Cautionary Note on Forward-Looking Statements
Some of the matters discussed under the caption «Management’s Discussion and
Analysis of Financial Condition and Results of Operation,» «Business,» «Risk
Factors» and elsewhere in this annual report include forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. We have based these forward-looking statements upon
information available to management as of the date of this Form 10-Q and
management’s expectations and projections about future events, including, among
other things:
? our dependency on a single commodity could affect our revenues and
profitability;
? our success in expanding our market presence in new geographic regions;
? the effectiveness of our hedging policy may impact our profitability;
? the success of our joint ventures;
? our success in implementing our business strategy or introducing new products;
? our ability to attract and retain customers;
? our ability to obtain additional financing;
? our ability to comply with the restrictive covenants we are subject to under
our current financing;
? the effects of competition from other coffee manufacturers and other beverage
alternatives;
? the impact to the operations of our Colorado facility;
? normal economic conditions and conditions which affect the market for coffee;
? the potential adverse impact of the COVID-19 pandemic on our operations and
results, including as a result of the loss of adequate actividad, any prolonged
closures, or series of temporary closures, of our supply chain, or changes in
consumer behaviors, when stay-at-home restriction orders are lifted and/or as
a result of the COVID-19 pandemic's impact on financial markets and economic
conditions;
? our expectations regarding, and the stability of, our supply chain, including
potential shortages or interruptions in the supply or delivery of green
coffee, as a result of COVID-19 or otherwise;
? the macro universal economic environment;
? our ability to maintain and develop our brand recognition;
? the impact of rapid or persistent fluctuations in the price of coffee beans;
? fluctuations in the supply of coffee beans;
? the volatility of our common stock; and
? other risks which we identify in future filings with the Securities and
Exchange Commission (the "SEC").
In some cases, you can identify forward-looking statements by terminology such
as «may,» «should,» «could,» «predict,» «potential,» «continue,» «expect,»
«anticipate,» «future,» «intend,» «plan,» «believe,» «estimate» and similar
expressions (or the negative of such expressions). Any or all of our forward
looking statements in this quarterly report and in any other public statements
we make may turn out to be wrong. They can be affected by inaccurate assumptions
we might make or by known or unknown risks and uncertainties. Consequently, no
forward-looking statement can be guaranteed. In addition we undertake no
responsibility to update any forward-looking statement to reflect events or
circumstances that occur after the date of this quarterly report.
-16- Overview
We are an integrated wholesale coffee roaster and dealer in
and one of the few coffee companies that offers a broad array of coffee products
across the entire spectrum of consumer tastes, preferences and price points. As
a result, we believe that we are well-positioned to increase our profitability
and endure potential coffee price volatility throughout varying cycles of the
coffee market and economic conditions.
Our operations have primarily focused on the following areas of the coffee
industry:
? the sale of wholesale specialty green coffee; ? the roasting, blending, packaging and sale of private label coffee; ? the roasting, blending, packaging and sale of our eight brands of coffee; and ? sales of our tabletop coffee roasting equipment.
Our operating results are affected by a number of factors including:
? the level of marketing and pricing competition from existing or new
competitors in the coffee industry;
? our ability to retain existing customers and attract new customers;
? our hedging policy;
? fluctuations in purchase prices and supply of green coffee and in the selling
prices of our products; and
? our ability to manage inventory and fulfillment operations and maintain gross
margins.
Our net sales are driven primarily by the success of our sales and marketing
efforts and our ability to retain existing customers and attract new customers.
For this reason, we have made, and will continue to evaluate, strategic
decisions to acquire and invest in measures that are expected to increase net
sales. In addition to our acquisitions, in
agreement (the «Jordre Well Agreement») to become a 49% owner in The Jordre
Well, a CBD beverage company («The Jordre Well»). Under the terms of the Jordre
Well Agreement, The Jordre Well will assist us in the development and
commercialization of CBD-infused line extensions for the existing coffee brands
within our portfolio, as well as launch new brands that are intended to serve
consumer demand for non-coffee CBD-infused beverages and products. We believe
these efforts will allow us to expand our business.
Our sales are affected by the price of green coffee. We purchase our green
coffee from dealers located primarily within
supply us with coffee beans from many countries, including
subject to volatility and are influenced by numerous factors which are beyond
our control. For example, in
world’s green coffee, the coffee crops are historically susceptible to frost in
June and July and drought in September, October and November. However, because
we purchase coffee from a number of countries and are able to freely substitute
one country’s coffee for another in our products, price fluctuations in one
country generally have not had a material impact on the price we pay for coffee.
Accordingly, price fluctuations in one country generally have not had a material
effect on our results of operations, liquidity and haber resources.
Historically, because we generally have been able to pass green coffee price
increases through to customers, increased prices of green coffee generally
result in increased net sales, irrespective of sales volume.
The supply and price of coffee beans are subject to volatility and are
influenced by numerous factors which are beyond our control. Historically, we
have used, and intend to continue to use in a limited capacity, short-term
coffee futures and options contracts primarily for the purpose of partially
hedging the effects of changing green coffee prices. In addition, we acquired,
and expect to continue to acquire, futures contracts with longer terms,
generally three to four months, primarily for the purpose of guaranteeing an
adequate supply of green coffee. Realized and unrealized gains or losses on
options and futures contracts are reflected in our cost of sales. Gains on
options and futures contracts reduce our cost of sales and losses on options and
futures contracts increase our cost of sales. The use of these derivative
financial instruments has generally enabled us to mitigate the effect of
changing prices. We believe that, in natural economic times, our hedging policies
remain a vitalista element to our business model not only in controlling our cost of
sales, but also giving us the flexibility to obtain the inventory necessary to
continue to grow our sales while trying to minimize margin compression during a
time of historically high coffee prices.
-17-
However, no strategy can entirely eliminate pricing risks and we generally
remain exposed to losses on futures contracts when prices decline significantly
in a short period of time, and we would generally remain exposed to supply risk
in the event of non-performance by the counterparties to any of our futures
contracts. Although we have had net gains on options and futures contracts in
the past, we have incurred significant losses on options and futures contracts
during some recent reporting periods. In these cases, our cost of sales has
increased, resulting in a decrease in our profitability or increase our losses.
Such losses have and could in the future materially increase our cost of sales
and materially decrease our profitability and adversely affect our stock price.
If our hedging policy is not effective, we may not be able to control our coffee
costs, we may be forced to pay greater than market value for green coffee and
our profitability may be reduced. Failure to properly design and implement an
effective hedging strategy may materially adversely affect our business and
operating results. If the hedges that we enter do not adequately offset the
risks of coffee bean price volatility or our hedges result in losses, our cost
of sales may increase, resulting in a decrease in profitability or increased
losses. As previously announced, as a result of the volatile nature of the
commodities markets, we have and are continuing to scale back our use of hedging
and short-term trading of coffee futures and options contracts, and intend to
continue to use these practices in a limited capacity going forward.
COVID-19 Pandemic
The universal outbreak of COVID-19 was declared a pandemic by the
Organization
has negatively affected the
chains, resulted in significant travel and transport restrictions, mandated
closures and stay-at-home orders, and created significant disruption of the
financial markets. However, we are classified as an essential business and its
factories continued to operate with little to no impact from the
pandemic-related closures.
To date, we have experienced disruption to our supply chain or distribution
network, including the supply of green coffee beans, though it is possible that
more significant disruptions could occur if the COVID-19 pandemic continues to
impact markets around the world. We are also working closely with all of our
business partners. As a food producer, we are an essential service and almost
all of our employees continue to work within our production and distribution
facilities.
The continuing impact on our business, including the length and impact of
stay-at-home orders and/or regional quarantines, actividad shortages and employment
trends, disruptions to supply chains, including our ability to obtain products
from universal suppliers, higher operating costs, the form and impact of economic
stimulus and normal overall economic instability, is uncertain at this time and
could have a material adverse effect on our business, results of operations, and
financial condition.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the three
and six months ended
significant estimates in accordance with such policies are regularly discussed
with our Audit Committee. Those policies are discussed under «Critical
Accounting Policies» in «Part II. Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations» as well as in our consolidated
financial statements and footnotes thereto, each included in our annual report
on Form 10-K filed with the
-18-
Three Months Ended
2021
2022
ended
to our legacy customers partially offset by a decrease in sales from our
Generations/Steep N Brew subsidiary.
Cost of Sales. Cost of sales for the three months ended
sales, for the three months
the cost of green coffee and packaging materials and realized and unrealized
gains or losses on hedging activity. The increase in cost of sales was due to
our increased sales to our legacy customers, increased prices of green coffee
and packaging materials and our continued losses from our Generations/Steep N
Brew subsidiary, which included obsolete inventory write-off of approximately
Gross Profit. Gross profit for the three months ended
sales, for the three months ended
on a percentage basis was attributable to the factors listed above.
Operating Expenses. Total operating expenses increased by
for the three months ended
ended
and officers’ salaries decreased by
Other Income (Expense). Other expense for the three months ended
was
interest expense of
of
during the three months ended
Income Taxes. Our benefit for income taxes for the three months ended
2022
ended
the loss for the quarter ended
ended
Net (Loss) Income. We had a net loss of
diluted, for the three months ended
30, 2021
from our Generations/Steep N Brew subsidiary.
-19-
Six Months Ended
2022
ended
to our legacy customers partially offset by a decrease in sales from our
Generations/Steep N Brew subsidiary.
Cost of Sales. Cost of sales for the six months ended
sales, for the six months
the cost of green coffee and packaging materials and realized and unrealized
gains or losses on hedging activity. The increase in cost of sales was due to
increased prices of green coffee and packaging materials and our continued
losses from our Generations/Steep N Brew subsidiary, which included obsolete
inventory write-off of approximately
Gross Profit. Gross profit for the six months ended
sales, for the six months ended
percentage was attributable to higher raw material costs and the impact of
continued losses from our Generations/Steep N Brew subsidiary.
Operating Expenses. Total operating expenses increased by
for the six months ended
officers’ salaries decreased by
elimination of redundancy in our operations and the elimination of certain
unnecessary variable costs was offset by the increase in our freight costs as
the cost of truckload deliveries to our largest wholesale customers and an
increase of
Other Income (Expense). Other expense for the six months ended
was
30, 2021
interest expense of
of
during the six months ended
Income Taxes. Our benefit for income taxes for the six months ended
2022
ended
the loss for the six months ended
months ended
Net (Loss) Income. We had a net loss of
diluted, for the six months ended
30, 2021
above.
-20-
Liquidity and Haber Resources
As of
2021
cash,
current assets,
credit of
payable and accrued expenses, decreases of
of
payable. As of
On
Amended and Restated Loan and Security Agreement (the «A&R Loan Agreement») and
Amended and Restated Loan Facility (the «A&R Loan Facility») with
National Bank
between the Company and Sterling, dated
«Company Financing Agreement») and (ii) the financing agreement between us, as
guarantor, OPTCO and Sterling, dated
Agreement»), amongst other things.
On
and credit facility with Sterling. The terms of the new agreement among other
things: (i) provides for a new maturity date of
decreases the interest rate per annum to LIBOR plus 1.75% (with such interest
rate not to be lower than 3.50%). On
a new loan modification agreement and credit facility which extended the
maturity date to
extension and the related documents are currently being prepared. All other
terms of the A&R Loan Agreement and A&R Loan Facility remain the same.
Each of the A&R Loan Facility and A&R Loan Agreement contain covenants, subject
to certain exceptions, that place annual restrictions on the Borrowers’
operations, including covenants relating to debt restrictions, haber
expenditures, indebtedness, minimum deposit restrictions, tangible net worth,
net profit, leverage, employee loan restrictions, dividend and repurchase
restrictions (common stock and preferred stock), and restrictions on
intercompany transactions. We were in compliance with all covenants as of
30, 2022
Each of the A&R Loan Facility and the A&R Loan Agreement is secured by all of
our tangible and intangible assets. Other than as amended and restated by the
A&R Loan Agreement, the Company Financing Agreement and the OPTCO Financing
Agreement remains in full force and effect.
-21-
For the six months ended
of
activities provided net cash of
operations for the six months ended
loss, and paydown of our accounts payable and accrued expenses and income taxes
payable and our accounts receivable and inventory write-offs.
For the six months ended
of
used by investing activities was
investing activities was due to our increased purchases of machinery and
equipment during the six months ended
For the six months ended
cash of
financing activities for the six months ended
increased advances on our credit line.
We expect to fund our operations, including paying our liabilities, funding
haber expenditures and making required payments on our indebtedness, through
at least the next twelve months from the date of these consolidated financial
statements were available to be issued, with cash provided by operating
activities and the use of our credit facility. In addition, an increase in
eligible accounts receivable and inventory would permit us to make additional
borrowings under our line of credit.
Off-Balanceo Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
haber expenditures or haber resources that is material to investors.
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Esta nota fue traducida al castellano y editada para disfrute de la comunidad Hispana a partir de esta Fuente
