlord that such alterations comply with the provisions of the ADA.
Section 26 - Default. In the event (i) any installment of rent or additional rent shall not be paid within five (5) days after notice to the Tenant that the
same is due and payable: or (ii) Tenant defaults in the performance or observance of any other covenant or condition in this Lease and such default remains
unremedied for ten (10) days, after written notice thereof has been given to Tenant by Landlord; provided, however, the Tenant shall not be in terminable default
if such non monetary default is incapable of being remedied within the ten (10) day period, and, if Tenant has commenced a cure within said ten (10) day period
and thereafter prosecutes the cure diligently to completion, or (iii) Tenant makes an assignment for the benefit of creditors, files a voluntary petition in
bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver or any trustee of or for Tenant of any substantial part of its
property, commences any proceeding relating to Tenant or any substantial part of its property under any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against Tenant any such proceeding which
remains undismissed for a period of sixty (60) days, or any order approving the petition in any such proceeding is entered, or Tenant by any act indicates its
consent to, or acquiescence in any such proceeding or the appointment of any receiver of or trustee for Tenant of any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of sixty (60) days, then in any of such events. Landlord may immediately or at any
time thereafter and without demand terminate this Lease by written notice to Tenant thereof or, without demand or notice enter upon the Premises or any part
thereof in the name of the whole and repossess the same as of Landlord's former estate and expel Tenant and those claiming through or under Tenant and
remove their effects forcibly, if necessary, without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise
be used for arrears of rent or preceding breach of covenant. Upon such termination notice or entry this Lease shall terminate, and Tenant covenants that, in case
of such termination by reason of the default of Tenant, Tenant shall remain and continue liable to Landlord in an amount equal to the total rent reserved for the
balance of the term hereof plus all additional rent reserved for the balance of the term hereof less the net amounts (after deducting the expenses of repair,
renovation or demolition and attorneys fees and leasing commissions) which Landlord realizes from the reletting of the Premises. As used in this Section, the
term “additional rent” means the obligations of Tenant under Section 4 and the value of all considerations other than rent agreed to be paid or performed by
Tenant hereunder, including, without limiting the generality of the foregoing, taxes, assessments and insurance premiums. Landlord shall have the right from time
to time to relet the Premises upon such terms as it may deem fit, and if a sufficient sum shall not be thus realized to yield the net rent required under this Lease,
Tenant agrees to satisfy and pay all deficiencies as they may become due during each month of the remaining term of this Lease. Nothing herein contained shall
be deemed to require Landlord to await the date whereon this Lease, or the term hereof, would have expired had there been no default by Tenant, or no such
termination or cancellation. Tenant expressly waives service of any notice of intention to reenter and waives any and all right to recover or regain possession of
the Premises, or to reinstate or redeem this Lease as may be permitted or provided for by or under any statute or law now or hereafter in force and effect. The
rights and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies, and no one of them, whether or not exercised by Landlord,
shall be deemed to be in exclusion of any of the others herein or by law or equity provided. Nothing contained in this Section shall limit or prejudice the right of
Landlord to prove and obtain, in proceedings involving the bankruptcy or insolvency of, or a composition with creditors by. Tenant the maximum allowed by any
statute or rule of law at the time in effect. The Landlord agrees to use reasonable efforts to mitigate the Tenant’s damages in the event that the Tenant defaults
in its monetary obligations hereunder.
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Section 27 - Expense Reimbursement. In addition to any other remedies Landlord may have at law or equity and/or under the Lease, Tenant shall pay
upon demand all of Landlord's costs, charges and reasonable expenses, including reasonable attorney fees and court costs, incurred in connection with the
successful recovery of sums due under this Lease, or the successful enforcement of any provisions of this Lease.
Section 28 - Access to Premises. Landlord or its representatives shall have free access to the Premises at reasonable intervals during normal business
hours for the purpose of inspection, or for the purpose of showing the Premises to prospective purchasers or Tenants, or for the purpose of making repairs which
Landlord is obligated to make hereunder or which Tenant is obligated to make hereunder but has failed or refused to make. The preceding sentence does not
impose upon Landlord any obligation to make repairs. Landlord also reserves the right to alter, change, close or limit access to any portion of the common areas
on the Property or to designate portions of such common areas for use by a single Tenant of the Property.
Section 29 - Holding Over. Except for mutual consent by Landlord and Tenant, any holding over by Tenant after the expiration of the term of this Lease
shall be treated as a daily tenancy at sufferance at a rate equal to one hundred fifty percent (150%) of the rent and additional rent herein provided (prorated on a
daily basis) and shall otherwise be on the terms and conditions set forth in this Lease as far as applicable.
Section 30 - Notices. Any written notice, request or demand required or permitted by this Lease shall, until either party shall notify the other in writing of
a different address, be properly given if sent by certified or registered first class mail, postage prepaid, return receipt requested, or by prepaid overnight delivery
service, telecopy, or telegram (with messenger delivery specified) and shall be deemed given on the day that such writing is received by the party to whom it is
sent, and addressed (if notice is given by mail) as follows:
If to Landlord:
With a Copy to:
One Clark Street North Andover LLC
c/o Aries Property Company, LLC
121 Middle Street, Suite 200
Portland, Maine 04101
Attn.: Mr. Brian A. Gagne
Bernstein, Shur, Sawyer & Nelson
100 Middle Street
P.O. Box 9729
Portland, Maine 04104-5029
Attn: Charles E. Miller, Esquire
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If to Tenant:
Comfort Foods. Inc.
