What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-03-18 compared with 2023-09-14 · 241 added, 162 removed, 99 unchanged (80% of the section changed)

1 unchanged sentence

Note on Forward-Looking Statements

of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of “Operations” “Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant

of the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,”

“Business,” “Risk Factors” and elsewhere in this annual report include forward-looking statements made pursuant

to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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events, including, among other things:

our dependency

on a single commodity could affect our revenues and profitability;

in expanding our market presence in new geographic regions;

the effectiveness

of our hedging policy may impact our profitability;

of our joint ventures;

in implementing our business strategy or introducing new products;

to attract and retain customers;

to obtain additional financing;

to comply with the restrictive covenants we are subject to under our current financing;

of competition from other coffee manufacturers and other beverage alternatives;

to the operations of our Colorado facility;

general economic

conditions and conditions which affect the market for coffee;

the potential

adverse impact of the COVID-19 pandemic on our operations and results;

our expectations

regarding, and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of green

global economic environment;

to maintain and develop our brand recognition;

of rapid or persistent fluctuations in the price of coffee beans;

in the supply of coffee beans;

the volatility

of our common stock;

which we identify in future filings with the Securities and Exchange Commission (the “SEC”).

our dependency on a single

commodity could affect our revenues and profitability;

our success in expanding

our market presence in new geographic regions;

the effectiveness of our

hedging policy may impact our profitability;

the success of our joint

our success in implementing

our business strategy or introducing new products;

our ability to attract

and retain customers;

our ability to obtain additional

our ability to comply with

the restrictive covenants we are subject to under our current financing;

the effects of competition

from other coffee manufacturers and other beverage alternatives;

the impact to the operations

of our Colorado facility;

general economic conditions

and conditions which affect the market for coffee;

the potential adverse impact

of the COVID-19 pandemic on our operations and results;

our expectations regarding,

and the stability of, our supply chain, including potential shortages or interruptions in the supply or delivery of green coffee;

the macro global economic

our ability to maintain

and develop our brand recognition;

the impact of rapid or

persistent fluctuations in the price of coffee beans;

fluctuations in the supply

of coffee beans;

the volatility of our common

other risks which we identify

in future filings with the Securities and Exchange Commission (the “SEC”).

some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,”

14 unchanged sentences

operations have primarily focused on the following areas of the coffee industry:

the sale of wholesale specialty green

the roasting, blending, packaging and

sale of private label coffee;

the roasting, blending, packaging and

sale of our eight brands of coffee;

sales of our tabletop coffee roasting

the sale of wholesale specialty

green coffee;

the roasting, blending,

packaging and sale of private label coffee;

the roasting, blending,

packaging and sale of our eight brands of coffee;

sales of our tabletop coffee

roasting equipment.

operating results are affected by a number of factors including:

of marketing and pricing competition from existing or new competitors in the coffee industry;

to retain existing customers and attract new customers;

in purchase prices and supply of green coffee and in the selling prices of our products;

to manage inventory and fulfillment operations and maintain gross margins.

the level of marketing

and pricing competition from existing or new competitors in the coffee industry;

our ability to retain existing

customers and attract new customers;

our hedging policy;

fluctuations in purchase

prices and supply of green coffee and in the selling prices of our products;

our ability to manage inventory

and fulfillment operations and maintain gross margins.

net sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract

49 unchanged sentences

and options contracts, and intend to continue to use these practices in a limited capacity going forward.

September 29, 2022, the Company (or “JVA”) entered into a Merger and Share Exchange Agreement, as amended and supplemented

(the “Merger Agreement”), by and among JVA, 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 JVA, with JVA surviving as a direct, wholly-owned subsidiary of Pubco (the “Merger”).

On June 29, 2023, JVA, Pubco,

Delta, Merger Sub and the Sellers entered into Amendment 1 to the Merger Agreement (the “First Amendment”).

On January 4,

2024, JVA, Pubco, Delta, Merger Sub and the Sellers entered into Amendment 2 to the Merger Agreement (the “Second Amendment”).

a result of the Merger, each issued and outstanding share of JVA common stock, $0.001 par value per share (the “JVA 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”).

a condition to the Merger, Pubco shall also acquire all of the issued and outstanding Delta securities from the Sellers in exchange for

Pubco Ordinary Shares (the “Exchange” and, collectively with the Merger and the other transactions contemplated by the Merger

Agreement, the “Transactions”).

