---

---

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2018

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From _______ To _______

 

Commission File Number: 33-96070-LA

 

THANKSGIVING COFFEE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

California		94-2823626
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
19100 South Harbor Drive, Fort Bragg, California		95437
(Address of principal executive offices)		(Zip Code)

 

(707) 964-0118

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

There currently does not exist a public trading market for the registrant’s common stock. Over the years, there have been isolated and sporadic privately negotiated transactions in the Company’s shares.  See “Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”  The Company is not aware of any privately negotiated transactions of the Company’s stock since 2008. The Company is unable to determine the current market value of the common equity held by non-affiliates as no reliable secondary trading price exists.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

 

On June 30, 2018 the registrant had 1,236,744 shares of Class A common stock, no par value per share, and 0 shares of Class B common stock, par value _______ per share, outstanding.

 

Class		Outstanding at June  30, 2018
Common Equity, no par value		1,236,744 shares

 

---

---

 

 

FORM 10-Q

 

TABLE OF CONTENTS

 

	PART I – FINANCIAL INFORMATION			3
Item 1.	Financial Statements			3
	Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017.			4
	Statements of Operations for the six months ended June 30, 2018 and June 30, 2017 (unaudited)			6
	Statements of Cash Flows for the six months ended June 30, 2018 and June 30, 2017 (unaudited)			7
	Notes to Financial Statements			8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			16
Item 4.	Controls and Procedures			16
	PART II – OTHER INFORMATION			16
Item 1.	Legal Proceedings			16
Item 1A.	Risk Factors			16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			16
Item 3.	Defaults Upon Senior Securities			17
Item 4.	Submission of Matters to a Vote of Security Holders			17
Item 5.	Other Information			17
Item 6.	Exhibits			17
Signatures				18

 

 

PART 1. Financial Information

 

 

Item 1. Financial Statements

 

 

The financial statements included herein have been prepared by Thanksgiving Coffee Company, Inc. (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations. In the opinion of management of the Company, the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2018 and December 31, 2017, and its results of operations for the three and six month periods ended June 30, 2018 and June 30, 2017 and its cash flows for the six month periods ended June 30, 2018 and June 30, 2017. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Company’s annual report on Form 10-K.

 

 

Thanksgiving Coffee Company, Inc.

Balance Sheets

 

 

See accompanying notes to financial statements

 

 

Thanksgiving Coffee Company, Inc.

Balance Sheets

 

 

See accompanying notes to financial statements

 

 

Thanksgiving Coffee Company, Inc.

Statements of Operations

Unaudited

 

 

See accompanying notes to financial statements

 

 

Thanksgiving Coffee Company, Inc.

Statements of Cash Flows

Thanksgiving Coffee

Statements of Cash Flows

Unaudited

 

 

 

Cash paid for income taxes was $800 for the six months ending June 30, 2018.

 

See accompanying notes to financial statements

 

 

Cash paid for income taxes was $800 for the six months ending June 30, 2018.

 

 

 

  

 

 

 

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD LOOKING STATEMENTS

 

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. In some cases, forward-looking statements may be identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements relate to, among other things, possible expansions into new and existing markets and trends in the operations of Thanksgiving Coffee Company, Inc. (“the Company”). Any forward-looking statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. These various risks and uncertainties include, but are not limited to: 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 beans, continuing competition within the Company’s business, variances from budgeted sales mix and growth rate, consumer acceptance of the Company’s products, inability to secure adequate capital to fund its operating expenses 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 the Company’s sales goals, natural disasters, civil unrest in countries which produce coffee and tea, weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this Quarterly Report on Form 10-Q. The Company’s forward-looking statements should also be considered in light of its reviewed financial statements, related notes and the other financial information appearing elsewhere in this report and in its other filings with the Securities and Exchange Commission. As a result of these risks and uncertainties, the Company’s actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company assumes no obligation to update any forward-looking statements.

 

SUMMARY

 

Sales of the Company have eroded over the last five years due to declines in the direct distribution sales method of the Company’s business (i.e., delivery by company truck). Increased competition, customer attrition and customers roasting green beans for their own use have all had a negative impact on the Company’s sales. The Company continues to try a number of strategies that may or may not prove effective in abating these declines. The Company has changed its method of distribution to rely less on direct distribution (with only three routes) and instead uses independent distributors or ships direct (via UPS or other common carrier). In addition, the Company is trying to focus increasing our on-line sales with a continued focus on our presence in social media, growing our email list and linking our search optimization. The effects of these changes on the Company’s sales will reduce our distribution expenses. Because of the limited impact of these changes, as well as the increase in cost of sales and other factors noted herein, there can be no assurances that the Company will be profitable in any future period, and, as a consequence, the Company is considering various strategic alternatives.

 

The Company pays substantially more than our competitors, because of quality, the organic nature of many of the varietals we carry and the fact that we use fair-traded coffees as well. Green bean costs have remained stable but any rise will place pressure on margins. If green bean costs continue as is or rise, whether as a consequence of inclement weather in a major producing area or any other event that affects green bean pricing, and if the Company cannot offset costs by raising prices, it would have a negative impact on the Company and its margins.

 

 

Results of Operations

 

Six months ended June 30, 2018 versus June 30, 2017

                

			Interest (Decrease)				Percent Change
Net Sales		$	(154,307	)			(8.7	%)
Cost of Sales			(82,482	)			(8.1	%)
Gross Margin %			(71,825	)			(9.6	%)
Selling, G&A Expense			(22,855	)			(3.2	%)
Depreciation and Amortization			2,810				6.3	%
Other			27,413				89.1	%
Net Loss			(24,367	)			(70	%)

 

Net sales for the six months ended June 30, 2018 were $1,613,791, down 8.7%, or under $154,307 when compared with net sales of $1,768,098 for the same period in fiscal 2017

 

Distribution revenues (e.g., revenues generated by the Company’s own truck distribution) were down $20,844 or (3.18%) for the six months ended June 30, 2018, when compared with distribution sales for the same period in 2017. The decline appears to be a result of slower volume for existing customers.

 

National revenues (e.g., revenues not derived by mail order and direct truck distribution) were down $66,375 or (18.42%) for the six months ended June 30, 2018 when compared to national sales for the same period in 2017. In 2017 we provided our services to fulfill two unusual orders for one of our customers.

 

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) decreased $637, or .29% for the six months ended June 30, 2018 when compared to mail order sales for the same period in 2017.

 

Cost of sales for the six months ended June 30, 2018 were $937,507, down 8.1%, or down $82,482 when compared with the cost of sales of $1,019,994 for the same period in 2017. The decrease reflects the decrease in the overall sales in the six months of 2018.

 

Gross margin percentage (gross profit as a percentage of net sales) for the six months ended June 30, 2018 was 41.9% percentage points when compared with the gross margin of 42.3% for the same period in 2017.

 

Consolidated selling, general and administrative expenses were $683,864 for the six months ended June 30, 2018, a decrease of 3.2% when compared with the selling, general and administrative expenses of $706,719 for the same period in 2017. The decrease was a result of renegotiating our general insurance.

 

Depreciation and amortization expenses for the six months ended June 30, 2018 were $47,268, a 6.3% increase, or nearly $2,810 when compared to depreciation expense of $44,458 for the same period in 2017. The increase reflects the addition of new equipment.

  

As a result of the foregoing factors, the Company had a net loss of $58,990 for the six months ended June 30, 2018, a 70.38% increase, compared to a loss of $34,623 for the same period in 2017.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

 

As of June 30, 2018, the Company had working capital of $344,770 versus working capital of $384,440 as of December 31, 2017. The decrease in working capital is due primarily to the decrease in cash, accounts receivable, inventory and prepaid expenses.

 

Net cash used in operating activities was $7,651 for the six months ended June 30, 2018 compared to net cash provided by activities of $14,288 during the same period in 2017. The decrease in net cash provided by operating activities in the first six months of 2018 was the result of decreases in inventory in the amount of $61,136 and a decrease in accounts payable in the amount of 43,429 and a decrease in accounts receivables of $12,344.

 

Cash used in investing activities was ($20,808) for the six months ended June 30, 2018 compared to ($12,941) used in the same period in 2017.

Net cash used in financing activities for the six months ended June 30, 2018 was ($4,298) compared to net cash used in financing activities of ($22,143) during the same period in 2017. The cash used by financing activities was a result of paying existing debt.

 

At June 30, 2018, the Company had total borrowings of $109,931.

 

For long-term debt, see Note 7 of the Notes to Financial Statements. For operating leases, see Note 9 of the Notes to Financial Statements. For real estate leases, see Note 10 and Note 11 of the Notes to Financial Statements.

 

		Payments Due By Period
Contractual Obligations		Total				Less than One year				1-3 years				4-5 years				After 5 years
Debt		$	109,931			$	48,789			$	52,590			$	8,553			$	-
Operating Leases			24,751				7,832				14,940				1,979				-
Real Estate Leases			696,600				103,200				206,400				206,400				180,600
Total Cash Obligations		$	831,282			$	159,821			$	273,930			$	216,931			$	180,600

 

The Company is dependent on successfully executing its business plan to achieve profitable operations, obtaining additional sources of borrowings (including normal trade credit) and securing favorable financing arrangements (including lease financing) to finance its working capital needs. There can be no assurance that the Company will be successful in this regard. If the Company is not able to meet its credit obligations the stability of the Company’s business would be in question.

 

 

RELATED PARTY TRANSACTIONS

 

From time to time, the Company enters into various transactions with its majority shareholders, Paul and Joan Katzeff. See note “11 — Related Party Transactions” in the Notes to the Financial Statements.

 

 

SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE

 

The Company’s business is seasonal in nature. The seasonal availability of green bean coffee in the first two quarters of the year and increased sales in the last quarter historically create a high use of cash and a build up in inventories in the first two quarters, with a corresponding decrease in inventory and increase in cash in the last quarter. In 2017 the Company has been keeping a tighter control on its inventory supply, resulting in fewer inventory supplies on hand. In the first quarter of 2018, similar controls continue.

Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past seasonal patterns are not necessarily indicative of future results.

 

 

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, 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 preceding that might result in a claim for such indemnification.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company’s stock is generally illiquid and there have been few trades in recent years. There have been three trades in the Company’s Common Stock since 1999. In June 2004, 750 shares were traded at $4.50 per share. In December 2005, 400 shares were traded at $2.00 per share.

 

ITEM 4. CONTROLS AND PROCEDURES

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and President, of the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2018. Based on that evaluation, the Company’s management, including the Chief Executive Officer, and the President concluded that the Company’s disclosure controls and procedures were effective. There have been no changes in the Company’s Disclosure controls over financial reporting during the six months of 2018 that have materially affected or are reasonably likely to affect the Company’s internal controls over financial reporting.

 

 

 

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

 

-None-

 

ITEM 1A. RISK Factors

 

The Company has concerns regarding the current economic situation. The United States and the global economy is experiencing severe instability in the commercial and investment banking systems which are likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and the Company’s operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.

 

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 we have obtained all material licenses that are required for the operation of our business. We are not aware of any environmental regulations that have or that we believe will have a material adverse effect on our operations.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

 

 

- None –

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

 

 

- None –

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 

 

 

- None -

 

ITEM 5. OTHER INFORMATION

 

 

 Verification of shareholders

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 

 

Financial Statement Schedules

 

Not Applicable

 

Exhibits

 

Exhibits

 

3.1	Restated Articles of Incorporation of the Company.****
3.2	Bylaws of the Company and amendments.****
10.4	Sample Coffee Purchase Agreement.*
10.10	License Agreement between the Company and the American Birding Association, Inc. and amendment.**
10.13	Lease agreement for the Company’s headquarters and manufacturing and storage facility dated November 1, 2005 and amendment.**
14.1	Code of Ethics***
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*
31.2	Certification of President Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document.*
101.SCH	XBRL Taxonomy Extension Schema Document.*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.*

 

*	Filed herewith.

**	Incorporated by reference to the exhibits to the Company’s Form 10-K for the year ended December 31, 2017.

***	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-Q for the quarter ended March 31, 2018.

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, The Registrant has duly caused this Quarterly Report to be signed on it’s behalf by the undersigned, thereunto duly authorized.

 

THANKSGIVING COFFEE COMPANY, INC.

 

Name	Title	Date
/s/ Paul Katzeff	Chief Executive Officer	August 13, 2018
Paul Katzeff
/s/ Joan Katzeff	President	August 13, 2018
Joan Katzeff

 

 

18