COFFEE HOLDING CO INC 10-Q

ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Management, which includes our President, Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the existence of material weaknesses in our internal control over financial reporting. Material Weakness Over Financial Reporting We determined that our controls were inadequate to prevent and detect misstatements of quantities of inventory at one of our subsidiaries. Accordingly, management has determined that this control deficiency constituted a material weakness. We determined that there were inappropriate system access controls over the financial reporting system. These controls were not designed to prevent or detect unauthorized changes to source information or implement an appropriate level of segregation of duties. Accordingly, management has determined that this control deficiency constituted a material weakness. We determined that we lacked adequate controls with respect to identifying and accounting for material contracts. This was evidenced by our failure to properly identify and account for a material lease amendment. Accordingly, management has determined that this was a control deficiency that constituted a material weakness. We determined that we lacked adequate controls with respect to physical custody of certain hardware, electronic and hard copy records of Generations Coffee and its component operation known as Steep and Brew following the Company relocation or vacating of certain premises used in the operations of that business unit. Accordingly, management has determined that this is a control deficiency that constituted a material weakness. We concluded that we lacked adequate controls with respect to the preparation and review of journal entries and account reconciliations during the year-end financial statement closing process. Accordingly, management has determined that this control deficiency constituted a material weakness. We concluded, after discussion with management, that our financial statements inaccurately accounted for certain intercompany eliminations in our consolidated statements of operations for the fiscal year ended October 31, 2020. As a result, we determined that there was an overstatement of net sales and cost of sales in the consolidated statement of operations of approximately $8.3 million in our financial statements during the fiscal year ended October 31, 2020, which required a restatement of the previously issued financial statements for the fiscal year ended October 31, 2020. This was due to inadequate design and implementation of controls to evaluate and monitor the presentation and compliance with accounting principles generally accepted in the United States of America related to the statement of operations. Accordingly, management has determined that this control deficiency constituted a material weakness. We concluded that we lacked adequate controls with respect to recording year end accruals for vendor liabilities and properly calculating required loan covenants. Accordingly, management has determined that this control deficiency constituted a material weakness. Notwithstanding such material weaknesses, we believe the financial information presented herein is materially correct and fairly presents the financial position and operating results for the three and six months ended April 30, 2025 in conformity with U.S. generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the SEC. 5 Remediation Plan for the Material Weaknesses As previously disclosed in Item 9A of our 2024 10-K, management has identified material weaknesses as of that date. A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. To remediate the material weaknesses identified above, we have hired third-party consultants to assist with financial reporting and are initiating controls and procedures in order to: ● educate control owners concerning the principles and requirements of each control, with a focus on those related to user access to our financial reporting systems impacting financial reporting; ● develop and maintain documentation to promote knowledge transfer upon personnel and function changes; ● develop enhanced controls and reviews related to our financial reporting systems; ● perform an in-depth analysis of who should have access to perform key functions within our financial reporting system that impact financial reporting and redesign aspects of the system to better allow the access rights to be implemented; ● perform a cross-reference analysis on a quarterly basis; and ● implement additional levels of internal review of financial statements and any adjustments made thereto. The material weaknesses identified above will not be considered remediated until our remediation efforts have been fully implemented and we have concluded that these controls are operating effectively. Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected. Management will seek to remediate such deficiencies over the coming quarters. Changes in Internal Control over Financial Reporting Other than the changes intended to remediate the material weaknesses as discussed above, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended April 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 6 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None.