As a result of the Transactions, JVA and Delta will each become direct, wholly-owned subsidiaries

of Pubco, with JVA stockholders receiving approximately $31.5 million (or 4.79%) worth of Pubco Ordinary Shares (the “Merger Consideration”)

and Delta stockholders receiving approximately $625 million (or 95.21%) worth of Pubco Ordinary Shares (the “Exchange Consideration”

and collectively with the Merger Consideration, the “Business Combination Consideration”), subject to certain adjustments,

at an implied diluted value per share of $5.50.

The Business Combination Consideration may be adjusted if Delta closes certain acquisitions

prior to the closing of the Transactions.

The Merger Agreement also includes an earn-out to existing stockholders of Delta, consisting

of $50 million of additional Pubco Ordinary Shares, which will be released to Delta stockholders if and when Delta achieves $70 million

or greater of net income for fiscal year ending 2023.

the effective time of the Merger (the “Merger Effective Time”), each award of options to purchase JVA Common Stock (each,

a “JVA Stock Option”) that is outstanding, whether vested or unvested, will be cancelled and substituted with option(s) to

purchase Pubco Ordinary Shares to be granted under the Pubco equity plan (the “Substituted Options”).

The Substituted Options

will represent the right to purchase that number of shares of Pubco Ordinary Shares equal to the number of shares of JVA Common Stock

underlying such JVA Stock Option immediately prior to the Merger Effective Time with a per-share exercise price of such Substituted Option

equal to the exercise price per JVA Common Stock subject to such JVA Stock Option immediately prior to the Merger Effective Time.

to execution of the Merger Agreement, JVA’s board of directors (the “Board”) unanimously (i) determined that the terms

and provisions of the Merger Agreement and the transactions contemplated therein, including the Merger and Transactions, are fair, advisable

to and in the best interests of JVA and its stockholders, (ii) approved the Merger Agreement and related Transactions, (iii) directed

that the adoption of the Merger Agreement be submitted to a vote at a meeting of the stockholders of JVA, and (iv) resolved to recommend

that JVA’s stockholders adopt the Merger Agreement.

Pubco, Delta and the Sellers have made customary representations and warranties in the Merger Agreement and have agreed to customary

covenants regarding the operation of their respective businesses prior to the closing of the transactions contemplated thereby.

of the Merger is subject to customary closing conditions, including, without limitation, (i) approval of the Merger Agreement and the

transactions contemplated thereunder by a majority of JVA’s stockholders (the “JVA Stockholder Approval”), (ii) the

absence of any law or order that prevents or prohibits the consummation of the Transaction, (iii) obtaining all requisite governmental

authorizations, (iv) effectiveness of the Registration Statement of Pubco on Form F-4, and (v) approval of the listing of Pubco Ordinary

Shares on the Nasdaq Capital Market.

the date of the Merger Agreement until October 19, 2022 (the “Go-Shop Period”), JVA had the right to initiate, solicit, facilitate

and encourage any inquiry or the making of any proposals or offers that would constitute an acquisition proposal involving more than

fifteen percent (15%) of JVA’s assets or outstanding shares of common stock or in which the stockholders of JVA immediately preceding

the contemplated transaction would hold less than eighty-five percent (85%) of the voting equity interest of the surviving company (each

or any combination of the foregoing, a “Takeover Proposal”), including by way of providing access to non–public information

to any third party pursuant to a non-disclosure agreement.

Following the expiration of the Go-Shop Period, JVA ceased such activities

and be subject to customary “no-shop” restrictions on its ability to solicit a Takeover Proposal from third parties and to

provide non-public information to and engage in discussions with a third party in relation to a Takeover Proposal, except that JVA may

continue to engage in the aforementioned activities with third parties from whom JVA has received a Takeover Proposal that the Board

has determined constitutes or is reasonably likely to lead to a Superior Proposal (as defined below) and has determined that the failure

to take such actions would be inconsistent with the Board’s fiduciary duties.

to obtaining JVA Stockholder Approval, the Board may change its recommendation that stockholders vote to adopt the Merger Agreement (a

“Change in Recommendation”) (i) in response to any material event or change in circumstances with respect to JVA that was

not actually known or reasonably foreseeable by JVA prior to the date of the Merger Agreement (an “Intervening Event”) that

the Board determines in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to change

its recommendation in such circumstances would be reasonably likely to violate its fiduciary duties to the stockholders of JVA under

applicable law or (ii) if JVA has received a Takeover Proposal involving more than fifty percent (50%) of JVA’s assets or outstanding

shares of common stock or in which the stockholders of JVA immediately preceding the contemplated transaction would hold less than fifty

percent (50%) of the voting equity interest of the surviving company, that the Board determines in good faith (after consultation with

its financial advisor and outside legal counsel) is reasonably likely to be consummated in accordance with its terms and, among other

things, if consummated, would be more favorable from a financial point of view to JVA’s stockholders than the Transactions (a “Superior

Proposal”) (in which case JVA may also terminate the Merger Agreement to enter into such Superior Proposal, subject to certain

conditions including payment of the JVA Termination Fee, as described below).

the Board may change its recommendation in connection with an Intervening Event or a Superior Proposal, or terminate the Merger Agreement

to accept a Superior Proposal, JVA must provide Delta prompt written notice of its decision to make a Change in Recommendation and for

at least five (5) business days after such notice, JVA will negotiate with Delta to enable Delta to revise the terms of the Merger Agreement

so that the Takeover Proposal no longer constitutes a Superior Proposal.

Each time modifications to any material term of such alternative

acquisition proposal determined to be a Superior Proposal are made, JVA must notify Pubco of such modification and such five (5) business

day period will recommence.

Merger Agreement may be terminated by each of Delta and of JVA under certain circumstances, including, among others by either Delta or

JVA if the Merger has not been consummated by April 1, 2024 (the “Outside Date”).

If the Merger Agreement is terminated under

certain circumstances, including, among others, as a result of breach by either JVA or Delta of their respective representations, warranties

or covenants in the Merger Agreement, whereby JVA or Delta, respectively, may be entitled to a termination fee in the amount of $750,000

plus disbursements of all documented, out-of-pocket expenses up to $250,000.

In addition, if JVA terminates the Merger Agreement to accept

a Takeover Proposal or the Board (i) adversely changes its recommendation to the stockholders of JVA regarding the adoption of the Merger

Agreement or (ii) supports the approval of any JVA Takeover Proposal, then Delta shall be entitled to a termination fee of $1.3 million

and plus a disbursement of reasonable expenses up to $2 million (the “JVA Termination Fee”).

equityholders of Delta and JVA will have certain customary registration rights with respect to the Pubco Ordinary Shares to be received

in the transaction pursuant to the terms of a registration rights agreement, dated September 29, 2022 (the “Registration Rights

September 29, 2022, concurrently with the entry into the Merger Agreement, Delta, Pubco and JVA entered into Voting and Support Agreements

(the “JVA Voting Agreement”) with Andrew Gordon, President and Chief Executive Officer of JVA, and David Gordon, Executive

Vice President and Chief Operating Officer of JVA, pursuant to which Messrs.

Gordon have agreed to vote in favor of adopting the Merger

Agreement and the related transactions as contemplated thereunder.

JVA Voting Agreements will terminate upon the earliest to occur of

(i) the mutual written consent of each of Delta, Pubco, JVA and Messrs.

Gordon, (ii) the Merger Effective Time, and (iii) the date of

termination of the Merger Agreement in accordance with its terms.

has scheduled a special meeting of its stockholders, to be held on March 28, 2024, to approve the Merger Agreement and the other related

proposals related to the Merger.

foregoing description of the Merger Agreement, the Registration Rights Agreement and JVA Voting Agreements does not purport to be complete

and is qualified in its entirety by reference to the full text of (i) the Merger Agreement, (ii) the Registration Rights Agreement, and

(iii) the form of Voting and Support Agreement, copies of which are filed as exhibits to the Company’s Annual Report on Form 10-K,

filed with the SEC on February 9, 20224.

Accounting Policies and Estimates

have been no changes to our critical accounting policies during the three and nine months ended July 31, 2023.

have been no changes to our critical accounting policies during the three months ended January 31, 2024.