25 Commerce Way, Unit 5
North Andover, MA 01845
Attn: Michael Sullivan, CEO
With a Facsimile Copy only to:
Law Offices of John M. Cunningham, Esq
2 Kent street
Concord, NH 03301
Section 31 - Succession. This Lease shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors and assigns of
the parties hereto. This section shall not be construed to give Tenant the right to assign this Lease which shall be governed by section 16.
Section 32 - Waiver. Any consent, expressed or implied, by either party to any breach by the other party of any covenant or condition of this Lease shall
not constitute a waiver of any prior or succeeding breach of the same or any other covenant or condition of this Lease. Acceptance by Landlord of rent or other
payment with knowledge of a breach of or default under any term hereof by Tenant shall not constitute a waiver by Landlord of such breach or default. This
Lease shall not be modified or canceled except by writing executed by Landlord and Tenant.
Section 33 - Representations. Except as specifically set forth below, no representations of any kind or nature concerning the Premises or any part
thereof not contained herein have been made to Tenant either before or at the time of the execution of this Lease. The Landlord represents and warrants the
following:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
The Landlord is a Massachusetts Limited Liability Company, and duly formed and existing under the laws of Massachusetts;
Brian L. Gagne, the Manager of Aries Property Company, LLC is duly authorized to execute the Lease on behalf of the Landlord, and, upon his
execution, the Lease will be binding on the Landlord in accordance with its terms, subject to applicable laws and ordinances.
Once the Lease has been approved by Landlord’s lender(s), the Landlord shall not be prevented from entering into or performing its obligations
under the Lease by agreement with any third party or judicial decree.
The Landlord holds fee title to the Property subject to mortgages and other encumbrances of record.
Upon commencement of the Lease, the Landlord shall be in substantial compliance with applicable federal, state and local laws, regulations,
and ordinances relating to the Property.
Upon commencement of the Lease, the Landlord shall be current on such governmental property taxes and assessments then due and payable.
Throughout the term of the Lease, the Landlord shall maintain comprehensive liability insurance on the Property with an insurance company
authorized to do business in Massachusetts providing coverage of at least $2,(MX),000 in case of death or injury to one person; at least
$2,000,000 in case of death or injury to more than one person in the same occurrence: and at least $500,000 in case of loss, destruction or
damage to property.
Section 34 - Brokerage. The parties represent and warrant to each other that they had no contact with any real estate broker, salesman or finder in
connection with the transaction resulting in this Lease other than Cushman & Wakefield, whose commission will be paid by Landlord pursuant to a separate
agreement among the Parties. Tenant shall indemnify and hold Landlord and Cushman & Wakefield harmless from any claims by parties other than Cushman &
Wakefield for commissions due with respect to this Lease, such indemnification to include attorneys’ fees and incurred in connection with defending any such
claims.
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Section 35 - Governing Law. This Lease shall be construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts.
Section 36 - Jury Trial Waiver. NOTWITHSTANDING ANYTHING IN THIS LEASE TO THE CONTRARY, TENANT, FOR ITSELF AND ITS
SUCCESSORS AND ASSIGNS HEREBY KNOWINGLY, WILLINGLY, AND VOLUNTARILY WAIVES ANY AND ALL RIGHTS TENANT MAY HAVE TO A
TRIAL BY JURY IN ANY EVICTION ACTION OR ANY OTHER PROCEEDING BROUGHT BY LANDLORD, OR LANDLORD’S SUCCESSORS AND/OR
ASSIGNS BASED UPON OR RELATED TO THE PROVISIONS OF THIS LEASE.
Section 37 - Force Majeure. With respect to any services, including, without limitation, electric current or water to be furnished by Landlord to Tenant, or
obligations to be performed by Landlord hereunder, Landlord shall in no event be liable for failure to furnish or perform the same when ( and the date for
performance of the same shall be postponed so long as Landlord is) prevented from doing so by strike, lockout, breakdown, accident, order or regulation of or by
any governmental authority, or failure of supply, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish
such services, or perform such obligations or because of war or other emergency, or for any cause beyond Landlord’s obligations or because of war or other
emergency, or for any cause beyond Landlord's reasonable control, or for any cause due to any act or neglect of Tenant or Tenant's servants, agents,
employees, licensees, invitees or any perform claiming by, through or under Tenant.
Section 38 - Invalidity of Particular Provisions. If any term or provisions of this Lease or the application thereof to any person or circumstance shall, to
any extent, be held to be invalid or unenforceable, the remainder of this Lease, or the application of such terms or provisions to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
Section 39 - Recording. Tenant agrees not to record the within Lease, but each party hereto agrees, on the request of the other, to execute a so-called
memorandum of lease or short form lease. In no event shall such document set forth the rent or other charges payable by Tenant under this Lease; and any
such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of
this Lease.
Section 40 - Status Report. Recognizing that Landlord may find it necessary to establish to third parties, such as accountants, banks, mortgagees or the
like, the then current status of performance hereunder, Tenant, on the request of Landlord made from time to time, will within ten (10) days furnish to Landlord,
or the holder of any mortgage encumbering the Premises, as the case may be, a statement of the status of any matter pertaining to this Lease, including without
limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease.
Section 41 - Option to Extend. Subject to the terms and conditions in this Section 41, Tenant shall have the option to extend the term of this Lease for a
period of five (5) years commencing on the expiration of the original term, upon all the terms and conditions of this Lease except for this provision relating to
extension of the term, which may only be exercised once. Base Rent during the extended term shall be at the then current market rate, as determined below but
in no event lower than the highest annual rent per square foot rate scheduled to be in effect during the last year of the original term. Tenant may exercise its
option to extend only if Tenant (i) is not then in default in performance or observance of any term or condition of this Lease, and (ii) is occupying the entire
Premises subject to this Lease, and (iii) has neither sublet nor assigned any interest in this Lease or in the Premises to any party. Tenant may exercise its said
option only by delivering notice of its intent to extend the term hereof to Landlord at least one (1) year in advance of the expiration of the original term, but no
more than eighteen (18) months prior to the expiration of the original term, failing which said option shall utterly expire, time being of the essence. Within thirty
(30) days after the Tenant’s exercise of its option. Landlord shall furnish Tenant in writing with notice of Landlord’s determination of the amount of Base Rent for
the extended term. Within thirty (30) days after the date of Landlord’s said notice of the amount of Base Rent Tenant may either accept Landlord’s determination
or elect to determine the current market rate by appraisal. If Tenant elects appraisal, each of the parties shall, within thirty (30) days thereafter, select an
appraiser, each of whom shall have at least five (5) years of experience in appraising commercial properties in the greater Boston area, and the two appraisers
shall together select a third appraiser similarly qualified. The three appraisers together shall attempt to agree on the current market rate of Base Rent for the
extended term, failing a unanimous decision, may determine such figure by majority vote. Landlord and Tenant shall share equally the charges for the appraisers
for their work performed pursuant to this paragraph unless the current market rate so determined by appraisal is equal to or greater than the Base Rent originally
determined by Landlord, in which case all appraisal costs shall be paid by Tenant. Following the exercise by Tenant of its option to extend the term hereof, all
references in this Lease to the term hereof, or expressions of similar import, shall be deemed to refer to the term as so extended.
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Section 42 - Miscellaneous Matters. The submission of this document for examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord
and Tenant. Employees or agents of Landlord or Tenant have no authority to make or agree to make a Lease or any other agreement or undertaking in
connection herewith. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and supersede
all written and oral agreements relating to this Lease and may be modified or altered only by agreement in writing between Landlord and Tenant, and no act or
omission of any employee or agent of Landlord shall alter, change, or modify any of the provisions hereof. All rights, obligations and liabilities herein given to, or
imposed upon, the respective parties hereto shall extend to and bind the several respective heirs, executors, administrators, trustees, receivers, legal
representatives, successors and assigns of the said parties; and if there shall be more than one tenant or landlord, they shall all be bound jointly and severally by
the terms, covenants and agreements herein. No rights, however, shall insure to the benefit of any assignee, legal representative, trustee, receiver, legatee or
other personal representative of Tenant unless the assignment to any such party has been approved by Landlord in writing. All Exhibits are integral to this
Lease. Captions of sections and subsections are for convenience only and shall be deemed irrelevant in construing this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed and delivered as of the day and year first above written.
WITNESS:
ONE CLARK STREET NORTH ANDOVER LLC
By: ARIES CLARK STREET LLC, its Manager
By: ARIES PROPERTY COMPANY, LLC
Its Sole Member
/s/ Brian A. Gagne
By:
Name: Brian A. Gagne
Its Manager, thereunto duly authorized
/s/ Michael J. Sullivan
By:
Name: Michael J. Sullivan
Its:
CEO, thereunto duly authorized
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GUARANTY OF LEASE
For value received, and in consideration for, and as an inducement to Landlord to enter into the foregoing Lease with Tenant, the undersigned (“Guarantor”)
does unconditionally guaranty to Landlord the complete and due performance of each and every agreement, covenant, term and condition of the Lease to be
performed by Tenant, including without limitation the full and punctual payment of all sums of money stated in the Lease to be payable by Tenant. The validity of
this guaranty and the obligations of Guarantor shall not be terminated, affected, or impaired by reason of the granting by Landlord of any indulgences to Tenant.
This guaranty shall remain and continue in full force and effect as to any renewal, amendment, modification, or extension of the Lease, whether or not Guarantor
shall have received any notice of or consented to such renewal, amendment, modification or extension, consent or notice of and to Guarantor not being required
in any event. The liability of Guarantor under this guaranty shall be primary, and in any right of action which shall accrue to Landlord under the Lease, Landlord
may proceed against Guarantor and Tenant, jointly and severally, and may proceed against Guarantor without having commenced any action against or having
obtained any judgment against Tenant. Guarantor hereby waives notice of acceptance of this Guaranty by Landlord, notice of default by Tenant under the Lease,
and all suretyship and guarantorship defenses generally. Failure of Landlord to insist upon strict performance or observance of any of the terms, provisions or
covenants of the Lease and/or this Guaranty or to exercise any right therein contained shall not be construed as a waiver or relinquishment or the failure of any
such term, provisions, covenant, or rights, and the same shall continue and remain in full force and effect. Receipt by Landlord of rent with knowledge of the
breach of any provision of the Lease and/or this Guaranty shall not be deemed a waiver of such breach. Further Guarantor covenants and agree that it shall not
be released from the obligations of this Guaranty, nor shall said obligations be diminished or otherwise affected (a) by the acceptance by Landlord of any security
for the punctual and full payment of said rent or the punctual and full performance and observance of said Tenant obligations, or the release, surrender,
substitution or modification of any security from time to time held by Landlord, or by any act or omission to act by Landlord with respect to any such security, or
(b) by any other matter whatsoever whereby Guarantor would or might be released, it being the intent hereof that Guarantor shall at all times be and remain
jointly and severally liable with Tenant to Landlord for the performance of all the terms, conditions and provisions in the Lease contained on the part of the
Tenant to be performed. The liability of Guarantor hereunder shall in no way be affected by: (a) the release or discharge of Tenant or any creditors’ receivership,
bankruptcy, or other proceedings; (b) the impairment, limitation, or modification of the liability of Tenant, or the estate of the Tenant in bankruptcy, or any
remedy for the enforcement of Tenant’s liability under the Lease, resulting from the operation of any present or future provision of any bankruptcy or insolvency
law, or other statute, or from the decision of any court; (c) the rejection or disaffirmance of the Lease in any such proceedings; (d) the assignment or the transfer
of the Lease or any interest therein by Tenant; (e) any disability or other defense of Tenant; or (e) the cessation from any cause whatsoever of the liability of
Tenant. Guarantor further agrees to pay all costs, legal expenses and attorneys’ fees incurred or paid by Landlord in the enforcement of this Guaranty.
