According to a 2009 survey of Lifestyles of Health and Sustainability Consumer Trends Database by the Natural Marketing Institute, 60% of U.S. adults would more likely purchase products of companies that are mindful of the impact their product has on the environment and society. In the study, 57% of the consumers are more loyal to companies that are socially responsible and 52% said they would recommend the food products of these companies to their friends. More that 38% of the respondents said they would pay more to buy products of socially responsible companies. In the book “The Better World Shopping Guide” by Ellis Jones, the Company is listed as an “A+” producer because of its environmental and socially responsible practices and is listed as a “Corporate Hero” in the coffee segment of the book for consumers. Even in today’s difficult economy, 34% of Americans are more likely to buy environmentally responsible products and another 44% indicate their environmental habits have not changed as a result of the economy according to the results of a 2009 study by Cone Consumer Environmental Survey. This trend continues as well. In 2018, approximately 80% of the Company’s products sold were certified organic.
ITEM 1. BUSINESS - continued
NCA reports that there is fundamental shift in the American coffee landscape. “What it means that more people are drinking coffee and that comes at a higher price premium and could help buoy what’s known as third wave coffee- a market”. The third-wave market does not just understand the espresso made by the barista but gives credit to the producer and roaster. In 2018 the fourth wave market was driven by science and roasting obsessions that were born from custom in-house brews. According to Beverage Daily the fifth wave market for further description2019 will focus on hyper-professionalism, operational excellence and training. It has been Thanksgiving’s mission from the onset to credit the producer for the high quality coffees we receive in all of ‘fair trade’]our marketing materials. As of 2010, “Fair Trade” (or “FT”) coffee iswas roasted by over 300 U. S.U.S. companies and sold at thousands of retail outlets. Fair Trade certified coffee directly supports a better life for farming families in the developing world through fair prices, community development and environmental stewardship. Fair Trade farmers market their own harvests through direct, long-term contracts with international buyers, learning how to manage their businesses and compete in the global marketplace. Dunkin Donuts, the number one U.S. retailer of coffee by the cup, has rolled outoffers a fair tradeFair Trade espresso line of drinks. Even Starbucks,This trend has continued but the largest specialty coffee company in the United States, is targetingtrend line has flattened. The Company continues to serve 10%offer 80% of their coffee with fair trade product.
MARKETING STRATEGY
The Company’s sales and marketing efforts are currently organized in four different sales methods:
1. | Wholesale, Direct Delivery. This sales method includes customers in Northern California counties contiguous to the Company’s plant in Fort Bragg, California, and is serviced by Company trucks and/or outside distributors. The Company owns trucks and delivers coffee within a radius of 100 miles or less from Fort Bragg. Because of operating costs, the Company has reduced its own fleet in favor of using distributors in certain areas serviced by the Company. Total Company routes have declined, but outside distributors have continued to provide delivery service in those routes. |
2. | Wholesale Delivery by Other Means. This sales method includes accounts that are serviced by UPS or other common carriers. Deliveries span most of the United States with the concentration of accounts in California. This method is either handled direct, via broker or by a distributor. |
3. | Direct Marketing. This sales method includes accounts serviced through online programs. |
ITEM 1. BUSINESS - continued
SOCIAL AND ENVIRONMENTAL SENSITIVITY
The Company focuses its marketing on creating and selling products that socially, environmentally and economically justifies the Company entered into an exclusive arrangementCompany’s motto since 1985: “Not Just A Cup, But A Just Cup.” To this end, we:
1. | Purchase 80% of our raw coffees only from small-scale coffee farmer cooperatives. | |
2. | Purchase 80% of our coffees from certified organic growers. | |
3. | Have become a certified B Corporation 2, follow B Corporation guidelines for sustainable business practices, and in 2018 began the process of becoming a California Benefit Corporation.. | |
4. | Seek partnerships with environmental and social justice non-profit organizations, and have established long-term exclusive licensing agreements with the following non-profit entities to produce coffee products for them to use as fund raising tools: |
● | Defenders of Wildlife – “Save the Wolves Coffee” |
● | Friends of the Earth – “Bee Bold Coffee” |
● | Baby Rhino Foundation – “Save the Rhinos Coffee” |
● | American Birding Association – “Songbird Coffee” |
● | Dian Fossey Gorilla Fund International – “Gorilla Fund Coffee” |
● | Wild Horse Campaign-National |
● | Mendocino Coast Humane Society-Local |
● | Parents& Friends-Local |
These licensing agreements enable the American Birding Association, onecreation of America’s most activemeaningful and prestigious birding membership associations, to market Song Bird Coffee™ . Migratory bird populationsmulti-dimensional coffees that are in decline due to loss of habitat, which results from the clearing of shade tree canopy to allow coffee to grow in the sun. The Smithsonian Migratory Bird Center’s landmark 1996 study reported thatsold by “brick and mortar” retailers, as manywell as 60% of the migratory bird population of North America had disappeared since 1972, and that this disappearance could be traced to the reduction of forest habitat in Central and South America caused by “technification” of coffee agriculture. on-line.
CUSTOMER BASE
The Company’s exclusive relationship with the American Birding Association has provided alternative venues for thecustomer base is wide in scope. Customers include wholesale accounts, such as supermarkets, hotels, restaurants, food services entities and offices. Wholesale sales represent 86% of total sales. The Company to marketalso retails its products (venues other than the traditional venues comprised of supermarkets and serving locations), such as to bird lovers in bird stores and home and garden centers.
2 | “B Corporation” is a designation provided by B Lab, a nonprofit organization, which provides the designation if a company meets the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspires to use the power of markets to solve social and environmental problems. |
ITEM 1. BUSINESS - continued
The Company’s mixscope of products has evolved from that of specialty coffee with flavor and tasteour sales base makes us less vulnerable to one that now also promotes social justice, environmental sensitivity and organically grown coffees. Nearly 75%competition, although each segment of the Company’s packagedbusiness requires a unique marketing approach. We believe our marketing approach enables us to weather economic fluctuations.
Although competition has increased from 2012 through 2018, we have retained market share. Smaller roasters have been acquired by larger entities and bulk roasted sales fall into one or allthe acquisition pace has continued to consolidate the industry as large investments by venture capital and private equity interests have flooded the coffee trade.
We believe our position in the industry is both iconic and solid. In 2015 we were awarded B certification and in 2016 we were awarded “Roaster of these categories.
COMPETITION
The Company now features over twelve single-origin coffees, representing the farmers and communities who produce its coffee. Sales volume for this line was over $387,000 for 2011.
The Company also competes with other eco-friendly coffee companies such as Equal Exchange, Counter Culture, Café Mam, and other coffee companies that sell eco-friendly coffees as part of their product line.
The Company competes primarily on the basis of the quality of its products, its package design, and its social and environmental philosophies. Many of the Company’s competitors are larger than the Company and have significantly greater financial, marketing and other resources than the Company, and there can be no assurance that the Company will be able to maintain or expand sales successfully in the future.
The Company cannot guarantee successful competition against other coffee companies. The Company believes its focus on partnering (such as the relationships with the American Birding Association and the Dian Fossey Gorilla FoundationFund International) has enabled the Company to find a niche in the coffee market; howevermarket. However, there can be no assurance that these or the Company’s other marketing efforts will be successful in future years.
The Company also sells complementary products, primarily to its wholesale serving accounts that are ancillary to the coffee business but are necessary to serve coffee. These items include chocolate, syrups,coffee sleeves, coffee cups, equipment cleanercleaners and the like. These items are provided as a convenience for those accounts and assist in increasing revenue per stop for the Company’s distribution system. The Company also sells these items in its direct marketing division. The Company experiences competition in the sale of these ancillary items from manufacturers or other distributors, such as foodservice distributors. There can be no assurance that the Company will be able to maintain or expand sales of these products successfully in the future.
GREEN BEAN COFFEE SUPPLY AND AVAILABILITY
The Company purchases green beans from a number of importers as well as from farmer representatives and small producer cooperatives. Although most coffee trades in the worldwide commodities markets, coffee of the quality sought by the Company tends to trade on a negotiated basis at a substantial premium or “differential” above commodity coffee pricing, depending upon the supply and demand at the time of purchase. Supply and price can be affected by multiple factors, such as weather, politics and economics in the producing countries.
ITEM 1. BUSINESS - continued
The Company believes its long-term relationships with many cooperatives in the various growing regions where it buys coffee and with coffee bean brokers provide adequate sources of supply of high-quality green beans to meet the Company’s needs for the foreseeable future. However, a worldwide supply shortage of the high quality Arabica coffees the Company purchases, the loss of one or more of these broker relationships or a shortage of organic, fair trade and shade grown beans, in particular, could have an adverse impact on the Company. See also “Coffee Industry.”
CUSTOMERS
See Note 1 to the financial statements under “concentrations of credit risk” for 16.3%a summary of the Company’s total revenue. This customer is a distributor of the Company’s productssignificant customers and also resells the Company’s products through its serving locations. A loss of this account or any other large account, or a significant reduction in sales to any of the Company’s principal customers, could have an adverse impact on the Company. See “Management’s Discussion and Analysis.”
INTELLECTUAL PROPERTY
The Company holds various federal registrations in the United States for the following trademarks and service marks: Thanksgiving Coffee Company, Royal Gardens Tea Company, Pony Express, Time Bandits, Grand Slam Coffee, “Not Just a Cup...ButA Cup, But a Just Cup,” “Many Beans are Picked, Few are Chosen,Chosen.”, Mayan Harvest, Inca Harvest, and End the Embargo. From time to time, federal [trademarks] and service mark registrations must be renewed. The Company does not hold any patents.
GOVERNMENT REGULATION
The Company’s roasting plant has been certified wholly organic by the United States Department of Agriculture (USDA)(“USDA”). The California Certified Organic Crop Improvement Association (OCIA)Farmers (“CCOF”) is the inspecting agent. The OCIACCOF has also certified the organic practices of several farms from which the Company receives green beans. The certification criteria of the OCIA,CCOF, an independent organization, meet the standards promulgated under the Organic Foods Production Act of 1990, allowing the Company to market product originating at the certified farms as organic.
Our coffee roasting facility is subject to state and local air-quality and emissions regulations. If we encounter difficulties in obtaining any necessary licenses or complying with these laws and regulations, our ability to produce any of our roasted products would be severely limited. We believe that we are in compliance in all material respects with all such laws and regulations and that we have obtained all material licenses that are required of our business.
EMPLOYEES
As of December 31, 2011,2018, the Company had twenty-seventwenty-four full-time employees and thirteentwo part-time employees.
We are a smaller reporting company and are not required to provide information required by this item.
We are a smaller reporting company and are not required to provide information required by this item
The executive offices of the Company were relocated to a temporary location in downtown Fort Bragg after the July 5, 2010 fire. The warehouse has been converted to accommodate production and shipping until the new building is completed, the roasting facility was not damaged by the fire and is still being used. Approximately one half of the totaloccupy approximately 14,500 original square footagefeet at 19100 South Noyo Harbor Drive, Fort Bragg, California 95437, was destroyed by the firewhich address also includes a warehouse and the remaining square footage continues to be usedcapacity for the Coffee Companymanufacturing operations. The Company leases an additional 1,626 square feet of storage space on the Fort Bragg waterfront. These facilities are currently being leased for a ten-year term under a lease signed on November 1, 2005affective May of 2015 at an originala rate of $8,600 per month that has been reduced to $4,500 per month (since August 2011) from Joan and Paul Katzeff, who are founders, principal shareholders, officers and directors ofdirectors. The Company is responsible for real estate taxes, insurance and maintenance on the Company.facilities. See Item 13 “Certain Relationships and Related Party Transactions, and Director Independence” and Notes 10 and 11Note 6 to the “Notes to Financial Statements” included in this annual report.
No material legal matters in which the Company is a party or of which its property is the subject are pending at this time.
ITEM 4. [REMOVED AND RESERVED]MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information.
Trades in the Company’s Common Stock are made through Mutual Securities, Inc., inHolders.
As ofDividends.
The Company has neither declared nor paid any cash dividend since its inception. The Company intends to retain all earnings for use in its business and therefore does not anticipate paying any cash dividends in the near future.Securities Authorized for Issuance Under Equity Compensation Plans.
The Company does not presently have an equity compensation plan or any individual compensation arrangement under which the Company’s equity securities, such as options, warrants or rights, have been authorized for issuance.Recent Sales of Unregistered Securities.
No sales of the Company’s equity securities were made by the Company during the pastCompany Purchases of its Equity Securities.
No purchases of the Company’s equity securities were made by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) during the five fiscalWe are a smaller reporting company and are not required to provide information required by this item. However, please see “Selected Quarterly Financial Data” in Item 7, which provides unaudited quarterly condensed results of operations for the previous two years ending December 31, 2018.
The following discussion of financial condition and results of operations should be read in conjunction with the Company’s audited financial statements and notes thereto appearing elsewhere in this annual report.
SUMMARY OF ACTIONS TAKEN BY MANAGEMENT IN 2018
Jonah Katzeff, son of the Co-Founders, Vice President and manager of the Green Coffee Division took on the role of General Manager in 2017.
Management has the goals of A) generating positive cash flow from operations and B) becoming profitable on a Company–wide basis.
In 2018, the Company generated $18,695 in cash from operations. However, overall the Company reflected a net decrease in cash for the year of $6,746, a fixed asset decrease of $4,224 and a decrease in net financing sources of $29,665.
WORLD PRICING FOR RAW (GREEN) COFFEE:
Raw Coffee prices are benchmarked through an International Trading System that is managed by the World Robusta Coffee Exchange in London and by the Trading for Arabica Coffees on the NYCSCE. Coffee is the second most traded commodity in the world after crude oil. Prices fluctuate due to weather, crop disease, fundamental supply/demand shifts and quality.
In the Specialty Coffee Trade, the benchmark price becomes the base price, from which premiums are added for rarity, processing methodology, flavor quality scores, season, age of the raw beans and country of origin. In addition, premiums are added for the cost of certifications such as Fair Trade and Organic. Occasionally, the Company will purchase exotic coffees in small quantities (an example being Kenya “Peaberry” at $8.00/lb) to offer on our webstore to customers willing to try the best at a higher price.
In response to this risk factor, in 2013 the Company created a Green Coffee Management Team. The team is led by the General Manager (Jonah Katzeff), Roastmaster (Jacob Long) and board member (Nicholas Hoskyns). In creating a Green Coffee Team, the goal was to return a positive credit with our importers, a more precise inventory mix that matches our sales needs and a more stable and predictable cost of product, which would enable our wholesale price to be stabilized for a 12-month crop cycle.
The cost we pay for raw coffee can significantly influence our cost of sales from year to year. Green bean coffee is the most significant component of our cost of sales. Timely green coffee purchasing has positive consequences while untimely inventory can have negative consequences. Keeping a steady flow of products from 10 to 15 countries, locating both large (full containers at 37,500 pounds each) and small micro lots (150 to 1,500 pounds) is a daunting task requiring focus, time and available money for purchase.
ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Mr. Hoskyns and Co-founder Paul Katzeff have worked together since 1999 when then CEO Katzeff secured a $304,000 USAID Grant to work with coffee farmers in Nicaragua. The Grant was used for training coffee cooperatives to enable them to relate their coffees to the emerging Speciality Trade. Mr. Hoskyns business, Ethical Trading and Investment Company (“ETICO”), was exporting sesame to England and became the major exporter of sesame in Nicaragua. He built a major credit line relationship with his bank and, being on our Board of Directors, understood the credit crunch that was impacting the Company.
In 2012, Mr. Hoskyns, agreed to use his company to reorganize our purchasing schedules, to act as our importer for all Central American Coffees and to use his company’s line of credit in a way that would enable the Company to pay for our green coffee as it was pulled from bonded warehouses in the San Francisco Bay, lowering interest payments and storage costs.
There was a mutual benefit to this relationship. We agreed to purchase all of our Central American and African coffees through ETICO in exchange for our ability to pay for the coffee as it was being used, i.e., pulled from US bonded warehouses. ETICO received a $.10 per pound commission and the Company estimates it saved $.05 per pound in reduced import and customs costs. ETICO also gained entry into the growing trade as a coffee importer. The Company now had the ability to purchase coffees using the importer’s (ETICO’s) credit line, which allowed for more favorable pricing on bulk purchases and preferential service cost savings of $.05 per pound.
By 2014, the Company was using ETICO for approximately 70% of our purchasing needs and this control system made Thanksgiving less vulnerable to a changing market. This new approach brought our largest annual cost into a managed cash flow system, relieving the pressure on our cash position and enabling the Company to begin to reestablish its credit with its other suppliers.
RESULTS OF OPERATIONS
The following table shows the changes, both in U.S. Dollars and percent, of the significant income statement line item classifications for the two previous fiscal years.
2018 over 2017 | ||||||||
$ Inc | % Inc | |||||||
Sales | (280,487 | ) | -8.0 | % | ||||
Cost of sales | (178,155 | ) | -8.7 | % | ||||
Gross Profit | (102,332 | ) | -6.9 | % | ||||
Selling, G&A expense | (110,435 | ) | -7.3 | % | ||||
Operating profit (loss) | 8,103 | -16.1 | % | |||||
Other income (expense) | 34,498 | 113 | % | |||||
Income tax expense (credit) | 0 | 0.00 | % | |||||
Net income (expense) | 42,601 | -54.04 | % | |||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- continuedTotal sales in 2018 were $3,226,269, a decline of $280,487, or 8%, as compared to 2017 sales of $3,506,756. Part of the decline can be attributed to the effects of the catastrophic wildfires of 2018, particularly in Northern California.
Gross profit, decreased by $101,832, or 6.9%, from 2018 to 2017. As a percentage of net sales, in 2018, as compared to 2017, gross profits decreased 7%. Our 2018 cost of sales declined by $178,155 or 8.7%, as compared to 2017. As a percentage of net sales, our cost of sales in 2018 decreased by 2.3%. The decrease in our cost of sales is the result of tighter inventory controls and cost benefits realized from the practice of contracting for larger bulk purchasing of raw beans, which resulted in a lower cost of raw product.
Thanksgiving’s selling, general and administrative (“SG&A”) expense decreased by $101,832 year over year, or 6.9%, compared to the 2017 increase of $85,297, or 5.3%. SG&A expenses, as a percentage of net sales, were 44% in 2018 as compared to 45% in 2017. The decrease in SG&A expense was primarily the result of controlling costs relating to the audit and preparation of the Form 10K. Other income increase from 2017 from a non recurring employee bonus payment.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of December 31, 2018 was $371,667 as compared to working capital at December 31, 2017 of $384,940, a decrease of $13,273, or 3.4%.
For 2018, the Company generated $18,695 in cash from operations, but incurred a net loss of $36,236. Included in the net loss is $51,746 of depreciation expense, which does not affect cash flows. For 2017, the Company generated $52,382 in cash from operations, but incurred a net loss of $76,737. Included in the net loss is $117,346 depreciation expense, which does not affect cash flows.
Cash used in investing activities for 2018 and 2017 is primarily the result of fixed asset additions.
Cash flows from financing activities for 2018 and 2017 consisted mainly of borrowings and repayments on long-term debt.
See Note 5 to the accompanying financial statements for a summary of the Company’s productsoutstanding debt.
SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE
The Company’s business is seasonal in nature. However, since we have continuedbeen able to erode oversmooth out our purchasing and cash flow needs through the use of our relationship with ETICO, we no longer face significant seasonal supply pressures brought on by the availability of green beans. Sales are historically higher in the last five years, primarily due to declines in the direct distribution sales method of the Company’s business (i.e., delivery by Company truck). Additional competition, customers that have gone out of business, and customers that have begun roasting coffee beans for their own use have all had a negative impact on the Company’s sales. The Company has tried a number of strategies that have not proven effective in abating these declines. The Company has changed its method of distribution to rely less on direct distribution by Company owned or leased trucks in favor of using independent distributors or shipping direct (via UPS or other common carrier). This change did result in a reduction in expenses. Although the Company was profitable in 2011, it was a result of gains from insurance advances and only a slight increase in volume. If the Company cannot improve its sales volume and or reduce the operating costs, it may not be able to achieve profitability in future years.
| Combined | $ Inc/(Dec) | % Inc/(Dec) | ||||||
| Net Sales | $ | 138,744 | 3.34 | % | ||||
| Cost of Sales | $ | 279,733 | 10.72 | % | ||||
| Gross Profit | $ | (140,989 | ) | (9.13 | %) | |||
| Selling, G & A Expense | $ | (5,975 | ) | (0.38 | %) | |||
| Depreciation and Amortization | $ | (20,476 | ) | (23.10 | %) | |||
| Other Income/ (Expense) | $ | (22,259 | ) | (8.46 | %) | |||
| Net Income/ (Loss) | $ | (136,796 | ) | (86.77 | %) | |||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- continued| Payments Due By Period | ||||||||||||||||||||
| Contractual Obligations | Total | Less than One year | 1-3 years | 4-5 years | After 5 years | |||||||||||||||
| Long Term Debt | $ | 177,676 | $ | 61,740 | $ | 103,206 | $ | 12,730 | $ | - | ||||||||||
| Operating Leases | 15,112 | 6,652 | 8,460 | - | - | |||||||||||||||
| Real Estate Leases | 197,966 | 62,966 | 108,000 | 27,000 | - | |||||||||||||||
| Total Cash Obligations | $ | 390,754 | $ | 131,358 | $ | 219,666 | $ | 39,730 | $ | - | ||||||||||
The Company’s future results of operations and earnings could also be significantly affected by other factors, such as changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products, and in the availability and costs of green coffee beans, increased competition, within the Company’s businesses, variances from budgeted sales mix and growth rate, consumer acceptance of the Company’s new products, inability to secure adequate capital to fund its operating losses and working capital requirements, inability to hire, train and retain qualified personnel, concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully implement its business plan, civil unrest in countries that produce coffee, weather and other natural disasters. There can be no assurance that sales will be maintained or increase in future quarters.
INDEMNIFICATION MATTERS
The Company’s Bylaws provide that the Company may indemnify its directors, officers, employees and other agents to the fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such liability insurance for its directors and certain officers and employees.
At present, there is no pending litigation or proceeding involving any director, office,officer, employee or agent of the Company where indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or proceeding that might result in a claim for such indemnification.
SELECTED QUARTERLY FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Quarters Ended | ||||||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||||||
Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||
Sales | $ | 812,329 | $ | 800,149 | $ | 818,755 | $ | 795,036 | $ | 881,722 | $ | 856,952 | $ | 948,802 | $ | 819,286 | ||||||||||||||||
Cost of goods sold | 474,344 | 447,840 | 454,435 | 483,078 | 551,819 | 481,066 | 565,069 | 454,,925 | ||||||||||||||||||||||||
Gross Profit | 337,985 | 352,309 | 364,320 | 311,958 | 329,903 | 375,886 | 383,733 | 364,361 | ||||||||||||||||||||||||
Operating Expenses | 332,005 | 342,955 | 344,259 | 386,872 | 364,640 | 393,070 | 366,337 | 384,834 | ||||||||||||||||||||||||
Operating profit (loss) | 5980 | 9,354 | 20,061 | (74,914 | ) | (24,737 | ) | (17,184 | ) | 17,396 | (20,473 | ) | ||||||||||||||||||||
Other income (expense) | (2,008 | ) | 9,423 | (3,307 | ) | (30 | ) | (1,182 | ) | (1,107 | ) | (30,750 | ) | 0 | ||||||||||||||||||
income (loss) before income taxes | 3,972 | 18,777 | 15,954 | (74,944 | ) | (25,919 | ) | (18,291 | ) | (13,345 | ) | (20,473 | ) | |||||||||||||||||||
Income tax expense(benefit) | - | - | - | 0 | - | - | - | 800 | ||||||||||||||||||||||||
Net Income (loss) | $ | 3,972 | $ | 18,777 | $ | 15,954 | $ | (74,944 | ) | $ | (25,919 | ) | $ | (18,291 | ) | $ | (13,345 | ) | $ | (21,273 | ) | |||||||||||
Sales for the last 8 quarters have remained fairly stable. For 2018, sales decreased by $280,487 over 2017, a 7.99% decrease. The gross profit percentage on sales was 42.36% and 41.15% for the 2018 and 2017 fiscal years, respectively.
Operating expenses on a quarterly basis have ranged from a low of 25.06% of sales to a high of 30.80%. For the 2018 and 2017 fiscal years, operating expenses were as high as 48% and 43.2% of sales, respectively.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
We are a smaller reporting company and are not required to provide information required by this item.
Information required by this item is set forth in the financial statements and the accompanying notes beginning on page F-1 of this annual report.
The last Company 10-K filing was for the fiscal year ended December 31, 2017. In 2018, the Company again retained the services of Vavrinek, Trine, Day & Co., LLP, (VTD) to audit the Company’s financial statements for the fiscal years ended December 31, 2017. To date, there has not been a change in or disagreement with the independent accountant.
Evaluation of Disclosure Controls and Procedures
.Our management, with the participation of the Chief Executive Officer and the ChiefManagement’s Annual Report on Internal Control Overover Financial Reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Management evaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) in Internal Control – Integrated Framework.Framework (2013). Based on this evaluation, performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer, and the Chief FinancialOperating Officer, management concluded thatbelieves the Company’sCompany maintained effective internal control over financial reporting was not effective in the areas of cost classifications and accruals, and in need of further review as of the end of the period covered by this annual report including the reportingDecember 31, 2018, and for the gains and losses from the fire.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to Item 308(a)(4) of Regulation S-K.
There have not been any significant changes in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting other than those reported above.
No information was required to be disclosed in a report on form 8-K during the fourth quarter of the year covered by this annual report.
The directors, nominees, key employees and executive officers of the Company and their ages as of the date of this Form 10-K are as follows:
Name | Age | Position with the Company | ||
Paul Katzeff | 80 | CEO, Chairman of the Board of Directors | ||
Joan Katzeff | 69 | COO, Secretary, Treasurer and Director | ||
Nicholas Hoskyns | ||||
51 | Director | |||
Paul Katzeff, a co-founder of the Company has served as Roastmaster, and a Director since the Company’s incorporation on May 10, 1982, and as our Chairman of the Board of Directors since June 2010. Mr. Katzeff also served as our Chief Executive Officer from the date of our incorporation. Mr. Katzeff iswas a co-founder of the Specialty Coffee Association of America (S.C.A.A.) and served as its Chairman in 1985.1985 and 2000. He has served as an elected Board member of the S.C.A.A. since 1994, and served as Chairman of the Environmental Committee of the Board in 1994. Mr. Katzeff co-chaired the Second Annual Sustainable Coffee Conference held in April of 1998. Mr. Katzeff served as S.C.A.A. President in the year 2000. Mr. Katzeff and Joan Katzeff are husband and wife. Mr. Katzeff holds a BachelorsBachelor’s degree in Agriculture from Cornell University and a Masters degree in Social Work from Adelphi University.
Joan Katzeff, a co-founder, has served as a Director of the Company since incorporation on May 10, 1982 and as our Secretary and Treasurer since June 2010. Ms. Katzeff served as the President from the date of our incorporation to June 2010. Her experience in the Company’s early years included production, delivery and bookkeeping.
Nicholas Hoskyns has been a Director of the Company since 2007. Since 2003, he has served the managing directoras Managing Director of the Ethical Trading and Investment Company (ETICO) of Nicaragua (“ETICO”), a company that works with small farmer cooperatives on their organizational, business and marketing development. He has helped found three cooperatives, integrating these bodies at local, regional and national levels and supporting their entry into markets in Europe, the United States and Japan. His work has been primarily in the coffee and sesame seed trade in the Central American region where he resides. He has a BA in Development Economics from the University of East Anglia in the United Kingdom.
The authorized number of directors is five. Currently there are four directors and one vacancy.three directors. All directors will hold office until the next annual meeting of shareholders and until their successors have been elected and qualified, unless they earlier resign or are removed from office. Committees of the Board may be appointed by resolution passed by a majority of the directors.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE - continued
The Company does not presently have any standing audit, nominating or compensation committee, or any committee performing similar functions. The executive officers of the Company are elected annually by the Board of Directors and serve at the discretion of the Board.
At the present time, the Company does not have a standing audit committee of the Board of Directors, or an audit committee financial expert, as those terms are defined by Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and Item 407(d) (5)(ii) of Regulation S-K respectively..respectively. The very small size of the Board, the small size of the Company and the remote location render it difficult at this time to fulfill these requirements. In addition, our financial statements are relatively simple to read and understand. The current Board members have had years of experience with the Company and are familiar with its financial reporting and operations. The Company makes every attempt, in conjunction with our independent auditors, our attorneys and our officers to assure that our filings and financial statements are fairly, clearly and accurately reported.
Code of Ethics.
The Company has adopted a code of ethics that is applicable to all members of senior management and the Company’s employees. A copy of the code of ethics has been filed with the Securities and Exchange Commission.Section 16(a) Beneficial Ownership Reporting Compliance.
Our equity securities are not registered pursuant to Section 12 of the Securities Exchange Act of 1934. Accordingly, our officers, directors and principal shareholders are not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act.The following table provides certain information concerning the compensation paid to our Chief Executive Officer and each of our two other most highly compensated executive officersChief Operating Officer during the fiscal years ended 2010December 31, 2018 and 2011.
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Nonequity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | |||||||||||||||||||||||
Paul Katzeff Chairman of the Board of Directors (formerly Chief Executive Officer) | 2011 | $ | 61,200 | – | – | – | – | – | (1 | ) | |||||||||||||||||||||
| 2010 | $ | 75,418 | – | – | – | – | – | (1 | ) | ||||||||||||||||||||||
Joan Katzeff Secretary, Treasurer and Director (formerly President) | 2011 | $ | 61,200 | – | – | – | – | – | - | ||||||||||||||||||||||
| 2010 | $ | 75,418 | – | – | – | – | – | - | |||||||||||||||||||||||
Sam Kraynek Chief Executive Officer, Chief Financial Officer and Director | 2011 2010 | $ $ | 105,546 97,920 | - - | - - | - - | - - | - - | (1 (1 | ) ) | |||||||||||||||||||||
2018 | 2017 | |||||||
Salary | Salary | |||||||
Paul Katzeff, Chairman of the Board and CEO | $ | 0 | $ | 0 | ||||
Joan Katzeff, COO, Secretary, Treasurer an Board member | $ | 65,000 | $ | 64,331 | ||||
During the year ending December 31, 2018, neither Paul Katzeff and Mr. Krayneknor Joan Katzeff received useany additional compensation in the form of a company car, which was used primarilybonus, stock or stock option award, non-equity incentive plan compensation, non-qualified deferred compensation earnings or any other form of compensation except for business purposes. The aggregate incremental cost to the Company is less than $10,000 per year.
Securities Authorized for Issuance Under Equity Compensation Plans.
The Company currently does not have in place any compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.Compensation of Directors.
Our members of the Board of Directors do not receive compensation for service on the Board.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of the Company’s Common Stock as of March 26, 2012,December 31, 2018, (i) by each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Company’s Common Stock, (ii) by each of the named executive officers, (iii) by each of the Company’s directors, and (iv) by all directors and executive officers as a group. The Company believes that the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws, where applicable. Beneficial ownership representing less than one percent is denoted with an “*”.” The Company does not have an equity compensation plan.
Nature of | ||||||||
Percent of | ||||||||
Beneficial | Amount and | |||||||
Name and Address of Beneficial Owner | Ownership (1) | Class (2) | ||||||
Joan and Paul Katzeff (1) | 964,400 | (3) | 78 | % | ||||
(Joan Katzeff, COO, Secretary, Treasurer and Director) | ||||||||
(Paul Katzeff, CEO and Chairman of the Board of Directors) | ||||||||
c/o Thanksgiving Coffee Co., Inc. | ||||||||
POB 1918 | ||||||||
Fort Bragg, CA 95437 | ||||||||
Nicholas Hoskyns | 0 | - | ||||||
Director | ||||||||
c/o Thanksgiving Coffee Co., Inc. | ||||||||
POB 1918 | ||||||||
Fort Bragg, CA 95437 | ||||||||
All directors and executive officers as a group (2 persons) | 964,400 | 78 | % | |||||
(1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to the securities. |
(2) | Based upon 1,236,744 shares of the Company’s Common Stock issued and outstanding at March 15, 2018. |
(3) | Shares are jointly owned by Joan Katzeff and Paul Katzeff. |
| Nature of | ||
| Percent of | ||
| Name and Address of | Beneficial | Amount and |
| Beneficial Owner | Ownership (1) | Class (2) |
| Joan and Paul Katzeff(1) | 964,400 (3) | 78% |
| (Joan Katzeff, Secretary, Treasurer and Director) | ||
| (Paul Katzeff, Chairman of the Board of Directors) | ||
| c/o Thanksgiving Coffee Co., Inc. | ||
| POB 1918 | ||
| Fort Bragg, CA 95437 | ||
| Sam Kraynek | 1,800 | * |
| Chief Executive Officer and Director | ||
| c/o Thanksgiving Coffee Co., Inc. | ||
| POB 1918 | ||
| Fort Bragg, CA 95437 | ||
| Janet Aguilar | 0 | * |
| Chief Financial Officer | ||
| c/o Thanksgiving Coffee Co., Inc. | ||
| POP 1918 | ||
| Fort Bragg, CA 95437 | ||
| Ben Corey-Moran | 400 | * |
| President | ||
| c/o Thanksgiving Coffee Co., Inc. | ||
| POB 1918 | ||
| Fort Bragg, CA 95437 | ||
| Nicolas Hoskyns | ||
| Director | 0 | * |
| c/o Thanksgiving Coffee Co., Inc. | ||
| POB 1918 | ||
| Fort Bragg, CA 95437 | ||
| All directors and executive officers as a group (5 persons) | 966,600 | 78.10% |
In November 2005,May 2015, the Company signed a new lease for its corporate headquarters, warehouse and waterfrontproduction facilities from Joan and Paul Katzeff, who own the facility and are directors, executive officers and the majority shareholders of the Company (the “Katzeffs”). The lease iswas for ten years and ends May 31, 2015.2025. The lease provides for monthly payments of approximately $8,600 for the entire term of the lease. The lease runs for 10 years, ending in May of 2025. The Company isremains responsible for all real estate taxes, insurance and maintenance costs related to the leased facilities. The lease was amended in July, 2011 to $4,500 to reflect the diminished use of the property since the fire. The Katzeff’s also guaranteed personally the Company’s term note and line of credit with the Savings Bank of Mendocino. See“Liquidity and Capital Resources” under item 7 and Notes 7 and 10 to the “Notes to Financial Statements” included in this annual report.
The Company carries insurance indemnifying its directors and certain officers and certain employees against certain liabilities by reason of their status or service as directors, officers, or employees of the Company.
The Company had uncollateralized note withuses the majority shareholders, payableservices of ETICO, which acts as a broker for us in monthly installmentsour purchase of interest only at 12%, with the balance due on demand after June 30, 1996. The principal of the note was paid as of September 30, 2011. In June of 2007, the Company executed an uncollateralized note for $73,100 with the majority shareholders to pay rent in arrears over the next three years to be repaid in monthly installments of $2,000 per month plus interest at 12% per annum with the final payment due July 15, 2010. The principalcoffees from Nicaragua, Guatemala, Rwanda, Uganda and interest on this was paid as of June 30, 2010. See Note 7 and 11 of “Notes to Financial Statements.”
Our Board of Directors has selected independence standards of the NASDAQ Stock Market (“NASDAQ”), solely for the purpose of making the independence determination in compliance with SEC requirements. We are not a listed issuer on the NASDAQ and are not required to meet NASDAQ’s director independence standards. None of the directors of the Company are independent under standards established by NASDAQ.
The aggregate accounting and audit fees billed to the Company by our principal accountant, Schumacher & Associates, Inc. for services rendered during the fiscal years ended December 31, 20112018 and 20102017 are set forth in the table below:
| Fee Category | Fiscal Year Ended December 31, 2011 | Fiscal Year Ended December 31, 2010 | ||||||
| Audit fee (1) | $ | 42,500 | $ | 38,500 | ||||
| Audit-related fees (2) | $ | 0 | $ | 0 | ||||
| Tax fees (3) | $ | 0 | $ | 0 | ||||
| All other fees (4) | $ | 0 | $ | 0 | ||||
| Total fees | $ | 42,500 | $ | 38,500 | ||||
2018 | 2017 | |||||||
Audit (1) | $ | 52,000 | $ | 56,000 | ||||
Audit-related (1) | 0 | 0 | ||||||
Tax (2) | 6,000 | 6,000 | ||||||
| $ | 58,000 | $ | 62,000 | |||||
(1) | Audit fees |
(2) |
Tax fees consist of fees billed for professional services rendered for tax compliance, tax planning and tax advice. |
| (3) All other fees consist of fees billed primarily for |
Pre-approval Policies and Procedures for Audit and Non-Audit Services.
As we do not have a standing audit committee, our Board of Directors performs the functions that may be delegated to an audit committee. Section 10A(i) of the Securities Exchange Act of 1934 prohibits our auditors from performing audit services for us as well as any services not considered to be “audit services” unless such services are pre-approved by the Company’s Board of Directors (in lieu of the audit committee) or unless the non-audit services meet certain de minimis standards.(a) The following documents are filed as part of this annual report:
Financial Statements
- | Report of Independent Registered Public Accounting Firm | |
- | Balance Sheets as of December 31, 2018 and 2017 | |
- | Statements of Income and Retained Earnings for each of the years ended December 31, 2018 through 2017 | |
- | Statements of Cash Flows for the years ended December 31, 2018 and 2017 | |
- | Notes to Financial Statements |
Financial Statement Schedules
Not Applicable
Exhibits |
3.1 |
10.4 |
10.10 |
License Agreement between the Company and the American Birding Association, Inc. |
10.13 |
14.1 |
32.1 |
101.INS## | XBRL Instance |
101.SCH## | XBRL Taxonomy Extension Schema |
101.CAL## | XBRL Taxonomy Extension Calculation |
101.DEF## | XBRL Taxonomy Extension Definition |
101.LAB## | XBRL Taxonomy Extension Labels |
101.PRE## | XBRL Taxonomy Extension Presentation |
## | XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the |
+ | Incorporated by reference to the exhibits to the Company’s Registration Statement on Form S-1 (File No 33-96070-LA). |
++ | Incorporated by reference to the exhibits to the Company’s Form 10-QSB for the quarter ended June 30, 1997. |
+++ | Incorporated by reference to the exhibits to the Company’s Form 10-QSB for the quarter ended September 30, 1998. |
++++ | Incorporated by reference to the exhibits to the Company’s Form 10-QSB for the quarter ended June 30, 2007. |
* | Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2003. |
** | Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2004. |
*** | Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2005. |
**** | Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2006. |
***** | Incorporated by reference to the exhibits to the Company’s Form 10-KSB for the year ended December 31, 2007. |
| >> | Incorporated by reference to the exhibits to the Company’s Form 10-K for the year ended December 31, 2017 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Thanksgiving Coffee Company, Inc. | |||
Date: March | By: | /s/ | Paul Katzeff |
Name: | Paul Katzeff | ||
Title: Chief Executive Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||
/s/ Paul Katzeff | Chairman of the Board, CEO | March | 27, 2019 | |||
Paul Katzeff | ||||||
/s/ Joan Katzeff | Secretary, Treasurer and Director, COO | March | 27, 2019 | |||
Joan Katzeff | ||||||
/s/ Nicholas Hoskyns | Director | March | 27, 2019 | |||
Nicholas Hoskyns | ||||||
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Securities Exchange Act of 1934 by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Securities Exchange Act of 1934
No annual report covering the registrant’s last fiscal year or proxy materials with respect to any annual or other meeting of shareholders have been sent to the registrant’s shareholders.
Thanksgiving Coffee Company, Inc.
Financial Statements and Report
of Independent Registered Public Accounting Firm
For the year ended December 31, 2018 and 2017
Table of Contents
Report | |
F-2 | |
Audited Financial Statements | |
F-3 | |
F-4 | |
F-5 | |
F-6 |
Stockholders of Thanksgiving Coffee Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Thanksgiving Coffee Company, Inc., (Company) as of year-end, December 31, 20112018 and 2010,December 31, 2017, and the related Statementsstatements of Operations, Shareholders' Equity,income and Cash Flowsretained earnings, and cash flows for each of the years in the two-year period ended December 31, 20112018, and 2010. the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of year-end, December 31, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31,2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since January 2016. | |
Palo Alto, California | |
March 27, 2019 | |
Thanksgiving Coffee Company, Inc. as of
Balance Sheets
December 31, 2011 and 2010, and the results of its operations and cash flows for the years ended December 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America.31:
2018 | 2017 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 153,646 | $ | 160,392 | ||||
Accounts receivable, net | 218,789 | 229,877 | ||||||
Inventory | 237,708 | 262,108 | ||||||
Prepaid and other current assets | 90,431 | 57,780 | ||||||
Total current assets | 700,574 | 710,157 | ||||||
Property and equipment | ||||||||
Property and equipment | 1,470,182 | 1,474,406 | ||||||
Accumulated depreciation | (1,161,533 | ) | (1,109,787 | ) | ||||
Total property and equipment | 308,649 | 364,619 | ||||||
Other assets | ||||||||
Deposits | 4,168 | 3,112 | ||||||
Total other assets | 4,168 | 3,112 | ||||||
Total assets | $ | 1,013,391 | $ | 1,077,888 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 217,828 | $ | 213,942 | ||||
Accrued liabilities | 62,817 | 65,299 | ||||||
Current portion of long term debt | 48,262 | 46,476 | ||||||
Total current liabilities | 328,907 | 325,717 | ||||||
Long-term debt | 84,564 | 114,229 | ||||||
Less current portion of long term debt | (48,262 | ) | (46,476 | ) | ||||
Total long-term debt | 36,302 | 67,753 | ||||||
Total liabilities | 365,209 | 393,470 | ||||||
Stockholders’ equity | ||||||||
Common stock, no par value, 1,960,000 shared authorized, 1,236,744 shares issued and outstanding | 861,816 | 861,816 | ||||||
Additional paid in capital | 24,600 | 24,600 | ||||||
Retained earnings (deficit) | (238,234 | ) | (201,998 | ) | ||||
Total stockholders’ equity | 648,182 | 684,418 | ||||||
Total liabilities and stockholders’ equity | $ | 1,013,391 | $ | 1,077,888 | ||||
See accompanying notes and auditors’ report
Thanksgiving Coffee Company, Inc.
Statements of Income and Retained Earnings
Years Ended December 31:
2018 | 2017 | |||||||
Sales | 3,226,269 | $ | 3,506,756 | |||||
Cost of goods sold | 1,859,691 | 2,037,846 | ||||||
Gross Profit | 1,366,578 | 1,468,910 | ||||||
Operating Expenses | 1,406,092 | 1,516,527 | ||||||
Operating profit (loss) | (39,514 | ) | (47,617 | ) | ||||
Other income (expense) | ||||||||
Interest income | 82 | 1,297 | ||||||
Interest expense | (7,284 | ) | (7,061 | ) | ||||
Total other income (expense) | 11,280 | (24,656 | ) | |||||
| 4,078 | (30,420 | ) | ||||||
Loss before income taxes | (35,436 | ) | (78,037 | ) | ||||
Provision for income taxes | (800 | ) | (800 | ) | ||||
Net Loss | (36,236 | ) | (78,837 | ) | ||||
Retained earnings, (deficit) beginning of year | (201,998 | ) | (123,161 | ) | ||||
Accumulated deficit, end of year | $ | (238,234 | ) | $ | (201,998 | ) | ||
Earnings (loss) per share, basic and diluted | $ | (0.029 | ) | $ | (0.064 | ) | ||
| Thanksgiving Coffee Company, Inc. | ||||||||
| Balance Sheets | ||||||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 64,271 | $ | 191,618 | ||||
| Accounts receivable | 256,785 | 297,586 | ||||||
| Inventories | 473,217 | 346,333 | ||||||
| Prepaid expenses | 27,629 | 20,559 | ||||||
| Total current assets | 821,902 | 856,096 | ||||||
| Property and equipment | ||||||||
| Property and equipment | 1,089,126 | 1,034,785 | ||||||
| Accumulated depreciation | (686,855 | ) | (631,177 | ) | ||||
| Total property and equipment | 402,271 | 403,608 | ||||||
| Other assets | ||||||||
| Deposits and other assets | 550 | 4,927 | ||||||
| Other intangibles, net of amortization | 1,960 | 1,485 | ||||||
| Total other assets | 2,510 | 6,412 | ||||||
| Total assets | $ | 1,226,683 | $ | 1,266,116 | ||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 375,656 | $ | 395,726 | ||||
| Accounts payable - related party | 147,271 | 35,173 | ||||||
| Notes payable - bank | 42,212 | 51,793 | ||||||
| Notes payable - other | - | 325 | ||||||
| Note payable - shareholders | - | 19,919 | ||||||
| Capital lease obligations | 19,528 | 19,416 | ||||||
| Accrued liabilities | 49,142 | 109,983 | ||||||
| Total current liabilities | 633,809 | 632,335 | ||||||
| Long term debt | ||||||||
| Notes payable - bank | 93,368 | 135,573 | ||||||
| Capital lease obligations | 22,568 | 42,128 | ||||||
| Total long term debt | 115,936 | 177,701 | ||||||
| Total liabilities | 749,745 | 810,036 | ||||||
| Commitments & Contingencies (Notes 2,5,7,8,9,10,11, 12 and 13) | ||||||||
| Shareholders' equity | ||||||||
| Common stock, no par value, | ||||||||
| 1,960,000 shares authorized, | ||||||||
| 1,236,744 shares issued and outstanding | 861,816 | 861,816 | ||||||
| Additional paid in capital | 24,600 | 24,600 | ||||||
| Accumulated (deficit) | (409,478 | ) | (430,336 | ) | ||||
| Total shareholders' equity | 476,938 | 456,080 | ||||||
| Total liabilities and shareholders' equity | $ | 1,226,683 | $ | 1,266,116 | ||||
See accompanying notes and auditors’ report
Thanksgiving Coffee Company, Inc.
Statements of Cash Flow
For the Years Ended December 31:
2018 | 2017 | |||||||
Cash flows from operating activities | ||||||||
Net Income (Loss) | $ | (36,236 | ) | $ | (78,837 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation & Amortization | 51,746 | 117,346 | ||||||
(Increase) decrease in: | ||||||||
Accounts receivable, net | 11,088 | 9,861 | ||||||
Inventory | 24,400 | 17,643 | ||||||
Prepaid and other assets | (32,651 | ) | 51,694 | |||||
Deposits and other assets | (1,056 | ) | 9,130 | |||||
Accounts payable | 3,886 | (72,910 | ) | |||||
Accrued and other liabilities | (2,482 | ) | (2,045 | ) | ||||
Net cash provided by operating activities | 18,695 | 51,882 | ||||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | 4,224 | (55,586 | ) | |||||
Net cash provided by (used in) investing activities | 4,224 | (55,586 | ) | |||||
Cash flows from financing activities | ||||||||
Increase in long-term debt | 0 | 29,728 | ||||||
Principal payments on long-term debt | (29,665 | ) | (16,068 | ) | ||||
Net cash provided by (used in) financing activities | (29,665 | ) | 13,660 | |||||
Net increase (decrease) in cash | (6,746 | ) | 10,456 | |||||
Cash, beginning of year | 160,392 | 149,936 | ||||||
Cash, end of year | $ | 153,646 | $ | 160,392 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | 7,284 | $ | 7,061 | ||||
Income taxes paid | $ | 800 | $ | 800 | ||||
| Thanksgiving Coffee Company, Inc. | ||||||||
| Statements of Operations | ||||||||
| For the Years Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Income | ||||||||
| Net sales | $ | 4,292,153 | $ | 4,153,409 | ||||
| Cost of sales | 2,889,418 | 2,609,685 | ||||||
| Gross profit | 1,402,735 | 1,543,724 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative expenses | 1,553,866 | 1,559,842 | ||||||
| Depreciation and amortization | 68,162 | 88,638 | ||||||
| Total operating expenses | 1,622,028 | 1,648,480 | ||||||
| Operating loss | (219,293 | ) | (104,756 | ) | ||||
| Other income (expense) | ||||||||
| Miscellaneous income | 265,155 | 294,994 | ||||||
| Interest expense | (24,204 | ) | (31,784 | ) | ||||
| Total other income | 240,951 | 263,210 | ||||||
| Income before income taxes | 21,658 | 158,454 | ||||||
| Income tax expense | (800 | ) | (800 | ) | ||||
| Net income | $ | 20,858 | $ | 157,654 | ||||
| Income per share (basic) | $ | 0.02 | $ | 0.13 | ||||
| Income per share (dilutive) | $ | 0.02 | $ | 0.13 | ||||
| Weighted average number of shares outstanding | 1,236,744 | 1,236,744 | ||||||
See accompanying notes and auditors’ report
| Thanksgiving Coffee Company, Inc. | ||||||||||||||||||||
| Statement of Shareholders' Equity | ||||||||||||||||||||
| For the Period from January 1, 2010 through December 31, 2011 | ||||||||||||||||||||
| Additional | �� | |||||||||||||||||||
| Common Stock | paid-in | Accumulated | ||||||||||||||||||
| Shares | Amount | capital | (Deficit) | Total | ||||||||||||||||
| Balance at January 1, 2010 | 1,236,744 | $ | 861,816 | $ | 24,600 | $ | (587,990 | ) | $ | 298,426 | ||||||||||
| Net Income | - | - | - | 157,654 | 157,654 | |||||||||||||||
| Balance at December 31, 2010 | 1,236,744 | 861,816 | 24,600 | (430,336 | ) | 456,080 | ||||||||||||||
| Net Income | - | - | - | 20,858 | 20,858 | |||||||||||||||
| Balance at December 31, 2011 | 1,236,744 | $ | 861,816 | $ | 24,600 | $ | (409,478 | ) | $ | 476,938 | ||||||||||
| Thanksgiving Coffee Company, Inc. | ||||||||
| Statements of Cash Flows | ||||||||
| For the Years ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Operating activities | ||||||||
| Net income | $ | 20,858 | $ | 157,654 | ||||
| Depreciation and amortization | 99,824 | 102,398 | ||||||
| Allowance for bad debts | 4,075 | 976 | ||||||
| Loss on disposal of assets | - | 92,238 | ||||||
| (Increase) decrease in: | ||||||||
| Accounts receivable | 41,432 | (53,247 | ) | |||||
| Inventories | (126,884 | ) | (39,141 | ) | ||||
| Prepaid expenses | (7,702 | ) | 7,708 | |||||
| Deposits and other assets | 4,377 | 7,214 | ||||||
| Increase (decrease) in: | ||||||||
| Accounts payable | 92,029 | 100,518 | ||||||
| Accrued liabilities | (60,843 | ) | 67,735 | |||||
| Net cash provided by operating activities | 67,166 | 444,053 | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | (103,037 | ) | (231,790 | ) | ||||
| Net cash (used in) investing activities | (103,037 | ) | (231,790 | ) | ||||
| Financing activities | ||||||||
| Repayments of notes payable and capital leases | (91,476 | ) | (75,388 | ) | ||||
| Net cash (used in) financing activities | (91,476 | ) | (75,388 | ) | ||||
| Net increase (decrease) in cash | (127,347 | ) | 136,875 | |||||
| Cash at beginning of year | 191,618 | 54,743 | ||||||
| Cash at end of year | $ | 64,271 | $ | 191,618 | ||||
| 2011 | 2010 | |||||||
| Cash paid for interest: | $ | 24,204 | $ | 31,784 | ||||
| Cash paid for income taxes: | $ | 800 | $ | 800 | ||||
| Capital Lease additions | $ | 0 | $ | 19,279 | ||||
1. | Summary of Significant Accounting Policies |
Nature of Operations
Thanksgiving Coffee Company, Inc. (the Company)“Company”), was incorporateda California Corporation, engages in California in 1982.sourcing, blending and roasting high quality green coffee beans from small scale farmer co-ops worldwide with an emphasis on sustainability and fair trade certified coffee beans. The Company purchasesoperates from their headquarters on the Mendocino coast in Fort Bragg, California, where they package, market and roasts whole bean coffeesdistribute the quality branded coffee products through retail and sells themwholesale distribution processes in addition to restaurants, grocery storesan internet presence.
Cash and other retail outlets. Products are sold through the Company’s distribution network in Northern California, nationally through common carriers selling direct, or through brokers and distributors. Distributors and retailers do not have the right to return products. Cash Equivalents
The Company also sells coffeeconsiders all highly liquid investments with original maturities of year or less at the time of purchase to be cash equivalents, and related specialty products through mail ordermaintain its cash in bank deposit accounts at high credit quality financial institutions. Effective January 1, 2013, all interest bearing and Internet sales on a nationwide basis. Sales volume fornon-interest bearing transaction accounts are guaranteed by the coffee division was approximately $3,840,000 for the year ended December 31, 2011. Additionally, the Company operates a sandwich and baked goods store in Mendocino, California with sales volume of approximately $452,000 for the year ended December 31, 2011.
Concentration of Credit Risk
For the retailyears ending December 31, 2018, and food service industries throughout the country. Consequently, the Company’s ability to collect the amounts due from customers is affected by economic fluctuations in the retail and food service industries. In fiscal 2011 and 2010,December 31, 2017, one customer in the Company’s specialty coffee segment accounted for 16.3%8% and 18.8%10%, respectively, of the Company’s revenue. The account has purchased from the Company since 1992. The account has serving locations andcustomer is a distributor of the Company’s product. AThe loss of this account or any other large account, or a significant reduction in sales to any of the Company’s principal customers, could have an adverse impact on the Company.
As of December 31, 2018, no single customer accounted for more than 10% of the Company to concentrations of credit risk consist principally of cash and cash equivalents andCompany’s accounts receivable. AtAs of December 31, 2011, the Company had no cash or cash equivalents in excess of amounts insured by agencies2017, one customer accounted for approximately 10% of the U.S. Government.
For the years ending December 31, 2018 and 2017, one vendor accounted for 54%, and 49%, respectively, of the Company’s green bean coffee purchases. See Note 6 to the financial statements. The loss of this vendor could have an adverse impact on the Company.
As of December 31, 2018, vendors A, B and C accounted for 25%, 19% and 9% of Company’s accounts payable. As of December 31, 2017, vendors A and B, accounted for 25% and 11% of the Company’s accounts payable.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
1. | |
Summary of Significant Accounting Policies (continued) |
Accounts Receivable
The Company adopted ASC 350, Accounting for Web Site Development Costs, in 2001. This accounting rule provides guidance regarding capitalization or expense of certain website development costs. Accordingly, website development costs incurredextends credit to customers in the operation phase that will result in future added functionalitynormal course of business and performs ongoing credit evaluations of customers, maintaining allowances for potential credit losses which, when realized, have been within management’s expectations. Invoices are capitalized and expenditures for training, administration and maintenance of an existing website are expensed as incurred.
| 2011 | 2010 | |||||||
| Accounts receivable | $ | 260,745 | $ | 305,621 | ||||
| Less: allowance for doubtful accounts | (3,960 | ) | (8,035 | ) | ||||
| Net accounts receivable | $ | 256,785 | $ | 297,586 | ||||
The bad debt-write-offs for the twelve monthsyears ended December 31, 20112018, 2017 were $1,162, $503 respectively.
Inventory
Inventory is stated at the lower of cost, determined using the first-in, first-out method, or market.
Property and 2010 was $(2,099)Equipment
Property and $1,632 respectively.
Estimated Useful (in years) | ||||||
Automobiles | 5 | |||||
Equipment and fixtures | 5 | - | 7 | |||
Office furniture and equipment | 5 | - | 7 | |||
Leased equipment | 5 | - | 12 | |||
Leasehold improvements | 7 | - | 39 | |||
Revenue Recognition
Sales are recognized when revenue is realized or becomes realizable and has been earned. In general, revenue is recognized when the earnings process is complete, which is upon shipment of products.
| 2011 | 2010 | |||||||
| Coffee | ||||||||
| Unroasted raw | $ | 283,196 | $ | 200,775 | ||||
| Roasted | 48,276 | 43,796 | ||||||
| 798 | 371 | |||||||
| Packaging, supplies and other merchandise held for sale | 140,947 | 101,391 | ||||||
| Total inventories | $ | 473,217 | $ | 346,333 | ||||
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
1. | Summary of Significant Accounting Policies (continued) |
Shipping and Handling Charges
The Company reports shipping and handling fees charged to customers as part of freight, an operating expense. The associated expense is reported in the same account.
Sales Tax
States impose sales tax on certain sales to nonexempt customers. The Company collects that sales tax from customers and remits the entire amount to the state. The Company’s accounting policy is to exclude the tax collected and remitted to the state from revenues and cost of goods sold.
Advertising
Advertising costs are expensed as incurred. The advertising costs incurred for the years ended December 31, 20112018, and 20102017, were $8,579, $15,639, respectively.
Comprehensive Income
The Company has no components of other comprehensive income other than net income, and accordingly, the comprehensive income is equivalent to the net income for the years presented.
Income Taxes
The Company accounts for income taxes under the asset and liability method. As such, deferred income tax assets and liabilities are recognized for the future tax consequences of the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.
Uncertain Tax Positions
The Company accounts for uncertainty in income taxes, by designating a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also considers various related matters such as de-recognition, interest, penalties, and disclosures required.
The Company’s management has determined that no unrecognized tax benefits or liabilities were to be recognized or disclosed in the financial statements. The Company accrues interest and penalties associated with uncertain tax positions as a part of operating expenses. As of December 31, 2018, and December 31, 2017, there were no accrued interest or penalties associated with uncertain tax positions.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
1. | Summary of Significant Accounting Policies (continued) |
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.
Recent Relevant Accounting Guidance Not Yet Effective
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The most significant change for lessees is the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under current lease accounting guidance. The amendments in this Update are effective for interim and annual periods beginning after December 15, 2018 for public business entities and one year later for all other entities. The Company is currently evaluating the effects of ASU 2016-02 on its financial statements and disclosures.
Variable Interest Entities
The Company holds a financial interest in an entity owned by its majority stockholders. The interest consists of the related party leasing arrangement more fully described in Note 6 to these financial statements. This interest is considered to be a Variable Interest Entity (VIE) for accounting purposes. Due to the nature and amount of the Company’s financial obligations with respect to the VIE, the Company is not considered to financially control the VIE, therefore the Company is not required to consolidate the VIE in these financial statements.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
2. | Inventory |
Inventory consists of the following at December 31:
2018 | 2017 | |||||||
Coffee: | ||||||||
Unroasted | $ | 161,355 | $ | 166,865 | ||||
Roasted | 34,420 | 43,689 | ||||||
Tea | 1,723 | 2,249 | ||||||
Packaging, supplies and other merchandise held for sale | 40,210 | 49,305 | ||||||
Total inventory | $ | 237,708 | $ | 262,108 | ||||
3. | Property and Equipment |
Property and equipment consist of the following:following as of December 31,
2018 | 2017 | |||||||
Automobiles | $ | 178,497 | $ | 178,497 | ||||
Equipment and fixtures | 490,430 | 517,526 | ||||||
Office furniture and equipment | 148,693 | 145,089 | ||||||
Leased equipment | 225,864 | 214,796 | ||||||
Leasehold improvements | 366,698 | 358,498 | ||||||
Package design | 41,000 | 41,000 | ||||||
Website | 19,000 | 19,000 | ||||||
| 1,470,182 | 1,474,406 | |||||||
Accumulated depreciation | (1,161,533 | ) | (1,109,787 | ) | ||||
Total property and equipment | $ | 308,649 | $ | 364,619 | ||||
| 2011 | 2010 | |||||||
| Equipment | $ | 443,862 | $ | 373,072 | ||||
| Furniture and fixtures | 82,017 | 66,747 | ||||||
| Leasehold improvements | 391,792 | 395,350 | ||||||
| Transportation equipment | 64,569 | 92,730 | ||||||
| Property held under capital leases | 106,886 | 106,886 | ||||||
| Total property and equipment | 1,089,126 | 1,034,785 | ||||||
| Accumulated depreciation | (686,855 | ) | (631,177 | ) | ||||
| Property and equipment, net | $ | 402,271 | $ | 403,608 | ||||
Depreciation expense for the twelve monthsyears ended December 31, 2011,2018, and 2010December 31, 2017 was $99,825$51,746 and $97,687$117,346, respectively.
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements
5. | Long Term Debt |
Long-term debt consists of the adoption of ASC 350 Goodwill and Other Tangible Assets as of January 1, 2002, the Company no longer amortizes goodwill.
2018 | 2017 | |||||||
Long Term Debt | ||||||||
Savings Bank of Mendocino, payable in monthly installments of $518, interest at 4.24%, collateralized by a security interest of substantially all of the Company’s assets, final payment due on December 28, 2021. | $ | 17,473 | $ | 22,816 | ||||
Hansel Ford, payable in monthly installments of $385, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019. | 1,154 | 5,743 | ||||||
Hansel Ford, payable in monthly installments of $385, including interest at .90%, collateralized by equipment, final payment due on March 14, 2019. | 1,154 | 5,743 | ||||||
Bank of the West, payable in monthly installments of $787.03, including interest at 9.234%, collateralized by equipment, final payment due January 1, 2021. | 17,187 | 33,204 | ||||||
Bank of the West, payable in monthly installments of $1,465, including interest at 9.227%, collateralized by equipment, final payment due January 1, 2020. | 18,058 | 24,665 | ||||||
Pawnee Leasing, payable in monthly installments of $528, including interest at 15.178%, collateralized by equipment, final payment due May 51, 2022. | 16,810 | - | ||||||
Hansel Ford, payable in monthly installments of $806.38, including interest at 1.939%, collateralized by equipment, final payment due on April 10, 2020. | 12,727 | 22,058 | ||||||
| 84,564 | 114,229 | |||||||
Less current portion of long term debt | (48,262 | ) | (46,476 | ) | ||||
Total long term debt | $ | 36,302 | $ | 67,753 | ||||
| 2011 | 2010 | |||||||
| Leasehold value | $ | 67,000 | $ | 67,000 | ||||
| Trademarks | 5,127 | 5,127 | ||||||
| Website | 2,800 | - | ||||||
| Total intangible assets | 74,927 | 72,127 | ||||||
| Accumulated amortization | (72,967 | ) | (70,642 | ) | ||||
| Other intangibles, net of amortization | $ | 1,960 | $ | 1,485 | ||||
Interest expense for the twelve monthsyears ended December 31, 20112018 and 20102017, was $3,279 and $4,711$7,284, $7,061 respectively.
| Notes Payable | 2011 | 2010 | ||||||
| Note payable to Savings Bank of Mendocino, payable in monthly installments of $4,309, interest at 7.25% renewed December 1, 2009, final payment is due on December 1, 2014. The note payable is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee from the Company's majority shareholders. | $ | 135,580 | $ | 175,866 | ||||
| Line of credit to Savings Bank of Mendocino, payable in monthly installments of interest only at 2% over prime rate extended through May, 2012 with a minimum rate of 6.5%(6.5% at December 31, 2011). The note payable for the line of credit is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee from the Company's majority shareholders. The line is for a maximum of $25,000 of which the full amount of $25,000 was unused and available at December 31, 2011. | - | 11,500 | ||||||
| Note payable to majority shareholders, Paul and Joan Katzeff, uncollateralized, payable in monthly installments of interest only at 12%, with balance due on demand after June 30, 1996. | - | 19,919 | ||||||
| Note payable to Chrysler Financing, payable in monthly installments of $329, including interest at 15.49%, collateralized by a vehicle, final payment due on January 24, 2011 | - | 325 | ||||||
| Capital Lease Obligations | ||||||||
| 2011 | 2010 | |||||||
| Note payable to BSB Leasing payable in monthly installments of $390, including interest at 14.30%, collateralized by equipment, final payment due June 2, 2012 | 2,241 | 4,540 | ||||||
| Note payable to Bank of the West payable in monthly installments of $489, including interest at 12.69% collateralized by equipment, final payment due on May1, 2013 | 7,572 | 12,158 | ||||||
| Note payable to BSB Leasing payable in monthly installments of $285, including interest at 15.89%, collateralized by equipment, final payment due on June 2, 2012 | 1,634 | 6,242 | ||||||
| Note payable to Bank of the West payable in monthly installments of $427, including interest at 11.83%, collateralized by equipment, final payment due on April 1, 2015 | 13,776 | 17,058 | ||||||
| Note payable to US BankCorp Manifest Funding Services payable in monthly installments of $621, including interest at 14.32%, collateralized by equipment, final payment due September 8, 2014 | 16,873 | 21,546 | ||||||
| Total notes payable | $ | 177,676 | $ | 269,154 | ||||
| Less current portion | 61,740 | 91,453 | ||||||
| Long term portion of notes payable | $ | 115,936 | $ | 177,701 | ||||
As of December 31, 2011,2018, maturities of notes payable and capital leaselong-term debt obligations for each of the next fivefour years and in the aggregate were as follows:
| Years Ending December 31, | ||||
| 2012 | $ | 61,740 | ||
| 2013 | 53,165 | |||
| 2014 | 50,041 | |||
| 2015 | 12,730 | |||
| $ | 177,676 | |||
Years Ended December 31, | ||||
2019 | $ | 44,166 | ||
2020 | 25,214 | |||
2021 | 12,544 | |||
2022 | 2,640 | |||
| Total of long term debt | $ | 84,564 |
| 2011 | 2010 | 2009 | ||||||||||
| Current tax provision - state | $ | 800 | $ | 800 | $ | 800 | ||||||
| Deferred tax (benefit) liability | ||||||||||||
| Federal | (82,060 | ) | (60,307 | ) | (74,814 | ) | ||||||
| State | (9,778 | ) | (5,252 | ) | (4,020 | ) | ||||||
| Total deferred tax benefit | (91,838 | ) | (65,559 | ) | (78,834 | ) | ||||||
| Less valuation allowance | 91,838 | 65,559 | 78,834 | |||||||||
| Net provision for income taxes | $ | 800 | $ | 800 | $ | 800 | ||||||
| 2011 | 2010 | 2009 | ||||||||||
| Net operating loss and tax carryforwards | $ | 92,646 | $ | 82,098 | $ | 97,302 | ||||||
| Depreciation and amortization | (7,021 | ) | (24,339 | ) | (24,920 | ) | ||||||
| Other temporary differences | 6,213 | 7,800 | 6,452 | |||||||||
| Valuation allowance | (91,838 | ) | (65,559 | ) | (78,834 | ) | ||||||
| Net deferred tax asset | $ | - | $ | - | $ | - | ||||||
| 2011 | 2010 | 2009 | ||||||||||
| Tax (benefit) at federal statutory rate | 15.00 | % | 15.00 | % | 15.00 | % | ||||||
| State tax (benefit) net of federal benefit | 7.50 | % | 7.50 | % | 7.50 | % | ||||||
| Non-taxable differences | 5.20 | % | (18.97 | )% | 2.52 | % | ||||||
| Temporary differences | (18.34 | )% | (0.31 | )% | 12.19 | % | ||||||
| Net operating losses applied | (2.51 | )% | 0.00 | % | (37.21 | )% | ||||||
| Valuation allowance | (5.64 | )% | (2.72 | )% | 1.83 | % | ||||||
| Tax provision - effective rate | 1.21 | % | 0.50 | % | 1.83 | % | ||||||
| Period Ending | Estimated NOL Carryforward Less Temporary Differences | NOL Expires | Benefit From NOL | Valuation Allowance | Change in Valuation Allowance | Net Tax Benefit | ||||||||||||||||||
| December 31, 2011 | ||||||||||||||||||||||||
| Federal | $ | 9,671 | 2017 | $ | 1,451 | $ | (1,451 | ) | $ | (1,451 | ) | - | ||||||||||||
| 128,576 | 2018 | 19,286 | (19,286 | ) | (19,286 | ) | - | |||||||||||||||||
| 96,867 | 2023 | 14,530 | (14,530 | ) | (14,530 | ) | - | |||||||||||||||||
| 49,714 | 2024 | 7,457 | (7,457 | ) | (7,457 | ) | - | |||||||||||||||||
| 118,013 | 2026 | 17,702 | (17,702 | ) | (17,702 | ) | - | |||||||||||||||||
| 63,303 | 2028 | 9,495 | (9,495 | ) | (9,495 | ) | - | |||||||||||||||||
| 48,425 | 2030 | 7,264 | (7,264 | ) | (7,264 | ) | - | |||||||||||||||||
| $ | 514,569 | $ | 77,185 | $ | (77,185 | ) | $ | (77,185 | ) | $ | - | |||||||||||||
| - | ||||||||||||||||||||||||
| State | $ | 4,742 | 2026 | $ | 419 | $ | (419 | ) | $ | (419 | ) | - | ||||||||||||
| 67,858 | 2028 | 5,999 | (5,999 | ) | (5,999 | ) | - | |||||||||||||||||
| 59,114 | 2030 | 5,226 | (5,226 | ) | (5,226 | ) | - | |||||||||||||||||
| $ | 131,714 | $ | 11,644 | $ | (11,644 | ) | $ | (11,644 | ) | $ | - | |||||||||||||
| Years Ending December 31, | ||||
| 2012 | 6,652 | |||
| 2013 | 6,652 | |||
| 2014 | 1,808 | |||
| $ | 15,112 | |||
6. Related Party Transactions |
Long Term Leases
The Company leases its corporate headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Company'sCompany’s majority shareholders). The lease is classified as an operating lease and provides for monthly rental payments of $8,600 through July 2011 and $4,500 August 2011 until new building is completed.$8,600. The Company is responsible for all real estate taxes, insurance and maintenance costs related to the facilities. The ten-year lease term ends May 31, 2015.
2025.
As of December 31, 2011,2018, minimum future rental payments under non-cancelable facilities operating leases for each of the next five years and in the aggregate are as follows:
Years Ended December 31, | ||||
2019 | $ | 103,200 | ||
2020 | 103,200 | |||
2021 | 103,200 | |||
2022 | 103,200 | |||
2023 | 103,200 | |||
2024 and thereafter | 146,200 | |||
| Total of long term lease | $ | 662,200 |
| Years Ending December 31, | ||||
| 2012 | $ | 62,966 | ||
| 2013 | 54,000 | |||
| 2014 | 54,000 | |||
| 2015 | 27,000 | |||
| $ | 197,966 | |||
The Company also leases properties from its majority shareholders.
| 2011 | 2010 | |||||||
| Interest expense | $ | 1,754 | $ | 2,902 | ||||
| Rent expense | $ | 82,700 | $ | 103,200 | ||||
| Principal | $ | 19,919 | $ | 11,100 | ||||
Thanksgiving Coffee Company, (See Note 7).
Inc.
Notes to Financial Statements
6. | Related Party Transactions (continued) |
Contracts
The Company has purchased several containers of coffee costing $332,238negotiates green bean purchase contracts from three cooperatives and a farmer in Nicaragua. Ethical Trading and Investment Company of Nicaragua (Etico) acted as(“ETICO”) is the importer and financedfor the transaction. NicolasNicholas Hoskyns, a directorDirector of the Company, is the managing director of Etico.at ETICO. At December 31, 2011,2017, amounts owed to ETICO totaled $56,427. All amounts owed were current and were paid in accordance with our standard vendor payment policies. At December 31, 2018 there was $53,327 payable to ETICO for coffee purchases. The loss of the balance due Etico was $147,271, which included one past due invoiceETICO relationship could have an adverse effect on the Company’s business in the amount of $52,071.
7. | Income Taxes |
The provision for income taxes consist of the Notes tofollowing for the financial statements,year ended December 31:
2018 | 2017 | |||||||
Current state provision (credit) | $ | 800 | $ | 800 | ||||
Deferred provision (credit) | ||||||||
Federal | - | - | ||||||
State | - | - | ||||||
Total deferred provision (credit) | - | - | ||||||
Total provision (credit) | $ | 800 | $ | 800 | ||||
Deferred tax assets and liabilities consist of the Company operates in two different business segments: the specialty coffee business and the retail bakery business. The specialty coffee business, although primarily based in California, sells to grocery stores, serving locations and other retail outlets throughout the United States and some limited international business. The bakery sells exclusively on the north coastfollowing as of California in citiesDecember 31:
2018 | 2017 | |||||||
Net Operating Losses | $ | 107,209 | $ | 103,725 | ||||
Depreciation | (2,878 | ) | (11,055 | ) | ||||
Other | 16,937 | 19,076 | ||||||
Subtotal | 121,268 | 111,746 | ||||||
Valuation Allowance | (121,268 | ) | (111,746 | ) | ||||
Net deferred tax asset (liability) | $ | - | $ | - | ||||
| 2011 | 2010 | |||||||
| Net Sales | ||||||||
| Specialty Coffee | $ | 3,869,157 | $ | 3,682,218 | ||||
| Bakery | 452,253 | 513,861 | ||||||
| Total | $ | 4,321,409 | $ | 4,196,079 | ||||
| Intersegment Sales | ||||||||
| Specialty Coffee | $ | 29,256 | $ | 42,670 | ||||
| Total Sales | $ | 4,292,153 | $ | 4,153,409 | ||||
| Operating Loss | ||||||||
| Specialty Coffee | $ | (103,306 | ) | $ | (18,717 | ) | ||
| Bakery | (115,987 | ) | (86,039 | ) | ||||
| Total | $ | (219,293 | ) | $ | (104,756 | ) | ||
| Depreciation and | ||||||||
| Amortization | ||||||||
| Specialty Coffee | $ | 53,656 | $ | 65,392 | ||||
| Bakery | 14,506 | 23,246 | ||||||
| Total | $ | 68,162 | $ | 88,638 | ||||
| Interest Expense | ||||||||
| Specialty Coffee | $ | 22,991 | $ | 29,595 | ||||
| Bakery | 1,213 | 2,189 | ||||||
| Total | $ | 24,204 | $ | 31,784 | ||||
Thanksgiving Coffee Company, Inc.
Notes to Financial Statements (continued)
7. | Income Taxes (continued) |
A reconciliation of the Company’s actual effective tax rate to the federal statutory tax rate of 21% is as follows for the years ended December 31, 20112018, and 2010
2018 | 2017 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
Pre tax income (loss) | $ | (34,437 | ) | $ | (78,037 | ) | ||||||||||
Federal tax (credit) net | (6,787 | ) | -19.15 | % | (12,785 | ) | -16 | % | ||||||||
State tax (credit) | (3,118 | ) | -8.79 | % | (6,898 | ) | -8.9 | % | ||||||||
Valuation allowance | 10,705 | 30.20 | % | 20,483 | 25.2 | % | ||||||||||
| $ | 800 | 0.4 | % | $ | 800 | .4 | % | |||||||||
| Miscellaneous Income | ||||||||
| Specialty Coffee | $ | 265,303 | $ | 295,179 | ||||
| Bakery | (148 | ) | (184 | ) | ||||
| Total | $ | 265,155 | $ | 294,994 | ||||
| Total Assets | ||||||||
| Specialty Coffee | $ | 1,164,042 | $ | 1,188,298 | ||||
| Bakery | 62,641 | 77,818 | ||||||
| Total | $ | 1,226,683 | $ | 1,266,116 | ||||
| Assets - Property and Equipment | ||||||||
| Specialty Coffee | $ | 364,365 | $ | 352,357 | ||||
| Bakery | 37,906 | 51,251 | ||||||
| Total | $ | 402,271 | $ | 403,608 | ||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company experienced a major fire at its planttemporary differences that give rise to the deferred tax assets and office facility on July 5, 2010. liabilities include depreciation, allowances for bad debt, expense accruals, state income tax deductions and net operating losses.
The preliminary findingfederal income tax returns of the authorities was thatfor Company for 2017, 2016 and 2015 are subject to examination by the fire was arson. The investigationInternal Revenue Service, generally for three years after they were filed. California income tax returns for 2017, 2016, 2015 and 2014 are subject to examination by the Franchise Tax Board, generally for four years after they were filed.
As of the cause is ongoing. The offices, packaging, tasting room and shipping facility were destroyed. The roasting and warehouse facility, where the Company stored most of its green beans, were not damaged.
8. | Subsequent Events |
The Company has evaluated all subsequent events through March 26, 2019, the date which the financial statements were available to be issued. The Company has entered into an agreement with an unrelated party forissued and did not note any events that must be disclosed to keep the sale of the Bakery in Mendocino. The sale price is $75,000, plus the cost of the food and supply inventory at the close of the sale, which inventory is estimated to be $10,000. The $75,000 sale price will be financed over five years with annual payments as follows:
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