{"url_path":"/sec/jva/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-01-28","source_url":"https://www.sec.gov/Archives/edgar/data/1007019/0001493152-26-004052-index.html","accession_number":"0001493152-26-004052","cik":"0001007019","ticker":"JVA","issuer_name":"COFFEE HOLDING CO INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/1007019/0001493152-26-004052-index.html","primary_entity_key":"0001007019","primary_entity_name":"COFFEE HOLDING CO INC"},"word_count":2788,"has_tables":true,"body_markdown":"**ITEM\n7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**\n\n \n\n**Cautionary\nNote on Forward-Looking Statements**\n\n \n\nSome\nof the matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,”\n“Business,” “Risk Factors” and elsewhere in this Annual Report include forward-looking statements made pursuant\nto the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements\nupon information available to management as of the date of this Annual Report and management’s expectations and projections about\nfuture events, including, among other things:\n\n \n\n●our\ndependency on a single commodity could affect our revenues and profitability;\n\n●our\nsuccess in expanding our market presence in new geographic regions;\n\n●the\neffectiveness of our hedging policy may impact our profitability;\n\n●the\nsuccess of our joint ventures;\n\n●our\nsuccess in implementing our business strategy or introducing new products;\n\n●our\nability to attract and retain customers;\n\n●our\nability to obtain additional financing;\n\n●our\nability to comply with the restrictive covenants we are subject to under our current financing;\n\n●the\neffects of competition from other coffee manufacturers and other beverage alternatives;\n\n●the\nimpact to the operations of our Colorado facility;\n\n●general\neconomic conditions and conditions which affect the market for coffee;\n\n●the\nmacro global economic environment;\n\n●our\nability to maintain and develop our brand recognition;\n\n●the\nimpact of rapid or persistent fluctuations in the price of coffee beans;\n\n●fluctuations\nin the supply of coffee beans;\n\n●the\nvolatility of our common stock; and\n\n●other\nrisks which we identify in future filings with the Securities and Exchange Commission (the\n“SEC”).\n\n \n\nIn\nsome cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,”\n“predict,” “potential,” “continue,” “expect,” “anticipate,” “future,”\n“intend,” “plan,” “believe,” “estimate” and similar expressions (or the negative of such\nexpressions). Any or all of our forward looking statements in this annual report and in any other public statements we make may turn\nout to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently,\nno forward-looking statement can be guaranteed. In addition, we undertake no responsibility to update any forward-looking statement to\nreflect events or circumstances, that occur after the date of this annual report.\n\n \n\n20\n\n \n\n \n\n**Overview**\n\n \n\nWe\nare an integrated wholesale coffee roaster and dealer in the United States and one of the few coffee companies that offers a broad array\nof coffee products across the entire spectrum of consumer tastes, preferences and price points. As a result, we believe that we are well-positioned\nto increase our profitability and endure potential coffee price volatility throughout varying cycles of the coffee market and economic\nconditions.\n\n \n\nOur\noperations have primarily focused on the following areas of the coffee industry:\n\n \n\n●the\nsale of wholesale specialty green coffee;\n\n●the\nroasting, blending, packaging and sale of private label coffee; and\n\n●the\nroasting, blending, packaging and sale of our eight brands of coffee; and sales of our tabletop\ncoffee roasting equipment.\n\n \n\nOur\noperating results are affected by a number of factors including:\n\n \n\n●the\nlevel of marketing and pricing competition from existing or new competitors in the coffee\nindustry;\n\n●our\nability to retain existing customers and attract new customers;\n\n●our\nhedging policy;\n\n●fluctuations\nin purchase prices and supply of green coffee and in the selling prices of our products;\nand\n\n●our\nability to manage inventory and fulfillment operations and maintain gross margins.\n\n \n\nOur\nnet sales are driven primarily by the success of our sales and marketing efforts and our ability to retain existing customers and attract\nnew customers. For this reason, we have made, and will continue to evaluate, strategic decisions to invest in measures that are expected\nto increase net sales. These transactions include our acquisition of Premier Roasters, LLC, including equipment and a roasting facility\nin La Junta, Colorado, the addition of a west coast sales manager to increase sales of our private label and branded coffees to new customers\nand the transaction with OPTCO. On June 29, 2016, we purchased substantially all the assets, including equipment, inventory, customer\nlists and relationships of Coffee Kinetics, LLC., a Washington limited liability company. On February 24, 2017, we acquired 100% of the\ncapital stock of Comfort Foods, Inc. (“CFI”), a Massachusetts based medium sized coffee roaster, manufacturing both branded\nand private label coffee for retail and foodservice customers. On November 11, 2024, we acquired substantially all of the assets of Empire\nCoffee, a NY based long-running private-label roaster.\n\n \n\nOur\nnet sales are affected by the price of green coffee. We purchase our green coffee from dealers located primarily within the United States.\nThe dealers supply us with coffee beans from many countries, including Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. The supply\nand price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. For example,\nin Brazil, which produces approximately 40% of the world’s green coffee, the coffee crops are historically susceptible to frost\nin June and July and drought in September, October and November. However, because we purchase coffee from a number of countries and are\nable to freely substitute one country’s coffee for another in our products, price fluctuations in one country generally have not\nhad a material impact on the price we pay for coffee. Accordingly, price fluctuations in one country generally have not had a material\neffect on our results of operations, liquidity and capital resources. Historically, because we generally have been able to pass green\ncoffee price increases through to customers, increased prices of green coffee generally result in increased net sales, irrespective of\nsales volume. \n\n \n\n21\n\n \n\n \n\nThe\nsupply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond our control. Historically,\nwe have used, and intend to continue to use in a limited capacity, short-term coffee futures and options contracts primarily for the\npurpose of partially hedging the effects of changing green coffee prices, as further explained in Note 2 of the Notes to the Consolidated\nFinancial Statements in this Annual Report. In addition, we acquired, and expect to continue to acquire, futures contracts with longer\nterms, generally three to four months, primarily for the purpose of guaranteeing an adequate supply of green coffee. Realized and unrealized\ngains or losses on options and futures contracts are reflected in our cost of sales. Gains on options and futures contracts reduce our\ncost of sales and losses on options and futures contracts increase our cost of sales. The use of these derivative financial instruments\nhas generally enabled us to mitigate the effect of changing prices. We believe that, in normal economic times, our hedging policies remain\na vital element to our business model not only in controlling our cost of sales, but also giving us the flexibility to obtain the inventory\nnecessary to continue to grow our sales while trying to minimize margin compression during a time of historically high coffee prices.\nHowever, no strategy can entirely eliminate pricing risks and we generally remain exposed to losses on futures contracts when prices\ndecline significantly in a short period of time, and we would generally remain exposed to supply risk in the event of non-performance\nby the counterparties to any of our futures contracts. Although we have had net gains on options and futures contracts in the past, we\nhave incurred significant losses on options and futures contracts during some recent reporting periods. In these cases, our cost of sales\nhas increased, resulting in a decrease in our profitability or increase our losses. Such losses have and could in the future materially\nincrease our cost of sales and materially decrease our profitability and adversely affect our stock price. See “Item 1A –\nRisk Factors - If our hedging policy is not effective, we may not be able to control our coffee costs, we may be forced to pay greater\nthan market value for green coffee and our profitability may be reduced.” Failure to properly design and implement an effective\nhedging strategy may materially adversely affect our business and operating results. If the hedges that we enter do not adequately offset\nthe risks of coffee bean price volatility or our hedges result in losses, our cost of sales may increase, resulting in a decrease in\nprofitability or increased losses. As previously announced, as a result of the volatile nature of the commodities markets, we have and\nare continuing to scale back our use of hedging and short-term trading of coffee futures and options contracts, and intend to continue\nto use these practices in a limited capacity going forward.\n\n \n\n**Critical\nAccounting Policies and Estimates**\n\n \n\nWe\nprepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).\nOur significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to our consolidated financial\nstatements attached hereto. We believe the following critical accounting policies involve the most significant judgements and estimates\nused in the preparation of our consolidated financial statements.\n\n \n\nRevenue\nis recognized when control of goods transfers to the customer at an amount that reflects the consideration the Company expects to receive.\nApplying ASC 606 requires judgment in identifying performance obligations, determining the transaction price, and estimating variable\nconsideration such as rebates, discounts, and returns. These estimates are based on historical experience, current contractual terms,\nand expectations of future outcomes, and changes in these assumptions could impact the timing and amount of revenue recognized.\n\n \n\n**RESULTS\nOF OPERATIONS**\n\n \n\n**Year\nEnded October 31, 2025 (Fiscal Year 2025) Compared to the Year Ended October 31, 2024 (Fiscal Year 2024)**\n\n \n\n**Net\nSales.** Net sales totaled $96,283,547 for the fiscal year ended October 31, 2025, an increase of $17,721,249, or 23%, from $78,562,298\nfor the fiscal year ended October 31, 2024. The increase in net sales was due to an increase of sales to our legacy customers along with\nincremental sales to several significant new customers during the second half of the year.\n\n \n\n**Cost\nof Sales.** Cost of sales for the fiscal year ended October 31, 2025 was 80,868,881, or 84% of net sales, as compared to $62,520,529,\nor 80% of net sales, for the fiscal year ended October 31, 2024. Cost of sales consists primarily of the cost of green coffee and packaging\nmaterials and realized and unrealized gains or losses on hedging activity. For the fiscal year ended October 31, 2025, the net result\nof our hedging activities resulted in a gain of approximately $1.8 million, and for the fiscal year ended October 31, 2024, the net result\nof our hedging activities resulted in a gain of approximately $1.6 million. The increase in cost of sales was due to higher sales volume,\nincreased salaries, higher packaging material costs, and the impact of tariffs, partially offset by the hedging activities discussed\nabove.\n\n \n\n22\n\n \n\n \n\n**Gross\nProfit.** Gross profit for the fiscal year ended October 31, 2025 was $15,414,666, a decrease of $627,103 from $16,041,769\nfor the fiscal year ended October 31, 2024. Gross profit as a percentage of net sales decreased to 16% for the fiscal year ended\nOctober 31, 2025, from 20% for the fiscal year ended October 31, 2024. The decrease in gross profit percentage was\nattributable to tariff costs in the current year.\n\n \n\n**Operating\nExpenses.** Total operating expenses increased by $184,095 to $13,262,306 for the fiscal year ended October 31, 2025, from $13,078,211\nfor the fiscal year ended October 31, 2024. Selling and administrative expenses decreased from $12,457,268 for the year ended October\n31, 2024, to $12,418,640 for the fiscal year ended October 31, 2025. Overall operating expenses remained consistent year over year.\n\n \n\n**Other\nIncome (Expense).** Other income (expense) for the fiscal year ended October 31, 2025 was $(231,232), a decrease of $335,573 from\nother income of $104,341 for the fiscal year ended October 31, 2024. The decrease in other income of $335,573 was attributable to the\ngain recognized on the extinguishment of the lease in the prior year.\n\n \n\n**Income\nBefore Provision For Income Taxes.** We had an income of $1,921,128 before income taxes for the fiscal year ended October 31, 2025\ncompared to income of $3,067,899 for the fiscal year ended October 31, 2024, resulting in a net change of $1,146,771 for the year ended\nOctober 31, 2025. The decrease was primarily attributable to increased costs associated with tariffs on imported goods, which negatively\nimpacted margins during the fiscal year ended October 31, 2025, as well as operating losses incurred by Second Empire following its acquisition\nin November 2024.\n\n \n\n**Income\nTaxes.** Our expense for income taxes for the fiscal year ended October 31, 2025 totaled $517,689, compared to an expense of $849,885\nfor the fiscal year ended October 31, 2024. The change was attributable to the difference in the income for the fiscal year ended October\n31, 2025 versus the fiscal year ended October 31, 2024.\n\n \n\n**Net\nIncome.** We had net income of $1,403,439, or $0.25 of per share basic and diluted, for the fiscal year ended October 31, 2025\ncompared to net income of $2,218,014, or $0.39 per share basic and diluted, for the fiscal year ended October 31, 2024. The change\nin net income was due to our results of operations as described above.\n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nAs\nof October 31, 2025, we had working capital of $22,633,292, which represented a $1,106,309 increase from our working capital of $21,526,983\nas of October 31, 2024. Our working capital increase was primarily due to the increase in inventories and accounts receivable.\n\n \n\nOn\nApril 25, 2017, we and OPTCO (together with us, collectively referred to herein as the “Borrowers”) entered into an Amended\nand Restated Loan and Security Agreement (the “A&R Loan Agreement”) and Amended and Restated Loan Facility (the “A&R\nLoan Facility”) with Sterling National Bank (“Sterling”), which was later acquired by Webster Financial Corp. (“Webster”),\nwhich consolidated (i) the financing agreement between us and Sterling, dated February 17, 2009, as modified, (the “Company Financing\nAgreement”) and (ii) the financing agreement between us, as guarantor, OPTCO and Sterling, dated March 10, 2015 (the “OPTCO\nFinancing Agreement”), amongst other things.\n\n \n\nOn\nMarch 17, 2022, we reached an agreement for a new loan modification agreement and credit facility which extended the maturity date to\nJune 29, 2022. All other terms of the A&R Loan Agreement and A&R Loan Facility remained the same.\n\n \n\n23\n\n \n\n \n\nOn\nJune 28, 2022, we reached an agreement for a new loan modification agreement and credit facility with Webster. The terms of the new agreement,\namong other things: (i) provided for a new maturity date of June 30, 2024, and (ii) changed the interest rate per annum to SOFR plus\n1.75% (with such interest rate not to be lower than 3.50%). All other terms of the A&R Loan Agreement and A&R Loan Facility remained\nthe same.\n\n \n\nOn\nJune 27, 2024, we reached an agreement for a new loan modification agreement with Webster which (i) provided for a new loan maturity\ndate of June 29, 2025, (ii) provided that the applicable margin requirement for any revolving loan outstanding under the A&R Loan\nAgreement to 2.25%, (iii) provided that the maximum facility amount shall be $10,000,000 and (iv) to adjusted certain definitions and\nterms related to the borrowing base and leverage ratios applicable to the A&R Loan Agreement.\n\n \n\nOn\nApril 17, 2025, the Borrowers entered into the Eleventh Loan Modification Agreement with Webster which (i) amended the A&R Loan Agreement\nto provide for a new loan maturity date of June 28, 2026 and (ii) provided limited consent for the Company to declare dividends to shareholders\nfor its fiscal year ending October 31, 2025.\n\n \n\nFor\nthe fiscal year ended October 31, 2025, our operating activities used net cash of $5,018,989 as compared to the fiscal year ended October\n31, 2024 when operating activities provided net cash of $5,431,211. The decrease primarily relates to increases to inventory and accounts\nreceivable.\n\n \n\nFor\nthe fiscal year ended October 31, 2025, our investing activities used net cash of $1,710,162 as compared to the fiscal year ended October\n31, 2024 when net cash provided by investing activities was $2,843,069. The change is primarily attributable to capital expenditures\nrelated to leasehold improvements at the Second Empire location, as well as equipment purchases and the acquisition of Second Empire.\n\n \n\nFor\nthe fiscal year ended October 31, 2025 our financing activities had net cash used of $6,050,000 compared to net cash used in financing\nactivities of $9,627,234 for the fiscal year ended October 31, 2024. The year-over-year change in cash flows from financing activities\nwas primarily attributable to activity on the Company’s line of credit.\n\n \n\nWe\nexpect to fund our operations, including paying our liabilities, funding capital expenditures and making required payments on our indebtedness,\nthrough October 31, 2026 with cash provided by operating activities and the use of our credit facility."}