What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-03-16 compared with 2025-09-12 · 133 added, 159 removed, 84 unchanged (78% 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,”

“Risk Factors” and elsewhere in this quarterly 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 Form 10-Q and management’s expectations and projections about future events, including, among

other things:

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 quarterly 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 quarterly report and management’s expectations and projections

about future events, including, among other things:

dependency on a single commodity could affect our revenues and profitability;

8 unchanged sentences

economic conditions and conditions which affect the market for coffee;

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

of green coffee;

macro global economic environment;

imposition of tariffs;

ability to maintain and develop our brand recognition;

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

● fluctuations

in the supply of coffee beans;

volatility of our common stock;

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

risks which we identify in future filings with the Securities and Exchange Commission (the

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

20 unchanged sentences

operating results are affected by a number of factors including:

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

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

ability to retain existing customers and attract new customers;

hedging policy;

● fluctuations

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

2 unchanged sentences

new customers.

For this reason, we have made, and will continue to evaluate, strategic decisions to acquire and invest in measures that

are expected to increase net sales.

sales are affected by the price of green coffee.

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 Company, a New York-based long-running private-label roaster.

net sales are affected by the price of green coffee.

We purchase our green coffee from dealers located primarily within the United States.

14 unchanged sentences

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.

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.

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.

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.

November 6, 2024, Second Empire, a wholly owned subsidiary of the Company, entered into a Secured Creditor Sale Agreement with Bridge

Business Credit, LLC (“Seller”).

The sale was a Uniform Commercial Code (“UCC”) Chapter 9 sale to purchase equipment,

accounts receivable and inventory of Empire Coffee Company, Inc.

(“Empire Coffee Company”).

purpose of partially hedging the effects of changing green coffee prices, as further explained in Note 2 of the Notes to the condensed

consolidated financial statements in this quarterly 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.

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 “Part II.

– 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.

Accounting Policies and Estimates

have been no changes to our critical accounting policies during the three and nine months ended July 31, 2025.

have been no changes to our critical accounting policies during the three months ended January 31, 2026.

Critical accounting policies

5 unchanged sentences

our 2025 10-K.

Months Ended July 31, 2025 Compared to the Three Months Ended July 31, 2024

Net sales totaled $23,910,514 for the three months ended July 31, 2025, an increase of $5,097,352, or 27%, from $18,813,162

for the three months ended July 31, 2024.

The increase in net sales was due to increased sales of our private label, Cafe Caribe, Cafe

Supremo brands, and green coffee beans to our wholesale and retail customers.

Cost of sales for the three months ended July 31, 2025 was $20,997,777, or 87.8% of net sales, as compared to $14,887,098,

or 79.1% of net sales, for the three months ended July 31, 2024, an increase of $6,110,679.

Cost of sales consists primarily of the cost

of green coffee and packaging materials.

The increase in cost of sales was driven by higher tariffs on imported coffee as well as a net

trading loss of approximately $770,000 or 14 cents a share, related to coffee futures and options contracts, which are recorded in cost

of sales in accordance with our accounting policy for commodities held by broker (see Note 5).

In addition, the increase reflects higher

net sales of our private label, branded products, and green wholesale coffee across both wholesale and retail channels.

Gross profit for the three months ended July 31, 2025 amounted to $2,912,737 or 12.2% of net sales, as compared to $3,926,064

or 20.9% of net sales, for the three months ended July 31, 2024.

The decrease in gross profits on a percentage and dollar basis was attributable

to the factors listed above.

Total operating expenses increased by $801,687 to $4,007,888 for the three months ended July 31, 2025 from $3,206,201

for the three months ended July 31, 2024.

The increase in selling and administrative expenses was primarily due to the acquisition of

Empire Coffee Company.

Income (Expense).

Other expense for the three months ended July 31, 2025 was $92,683, a decrease of $258,865 from other income

of $166,182 for the three months ended July 31, 2024.

The change was mainly attributable to a decrease in gain on extinguishment of lease

Our expense for income taxes for the three months ended July 31, 2025 was $17,584 compared to our expense of $259,249

for the three months ended July 31, 2024.

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

July 31, 2024, versus the loss in the quarter ended July 31, 2025.

Income (Loss).

We had net loss of $1,205,413, or ($0.21) per share basic and diluted, for the three months ended July 31, 2025,

compared to a net income of $626,796, or $0.11 per share basic and diluted, for the three months ended July 31, 2024.

The decrease in

profitability was primarily due to higher cost of sales, which included the impact of tariffs on imported coffee and a net trading loss

on coffee-related futures and options contracts (see Note 5), as well as increased operating expenses.

Months Ended July 31, 2025, Compared to the Nine Months Ended July 31, 2024

Net sales totaled $68,535,860 for the nine months ended July 31, 2025, an increase of $11,186,383, or 20%, from $57,349,477

for the nine months ended July 31, 2024.

