What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-03-17 compared with 2021-09-13 · 99 added, 143 removed, 138 unchanged (64% of the section changed)

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Under the terms of the agreement with The Jordre Well, The

Jordre Well assists us in the development and commercialization of CBD-infused line extensions for the existing coffee brands within

Jordre Well will assist us in the development and commercialization of CBD-infused line extensions for the existing coffee brands within

our portfolio, as well as launch new brands that are intended to serve consumer demand for non-coffee CBD-infused beverages and products.

In July 2021, we and The Jordre Well commenced commercial sales of our first CBD-infused line extension for our flagship dark roast Latin

espresso brand, Café Caribe, as well as our first CBD-infused line extension for our gourmet coffee brand, Harmony Bay.

these efforts will allow us to expand our business.

We believe these efforts will allow us to expand our business.

sales are affected by the price of green coffee.

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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

In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses.

have and could in the future materially increase our cost of sales and materially decrease our profitability and adversely affect our

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.

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.

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.

global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S.

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we are classified as an essential business and its factories continued to operate with little to no impact from the pandemic-related

date, we have experienced minimal disruption to our supply chain or distribution network, including the supply of green coffee beans,

though it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world.

We are also working closely with all of our business partners.

As a food producer, we are an essential service and almost all of our

employees continue to work within our production and distribution facilities.

COVID-19 pandemic has had a material adverse impact on our condensed consolidated financial statements for the three and nine months

ended July 31, 2021, and it has resulted, and is expected to continue to result for at least the near and immediate term, in significant

economic disruptions and changes to consumer behaviors in the United States, which, has impacted and is expected to continue to negatively

impact our business.

date, we have experienced disruption to our supply chain or distribution network, including the supply of green coffee beans, though

it is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world.

are also working closely with all of our business partners.

As a food producer, we are an essential service and almost all of our employees

continue to work within our production and distribution facilities.

COVID-19 pandemic has had a material adverse impact on our condensed consolidated financial statements for the three months ended January

31, 2022, and it has resulted, and is expected to continue to result for at least the near and immediate term, in significant economic

disruptions and changes to consumer behaviors in the United States, which, has impacted and is expected to continue to negatively impact

our business.

Many of our customers who purchase green coffee from us for use in cafés, restaurants and food service operations,

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However, as sales

to the café, restaurant and food service segment decreased in the current quarter, sales to large wholesaler and retail customers

increased, as there was a shift in buying and consumption of coffee products to this segment.

to the café, restaurant and food service segment decreased in the quarter, sales to large wholesaler and retail customers increased,

as there was a shift in buying and consumption of coffee products to this segment.

continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages

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Accounting Policies and Estimates

have been no changes to our critical accounting policies during the three and nine months ended July 31, 2021.

have been no changes to our critical accounting policies during the three months ended January 31, 2022.

Critical accounting policies

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and Results of Operations” as well as in our consolidated financial statements and footnotes thereto, each included in our annual

report on Form 10-K filed with the SEC on February 16, 2021 for the fiscal year ended October 31, 2020.

Months Ended July 31, 2021 Compared to the Three Months Ended July 31, 2020

Net sales totaled $13,634,313 for the three months ended July 31, 2021, a decrease of $3,709,696, or 21.3%, from $17,344,009

for the three months ended July 31, 2020.

The decrease in net sales was due to multiple factors, including a 35% decline in cases shipped

from our largest production facility in Colorado, as sales to supermarket and wholesale accounts declined significantly during the quarter

due to the post Covid-19 demand along with an approximately $1,400,000 decline in sales from our Generations/Steep N Brew subsidiary.

Cost of sales for the three months ended July 31, 2021 was $10,708,461, or 78.5% of net sales, as compared to $13,517,482,

or 77.9% of net sales, for the three months July 31, 2020.

report on Form 10-K filed with the SEC on January 31, 2022 for the fiscal year ended October 31, 2021.

Months Ended January 31, 2022 Compared to the Three Months Ended January 31, 2021

Net sales totaled $16,704,860 for the three months ended January 31, 2022, a decrease of $1,428,977, or 7.9%, from $18,133,837

for the three months ended January 31, 2021.

The decrease in net sales was due to an approximately $1,323,000 decline in sales from our

Generations/Steep N Brew subsidiary due to loss of customers.

Cost of sales for the three months ended January 31, 2022 was $12,433,252, or 74.4% of net sales, as compared to $13,654,169,

or 75.3% of net sales, for the three months January 31, 2021.

Cost of sales consists primarily of the cost of green coffee and packaging

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The decrease in cost of sales was due to our decreased sales.

partially offset by higher packaging costs due to increases in materials, most notably steel for our cans.

Gross profit for the three months ended July 31, 2021 amounted to $2,925,852 or 21.5% of net sales, as compared to $3,826,527

or 22.1% of net sales, for the three months ended July 31, 2020.

The decrease in gross profit percentage was attributable to decreased

margins on our roasted and branded products due to higher packaging and green coffee costs as most of our wholesale and retail accounts

were still operating under the pricing structures in place prior to the rise in green coffee prices towards the end of the quarter which

was partially offset by higher selling prices at the end of the quarter to our green coffee customers.

Total operating expenses decreased by $12,918 to $3,239,317 for the three months ended July 31, 2021 from $3,252,235

for the three months ended July 31, 2020.

On a percentage basis cost of sales decreased by 0.9% due to our favorable green coffee position in our inventory partially offset by

higher costs of our packaging materials, specifically the cost of steel and the approximately $475,000 change in our open hedging positions.

Gross profit for the three months ended January 31, 2022 amounted to $4,271,608 or 25.6% of net sales, as compared to

$4,479,668 or 24.7% of net sales, for the three months ended January 31, 2021.

The increase in gross profits on a percentage basis was

attributable to the factors listed above.

Total operating expenses increased by $407,592 to $3,720,878 for the three months ended January 31, 2022 from $3,313,286

for the three months ended January 31, 2021.

Selling and administrative expenses increased by $409,680 and officers’ salaries decreased

Our continued efforts to control costs through the elimination of redundancy in our operations and the elimination of certain

unnecessary variable costs were the primary reasons for this decrease.

These efforts were partially offset by the continued increase

in our freight costs as the cost of truckload and LTL (less than full truckloads) deliveries to our largest wholesale customers continued

to increase during the quarter.

Income (Expense).

Other expense for the three months ended July 31, 2021 was $5,956, a decrease of $40,627 from $46,583 for the

three months ended July 31, 2020.

The decrease in other expense was attributable to a decrease in interest expense of $40,081, an increase

in our loss from our equity investments of $1,907 and an increase in our interest income of $2,453, during the three months ended July

31, 2021 as compared to the three months ended July 31, 2020.

Our benefit for income taxes for the three months ended July 31, 2021 totaled $91,003 compared to a provision of $161,454

for the three months ended July 31, 2020.

The change was primarily attributable to the difference in the income for the quarter ended

July 31, 2021 versus the income in the quarter ended July 31, 2020.

We had a net loss of $127,051 or $0.02 per share basic and diluted, for the three months ended July 31, 2021 compared

to net income of $391,324, or $0.07 per share basic and diluted for the three months ended July 31, 2020.

This was driven primarily by

losses out of our Generations subsidiary of approximately $152,000 along with the non-cash cost of our stock option program of approximately

$189,768 for the quarter.

Months Ended July 31, 2021 Compared to the Nine Months Ended July 31, 2020

Net sales totaled $46,236,708 for the nine months ended July 31, 2021, a decrease of $10,488,678, or 18.5%, from $56,725,386

for the nine months ended July 31, 2020.

The decrease in net sales was due to multiple factors, including an approximate $2,500,000 decrease

in sales from our Generations/Steep N Brew subsidiary, a decline in sales of green coffee during the first half of the year as many of

our customers remained closed or impaired by continued COVID-19 restrictions as well as a decline in sales to supermarkets on private

label products during the quarter.

Cost of sales for the nine months ended July 31, 2021 was $35,061,947, or 75.8% of net sales, as compared to $45,287,198,

or 79.8% of net sales, for the nine months July 31, 2020.

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 was due to our decreased sales

partially offset by higher packaging costs due to increases in materials, most notably steel for our cans.

Gross profit for the nine months ended July 31, 2021 amounted to $11,174,761 or 24.2% of net sales, as compared to $11,438,188

or 20.2% of net sales, for the nine months ended July 31, 2020.

The increase in gross profit percentage was attributable to increased

margins on our roasted and branded products and green coffee sales in the last year, partially due to the movement of lower cost

green coffee inventory built up in previous quarters, partially offset by higher packaging costs due to increases in materials, most

notably steel for our cans.

Total operating expenses decreased by $662,947 to $9,867,700 for the nine months ended July 31, 2021 from $10,530,647

for the nine months ended July 31, 2020.

Selling and administrative expenses decreased by $625,794 and officers’ salaries decreased

Our continued efforts to control costs through the elimination of redundancy in our operations and the elimination of certain

unnecessary variable costs were the primary reasons for this decrease.

These efforts were partially offset by the continued increase

in our freight costs as the cost of truckload and LTL (less than full truckloads) deliveries to our largest wholesale customers was up

approximately 20% year over year.

Operating expenses increased primarily due to increases of approximately $213,000 in professional fees, $55,000 in freight

costs and $139,000 in labor costs, partially offset by decreases in various other operating expense categories

Income (Expense).

Other expense for the nine months ended July 31, 2021 was $52,450, a decrease of $99,887 from $152,337 for

the nine months ended July 31, 2020.

The decrease in other expense was attributable to a decrease in interest expense of $102,032 and

an increase in our interest income of $685, partially offset by an increase in our loss from our equity investments of $2,830, during

the nine months ended July 31, 2021 as compared to the nine months ended July 31, 2020.

Our provision for income taxes for the nine months ended July 31, 2021 totaled $419,326 compared to a provision of $250,804

for the nine months ended July 31, 2020.

The change was primarily attributable to the difference in the income for the nine months ended

July 31, 2021 versus the income in the nine months ended July 31, 2020.

We had net income of $907,305 or $0.16 per share basic and diluted, for the nine months ended July 31, 2021 compared

to net income of $289,994, or $0.05 per share basic and diluted for the nine months ended July 31, 2020.

The increase in net income was

due primarily to the reasons described above.

Other expense for the three months ended January 31, 2022 was $70,798, an increase of $41,941 from $28,857

for the three months ended January 31, 2021.

The increase in other expense was attributable to an increase in interest expense of $13,941,

an increase in our loss from our equity investments of $29,127, partially offset by an increase in our interest income of $1,127, during

the three months ended January 31, 2022.

Our provision for income taxes for the three months ended January 31, 2022 totaled $137,406 compared to a provision of

$381,243 for the three months ended January 31, 2021.

The change was primarily attributable to the difference in the income for the quarter

ended January 31, 2022 versus the income in the quarter ended January 31, 2021.

We had net income of $280,863 or $0.05 per share basic and diluted, for the three months ended January 31, 2022 compared

to net income of $677,312, or $0.12 per share basic and diluted for the three months ended January 31, 2021.

The decrease in net income

was due primarily to the reasons described above.

and Capital Resources

of July 31, 2021, we had working capital of $20,573,060, which represented a $3,466,478 decrease from our working capital of $24,039,538

as of October 31, 2020, and total stockholders’ equity of $27,995,276 which increased by $1,476,610 from our total stockholders’

equity of $26,518,666 as of October 31, 2020.

Our working capital decreased primarily due to decreases of $1,156,932 in accounts receivable,

$750,468 in inventories, $92,597 in prepaid and refundable income taxes, increases of $1,048,073 in accounts payable and accrued expenses,

increases in our line of credit – current portion of $2,500,000, increases of $288,294 in income taxes payable, partially offset

by increase of $1,636,300 in cash, $339,855 in prepaid expenses, decreases in lease liability – current portion of $77,287, note

payable – current portion of $875, and due to broker of $315,569.

As of July 31, 2021, the outstanding balance on our line of credit

of January 31, 2022, we had working capital of $20,216,164, which represented a $232,729 increase from our working capital of $19,983,435

as of October 31, 2021.

Our working capital increased primarily due to increases of $320,500 in cash, $854,374 in inventories, $107,069

in prepaid expenses and other current assets, decreases of $1,897,340 in accounts payable and accrued expenses, decreases of $76,852

in due to broker, decrease of $28,925 in lease liabilities – current portion, partially offset by decreases of $757,812 in accounts

receivable, $143,619 in due from broker, $3,750 in prepaid and refundable taxes, increase of $1,600,000 in line of credit increase in

dividend payable of $399,000 and $148,150 in income taxes payable.

As of January 31, 2022, the outstanding balance on our line of credit

was $5,400,850 compared to $3,800,850 as of October 31, 2021.

April 25, 2017, we and Organic Products Trading Company, LLC (“OPTCO”)(collectively, the “Borrowers”) entered

into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility

(the “A&R Loan Facility”) with Sterling National Bank (“Sterling”), which consolidated (i) the financing

agreement between us and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the

financing agreement between us, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”),

amongst other things.

April 25, 2017, we and OPTCO (collectively, the “Borrowers”) entered into an Amended and Restated Loan and Security Agreement

(the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R Loan Facility”) with Sterling

National Bank (“Sterling”), which consolidated (i) the financing agreement between the Company and Sterling, dated February

17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between us, as guarantor, OPTCO

and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things.

March 13, 2020, we reached an agreement for a new loan modification agreement and credit facility with Sterling.

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LIBOR plus 1.75% (with such interest rate not to be lower than 3.50%).

On March 17, 2022, we reached an agreement for a new loan modification

agreement and credit facility which extended the maturity date to June 29, 2022.

All other terms of the A&R Loan Agreement and A&R

Loan Facility remain the same.

of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions

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and preferred stock), and restrictions on intercompany transactions.

We were in compliance with all covenants as of July 31, 2021 and

October 31, 2020.

We were in compliance with all covenants as of January 31, 2022 and October 31, 2021.

of the A&R Loan Facility and the A&R Loan Agreement is secured by all of our tangible and intangible assets.

Other than as amended

and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remain in full force and

the nine months ended July 31, 2021, our operating activities provided net cash of $4,428,138 as compared to the nine months ended July

and restated by the A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing Agreement remains in full force and

to the terms of the Jordre Well Agreement, we issued to The Jordre Well 139,250 shares of our Common Stock on the effective date of the

Jordre Well Agreement and are obligated to issue an additional 139,250 shares of Common Stock once $500,000 in revenue is generated from

the joint venture.

the three months ended January 31, 2022, our operating activities used net cash of $1,233,464 as compared to the three months ended January

31, 2021 when operating activities provided net cash of $2,765,148.

The increased cash flow from operations for the nine months ended

July 31, 2021 was primarily due to our inventory usage during the quarter and our net income.

the nine months ended July 31, 2021, our investing activities used net cash of $1,491,233 as compared to the nine months ended July 31,

The decreased cash flow from operations for the three months ended

January 31, 2022 was primarily due to our paydown of our accounts payable and accrued expenses.

the three months ended January 31, 2022, our investing activities used net cash of $44,729 as compared to the three months ended January

31, 2021 when net cash used by investing activities was $66,151.

The increase in our uses of cash in investing activities was due to our

increased purchases of building, machinery and equipment.

In June 2021, the Company purchased a facility in Colorado for $900,321 that

it was previously leasing.

the nine months ended July 31, 2021, our financing activities used net cash of $1,300,605 compared to net cash used by financing activities

of $2,739,728 for the nine months ended July 31, 2020.

The change in cash flow from financing activities for the nine months ended July

31, 2021 was due to our decreased principal payments on our credit line, partially offset by increased proceeds.

Company believes that, based on its current cash position, and its current projection of revenue, expenses, capital expenditures and

cash flows, it has sufficient resources to fund its operations for at least the next twelve months following the filing of this Report.

The decrease in our uses of cash in investing activities was due to

our reduced purchases of machinery and equipment during the three months ended January 31, 2022.

the three months ended January 31, 2022, our financing activities provided net cash of $1,598,693 compared to net cash used by financing

activities of $2,845,336 for the three months ended January 31, 2021.

The change in cash flow from financing activities for the three

months ended January 31, 2022 was due to our credit line activity.

expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness,

through at least the next twelve months from the date these consolidated financial statements were available to be issued, 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.

Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis