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Coffee Holding Co., Inc. Reports Results for Three and Nine Months Ended July 31, 2018

STATEN ISLAND, New York, Sept. 14, 2018 (GLOBE NEWSWIRE) -- Coffee Holding Co., Inc. (Nasdaq: JVA) (the “Company” or “Coffee Holding Company”) today announced its operating results for the three and nine months ended July 31, 2018.

Net Sales. Net sales totaled $23,439,903 for the three months ended July 31, 2018, an increase of $5,460,835, or 30.4%, from $17,979,068 for the three months ended July 31, 2017. Net sales totaled $67,717,019 for the nine months ended July 31, 2018, an increase of $12,318,481, or 22.2%, from $55,398,538 for the nine months ended July 31, 2017. The increase in the Company’s net sales reflects its continued increased sales of branded and private label coffee and wholesale green beans to both new and existing customers.

Cost of Sales. Cost of sales for the three months ended July 31, 2018 was $19,648,710, or 83.8% of net sales, as compared to $14,903,594, or 82.9% of net sales, for the three months July 31, 2017. Cost of sales for the nine months ended July 31, 2018 was $56,263,183, or 83.1% of net sales, as compared to $46,469,896, or 83.9% of net sales, for the nine months ended July 31, 2017. The increase in cost of sales was due to the Company’s increased sales and sales generated by the Steep & Brew acquisition which results were not included in the three and nine months ended July 31, 2017.

Gross Profit. Gross profit for the three months ended July 31, 2018 was $3,791,193, an increase of $715,719 from $3,075,474 for the three months ended July 31, 2017. Gross profit as a percentage of net sales decreased to 16.2% for the three months ended July 31, 2018 from 17.1% for the three months ended July 31, 2017. The decrease in gross profits resulted from the increase in freight and shipping costs, the Company’s integration of Steep & Brew and changes in the coffee prices, which resulted in the Company’s recognition of approximately $1,170,000 of unrealized hedging losses during the quarter ended July 31, 2018. Gross profit for the nine months ended July 31 2018 was $11,453,836, an increase of $2,525,194 from $8,928,642 for the nine months ended July 31, 2017. Gross profit as a percentage of net sales increased to 16.9% for the nine months ended July 31, 2018 from 16.1% for the nine months ended July 31, 2017. The increase in gross profits resulted from increased and improved margins on the Company’s wholesale and roasted business, partially offset by the change in the coffee market and the increase in freight and shipping costs.

Operating Expenses. Total operating expenses increased by $626,875 to $3,522,518 for the three months ended July 31, 2018 from $2,895,643 for the three months ended July 31, 2017. Total operating expenses increased by $1,372,428 to $9,416,580 for the nine months ended July 31, 2018 from $8,044,152 for the nine months ended July 31, 2017. The Steep & Brew new expenditures was the result of the Company’s continued reinvestment in its growth and expansion strategy.

Net Income. The Company had net income of $15,690 or $0.00 per share basic and diluted, for the three months ended July 31, 2018 compared to net income of $32,800, or $0.01 per share basic and diluted for the three months ended July 31, 2017. The Company had net income of $957,926 or $0.17 per share basic and diluted, for the nine months ended July 31, 2018 compared to net income of $410,319, or $0.07 per share basic and diluted for the nine months ended July 31, 2017. The changes in net income were due primarily to the reasons described above.

“We are pleased to report a fifth consecutive quarter of revenue growth.  Our net sales totaled approximately $23.4 million for the three month period ended July 31, 2018 versus approximately $18.0 million for the same period in the prior year.  This 30.4% net sales increase includes approximately $2.8 million in sales from Steep & Brew, which was acquired by Generations Coffee Company, the entity formed as a result of our joint venture with Caruso’s Coffee, Inc.  Without Steep & Brew, our growth for our organic sales was still 14.6% in the period.  Our revenues would have been higher if not for the fact that the coffee market slipped to five-year lows during the reporting period.  The collapse of 21% in the price of coffee had a materially depressing effect on both our revenues and profitability.  The collapse in coffee prices during this period can be attributed to a number of external factors; tariff concerns, a collapse in emerging market currencies, most notably the Brazilian real and an all-time record short position built up during the period by the non-commercial funds.  In fact, the short fund position amassed by the non-commercial funds is as large as the total record Brazil Arabica crop for this year. These distortions in the price of the commodity contributed to an end quarter unrealized loss on our open futures position of $528,000, or approximately $0.10 per share versus a realized gain in the prior period of $600,000, or approximately $0.11 per share.  We believe that this unrealized loss is not representative of our performance during this period as the contracts which are marked to market for GAAP purposes at the end of quarter represent strong long term value for our coffee contracts.  We will be using these contracts to conduct our future business and convert to finished product or sell to our wholesale green coffee customers for the balance of 2018 and the first half of 2019.

Besides pricing pressure due to the collapse in coffee prices during this quarter, we also experienced increased freight and shipping costs, as well as higher prices for our cans due to recently imposed steel tariffs.  All of these factors contributed to a decrease in gross profits for the period. However, excluding the additional expenses resulting from the Steep & Brew acquisition, our operating expenses decreased by approximately $96,000. This decrease in operating expenses, during a period in which we achieved 14.6% sales growth in our organic products, exemplifies our scalable business model.  As we continue to grow our revenues, we believe we will see increased profitability once green commodity and shipping costs normalize.

In addition, during this period, we extended our contract with our second largest retail customer for two years. Although we faced many challenges during this reporting period, we are pleased we were able to manage our overall costs and increase revenues for a fifth consecutive quarter. We believe once these external macro headwinds begin to mitigate, we will be able to leverage our growing business base to improve our profitability,” stated Andrew Gordon, Chief Executive Officer of the Company.

About Coffee Holding

Coffee Holding Co., Inc. is a leading integrated wholesale coffee roaster and dealer in the United States 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. Coffee Holding has been a family-operated business for three generations and has remained profitable through varying cycles in the coffee industry and the economy. The Company’s private label and branded coffee products are sold throughout the United States, Canada and abroad to supermarkets, wholesalers, and individually owned and multi-unit retail customers.

Any statements that are not historical facts contained in this release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including the Company’s outlook on future margin performance and its share repurchase program. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. We have based these forward-looking statements upon information available to management as of the date of this release and management’s expectations and projections about certain future events. It is possible that the assumptions made by management for purposes of such statements may not materialize. Such statements may involve risks and uncertainties, including but not limited to those relating to product demand, pricing, market acceptance, hedging activities, the effect of economic conditions, intellectual property rights, the outcome of competitive products, risks in product development, the results of financing efforts, the ability to complete transactions, and other factors discussed from time to time in the Company’s Securities and Exchange Commission filings. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made.

COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, 2018 AND OCTOBER 31, 2017

    July 31, 2018     October 31, 2017  
    (Unaudited)        
- ASSETS -                
CURRENT ASSETS:                
Cash   $ 5,080,021     $ 2,325,650  
Accounts receivable, net of allowances of $144,000 for 2018 and 2017     8,610,384       13,441,802  
Inventories     15,210,573       16,310,572  
Prepaid green coffee             171,350  
Prepaid expenses and other current assets     707,332       593,825  
Prepaid and refundable income taxes     293,966       472,814  
TOTAL CURRENT ASSETS     29,902,276       33,316,013  
                 
Machinery and equipment, at cost, net of accumulated depreciation of $6,079,588 and $5,557,899 for 2018 and 2017, respectively     2,667,203       2,439,338  
Customer list and relationships, net of accumulated amortization of $95,125 and $72,250 for 2018 and 2017, respectively     344,875       367,750  
Trademarks     820,000       820,000  
Other intangible assets     331,124       331,124  
Non-compete     150,000          
Goodwill     2,794,265       1,794,265  
Equity method investments     90,284       94,643  
Deferred income tax asset     569,250       339,748  
Deposits and other assets     527,303       497,529  
TOTAL ASSETS   $ 38,196,580     $ 40,000,410  
                 
- LIABILITIES AND STOCKHOLDERS’ EQUITY -                
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 2,732,107     $ 4,430,626  
Line of credit     7,148,762       8,407,527  
Due to broker     528,038       210,862  
Note payable     150,000          
Income taxes payable     7,235       1,346  
TOTAL CURRENT LIABILITIES     10,566,142       13,050,361  
                 
Deferred income tax liabilities     862,932       629,680  
Deferred rent payable     241,702       240,379  
Deferred compensation payable     518,303       488,529  
TOTAL LIABILITIES     12,189,079       14,408,949  
                 
STOCKHOLDERS’ EQUITY:                
Coffee Holding Co., Inc. stockholders’ equity:                
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; no shares issued and outstanding     -       -  
Common stock, par value $.001 per share; 30,000,000 shares authorized, 6,494,680 shares issued; 5,620,767 and 5,805,935 shares outstanding as of July 31, 2018 and October 31, 2017, respectively     6,494       6,494  
Additional paid-in capital     16,104,075       16,104,075  
Retained earnings     13,303,416       12,345,490  
Less: Treasury stock, 873,913 and 688,745 common shares, at cost as of July 31, 2018 and October 31, 2017, respectively     (4,398,877 )     (3,504,510 )
Total Coffee Holding Co., Inc. Stockholders’ Equity     25,015,108       24,951,549  
Noncontrolling interest     992,393       639,912  
TOTAL EQUITY     26,007,501       25,591,461  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 38,196,580     $ 40,000,410  

COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED JULY 31, 2018 AND 2017
(Unaudited)

    Nine Months Ended July 31,     Three Months Ended July 31,  
    2018     2017     2018     2017  
NET SALES   $ 67,717,019     $ 55,398,538     $ 23,439,903     $ 17,979,068  
                                 