The increase in net sales compared to the prior period was primarily attributable to higher

sales of our private-label brands, Café Caribe and Café Supremo, as well as increased sales of green coffee beans to both

wholesale and retail customers.

Cost of sales for the nine months ended July 31, 2025, was $55,253,979, or 80.6% of net sales, as compared to $46,239,134,

or 80.6% of net sales, for the nine months ended July 31, 2024.

OF OPERATIONS

Months Ended January 31, 2026 Compared to the Three Months Ended January 31, 2025

Net sales totaled $25,565,840 for the three months ended January 31, 2026, an increase of $4,260,555, or 20%, from $21,305,285

for the three months ended January 31, 2025.

The increase in net sales was driven by higher sales to legacy customers, incremental sales

to new customers, and a full quarter of Second Empire customer sales in the current period, partially offset by the loss of Comfort Foods

customer sales.

Cost of sales for the three months ended January 31, 2026, was $18,536,823, or 73% of net sales, as compared to $15,573,359,

or 73% of net sales, for the three months ended January 31, 2025.

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 increase of $9,014,845 was primarily attributable to higher

sales volumes of our private label and branded products, as well as the impact of tariffs on imported coffee.

In addition, cost of sales

reflects the effect of our futures and options trading activity, which resulted in a net gain of approximately $687,000 for the nine-month

period ended July 31, 2025, that was recognized in cost of sales in accordance with our accounting policy for commodities held by broker

(see Note 5).

Gross profit for the nine months ended July 31, 2025 amounted to $13,281,881 or 19.4% of net sales, as compared to $11,110,343

or 19.4% of net sales, for the nine months ended July 31, 2024.

The increase in gross profit was primarily attributable to higher sales

volumes of our private-label and branded products, as well as green coffee beans, partially offset by the impact of tariffs on imported

Gross profit also reflects the effect of our coffee futures and options trading activity, which resulted in a net gain of approximately

$687,000 for the nine-month period ended July 31, 2025 that was recognized in cost of sales (see Note 5).

Total operating expenses increased by $2,057,167 to $11,897,386 for the nine months ended July 31, 2025, from $9,840,219

for the nine months ended July 31, 2024.

The year-over-year increase reflects the impact of the Second Empire Acquisition, which added

approximately $2.2 million to operating expenses during the nine-month period.

For the three months ended January 31, 2026, the net result

of our hedging activities resulted in a gain of approximately $376,338, compared to the three months ended January 31, 2025, in which

the net result of our hedging activities resulted in a gain of approximately $1.7 million.

The increase in cost of sales was due to higher

sales volume, increased salaries, and higher packaging material costs.

Gross profit for the three months ended January 31, 2026, was $7,029,017, an increase of $1,297,091 from $5,731,926 for

the three months ended January 31, 2025.

Gross profit as a percentage of net sales was 27% for both periods.

Total operating expenses increased by $511,380 to $4,652,275 for the three months ended January 31, 2026, from $4,140,895

for the three months ended January 31, 2025.

Selling and administrative expenses increased from $3,929,598 for the three months ended

January 31, 2025, to $4,443,286 for the three months ended January 31, 2026.

Overall, operating expenses remained relatively consistent

year over year, with the increase primarily reflecting timing and normal fluctuations in operating activities.

Income (Expense).

Other expense for the nine months ended July 31, 2025 was $141,848, a decrease of $151,657 from other income

of $9,809 for the nine months ended July 31, 2024.

The decrease was mainly attributable to a decrease in gain on extinguishment of lease

of $210,538 and offset by decrease in our interest expense of $93,522, during the nine months ended July 31, 2024.

Our expense for income taxes for the nine months ended July 31, 2025 totaled $650,749 compared to an expense of $323,954

for the nine months ended July 31, 2024.

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

July 31, 2025 versus the income in the nine months ended July 31, 2024.

(Loss) Income.

We had net income of $591,898 or $0.10 per share basic and diluted, for the nine months ended July 31, 2025 compared

to net income of $955,979, or $0.17 per share basic and diluted for the nine months ended July 31, 2024.

The decrease in net income was

primarily due to higher operating expenses associated with the Second Empire Acquisition, the impact of tariffs on imported coffee, and

unrealized trading losses during the third quarter (see Note 5).

Capital Resources and Going Concern

of July 31, 2025, we had working capital of $20,979,529, a decrease of $547,454 compared to $21,526,983 as of October 31, 2024.

in working capital was primarily attributable to a $2,339,316 increase in accounts payable and accrued expenses, a $6,250,000 increase

in borrowings under our line of credit, and a $1,115,244 increase in due to broker.

The decrease was partially offset by a $5,979,428

increase in inventory, a $2,978,120 increase in due from broker, and a $717,207 increase in accounts receivable.