Guarantor hereby agrees that if any of its obligations hereunder shall be held to be unenforceable, the remainder of this Guaranty and its application to all
obligations other than those held unenforceable, shall not be affected thereby and shall remain in full force and effect. All of the terms and provisions of this
Guaranty shall inure to the benefit of the successors and assigns of Landlord and shall be binding upon the successors and assigns of Guarantor. Guarantor
agrees that guarantor shall not have and hereby waives, (i) any right to subrogation or indemnification, any other right to payment from or reimbursement by
Tenant, in connection with or as a consequence of any payment made by Guarantor hereunder; (ii) any right to enforce any right or remedy which guarantor has
or may hereafter have against; and (iii) any benefits of. and any right to participate in, (a) any collateral now or hereafter held by Tenant or any other Guarantor
of Tenant and (b) any payment to Landlord by, or collection by Landlord from Tenant or any other Guarantor.
Notwithstanding anything herein to the contrary, at the end of the third full Lease Year after the Commencement Date, the Landlord will release
the Guarantor from his personal liability under this Guaranty of Lease by notifying the Guarantor in writing if, after a review of the Tenant’s financial records by
Landlord, which records the Tenant agrees to provide to the Landlord and Landlord’s lender(s) on a confidential basis in such detail as is reasonably requested
by Landlord, the Tenant’s financial strength and profitability has not deteriorated and is equal to or better than the Tenant’s financial condition on the
commencement date.
Dated as of 12/5, 2000
GUARANTOR:
/s/ Michael J. Sullivan
Michael J. Sullivan
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EXHIBIT A
DEPICTION OF PREMISES
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT B
SPECIFICATIONS FOR LANDLORD’S WORK
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT B-1
CONCEPTUAL FLOOR PLAN
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LEASE SUBORDINATION, NON-DISTURBANCE
OF POSSESSION AND ATTORNMENT AGREEMENT
This Lease Subordination, Non-Disturbance of Possession and Attornment Agreement (hereinafter, the “Subordination, Non-Disturbance and Attornment
Agreement” or “Agreement”) is made as of the 5th day of December, 2000, among Fleet National Bank, a national banking association, having a place of
business at One Federal Street, Boston, Massachusetts 02110 (hereinafter, the “Lender”), One Clark Street North Andover LLC, a Massachusetts limited liability
company with offices c/o Aries Property Company, LLC, 121 Middle Street, Portland, Maine 04101 (hereinafter, the “Landlord” or “Borrower”), and Comfort
Foods. Inc., a Massachusetts corporation with a place of business at (hereinafter, the “Tenant”).
Introductory Provisions
A. Lender is relying on this Agreement as an inducement to Lender in making and maintaining a loan (hereinafter, the “Loan”) secured by, among other
things, a Construction Mortgage and Security Agreement dated as of __________, 2000 (hereinafter, the “Mortgage”) given by Borrower covering property
commonly known as and numbered One Clark Street, North Andover, Massachusetts (hereinafter, the “Property”). Lender is also the “Assignee” under a
Collateral Assignment of Leases and Rents (hereinafter, the “Assignment”) dated as of ___________, 2000, from Borrower with respect to the Property.
B. Tenant is the tenant under that certain lease (hereinafter, the “Lease”) dated 12/06/2000, made with Landlord, covering certain premises (hereinafter,
the “Premises”) at the Property as more particularly described in the Lease.
C. Lender requires, as a condition to the making and maintaining of the Loan, that the Mortgage be and remain superior to the Lease and that Lender’s
rights under the Assignment be recognized.
D. Tenant requires as a condition to the Lease being subordinate to the Mortgage that its rights under the Lease be recognized.
E. Lender, Landlord, and Tenant desire to confirm their understanding with respect to the Mortgage and the Lease.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements contained herein, and other valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and with the understanding by Tenant that Lender shall rely hereon in making and maintaining the
Loan, Lender, Landlord, and Tenant agree as follows:
1. Subordination. The Lease and the rights of Tenant thereunder are subordinate and inferior to the lien of the mortgage and any amendment, renewal,
substitution, extension or replacement thereof and each advance made thereunder as though the Mortgage, and each such amendment, renewal,
substitution, extension or replacement were executed and recorded, and the advance made, before the execution of the Lease.
2. Non-Disturbance. So long as Tenant is not in default (beyond any period expressed in the Lease within which Tenant may cure such default) in the
payment of rent or in the performance or observance of any of the terms, covenants or conditions of the Lease on Tenant’s part to be performed or
observed, (i) Tenant’s occupancy of the Premises shall not be disturbed by Lender in the exercise of any of its rights under the Mortgage during the
term of the Lease, or any extension or renewal thereof made in accordance with the terms of the Lease, and (ii) Lender will not join Tenant as a party
defendant in any action or proceeding for the purpose of terminating Tenant’s interest and estate under the Lease because of any default under the
Mortgage.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3. Attornment and Certificates. In the event Lender succeeds to the interest of Borrower as Landlord under the Lease, or if the Property or the Premises
are sold pursuant to the power of sale under the Mortgage, Tenant shall attorn to Lender, or a purchaser upon any such foreclosure sale, and shall
recognize Lender, or such purchaser, thereafter as the Landlord under the Lease. Such attornment shall be effective and self operative without the
execution of any further instrument. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of any holder(s)
of any of the indebtedness or other obligations secured by the Mortgage, or upon request of any such purchaser, (a) any instrument or certificate which,
in the reasonable judgment of such holder(s), or such purchaser, may be necessary or appropriate in any such foreclosure proceeding or otherwise to
evidence such attornment, and (b) an instrument or certificate regarding the status of the Lease, consisting of statements, if true (and if not true,
specifying in what respect), (i) that the Lease is in full force and effect, (ii) the date through which rentals have been paid, (iii) the duration and date of
the commencement of the term of the Lease, (iv) the nature of any amendments or modifications to the Lease, (v) that no default, or state of facts, which
with the passage of time, or notice, or both, would constitute a default, exists on the part of either party to the Lease, and (vi) the dates on which
payments of additional rent, if any, are due under the Lease.
4. Limitations. If Lender exercises any of its rights under the Assignment or the Mortgage, or if Lender shall succeed to the interest of Landlord under the
Lease in any manner, or if any purchaser acquires the Property, or the Premises, upon or after any foreclosure of the Mortgage, or any deed in lieu
thereof, Lender or such purchaser, as the case may be, shall have the same remedies by entry, action or otherwise in the event of any default by Tenant
(beyond any period expressed in the Lease within which Tenant may cure such default) in the payment of rent or in the performance or observance of
any of the terms, covenants and conditions of the Lease on Tenant’s part to be paid, performed or observed that the Landlord had or would have had if
Lender or such purchaser had not succeeded to the interest of the present Landlord. From and after any such attornment, Lender or such purchaser
shall be bound to Tenant under all the terms, covenants and conditions of the Lease, and Tenant shall, from and after such attornment to Lender, or to
such purchaser, have the same remedies against Lender, or such purchaser, for the breach of an agreement contained in the Lease that Tenant might
have had under the Lease against Landlord, if Lender or such purchaser had not succeeded to the interest of Landlord. Provided, however, that Lender
or such purchaser shall only be bound during the period of its ownership, and that in the case of the exercise by Lender of its rights under the Mortgage,
or the Assignment, or any combination thereof, or a foreclosure, or deed in lieu of foreclosure, all Tenant claims shall be satisfied only out of the
interest, if any, of Lender, or such purchaser, in the Property, and Lender and such purchaser shall not be (a) liable for any act or omission of any prior
landlord (including the Landlord); or (b) liable for or incur any obligation with respect to the construction of the Property or any improvements of the
Premises or the Property; or (c) subject to any offsets or defenses which Tenant might have against any prior landlord (including the Landlord); or (d)
bound by any rent or additional rent which Tenant might have paid for more than the then current rental period to any prior landlord (including the
Landlord); or (e) bound by any amendment or modification of the Lease, or (f) except for any assignment or sublet permitted under the Lease as to
which Landlord’s consent is not required, bound by tiny assignment or sublet, made without Lender’s prior written consent; or (g) bound by or
responsible for any security deposit not actually received by Lender; or (h) liable for or incur any obligation with respect to any breach of warranties or
representations of any nature under the Lease or otherwise including without limitation any warranties or representations respecting use, compliance
with zoning, landlord’s title, landlord’s authority, habitability and/or fitness for any purpose, or possession; or (j) liable for consequential damages.
5 Rights Reserved. Nothing herein contained is intended, nor shall it be construed, to abridge or adversely affect any right or remedy of: (a) the Landlord
under the Lease, or any subsequent Landlord, against the Tenant in the event of any default by Tenant (beyond any period expressed in the Lease
within which Tenant may cure such default) in the payment of rent or in the performance or observance of any of the terms, covenants or conditions of
the Lease on Tenant’s part to be performed or observed; or (b) the Tenant under the Lease against the original or any prior Landlord in the event of any
default by the original Landlord to pursue claims against such original or prior Landlord whether or not such claim is barred against Lender or a
subsequent purchaser.
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6. Notice and Right to Cure. Tenant agrees to provide Lender with a copy of each notice of default under the Lease or failure of Landlord to satisfy a
condition precedent to Tenant’s obligations under the Lease, at the same time as Tenant provides Landlord with such notice, and that in the event of any
default or failure by the Landlord under the Lease, Tenant will take no action to terminate the Lease (a) if the default or failure is not curable by Lender
(so long as the default does not interfere with Tenant’s use and occupation of the Premises), or (b) if the default or failure is curable by Lender, unless
the default or failure remains uncured for a period of thirty (30) days after written notice thereof shall have been given, postage prepaid, to Landlord at
Landlord’s address, and to Lender at the address provided in Section 7 below; provided, however, that if any such default or failure is such that it
reasonably cannot be cured within such thirty (30) day period, such period shall be extended for such additional period of time as shall be reasonably
necessary (including, without limitation, a reasonable period of time to obtain possession of the Property and to foreclose the Mortgage), if Lender gives
Tenant written notice within such thirty (30) day period of Lender’s election to undertake the cure of the default or failure and if curative action (including,
without limitation, action to obtain possession and foreclose) is instituted within a reasonable period of time and is thereafter diligently pursued. Lender
shall have no obligation to cure any default or failure under the Lease.