COST OF SALES (including $7.0 and $4.8 million of related party costs for the nine months ended July 31, 2018 and 2017, respectively. Including $2.6 and $2.6 million for the three months ended July 31, 2018 and 2017, respectively.)     56,263,183       46,469,896       19,648,710       14,903,594  
                                 
GROSS PROFIT     11,453,836       8,928,642       3,791,193       3,075,474  
                                 
OPERATING EXPENSES:                                
Selling and administrative     8,905,830       7,517,062       3,352,268       2,716,393  
Officers’ salaries     510,750       527,090       170,250       179,250  
TOTAL     9,416,580       8,044,152       3,522,518       2,895,643  
                                 
INCOME FROM OPERATIONS     2,037,256       884,490       268,675       179,831  
                                 
OTHER INCOME (EXPENSE)                                
Interest income     11,170       29,381       3,433       5,993  
(Loss) gain from equity method investment     (4,359 )     (71 )     199       (322 )
Interest expense     (286,555 )     (192,317 )     (99,906 )     (68,079 )
TOTAL     (279,744 )     (163,007 )     (96,274 )     (62,408 )
                                 
INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST IN SUBSIDIARY     1,757,512       721,483       172,401       117,423  
                                 
Provision for income taxes     447,105       153,453       35,721       23,911  
                                 
NET INCOME BEFORE NON-CONTROLLING INTEREST IN SUBSIDIARY     1,310,407       568,030       136,680       93,512  
Less: Net (income) attributable to the non-controlling interest     (352,481 )     (157,711 )     (120,990 )     (60,712 )
                                 
NET INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC.   $ 957,926     $ 410,319     $ 15,690     $ 32,800  
                                 
Basic and diluted earnings per share   $ .17     $ .07     $ .00     $ .01  
                                 
Weighted average common shares outstanding:                                
Basic and diluted     5,720,360       5,861,777       5,673,914       5,859,918  

COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2018 AND 2017
(Unaudited)

    2018     2017  
OPERATING ACTIVITIES:                
Net income   $ 1,310,407     $ 568,030  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     544,564       573,447  
Unrealized loss (gain) on commodities     317,176       (643,834 )
Loss on equity method investments     4,359       70  
Deferred rent     1,323       6,872  
Deferred income taxes     3,750       178,460  
Changes in operating assets and liabilities:                
Accounts receivable     4,917,860       3,684,724  
Inventories     2,240,892       (270,523 )
Prepaid expenses and other current assets     (50,625 )     (53,740 )
Prepaid green coffee     171,350       155,323  
Prepaid and refundable income taxes     178,848       (315,962 )
Accounts payable and accrued expenses     (1,698,518 )     (1,434,462 )
Deposits and other assets             59,640  
Income taxes payable     5,889       (1,050 )
Net cash provided by operating activities     7,947,275       2,506,995  
                 
INVESTING ACTIVITIES:                
Purchases of business net of cash acquired           (2,893,275 )
Cash paid for business acquisition     (2,740,217 )     -  
Purchases of machinery and equipment     (299,554 )     (586,098 )
Net cash used in investing activities     (3,039,771 )     (3,479,373 )
                 
FINANCING ACTIVITIES:                
Advances under bank line of credit     3,800,300       4,512,950  
Purchase of treasury stock     (894,368 )     (15,829 )
Principal payments under bank line of credit     (5,059,065 )     (4,065,000 )
Net cash (used in) provided by financing activities     (2,153,133 )     432,121  
                 
NET INCREASE DECREASE IN CASH     2,754,371       (540,257 )
                 
CASH, BEGINNING OF PERIOD     2,325,650       3,227,981  
                 
CASH, END OF PERIOD   $ 5,080,021     $ 2,687,724  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:                
Interest paid   $ 285,603     $ 189,933  
Income taxes paid   $ 245,838     $ 281,538  

COFFEE HOLDING CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2018 AND 2017
(Unaudited)

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:        
On April 24, 2018 Generations Coffee Company acquired the assets of Steep & Brew, Inc.:        
         
Accounts receivable   $ 86,442  
Inventory     1,140,893  
Equipment     450,000  
Prepaid expenses     62,882  
Non-compete     150,000  
Goodwill     1,000,000  
         
Less: Note payable     150,000  
         
Net cash paid   $ 2,740,217  

/EIN News/ --

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:        
On February 23, 2017 Coffee Holding Co., Inc. acquired the stock of Comfort Foods, Inc.:        
         
Accounts receivable   $ 584,918  
Inventory     1,116,906  
Equipment     229,597  
Prepaid expenses     32,681  
Customer lists     170,000  
Goodwill     1,359,502  
Other asset     26,551  
         
Less: liabilities     626,880  
         
Net cash paid   $ 2,893,275  

Company Contact
                    
                    Coffee Holding Co., Inc.
                    Andrew Gordon
                    President & CEO
                    718-832-0800

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