fee (JVA) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents unaudited condensed consolidated financial statements and detailed notes on business activities, accounting policies, and recent acquisitions Unaudited Condensed Consolidated Balance Sheets Total assets and liabilities significantly increased from October 2024 to July 2025, driven by higher current assets and liabilities, while stockholders' equity saw a modest rise Unaudited Condensed Consolidated Balance Sheets as of July 31, 2025 and October 31, 2024 | Metric | July 31, 2025 (in USD) | October 31, 2024 (in USD) | Change | | :-------------------------------- | :------------ | :--------------- | :----- | | Total Current Assets | $38,025,548 | $28,373,050 | +34.0% | | Total Assets | $45,879,967 | $34,010,688 | +34.9% | | Total Current Liabilities | $17,046,019 | $6,846,067 | +149.0% | | Total Liabilities | $19,110,502 | $7,833,121 | +144.0% | | Total Stockholders' Equity | $26,769,465 | $26,177,567 | +2.3% | - Significant increase in inventories from $15,705,984 (Oct 2024) to $21,685,412 (Jul 2025), and 'Due from broker' from $1,466,059 to $4,444,179[11] - Introduction of a $6,250,000 line of credit balance as of July 31, 2025, compared to zero in October 2024[11] Unaudited Condensed Consolidated Statements of Operations The company reported a net loss for the three months ended July 31, 2025, due to higher cost of sales and operating expenses, and a decrease in net income for the nine months despite higher net sales Three Months Ended July 31 (YoY Comparison) | Metric | 2025 (in USD) | 2024 (in USD) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Net Sales | $23,910,514 | $18,813,162 | +27.1% | | Cost of Sales | $20,997,777 | $14,887,098 | +41.0% | | Gross Profit | $2,912,737 | $3,926,064 | -25.9% | | Operating Expenses | $4,007,888 | $3,206,201 | +25.0% | | Income (Loss) from Operations | $(1,095,151) | $719,863 | -252.1% | | Net Income (Loss) | $(1,205,413) | $626,796 | -292.5% | | Basic and Diluted EPS | $(0.21) | $0.11 | -290.9% | Nine Months Ended July 31 (YoY Comparison) | Metric | 2025 (in USD) | 2024 (in USD) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Net Sales | $68,535,860 | $57,349,477 | +19.5% | | Cost of Sales | $55,253,979 | $46,239,134 | +19.5% | | Gross Profit | $13,281,881 | $11,110,343 | +19.5% | | Operating Expenses | $11,897,386 | $9,840,219 | +20.9% | | Income (Loss) from Operations | $1,384,495 | $1,270,124 | +9.0% | | Net Income (Loss) | $591,898 | $955,979 | -38.1% | | Basic and Diluted EPS | $0.10 | $0.17 | -41.2% | Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased slightly from October 2024 to July 2025, primarily due to net income in the first two quarters of fiscal 2025, partially offset by a third-quarter net loss - Total Stockholders' Equity increased from $26,177,567 at October 31, 2024, to $26,769,465 at July 31, 2025[15] - Retained earnings increased by $591,898 from October 31, 2024, to July 31, 2025, reflecting the net income for the nine-month period[15] Unaudited Condensed Consolidated Statements of Cash Flows Operating activities shifted from cash provided to cash used, investing activities used cash due to an acquisition, and financing activities provided substantial cash from increased line of credit borrowings Nine Months Ended July 31 - Cash Flow Summary | Cash Flow Activity | 2025 (in USD) | 2024 (in USD) | | :-------------------------------- | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(5,396,716) | $5,209,235 | | Net cash (used in) provided by investing activities | $(1,254,535) | $2,879,320 | | Net cash provided by (used in) financing activities | $6,250,000 | $(7,724,374) | | Net change in cash and cash equivalents | $(401,251) | $364,181 | | Cash and cash equivalents, end of period | $979,772 | $3,098,158 | - Operating cash flow decreased significantly, primarily due to a $5,711,012 increase in inventories in 2025 compared to a $4,480,524 decrease in 2024[18] - Investing activities in 2025 included an $800,000 acquisition of Empire Coffee Company and $375,286 for leasehold improvements[18] Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the financial statements, covering business activities, accounting policies, recent acquisitions, and other financial details - The interim financial statements are unaudited and prepared consistently with the annual statements, with no changes to significant accounting policies during the nine months ended July 31, 2025[26][28] - Revenue is recognized according to ASC 606, evaluating the transfer of promised goods or services when the customer obtains control[29] Revenues by Product Line (Nine Months Ended July 31) | Product Line | 2025 (in USD) | 2024 (in USD) | Change (%) | | :----------- | :----------- | :----------- | :--------- | | Green | $28,731,856 | $25,505,606 | +12.6% | | Packaged | $39,804,004 | $31,843,871 | +25.0% | | Totals | $68,535,860 | $57,349,477 | +19.5% | Revenues by Product Line (Three Months Ended July 31) | Product Line | 2025 (in USD) | 2024 (in USD) | Change (%) | | :----------- | :----------- | :----------- | :--------- | | Green | $10,474,908 | $10,795,701 | -3.0% | | Packaged | $13,435,606 | $8,017,461 | +67.6% | | Totals | $23,910,514 | $18,813,162 | +27.1% | Note 1 - Business Activities Coffee Holding Co., Inc. operates as a wholesale coffee roaster and dealer, manufacturing, marketing, and distributing roasted and blended coffees under private labels and its own brands, and selling green coffee - The Company's core business involves wholesale coffee operations, including manufacturing, roasting, packaging, marketing, and distributing roasted and blended coffees for private labels and its own brands, as well as selling green coffee and coffee roasters[20] - The company's product lines (Wholesale Green Coffee, Private Label Coffee, Branded Coffee) are considered a single reporting segment due to shared customers, manufacturing resources, sales channels, and marketing support[22] - The company maintains compliance with financial covenants for its line of credit and does not believe there is substantial doubt about its ability to continue as a going concern, reporting net income of $591,898 and a net working capital surplus of $20,979,529 for the nine months ended July 31, 2025[23] Note 2 – Basis of Presentation and Significant Accounting Policy The interim condensed consolidated financial statements are unaudited and prepared consistently with annual statements, with no changes to significant accounting policies during the nine months ended July 31, 2025 Recent Accounting Pronouncements – Adopted The Company adopted ASU 2016-13 (Credit Losses) and ASU 2023-07 (Segment Reporting) during the period, with no material financial statement impact from either - Adoption of ASU 2016-13 (Credit Losses) on November 1, 2023, had no material impact on consolidated financial statements[32] - Adoption of ASU 2023-07 (Segment Reporting) for fiscal years beginning after December 15, 2023, resulted in enhanced disclosures but no material impact on consolidated financial statements[33] Recent Accounting Pronouncements – Not Yet Adopted The Company is evaluating the impact of ASU 2023-06 (Disclosure Improvements), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03/2025-01 (Expense Disaggregation Disclosures), with no material impact expected from ASU 2023-06 - The Company does not expect ASU 2023-06 (Disclosure Improvements) to have a material impact[34] - The Company is currently evaluating the impact of ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03/2025-01 (Expense Disaggregation Disclosures)[35][37] Note 3 – Business Combination On November 6, 2024, the Company acquired the remaining assets of Empire Coffee Company for $800,000 through its wholly-owned subsidiary, Second Empire, contributing $3,238,704 in revenues and a loss of $694,130 to the Company's results - On November 6, 2024, the Company acquired Empire Coffee Company's remaining assets for $800,000 via a UCC Chapter 9 sale, through its subsidiary Second Empire[38] - The acquisition contributed $3,238,704 in revenues and a loss of $694,130 to the Company's results from November 6, 2024, to July 31, 2025[39] Fair Values of Assets Acquired | Asset | Fair Value (in USD) | | :------------------ | :--------- | | Accounts Receivable | $531,585 | | Inventory | $268,415 | | Total Purchase Price | $800,000 | Note 4 - Inventories Inventories significantly increased from October 31, 2024, to July 31, 2025, primarily driven by a substantial rise in green coffee and packed coffee Inventories | Inventory Type | July 31, 2025 (in USD) | October 31, 2024 (in USD) | Change | | :------------- | :------------ | :--------------- | :----- | | Packed coffee | $3,851,853 | $2,025,335 | +90.2% | | Green coffee | $15,674,822 | $11,525,118 | +36.0% | | Total Inventories | $21,685,412 | $15,705,984 | +38.1% | Note 5 - Commodities Held by Broker The Company uses short-term coffee futures and options contracts to partially hedge against green coffee price fluctuations, but recent periods have seen significant losses, increasing cost of sales and decreasing profitability - The Company uses short-term coffee futures and options contracts for partial hedging of green coffee prices and to reduce cost of sales, classifying them as trading securities[43][45] - Realized and unrealized gains/losses on these contracts are included in cost of sales, impacting earnings volatility[45] Realized and Unrealized Gains/Losses on Commodity Contracts | Metric | Three Months Ended July 31, 2025 (in USD) | Three Months Ended July 31, 2024 (in USD) | Nine Months Ended July 31, 2025 (in USD) | Nine Months Ended July 31, 2024 (in USD) | | :---------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Gross realized gains | $1,660,346 | $405,608 | $3,773,790 | $1,187,382 | | Gross realized losses | $(373,788) | $(133,392) | $(608,780) | $(903,162) | | Unrealized (losses) gains | $(2,056,404) | $464,272 | $(2,478,142) | $934,974 | | Total | $(769,846) | $736,488 | $686,868 | $1,219,194 | Note 6 - Line of Credit The Company's line of credit with Webster Financial Corp. was amended, extending the maturity date to June 28, 2026, and increasing the maximum facility to $10,000,000, with an outstanding balance of $6,250,000 as of July 31, 2025 - The line of credit maturity date was extended to June 28, 2026, and the maximum facility amount increased to $10,000,000[47][48] - The outstanding balance on the line of credit was $6,250,000 as of July 31, 2025, compared to $0 as of October 31, 2024[50] - The Company was in compliance with all financial covenants as of July 31, 2025[23][50] Note 7 – Income Taxes The Company recorded income tax expense of $17,584 for the three months and $650,749 for the nine months ended July 31, 2025, primarily due to the tax impact of unrealized losses from coffee futures and options contracts, and is assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) Income Tax Expense | Period | 2025 (in USD) | 2024 (in USD) | | :---------------------- | :--------- | :--------- | | Three months ended July 31 | $17,584 | $259,249 | | Nine months ended July 31 | $650,749 | $323,954 | - The income tax expense for the three months ended July 31, 2025, was mainly due to the tax impact of unrealized losses from coffee futures and options contracts[54] - The Company is currently assessing the impact of the One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, which includes permanent extension of certain tax provisions and modifications to the international tax framework[55] Note 8 – Earnings (Loss) Per Share For the three months ended July 31, 2025, the company reported a loss per share of $(0.21), while for the nine months, it reported earnings per share of $0.10 Basic and Diluted EPS | Period | 2025 (in USD) | 2024 (in USD) | | :---------------------- | :----- | :----- | | Three months ended July 31 | $(0.21) | $0.11 | | Nine months ended July 31 | $0.10 | $0.17 | - The weighted average common shares outstanding for both basic and diluted EPS remained constant at 5,708,599 for all periods presented[57] - 921,000 outstanding stock options were excluded from diluted EPS calculation as they were antidilutive[57] Note 9 - Commitments and Contingencies The Company and its subsidiaries are not involved in any pending legal proceedings that management believes would have a material effect on the business or financial condition - No material legal proceedings are pending against the Company or its subsidiaries[58] Note 10 – Leases The Company's right-of-use operating lease assets and total lease liabilities significantly increased from October 31, 2024, to July 31, 2025, primarily due to a new lease from the Second Empire Acquisition, while a May 2024 lease modification resulted in a gain on extinguishment Lease Assets and Liabilities | Metric | July 31, 2025 (in USD) | October 31, 2024 (in USD) | Change | | :-------------------------- | :------------ | :--------------- | :----- | | Right-of-use operating lease assets | $2,696,475 | $1,166,537 | +131.1% | | Total lease liability | $2,737,267 | $1,173,032 | +133.3% | - A new lease was recognized in November 2024 for $2,113,581 in connection with the Second Empire Acquisition[65] - A lease modification in May 2024 resulted in a gain on extinguishment of lease of $210,567[64] Note 11 – Related Party Transactions The Company maintains a Non-Qualified Deferred Compensation Plan for its CEO, with assets and corresponding liabilities of $129,972 as of July 31, 2025 - The Company has a Non-Qualified Deferred Compensation Plan for its CEO, with a deferred compensation payable of $129,972 as of July 31, 2025[66] Note 12 - Stockholders' Equity The Company did not purchase any treasury shares or grant, forfeit, or expire any stock options during the three and nine months ended July 31, 2025, with all 921,000 outstanding stock options being exercisable and fully vested - No treasury shares were purchased during the three and nine months ended July 31, 2025[67] - No stock options were granted, forfeited, or expired during the three and nine months ended July 31, 2025[68] - As of July 31, 2025, 921,000 stock options were exercisable and fully vested, with no stock-based compensation expense recorded[68][69] Note 13 – Segment Information The Company operates as a single reportable segment: coffee, with its CODM assessing performance and allocating resources based on consolidated operating income (loss), primarily deriving revenue from North America across wholesale green coffee, private label, and branded coffee sales - The Company has one reportable segment: coffee, managed on a consolidated basis, with Andrew Gordon serving as the Chief Operating Decision Maker (CODM)[71] - The coffee segment generates revenue from wholesale green coffee, private label coffee, and branded coffee, with revenue recognized upon shipment[72] - The CODM evaluates performance and allocates resources based on operating income (loss) and total consolidated assets[72][73] Note 14 - Subsequent Events The Company has evaluated all subsequent events through the date the financial statements were available and determined that no events require reporting - No subsequent events requiring disclosure were identified[74] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting factors affecting operations, critical accounting policies, and a detailed comparison of results for the three and nine months ended July 31, 2025, versus 2024, along with discussions on liquidity, capital resources, and going concern Overview The Company is an integrated wholesale coffee roaster and dealer, offering a broad range of coffee products, with operations affected by sales, marketing, volatile green coffee prices (generally passed through), and hedging policies, and recently acquired Empire Coffee Company - The Company is an integrated wholesale coffee roaster and dealer, offering diverse coffee products across various price points, aiming for increased profitability and resilience to price volatility[78] - Net sales are driven by sales and marketing efforts and customer retention/acquisition[80] - Green coffee prices are volatile but historically, increases have been passed to customers, leading to increased net sales[81] - The Company uses short-term coffee futures and options contracts for partial hedging, but acknowledges that no strategy eliminates all pricing risks and past losses have impacted profitability[82][83] - On November 6, 2024, the Company's subsidiary, Second Empire, acquired equipment, accounts receivable, and inventory of Empire Coffee Company[84] Three Months Ended July 31, 2025 Compared to the Three Months Ended July 31, 2024 Net sales increased by 27% due to higher sales of private label and branded coffees, but gross profit decreased by 26% due to a 41% increase in cost of sales, driven by higher tariffs and a net trading loss on coffee futures, leading to a net loss of $1.2 million compared to net income in the prior year Three Months Ended July 31 - Key Financials | Metric | 2025 (in USD) | 2024 (in USD) | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Net Sales | $23,910,514 | $18,813,162 | $5,097,352 | +27% | | Cost of Sales | $20,997,777 | $14,887,098 | $6,110,679 | +41% | | Gross Profit | $2,912,737 | $3,926,064 | $(1,013,327) | -26% | | Operating Expenses | $4,007,888 | $3,206,201 | $801,687 | +25% | | Net Income (Loss) | $(1,205,413) | $626,796 | $(1,832,209) | -292.5% | - The increase in cost of sales was driven by higher tariffs on imported coffee and a net trading loss of approximately $770,000 on coffee futures and options contracts[88] - Operating expenses increased primarily due to the acquisition of Empire Coffee Company[90] Nine Months Ended July 31, 2025, Compared to the Nine Months Ended July 31, 2024 Net sales increased by 20% due to higher sales across product lines, and gross profit also increased by 19.5%, but operating expenses rose by 21% due to the Second Empire Acquisition, leading to a 38% decrease in net income Nine Months Ended July 31 - Key Financials | Metric | 2025 (in USD) | 2024 (in USD) | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Net Sales | $68,535,860 | $57,349,477 | $11,186,383 | +20% | | Cost of Sales | $55,253,979 | $46,239,134 | $9,014,845 | +19.5% | | Gross Profit | $13,281,881 | $11,110,343 | $2,171,538 | +19.5% | | Operating Expenses | $11,897,386 | $9,840,219 | $2,057,167 | +21% | | Net Income (Loss) | $591,898 | $955,979 | $(364,081) | -38% | - Operating expenses increased by approximately $2.2 million due to the Second Empire Acquisition[98] - Net income decreased primarily due to higher operating expenses, tariffs on imported coffee, and unrealized trading losses in the third quarter[101] Liquidity, Capital Resources and Going Concern Working capital decreased by $547,454 to $20,979,529 as of July 31, 2025, with operating and investing activities using cash, while financing activities provided cash from increased line of credit borrowings, and the Company expects to fund operations through operating cash and its credit facility - Working capital decreased by $547,454 to $20,979,529 as of July 31, 2025, compared to October 31, 2024[102] - Operating activities used $5,396,716 in cash for the nine months ended July 31, 2025, a significant change from $5,209,235 provided in the prior year, mainly due to increased inventory[106] - Financing activities provided $6,250,000 in cash for the nine months ended July 31, 2025, primarily from increased borrowings under the line of credit[108] - The Company expects to fund operations for at least the next twelve months through operating cash and its credit facility[109] Off-Balance Sheet Arrangements The Company has no material off-balance sheet arrangements - The Company does not have any material off-balance sheet arrangements[110] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no applicable disclosures regarding quantitative and qualitative market risk - No applicable disclosures for quantitative and qualitative market risk[111] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of July 31, 2025, due to several material weaknesses in internal control over financial reporting, for which a remediation plan is in progress Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were not effective as of July 31, 2025, due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were deemed not effective as of July 31, 2025, due to material weaknesses in internal control over financial reporting[112] Material Weakness Over Financial Reporting Several material weaknesses were identified, including inadequate controls over inventory quantities, system access, contract identification/accounting, physical custody of records, and journal entry/account reconciliation processes, along with inaccurate intercompany eliminations in prior financial statements - Inadequate controls to prevent and detect misstatements of inventory quantities at a subsidiary[113] - Inappropriate system access controls over the financial reporting system, lacking segregation of duties[114] - Lack of adequate controls for identifying and accounting for material contracts, specifically a material lease amendment[115] - Inadequate controls regarding physical custody of hardware, electronic, and hard copy records for Generations Coffee and Steep and Brew[116] - Lack of adequate controls for the preparation and review of journal entries and account reconciliations during the year-end financial statement closing process[117] - Inaccurate accounting for intercompany eliminations in fiscal year 2020, leading to an overstatement of net sales and cost of sales by approximately $8.3 million and requiring restatement[118] - Lack of adequate controls for recording year-end accruals for vendor liabilities and calculating required loan covenants[119] - Despite material weaknesses, management believes the financial information presented is materially correct and fairly presents the financial position and operating results[120] Remediation Plan for the Material Weaknesses The Company is implementing a remediation plan, including hiring third-party consultants, educating control owners, developing documentation, enhancing controls for financial reporting systems, redesigning access rights, performing cross-reference analysis, and implementing additional levels of internal review - Remediation efforts include hiring third-party consultants, educating control owners, developing documentation, enhancing financial reporting system controls, redesigning access rights, performing quarterly cross-reference analysis, and implementing additional internal review levels[121][126] - Material weaknesses will not be considered remediated until efforts are fully implemented and controls are operating effectively[122] Changes in Internal Control over Financial Reporting Other than the changes aimed at remediating the identified material weaknesses, there were no other material changes in internal control over financial reporting during the fiscal quarter ended July 31, 2025 - No material changes in internal control over financial reporting occurred during the quarter, other than those for remediation[125] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings No legal proceedings are reported - No legal proceedings to report[127] ITEM 1A. Risk Factors There have been no material changes to the Company's risk factors since the prior Form 10-Q filing for the quarter ending April 30, 2025 - No material changes to risk factors since the April 30, 2025, Form 10-Q[128] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds are reported - No unregistered sales of equity securities or use of proceeds[129] ITEM 3. Defaults Upon Senior Securities No defaults upon senior securities are reported - No defaults upon senior securities[130] ITEM 4. Mine Safety Disclosures Not applicable - Mine safety disclosures are not applicable[131] ITEM 5. Other Information No other information requiring disclosure under this item, including Rule 10b5-1 trading arrangements, was reported for directors or officers during the quarter - No other information to report, including Rule 10b5-1 trading arrangements by directors or officers[132][133] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - The report includes certifications (Section 302 and 906) and Inline XBRL documents as exhibits[135] SIGNATURES SIGNATURES The report is duly signed on behalf of Coffee Holding Co., Inc. by Andrew Gordon, President, Chief Executive Officer, and Chief Financial Officer, on September 12, 2025 - The report was signed by Andrew Gordon, President, CEO, and CFO, on September 12, 2025[138]