7. Notices. Any notice or communication required or permitted hereunder shall be in writing, and shall be given or delivered: (i) by United States mail,
registered or certified, postage fully prepaid, return receipt requested, or (ii) by recognized courier service or recognized overnight delivery service; and
in any event addressed to the party for which it is intended at its address set forth below:
To Lender:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02109
FAX Number: (617) 346-4670
Attention: Commercial Real Estate Loan Administration Manager
with copies by regular mail or such hand delivery or facsimile transmission to:
To Landlord:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
FAX Number: (617) 723-6831
Attention: Steven J. Weinstein, Esquire
One Clarke Street North Andover LLC
C/o Aries Property Company, LLC
121 Middle Street. Suite 200
FAX Number: 207-774-0264
Attention: Brian Gagne
with copies by regular mail or such hand delivery or facsimile transmission to:
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
To Tenant:
with a copy to:
Bernstein, Shur, Sawyer & Nelson
100 Middle Street, PO Box 9729
Portland, ME 04104-029
FAX Number: 207-774-1127
Attention: Charlie Miller, Esq.
Comfort Foods, Inc.
844 Woburn Street
Wilmington, MA 01887
FAX Number: 978-988-1228
Attention: Michael J. Sullivan, Chief Executive Officer
Law Offices of John M. Cunningham, Esq
2 Kent Street
Concord, NH 03301
or such other address as such party may have previously specified by notice given or delivered in accordance with the foregoing. Any such notice shall be
deemed to have been given and received on the date delivered or tendered for delivery during normal business hours as herein provided.
8.
Construction Obligations.
a.
The Tenant agrees that the Lender shall have no obligation to complete the construction obligations of the Landlord under the Lease, unless
within thirty (30) days of the earlier of the Lender (i) giving notice to the Tenant of the Lender’s assumption of the Landlord’s obligations under
the Lease or (ii) taking possession of, or acquiring title to, die Premises, the Lender elects in writing to complete such construction obligations.
9.
10.
11.
N o Oral Change. This Agreement may not be modified orally or in any manner than by an agreement in writing signed by the parties hereto or their
respective successors in interest.
Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, personal
representatives, successors and assigns, and any purchaser or purchasers at foreclosure of the Property or any portion thereof, and their respective
heirs, personal representatives, successors and assigns.
Payment of Rent To Lender. Tenant acknowledges that it has notice that the Lease and the rent and all sums due thereunder have been assigned to
Lender as part of the security for the obligations secured by the mortgage. In the event Lender notifies Tenant of a default under the Loan and demands
that Tenant pay its rent and all other sums due under the Lease to Lender, Tenant agrees that it will honor such demand and pay its rent and all other
sums due under the Lease to Lender, or Lender’s designated agent, until otherwise notified in writing by Lender. Borrower unconditionally authorizes
and directs Tenant to make rental payments directly to Lender following receipt of such notice and further agrees that Tenant may rely upon such notice
without any obligation to further inquire as to whether or not any default exists under the Mortgage or the Assignment, and that Borrower shall have no
right or claim against Tenant for or by reason of any payments of tent or other charges made by Tenant to Lender following receipt of such notice.
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
12.
13.
14.
15.
N o Amendment or Cancellation of Lease. So long as the Mortgage remains undischarged of record, Tenant shall not amend, modify, cancel or
terminate the Lease, or consent to an amendment, modification, cancellation or termination of the Lease, or agree to subordinate the Lease to any other
mortgage, without Lender’s prior written consent in each instance.
Option. With respect to any options for additional space provided to Tenant under the Lease, Lender agrees to recognize the same if Tenant is entitled
thereto under the Lease after the date on which Lender succeeds as Landlord under the Lease by virtue of foreclosure or deed in lieu of foreclosure or
Lender takes possession of the Premises; provided, however, Lender shall not be responsible for any acts of any prior landlord under the lease, or the
act of any tenant, subtenant or other party which prevents Lender from complying with the provisions hereof and Tenant shall have no right to cancel the
Lease or to make any claims against Lender on account thereof.
Captions. Captions and headings of sections are not parts of this Agreement and shall not be deemed to affect the meaning or construction of any of the
provisions of this Agreement.
Counterparts. This Agreement may be executed in several counterparts each of which when executed and delivered is an original, but all of which
together shall constitute one instrument.
16.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.
17.
Parties Bound. The provisions of this Agreement shall be binding upon and inure to the benefit of Tenant, Lender and Borrower and their respective
successors and assigns; provided, however, reference to successors and assigns of Tenant shall not constitute a consent by Landlord or Borrower to an
assignment or sublet by Tenant, but has reference only to those instances in which such consent is not required pursuant to the Lease or for which such
consent has been given.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
LENDER:
FLEET NATIONAL BANK
/s/ Kristin A Clark
BY:
Name: Kristin A Clark
Title:
Senior Vice President
ATTEST:
Name:
Tittle:
Date executed by Lender: 1/8/01
TENANT:
COMFORT FOODS, INC
/s/ Michael Sullivan
BY:
Name: Michael Sullivan
Title: C.E.O
Date executed by Lender: 12/5/00
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
, ss. , 20
COMMONWEALTH OF MASSACHUSETTS
Then personally appeared before me ______________, a Vice-President of Fleet National Bank and acknowledged the foregoing to be (his) (her) free
act ant-deed and the free act and deed of said Fleet National Bank.
, Notary Public
My Commission Expires:
, ss. , 20
STATE OF
Then personally appeared the above-named ______________, ______________ of ______________ and acknowledged the foregoing to be his (her)
free act and deed as the ______________ of ______________ and the free act and deed of said ______________.
, Notary Public
My Commission Expires:
6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
One Clark Street North Andover LLC, as Landlord under the Lease, and Borrower under the Mortgage, the Loan Agreement and the other Loan
Documents, agrees for itself and its successors and assigns that:
1. The above agreement does not:
a. constitute a waiver by Lender of any of its rights under the Mortgage or any of the other Loan Documents; or
b.
in any way release Borrower from its obligations to comply with the terms, provisions, conditions, covenants and agreements and clauses of the
Mortgage and Security Agreement and other Loan Documents;
2. The provisions of the Mortgage remain in full force and effect and must be complied with by Borrower;
3. Tenant shall have the right to rely on any notice or request from Lender which directs Tenant to pay rent to Lender without any obligation to inquire as to
whether or not a default exists and notwithstanding any notice from or claim of Borrower to the contrary. Borrower shall have no right or claim against
Tenant for rent paid to Lender after Lender so notifies Tenant to make payment of rent to Lender; and
4. The Borrower shall be bound by all of the terms, conditions and provisions of the foregoing Agreement in all respects.
Executed and delivered as a sealed instrument as of the 6 th day of December, 2000.
BORROWER:
ONE CLARK STRET NORTH ANDOVER LLC
/s/ Brian Gagne
BY:
Name: Brian Gagne
Title: Manager
Date executed by Borrower: 12/6/00
STATE OF
, ss. , 20
Then personally appeared the above-named ______________, ______________ of ______________ and acknowledged the foregoing to be his (her)
free act and deed as the ______________ of ______________ and the free act and deed of said ______________.
, Notary Public
My Commission Expires:
7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-10.21 3 ex10-21.htm
SECOND AMENDMENT TO LEASE
Exhibit 10.21
WHEREAS, One Clark Street North Andover, LLC, a Massachusetts limited liability company (“Landlord”) and Comfort Foods, Inc., a Massachusetts
corporation (“Tenant”) are parties to that certain lease dated December 6, 2000, as amended by that certain First Amendment to Lease dated April 30, 2010
(hereinafter called the “Lease”), which Lease relates to 49,018 square feet of space in the building at 25 Commerce Way, Unit 5, North Andover, Massachusetts
(the “Premises”);
WHEREAS, Coffee Holding Company, Inc., a publicly traded company, has acquired all of the lessee’s interest in the Lease from Comfort Foods, Inc.
and is now the Tenant;
WHEREAS, 25 COMM NAM, LLC, a Massachusetts limited liability company, has succeeded to the interest of One Clark Street North Andover, LLC as
Landlord;
WHEREAS, the amended term of the Lease is scheduled to expire on May 31, 2018 and Landlord and Tenant have agreed to: extend the term of the
Lease so that it will expire on May 31, 2028, reduce the size of the Premises, modify the rent, and make certain other changes to the Lease as set forth herein
and the parties therefore desire to enter into this Second Amendment to confirm the foregoing;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in the Lease and contained herein, Landlord and Tenant
hereby agree to amend the Lease as follows:
1.
Section 1 of the Lease is hereby amended and restated as follows:
“Section 1 - Premises . The Premises shall be reduced from 49,018 square feet to 30,879 square feet and designated as Unit 5-B as shown on
the attached plan (“Exhibit A”).”
Except for the definition of “Commencement Date,” paragraphs (a) (b) and (c) of Section 1 of the Lease shall be deleted in their entirety and
replaced by the following:
“Landlord shall, at Landlord’s cost and expense, construct approximately 400 square feet of air conditioned office space in the Premises as
shown on Exhibit A. The Landlord’s work shall be in accordance with the specifications on the attached Exhibit B (the “Landlord’s Work”).
Landlord shall use reasonable efforts to substantially complete Landlord’s Work in a good and workmanlike manner. Landlord shall not be
responsible for any further work or improvements with respect to the Premises.
Tenant shall have up to 45 days after notice by Landlord of completion of Landlord’s Work to vacate the space designated as Suite 5 on Exhibit
A; however if Landlord has a prospective tenant for Suite 5, Tenant shall use best efforts to vacate that space as quickly as possible after
Landlord gives notice of such prospective tenant interest.”
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.
Numbered paragraph 1 of the First Amendment to Lease is hereby amended and restated as follows :
“Section 2 - Term. The current term of the Lease is hereby extended for ten (10) additional years and instead of expiring on May 31, 2018, shall
now expire on May 31, 2028 (the “Extension Term”).”
3.
Numbered paragraph 2 of the First Amendment to Lease is hereby deleted and restated as follows:
“Section 3 - Rent. Commencing on April 1, 2017, and continuing through the expiration of the Extension Term, Tenant shall pay to Landlord
rent for the Premises in the amount of $168,288 per year ($14,024.00 per month), in advance without set off or offset, on or before the first
day of each month. Notwithstanding the foregoing, commencing on April 1, 2022, and on each April 1 thereafter, the rent for each
succeeding lease year during the Extension Term shall be increased (but in no event decreased), if applicable, to an amount obtained by
multiplying $168,288 by a fraction, the numerator of which shall be the Consumer Price Index (“CPI”) for the immediately preceding March
and. the denominator of which shall be the CPI for April 1, 2017, as measured by the US Department of Labor Bureau of Labor Statistics
“CONSUMER PRICE INDEX FOR ALL URBAN CONSUMERS (CPI-U) for Boston-Brockton-Nashua, MA-NH-ME-CT for ALL ITEMS”. In the
event that the said Consumer Price Index is discontinued, comparable statistics on the purchasing power of the consumer dollar as
published at time of said discontinuation by a responsible financial periodical of· recognized authority, selected by Landlord, shall be used in
making the above computation.”
4.
The last sentence of Section 4 of the Lease is hereby deleted and restated as follows:
“The Tenant’s Proportionate Share shall be eighteen and three-tenths percent (18.3%), based on 30,879 square feet divided by 168,735 square
feet of total building area.”
5.
6.
Section 6- Security Deposit should be deleted. Landlord will refund existing security deposit to tenant within 7 days of execution of the Second
Amendment to Lease.
Section 41 of the Lease is hereby amended as follows: the reference therein to “original term” shall be deleted therefrom and in its place and
stead shall be added “Extension Term”; and the reference therein to “extended term” shall be deleted therefrom and in its place and stead shall
be added “five-year extension term”.
7.
Paragraph 4 of the First Amendment to Lease is hereby deleted in its entirety and restated as follows:
“Tenant acknowledges that it is presently in possession of the Premises, that the Landlord’s work described in numbered paragraph 4 the
First Amendment to Lease was completed and accepted by Tenant and that the Premises are leased in “AS IS, WHERE IS” condition,
without any warranty or representation whatsoever, except for Landlord’s Work as described in Section 1 herein.”
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
8.
9.
Numbered paragraphs 5 and 6 of the First Amendment to Lease are hereby deleted in their entirety.
Landlord acknowledges that CBRE/NE is the sole broker representing Tenant in this transaction and Landlord shall pay CBRE/NE an agreed
upon fee for this transaction in the amount of $40,000. The parties represent and warrant to each other that they had no contact with any other
real estate broker, salesman or finder in connection with the transaction resulting in this Second Amendment. Except as provided above, Tenant
agrees to indemnify Landlord and hold Landlord harmless from and against any loss, liability, damage, cost or expense (including, without
limitation, reasonable attorney’s fees) paid or incurred by Landlord by reason of any claim to broker’s, finder’s or other fee in connection with·
this transaction by any party claiming by, through or under Tenant.
10.
Section 30 of the Lease shall be amended to delete the section in its entirety and to add in its place and stead the following:
“Section 30 - Notices. Any written notice, request or demand required or permitted by this lease shall, until either party shall notify the other
in writing of a different address, be properly given if sent by certified first class mail, postage prepaid, return receipt requested, or by prepaid
overnight delivery service, and shall be deemed given on the day that such writing is received by the party to whom it is sent, and addressed
(if notice is given by mail or overnight delivery service) as follows:
If to Landlord:
25 Comm NAM, LLC
c/o Pinnacle Properties Management, LLC
4 Preston Ct
Bedford, MA 01730
Attn: Frederick D. Keefe
With a copy to:
Endeavor Law Firm, LLC
10955 Lowell Ave, Suite 600
Overland Park, KS 66210
Attn: Frank Brady
If to Tenant:
Coffee Holding Company, Inc.
25 Commerce Way
North Andover, MA 01845
Attn: Manager
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
With a copy to:
Coffee Holding Company, Inc.
3475 Victory Blvd
Staten Island, NY
11.
Attn: David Gordon, Vice President, Operations “Section 33 subsection (b) of the Lease is hereby amended as follows: the phrase “Brian L.
Gagne, the Manager of Aries Property company, LLC” is replaced by “Frederick Keefe, Manager of Pinnacle Properties Management, LLC,
Manager of 25 Comm NAM, LLC”;
12.
The “Guaranty of Lease” from Michael J. Sullivan is deleted in its entirety,
13.
Capitalized terms used herein but not defined herein shall have the meaning ascribed to such term in the Lease.
14.
Time is of the essence with respect to this Second Amendment.
15.
Except as specifically modified hereby, the Lease and its terms shall remain in full force and effect and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed and delivered as of this day of March, 2017.
LANDLORD:
TENANT:
25 COMM NAM, LLC, a Massachusetts limited liability company
COFFEE HOLDING COMPANY, INC.
By: Pinnacle properties Management, LLC, its Manager
By:
/s/ Frederick D. Keefe
Frederick D. Keefe, Manager
/s/ Andrew Gordon
By:
Name: Andrew Gordon
Title:
President/CEO
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-21.1 4 ex21-1.htm
COFFEE HOLDING CO., INC.
Significant Subsidiaries
EXHIBIT 21.1
Name of Entity
Jurisdiction
Organic Products Trading Company, LLC
United States, Washington
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-31.1 5 ex31-1.htm
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:
I have reviewed this annual report on Form 10-K for the period ended October 31, 2017 of Coffee Holding Co., Inc.;
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
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.
1.
2.
3.
4.
(a)
(b)
(c)
(d)
5.
(a)
(b)
Date: January 29, 2018
/s/ Andrew Gordon
Andrew Gordon
President, Chief Executive Officer, Chief Financial Officer and Treasurer
(Principal Executive Officer, Principal Financial Officer, Chief Accounting Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-32.1 6 ex32-1.htm
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,
2017 (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 29, 2018
/s/ Andrew Gordon
Andrew Gordon
President, Chief Executive Officer, Chief Financial Officer and Treasurer
(Principal Executive Officer, Principal Financial Officer, Chief Accounting Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.