COFFEE HOLDING CO INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Note on Forward-Looking Statements Some 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. We have based these forward-looking statements upon information available to management as of the date of this Annual Report and management’s expectations and projections about future events, including, among other things: ● 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 ventures; ● our success in implementing our business strategy or introducing new products; ● our ability to attract and retain customers; ● our ability to obtain additional financing; ● 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 macro global economic environment; ● 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 stock; and ● other risks which we identify in future filings with the Securities and Exchange Commission (the “SEC”). In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate” and similar expressions (or the negative of such expressions). Any or all of our forward looking statements in this annual report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. In addition, we undertake no responsibility to update any forward-looking statement to reflect events or circumstances, that occur after the date of this annual report. 20 Overview We are an integrated wholesale coffee roaster and dealer in the United States and one of the few coffee companies that offers a broad array of coffee products across the entire spectrum of consumer tastes, preferences and price points. As a result, we believe that we are well-positioned to increase our profitability and endure potential coffee price volatility throughout varying cycles of the coffee market and economic conditions. Our operations have primarily focused on the following areas of the coffee industry: ● the sale of wholesale specialty green coffee; ● the roasting, blending, packaging and sale of private label coffee; and ● the roasting, blending, packaging and sale of our eight brands of coffee; and sales of our tabletop coffee roasting equipment. Our operating results are affected by a number of factors including: ● 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; and ● our ability to manage inventory and fulfillment operations and maintain gross margins. Our net sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract new customers. For this reason, we have made, and will continue to evaluate, strategic decisions to invest in measures that are expected to increase net sales. These transactions include our acquisition of Premier Roasters, LLC, including equipment and a roasting facility in La Junta, Colorado, the addition of a west coast sales manager to increase sales of our private label and branded coffees to new customers and the transaction with OPTCO. On June 29, 2016, we purchased substantially all the assets, including equipment, inventory, customer lists and relationships of Coffee Kinetics, LLC., a Washington limited liability company. On February 24, 2017, we acquired 100% of the capital stock of Comfort Foods, Inc. (“CFI”), a Massachusetts based medium sized coffee roaster, manufacturing both branded and private label coffee for retail and foodservice customers. On November 11, 2024, we acquired substantially all of the assets of Empire Coffee, a NY based long-running private-label roaster. Our net sales are affected by the price of green coffee. We purchase our green coffee from dealers located primarily within the United States. The dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. For example, in Brazil, which produces approximately 40% of the world’s green coffee, the coffee crops are historically susceptible to frost in June and July and drought in September, October and November. However, because we purchase coffee from a number of countries and are able to freely substitute one country’s coffee for another in our products, price fluctuations in one country generally have not had a material impact on the price we pay for coffee. Accordingly, price fluctuations in one country generally have not had a material effect on our results of operations, liquidity and capital resources. Historically, because we generally have been able to pass green coffee price increases through to customers, increased prices of green coffee generally result in increased net sales, irrespective of sales volume. 21 The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically, we have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the purpose of partially hedging the effects of changing green coffee prices, as further explained in Note 2 of the Notes to the Consolidated Financial Statements in this Annual Report. In addition, we acquired, and expect to continue to acquire, futures contracts with longer terms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized gains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our cost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial instruments has generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain a vital element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory necessary to continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices. However, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices decline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance by the counterparties to any of our futures contracts. Although we have had net gains on options and futures contracts in the past, we have incurred significant losses on options and futures contracts during some recent reporting periods. In these cases, our cost of sales has increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially increase our cost of sales and materially decrease our profitability and adversely affect our stock price. See “Item 1A – Risk Factors - If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater than market value for green coffee and our profitability may be reduced.” Failure to properly design and implement an effective hedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset the risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in profitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and are continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue to use these practices in a limited capacity going forward. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). Our significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements attached hereto. We believe the following critical accounting policies involve the most significant judgements and estimates used in the preparation of our consolidated financial statements. Revenue is recognized when control of goods transfers to the customer at an amount that reflects the consideration the Company expects to receive. Applying ASC 606 requires judgment in identifying performance obligations, determining the transaction price, and estimating variable consideration such as rebates, discounts, and returns. These estimates are based on historical experience, current contractual terms, and expectations of future outcomes, and changes in these assumptions could impact the timing and amount of revenue recognized. RESULTS OF OPERATIONS Year Ended October 31, 2025 (Fiscal Year 2025) Compared to the Year Ended October 31, 2024 (Fiscal Year 2024) Net Sales. Net sales totaled $96,283,547 for the fiscal year ended October 31, 2025, an increase of $17,721,249, or 23%, from $78,562,298 for the fiscal year ended October 31, 2024. The increase in net sales was due to an increase of sales to our legacy customers along with incremental sales to several significant new customers during the second half of the year. Cost of Sales. Cost of sales for the fiscal year ended October 31, 2025 was 80,868,881, or 84% of net sales, as compared to $62,520,529, or 80% of net sales, for the fiscal year ended October 31, 2024. Cost of sales consists primarily of the cost of green coffee and packaging materials and realized and unrealized gains or losses on hedging activity. For the fiscal year ended October 31, 2025, the net result of our hedging activities resulted in a gain of approximately $1.8 million, and for the fiscal year ended October 31, 2024, the net result of our hedging activities resulted in a gain of approximately $1.6 million. The increase in cost of sales was due to higher sales volume, increased salaries, higher packaging material costs, and the impact of tariffs, partially offset by the hedging activities discussed above. 22 Gross Profit. Gross profit for the fiscal year ended October 31, 2025 was $15,414,666, a decrease of $627,103 from $16,041,769 for the fiscal year ended October 31, 2024. Gross profit as a percentage of net sales decreased to 16% for the fiscal year ended October 31, 2025, from 20% for the fiscal year ended October 31, 2024. The decrease in gross profit percentage was attributable to tariff costs in the current year. Operating Expenses. Total operating expenses increased by $184,095 to $13,262,306 for the fiscal year ended October 31, 2025, from $13,078,211 for the fiscal year ended October 31, 2024. Selling and administrative expenses decreased from $12,457,268 for the year ended October 31, 2024, to $12,418,640 for the fiscal year ended October 31, 2025. Overall operating expenses remained consistent year over year. Other Income (Expense). Other income (expense) for the fiscal year ended October 31, 2025 was $(231,232), a decrease of $335,573 from other income of $104,341 for the fiscal year ended October 31, 2024. The decrease in other income of $335,573 was attributable to the gain recognized on the extinguishment of the lease in the prior year. Income Before Provision For Income Taxes. We had an income of $1,921,128 before income taxes for the fiscal year ended October 31, 2025 compared to income of $3,067,899 for the fiscal year ended October 31, 2024, resulting in a net change of $1,146,771 for the year ended October 31, 2025. The decrease was primarily attributable to increased costs associated with tariffs on imported goods, which negatively impacted margins during the fiscal year ended October 31, 2025, as well as operating losses incurred by Second Empire following its acquisition in November 2024. Income Taxes. Our expense for income taxes for the fiscal year ended October 31, 2025 totaled $517,689, compared to an expense of $849,885 for the fiscal year ended October 31, 2024. The change was attributable to the difference in the income for the fiscal year ended October 31, 2025 versus the fiscal year ended October 31, 2024. Net Income. We had net income of $1,403,439, or $0.25 of per share basic and diluted, for the fiscal year ended October 31, 2025 compared to net income of $2,218,014, or $0.39 per share basic and diluted, for the fiscal year ended October 31, 2024. The change in net income was due to our results of operations as described above. Liquidity and Capital Resources As of October 31, 2025, we had working capital of $22,633,292, which represented a $1,106,309 increase from our working capital of $21,526,983 as of October 31, 2024. Our working capital increase was primarily due to the increase in inventories and accounts receivable. On April 25, 2017, we and OPTCO (together with us, 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 Corp. (“Webster”), which consolidated (i) the financing agreement between us and Sterling, dated February 17, 2009, as modified, (the “Company Financing Agreement”) and (ii) the financing agreement between us, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO Financing Agreement”), amongst other things. On 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. 23 On 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 the same. On June 27, 2024, we reached an agreement for a new loan modification agreement with Webster which (i) provided for a new loan maturity date of June 29, 2025, (ii) provided that the applicable margin requirement for any revolving loan outstanding under the A&R Loan Agreement to 2.25%, (iii) provided that the maximum facility amount shall be $10,000,000 and (iv) to adjusted certain definitions and terms related to the borrowing base and leverage ratios applicable to the A&R Loan Agreement. On April 17, 2025, the Borrowers entered into the Eleventh Loan Modification Agreement with Webster which (i) amended the A&R Loan Agreement to provide for a new loan maturity date of June 28, 2026 and (ii) provided limited consent for the Company to declare dividends to shareholders for its fiscal year ending October 31, 2025. For the fiscal year ended October 31, 2025, our operating activities used net cash of $5,018,989 as compared to the fiscal year ended October 31, 2024 when operating activities provided net cash of $5,431,211. The decrease primarily relates to increases to inventory and accounts receivable. For the fiscal year ended October 31, 2025, our investing activities used net cash of $1,710,162 as compared to the fiscal year ended October 31, 2024 when net cash provided by investing activities was $2,843,069. The change is primarily attributable to capital expenditures related to leasehold improvements at the Second Empire location, as well as equipment purchases and the acquisition of Second Empire. For the fiscal year ended October 31, 2025 our financing activities had net cash used of $6,050,000 compared to net cash used in financing activities of $9,627,234 for the fiscal year ended October 31, 2024. The year-over-year change in cash flows from financing activities was primarily attributable to activity on the Company’s line of credit. We expect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness, through October 31, 2026 with cash provided by operating activities and the use of our credit facility. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages F-1 through F-22 following the Exhibit Index of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.