COFFEE HOLDING CO INC - Quarter Report: 2016 April (Form 10-Q)

Nevada	11–2238111
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

3475 Victory Boulevard, Staten Island, New York	10314
(Address of principal executive offices)	(Zip Code)

N/A

 

PART I		Pages
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
ITEM 4.	CONTROLS AND PROCEDURES	21
PART II
ITEM 1.	LEGAL PROCEEDINGS.	22
ITEM 1A.	RISK FACTORS.	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	22
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	22
ITEM 4.	MINE SAFETY DISCLOSURES.	22
ITEM 5.	OTHER INFORMATION.	22
ITEM 6.	EXHIBITS.	22

 

 

		April 30, 2016				October 31, 2015
		(Unaudited)
- ASSETS -
CURRENT ASSETS:
Cash		$	3,198,097			$	3,853,816
Accounts receivable, net of allowances of  $144,000 for 2015 and 2014			11,318,009				10,968,237
Inventories			12,333,449				13,862,818
Prepaid green coffee			344,439				620,452
Prepaid expenses and other current assets			273,395				256,202
Prepaid income taxes			931,727				1,434,577
Due from broker			205,253				-
Deferred income tax asset			53,595				997,720
TOTAL CURRENT ASSETS			28,657,964				31,993,822
Machinery and equipment, at cost, net of accumulated depreciation of $4,516,493 and  $4,241,256 for 2016 and 2015, respectively			1,839,981				1,845,000
Customer list and relationships, net of accumulated amortization of $45,000 and $41,250 for 2016 and 2015, respectively			105,000				108,750
Trademarks			180,000				180,000
Goodwill			440,000				440,000
Equity method investment			96,327				96,571
Deposits and other assets			601,993				610,499
TOTAL ASSETS		$	31,921,265			$	35,274,642
- LIABILITIES AND STOCKHOLDERS’ EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	3,271,416			$	4,021,389
Line of credit			2,654,121				5,554,121
Due to broker			-				483,835
Income taxes payable			500				-
TOTAL CURRENT LIABILITIES			5,926,037				10,059,345
Deferred income tax liabilities			20,995				92,370
Deferred rent payable			226,636				222,055
Deferred compensation payable			489,826				482,499
TOTAL LIABILITIES			6,663,494				10,856,269
STOCKHOLDERS’ EQUITY:
Coffee Holding Co., Inc. stockholders’ equity:
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; no shares issued and outstanding			-				-
Common stock, par value $.001 per share; 30,000,000 shares authorized, 6,456,316 shares issued; 6,068,119 and 6,162,207 shares outstanding at April 30, 2016 and October 31, 2015, respectively			6,456				6,456
Additional paid-in capital			15,904,109				15,904,109
Retained earnings			10,936,310				9,665,940
Less: Treasury stock, 388,197 and 294,109 common shares, at cost for six months ended April 30, 2016 and 2015, respectively			(1,881,031	)			(1,494,712	)
Total Coffee Holding Co., Inc. Stockholders’ Equity			24,965,844				24,081,793
Non-controlling interest			291,927				336,580
TOTAL EQUITY			25,257,771				24,418,373
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	31,921,265			$	35,274,642

 

 

 

		Six Months Ended April 30,								Three Months Ended April 30,
		2016				2015				2016				2015
NET SALES		$	44,212,334			$	68,669,033			$	21,406,939			$	30,263,054
COST OF SALES (including $5.6 and $14.9 million of related party costs for the six months ended April 30, 2016 and 2015, respectively. Including $2.0 and $5.1 million for the three months ended April 30, 2016 and 2015, respectively.)			38,251,840				67,824,859				18,097,486				31,340,321
GROSS PROFIT (LOSS)			5,960,494				844,174				3,309,453				(1,077,267	)
OPERATING EXPENSES:
Selling and administrative			3,466,440				3,563,835				1,789,489				1,897,480
Officers’ salaries			327,700				325,585				163,850				172,850
TOTAL			3,794,140				3,889,420				1,953,339				2,070,330
INCOME (LOSS) FROM OPERATIONS			2,166,354				(3,045,246	)			1,356,114				(3,147,597	)
OTHER INCOME (EXPENSE)
Interest income			21,000				13,228				10,988				4,930
(Loss) gain from equity method investment			(244	)			448				212				(267	)
Interest expense			(73,473	)			(118,612	)			(33,670	)			(64,633	)
TOTAL			(52,717	)			(104,936	)			(22,470	)			(59,970	)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY			2,113,637				(3,150,182	)			1,333,644				(3,207,567	)
Provision (benefit) for income taxes			787,920				(1,189,825	)			485,356				(1,158,721	)
NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY			1,325,717				(1,960,357	)			848,288				(2,048,846	)
Less: Net (income) attributable to the non-controlling interest			(55,347	)			(20,402	)			(17,487	)			(3,714	)
NET INCOME (LOSS) ATTRIBUTABLE TO COFFEE HOLDING CO., INC.		$	1,270,370			$	(1,980,759	)		$	830,801			$	(2,052,560	)
Basic and diluted earnings (loss) per share		$	.21			$	(.32	)		$	.14			$	(.33	)
Weighted average common shares outstanding:
Basic and diluted			6,148,039				6,215,894				6,133,557				6,215,894

 

 

		2016				2015
OPERATING ACTIVITIES:
Net income (loss)		$	1,325,717			$	(1,960,357	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			278,987				274,022
Unrealized gain on commodities			(689,088	)			(489,696	)
Loss (gain) loss on equity method investment			244				(448	)
Deferred rent			4,581				6,206
Deferred income taxes			872,750				(1,143,650	)
Changes in operating assets and liabilities:
Accounts receivable			(349,772	)			2,263,522
Inventories			1,529,369				2,536,227
Prepaid expenses and other current assets			(17,193	)			82,747
Prepaid green coffee			276,013				346,043
Prepaid and refundable income taxes			502,850				(1,387,393	)
Deposits and other assets			15,833				-
Accounts payable and accrued expenses			(749,970	)			(3,215,641	)
Income taxes payable			500				(331,051	)
Net cash provided by (used in) operating activities			3,000,821				(3,019,469	)
INVESTING ACTIVITIES:
Purchases of machinery and equipment			(270,221	)			(341,337	)
Net cash used in investing activities			(270,221	)			(341,337	)
FINANCING ACTIVITIES:
Advances under bank line of credit			600,000				9,272,578
Principal payments under bank line of credit			(3,500,000	)			(6,000,000	)
Purchase of treasury stock			(386,319	)			-
Payment of dividend			(100,000	)			(80,000	)
Net cash (used in) provided by financing activities			(3,386,319	)			3,192,578
NET DECREASE IN CASH			(655,719	)			(168,228	)
CASH, BEGINNING OF PERIOD			3,853,816				3,782,639
CASH, END OF PERIOD		$	3,198,097			$	3,614,411
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid		$	81,276			$	112,585
Income taxes paid		$	25,008			$	1,641,197

 

 

 

		April 30, 2016				October 31, 2015
Packed coffee		$	1,815,454			$	1,441,451
Green coffee			9,766,891				11,730,006
Packaging supplies			751,104				691,361
Totals		$	12,333,449			$	13,862,818

 

 

 

		April 30, 2016				October 31, 2015
Option Contracts			2,647				(134,613	)
Future Contracts			202,606				(349,222	)
Total Commodities			205,253				(483,835	)

 

 

 

 

 

		Three Months Ended April 30,
		2016				2015
Gross realized gains		$	445,314			$	52,670
Gross realized losses			(368,745	)			(5,259,865	)
Unrealized gain (losses)			687,536				1,851,504
Total		$	764,105			$	(3,355,691	)

 

		Six Months Ended April 30,
		2016				2015
Gross realized gains		$	565,912			$	698,267
Gross realized losses			(901,128	)			(6,240,545	)
Unrealized gains			689,088				489,695
Total		$	353,872			$	(5,052,583	)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

●

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;

●

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”).

 

 

 

 

 

●

the sale of wholesale specialty green coffee;

●

the roasting, blending, packaging and sale of private label coffee; and

●

the roasting, blending, packaging and sale of our seven proprietary brands of coffee.

 

●

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.

 

 

 

 

 

 

●

We recognize revenue in accordance with the relevant authoritative guidance.  Revenue is recognized at the point title and risk of ownership transfers to its customers which is upon the shippers taking possession of the goods because i) title passes in accordance with the terms of the purchase orders and with our agreements with our customers, ii) any risk of loss is covered by the customers’ insurance, iii) there is persuasive evidence of a sales arrangement, iv) the sales price is determinable and v) collection of the resulting receivable is reasonably assured.  Thus, revenue is recognized at the point of shipment.

 

●

Our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments.  If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required.  For example, every additional one percent of our accounts receivable that becomes uncollectible, would decrease our operating income by approximately $113,000 for the quarter ended April 30, 2016.  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 $123,000 for the quarter ended April 30, 2016.

●

The commodities held at broker represent the market value of the Company’s trading account, which consists of option and futures contracts for coffee held with a brokerage firm. We use options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the consolidated financial statements with current recognition of gains and losses on such positions. We classify options and futures contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings. We record realized and unrealized gains and losses in our cost of sales in the statement of operations/income.

 

●

We account for income taxes in accordance with the relevant authoritative guidance.  Deferred tax assets and liabilities are computed for temporary differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.  Accordingly, our net deferred tax asset as of April 30, 2016 of $53,595 may require a valuation allowance if we do not generate taxable income.

 

●

Our goodwill consists of the cost in excess of the fair market value of the acquired net assets of OPTCO, which has been integrated into a structure that does not provide the basis for separate reporting units. Consequently, we are a single reporting unit for goodwill impairment testing purposes. We also have intangible assets consisting of our customer list and relationships and trademarks acquired from OPTCO. At April 30, 2016 our balance sheet reflected goodwill and intangible assets as set forth below:

		April 30, 2016
Customer list and relationships, net		$	105,000
Trademarks			180,000
Goodwill			440,000
		$	725,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period		(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 (2)
February 1, 2016 to February 29, 2016			0				-				-				-
March 1, 2016 to March 31, 2016			43,989			$	3.95				43,989			$	1,599,529
April 1, 2016 to April 30, 2016			50,099			$	4.25				50,099			$	1,386,831
Total			94,088			$	4.11				94,088			$	1,386,831

(1)

On September 29, 2015, we announced that the Board of Directors had approved a share repurchase program (the “2015 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 Share Repurchase Program may be discontinued or suspended at any time.

(2)

Dollar amount reflects the value of shares purchased previously pursuant to the 2015 Share Repurchase Program during the fiscal quarter ended October 31, 2015.

 

 

 

 

 

 

 

31.1		Principal Executive Officer and Principal Financial Officer's Certification furnished 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.

 

---