COFFEE HOLDING CO INC 10-K/A

ITEM 9A. CONTROLS AND PROCEDURES (restated) 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 not effective. We specifically identified a combination of control deficiencies relating to the accuracy and completeness of our accounting for stock-based compensation awards, inventories at one of our subsidiaries, and intercompany eliminations, which constitute material weaknesses in internal control over financial reporting. Notwithstanding such material weaknesses, we believe the financial information presented herein is materially correct and fairly presents the financial position and operating results of the fiscal year ended October 31, 2020 in accordance with U.S. GAAP. 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, 2020. In making this assessment, management used the criteria set forth by the 2013 Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based upon the assessment, our management concluded that our internal control over financial reporting was not effective as of October 31, 2020. During the years ended October 31, 2020 and 2019, our controls were inadequate to prevent and detect misstatements of stock based compensation awards and quantities of inventory at one of our subsidiaries. Additionally, on January 24, 2023, we concluded, after discussion with management, that our financial statements inaccurately accounted for certain intercompany eliminations in our consolidated statements of operations for the fiscal year ended October 31, 2020 and 2019. As a result, we determined that there was an overstatement of net sales and cost of sales in the consolidated statement of operations of approximately $8.3 million and $9.9 million in our financial statements during the fiscal years ended October 31, 2020 and 2019, respectively which required a restatement of the previously issued financial statements for the fiscal years ended October 31, 2020 and 2019. This was due to inadequate design and implementation of controls to evaluate and monitor the presentation and compliance with accounting principles generally accepted in the United States of America related to the statement of operations. Accordingly, management has determined that this control deficiency constituted a material weakness and, as a result, as part of the restatement, management concluded that, as of October 31, 2020, our internal control over financial reporting was not effective. A material weakness is a control deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. Remediation Plan for the Material Weaknesses To remediate the material weaknesses identified above, we are initiating controls and procedures in order to: ● Reinforce the importance of a strong control environment, to emphasize the technical requirements for controls that are designed, implemented and operating effectively and to set the appropriate expectations on internal controls through establishing the related policies and procedures; ● Review the processes for documenting and alerting key personnel, including our board members, officers, auditors and outside accountants, of non-reoccurring events related to stock-based compensation awards to ensure such events are timely and adequately recorded and communicated to the appropriate parties; and ● We have replaced and hired new employees in the accounting department at the subsidiary where the inventory analysis issue occurred and have made upgrades to the computer systems at the subsidiary. Further, we hired a new director of finance at the subsidiary that is responsible for overseeing inventory counts and we are enhancing controls in the inventory business process over (i) inventory count procedures by requiring more frequent physical audits of our inventory, and (ii) review of inventory adjustments and approvals. The material weaknesses identified above will not be considered remediated until our remediation efforts have been fully implemented and we have concluded that these controls are operating effectively. Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected. Changes in Control Over Financial Reporting. During the fiscal year ending October 31, 2020, we continued to implement procedures to review and document all corporate actions related to stock-based compensation awards. There have been no additional 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 the Dodd-Frank Wall Street Protection Act that permits us to provide only management’s report in this annual report. ITEM 9B. OTHER INFORMATION None. 28 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by this item is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is incorporated by reference to our Proxy Statement for the 2020 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 2020 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 2020 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 2020 Annual Meeting of Stockholders. 29 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) List of Documents filed as part of this Report (1) Financial Statements The financial statements and related notes, together with the report of Marcum LLP appear at pages F-1 through F-24 following the Exhibit List as required by Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K. (2) Financial Statement Schedules None. (3) List of Exhibits (a) Exhibits (restated) 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. Exhibit No. Description 2.1 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 Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 25, 2019). 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)). 4.2 Description of Capital Stock.*** 10.1 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)). 10.2 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)). 10.3 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. 30 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 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)). 10.11 Subscription Agreement, dated as of September 27, 2011, by and between the Company, the selling stockholders named therein and each of the purchasers identified on the signature pages thereto (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 27, 2011 (File No. 001-32491)). 10.12 2013 Equity Compensation Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement filed on February 28, 2013 (File No. 13653320)). 10.13 Loan Modification Agreement, dated as of May 10, 2013, by and between Sterling National Bank and Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on January 24, 2014 (File No. 001-32491)). 10.14 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). 10.15 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). 31 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. (incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed January 29, 2018). 10.21 Second Amendment to Lease, dated March 23, 2017, by and between Coffee Holding Co., Inc. and 25 COMM NAM, LLC (incorporated herein by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed January 29, 2018). 10.22 Loan Modification Agreement and Waiver, dated March 23, 2018, by and 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 March 27, 2018). 10.23 Form of Incentive Stock Option Agreement to the Company’s 2013 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed June 29, 2019). 10.24 Form of Non-Qualified Stock Option Award Agreement to the Company’s 2013 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed June 29, 2019). 10.25 Loan Modification Agreement and Waiver, dated March 13, 2020, 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 Quarterly Report on Form 10-Q filed on March 16, 2020). 21.1 List of Significant Subsidiaries.*** 23.1 Consent of Marcum LLP* 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 *** Previously Filed ITEM 16. FORM 10-K SUMMARY None. 32 SIGNATURES 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 March 16, 2023 . 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 President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director March 16, 2023 Andrew Gordon (principal executive officer and principal financial and accounting officer) /s/ David Gordon Executive Vice President – Operations, Secretary and Director March 16, 2023 David Gordon /s/ Gerard DeCapua Director March 16, 2023 Gerard DeCapua /s/ Daniel Dwyer Director March 16, 2023 Daniel Dwyer /s/ Barry Knepper Director March 16, 2023 Barry Knepper /s/ John Rotelli Director March 16, 2023 John Rotelli /s/ George Thomas Director March 16, 2023 George Thomas 33 COFFEE HOLDING CO., INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE FINANCIAL STATEMENTS: REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2 CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2020 AND 2019 F-3 CONSOLIDATED STATEMENTS OF OPERATIONS - YEARS ENDED OCTOBER 31, 2020 AND 2019 (restated) F-4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - YEARS ENDED OCTOBER 31, 2020 AND 2019 F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED OCTOBER 31, 2020 AND 2019 F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (restated) F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Coffee Holding Co., Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Coffee Holding Co., Inc. (the “Company”) as of October 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended October 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Restatement of Financial Statements As discussed in Note 3 to the financial statements, the accompanying consolidated statements of operations for the years ended October 31, 2020 and 2019 and Note 10 have been restated. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2020 due to the adoption of the guidance in ASC Topic 842, Leases using the modified retrospective approach. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit s in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit s we are required to obtain an understanding of internal control over financial reporting 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. Our audit s included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit s also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit s provides a reasonable basis for our opinion. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor since 2013 . New York, NY February 16, 2021, except for the effects of the restatement disclosed in Notes 3 and 10, as to which the date is March 16, 2023 F- 2 COFFEE HOLDING CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2020 AND 2019 2020 2019 - ASSETS - CURRENT ASSETS: Cash $ 2,875,120 $ 2,402,556 Accounts receivable, net of allowances of $ 144,000 for 2020 and 2019 7,408,905 9,421,427 Inventories 17,102,993 18,841,225 Due from broker 101,031 Prepaid expenses and other current assets 490,246 587,626 Prepaid and refundable income taxes 145,305 385,934 TOTAL CURRENT ASSETS 28,022,569 31,739,799 Machinery and equipment, at cost, net of accumulated depreciation of $ 7,610,864 and $ 6,931,913 for 2020 and 2019, respectively 2,197,319 2,413,533 Customer list and relationships, net of accumulated amortization of $ 194,379 and $ 151,627 for 2020 and 2019, respectively 490,621 533,373 Trademarks and tradenames 1,488,000 1,488,000 Non-compete, net of accumulated amortization of $ 49,500 and $ 29,700 for 2020 and 2019, respectively 49,500 69,300 Goodwill 2,488,785 2,488,785 Equity method investments 561,405 86,008 Deferred income tax asset 782,175 480,473 Right of use asset 2,114,228 Deposits and other assets 285,548 387,453 TOTAL ASSETS $ 38,480,150 $ 39,686,724 - LIABILITIES AND STOCKHOLDERS’ EQUITY - CURRENT LIABILITIES: Accounts payable and accrued expenses $ 3,036,097 $ 4,344,015 Line of credit 7,167,740 Due to broker 452,325 Note payable – current portion 5,075 Lease liability – current portion 484,163 Income taxes payable 5,371 100 TOTAL CURRENT LIABILITIES 3,983,031 11,511,855 Deferred income tax liabilities 882,582 872,232 Line of credit 3,796,822 Deferred rent payable 193,461 Lease liability 1,780,306 Note payable – long term 17,292 Deferred compensation payable 276,548 378,453 TOTAL LIABILITIES 10,736,581 12,956,001 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 and 6,494,680 shares issued for 2020 and 2019; 5,708,599 and 5,569,349 shares outstanding for 2020 and 2019 6,634 6,494 Additional paid-in capital 17,929,724 16,580,974 Retained earnings 13,215,868 13,310,169 Less: Treasury stock, 925,331 common shares, at cost for 2020 and 2019 ( 4,633,560 ) ( 4,633,560 ) Total Coffee Holding Co., Inc. Stockholders’ Equity 26,518,666 25,264,077 Noncontrolling interest 1,224,903 1,466,646 TOTAL EQUITY 27,743,569 26,730,723 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 38,480,150 $ 39,686,724 See Notes to Consolidated Financial Statements F- 3 COFFEE HOLDING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED OCTOBER 31, 2020 AND 2019 2020 (As restated) 2019 (As restated) NET SALES $ 66,031,953 $ 76,607,535 COST OF SALES (which includes purchases of approximately $ 5.3 million and $ 8.3 million in fiscal years 2020 and 2019, respectively, from a related party) 52,953,064 60,848,203 GROSS PROFIT 13,078,889 15,759,332 OPERATING EXPENSES: Selling and administrative 13,223,207 14,504,707 Officers’ salaries 681,000 714,096 TOTAL 13,904,207 15,218,803 (LOSS) INCOME FROM OPERATIONS ( 825,318 ) 540,529 OTHER INCOME (EXPENSE): Interest income 3,354 11,046 Loss from equity method investment ( 5,016 ) ( 3,769 ) Other income - PPP 634,400 Interest expense ( 185,177 ) ( 254,592 ) TOTAL 447,561 ( 247,315 ) (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY ( 377,757 ) 293,214 (Benefit) provision for income taxes ( 41,713 ) 29,208 NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY ( 336,044 ) 264,006 Less: Net loss (income) attributable to the non-controlling interest in subsidiary 241,743 ( 358,604 ) NET (LOSS) ATTRIBUTABLE TO COFFEE HOLDING CO., INC. $ ( 94,301 ) $ ( 94,598 ) Basic and diluted (loss) per share $ ( .02 ) $ ( .02 ) Weighted average common shares outstanding: Basic and diluted 5,575,453 5,569,349 See Notes to Consolidated Financial Statements F- 4 COFFEE HOLDING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY YEARS ENDED OCTOBER 31, 2020 AND 2019 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, November 1, 2018 5,569,349 $ 6,494 925,331 $ ( 4,633,560 ) $ 16,104,075 $ 13,404,767 $ 1,108,042 $ 25,989,818 Stock Compensation - - 476,899 476,899 Non-Controlling interest 358,604 358,604 Net loss - ( 94,598 ) ( 94,598 ) Balance, October 31, 2019 5,569,349 $ 6,494 925,331 $ ( 4,633,560 ) $ 16,580,974 $ 13,310,169 $ 1,466,646 $ 26,730,723 Stock Compensation 868,477 868,477 Stock issuance equity investment 139,250 140 480,273 480,413 Non-Controlling Interest ( 241,743 ) ( 241,743 ) Net loss - ( 94,301 ) ( 94,301 ) Balance, October 31, 2020 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 17,929,724 $ 13,215,868 $ 1,224,903 $ 27,743,569 See Notes to Consolidated Financial Statements F- 5 COFFEE HOLDING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2020 AND 2019 2020 2019 OPERATING ACTIVITIES: Net (loss) income $ ( 336,044 ) $ 264,006 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 741,503 742,637 Stock-based compensation 868,477 476,899 Unrealized loss (gain) on commodities 553,356 ( 123,077 ) Loss on equity method investments 5,016 3,769 Deferred rent ( 48,682 ) Amortization of right to use asset 397,794 Deferred income taxes ( 291,352 ) ( 49,938 ) Changes in operating assets and liabilities: Accounts receivable 2,012,522 492,870 Inventories 1,738,232 ( 3,570,119 ) Prepaid expenses and other current assets 97,380 ( 8,765 ) Prepaid and refundable income taxes 240,629 ( 2,728 ) Accounts payable and accrued expenses ( 1,307,917 ) ( 489,534 ) Change in lease liability ( 441,015 ) Deposits and other assets 101,905 165,451 Income taxes payable 5,271 ( 1,405 ) Net cash provided by (used in) operating activities 4,385,757 ( 2,148,616 ) INVESTING ACTIVITIES: Distribution of funds from deferred compensation plan ( 101,905 ) ( 154,273 ) Purchases of machinery and equipment ( 435,930 ) ( 743,410 ) Net cash used in investing activities ( 537,835 ) ( 897,683 ) FINANCING ACTIVITIES: Advances under bank line of credit 1,141,132 1,407,726 Principal payment on note payable ( 4,440 ) ( 70,255 ) Principal payments under bank line of credit ( 4,512,050 ) ( 500,000 ) Net cash (used in) provided by financing activities ( 3,375,358 ) 837,471 NET INCREASE (DECREASE) IN CASH 472,564 ( 2,208,828 ) CASH, BEGINNING OF YEAR 2,402,556 4,611,384 CASH, END OF YEAR $ 2,875,120 $ 2,402,556 See Notes to Consolidated Financial Statements F- 6 COFFEE HOLDING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2020 AND 2019 2020 2019 SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 196,823 $ 254,603 Income taxes paid $ 3,739 $ 83,279 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On October 15, 2020 Coffee Holding Company acquired an equity interest in Jordre Well, LLC in exchange for 139,250 shares: 480,413 Initial recognition of operating lease right of use asset $ 2,512,022 Initial recognition of operating lease liabilities $ 2,705,484 Machinery and equipment acquired through financing $ 26,807 See Notes to Consolidated Financial Statements F- 7 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 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 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. During the third quarter the Company received an unsecured loan in the amount of $ 634,400 (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”). Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $ 100,000 , prorated annually. Not more than 40 % of the forgiven amount can be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its future adherence to the forgiveness criteria. F- 8 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 1 - BUSINESS ACTIVITIES (cont’d): 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. 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- 9 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): 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: SCHEDULE OF ACCOUNTS RECEIVABLE 2020 2019 Allowance for doubtful accounts $ 65,000 $ 65,000 Reserve for other allowances 35,000 35,000 Reserve for sales discounts 44,000 44,000 Totals $ 144,000 $ 144,000 INVENTORIES : 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, 2020 and 2019. 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- 10 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 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: SCHEDULE OF COMMODITIES HELD BY BROKER 2020 2019 Option contracts $ ( 164,475 ) $ ( 58,856 ) Future contracts ( 287,850 ) 159,887 Commodities due (to) from broker $ ( 452,325 ) $ 101,031 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, 2020, the Company held 48 futures contracts (generally with terms of three to four months ) for the purchase of 1,800,000 pounds of green coffee at a weighted average price of $ 1.158 per pound. The fair market value of coffee applicable to such contracts was $ 1.044 per pound at that date. At October 31, 2019, the Company held 124 futures contracts (generally with terms of three to four months ) for the purchase of 4,650,000 pounds of green coffee at a weighted average price of $ .986 per pound. The fair market value of coffee applicable to such contracts was $ 1.02 per pound at that date. Included in cost of sales for the years ended October 31, 2020 and 2019, 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 2020 2019 Year Ended October 31, 2020 2019 Gross realized gains $ 1,678,995 $ 1,307,816 Gross realized (losses) ( 1,451,761 ) ( 2,642,537 ) Unrealized (losses) gains ( 553,356 ) 123,077 Total $ ( 326,122 ) $ ( 1,211,644 ) F- 11 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 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, 2020 and 2019, the Company has determined by using a qualitative assessment that an impairment did not exist. 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, Sonofresco and Steep & Brew 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 $ 149,505 and $ 449,678 for the years ended October 31, 2020 and 2019, 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. 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 Company has issued 1,000,000 options as of October 31, 2019, they have not been included in the calculation of diluted earnings per share because of their anti-dilutive value for the years presented in this financial statement. The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,575,453 and 5,569,349 for the years ended October 31, 2020 and 2019, respectively. F- 12 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 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 five-step model as prescribed by ASU 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 ASU 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. See Note 10 for revenue disaggregated by product line. PAYCHECK PROTECTION PROGRAM : On July 22, 2020, the Company received loan proceeds of $ 634,400 under the Paycheck Protection Program (“PPP”). The PPP, which was established under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times certain average monthly payroll expenses of the qualifying business. The loan and accrued interest, or a portion thereof, may be forgiven after 24 weeks so long as the borrower uses the loan proceeds for eligible purposes including payroll, benefits, rent, mortgage interest and utilities, and maintains its payroll levels, as defined by the PPP. At least 60% of the amount forgiven must be attributable to payroll costs, as defined by the PPP. The PPP loan matures five years from the date of the first disbursement of proceeds to the Company and accrues interest at a fixed rate of 1 %. Payments are deferred for at least the first six months and payable in 54 equal consecutive monthly installments of principal and interest commencing upon expiration of the deferral period of the PPP loan date. U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances outlined below, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a F- 13 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): forgivable loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”, however, based on certain interpretations, it is analogous to “probable” as defined in FASB ASC 450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a more clear distinction in its financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all period presented. The following table provided the balance and activity related to the PPP Loan: SCHEDULE OF PAYCHECK PROTECTION PROGRAM PPP Loan $ 634,400 Qualified expenses incurred to date 634,400 Unrecognized government grant income $ 0 F- 14 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): 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 $ 2,780,000 and $ 3,214,000 for the years ended October 31, 2020 and 2019, 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, 2020 and 2019, the Company had approximately $ 816,000 and $ 1,490,000 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, 2020 and 2019, the Company had approximately $ 1,421,000 and $ 706,000 in excess of SIPC insured limits, respectively. RECLASSIFICATION : Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation. These reclassification adjustments had no effect on the Company’s previously reported net income. 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 $ 5,016 and $ 3,769 for the years ended October 31, 2020 and 2019, respectively. The net value of this investment as presented on our consolidated balance sheet at October 31, 2020 and 2019 was $ 80,992 and $ 86,008 , respectively. (2) On October 15, 2020 the Company acquired a 49 % interest in Jordre Well LLC, a company that will produce CBD infused products. The investment was made in newly issued stock. The Company issued 139,250 shares to be paid at closing. The price of the stock on October 15, 2020 was $ 3.45 for a value of $ 480,413 . As of October 31, 2020 there was no activity. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY : Effective November 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”). The new guidance increases transparency by requiring the recognition of right to use assets and lease liabilities on the statement of financial condition. The recognition of these lease assets and lease liabilities represents a change from previous US GAAP requirement, which did not require lease assets and lease liabilities to be recognized for most operating leases. The recognition, measurement and presentation of expenses and cash flows arising from a lease, have not significantly changed from previous US GAAP requirements. On November 1, 2019, the effective date of ASC 842, existing leases of the Company were required to be recognized and measured. Additionally any leases entered into during the year were also required to recognized and measured. In applying ASC 842, the Company made an accounting policy election not to recognize the right of use assets and lease liabilities relating to short-term leases. Implementation of ASC 842 included an analysis of contracts, including real estate leases and service contracts to identify embedded leases, to determine the initial recognition of the right to use assets and lease liabilities, which required subjective assessment over the determination of the associated discount rates to apply in determining the lease liabilities. F- 15 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d): The new standard provides a number of transition practical expedients, which the Company has elected, including: ● A “package of three” expedients that must be taken together and allow entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases, and ● An implementation expedient which allows the requirements of the standard in the period of adoption with no restatement of prior periods. The adoption of ASC 842 resulted in the recording of operating lease right of use assets of $ 2,512,022 and operating lease liabilities of $ 2,705,484 at November 1, 2019. The Company implemented ASC 842 using the modified retrospective approach. In addition, at November 1, 2019, there was no impact to stockholder’s equity upon adoption. The Company determines if an arrangement is or contains a lease at inception. The Company’s operating lease arrangement are comprised of real estate and facility leases. Right of use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right of use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. As the Company’s leases do not provide an implicit rate and the implicit rate is not readily determinable, the Company estimates its incremental borrowing rate based on the information available at the measurement date in determining the present value of the lease payments. The present value of the lease payments was determined using a 4.75 % incremental borrowing rate. Right of use assets also exclude lease incentives. The Company presents the amortization of its right to use assets and payments of related lease liabilities originating in connection with operating leases as an adjustment to reconcile net income or loss to net cash generated or used in operating activities and an operating cash outflow, respectively within the operating section of the statement of cash flows. NOTE 3 - RESTATEMENT: The Company is restating its consolidated statement of operations for the years ended October 31, 2020 and 2019 to correct its accounting for certain intercompany transactions that should have been eliminated in consolidation. The restatement is being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings in the statement of financial position as of the beginning of each period presented. F- 16 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 3 – RESTATEMENT (cont’d): The effects of the adjustment on the Company’s previously issued October 31, 2020 and 2019 consolidated statement is summarized as follows: Selected Consolidated Statement of Operations for the years ended October 31, 2020 and 2019. SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS Previously Reported October 31, 2020 Increase (Decrease) As Restated Net Sales $ 74,335,815 $ ( 8,303,862 ) $ 66,031,953 Cost of Sales $ ( 61,256,926 ) $ 8,303,862 $ ( 52,953,064 ) Gross Profit $ 13,078,889 $ - $ 13,078,889 Previously Reported October 31, 2019 Increase (Decrease) As Restated Net Sales $ 86,467,432 $ ( 9,859,897 ) $ 76,607,535 Cost of Sales $ ( 70,708,100 ) $ 9,859,897 $ ( 60,848,203 ) Gross Profit $ 15,759,332 $ - $ 15,759,332 NOTE 4 - INVENTORIES : Inventories at October 31, 2020 and 2019 consisted of the following: SCHEDULE OF INVENTORIES 2020 2019 Packed coffee $ 3,590,709 $ 4,044,279 Green coffee 11,390,668 12,515,124 Roaster parts 381,617 419,077 Packaging supplies 1,739,999 1,862,745 Totals $ 17,102,993 $ 18,841,225 NOTE 5 – EQUITY METHOD INVESTMENT : On October 15, 2020, The Ideation Lab, LLC (“TIL”), Jordre Well, LLC (“Jordre Well”), an entity created by TIL and the Company entered into a Contribution and Equity Purchase Agreement. TIL contributed 100 % of its assets to Jordre Well in exchange for 100 common units. TIL, immediately following the contribution, sold 49 common units of Jordre Well to the Company for up to 278,500 shares of the Company’s common stock, payable as follows: (a) 139,250 shares of the Company’s common stock on October 15, 2020 and (b) an additional 139,250 shares of its common stock when Jordre Well generates $ 500,000 in revenue from the sale of its newly created brands. This was accounted for as an equity method investment. F- 17 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 6 - MACHINERY AND EQUIPMENT : Machinery and equipment at October 31, 2020 and 2019 consisted of the following: SCHEDULE OF MACHINERY AND EQUIPMENT Estimated Useful Life 2020 2019 Improvements 15 - 30 years $ 233,766 $ 228,201 Machinery and equipment 7 years 8,492,395 8,035,223 Furniture and fixtures 7 years 1,082,022 1,082,022 Property plant and equipment gross 9,808,183 9,345,446 Less, accumulated depreciation 7,610,864 6,931,913 Property plant and equipment net $ 2,197,319 $ 2,413,533 Depreciation expense totaled $ 678,951 and $ 680,085 for the years ended October 31, 2020 and 2019, respectively. NOTE 7 - 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) provides for a new maturity date of March 31, 2022 and (ii) decreases 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 A7R 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 October 31, 2020 and October 31, 2019. Each of the A&R 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, 2020 and October 31, 2019, the outstanding balance under the bank line of credit was $ 3,796,822 and $ 7,167,740 , respectively. F- 18 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 8 - INCOME TAXES : The Company’s (benefit)/provision for income taxes in 2020 and 2019 consisted of the following: SCHEDULE OF PROVISION FOR INCOME TAX 2020 2019 Current Federal $ 187,140 $ 10,172 State and local 62,499 68,974 Total Current 249,639 79,146 Deferred Federal ( 229,355 ) ( 45,323 ) State and local ( 61,997 ) ( 4,615 ) Total Deferred ( 291,352 ) ( 49,938 ) Income tax (benefit)/expense $ ( 41,713 ) $ 29,208 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: SCHEDULE OF EFFECTIVE INCOME TAX RATE 2020 2019 (Benefit) tax at the federal statutory rate $ ( 79,329 ) $ 61,575 Other permanent differences 52,537 ( 45,107 ) State and local tax, net of federal ( 14,921 ) 12,740 (Benefit) provision for income taxes $ ( 41,713 ) $ 29,208 Effective income tax rate 11 % 10 % F- 19 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 8 - 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, 2020 and 2019 are as follows: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2020 2019 Deferred tax assets: Accounts receivable $ 36,468 $ 36,802 Unrealized loss 140,136 Deferred rent 36,810 49,442 Deferred compensation 70,035 96,720 Net operating loss 70,275 82,973 Stock-based compensation 340,715 121,880 Inventory 87,736 92,656 Total deferred tax asset $ 782,175 $ 480,473 Deferred tax liability: Intangible assets acquired 484,932 484,932 Unrealized gain 32,656 Fixed assets 397,650 $ 354,644 Total deferred tax liabilities $ 882,582 $ 872,232 A valuation allowance was not provided at October 31, 2020 or 2019. 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, 2020 and 2019, 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 October 31, 2020 and 2019, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress. F- 20 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 8 - INCOME TAXES (cont’d): 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 2017. 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 2016. 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 2017. On March 27, 2020 Congress enacted the CARES Act (Coronavirus Aid, Relief and Economic Security Act). The Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding prior and future operation losses, temporary changes to prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections to prior tax legislation for tax depreciation of certain qualified improvement property and enhanced recoverability of AMT tax credits. The Company is currently evaluating the impact of the CARES Act, but at present does not expect any impact. As of October 31, 2020, and 2019, the Company had cumulative net operating loss carryforwards of approximately $ 334,642 and $ 395,111 respectively, which begin to expire in 2038 . In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s net operating loss carryforwards is subject to an annual limitation of $ 60,469 . These net operating loss carryforwards may be may be further limited in the event of a change in ownership. NOTE 9 - 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 on or about December 21, 2020. The plaintiffs, Eileen Brodsky and Rhonda Diamond, purporting 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 are also named as defendants in the action. The complaint asserts a variety of claims under New York and California consumer protection laws, and seeks 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. The Company believes the allegations in the complaint are wholly without merit and that the claims asserted are legally deficient, and the company intends to vigorously defend the action. As of the filing of this Form 10-K, the Company has not been served with the complaint. Therefore, the Company is unable to predict the ultimate outcome of this lawsuit. 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 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. As of the filing of this Form 10-K, the Company is unable to predict the ultimate outcome of this lawsuit. F- 21 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 9 - COMMITMENTS AND CONTINGENCIES (cont’d): 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 . Operating lease costs amounted to $ 95,504 for the years ended October 31, 2020 and 2019. 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. Operating lease costs amounted to $ 175,640 and $ 143,171 for the years ended October 31, 2020 and 2019, respectively. 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 . The lease was extended, effective as of April 1, 2019 and expiring on March 31, 2021 . Operating lease costs amounted to $ 41,150 and $ 39,960 for the years ended October 31, 2020 and 2019, 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, 2017, expired on December 31, 2018 . The lease was extended, effective January 1, 2019 and expiring on December 31, 2020 . The lease was extended, effective January 1, 2021 and expiring on December 21, 2021 . Operating lease costs amounted to $ 32,924 and $ 47,143 for the years ended October 31, 2020 and 2019, respectively. 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 May 31, 2028 and includes charges for common areas and utilities. Operating lease costs amounted to $ 235,710 and $ 233,754 for the years ended October 31, 2020 and 2019, respectively. In April 2018, the Company through its joint venture Generations Coffee Company, LLC entered into a lease for office and warehouse space in Madison, WI. This lease, which is at a monthly rental beginning April 1, 2018, expires on September 30, 2024 and includes charges for common areas and utilities. Operating lease costs amounted to $ 169,244 and $ 117,149 for the years ended October 31, 2020 and 2019, respectively. F- 22 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 9 - COMMITMENTS AND CONTINGENCIES (cont’d): Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. Our material leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Total operating lease costs for the year ended October 31, 2020 was $ 750,172 , of which, $ 131,730 was included within cost of goods sold and $ 618,442 was recorded in the selling and administrative expenses. The aggregate cash payments under these leasing agreements was $ 597,945 for the year ended October 31, 2020. The following summarizes the Company’s operating leases: SCHEDULE OF OPERATING LEASES October 31, 2020 Right-of-use operating lease assets $ 2,114,228 Current lease liability $ 484,163 Non-current lease liability $ 1,780,306 Average remaining lease term 3.0 Discount rate 4.75 % Maturities of lease liabilities by year for our operating leases are as follows: SCHEDULE OF MINIMUM FUTURE LEASE PAYMENTS 2021 $ 580,788 2022 535,920 2023 531,807 2024 316,477 2025 168,288 Thereafter 434,744 Total lease payments $ 2,568,024 Less: imputed interest ( 303,555 ) Present value of operating lease liabilities $ 2,264,469 401 (K) RETIREMENT PLAN: 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 $ 81,384 and $ 89,577 for the years ended October 31, 2020 and 2019, respectively. F- 23 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 10 - ECONOMIC DEPENDENCY restated): Approximately 26 % of the Company’s sales were derived from six customers during the year ended October 31, 2020. These customers also accounted for approximately $ 2,076,000 or 28 % of the Company’s accounts receivable balance at October 31, 2020. Approximately 22 % of the Company’s sales were derived from five customers during the year ended October 31, 2019. These customers also accounted for approximately $ 3,109,000 or 33 % of the Company’s accounts receivable balance at October 31, 2019. 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, 2020, approximately 27 % of the Company’s purchases were from six vendors. These vendors accounted for approximately $ 468,000 of the Company’s accounts payable at October 31, 2020. For the year ended October 31, 2019, approximately 28 % of the Company’s purchases were from six vendors. These vendors accounted for approximately $ 1,005,000 of the Company’s accounts payable at October 31, 2019. 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. The following table presents revenues by product line for the years ended October 31, 2020 and 2019. SCHEDULE OF REVENUES BY PRODUCT LINE 2020 (As previously reported) 2019 (As previously reported) 2020 (restated) 2019 (restated) Green $ 23,912,022 $ 32,849,195 $ 22,303,468 $ 29,269,761 Packaged 50,423,793 53,618,237 43,728,485 47,337,774 Totals $ 74,335,815 $ 86,467,432 $ 66,031,953 $ 76,607,535 NOTE 11 - 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, 2020 and 2019 of $ 380,838 and $ 401,227 , respectively. An employee of one of the top two vendors is a director of the Company. Purchases from that vendor totaled approximately $ 5,300,000 and $ 8,300,000 for the years ended October 31, 2020 and 2019, respectively. The corresponding accounts payable balance to this vendor was approximately $ 0 and $ 840,000 at October 31, 2020 and 2019, 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, 2020 and 2019 was $ 276,548 and $ 378,453 , respectively. Deferred compensation expenses included in officers’ salaries were $ 0 during the years ended October 31, 2020 and 2019, respectively. F- 24 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 12 - 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 no t purchase any shares during the years ended October 31, 2020 and 2019. 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 stock options to employees, officers and non-employee directors from the 2013 Plan. 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. As of January 31, 2020, the Board of Directors approved 1,000,000 options. During the year ended October 31, 2019, the Company granted stock option awards to five board members to purchase an aggregate 59,000 shares of the Company’s common stock at $ 5.43 per share. The stock options have an expected term of six years and will vest over a twelve month service period. The stock options have an aggregate grant date fair value of approximately $ 233,050 . The Company also granted stock option awards to certain officers and employees to purchase an aggregate of 941,000 shares of the Company’s common stock at an exercise price of $ 5.43 per share. The stock options have an expected term of six years and will vest over a three year service period. These stock options have an aggregate grant date fair value of approximately $ 2,277,220 . The following table represents stock option activity for the year ended October 31, 2020: SUMMARY OF STOCK OPTION ACTIVITY Stock Options Exercise Price Contractual Life Aggregate Intrinsic Outstanding Exercisable Outstanding Exercisable (Years) Value Balance October 31, 2019 1,000,000 - $ 5.43 - 10 - Exercised - - - - - - Cancelled - - - - - - Balance October 31, 2020 1,000,000 - $ 5.43 - 10 - Stock Options Exercise Price Contractual Life Aggregate Intrinsic Outstanding Exercisable Outstanding Exercisable (Years) Value Balance October 31, 2018 - - - - - - Granted 1,000,000 $ 5.43 - 10 - Exercised - - - - - - Cancelled - - - - - - Balance October 31, 2019 1,000,000 - $ 5.43 - 10 - The Company recorded $ 868,477 and $ 476,899 of stock-based compensation during the years ended October 31, 2020 and 2019, respectively. The unrecognized stock compensation expense as of October 31, 2020 was approximately $ 1,164,894 . F- 25 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 13 - 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. F- 26 COFFEE HOLDING CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2020 AND 2019 NOTE 13 - FAIR VALUE MEASUREMENTS (cont’d): SCHEDULE OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE Fair Value Measurements as of October 31, 2020 Total Level 1 Level 2 Level 3 Assets: Money market 276,548 276,548 – – - - Total Assets $ 276,548 $ 276,548 $ - – Liabilities: Commodities - Futures ( 287,850 ) ( 287,850 ) Commodities – Options ( 164,475 ) – ( 164,475 ) – Total Liabilities $ ( 452,325 ) – $ ( 452,325 ) – Fair Value Measurements as of October 31, 2019 Total Level 1 Level 2 Level 3 Assets: Money market 378,453 378,453 – – Commodities – Futures 159,887 159,887 Total Assets $ 538,340 $ 378,453 $ 159,887 – Liabilities: Commodities – Options ( 58,856 ) – ( 58,856 ) – Total Liabilities $ ( 58,856 ) – $ ( 58,856 ) – NOTE 14 - 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 consolidated financial statements. F- 27