COFFEE HOLDING CO INC 10-Q

ITEM 1 – FINANCIAL STATEMENTS. COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS JULY 31, 2023 AND OCTOBER 31, 2022 July 31, 2023 October 31, 2022 (Unaudited) - ASSETS - CURRENT ASSETS: Cash $ 2,418,550 $ 2,515,873 Accounts receivable, net of allowances of $ 144,000 for 2023 and 2022 6,482,154 7,816,473 Inventories 17,138,384 19,252,214 Due from broker 557,356 818,892 Prepaid expenses and other current assets 441,432 432,126 Prepaid and refundable income taxes 866,155 866,155 TOTAL CURRENT ASSETS 27,904,031 31,701,733 Building, machinery and equipment, net 3,507,692 3,199,790 Customer list and relationships, net of accumulated amortization of $ 302,758 and $ 279,883 for 2023 and 2022, respectively 192,375 215,250 Trademarks and tradenames 327,000 327,000 Equity method investments 340,134 354,444 Investment - other 2,500,000 2,500,000 Right of use asset 2,777,685 2,871,773 Deferred income tax assets - net 1,428,687 1,073,187 Deposits and other assets 337,406 449,348 TOTAL ASSETS $ 39,315,010 $ 42,692,525 - LIABILITIES AND STOCKHOLDERS’ EQUITY - CURRENT LIABILITIES: Accounts payable and accrued expenses $ 2,823,453 $ 3,814,864 Line of credit 9,020,000 - Cash overdrafts - 876,148 Due to broker 485,506 1,523,563 Note payable – current portion 4,200 4,200 Lease liability – current portion 69,044 220,734 TOTAL CURRENT LIABILITIES 12,402,203 6,439,509 Line of credit - 8,314,000 Lease liabilities 3,230,204 3,136,006 Note payable – long term 4,464 9,105 Deferred compensation payable 131,296 243,238 TOTAL LIABILITIES 15,768,167 18,141,858 Commitments and Contingencies - - STOCKHOLDERS’ EQUITY: Coffee Holding Co., Inc. stockholders’ equity: Preferred stock, par value $ .001 per share; 10,000,000 shares authorized; none issued - - Common stock, par value $ .001 per share; 30,000,000 shares authorized, 6,633,930 shares issued for 2023 and 2022; 5,708,599 shares outstanding for 2023 and 2022 6,634 6,634 Additional paid-in capital 19,094,618 19,094,618 Retained earnings 9,323,613 10,327,437 Less: Treasury stock, 925,331 common shares, at cost for 2023 and 2022 ( 4,633,560 ) ( 4,633,560 ) Total Coffee Holding Co., Inc. Stockholders’ Equity 23,791,305 24,795,129 Noncontrolling interest ( 244,462 ) ( 244,462 ) TOTAL EQUITY 23,546,843 24,550,667 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 39,315,010 $ 42,692,525 See Notes to Condensed Consolidated Financial Statements 3 COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE AND THREE MONTHS ENDED JULY 31, 2023 AND 2022 (Unaudited) 2023 2022 2023 2022 Nine Months Ended July 31, Three Months Ended July 31, 2023 2022 2023 2022 NET SALES $ 49,411,183 $ 50,216,316 $ 15,764,365 $ 17,013,286 COST OF SALES 41,810,204 40,806,381 13,315,602 13,867,710 GROSS PROFIT 7,600,979 9,409,935 2,448,763 3,145,576 OPERATING EXPENSES: Selling and administrative 8,722,156 9,530,817 2,709,238 2,758,995 Officers’ salaries 467,548 449,375 142,772 147,099 TOTAL 9,189,704 9,980,192 2,852,010 2,906,094 (LOSS) INCOME FROM OPERATIONS ( 1,588,725 ) ( 570,257 ) ( 403,247 ) 239,482 OTHER (EXPENSE) INCOME: Interest income 3,120 4,095 7 2 Loss from equity method investment ( 14,310 ) ( 43,154 ) ( 5,007 ) ( 7,354 ) Other income 634,181 - 400,140 - Interest expense ( 393,590 ) ( 143,393 ) ( 144,024 ) ( 53,100 ) TOTAL 229,401 ( 182,452 ) 251,116 ( 60,452 ) (LOSS) INCOME BEFORE BENEFIT FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY ( 1,359,324 ) ( 752,709 ) ( 152,131 ) 179,030 (Benefit) provision for income taxes ( 355,500 ) ( 188,626 ) ( 40,250 ) 46,649 NET (LOSS) INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY ( 1,003,824 ) ( 564,083 ) ( 111,881 ) 132,381 Less: Net loss attributable to the non-controlling interest - 609,231 - - NET (LOSS) INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC. $ ( 1,003,824 ) $ 45,148 $ ( 111,881 ) $ 132,381 Basic and diluted (loss) income earnings per share $ ( .18 ) $ .01 $ ( .02 ) $ .02 Weighted average common shares outstanding: Basic and diluted 5,708,599 5,708,599 5,708,599 5,708,599 See Notes to Condensed Consolidated Financial Statements 4 COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY THREE AND NINE MONTHS ENDED JULY 31, 2023 AND 2022 (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, 2021 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,688,797 $ 14,471,222 $ 837,226 $ 29,370,319 Net income - - - - - 280,863 - 280,863 Stock Compensation 189,768 189,768 Dividend to common shareholders ( 399,000 ) ( 399,000 ) Non-controlling Interest 61,663 61,663 Balance, January 31, 2022 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 18,878,565 $ 14,353,085 $ 898,889 $ 29,503,613 Stock Compensation 174,241 174,241 Distribution to non-controlling interest ( 220,043 ) ( 220,043 ) Non-controlling Interest ( 670,894 ) ( 670,894 ) Net loss - - - - - ( 368,096 ) - ( 368,096 ) Balance, April 30, 2022 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,052,806 $ 13,984,989 $ 7,952 $ 28,418,821 Stock Compensation 41,812 41,812 Net income - - - - - 132,381 - 132,381 Balance, July 31, 2022 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 14,117,370 $ 7,952 $ 28,593,014 Balance, October 31, 2022 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 10,327,437 $ ( 244,462 ) $ 24,550,667 Net loss - - - - - ( 532,103 ) - ( 532,103 ) Balance, January 31, 2023 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 9,795,334 $ ( 244,462 ) $ 24,018,564 Net loss - - - - - ( 359,840 ) - ( 359,840 ) Balance, April 30, 2023 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 9,435,494 $ ( 244,462 ) $ 23,658,724 Beginning balance, value 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 9,435,494 $ ( 244,462 ) $ 23,658,724 Net loss - - - - - ( 111,881 ) - ( 111,881 ) Net income loss - - - - - ( 111,881 ) - ( 111,881 ) Balance, July 31, 2023 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 9,323,613 $ ( 244,462 ) $ 23,546,843 Ending balance, value 5,708,599 $ 6,634 925,331 $ ( 4,633,560 ) $ 19,094,618 $ 9,323,613 $ ( 244,462 ) $ 23,546,843 See Notes to Condensed Consolidated Financial Statements 5 COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2023 AND 2022 (Unaudited) 2023 2022 OPERATING ACTIVITIES: Net loss $ ( 1,003,824 ) $ ( 564,083 ) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 436,669 421,661 Stock-based compensation - 405,821 Unrealized loss (gain) on commodities ( 776,521 ) 38,241 Loss on equity method investments 14,310 43,154 Write-off of accounts receivable 415,096 Write-down of obsolete inventory 718,353 Amortization of right to use asset 240,504 258,028 Deferred income taxes ( 355,500 ) ( 71,192 ) Changes in operating assets and liabilities: Accounts receivable 1,334,319 1,349,778 Inventories 2,113,830 ( 4,215,991 ) Prepaid expenses and other current assets ( 9,306 ) ( 165,419 ) Prepaid and refundable income taxes - ( 577,043 ) Lease liability ( 203,908 ) ( 217,777 ) Deposits and other assets - ( 68,757 ) Accounts payable and accrued expenses ( 991,411 ) ( 175,172 ) Income taxes payable - ( 414,949 ) Net cash provided by (used in) operating activities 799,162 ( 2,820,251 ) INVESTING ACTIVITIES: Purchases of machinery and equipment ( 721,696 ) ( 1,357,066 ) Net cash used in investing activities ( 721,696 ) ( 1,357,066 ) FINANCING ACTIVITIES: Advances under bank line of credit 2,434,783 3,027,654 Cash overdraft ( 876,148 ) - Principal payments on note payable ( 4,641 ) ( 2,631 ) Payment of dividend ( 399,000 ) Principal payments under bank line of credit ( 1,728,783 ) ( 714,504 ) Net cash (used in) provided by financing activities ( 174,789 ) 1,911,519 NET DECREASE IN CASH ( 97,323 ) ( 2,265,798 ) CASH, BEGINNING OF PERIOD 2,515,873 3,696,275 CASH, END OF PERIOD $ 2,418,550 $ 1,430,477 See Notes to Condensed Consolidated Financial Statements 6 COFFEE HOLDING CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2023 AND 2022 (Unaudited) 2023 2022 SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 373,043 $ 84,967 Income taxes paid $ - $ 498,992 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of inventory by non-controlling interest $ 220,043 Initial recognition of operating lease right of use asset $ 146,416 See Notes to Condensed Consolidated Financial Statements 7 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (UNAUDITED) NOTE 1 - BUSINESS ACTIVITIES : Coffee Holding Co., Inc. (the “Company”) conducts wholesale coffee operations, including manufacturing, roasting, packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and it sells green coffee. The Company also manufactures and sells coffee roasters. The Company’s core product, coffee, can be summarized and divided into three product categories (“product lines”) as follows: Wholesale Green Coffee: unroasted raw beans imported from around the world and sold to large and small roasters and coffee shop operators; Private Label Coffee: coffee roasted, blended, packaged and sold under the specifications and names of others, including supermarkets that want to have their own brand name on coffee to compete with national brands; and Branded Coffee: coffee roasted and blended to the Company’s own specifications and packaged and sold under the Company’s eight proprietary and licensed brand names in different segments of the market. The Company’s private label and branded coffee sales are primarily to customers that are located throughout the United States with limited sales in Canada and certain countries in Asia. Such customers include supermarkets, wholesalers, and individually-owned and multi-unit retailers. The Company’s unprocessed green coffee, which includes over 90 specialty coffee offerings, is sold primarily to specialty gourmet roasters and to coffee shop operators in the United States with limited sales in Australia, Canada, England and China. The Company’s wholesale green, private label, and branded coffee product categories generate revenues and cost of sales individually but incur selling, general and administrative expenses in the aggregate. There are no individual product managers and discrete financial information is not available for any of the product lines. The Company’s product portfolio is used in one business and it operates and competes in one business activity and economic environment. In addition, the three product lines share customers, manufacturing resources, sales channels, and marketing support. Thus, the Company considers the three product lines to be one single reporting segment. On September 29, 2022, the Company entered into a Merger and Share Exchange Agreement (the “Merger Agreement”), by and among the Company, Delta Corp Holdings Limited, a Cayman Islands exempted company (“Pubco”), Delta Corp Holdings Limited, a company incorporated in England and Wales (“Delta”), CHC Merger Sub Inc., a Nevada corporation and wholly owned subsidiary of Pubco (“Merger Sub”), and each of the holders of ordinary shares of Delta as named therein (the “Sellers”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a direct, wholly-owned subsidiary of Pubco (the “Merger”). As a result of the Merger, each issued and outstanding share of the Company common stock, $ 0.001 par value per share (the “Common Stock”), will be cancelled and converted for the right of the holder thereof to receive one ordinary share, par value $ 0.0001 of Pubco (the “Pubco Ordinary Shares”). 8 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (UNAUDITED) NOTE 2 – GOING CONCERN, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES : Going Concern These accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company prepared a forecast representing their business plans for fiscal 2024. However, the Company has yet to achieve increased revenues at higher margins and there is no assurance they will be successful. The line of credit expires within 12 months and there have been no discussions with the financial institution to extend the line of credit ($ 9 million at July 31, 2023). The Company’s ability to execute its operating plan through fiscal 2024 and beyond depends on its ability to renew or replace its line of credit. The Company expects to renew the line of credit or, if necessary, seek alternative financing on similar terms. There can be no assurance that the Company will be able to renew the line of credit in a timely manner and or that any such renewal will contain commercially acceptable terms. Therefore, as of July 31, 2023, the Company has concluded there is substantial doubt about their ability to continue as a going concern. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Basis of Presentation 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, 2022. 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, 2022 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 do 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, 2022 and notes thereto included in the Company’s fiscal 2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 29, 2023 (the “2022 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 its subsidiaries, namely, Organic Products Trading Company, LLC (“OPTCO”), Sonofresco, LLC (“SONO”), Comfort Foods, Inc. (“CFI”) and Generations Coffee Company, LLC (“GCC”), the entity formed as a result of the Company’s joint venture with Caruso’s Coffee, Inc. The Company owns a 60 % equity interest in GCC. All significant inter-company transactions and balances have been eliminated in consolidation. Significant Accounting Policies The significant accounting policies used in the preparation of these condensed consolidated financial statements are disclosed in our 2022 10-K, and there have been no changes to the Company’s significant accounting policies during the three and nine months ended July 31, 2023. 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, Revenue from Contracts with Customers (“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, 2023 (UNAUDITED) NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (cont’d): The following table presents revenues by stream for the nine and three months ended July 31, 2023 and 2022.: SCHEDULE OF REVENUE Nine Months Ended July 31, 2023 Three Months Ended July 31, 2023 Nine Months Ended July 31, 2022 Three Months Ended July 31, 2022 Green $ 21,078,402 $ 6,645,606 $ 21,163,637 $ 7,014,783 Packaged 28,332,781 9,118,759 29,052,679 9,998,503 Totals $ 49,411,183 $ 15,764,365 $ 50,216,316 $ 17,013,286 Revenues $ 49,411,183 $ 15,764,365 $ 50,216,316 $ 17,013,286 NOTE 3 - INVENTORIES: Inventories at July 31, 2023 and October 31, 2022 consisted of the following: SCHEDULE OF INVENTORIES July 31, 2023 October 31, 2022 Packed coffee $ 2,818,664 $ 2,677,617 Green coffee 11,925,640 14,847,708 Roasters and parts 534,273 576,778 Packaging supplies 1,859,807 1,150,111 Totals $ 17,138,384 $ 19,252,214 Inventories $ 17,138,384 $ 19,252,214 10 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (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 cost of sales. The commodities held by broker represent the market value of the Company’s trading account, which consists of options and futures contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the condensed consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period. We record all open contract positions on our consolidated balance sheets at fair value in the due from and due to broker line items and typically do not offset these assets and liabilities. The Company classifies its options and futures contracts as trading securities, and accordingly, unrealized holding gains and losses are included in earnings and not reflected as a net amount as a separate component of stockholders’ equity. The Company recorded realized and unrealized gains and losses respectively, on these contracts as follows: SCHEDULE OF REALIZED AND UNREALIZED GAINS AND LOSSES ON CONTRACTS 2023 2022 Three Months Ended July 31, 2023 2022 Gross realized gains $ 265,801 $ 635,570 Gross realized losses ( 236,404 ) - Unrealized losses ( 159,955 ) ( 150,687 ) Total $ ( 130,558 ) $ 484,883 Gain (Loss) on Investments $ ( 130,558 ) $ 484,883 2023 2022 Nine Months Ended July 31, 2023 2022 Gross realized gains $ 642,709 $ 1,958,618 Gross realized losses ( 1,528,765 ) ( 1,257,359 ) Unrealized gain (losses) 776,521 ( 38,241 ) Total $ ( 109,535 ) $ 663,018 Gain (Loss) on Investments $ ( 109,535 ) $ 663,018 11 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (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”) (later acquired by Webster Financial Corp. (“Webster”), 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 17, 2022, the Company reached an agreement for a new loan modification agreement and credit facility which extended the maturity date to June 29, 2022 . The facility was then approved for a two-year extension. All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same. On June 28, 2022, the Company reached an agreement for a new loan modification agreement and credit facility with Webster. The terms of the new agreement, among other things: (i) provided for a new maturity date of June 30, 2024 , and (ii) changed the interest rate per annum to SOFR 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 remained the same. The Company is subject to certain covenants with respect to its line of credit agreement. The Company was not in compliance with the net profit and non-borrower affiliate covenants as of October 31, 2022. The Company requested a waiver from the lender and the waiver was granted and received on March 15, 2023. The lender also extended the due date of the October 31, 2022 financial statements until April 15, 2023. The loan agreement was also modified on March 15, 2023 to, among other things: (i) provide for a requirement for subordination agreements if necessary, and (ii) change the terms of transactions with affiliates from a dollar limitation to allowable in the ordinary course of business, (iii) establishe a new covenant for a fixed charge coverage ratio. 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 outstanding balance on the Company’s lines of credit were $ 9,020,000 and $ 8,314,000 as of July 31, 2023 and October 31, 2022, 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, 2023 and October 31, 2022, the Company did not 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, 2023 and October 31, 2022, the Company had no accrued interest or penalties related to income taxes. The Company currently has no federal or state tax examinations in progress. 12 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (UNAUDITED) NOTE 6 - 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 2019. 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 2019. 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 2019. NOTE 7 - EARNINGS (LOSS) PER SHARE: The Company presents “basic” and “diluted” earnings per common share pursuant to the provisions included in the authoritative guidance issued by FASB ASC 260, “Earnings per Share,” and certain other financial accounting pronouncements. Basic earnings per common share were computed by dividing net (loss) income by the sum of the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing the net (loss) income by the weighted-average number of common shares outstanding plus the dilutive effect of common shares issuable upon exercise of potential sources of dilution. The weighted average common shares outstanding used in the computation of basic and diluted earnings per share were 5,708,599 for the nine and three months ended July 31, 2023 and 2022. The Company had granted 1,000,000 options in the second quarter of 2019, which have not been included in the calculation of diluted earnings per share due to their anti-dilutive nature. NOTE 8 - COMMITMENTS AND CONTINGENCIES: 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. 13 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (UNAUDITED) NOTE 9 - LEASES: The following summarizes the Company’s operating leases: SCHEDULE OF OPERATING LEASES 2023 2022 Right-of-use operating lease assets $ 2,777,685 $ 2,871,773   Current lease liability $ 69,044 $ 220,734 Non-current lease liability 3,230,204 3,136,006 Total lease liability $ 3,299,248 $ 3,356,740 The amortization of the right-of-use asset for the three months ended July 31, 2023 and 2022 was $ 80,662 and $ 78,079 , respectively. The amortization of the right-of-use asset for the nine months ended July 31, 2023 and 2022 was $ 240,504 and $ 258,028 , respectively. Weighted average remaining lease term 10.5 Weighted average discount rate 4.9 % Maturities of lease liabilities by year for our operating leases are as follows: SCHEDULE OF MINIMUM FUTURE LEASE PAYMENTS 2023 $ 365,579 2024 519,304 2025 393,668 2026 376,683 2027 367,788 Thereafter 2,333,300 Total lease payments $ 4,356,322 Less: imputed interest ( 1,057,074 ) Present value of operating lease liabilities $ 3,299,248 In June 2021, the Company purchased a facility in Colorado for $ 900,321 that it was previously leasing. On the date of purchase, the Company wrote off the carrying value of the right-of-use asset and lease liability associated with this facility of $ 242,888 . In December 2022, the Company extended its lease at its subsidiary Sonofresco in Washington through December 2023. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $ 40,797 as of January 31, 2023. In March 2023, the Company extended its lease at its subsidiary Organics Products Trading Company in Washington through March 2026. As a result, on the date of the modification the Company increased its right-of-use asset and lease liability by $ 105,619 as of April 30, 2023. 14 COFFEE HOLDING CO., INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 31, 2023 (UNAUDITED) NOTE 10 - RELATED PARTY TRANSACTIONS: The Company has engaged its 40 % former partner in Generation Coffee Company LLC (“GCC”) as an outside contractor (the “Partner”). Included in contract labor expense are expenses incurred by the Partner during the three and nine months ended July 31, 2023 and 2022 of $ 0 and $ 56,851 and $ 58,490 and $ 210,961 , respectively, for the processing of finished goods. In January 2005, the Company established the “Coffee Holding Co., Inc. Non-Qualified Deferred Compensation Plan.” Currently, there is only one participant in the plan: the Company’s Chief Executive Officer. Within the plan guidelines, this employee is deferring a portion of his current salary and bonus. The assets are held in a separate trust. The deferred compensation payable represents the liability due to the Chief Executive Officer of the Company. The assets were $ 131,296 and $ 243,238 at July 31, 2023 and October 31, 2022, respectively, and are included in the Deposits and other assets in the accompanying balance sheets. The deferred compensation liability at July 31, 2023 and October 31, 2022 were $ 131,296 and $ 243,238 , respectively. NOTE 11 - STOCKHOLDERS’ EQUITY: a. Treasury Stock . The Company utilizes the cost method of accounting for treasury stock. The cost of reissued shares is determined under the last-in, first-out method. The Company did not purchase any shares during the three and nine months ended July 31, 2023 and the year ended October 31, 2022. b. Stock Options . The Company has an incentive stock plan, the 2013 Equity Compensation Plan (the “2013 Plan”), and on April 19, 2019, has granted 1,000,000 stock options to employees, officers and non-employee directors from the 2013 Plan each with an exercise price of $ 5.43 . Options granted under the 2013 Plan may be Incentive Stock Options or Nonqualified Stock Options, as determined by the Administrator at the time of grant. No options were granted, forfeited or expired during the three and nine months ended July 31, 2023 or for the year ended October 31, 2022. The Company recorded $ 0 stock-based compensation for the three and nine months ended July 31, 2023 and $ 41,812 and $ 405,821 for the three and nine months ended July 31, 2022. 15