June 27, 2024, the Borrowers entered into the Tenth Loan Modification Agreement with Webster which amended the A&R Loan Agreement

to, among other things:

(i) provide for a new loan maturity date of June 29, 2025, (ii) provide that the applicable margin requirement

for any revolving loan outstanding under the A&R Loan Agreement to 2.25%, (iii) provide that the maximum facility amount shall be

$10,000,000 and (iv) to adjust certain definitions and terms related to the borrowing base and leverage ratios applicable to the A&R

Loan Agreement.

Other expense for the three months ended January 31, 2026 was $65,732, an increase of $34,049 from other income

of $31,683 for the three months ended January 31, 2025.

The increase in expense was primarily attributable to higher interest expense

related to increased borrowings outstanding under the Company’s line of credit during the current period.

Before Provision For Income Taxes.

We had income of $2,311,010 before income taxes for the three months ended January 31, 2026,

compared to income of $1,559,348 for the three months ended January 31, 2025, resulting in a net change of $751,662 for the three months

ended January 31, 2026.

The increase was primarily attributable to improved gross margins and higher operating efficiencies during the

current period.

Our expense for income taxes for the three months ended January 31, 2026 totaled $662,690, compared to an expense of $406,092

for the three months ended January 31, 2025.

The change was attributable to the difference in the income for the three months ended January

31, 2026 versus the three months ended January 31, 2025.

We had net income of $1,648,320 or $0.29 per share basic and diluted, for the three months ended January 31, 2026 compared

to net income of $1,153,256, or $0.20 per share basic and diluted, for the three months ended January 31, 2025.

The change in net income

was due to our results of operations as described above.

and Capital Resources and Going Concern

of January 31, 2026, we had working capital of $22,553,899, which represented a $79,393 decrease from our working capital of $22,633,292

as of October 31, 2025.

Our working capital remained relatively consistent during the period.

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.

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.

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 be 2.25%, (iii) provided that the maximum facility amount shall be $10,000,000 and (iv) adjusted certain definitions and terms

related to the borrowing base and leverage ratios applicable to the A&R Loan Agreement.

April 17, 2025, the Borrowers entered into the Eleventh Loan Modification Agreement with Webster which (i) amended the A&R Loan Agreement

1 unchanged sentence

for its fiscal year ending October 31, 2025.

On March 4, 2026, the Borrowers entered

into a Twelfth Loan Modification Agreement with Webster, which amended the A&R Loan Agreement to extend the maturity date to December

All other terms of the Loan Agreement remain unchanged and in full force and effect.

of the A&R Loan Facility and A&R Loan Agreement contains covenants, subject to certain exceptions, that place annual restrictions

2 unchanged sentences

and preferred stock), and restrictions on intercompany transactions.

The outstanding balance on our line of credit was $6,250,000 and

$0 as of July 31, 2025 and October 31, 2024, respectively.

the nine months ended July 31, 2025, operating activities used cash of $5,396,716, compared to cash provided by operating activities

of $5,209,235 for the nine months ended July 31, 2024.

The decrease in operating cash flow was primarily attributable to an increase

in inventory between October 31, 2024 and July 31, 2025.

The increase in inventory was primarily due to higher purchasing activity to

support our anticipated sales growth.

Non-cash charges, including depreciation and amortization, unrealized gains and losses on commodities,

amortization of right-of-use assets, and deferred income taxes, resulted in cash used of $1,102,564 in the nine months ended July 31,

2025, compared to cash used of $159,890 in the prior-year period.

the nine months ended July 31, 2025, investing activities used cash of $1,254,535, compared to cash provided of $2,879,320 in the nine

months ended July 31, 2024.

The year-over-year change primarily reflects proceeds of $3,150,000 from the sale of an investment in the

prior-year period, which did not recur in fiscal 2025.

the nine months ended July 31, 2025, financing activities provided net cash of $6,250,000, compared to net cash used of $7,724,374 in

the nine months ended July 31, 2024.

The change was primarily due to increased borrowings under our line of credit in the current year.

expect to fund our operations, including working capital needs, capital expenditures, and required debt service, for at least the next

twelve months from the date these condensed consolidated financial statements are issued, through a combination of cash provided by operating

activities and availability under 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.

The outstanding balance on the Company’s line of credit was

$2,650,000 and $6,050,000 as of January 31, 2026, and October 31, 2025, respectively.

the three months ended January 31, 2026, our operating activities provided net cash of $6,608,764 as compared to the three months ended

January 31, 2025, when operating activities used net cash of $401,899.

The increase primarily relates to decreases to inventory and accounts

the three months ended January 31, 2026, our investing activities used net cash of $1,164,145 as compared to the three months ended January

31, 2025, when net cash used in investing activities was $817,906.

The change is primarily attributable to capital expenditures related

to leasehold improvements at the Second Empire location, as well as the purchase of an investment during the quarter.

the three months ended January 31, 2026, our financing activities had net cash used of $3,400,000 compared to net cash provided by financing

activities of $2,200,000 for the three months ended January 31, 2025.

The year-over-year change in cash flows from financing activities

was primarily attributable to activity on the Company’s line of credit.

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.

Sheet Arrangements

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis