COFFEE HOLDING CO INC 10-Q

ITEM 1 – FINANCIAL STATEMENTS. COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS JANUARY 31, 2022 AND OCTOBER 31, 2021 January 31, 2022 October 31, 2021 (Unaudited) - ASSETS - CURRENT ASSETS: Cash and cash equivalents $ 4,016,775 $ 3,696,275 Accounts receivable, net of allowances of $ 144,000 for 2021 and 2020 8,542,166 9,299,978 Inventories 16,816,240 15,961,866 Due from broker 581,381 725,000 Prepaid expenses and other current assets 649,293 542,224 Prepaid and refundable income taxes 72,202 75,952 TOTAL CURRENT ASSETS 30,678,057 30,301,295 Building machinery and equipment, net 2,567,236 2,662,628 Customer list and relationships, net of accumulated amortization of $ 247,819 and $ 237,131 for 2022 and 2021, respectively 437,181 447,869 Trademarks and tradenames 408,000 408,000 Non-compete, net of accumulated amortization of $ 74,250 and $ 69,300 for 2022 and 2021, respectively 24,750 29,700 Goodwill 2,488,785 2,488,785 Equity method investments 370,519 402,245 Investment - other 2,500,000 2,500,000 Deferred income tax asset - net 93,186 77,394 Right of Use Asset 3,443,105 3,545,786 Deposits and other assets 508,086 449,225 TOTAL ASSETS $ 43,518,905 $ 43,312,927 - LIABILITIES AND STOCKHOLDERS’ EQUITY - CURRENT LIABILITIES: Accounts payable and accrued expenses $ 3,150,300 $ 5,047,640 Line of credit – current portion 5,400,850 3,800,850 Due to broker 631,469 708,321 Note payable – current portion 4,200 4,200 Lease liability – current portion 311,475 340,400 Dividend payable 399,000 - Income taxes payable 564,599 416,449 TOTAL CURRENT LIABILITIES 10,461,893 10,317,860 Lease liabilities 3,239,638 3,299,784 Note payable – long term 11,785 13,092 Deferred compensation payable 301,976 311,872 TOTAL LIABILITIES 14,015,292 13,942,608 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, 6,633,930 shares issued for 2022 and 2021; 5,708,599 shares outstanding for 2022 and 2021 6,634 6,634 Additional paid-in capital 18,878,565 18,688,797 Retained earnings 14,353,085 14,471,222 Less: Treasury stock, 925,331 common shares, at cost for 2022 and 2021 ( 4,633,560 ) ( 4,633,560 ) Total Coffee Holding Co., Inc. Stockholders’ Equity 28,604,724 28,533,093 Noncontrolling interest 898,889 837,226 TOTAL EQUITY 29,503,613 29,370,319 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 43,518,905 $ 43,312,927 See Notes to Condensed Consolidated Financial Statements - 3 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JANUARY 31, 2022 AND 2021 (Unaudited) 2022 2021 NET SALES $ 16,704,860 $ 18,133,837 COST OF SALES (which includes purchases of approximately $ 1.2 million and $ 0.7 million in fiscal years 2022 and 2021, respectively, from a related party) 12,433,252 13,654,169 GROSS PROFIT 4,271,608 4,479,668 OPERATING EXPENSES: Selling and administrative 3,569,740 3,160,060 Officers’ salaries 151,138 153,226 TOTAL 3,720,878 3,313,286 INCOME FROM OPERATIONS 550,730 1,166,382 OTHER INCOME (EXPENSE): Interest income 1,537 410 Loss from equity method investments ( 31,725 ) ( 2,598 ) Interest expense ( 40,610 ) ( 26,669 ) TOTAL ( 70,798 ) ( 28,857 ) INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY 479,932 1,137,525 Provision for income taxes 137,406 381,243 NET INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY 342,526 756,282 Less: Net income attributable to the non-controlling interest in subsidiary ( 61,663 ) ( 78,970 ) NET INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC. $ 280,863 $ 677,312 Basic and diluted earnings earnings per share $ .05 $ .12 Weighted average common shares outstanding: Basic and diluted 5,708,599 5,708,599 See Notes to Condensed Consolidated Financial Statements - 4 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY THREE MONTHS ENDED JANUARY 31, 2022 AND 2021 (Unaudited) Shares Amount Shares Amount Capital Earnings Interest Total Common Stock Treasury Stock Additional Paid-in Retained Non- Controlling Shares Amount Shares Amount Capital Earnings Interest Total Balance, October 31, 2020 5,708,599 $ 6,494 925,331 $ ( 4,633,560 ) $ 17,929,724 $ 13,215,868 $ 1,224,903 $ 27,743,569 Stock Compensation - - - - 189,768 187,768 Net income - - - - 677,312 677,312 Non-Controlling Interest - - - - 78,970 78,970 Balance, January 31, 2021 5,708,599 $ 6,494 925,331 $ ( 4,633,560 ) $ 18,119,492 $ 13,893,180 $ 1,303,873 $ 28,689,619 Balance, October 31, 2021 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,688,797 $ 14,471,222 $ 837,226 $ 29,370,319 Stock Compensation - - - - 189,768 189,768 Net income - - - - 280,863 280,863 Dividend to common shareholders - - - - ( 399,000 ) ( 399,000 ) Non-Controlling Interest - - - - 61,663 61,663 Balance, January 3l, 2022 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,878,565 $ 14,353,085 $ 898,889 $ 29,503,613 See Notes to Condensed Consolidated Financial Statements - 5 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JANUARY 31, 2022 AND 2021 (Unaudited) 2022 2021 OPERATING ACTIVITIES: Net income $ 342,526 $ 756,282 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 155,759 168,191 Stock-based compensation 189,768 189,768 Unrealized loss (gain) on commodities 66,767 ( 415,075 ) Loss on equity method investments 31,726 2,598 Amortization of right to use asset 102,681 112,587 Deferred income taxes ( 15,792 ) 180,649 Changes in operating assets and liabilities: Accounts receivable 757,812 ( 399,548 ) Inventories ( 854,374 ) 1,403,694 Prepaid expenses and other current assets ( 107,069 ) ( 19,408 ) Prepaid and refundable income taxes 3,750 85,114 Lease liability ( 89,071 ) ( 124,044 ) Deposits and other assets ( 68,757 ) - Accounts payable and accrued expenses ( 1,897,340 ) 708,929 Income taxes payable 148,150 115,411 Net cash (used in) provided by operating activities ( 1,233,464 ) 2,765,148 INVESTING ACTIVITIES: Purchases of machinery and equipment ( 44,729 ) ( 66,151 ) Net cash used in investing activities ( 44,729 ) ( 66,151 ) FINANCING ACTIVITIES: Advances under bank line of credit 1,600,000 910 Principal payments on note payable ( 1,307 ) ( 1,246 ) Principal payments under bank line of credit - ( 2,845,000 ) Net cash provided by (used in) financing activities 1,598,693 ( 2,845,336 ) NET INCREASE (DECREASE) IN CASH 320,500 ( 146,339 ) CASH, BEGINNING OF PERIOD 3,696,275 2,875,120 CASH, END OF PERIOD $ 4,016,775 $ 2,728,781 See Notes to Condensed Consolidated Financial Statements - 6 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JANUARY 31, 2022 AND 2021 (Unaudited) 2022 2021 SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 36,853 $ 31,406 Income taxes paid $ 1,298 $ 69 See Notes to Condensed Consolidated Financial Statements - 7 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) 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 also manufactures and sells coffee roasters. 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 eight 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. COVID-19 The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, mandated closures and stay-at-home orders, and created significant disruption of the financial markets. The continuing impact on the Company’s business, including the decrease in our sales, the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including its ability to obtain products from global suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, has contributed to and may continue to have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. At this time the full impact could not be determined. - 8 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY : The Company’s fiscal year ends on October 31, of each calendar year. The accompanying interim condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as our annual consolidated financial statements for the fiscal year ended October 31, 2021. In the opinion of the Company’s management, these interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The October 31, 2021 year-end condensed consolidated balance sheet data in this document was derived from audited consolidated financial statements. These condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q does not include all disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended October 31, 2021 and notes thereto included in the Company’s fiscal 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on January 31, 2022 (the “2021 10-K”). The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. The condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco, LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”), the entity formed as a result of the Company’s joint venture with Caruso’s Coffee, Inc. The Company owns a 60 % equity interest in GCC. All significant inter-company transactions and balances have been eliminated in consolidation. Significant Accounting Policy The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in our 2021 10-K, and there have been no changes to the Company’s significant accounting policies during the three months ended January 31, 2022. Revenue Recognition The Company recognizes revenue in accordance with the five-step model as prescribed by the Financial Accounting Standards Board (“FASB”) Accounting Codification (“ASC”) Topic 606 (“ASC 606”) in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. - 9 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICY (cont’d): The following table presents revenues by product line in the three months ended January 31, 2022 and 2021 SCHEDULE OF REVENUE January 31, 2022 January 31, 2021 Green $ 6,951,573 $ 6,603,875 Packaged $ 9,753,287 $ 11,529,962 Totals $ 16,704,860 $ 18,133,837 NOTE 3 - INVENTORIES : Inventories at January 31, 2022 and October 31, 2021 consisted of the following: SCHEDULE OF INVENTORIES January 31, 2022 October 31, 2021 Packed coffee $ 2,181,987 $ 2,705,356 Green coffee 12,203,811 10,890,091 Roasters and parts 400,113 422,858 Packaging supplies 2,030,329 1,943,561 Totals $ 16,816,240 $ 15,961,866 - 10 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 4 - COMMODITIES HELD BY BROKER : The Company has used, and intends to continue to use in a limited capacity, short term coffee futures and options contracts primarily for the purpose of partially hedging and minimizing the effects of changing green coffee prices and to reduce our cost of sales. The commodities held at broker represent the market value of the Company’s trading account, which consists of options 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 condensed 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. We record all open contract positions on our consolidated balance sheets at fair value in the due from and due to broker line items and typically do not offset these assets and liabilities. The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings and not reflected as a net amount as a separate component of stockholders’ equity. The Company recorded realized and unrealized gains and losses respectively, on these contracts as follows: SCHEDULE OF REALIZED AND UNREALIZED GAINS AND LOSSES ON CONTRACTS 2022 2021 Three Months Ended January 31, 2022 2021 Gross realized gains $ 322,140 $ 261,987 Gross realized losses ( 378,919 ) ( 76 ) Unrealized gain (loss) ( 66,766 ) 415,075 Total $ ( 123,545 ) $ 676,986 - 11 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 5 - 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”) 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 Company, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things. On March 13, 2020, the Company reached an agreement for a new loan modification agreement and credit facility with Sterling. The terms of the new agreement, among other things: (i) provided for a new maturity date of March 31, 2022 and (ii) decreased the interest rate per annum to LIBOR plus 1.75 % (with such interest rate not to be lower than 3.50 %). All other terms of the A&R Loan Agreement and A&R Loan Facility remain substantially the same. On March 17, 2022, the Company 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. Each of the A&R 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 Company was in compliance with all covenants as of January 31, 2022 and October 31, 2021. The outstanding balance on the Company’s lines of credit were $ 5,400,850 and $ 3,800,850 as of January 31, 2022 and October 31, 2021, respectively. NOTE 6 - 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. 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. As of January 31, 2022 and October 31, 2021, the Company did no t 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 January 31, 2022 and October 31, 2021, 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 2018. The Company’s California, Colorado and New Jersey and Texas income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2018. The Company’s Oregon, New York, Kansas, South Carolina, Rhode Island, Connecticut and Michigan income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2018. - 12 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 7 - EARNINGS PER SHARE : The Company presents “basic” and “diluted” earnings per common share pursuant to the provisions included in the authoritative guidance issued by FASB, “Earnings per Share,” and certain other financial accounting pronouncements. 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 5,708,599 for the three months ended January 31, 2022 and 2021. The Company had granted 1,000,000 options in the second quarter of 2019, which have not been included in the calculation of diluted earnings per share due to these options being out of the money. NOTE 8 - COMMITMENTS AND CONTINGENCIES : CLASS ACTION COMPLAINT The Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the Northern District of Illinois (the “Court”) on or about December 21, 2020. The plaintiffs, Eileen Brodsky and Rhonda Diamond, purported to represent a class of individuals who purchased coffee products at Aldi, Inc. (“Aldi”), a supermarket chain, generally allege that Aldi sold private label coffee products manufactured by us and by Pan American Coffee Co., LLC (“Pan American”), which falsely described the number of cups of coffee that could be made from the amount of product purchased. Aldi and Pan American were also named as defendants in the action. The complaint asserted a variety of claims under New York and California consumer protection laws, and sought unspecified monetary damages, including disgorgement and restitution, as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. On September 28, 2021, the Court entered an order granting the Company’s motion to dismiss with prejudice (the “Dismissal Order”). In the Dismissal Order, the Court stated that no reasonable coffee drinker would be deceived by the Company’s packaging. The plaintiffs filed an appeal with the 7 th Circuit Court of Appeals (the “Appeal”). After the Appeal was filed, the Company and the plaintiffs’ settled the matter during mediation in late January 2022 and the Appeal was dismissed. A significant customer of the Company was named as a defendant in a putative class action lawsuit filed in the United States District Court for the District of Massachusetts (the “Massachusetts District Court”) on or about February 2, 2021, concerning the labeling on private label coffee productions we sold to the customer. The plaintiff, David Cohen, purporting to represent a class of individuals who purchased coffee products from our customer, generally allege that the customer sold private label coffee products manufactured by the Company which falsely described the number of cups of coffee that could be made from the amount of product purchased. The Company is not named as a defendant in the action, but has agreed to indemnify the customer for the costs and expenses incurred in defending the lawsuit and for any liability the customer may suffer as a result. The complaint asserts a variety of claims under Massachusetts consumer protection laws, and seeks unspecified monetary damages as well as other forms of relief including class certification, declaratory and injunctive relief, attorneys’ fees, and interest. The Company believes the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and intends to vigorously support the customer in defending the action. On February 28, 2022, the Company and the plaintiff, in his individual capacity and not on behalf of a presumptive class, resolved the matter in principle and have reported the agreement in principle to the Massachusetts District Court. The parties are presently negotiating the final details of a settlement agreement to finalize the settlement. - 13 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (cont’d): 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 21 st 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 $ 16,031 and $ 72,558 for the three months ended January 31, 2022 and for the year ended October 31, 2021, respectively. NOTE 9 - LEASES : The following summarizes the Company’s operating leases: SCHEDULE OF OPERATING LEASES 2022 2021 Right-of-use operating lease assets $ 3,443,105 $ 3,545,786   Current lease liability 311,475 340,400 Non-current lease liability 3,239,638 3,299,784 Total lease liability $ 3,551,113 $ 3,640,184 The amortization of the right-of-use asset for the three months ended January 31, 2022 and 2021was $ 102,681 and $ 112,587 , respectively. Weighted average remaining lease term 11.1 Weighted average discount rate 4.9 % Maturities of lease liabilities by year for our operating leases are as follows: SCHEDULE OF MINIMUM FUTURE LEASE PAYMENTS 2022 $ 450,732 2023 492,385 2024 474,670 2025 354,528 2026 360,108 Thereafter 2,701,088 Total lease payments $ 4,833,511 Less: imputed interest ( 1,282,398 ) Present value of operating lease liabilities $ 3,551,113 In June 2021, the Company purchased a facility in Colorado for $ 900,321 that it was previously leasing. On the date of purchase, the Company wrote off the carrying value of the right-of-use asset and lease liability associated with this facility of $ 242,888 . In September 2021, the Company extended its headquarters lease in Staten Island, New York through September 2036. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $ 2,025,316 as of October 31, 2021. - 14 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2022 (UNAUDITED) NOTE 10 - RELATED PARTY TRANSACTIONS : The Company has engaged its 40 % partner in GCC as an outside contractor (the “Partner”). Included in contract labor expense are expenses incurred from the Partner during the three months ended January 31, 2022 and 2021 of $ 58,434 and $ 74,693 , respectively, for the processing of finished goods. An employee of one of the top five vendors is a director of the Company. Purchases from that vendor totaled approximately $ 1,159,000 and $ 734,000 for the three months ended January 31, 2022 and 2021 respectively. The corresponding accounts payable balance to this vendor was approximately $ 4,000 and $ 199,000 at January 31, 2022 and 2021, 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: the Company’s Chief Executive Officer. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The assets are held in a separate trust. The deferred compensation payable represents the liability due to the Chief Executive Officer of the Company. The assets were $301,976 and $311,872 at January 31, 2022 and October 31, 2021, respectively, and are included in the Deposits and other assets in the accompanying balance sheets. The deferred compensation liability at January 31, 2022 and October 31, 2021 were $301,976 and $311,872, respectively. NOTE 11 - STOCKHOLDERS’ EQUITY : a. Treasury Stock . The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is determined under the last-in, first-out method. The Company did not purchase any shares during the three months ended January 31, 2022 and the year ended October 31, 2021. b. Stock Options . The Company has an incentive stock plan, the 2013 Equity Compensation Plan (the “2013 Plan”), and on April 19, 2019, has granted 1,000,000 stock options to employees, officers and non-employee directors from the 2013 Plan each with an exercise price of $ 5.43 . Options granted under the 2013 Plan may be Incentive Stock Options or Nonqualified Stock Options, as determined by the Administrator at the time of grant. No options were granted, forfeited or expired during the three months ended January 31, 2022 or for the year ended October 31, 2021. The Company recorded $ 189,768 of stock-based compensation for the three months ended January 31, 2022 and 2021. The unrecognized stock compensation expense as of January 31, 2022 was approximately $ 216,052 and is expected to be recognized as compensation expense over the next two quarters. - 15 -