Business Context and Reporting Period
Company: Coffee Holding Co., Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 17, 2009 (Signed February 23, 2009)
Context: The filing reports the entry into a material definitive agreement for a new credit facility and a change in the company's independent registered public accounting firm.
Key Financial Metrics and Agreements
- New Credit Facility: A revolving line of credit with a maximum of $5,000,000.
- Borrowing Base: Up to 85% of eligible accounts receivable and 25% of eligible inventory (green coffee beans and finished coffee), capped at $1,000,000 for inventory.
- Interest Rate: Reference rate (currently 4.25%) plus 1.0% per annum.
- Term: Initial term of three years with automatic one-year renewals unless terminated with 90 days' notice.
- Collateral: Secured by all tangible and intangible assets of the company.
- Guarantees: Personally guaranteed by Andrew Gordon and David Gordon.
Material Changes
- Accounting Firm Change: The company's former auditor, Lazar Levine & Felix LLP, was acquired by Parente Randolph, LLC. Consequently, Lazar resigned, and Parente Randolph, LLC was engaged as the new independent registered public accounting firm effective February 19, 2009.
- Operational Covenants: The new loan agreement imposes restrictions on mergers, debt, capital expenditures, tangible net worth, leverage, fixed charge coverage, dividends, affiliate lease payments, asset sales, and acquisitions.
Guidance, Outlook, and Risks
Management Commentary: The credit facility is intended to provide for the company's working capital requirements. The filing notes that there were no disagreements with the former auditor regarding accounting principles or financial statement disclosures for the fiscal years ended October 31, 2008 and 2007.
Risks and Contingencies: The new agreement includes standard restrictive covenants that limit operational flexibility. The filing does not provide specific forward-looking financial guidance or revenue projections.
Investor Verification Checklist
- Verify the current utilization of the $5 million credit facility and the specific amounts drawn against accounts receivable and inventory.
- Confirm the company's compliance with the new financial covenants (tangible net worth, leverage, fixed charge coverage) to avoid default.
- Review the transition of audit responsibilities to ensure no gaps in financial reporting oversight between Lazar Levine & Felix LLP and Parente Randolph, LLC.
- Assess the impact of the personal guarantees provided by Andrew Gordon and David Gordon on the company's capital structure.