Critical accounting policies

4 unchanged sentences

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

report on Form 10-K filed with the SEC on March 29, 2023 for the fiscal year ended October 31, 2022.

Months Ended July 31, 2023 Compared to the Three Months Ended July 31, 2022

Net sales totaled $15,764,365 for the three months ended July 31, 2023, a decrease of $1,248,921, or 7.3%, from $17,013,286

for the three months ended July 31, 2022.

The decrease in net sales was due to a decrease in sales from our Generations/Steep N Brew

subsidiary and lower selling prices of green coffee to our wholesale green coffee customer base partially offset by an increase of sales

to our legacy customers.

Cost of sales for the three months ended July 31, 2023 was $13,315,602, or 84.5% of net sales, as compared to $13,867,710,

or 81.5% of net sales, for the three months July 31, 2022.

report on Form 10-K filed with the SEC on February 9, 2024 for the fiscal year ended October 31, 2023.

Months Ended January 31, 2024 Compared to the Three Months Ended January 31, 2023

Net sales totaled $19,540,402 for the three months ended January 31, 2024, an increase of $1,214,288, or 6.6%, from $18,326,114

for the three months ended January 31, 2023.

The increase in net sales was mostly due to additions of new private label customers partially

offset by lower green coffee sales to our green coffee customer base.

Cost of sales for the three months ended January 31, 2024 was $16,060,103, or 82% of net sales, as compared to $16,005,814,

or 87% of net sales, for the three months January 31, 2023.

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

materials and realized and unrealized gains or losses on hedging activity.

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

partially offset by a small loss in our hedging operation compared to a gain in hedging in 2022.

Gross profit for the three months ended July 31, 2023 amounted to $2,448,763 or 15.5% of net sales, as compared to $3,145,576

or 18.5% of net sales, for the three months ended July 31, 2022.

The decrease in gross profits on a percentage basis was attributable

The decrease in cost of sales was due to higher margins on

sales of our roasted and packaged products partially offset by a decrease in sales of green coffee with the net effect of higher gross

profit on our total business.

Gross profit for the three months ended January 31, 2024 amounted to $3,480,299 or 18% of net sales, as compared to $2,320,300

or 13% of net sales, for the three months ended January 31, 2023.

The increase in gross profits on a percentage basis was attributable

to the factors listed above.

Total operating expenses decreased by $54,084 to $2,852,010 for the three months ended July 31, 2023 from $2,906,094

for the three months ended July 31, 2022.

Total operating expenses decreased by $257,937 to $2,863,388 for the three months ended January 31, 2024 from $3,121,325

for the three months ended January 31, 2023.

Selling and administrative expenses decreased by $251,390 and officers’ salaries decreased

Operating expenses decreased primarily due to our Generations joint venture not generating expenses for the three months ended

July 2023 compared to the three months ended July 31, 2022, partially offset by increase in various other categories

Income (Expense).

Other income for the three months ended July 31, 2023 was $251,116, an increase of $311,568 from other expense

of $60,452 for the three months ended July 31, 2022.

The increase in other income was attributable to an increase in other income of

$400,140 due to an insurance claim, partially offset by an increase in interest expense of $90,924.

Our benefit for income taxes for the three months ended July 31, 2023 totaled $40,250 compared to a provision of $46,649

for the three months ended July 31, 2022.

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

31, 2023 versus the income in the quarter ended July 31, 2022.

(Loss) Income .

We had a net loss of $111,881 or $(0.02) per share basic and diluted, for the three months ended July 31, 2023

compared to net income of $132,381, or $0.02 per share basic and diluted for the three months ended July 31, 2022.

Months Ended July 31, 2023 Compared to the Nine Months Ended July 31, 2022

Net sales totaled $49,411,183 for the nine months ended July 31, 2023, a decrease of $805,133, or 1.6%, from $50,216,316

for the nine months ended July 31, 2022.

The decrease in net sales was due to a decrease in sales from our Generations/Steep N Brew subsidiary

and lower selling prices of green coffee to our wholesale green coffee customer base partially offset by an increase of sales to our

legacy customers.

Cost of sales for the nine months ended July 31, 2023 was $41,810,204, or 84.6% of net sales, as compared to $40,806,381,

or 81.3% of net sales, for the nine months July 31, 2022.

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

materials and realized and unrealized gains or losses on hedging activity.

Gross profit for the nine months ended July 31, 2023 amounted to $7,600,979 or 15.4% of net sales, as compared to $9,409,935

or 18.7% of net sales, for the nine months ended July 31, 2022.

The decrease in gross profits on a percentage basis was attributable

to the factors listed above.

Total operating expenses decreased by $790,488 to $9,189,704 for the nine months ended July 31, 2023 from $9,980,192

for the nine months ended July 31, 2022.

Selling and administrative expenses decreased by $808,661 and officers’ salaries increased

Operating expenses decreased primarily due to our Generations joint venture not generating expenses for the nine months ended

July 2023 compared to the nine months ended July 31, 2022, partially offset by increase in various other categories.

Income (Expense).

Other income for the nine months ended July 31, 2023 was $229,401, an increase of $411,853 from other expense

of $182,452 for the nine months ended July 31, 2022.

The increase was attributable to an increase in other income of $634,181 due to

an insurance claim, a decrease in our loss from our equity investments of $28,844, partially offset by an increase in our interest expense

of $250,197 and a decrease in our interest income of $975, during the nine months ended July 31, 2023.

Our benefit for income taxes for the nine months ended July 31, 2023 totaled $355,500 compared to a benefit of $188,626

for the nine months ended July 31, 2022.

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

July 31, 2023 versus the income in the nine months ended July 31, 2022.

(Loss) Income .

We had a net loss of $1,003,824 or ($0.18) per share basic and diluted, for the nine months ended July 31, 2023

compared to net income of $45,148, or $0.01 per share basic and diluted for the nine months ended July 31, 2022.

The decrease in net

Other expense for the three months ended January 31, 2024 was $123,550, a decrease of $225,222 from other income

of $101,672 for the three months ended January 31, 2023.

The decrease was attributable to a decrease in other income of $234,041, a decrease

in interest income of $3,100, an increase in our loss from our equity investments of $1,007, partially offset by a decrease in our interest

expense of $12,926, during the three months ended January 31, 2024.

Our provision for income taxes for the three months ended January 31, 2024 totaled $142,337 compared to a benefit of $167,250

for the three months ended January 31, 2023.

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

January 31, 2024 versus the income in the quarter ended January 31, 2023.

We had net income of $351,024 or $0.06 per share basic and diluted, for the three months ended January 31, 2024 compared

to a net loss of ($532,103), or ($0.09) per share basic and diluted for the three months ended January 31, 2023.

The increase in net

income was due primarily to the reasons described above.

and Capital Resources

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.

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).

Company’s ability to execute its operating plan through fiscal 2024 and beyond depends on its ability to renew or replace its line

The Company expects to renew the line of credit or, if necessary, seek alternative financing on similar terms.

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.

of July 31, 2023, we had working capital of $15,501,828, which represented a $9,760,396 decrease from our working capital of $25,262,224

Capital Resources and Going Concern

of January 31, 2024, we had working capital of $18,901,482, which represented a $301,220 increase from our working capital of $18,600,262

as of October 31, 2023.

Our working capital decreased primarily due to decreases of $97,323 in cash and cash equivalents, $1,334,319

in accounts receivable, $2,113,830 in inventories, $261,536 in due from broker and our line of credit of $9,020,000 being shown as current,partially

offset by an increase of $9,306 in prepaid expenses and other current assets, decreases of $991,411 in accounts payable and accrued expenses,

$876,148 in cash overdrafts, $1,038,057 in due to broker and $151,690 in lease liability – current portion.

As of July 31, 2023,

the outstanding balance on our line of credit was $9,020,000 compared to $8,314,000 as of October 31, 2022.

Our working capital increased primarily due to increases of $87,395 in accounts receivable, $556,360 in due from

broker, $79,767 in prepaid expenses and other current assets, decreases of $760,103 in accounts payable and accrued expenses, $4,920,000

in our line of credit, partially offset by decreases of $326,114 in cash, $2,700,000 in receivable from sale of investment, $1,974,274

in inventories, $54,970 in prepaid and refundable taxes, increases of $739,198 in due to broker and $307,849 in lease liability –

current portion.

As of January 31, 2024, the outstanding balance on our line of credit was $4,700,000 compared to $9,620,000 as of October

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 was later acquired by Webster Financial

(“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.

March 17, 2022, we reached an agreement for a new loan modification agreement and credit facility which extended the maturity date

to June 29, 2022.

All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.

June 28, 2022, we 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

further explained in Note 5 to the condensed consolidated financial statements, we are subject to certain covenants with respect to our

line of credit agreement and we were not in compliance with the net profit and non-borrower affiliate covenants as of October 31, 2022.

We 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.

On March 15, 2023, the A&R Loan Agreement was also modified to,

among other things:

(i) provide for a requirement for subordination agreements if necessary, (ii) change the terms of transactions with

affiliates from a dollar limitation to allowable in the ordinary course of business, and (iii) establish a new covenant for a fixed charge

coverage ratio.

(the “A&R Loan Facility”) with Sterling National Bank (later acquired by Webster Bank N.A.) (“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.

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.

June 28, 2022, the Company reached an agreement for a new loan modification agreement and credit facility with Webster Bank.

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.

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 our lines of credit were $9,020,000 and

$8,314,000 as of July 31, 2023 and October 31, 2022, respectively.

the nine months ended July 31, 2023, our operating activities provided net cash of $799,162 as compared to the nine months ended July

31, 2022 when operating activities used net cash of $2,820,251.

The increased cash flow from operations for the nine months ended July

31, 2023 was primarily due to our inventory position.

the nine months ended July 31, 2023, our investing activities used net cash of $721,696 as compared to the nine months ended July 31,

on the Borrowers’ operations, including covenants relating to fixed charge coverage ratio, debt to tangible net worth and tangible

The Company as of October 31, 2023 has failed to comply with one of these covenants and resulted in an event of default under

the loan agreement.

The lender has various defenses that it can apply against the Company, which includes up to and calling the line

There is no guarantee that the lender will issue a waiver or not call the line of credit.

The outstanding balance on the Company’s

lines of credit were $4,700,000 and $9,620,000 as of January 31, 2024 and October 31, 2023, respectively.

the three months ended January 31, 2024, our operating activities provided net cash of $4,594,849 as compared to the three months ended

January 31, 2023 when operating activities provided net cash of $2,803,512.

The increased cash flow from operations for the three months

ended January 31, 2024 was primarily due to our receivable from sale of investment.

the three months ended January 31, 2024, our investing activities used net cash of $0 as compared to the three months ended January 31,

2023 when net cash used by investing activities was $202,018.

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

decreased purchases of machinery and equipment during the nine months ended July 31, 2023.

the nine months ended July 31, 2023, our financing activities used net cash of $174,789 compared to net cash provided by financing activities

of $1,911,519 for the nine months ended July 31, 2022.

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

31, 2023 was due to our credit line activity.

decreased purchases of machinery and equipment during the three months ended January 31, 2024.

the three months ended January 31, 2024, our financing activities used net cash of $4,920,963 compared to net cash used by financing

activities of $862,739 for the three months ended January 31, 2023.

The change in cash flow from financing activities for the three months

ended January 31, 2024 was due to our credit line activity.

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

through at least the next twelve months from the date these condensed consolidated financial statements are issued, with cash provided

by operating activities and the use of our credit facility.

In addition, an increase in eligible accounts receivable and inventory would

permit us to make additional borrowings under our line of credit.

through at least the next twelve months from the date these consolidated financial statements are issued, with cash provided by operating

activities and the use of our credit facility.

In addition, an increase in eligible accounts receivable and inventory would permit us

to make additional borrowings under our line of credit.

of October 31, 2023, we were not in compliance with the terms of the credit agreement however as of January 31, 2024, the Company was

back in compliance with the terms of the credit agreement.

The Company did not receive a waiver from the lender when it was not in compliance.

The lender has reserved its rights to exercise its rights and remedies at any time at its sole discretion.

These conditions raise substantial

doubt about the Company’s ability to continue as a going concern.

Our audited consolidated financial statements do not include

any adjustment for the recovery and classification of assets to the amounts and classification of liabilities that might be necessary

should we be unable to continue as a going concern.

If we are unable to continue as a going concern, our shareholders would likely lose

some or all their investment in our securities.

Sheet Arrangements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis