COFFEE HOLDING CO INC 10-Q/A

ITEM 1 - FINANCIAL STATEMENTS. COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS July 31, 2021 October 31, 2020 (Unaudited) - ASSETS - CURRENT ASSETS: Cash $ 4,511,420 $ 2,875,120 Accounts receivable, net of allowances of $ 144,000 for 2021 and 2020 6,251,973 7,408,905 Inventories 16,352,525 17,102,993 Prepaid expenses and other current assets 830,101 490,246 Prepaid and refundable income taxes 52,708 145,305 TOTAL CURRENT ASSETS 27,998,727 28,022,569 Buildings, machinery and equipment, at cost, net of accumulated depreciation of $ 8,068,230 and $ 7,610,864 for 2021 and 2020, respectively 3,231,186 2,197,319 Customer list and relationships, net of accumulated amortization of $ 226,443 and $ 194,379 for 2021 and 2020, respectively 458,557 490,621 Trademarks and tradenames 1,488,000 1,488,000 Non-compete, net of accumulated amortization of $ 64,350 and $ 49,500 for 2021 and 2020, respectively 34,650 49,500 Goodwill 2,488,785 2,488,785 Equity method investments 554,036 561,405 Deferred income tax asset 765,576 782,175 Right of use asset 1,615,418 2,114,228 Deposits and other assets 441,688 285,548 TOTAL ASSETS $ 39,076,623 $ 38,480,150 - LIABILITIES AND STOCKHOLDERS’ EQUITY - CURRENT LIABILITIES: Accounts payable and accrued expenses $ 4,084,170 $ 3,036,097 Line of credit - current portion 2,500,000 - Lease liability - current portion 406,876 484,163 Note payable - current portion 4,200 5,075 Due to broker 136,756 452,325 Income taxes payable 293,665 5,371 TOTAL CURRENT LIABILITIES 7,425,667 3,983,031 Deferred income tax liabilities 870,832 882,582 Line of credit net of current portion - 3,796,822 Lease liability net of current portion 1,313,246 1,780,306 Note payable net of current portion 14,384 17,292 Deferred compensation payable 304,335 276,548 TOTAL LIABILITIES 9,928,464 10,736,581 Commitments and Contingencies (see Note 8) - - 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 2021 and 2020; 5,708,599 shares outstanding for 2021 and 2020 6,634 6,634 Additional paid-in capital 18,499,029 17,929,724 Retained earnings 14,123,173 13,215,868 Less: Treasury stock, 925,331 common shares, at cost for 2021 and 2020 ( 4,633,560 ) ( 4,633,560 ) Total Coffee Holding Co., Inc. stockholders’ equity 27,995,276 26,518,666 Non-controlling interest 1,152,883 1,224,903 TOTAL STOCKHOLDERS’ EQUITY 29,148,159 27,743,569 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 39,076,623 $ 38,480,150 See Notes to Condensed Consolidated Financial Statements - 3 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE AND THREE MONTHS ENDED JULY 31, 2021 AND 2020 (Unaudited) 2021 2020 2021 2020 Nine Months Ended July 31, Three Months Ended July 31, 2021 2020 2021 2020 (As restated) (As restated) NET SALES $ 46,236,708 $ 49,984,489 $ 13,634,313 $ 15,511,595 COST OF SALES 35,061,947 38,536,782 10,708,461 11,685,068 GROSS PROFIT 11,174,761 11,447,707 2,925,852 3,826,527 OPERATING EXPENSES: Selling and administrative 9,407,199 10,042,512 3,085,679 3,081,985 Officers’ salaries 460,501 497,654 153,638 170,250 TOTAL 9,867,700 10,540,166 3,239,317 3,252,235 INCOME (LOSS) FROM OPERATIONS 1,307,061 907,541 ( 313,465 ) 574,292 OTHER INCOME (EXPENSE) Interest income 3,629 2,944 2,700 247 Loss from equity method investment ( 7,369 ) ( 4,539 ) ( 3,454 ) ( 1,547 ) Interest expense ( 48,710 ) ( 150,742 ) ( 5,202 ) ( 45,283 ) TOTAL ( 52,450 ) ( 152,337 ) ( 5,956 ) ( 46,583 ) INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY 1,254,611 755,204 ( 319,421 ) 527,709 Provision for (benefit) from income taxes 419,326 250,804 ( 91,003 ) 161,454 NET INCOME (LOSS) BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY 835,285 504,400 ( 228,418 ) 366,255 Less: Net (income) loss attributable to the non-controlling interest 72,020 ( 214,406 ) 101,367 25,069 NET INCOME (LOSS) ATTRIBUTABLE TO COFFEE HOLDING CO., INC. $ 907,305 $ 289,994 $ ( 127,051 ) $ 391,324 Basic and diluted earnings (loss) per share $ 0.16 $ 0.05 $ ( 0.02 ) $ 0.07 Weighted average common shares outstanding: Basic and diluted 5,708,599 5,569,349 5,708,599 5,569,349 See Notes to Condensed Consolidated Financial Statements - 4 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY THREE AND NINE MONTHS ENDED JULY 31, 2021 AND 2020 (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, 2019 5,569,349 $ 6,494 925,331 $ ( 4,633,560 ) $ 16,580,974 $ 13,310,169 $ 1,466,646 $ 26,730,723 Net loss - - - - - ( 599,848 ) - ( 599,848 ) Stock Compensation - - - - 248,031 - - 248,031 Income from non-Controlling Interest - - - - - - 48,664 48,664 Balance, January 31, 2020 5,569,349 $ 6,494 925,331 $ ( 4,633,560 ) $ 16,829,005 $ 12,710,321 $ 1,515,310 $ 26,427,570 Stock Compensation - - - - 240,909 - - 240,909 Income from non-Controlling Interest - - - - - - 190,811 190,811 Net income - - - - - 498,518 - 498,518 Balance, April 30, 2020 5,569,349 $ 6,494 925,331 $ ( 4,633,560 ) $ 17,069,914 $ 13,208,839 $ 1,706,121 $ 27,357,808 Stock Compensation - - - - 189,769 - - 189,769 Net income - - - - - 391,324 - 391,324 Loss from non-Controlling Interest - - - - - - ( 25,069 ) ( 25,069 ) Balance, July 31, 2020 5,569,349 $ 6,494 925,331 $ ( 4,633,560 ) $ 17,259,683 $ 13,600,163 $ 1,681,052 $ 27,913,832 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 Stock Compensation - - - - 189,768 - - 189,768 Net income - - - - - 677,312 - 677,312 Income from non-Controlling Interest - - - - - - 78,970 78,970 Balance, January 31, 2021 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,119,492 $ 13,893,180 $ 1,303,873 $ 28,689,619 Stock Compensation - - - - 189,769 - - 189,769 Net income - - - - - 357,044 - 357,044 Loss from non-Controlling Interest - - - - - - ( 49,623 ) ( 49,623 ) Balance, April 30, 2021 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,309,261 $ 14,250,224 $ 1,254,250 $ 29,186,809 Beginning balance 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,309,261 $ 14,250,224 $ 1,254,250 $ 29,186,809 Stock Compensation - - - - 189,768 - - 189,768 Net loss - - - - - ( 127,051 ) - ( 127,051 ) Net Income (loss) - - - - - ( 127,051 ) - ( 127,051 ) Loss from non-Controlling Interest - - - - - - ( 101,367 ) ( 101,367 ) Income (loss) from non-Controlling Interest - - - - - - ( 101,367 ) ( 101,367 ) Balance, July 31, 2021 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,499,029 $ 14,123,173 $ 1,152,883 $ 29,148,159 Ending balance 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,499,029 $ 14,123,173 $ 1,152,883 $ 29,148,159 See Notes to Condensed Consolidated Financial Statements - 5 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2021 AND 2020 (Unaudited) 2021 2020 OPERATING ACTIVITIES: Net income $ 835,285 $ 504,400 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 504,280 564,843 Stock-based compensation 569,305 678,709 Unrealized (gain) loss on commodities ( 315,569 ) ( 355,079 ) Loss on equity method investments 7,369 4,539 Amortization of right of use asset 321,921 325,140 Deferred income taxes 4,849 73,473 Changes in operating assets and liabilities: Accounts receivable 1,156,932 2,587,601 Inventories 750,468 299,249 Prepaid expenses and other current assets ( 339,855 ) ( 120,563 ) Prepaid and refundable income taxes 92,597 154,158 Accounts payable and accrued expenses 1,048,073 ( 1,437,428 ) Deposits and other assets ( 128,353 ) - Change in lease liability ( 367,458 ) ( 357,286 ) Income taxes payable 288,294 217 Net cash provided by operating activities 4,428,138 2,921,973 INVESTING ACTIVITIES: Purchases of building, machinery and equipment ( 1,491,233 ) ( 392,023 ) Net cash used in investing activities ( 1,491,233 ) ( 392,023 ) FINANCING ACTIVITIES: Advances under bank line of credit 2,515,563 1,141,132 Proceeds from PPP loan - 634,400 Principal payments on note payable ( 3,783 ) ( 3,210 ) Principal payments under bank line of credit ( 3,812,385 ) ( 4,512,050 ) Net cash used in financing activities ( 1,300,605 ) ( 2,739,728 ) NET INCREASE (DECREASE) IN CASH 1,636,300 ( 209,778 ) CASH, BEGINNING OF PERIOD 2,875,120 2,402,556 CASH, END OF PERIOD $ 4,511,420 $ 2,192,778 See Notes to Condensed Consolidated Financial Statements - 6 - COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2021 AND 2020 (Unaudited) 2021 2020 SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 55,389 $ 159,484 Income taxes paid $ 10,307 $ 22,956 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Initial recognition of operating lease right of use asset $ 65,999 $ 2,512,022 Initial recognition of operating lease liabilities $ 65,999 $ 2,705,484 Termination of operating lease right of use asset $ 242,888 - Termination of operating lease liability $ 242,888 - Machinery and equipment acquired through financing $ - $ 26,807 See Notes to Condensed Consolidated Financial Statements - 7 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (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 of 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 wholesale green coffee sales are included in the “green” revenue stream, and the Company’s private label and branded coffee sales are included in the “packaged revenue stream” and 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 the Company’s sales, the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including the Company’s 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 JULY 31, 2021 (UNAUDITED) NOTE 2 - BASIS OF PRESENTATION, RESTATEMENT 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, 2020. 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, 2020 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, 2020 and notes thereto included in the Company’s fiscal 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 16, 2021 (the “2020 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 inter-company transactions and balances have been eliminated in consolidation. RESTATEMENT: The Company is restating its condensed consolidated statement of operations for the six and nine months ended July 31, 2020 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. The effects of the adjustment on the Company’s previously issued July 31, 2020 condensed consolidated statement is summarized as follows: Selected Condensed Consolidated Statement of Operations for the quarter ended July 31, 2020 SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS Previously Reported Increase (Decrease) As Restated Net Sales $ 17,344,009 $ ( 1,832,414 ) $ 15,511,595 Cost of Sales $ ( 13,517,482 ) $ 1,832,414 $ ( 11,685,068 ) Gross Profit $ 3,826,527 $ - $ 3,826,527 Selected Condensed Consolidated Statement of Operations for the nine months ended July 31, 2020 Previously Reported Increase (Decrease) As Restated Net Sales $ 56,725,386 $ ( 6,740,897 ) $ 49,984,489 Cost of Sales $ ( 45,277,679 ) $ 6,740,897 $ ( 38,536,782 ) Gross Profit $ 11,447,707 $ - $ 11,447,707 Significant Accounting Policy The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in our 2020 10-K, and there have been no changes to the Company’s significant accounting policies during the three and nine months ended July 31, 2021. 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 JULY 31, 2021 (UNAUDITED) NOTE 2 - BASIS OF PRESENTATION, RESTATEMENT AND SIGNIFICANT ACCOUNTING POLICY (cont’d): The following table presents revenues by stream for the nine and three months ended July 31, 2021 and 2020. SCHEDULE OF REVENUE Nine Months Ended July 31, 2021 Three Months Ended July 31, 2021 Green $ 18,054,298 $ 6,003,521 Packaged 28,182,410 7,630,792 Totals $ 46,236,708 $ 13,634,313 (As previously reported) Nine Months Ended July 31, 2020 (Restated) Nine Months Ended July 31, 2020 (As previously reported) Three Months Ended July 31, 2020 (Restated) Three Months Ended July 31, 2020 Green $ 18,453,377 $ 17,000,407 $ 5,765,246 $ 5,451,723 Packaged 38,272,009 32,984,082 11,578,763 10,059,872 Totals $ 56,725,386 $ 49,984,489 $ 17,344,009 $ 15,511,595 NOTE 3 - INVENTORIES : Inventories at July 31, 2021 and October 31, 2020 consisted of the following: SCHEDULE OF INVENTORIES July 31, 2021 October 31, 2020 Packed coffee $ 3,405,572 $ 3,590,709 Green coffee 10,897,817 11,390,668 Roasters and parts 422,583 381,617 Packaging supplies 1,626,553 1,739,999 Totals $ 16,352,525 $ 17,102,993 - 10 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (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 impact earnings volatility in any particular period. The Company has open position contracts held by the broker, which are summarized as follows: SCHEDULE OF CONTRACTS HELD BY BROKER July 31, 2021 October 31, 2020 Option Contracts $ ( 191,637 ) $ ( 164,475 ) Future Contracts 54,881 ( 287,850 ) Total Commodities $ ( 136,756 ) $ ( 452,325 ) The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in the statement of operations as a component of cost of sales and not reflected as a net amount as a separate component of stockholders’ equity. The Company recorded realized and unrealized gains and losses, on these contracts as follows: SCHEDULE OF REALIZED AND UNREALIZED GAINS AND LOSSES ON CONTRACTS 2021 2020 Three Months Ended July 31, 2021 2020 Gross realized gains $ 288,785 $ 150,972 Gross realized losses ( 29,077 ) ( 525,155 ) Unrealized (loss) gain ( 243,838 ) 674,015 Total $ 15,870 $ 299,832 2021 2020 Nine Months Ended July 31, 2021 2020 Gross realized gains $ 791,897 $ 992,875 Gross realized losses ( 29,152 ) ( 1,320,080 ) Unrealized gain 315,569 355,079 Total $ 1,078,314 $ 27,874 - 11 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (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) 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 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 July 31, 2021 and October 31, 2020. The outstanding balance on the Company’s lines of credit were $ 2,500,000 and $ 3,796,822 as of July 31, 2021 and October 31, 2020, 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 July 31, 2021 and October 31, 2020, 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 July 31, 2021 and October 31, 2020, 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, Louisiana, Montana, Massachusetts, Michigan, New Jersey, New York, New York City, Oregon, Rhode Island, South Carolina, Tennessee, Virginia, and Texas state tax returns. The Company’s federal income tax return is no longer subject to examination by the federal taxing authority for the years before fiscal 2017. The Company’s California, Colorado and New Jersey income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2017. The Company’s Oregon and New York income tax returns are no longer subject to examination by their respective taxing authorities for the years before fiscal 2017. - 12 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (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 and 5,569,349 for the three and nine months ended July 31, 2021 and 2020, respectively. The Company has granted 1,000,000 options which have not been included in the calculation of diluted earnings per share due to their anti-dilutive nature. NOTE 8 - COMMITMENTS AND CONTINGENCIES : CLASS ACTION COMPLAINTS 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 the Company and another coffee roasting company, 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. The Company has filed a motion to dismiss, and the plaintiff has sought leave to file an amended complaint. At this time, 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-Q, the Company is unable to predict the ultimate outcome of this lawsuit. - 13 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (UNAUDITED) NOTE 8 - COMMITMENTS AND CONTINGENCIES (cont’d): CLASS ACTION COMPLAINTS (cont’d) A number of lawsuits similar to those above have been filed in recent years against coffee sellers in the industry in which the Company competes. Many of these lawsuits have yet to be finally adjudicated. The Company believes the lawsuits filed against it are without merit. LEASES The following summarizes the Company’s operating leases: SCHEDULE OF OPERATING LEASES July 31, 2021 Right-of-use operating lease assets $ 1,615,418 Current lease liability $ 406,876 Non-current lease liability 1,313,246 Total lease liability $ 1,720,122 The amortization of the right-of-use asset for the nine and three months ended July 31, 2021 was $ 321,921 and $ 95,766 , respectively. July 31, 2021 Average remaining lease term 2.9 Discount rate 4.75 % Maturities of lease liabilities by year for our operating leases are as follows: SCHEDULE OF MINIMUM FUTURE LEASE PAYMENTS 2021 (remaining three months) $ 179,031 2022 470,761 2023 446,449 2024 291,454 2025 168,288 Thereafter 434,744 Total lease payments $ 1,990,727 Less: imputed interest ( 270,605 ) Present value of operating lease liabilities $ 1,720,122 The aggregate cash payments under these leasing agreements was $ 442,118 for the nine months ended July 31, 2021. 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 . - 14 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (UNAUDITED) NOTE 9 - ECONOMIC DEPENDENCY (restated) : Approximately 21 % and 23 % of the Company’s sales were derived from six customers during the three and nine months ended July 31, 2021, respectively. These customers also accounted for approximately $ 1,297,343 of the Company’s accounts receivable balance at July 31, 2021. Approximately 23 % and 27 % of the Company’s sales were derived from six customers during the three and nine months ended July 31, 2020, respectively. These customers also accounted for approximately $ 1,907,000 of the Company’s accounts receivable balance at July 31, 2020. 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 that management believes will adequately provide for credit losses. Approximately 50 % and 34 % of the Company’s purchases were from six vendors for the three and nine months ended July 31, 2021, respectively. These vendors accounted for approximately $ 718,000 of the Company’s accounts payable at July 31, 2021. Approximately 27 % and 29 % of the Company’s purchases were from six vendors for the three and nine months ended July 31, 2020, respectively. These vendors accounted for approximately $ 508,000 of the Company’s accounts payable at July 31, 2020. 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. 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 and nine months ended July 31, 2021 of $ 91,207 and $ 253,932 , respectively and $ 110,369 and $ 307,569 , respectively for the three and nine months ended July 31, 2020, for the processing of finished goods. These amounts are reflected in cost of sales in the statement of operations. An employee of one of the top five vendors is a director of the Company. Purchases from that vendor totaled approximately $ 1,716,000 and $ 2,451,000 for the three and nine months ended July 31, 2021, respectively and $ 1,461,000 and $ 4,466,000 for the three and nine months ended July 31, 2020, respectively. These amounts are reflected in cost of sales in the statement of operations. The corresponding accounts payable balance to this vendor was $ 50,500 at July 31, 2021 and October 31, 2020. 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 an officer of the Company. The assets are included in the Deposits and other assets in the accompanying balance sheets. The deferred compensation asset and liability at July 31, 2021 and October 31, 2020 were $ 304,335 and $ 276,548 , respectively. - 15 - COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2021 (UNAUDITED) 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 and nine months ended July 31, 2021 and the year ended October 31, 2020. 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, 2021, the Board of Directors approved 1,000,000 options. As of July 31, 2021 all options are outstanding. The Company recorded $ 189,768 and $ 569,305 of stock-based compensation for the three and nine months ended July 31, 2021 and $ 189,769 and $ 678,709 for the three and nine months ended July 31, 2020, respectively. The remaining unamortized stock compensation expense as of July 31, 2021 was approximately $ 595,589 , which will be expensed over a weighted average period of nine months. NOTE 12 - 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 identify a subsequent event that requires disclosure in the condensed consolidated financial statements. The Company made an investment of $ 2,500,000 in an entity that holds investments in the plant-based protein drink manufacturing industry. - 16 -