UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      DC 20549




**Form
      10-K**




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




**For
      the fiscal year ended October 31, 2006**




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




For
      the
      transition period from ____________ to ____________.




**Commission
      file No. 333-00588-NY**




**COFFEE
      HOLDING CO., INC.**


(Exact
      name of registrant as specified in its charter)




**Nevada**
            **11-2238111**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)**4401
                First Avenue, Brooklyn, New York**
              (Address
                of principal executive offices)
            **11232-0005**
              (Zip
                Code)




Registrant’s
      telephone number, including area code: **(718)
      832-0800**




Securities
      registered under Section 12(b) of the Act:


Title
                  of each class:
              Name
                  of each exchange on which registered:**Common
                  Stock, Par Value $0.001 Per Share**
              **American
                  Stock Exchange**




Securities
      registered under Section 12(g) of the Exchange Act:




**None**




Indicate
      by check mark if registrant is a well-known seasoned issuer, as defined in
      Rule
      405 of the Securities Act.




Yes
oNo
x




Indicate
      by check mark if registrant is not required to file reports pursuant to Section
      13 or Section 15(d) of the Act.




Yes
o  
 No
      x




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
      past 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
x   
No
o









Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained in, to the
      best of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer o   Accelerated
      filer o   Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).




Yes
o   
No
x




The
      aggregate market value of the common equity held by non-affiliates of the
      registrant, computed by reference to the closing price of the registrant’s
      common stock on the American Stock Exchange on April 28, 2006, was
      $14,807,062.




As
      of
      December 29, 2006, the registrant had 5,529,830 shares of common stock, par
      value $0.001 per share, outstanding.




**Documents
      incorporated by Reference**




Portions
      of the registrant’s proxy statement for the 2007 annual meeting of stockholders
      to be filed pursuant to Regulation 14A within 120 days after registrant’s fiscal
      year ended October 31, 2006, are incorporated by reference in Part III of this
      Form 10-K.







**TABLE
      OF CONTENTS**


**PAGE**PART
                  IITEM
                  1.
              BUSINESS
              
              1ITEM
                  1A.
              RISK
                  FACTORS
              
              10ITEM
                  1B.
              UNRESOLVED
                  STAFF COMMENTS
              
              16ITEM
                  2.
              PROPERTIES
              
              16ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              
              16ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              16PART
                  IIITEM
                  5.
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY SECURITIES
              
              17ITEM
                  6.
              SELECTED
                  FINANCIAL DATA
              
              18ITEM
                  7.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATION
              
              19ITEM
                  7A.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              
              27ITEM
                  8.
              FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY DATA
              
              27ITEM
                  9.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              27ITEM
                  9A.
              CONTROLS
                  AND PROCEDURES
              
              28ITEM
                  9B.
              OTHER
                  INFORMATION
              
              28PART
                  IIIITEM
                  10.
              DIRECTORS,
                  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              
              29ITEM
                  11.
              EXECUTIVE
                  COMPENSATION
              
              29ITEM
                  12.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              
              29ITEM
                  13.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                  INDEPENDENCE
              
              29ITEM
                  14.
              PRINCIPAL
                  ACCOUNTING FEES AND SERVICES
              
              30ITEM
                  15.
              EXHIBITS,
                  FINANCIAL STATEMENT SCHEDULES
              
              31SIGNATURES
              
              
              32INDEX
                TO CONSOLIDATED FINANCIAL STATEMENTS
              
              F-1







**PART
      I**




**ITEM
      1.** **BUSINESS**




**General
      Overview**




***Products
      and Operations.*** We are
      an integrated wholesale coffee roaster and dealer in the United States. Our
      core
      products can be divided into three categories:




·
            ***Wholesale
                Green Coffee:***unroasted raw beans imported from around the world and sold to large
                and
                small roasters and coffee shop
                operators;




·
            ***Private
                Label Coffee:***coffee roasted, blended, packaged and sold under the specifications
                and
                names of others, including supermarkets that want to have their own
                brand
                name on coffee to compete with national brands;
                and




·
            ***Branded
                Coffee:***coffee roasted and blended to our own specifications and packaged
                and sold
                under our seven brand names in different segments of the
                market.




Our
      private label and branded coffee products are sold throughout the United States
      and Canada to supermarkets, wholesalers, and individually owned and multi-unit
      retail customers. Our unprocessed green coffee, which includes over 70 types
      of
      coffee from all over the world, is sold to specialty gourmet
      roasters.




We
      conduct our operations in accordance with strict freshness and quality
      standards. All of our private label and branded coffee is produced from high
      quality coffee beans that are deep roasted for full flavor using a slow roasting
      process that has been perfected utilizing our more than thirty years of
      experience in the coffee industry. In order to ensure freshness, our products
      are delivered to our customers within 72 hours of roasting. We believe that
      our
      long history has enabled us to develop a loyal customer base.




We
      were
      founded and incorporated in New York State in 1971 and have been a family
      operated business for over 30 years. In 1998, we merged with Transpacific
      International Group Corp. and became a Nevada corporation. In May 2005, we
      concluded our initial public offering and our common stock began trading on
      the
      American Stock Exchange under the symbol “JVA.” Our fiscal year ends on October
      31.




Our
      corporate offices are located at 4401 First Avenue, Brooklyn, New York 11232.
      Our telephone number is (718) 832-0800 and our website address is
      www.coffeeholding.com.




**Our
      Competitive Strengths**




To
      achieve our growth objectives described below, we intend to leverage the
      following competitive strengths:




***National
      Distribution with Capacity For Growth.*** From
      1991
      to 2004, we expanded our distribution to a national platform while operating
      from only our East Coast location by making capital investments to improve
      our
      roasting, packaging and fulfillment infrastructure to support the production
      and
      distribution of large quantities of fresh coffee products throughout the United
      States. In February 2004, we acquired certain assets of Premier Roasters, a
      roaster-dealer located in La Junta, Colorado, for $825,000. The assets purchased
      by us include all of the operating equipment located at Premier Roasters’ La
      Junta and Rocky Ford, Colorado locations, as well as all labels for all of
      Premier Roasters’ coffee products. In connection with the acquisition of these
      assets, we reached an agreement with the City of La Junta, Colorado on a 20-year
      lease for a 50,000 square foot facility in La Junta. We are using the assets
      that we purchased to expand our integrated wholesale coffee roaster and dealer
      operations in the Western United States. By operating out of two facilities,
      we
      have gained new economies of scale in both manufacturing and logistical
      efficiencies and are confident that we can compete aggressively throughout
      the
      United States. These two facilities allow us to reduce our freight and shipping
      costs to the Western United States, thereby enabling us to be more competitive
      in bidding for new business. In addition, our presence in Colorado has increased
      the number of potential customers we have because of our proximity to the West
      Coast.




1




In
      March
      2006, we entered into a joint venture with Coffee Bean Trading-Roasting LLC
      and
      formed Café La Rica, LLC, a Delaware limited liability company. The joint
      venture engages in the roasting, packaging and sale of the Café La Rica brand
      coffee and other branded and food service coffee products in Miami, Florida.
      We
      own 50% of the joint venture and are the primary supplier of its coffee
      inventory. In April 2006, the Company and Caruso's Coffee of Brecksville, Ohio
      and formed Generations Coffee Company, LLC, a Delaware limited liability
      company, which will engage in the roasting, packaging and sale of private label
      specialty coffee products. We own 60% of the joint venture and are the exclusive
      supplier of its coffee inventory. We believe that the Generations Coffee joint
      venture will allow us to bid on the private label gourmet whole bean business
      we
      have not been equipped to pursue from an operational standpoint in the past.
      With this specialty roasting facility in place, in many cases right in the
      backyard of our most important wholesale and retail customers, we believe that
      we are in an ideal position to combine our current canned private label business
      with high-end private label specialty whole bean business. High-end specialty
      whole bean coffee sells for as much as three times more per pound than the
      canned coffees in which we currently specialize.




***Positioned
      to Profitably Grow Through Varying Cycles of the Coffee Market.*** We
      believe that we are one of the few coffee companies to offer a broad array
      of
      branded and private label roasted ground coffees and wholesale green coffee
      across the spectrum of consumer tastes, preferences and price points. While
      many
      of our competitors engage in distinct segments of the coffee business, we sell
      products in each of the following areas:




·
            Retail
                branded coffee;




·
            Retail
                private label coffee




·
            Wholesale
                specialty green and gourmet whole bean
                coffees;




·
            Food
                service;




·
            Instant
                coffees; and




·
            Niche
                products.




Our
      branded and private label roasted ground coffees are sold predominantly at
      competitive and value price levels while some of our other branded and specialty
      coffees are sold predominantly at the premium price levels. Premium price level
      coffee is high-quality gourmet coffee, such as AA Arabica coffee, which sells
      at
      a substantial premium over traditional retail canned coffee, while competitive
      and value price level coffee is mainstream or traditional canned coffee. Because
      of this diversification, we believe that our profitability is not dependent
      on
      any one area of the coffee industry and, therefore, is less sensitive than
      our
      competition to potential coffee commodity price and overall economic
      volatility.




2




***Wholesale
      Green Coffee Market Presence.*** As a
      large roaster/dealer of green coffee, we believe that we are favorably
      positioned to increase our specialty coffee sales. Since 1998, we have increased
      the number of our wholesale green coffee customers, including coffee houses,
      single store operators, mall coffee stores and mail order sellers, by 93% from
      150 to 290. We are a charter member of the Specialty Coffee Association of
      America and one of the largest distributors of Swiss Water Processed
      Decaffeinated Coffees along the East Coast. In addition, although we do not
      have
      any formalized, material agreements or long-term contracts with it, we have
      a
      16-year relationship with Green Mountain Coffee Roasters, our largest wholesale
      green coffee customer. Our 30-plus years of experience as a roaster and a dealer
      of green coffee allows us to provide our roasting experience as a value added
      service to our gourmet roaster customers. The assistance we provide to our
      customers includes training, coffee blending and market identification. We
      believe that our relationships with wholesale green coffee customers and our
      focus on selling green coffee as a wholesaler has enabled us to participate
      in
      the growth of the specialty coffee market while mitigating the risks associated
      with the competitive retail specialty coffee environment.




***Diverse
      Portfolio of Differentiated Branded Coffees.*** Currently,
      our highest net profit margin is on our branded coffees. We have amassed a
      portfolio of five proprietary name brands sold to supermarkets, wholesalers
      and
      individually-owned stores in the United States, including brands for specialty
      espresso, Latin espresso, Italian espresso, 100% Colombian coffee and blended
      coffee. In addition, we have entered into a licensing agreement with Del Monte
      Corporation for the exclusive right to use the S&W and IL CLASSICO
      trademarks in the United States and other countries approved by Del Monte
      Corporation in connection with the production, manufacture and sale of roasted
      whole bean and ground coffee for distribution to retail customers. We plan
      to
      broaden our customer base and increase penetration with existing customers
      by
      expanding the S&W label from a well-known brand on the West Coast to a
      well-known brand throughout the United States. Our existing portfolio of
      differentiated brands combined with our management expertise serve as a platform
      to add additional name brands through acquisition or licensing agreements which
      target product niches and segments that do not compete with our existing brands.




***Management
      Has Extensive Experience in the Coffee Industry.*** We have
      been a family operated business for three generations. Throughout this time,
      we
      have remained profitable through varying cycles in the coffee industry and
      the
      economy. Andrew Gordon, our President, Chief Executive Officer and Chief
      Financial Officer, and David Gordon, our Executive Vice President - Operations,
      have worked with Coffee Holding for 24 and 26 years, respectively. David Gordon
      is an original member of the Specialty Coffee Association of America. We believe
      that our employees and management are dedicated to our vision and mission,
      which
      is to produce high quality products, as well as to provide quality and
      responsive service to our customers.




**Our
      Growth Strategy**




We
      believe that significant growth opportunities exist by selectively pursuing
      strategic acquisitions and alliances, targeting the rapidly growing Hispanic
      market in the United States, increasing penetration with existing customers
      by
      adding new products, and developing our food service business. By capitalizing
      on this strategy, we hope to continue to grow our business with our commitment
      to quality and personalized service to our customers. We do not intend to
      compete on price alone nor do we intend to expand sales at the expense of
      profitability.




3




***Selectively
      Pursue Strategic Acquisitions and Alliances.*** We
      intend to expand our operations by acquiring coffee companies, seeking strategic
      alliances and acquiring or licensing brands which complement our business
      objectives. Consistent with this strategy, in February 2004, we acquired certain
      assets of Premier Roasters and entered into a licensing agreement with Del
      Monte
      Corporation for the exclusive right to use the S&W and IL CLASSICO
      trademarks, including Premium, Premium Decaf, French Roast, Colombian, Colombian
      Decaf, Swiss Water Decaf, Kona, and Mellow'd Roast lines, in the United States
      and other countries approved by Del Monte Corporation in connection with the
      production, manufacture and sale of roasted whole bean and ground coffee for
      distribution at the retail level.




In
      March
      2006, we entered into a joint venture with Coffee Bean Trading-Roasting LLC
      and
      formed Café La Rica, LLC. The joint venture engages in the roasting, packaging
      and sale of the Café La Rica brand coffee and other branded and food service
      coffee products in Miami, Florida. In April 2006, we entered into a joint
      venture with Caruso’s Coffee of Brecksville, Ohio and formed Generations Coffee
      Company, LLC, which will engage in the roasting, packaging and sale of private
      label specialty coffee products. We intend to further expand the market presence
      of our branded products outside our primary Northeastern United States market
      through other acquisitions and strategic alliances as opportunities
      arise.




***Grow
      Our Caf*** ***é*** ***Caribe
      Product.*** The
      Hispanic population in the United States is growing at nine times the average
      rate and now represents the largest minority demographic in the United States,
      according to 2000 census data. We believe there is significant opportunity
      for
      our Café Caribe brand to gain market share among Hispanic consumers in the
      United States. Café Caribe, which has historically been our leading brand by
      revenue, is a specialty espresso coffee that targets espresso coffee drinkers
      and, in particular, Hispanic consumers. ****




***Further
      Market Penetration of Our Niche Products.*** We
      intend to capture additional market share through our existing distribution
      channels by selectively adding or introducing new brand names and products
      across multiple price points, including:




·
            Specialty
                blends;




·
            Private
                label “value” blends and trial-sized mini-brick
                packages;




·
            Specialty
                instant coffees;




·
            Instant
                cappuccinos and hot chocolates; and




·
            Tea
                line products.




In
      2004,
      we established relationships with additional independent sales brokers to market
      our products on a national scale.




***Develop
      Our Food Service Business.*** We plan
      to expand further into the food service business by developing new distribution
      channels for our products. Currently, we have a limited presence in the food
      service market. In 2003, we began marketing our upscale restaurant and Colombian
      coffee brands to hotels, restaurants, office coffee services companies and
      other
      food service retailers. In addition, we have expanded our food service offerings
      to include instant cappuccinos, tea products and an equipment program for our
      customers. We attend at least ten annual trade shows held by various buying
      groups which provide us a national audience to market our food service products.




4




**Our
      Core Products**




Our
      core
      products can be divided into three categories:




·
            ***Wholesale
                Green Coffee:***unroasted
                raw beans imported from around the world and sold to large and small
                roasters and coffee shop operators;




·
            ***Private
                Label Coffee:***coffee
                roasted, blended, packaged and sold under the specifications and
                names of
                others, including supermarkets that want to have their own brand
                name on
                coffee to compete with national brands;
                and




·
            ***Branded
                Coffee*****:**coffee roasted and blended to our own specifications and sold under
                our
                seven brand names in different segments of the
                market.




***Wholesale
      Green Coffee.*** The
      specialty green coffee market represents the fastest growing area of our
      industry. The number of gourmet coffee houses have been increasing in all areas
      of the United States. The growth in specialty coffee sales has created a
      marketplace for higher quality and differentiated products which can be priced
      at a premium in the marketplace. As a large roaster/dealer of green coffee,
      we
      are favorably positioned to increase our specialty coffee sales. We sell green
      coffee beans to small roasters and coffee shop operators located throughout
      the
      United States and carry over 70 different varieties. Specialty green coffee
      beans are sold unroasted, direct from warehouses to small roasters and gourmet
      coffee shop operators which then roast the beans themselves. We sell from as
      little as one bag (132 pounds) to a full truckload (44,000 pounds) depending
      on
      the size and need of the customer. We believe that we can increase sales of
      wholesale green coffee without venturing into the highly competitive retail
      specialty coffee environment and that we can be as profitable or more profitable
      than our competition in this segment by selling “one bag at a time” rather than
“one cup at a time.”




***Private
      Label Coffee.*** We
      roast, blend, package and sell coffee under private labels for companies
      throughout the United States and Canada. Our private label coffee is sold in
      cans, brick packages and instants in a variety of sizes. As
      of
      October 31, 2006, we supplied coffee under approximately 47 different labels
      to
      wholesalers and retailers, including Supervalu, C&S Wholesale and Nash
      Finch, three of the largest grocery wholesalers in North America according
      to *Private
      Label*  *Magazine.* **** We
      produce private label coffee for customers who desire to sell coffee under
      their
      own name but do not want to engage in the manufacturing process. Our private
      label customers seek a quality similar to the national brands at a lower cost,
      which represents a better value for the consumer.




***Branded
      Coffee*** **.** We roast
      and blend our branded coffee according to our own recipes and package the coffee
      at our facilities in Brooklyn, New York and La Junta, Colorado. We then sell
      the
      packaged coffee under our brand labels to supermarkets, wholesalers and
      individually owned stores throughout the United States.




We
      hold
      trademarks for each of our proprietary name brands and have the exclusive right
      to use the S&W and IL CLASSICO trademarks in the United States in connection
      with the production, manufacture and sale of roasted whole bean and ground
      coffee for distribution at the retail level. For further information regarding
      our trademark rights, see “ *Business-Trademarks* .”




Each
      of
      our name brands is directed at a particular segment of the coffee market. Our
      branded coffees are:




·
            ***Café
                Caribe***is
                a specialty espresso coffee that targets espresso coffee drinkers
                and, in
                particular, the Hispanic consumer market;**




5




·
            ***S&W***is
                an upscale canned coffee established in 1921 and includes Premium,
                Premium
                Decaf, French Roast, Colombian, Colombian Decaf, Swiss Water Decaf,
                Kona,
                Mellow'd Roast and IL CLASSICO
                lines;




·
            ***Café
                Supremo*****is
                a specialty espresso that targets espresso drinkers of all backgrounds
                and
                tastes. It is designed to introduce coffee drinkers to the tastes
                of dark
                roasted coffee;




·
            ***Don
                Manuel***is
                produced from the finest 100% Colombian coffee beans. Don Manuel
                is an
                upscale quality product which commands a substantial premium compared
                to
                the more traditional brown coffee blends. We also use this known
                trademark
                in our food service business because of the high brand
                quality;




·
            ***Fifth
                Avenue***is
                a blended coffee that has become popular as an alternative for consumers
                who purchase private label or national branded coffee. We also market
                this
                brand to wholesalers who do not wish to undertake the expense of
                developing a private label coffee program under their own
                name;




·
            ***Via
                Roma***is
                an Italian espresso targeted at the more traditional espresso drinker;
                and




·
            ***Il
                CLASSICO***is
                an S&W brand espresso product.




**Other
      Products**




We
      also
      offer several niche products, including:




·
            trial-sized
                mini-brick coffee packages;




·
            specialty
                instant coffees;




·
            instant
                cappuccinos and hot chocolates; and




·
            tea
                line products.




**Raw
      Materials**




Coffee
      is
      a commodity traded on the Commodities and Futures Exchange subject to price
      fluctuations. Over the past five years, the average price per pound of coffee
      beans ranged from approximately $0.43 to $1.45. The price for coffee beans
      on
      the commodities market as of October 31, 2006 was $1.08 per pound. Specialty
      green coffee, unlike most coffee, is not tied directly to the commodities cash
      markets. Instead, it tends to trade on a negotiated basis at a substantial
      premium over commodity coffee pricing, depending on the origin, supply and
      demand at the time of purchase. We are a licensed Fair Trade dealer of Fair
      Trade certified coffee. Fair Trade certified coffee helps small coffee farmers
      to increase their incomes and improve the prospects of their communities and
      families by guaranteeing farmers a minimum price of five cents above the current
      market price. Although we may purchase Fair Trade certified coffee from time
      to
      time, we are not obligated to do so and we do not have any commitments to
      purchase Fair Trade certified coffee. All of our specialty green coffees, as
      well as all of the other coffees we import for roasting, are subject to multiple
      levels of quality control.




We
      purchase our green coffee from dealers located primarily within the United
      States. The dealers supply us with coffee beans from many countries, including
      Colombia, Mexico, Kenya, Indonesia, Brazil and Uganda. In fiscal 2006,
      substantially all of our green coffee purchases were from ten **** suppliers,
      which accounted for approximately $35.3 million, or 77% of our total product
      purchases. One of these suppliers, Rothfos Corporation, accounted
      for **** approximately
      $13.8 million, or 30% of our total product purchases. An employee of Rothfos
      Corporation is one of our directors. Another of these suppliers, Atlantic (USA)
      Inc., accounted for approximately $4.8 million, or **** 10%
      of
      our total product purchases. We do not have any formalized, material agreements
      or long-term contracts with any of these suppliers. Rather, our purchases are
      typically made pursuant to individual purchase orders. We do not believe that
      the loss of any one supplier, including Rothfos, would have a material adverse
      effect on our operations due to the availability of alternate
      suppliers.




6




The
      supply and price of coffee beans are subject to volatility and are influenced
      by
      numerous factors which are beyond our control. Supply and price can be affected
      by factors such as weather, politics and economics in the coffee exporting
      countries. Increases in the cost of coffee beans can, to a certain extent,
      be
      passed on to our customers in the form of higher prices for coffee beans and
      processed coffee. Drastic or prolonged increases in coffee prices could also
      adversely impact our business as it could lead to a decline in overall
      consumption of coffee. Similarly, rapid decreases in the cost of coffee beans
      could force us to lower our sale prices before realizing cost reductions in
      our
      purchases.




We
      subject all of our private unroasted green coffee to both a pre-shipment sample
      approval and an additional sample approval upon arrival into the United States.
      Once the arrival sample is approved, we then bring the coffee to one of our
      facilities to roast and blend according to our own strict specifications. During
      the roasting and blending process, samples are pulled off the production line
      and tested on an hourly basis to ensure that each batch roasted is consistent
      with the others and meets the strict quality standards demanded by our customers
      and us.




**Our
      Use of Derivatives**




Historically,
      we have used short-term coffee futures and options contracts primarily for
      the
      purpose of partially hedging and minimizing the effects of changing green coffee
      prices. We acquire futures contracts with longer terms (generally three to
      four
      months) primarily for the purpose of guaranteeing an adequate supply of green
      coffee. The use of these derivative financial instruments has enabled us to
      mitigate the effect of changing prices although we generally remain exposed
      to
      loss when prices decline significantly in a short period of time or remain
      at
      higher levels, preventing us from obtaining inventory at favorable prices.
      We
      generally have been able to pass green coffee price increases through to
      customers, thereby maintaining our gross profits. However, we cannot predict
      whether we will be able to pass inventory price increases through to our
      customers in the future. See “ *Quantitative
      and Qualitative Disclosures About Market Risk-Commodity Price
      Risks* .”




**Trademarks**




We
      hold
      trademarks, registered with the United States Office of Patent and Trademark,
      for all five of our proprietary coffee brands and an exclusive license for
      S&W and IL CLASSICO brands for sale in the United States. Trademark
      registrations are subject to periodic renewal and we anticipate maintaining
      our
      registrations. We believe that our brands are recognizable in the marketplace
      and that brand recognition is important to the success of our branded coffee
      business.




**Customers**




We
      sell
      our private label and our branded coffee to three of the largest wholesalers
      in
      the United States (according to Supermarket News) and are the exclusive coffee
      supplier for Supervalu and Nash Finch Co., the largest and fourth largest
      wholesalers in the United States. **** We sell
      wholesale green coffee to Green Mountain Coffee Roasters. Sales to Supervalu,
      Topco/Shurfine and Green Mountain Coffee Roasters accounted for approximately
      $3.2 million, or 6%, $3.0 million, or 6%, and $15.8 million, or 31% of our
      net
      sales for the fiscal year ended October 31, 2006 and $3.0 million, or 8%, $2.7
      million, or 6%, and 11.3 million or 28%, for the fiscal year ended October
      31,
      2005, respectively.




7




Although
      our agreements with wholesale customers generally contain only pricing terms,
      our contracts with certain customers, including Supervalu, also contain minimum
      and maximum purchase obligations at fixed prices. Because our profits on a
      fixed-price contract could decline if coffee prices increased, we acquire
      futures contracts with longer terms (generally three to four months) primarily
      for the purpose of guaranteeing an adequate supply of green coffee at favorable
      prices. Although the use of these derivative financial instruments has enabled
      us to mitigate the effect of changing prices, no strategy is effective to
      eliminate the pricing risks and we generally remain exposed to loss when prices
      change significantly in a short period of time, and we generally remain exposed
      to supply risk in the event of non-performance by the counter-parties to any
      futures contracts.




**Marketing**





We
      market
      our private label and wholesale coffee through trade shows, industry
      publications, face-to-face contact and through the use of our internal sales
      force and non-exclusive independent food and beverage sales brokers. We also
      use
      our web site (www.coffeeholding.com) as a method of marketing our coffee
      products and ourselves.




For
      our
      private label and branded coffees, we will, from time to time in conjunction
      with retailers and with wholesalers, conduct in-store promotions, such as
      product demonstrations, coupons, price reductions, two-for-one sales and new
      product launches to capture changing consumer taste preference for upscale
      canned coffees.




We
      evaluate opportunities for growth consistent with our business objectives.
      We
      have established relationships with independent sales brokers to market our
      products in the Western United States, an area of the country where we have
      not
      had a high penetration of sales. We have also hired a Florida sales manager
      to
      increase our private label and branded coffee sales in Florida. In addition,
      we
      employ a West Coast Brand Manager who markets our S&W and IL CLASSICO
      brands, as well as our other branded and private label coffee products. We
      intend to capture additional market share in our existing distribution channels
      by selectively adding or introducing new brand names and products across
      multiple price points, including niche specialty blends, private label “value”
blends and mini-brick, filter packages, instant cappuccinos and tea line
      products. We also intend to add specialty instant coffees to our extensive
      line
      of instant coffee products.




**Charitable
      Activities**




We
      are
      also a supporter of several coffee oriented charitable
      organizations.




·
            For
                over 12 years, we have been members of Coffee Kids, an international
                non-profit organization that helps to improve the quality of life
                of
                children and their families in coffee-growing communities in Mexico,
                Guatemala, Nicaragua and Costa
                Rica.




·
            We
                are members of Grounds for Health, an organization that educates,
                screens,
                and arranges treatment for women who have cancer and live in the
                rural
                coffee growing communities of
                Mexico.




·
            We
                are a licensed Fair Trade dealer of Fair Trade certified coffee.
                Fair
                Trade helps small coffee farmers to increase their incomes and improve
                the
                prospects of their communities and families. It guarantees farmers
                a
                minimum price of $1.26 per pound or five cents above the current
                market
                price.




8




·
            Most
                recently, we are the administrative benefactors to a new non-profit
                organization called Cup for Education. After discovering the lack
                of
                schools, teachers, and basic fundamental learning supplies in the
                poor
                coffee growing communities of Central and Latin America, “Cup” was
                established by our employee, Karen Gordon, to help build schools,
                sponsor
                teachers, and purchase basic supplies such as books, chalk and other
                necessities for a proper education.




**Competition**




The
      coffee market is highly competitive. We compete in the following areas:




***Wholesale
      Green Coffee.*** There
      are many green coffee dealers throughout the United States. Many of these
      dealers have greater financial resources than we do. However, we believe that
      we
      have both the knowledge and the capability to assist small specialty gourmet
      coffee roasters with developing and growing their business. Our 30-plus years
      of
      experience as a roaster and a dealer of green coffee allows us to provide our
      roasting experience as a value added service to our gourmet roaster customers.
      While other coffee merchants may be able to offer lower prices for coffee beans,
      we market ourselves as a value-added supplier to small roasters, with the
      ability to help them market their specialty coffee products and develop a
      customer base. The assistance we provide our customers includes training, coffee
      blending and market identification. Because specialty green coffee beans are
      sold unroasted to small coffee shops and roasters that market their products
      to
      local gourmet customers, we do not believe that our specialty green coffee
      customers compete with our private label or branded coffee lines of
      business.




***Private
      Label Competition.*** There
      are several major producers of coffee for private label sale in the United
      States. Many other companies produce coffee for sale on a regional basis. Our
      main competitors are The Kroger Co. and the former coffee division of Sara
      Lee
      Corporation which was recently purchased by Segafredo Zanetti Group. Both The
      Kroger Co. and the former Sara Lee division are larger and have more financial
      and other resources than we do and therefore are able to devote more resources
      to product development and marketing. We believe that we remain competitive
      by
      providing a high level of quality and customer service. This service includes
      ensuring that the coffee produced for each label maintains a consistent taste
      and is delivered on time and in the proper quantities. In addition, we provide
      our private label customers with information on the coffee market on a regular
      basis.




***Branded
      Competition.*** Our
      proprietary brand coffees compete with many other brands that are sold in
      supermarkets and specialty stores, primarily in the Northeastern United States.
      The branded coffee market in both the Northeast and elsewhere is dominated
      by
      three large companies: Kraft General Foods, Inc., The Procter & Gamble
      Company and the former coffee division of Sara Lee Corporation which was
      recently purchased by Segafredo Zanetti Group, who also market specialty coffee
      in addition to non-specialty coffee. Our large competitors have greater access
      to capital and a greater ability to conduct marketing and promotions. We believe
      that, while our competitors’ brands may be more nationally recognizable, our
      Café Caribe brand is competitive in the fast growing Hispanic demographic and
      our S&W brand has been a popular and recognizable brand on the West Coast
      for over 80 years.




**Government
      Regulation**




Our
      coffee roasting operations are subject to various governmental laws and
      regulations, which require us to obtain licenses, relating to customs, health
      and safety, building and land use, and environmental protection. Our roasting
      facility is subject to state and local air-quality and emissions regulation.
      If
      we encounter difficulties in obtaining any necessary licenses or if we have
      difficulty complying with these laws and regulations, then we could be subject
      to fines and penalties which could have a material adverse effect on our
      profitability. In addition, our product offerings could be limited, thereby
      reducing our revenues.




9




We
      believe that we are in compliance in all material respects with all such laws
      and regulations and that we have obtained all material licenses and permits
      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.




**Employees**




We
      have
      79 full-time employees, 59 of whom are employed in the areas of coffee roasting,
      blending and packaging and 20 of whom are in administration and sales. None
      of
      our employees are represented by unions or collective bargaining agreements.
      Our
      management believes that we maintain a good working relationship with our
      employees. To supplement our internal sales staff, we sometimes use independent
      national and regional sales brokers who work on a commission basis.




**ITEM
      1A.**  **RISK
      FACTORS**




An
      investment in our common stock is subject to risks inherent in our business.
      Before making an investment decision, you should carefully consider the risks
      and uncertainties described below together with all of the other information
      included in this report. In addition to the risks and uncertainties described
      below, other risks and uncertainties not currently known to us or that we
      currently deem to be immaterial also may materially and adversely affect our
      business, financial condition and results of operations. The value or market
      price of our common stock could decline due to any of these identified or other
      risks, and you could lose all of your investment.




**Risk
      Factors Affecting Our Company**




***Because
      our business is highly dependent upon a single commodity, coffee, any decrease
      in demand for coffee could materially adversely affect our revenues and
      profitability.*** Our
      business is centered on essentially one commodity: coffee. Our operations have
      primarily focused on the following areas of the coffee industry:




·
            the
                roasting, blending, packaging and distribution of private label coffee;




·
            the
                roasting, blending, packaging and distribution of proprietary branded
                coffee; and




·
            the
                sale of wholesale specialty green coffee.




Demand
      for our products is affected by:




·
            consumer
                tastes and preferences;




·
            national,
                regional and local economic conditions;




·
            demographic
                trends; and




·
            the
                type, number and location of competing products.




10




Because
      we rely on a single commodity, any decrease in demand for coffee would harm
      our
      business more than if we had more diversified product offerings and could
      materially adversely affect our revenues and operating results.




***If
      we are unable to geographically expand our branded and private label products,
      our growth will be impeded which could result in reduced sales and
      profitability.*** Our
      business strategy emphasizes, among other things, geographic expansion of our
      branded and private label products as opportunities arise. We may not be able
      to
      implement successfully this portion of our business strategy. Our ability to
      implement this portion of our business strategy is dependent on our ability
      to:




·
            market
                our products on a national scale;




·
            increase
                our brand recognition on a national scale;




·
            enter
                into distribution and other strategic arrangements with third party
                retailers; and




·
            manage
                growth in administrative overhead and distribution costs likely to
                result
                from the planned expansion of our distribution channels.




Our
      sales
      and profitability may be adversely affected if we fail to successfully expand
      the geographic distribution of our branded and private label products. In
      addition, our expenses could increase and our profits could decrease as we
      implement our growth strategy.




***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.*** 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
      short-term coffee futures and options contracts for the purpose of hedging
      the
      effects of changing green coffee prices. In addition, during the latter half
      of
      fiscal 2000, we began to acquire futures contracts with longer terms, generally
      three to four months, for the purpose of guaranteeing an adequate supply of
      green coffee. Realized and unrealized gains or losses on futures contracts
      are
      accounted for in cost of sales. Gains on futures contracts reduce cost of sales
      and losses on futures contracts increase cost of sales. Although we had net
      gains on futures contracts for the years ended October 31, 2006 and 2005,
      respectively, we have incurred losses on futures contracts during some past
      reporting periods, which could materially increase our cost of sales and
      materially decrease our profitability and adversely affect our stock
      price.




Although
      the use of these derivative financial instruments has generally enabled us
      to
      mitigate the effect of changing prices, no strategy is effective to eliminate
      the pricing risks and we generally remain exposed to loss on futures contracts
      when prices decline significantly in a short period of time, and we generally
      remain exposed to supply risk in the event of non-performance by the
      counter-parties to any futures contracts. Although, historically, we generally
      have been able to pass green coffee price increases through to customers,
      thereby maintaining our gross profits, we may not be able to pass price
      increases through to our customers in the future. Our hedging strategy and
      the
      hedges that we enter into may not adequately offset the risks of coffee bean
      price volatility and our hedges may result in losses. Failure to properly design
      and implement an effective hedging strategy may materially adversely affect
      our
      business and operating results. In this case, our costs of sales may increase,
      resulting in a decrease in profitability.




***Our
      revenues and profitability could be adversely affected if our joint ventures
      are
      not successful.*** In March
      2006, we entered into a joint venture with Coffee Bean Trading-Roasting LLC
      and
      formed Café La Rica, LLC. The joint venture engages in the roasting, packaging
      and sale of the Café La Rica brand coffee and other branded and food service
      coffee products in Miami, Florida. In April 2006, we entered into a joint
      venture with Caruso's Coffee of Brecksville, Ohio and formed Generations Coffee
      Company, LLC, which will engage in the roasting, packaging and sale of private
      label specialty coffee products. To date, Generations Coffee Company has engaged
      in limited operations. During 2006, Café La Rica incurred a loss of $176,911.
      While we believe the loss by Café La Rica is consistent with the typical initial
      performance of a start-up venture of this type, continued losses will hurt
      our
      profitability.




11




In
      addition, we generally will not be in a position to exercise sole
      decision-making authority regarding these joint ventures. Investments in joint
      ventures may under certain circumstances, involve risks not present when a
      third-party is not involved, including the possibility that joint venture
      partners might become bankrupt or fail to fund their share of the required
      capital contributions. Joint venture partners may have business interests,
      strategies or goals that are inconsistent with our business interests,
      strategies or goals and may be in cases where we have a minority interest will
      be, in a position to take actions contrary to our policies, strategies or
      objectives. Joint venture investments also entail a risk of impasse on
      decisions, because neither we nor our joint venture partner would have full
      control over the joint venture. Any disputes that may arise between us and
      our
      joint venture partners may result in litigation or arbitration that could
      increase our expenses and could prevent our officers and/or directors from
      focusing their time and effort exclusively on our business strategies. In
      addition, we may in certain circumstances be liable for the actions of our
      third-party joint venture partners.




***Any
      inability to successfully implement our strategy of growth through selective
      acquisitions, licensing arrangements and other strategic alliances could
      materially affect our revenues and profitability.*** Our
      strategy of growth through the selective acquisition of coffee companies, the
      selective acquisition or licensing of additional coffee brands and other
      strategic alliances presents risks that could result in increased expenditures
      and could materially adversely affect our revenues and profitability,
      including:




·
            such
                acquisitions, licensing arrangements or other strategic alliances
                may
                divert our management’s attention from our existing
                operations;




·
            we
                may not be able to successfully integrate any acquired coffee companies
                or
                new coffee brands into our existing
                business;




·
            we
                may not be able to manage the contingent risks associated with the
                past
                operations of, and other unanticipated problems arising in, any acquired
                coffee company; and




·
            we
                may not be able to control unanticipated costs associated with such
                acquisitions, licensing arrangements or strategic
                alliances.




In
      addition, any such acquisitions, licensing arrangements or strategic alliances
      may result in:




·
            potentially
                dilutive issuances of our equity securities;
                and




·
            the
                incurrence of additional debt.




As
      has
      been our practice in the past, we will continuously evaluate any such
      acquisitions, licensing opportunities or strategic alliances as they arise.
      However, we have not reached any agreement or arrangement with respect to any
      such acquisition, licensing opportunity or strategic alliance at this time
      and
      we may not be able to consummate any acquisitions, licensing arrangements or
      strategic alliances on terms favorable to us or at all. The failure to
      consummate any such acquisitions, licensing arrangements or strategic alliances
      may reduce our growth and expansion.




12




***The
      loss of any of our key customers could negatively affect our revenues and
      decrease our earnings.*** We are
      highly dependant upon sales of our private label and branded coffee to two
      wholesalers, Supervalu and Topco/Shurfine, and upon sales of wholesale green
      coffee to one customer, Green Mountain Coffee Roasters. Sales to Supervalu,
      Topco/Shurfine and Green Mountain Coffee Roasters accounted for approximately
      7%, 6%, and 23% of our net sales for the three months ended October 31, 2006,
      respectively, and 6%, 6% and 31% of our net sales for the year ended October
      31,
      2006, respectively.




Although
      no other customer accounted for greater than 5% of our net sales during these
      periods, other customers may account for more than 5% of our net sales in future
      periods. We do not have long-term contracts with these or any of our customers.
      Accordingly, our customers can stop purchasing our products at any time without
      penalty and are free to purchase products from our competitors. The loss of,
      or
      reduction in sales to, customers such as Supervalu, Topco/Shurfine, Green
      Mountain Coffee Roasters or any of our other customers to which we sell a
      significant amount of our products or any material adverse change in the
      financial condition of such customers would negatively affect our revenues
      and
      decrease our earnings.




***If
      we lose our key personnel, including Andrew Gordon and David Gordon, our
      revenues and profitability could suffer.*** Our
      success depends to a large degree upon the services of Andrew Gordon, our
      President, Chief Executive Officer, Chief Financial Officer and Treasurer,
      and
      David Gordon, our Executive Vice President-Operations and Secretary. We also
      depend to a large degree on the expertise of our coffee roasters. We do not
      have
      employment contracts with our coffee roasters. Our ability to source and
      purchase a sufficient supply of high quality coffee beans and to roast coffee
      beans consistent with our quality standards could suffer if we lose the services
      of any of these individuals. As a result, our business and operating results
      would be adversely affected. We may not be successful in obtaining and retaining
      a replacement for either Andrew Gordon or David Gordon if they elect to stop
      working for us. In addition, we do not have key-man insurance on the lives
      of
      Andrew Gordon or David Gordon.




***If
      our planned increase in marketing expenditures fails to promote and enhance
      our
      brands, the value of our brands could decrease and our revenues and
      profitability could be adversely affected.*** We
      believe that promoting and enhancing our brands is critical to our success.
      We
      intend to increase our marketing expenditures to increase awareness of our
      brands, which we expect will create and maintain brand loyalty. If our
      brand-building strategy is unsuccessful, these expenses may never be recovered,
      and we may be unable to increase awareness of our brands or protect the value
      of
      our brands. If we are unable to achieve these goals, our revenues and ability
      to
      implement our business strategy could be adversely affected.




Our
      success in promoting and enhancing our brands will also depend on our ability
      to
      provide customers with high quality products and service. Although we take
      measures to ensure that we sell only fresh roasted coffee, we have no control
      over our coffee products once they are purchased by our wholesale customers.
      Accordingly, wholesale customers may store our coffee for longer periods of
      time
      or resell our coffee without our consent, in each case, potentially affecting
      the quality of the coffee prepared from our products. Although we believe we
      are
      less susceptible to quality control problems than many of our competitors
      because a majority of our products are sold in cans or brick packs unlike whole
      bean coffees, if consumers do not perceive our products and service to be of
      high quality, then the value of our brands may be diminished and, consequently,
      our operating results and ability to implement our business strategy may be
      adversely affected.




***Our
      roasting methods are not proprietary, so competitors may be able to duplicate
      them, which could harm our competitive position. If our competitive position
      is
      weakened, our revenues and profitability could be materially adversely
      affected.*** We
      consider our roasting methods essential to the flavor and richness of our
      roasted coffee and, therefore, essential to our brands of coffee. Because we
      do
      not hold any patents for our roasting methods, it may be difficult for us to
      prevent competitors from copying our roasting methods if such methods become
      known. If our competitors copy our roasting methods, the value of our coffee
      brands may be diminished, and we may lose customers to our competitors. In
      addition, competitors may be able to develop roasting methods that are more
      advanced than our roasting methods, which may also harm our competitive
      position.




13




***Our
      operating results may fluctuate significantly, which makes our results of
      operations difficult to predict and could cause our results of operations to
      fall short of expectations.*** Our
      operating results may fluctuate from quarter to quarter and year to year as
      a
      result of a number of factors, many of which are outside of our control. These
      fluctuations could be caused by a number of factors including:




·
            fluctuations
                in purchase prices and supply of green
                coffee;




·
            fluctuations
                in the selling prices of our
                products;




·
            the
                level of marketing and pricing competition from existing or new
                competitors in the coffee industry;




·
            the
                success of our hedging strategy;




·
            our
                ability to retain existing customers and attract new customers;
                and




·
            our
                ability to manage inventory and fulfillment operations and maintain
                gross
                margins.




As
      a
      result of the foregoing, period-to-period comparisons of our operating results
      may not necessarily be meaningful and those comparisons should not be relied
      upon as indicators of future performance. Accordingly, our operating results
      in
      future quarters may be below market expectations. In this event, the price
      of
      our common stock may decline.




***Since
      we rely heavily on common carriers to ship our coffee on a daily basis, any
      disruption in their services or increase in shipping costs could adversely
      affect our relationship with our customers, which could result in reduced
      revenues, increased operating expenses, a loss of customers or reduced
      profitability.*** We rely
      on a number of common carriers to deliver coffee to our customers and to deliver
      coffee beans to us. We consider roasted coffee a perishable product and we
      rely
      on these common carriers to deliver fresh roasted coffee on a daily basis.
      We
      have no control over these common carriers and the services provided by them
      may
      be interrupted as a result of labor shortages, contract disputes and other
      factors. If we experience an interruption in these services, we may be unable
      to
      ship our coffee in a timely manner, which could reduce our revenues and
      adversely effect our relationship with our customers. In addition, a delay
      in
      shipping could require us to contract with alternative, and possibly more
      expensive, common carriers and could cause orders to be cancelled or receipt
      of
      goods to be refused. Any significant increase in shipping costs could lower
      our
      profit margins or force us to raise prices, which could cause our revenue and
      profits to suffer.




***If
      there was a significant interruption in the operation of either one of our
      facilities, we may not have the capacity to service all of our customers and
      we
      may not be able to service our customers in a timely manner, thereby reducing
      our revenues and earnings.*** A
      significant interruption in the operation of either of our coffee roasting
      and
      distribution facilities, whether as a result of a natural disaster or other
      causes, could significantly impair our ability to operate our business. Due
      to
      manufacturing and logistical efficiencies, our New York facility generally
      services customers in the Northeastern United States and the Midwest United
      States and our La Junta, Colorado facility services customers in the Western
      United States. If there was a significant interruption in the operation of
      either one of our facilities, we may not have the capacity to service all of
      our
      customers out of the lone operating facility and we may not be able to service
      our customers in a timely manner. As a result, our revenues and earnings would
      be materially adversely affected.




14




**Risk
      Factors Related to the Coffee Industry**




***Increases
      in the cost of high quality Arabica or Robusta coffee beans could reduce our
      gross margin and profit.*** Coffee
      is a traded commodity and, in general, its price can fluctuate depending
      on:




·
            weather
                patterns in coffee-producing
                countries;




·
            economic
                and political conditions affecting coffee-producing countries, including
                acts of terrorism in such
                countries;




·
            foreign
                currency fluctuations; and




·
            trade
                regulations and restrictions between coffee-producing countries and
                the
                United States.




If
      the
      cost of wholesale green coffee increases due to any of these factors, our
      margins could decrease and our profitability could suffer accordingly. Although
      we have historically attempted to raise the selling prices of our products
      in
      response to increases in the price of wholesale green coffee, when wholesale
      green coffee prices increase rapidly or to significantly higher than normal
      levels, we are not always able to pass the price increases through to our
      customers on a timely basis, if at all, which adversely affects our operating
      margins and cash flow. We may not be able to recover any future increases in
      the
      cost of wholesale green coffee. Even if we are able to recover future increases,
      our operating margins and results of operations may still be materially and
      adversely affected by time delays in the implementation of price
      increases.




***Disruptions
      in the supply of green coffee could result in a deterioration of our
      relationship with our customers, decreased revenues or could impair our ability
      to grow our business.*** Green
      coffee is a commodity and its supply is subject to volatility beyond our
      control. Supply is affected by many factors in the coffee growing countries
      including weather, political and economic conditions, acts of terrorism, as
      well
      as efforts by coffee growers to expand or form cartels or associations. If
      we
      are unable to procure a sufficient supply of green coffee, our sales would
      suffer.




Some
      of
      the arabica coffee beans of the quality we purchase do not trade directly on
      the
      commodity markets. Rather, we purchase the high end arabica coffee beans that
      we
      use on a negotiated basis. We depend on our relationships with coffee brokers,
      exporters and growers for the supply of our primary raw material, high quality
      Arabica coffee beans. If any of our relationships with coffee brokers, exporters
      or growers deteriorate, we may be unable to procure a sufficient quantity of
      high quality coffee beans at prices acceptable to us or at all. In such case,
      we
      may not be able to fulfill the demand of our existing customers, supply new
      retail stores or expand other channels of distribution. A raw material shortage
      could result in a deterioration of our relationship with our customers,
      decreased revenues or could impair our ability to expand our
      business.




***The
      coffee industry is highly competitive and if we cannot compete successfully,
      we
      may lose our customers or experience reduced sales and
      profitability.*** The
      coffee markets in which we do business are highly competitive and competition
      in
      these markets is likely to become increasingly more intense due to the
      relatively low barriers to entry. The industry in which we compete is
      particularly sensitive to price pressure, as well as quality, reputation and
      viability for wholesale and brand loyalty for retail. To the extent that one
      or
      more of our competitors becomes more successful with respect to any key
      competitive factor, our ability to attract and retain customers could be
      materially adversely affected. Our private label and branded coffee products
      compete with other manufacturers of private label coffee and branded coffees.
      These competitors, such as Kraft General Foods, Inc., The Kroger Co., The
      Procter & Gamble Company and Sara Lee Corporation, have much greater
      financial, marketing, distribution, management and other resources than we
      do
      for marketing, promotions and geographic and market expansion. In addition,
      there are a growing number of specialty coffee companies who provide specialty
      green coffee and roasted coffee for retail sale. If we are unable to compete
      successfully against existing and new competitors, we may lose our customers
      or
      experience reduced sales and profitability.




15




**ITEM
      1B.**  **UNRESOLVED
      STAFF COMMENTS**




Not
      applicable.






**ITEM
      2.** **PROPERTIES**




We
      are
      headquartered at 4401 First Avenue, Brooklyn, New York, where we own the land
      and an approximately 15,000 square foot building. The building houses our
      executive offices, as well as our plant where we roast, blend and package our
      coffee.




We
      lease
      a 50,000 square foot facility located at 27700 Frontage Road in La Junta,
      Colorado from the City of La Junta. We pay annual rent of $100,093 through
      January of 2024.




We
      lease
      a 7,500 square foot warehouse located at 4425A First Avenue in Brooklyn from
      T
& O Management. T & O Management is not affiliated with us or any of our
      officers, directors or stockholders. We pay annual rent of $180,000 under the
      terms of the lease, which expires on January 31, 2011.




We
      also
      use a variety of independent, bonded commercial warehouses to store our green
      coffee beans. Our management believes that our facilities are adequate for
      our
      current operations and for our contemplated operations in the foreseeable
      future.






**ITEM
      3.** **LEGAL
      PROCEEDINGS**




We
      are
      not a party to, and none of our property is the subject of, any pending legal
      proceedings other than routine litigation that is incidental to our business.
      To
      our knowledge, no governmental authority is contemplating initiating any such
      proceedings.






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




During
      the fourth quarter of the fiscal year covered by this report on Form 10-K,
      no
      matters were submitted to a vote of security holders.




16




**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**




Our
      common stock trades on the American Stock Exchange under the symbol “JVA.” We
      have not declared or paid any dividends on our common stock during the last
      two
      fiscal years. At December 29, 2006, there were 385 holders of record of an
      aggregate of 5,529,830 shares of our common stock issued and outstanding. No
      shares of common stock were repurchased during fiscal 2006.




The
      following table sets forth the high and low sales prices of our common stock
      for
      each quarter since it began trading on May 3, 2005.




2005High
            
            
            Low3rdQuarter
            
            $
            10.60
            
            $
            4.404thQuarter
            
            $
            15.75
            
            $
            4.64




20061stQuarter
            
            $
            8.45
            
            $
            5.402ndQuarter
            
            $
            7.40
            
            $
            5.553rdQuarter
            
            $
            6.46
            
            $
            3.504thQuarter
            
            $
            4.50
            
            $
            3.30





On
      May 6,
      2005, we concluded the public offering of 1,400,000 shares of our common stock
      at a price of $5.00 per share and on June 16, 2005 the underwriters exercised
      their option to purchase an additional 210,000 shares of our common stock at
      a
      price of $5.00 per share pursuant to a Registration Statement on Form SB-2
      (No.
      333-116838) which was declared effective by the Securities and Exchange
      Commission on May 3, 2005. After underwriting discounts and commissions and
      offering expenses, we received net proceeds of $6,436,016 in the offering,
      after
      giving effect to the over-allotment option. We used some of the proceeds to
      pay
      down bank debt, to build up our inventories for sales expansion and for general
      corporate purposes, including working capital and capital expenditures.
      Additional proceeds were used to purchase equipment and provide working capital
      for our two joint ventures.




17




**ITEM
      6.** **SELECTED
      FINANCIAL DATA**




The
      following table sets forth selected financial data for the last five years
      from
      the consolidated financial statements of Coffee Holding Co, Inc. The following
      information is only a summary, and you should read it in conjunction with our
      consolidated financial statements and notes beginning on page F-1.




**For
                the Years Ended October 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                in thousands, except per share data)****Income
                Statement Data:**Net
                sales
            
            $
            51,171
            
            $
            41,545
            
            $
            28,030
            
            $
            20,240
            
            $
            17,433Cost
                of sales
            
            
            43,576
            
            
            33,876
            
            
            20,928
            
            
            15,373
            
            
            12,453Gross
                profit
            
            
            7,595
            
            
            7,669
            
            
            7,102
            
            
            4,867
            
            
            4,980Operating
                expenses
            
            
            6,231
            
            
            5,698
            
            
            5,400
            
            
            3,993
            
            
            3,505Income
                from operations
            
            
            1,364
            
            
            1,971
            
            
            1,702
            
            
            874
            
            
            1,475Other
                income (expense)
            
            
            (68
            )
            
            (60
            )
            
            (134
            )
            
            (136
            )
            
            (162
            )Income
                before income taxes
            
            
            1,296
            
            
            1,911
            
            
            1,568
            
            
            738
            
            
            1,313Provision
                for income taxes
            
            
            602
            
            
            726
            
            
            693
            
            
            116
            
            
            558Minority
                interest
            
            
            (6
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income
            
            $
            700
            
            $
            1,185
            
            $
            875
            
            $
            622
            
            $
            755Net
                income per share -
              Basic
                and diluted
            
            $
            0.13
            
            $
            0.25
            
            $
            0.22
            
            $
            0.16
            
            $
            0.19




**At
                October 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(Dollars
                in thousands, except per share data)****Income
                Statement Data:**Total
                assets
            
            $
            18,982
            
            $
            16,545
            
            $
            10,914
            
            $
            7,035
            
            $
            6,042Short-term
                debt
            
            
            2,543
            
            
            1,064
            
            
            3,048
            
            
            215
            
            
            205Long-term
                debt
            
            
            -
            
            
            -
            
            
            6
            
            
            2,800
            
            
            1,972Total
                liabilities
            
            
            7,640
            
            
            5,904
            
            
            7,918
            
            
            4,915
            
            
            4,544Shareholders’
                equity
            
            
            11,342
            
            
            10,642
            
            
            2,996
            
            
            2,120
            
            
            1,498Book
                value per share
            
            $
            2.05
            
            $
            1.92
            
            $
            0.75
            
            $
            0.53
            
            
            0.37





18




**ITEM
              7.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATION**




**Cautionary
      Note on Forward Looking Statements**




Some
      of
      the matters discussed under the caption “Management’s Discussion and Analysis or
      Plan 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 on our current expectations and
      projections about future events, including, among other things:




·
            the
                impact of rapid or persistent fluctuations in the price of coffee
                beans;




·
            fluctuations
                in the supply of coffee beans;




·
            general
                economic conditions and conditions which affect the market for
                coffee;




·
            our
                success in implementing our business strategy or introducing new
                products;




·
            our
                ability to attract and retain
                customers;




·
            our
                success in expanding our market presence in new geographic
                regions;




·
            the
                effects of competition from other coffee manufacturers and other
                beverage
                alternatives;




·
            changes
                in tastes and preferences for, or the consumption of, coffee;




·
            our
                ability to obtain additional financing;
                and




·
            other
                risks which we identify in future filings with the Securities and
                Exchange
                Commission.




In
      some
      cases, you can identify forward-looking statements by terminology such as “may,”
“will,” “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 annual 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 which occur after the date of this annual report.




**Overview**




We
      are an
      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. 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.




19




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;
                and




·
            the
                roasting, blending, packaging and sale of our seven brands of
                coffee.




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;




·
            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 the strategic decision to invest in measures that will
      increase net sales. In February 2004, we acquired certain assets of Premier
      Roasters, including equipment and a roasting facility in La Junta, Colorado.
      We
      also hired a West Coast Brand Manager to market our S&W brand and to
      increase sales of S&W coffee to new customers. In March 2006, we entered
      into a joint venture with Coffee Bean Trading-Roasting LLC and formed Café La
      Rica, LLC, a Delaware limited liability company. The joint venture engages
      in
      the roasting, packaging and sale of the Café La Rica brand coffee and other
      branded and food service coffee products in Miami, Florida. We own 50% of the
      joint venture and are the primary supplier of its coffee inventory. In April
      2006, we entered into a joint venture with Caruso's Coffee of Brecksville,
      Ohio
      and formed Generations Coffee Company, LLC, a Delaware limited liability
      company, which will engage in the roasting, packaging and sale of private label
      specialty coffee products. We own 60% of the joint venture and are the exclusive
      supplier of its coffee inventory. We believe that the Generations Coffee joint
      venture will allow us to bid on the private label gourmet whole bean business
      we
      have not been equipped to pursue from an operational standpoint in the past.
      With this specialty roasting facility in place, in many cases right in the
      backyard of our most important wholesale and retail customers, we believe that
      we are in an ideal position to combine our current canned private label business
      with high-end private label specialty whole bean business. High-end specialty
      whole bean coffee sells for as much as three times more per pound than the
      canned coffees in which we currently specialize. As a result of these efforts,
      net sales increased in our specialty green coffee, private label and branded
      coffee business lines in both dollars and pounds sold. In addition, we increased
      the number of our customers in all three areas.




Our
      net
      sales are affected by the price of green coffee. We import green coffee from
      Colombia, Mexico, Kenya, Brazil and Uganda. The supply and price of coffee
      beans
      are subject to volatility and are influenced by numerous factors which are
      beyond our control. For example, coffee crops in Brazil, which produces
      one-third of the world’s green coffee, are 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 capital 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. However, the average indicator price for Robusta
      coffee, the main component for our leading espresso brands (Café Caribe and Café
Supremo), increased 104% by August 2006 compared to August of 2005. This
      indicator price was the highest seen in the last seven years as measured by
      the
      International Coffee Organization. By September 2006, prices had achieved
      further gains, trading to their highest levels in eight years. For competitive
      reasons, we were not able to pass these price increases through to our
      customers. As a result, the increases in the price of coffee had the effect
      of
      diminishing our profit margins significantly on our leading espresso lines
      as
      there were no lower priced coffees to substitute into our blends and we were
      not
      able to increase our prices to maintain our margins. In October 2006, national
      brands reacted to these price increases, raising list prices by $0.12 per unit,
      and we were able to increase our prices as well.




20




Historically,
      we have used short-term coffee futures and options contracts primarily for
      the
      purpose of partially hedging and minimizing the effects of changing green coffee
      prices and to reduce our cost of sales. In addition, we acquire futures
      contracts with longer terms, generally three to four months, primarily for
      the
      purpose of guaranteeing an adequate supply of green coffee at favorable prices.
      Although the use of these derivative financial instruments has enabled us to
      mitigate the effect of changing prices, no strategy can entirely eliminate
      pricing risks and we generally remain exposed to loss when prices decline
      significantly in a short period of time. In addition, we generally remain
      exposed to supply risk in the event of non-performance by the counter-parties
      to
      any futures contracts. 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.




**Critical
      Accounting Policies and Estimates**




The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions that affect the amounts reported
      in
      the financial statements and accompanying notes. Estimates are used for, but
      not
      limited to, the accounting for the allowance for doubtful accounts, inventories,
      income taxes and loss contingencies. Management bases its estimates on
      historical experience and on various other assumptions that are believed to
      be
      reasonable under the circumstances. Actual results could differ from these
      estimates under different assumptions or conditions.




We
      believe the following critical accounting policies, among others, may be
      impacted significantly by judgment, assumptions and estimates used in the
      preparation of the financial statements:




·
            We
                recognize revenue in accordance with Securities and Exchange Commission
                Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”).
                Under SAB 104, revenue is recognized at the point of passage to the
                customer of title and risk of loss, when there is persuasive evidence
                of
                an arrangement, the sales price is determinable, and collection of
                the
                resulting receivable is reasonably assured. We recognize revenue
                at the
                time of shipment. Sales are reflected net of discounts and
                returns.




·
            Our
                allowance for doubtful accounts is maintained to provide for losses
                arising from customers’ inability to make required payments. If there is
                deterioration of our customers’ credit worthiness and/or there is an
                increase in the length of time that the receivables are past due
                greater
                than the historical assumptions used, additional allowances may be
                required. For example, every additional one percent of our accounts
                receivable that becomes uncollectible, would reduce our operating
                income
                by approximately $65,000.




21


·
            Inventories
                are stated at cost (determined on a first-in, first-out basis). Based
                on
                our assumptions about future demand and market conditions, inventories
                are
                subject to be written-down to market value. If our assumptions about
                future demand change and/or actual market conditions are less favorable
                than those projected, additional write-downs of inventories may be
                required. Each additional one percent of potential inventory writedown
                would have reduced operating income by approximately $30,000 for
                the year
                ended October 31, 2006.




**·**
            We
                account for income taxes in accordance with Statement of Financial
                Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No.
                109”). Under SFAS No. 109, deferred tax assets and liabilities are
                determined based on the liabilities, using enacted tax rates in effect
                for
                the year in which the differences are expected to reverse. Deferred
                tax
                assets are reflected on the balance sheet when it is determined that
                it is
                more likely than not that the asset will be realized. Accordingly,
                our net
                deferred tax asset of $208,700 could need to be written off if we
                do not
                remain profitable.




**Year
      Ended October 31, 2006 (Fiscal 2006) Compared to the Year Ended October 31,
      2005
      (Fiscal 2005)**




***Net
      Income*** **.** Net
      income decreased $485,053, or 40.9%, to $700,082 or $.13 per share for the
      year
      ended October 31, 2006 compared to $1,185,135 or $.25 per share for the year
      ended October 31, 2005. The
      decrease in net income primarily reflects increased
      cost of sales and operating expenses and a loss by our Café La Rica joint
      venture, partially offset by increased net sales. We believe the loss by Café La
      Rica, which was formed in March 2006, is consistent with the typical initial
      performance of a start-up venture of this type.




***Net
      Sales.*** Net
      sales totaled $51,171,202 for the year ended October 31, 2006, an increase
      of
      $9,625,857 or 23.2% from $41,545,345 for the year ended October 31, 2005. The
      increase in net sales reflects a 10.4% increase in coffee pounds sold from
      31.6
      million pounds in 2005 to 34.9 million pounds in 2006. The increase in pounds
      of
      coffee sold is the result of increased sales of our branded and specialty green
      coffees. Sales of our Café Caribe brand increased once again and sales of our
      second Hispanic espresso, Café Supremo, increased 48%, as measured by
      Information Resources Incorporated data. The number of our customers in the
      specialty green coffee area grew approximately 3% to 290 customers. These
      customers are predominately independent gourmet/specialty roasters, some of
      whom
      own their own retail outlets. Sales to new customers in this area historically
      start slowly because many of these companies are start up ventures. Because
      the
      specialty green coffee area is the fastest growing segment of the coffee market,
      we believe that our customer base and sales will grow in this area. The increase
      in coffee prices also contributed to the increase in net sales.




***Cost
      of Sales.*** Cost of
      sales for the year ended October 31, 2006 was $43,575,963 or 85.2% of net sales,
      as compared to $33,875,973 or 81.5% of net sales for the year ended October
      31,
      2005. Cost of sales consists primarily of the cost of green coffee and packaging
      materials and realized and unrealized gains or losses on hedging activity. The
      increase in cost of sales reflects higher packaging costs associated with the
      increase in net sales of approximately $300,000 and increased purchases of
      green
      coffee in the amount of approximately $5.8 million. The increase in green coffee
      purchases resulted from increased pounds sold and higher green coffee prices
      during the period as prices increased $0.23 per pound on the New York Arabica
      market and $0.27 per pound on the London Robusta market year to
      year. The
      average indicator price for Robusta coffee, the main component for our leading
      espresso brands (Café Caribe and Café Supremo), increased 104% by August 2006
      compared to August of 2005. This indicator price was the highest seen in the
      last seven years as measured by the International Coffee Organization. By
      September 2006, prices had achieved further gains, trading to their highest
      levels in eight years. For competitive reasons, we were not able to pass these
      price increases through to our customers. As a result, these increases had
      the
      effect of diminishing our profit margins significantly on our leading espresso
      lines as there were no lower priced coffees to substitute into our blends.
      In
      addition, our private label margins were negatively impacted as well, but to
      a
      much lesser degree, as Robustas represent only a small percentage of our private
      label blends. In October 2006, national brands reacted to these price increases,
      raising list prices by $0.12 per unit. We increased our prices as
      well.





22


***Gross
      Profit.*** Gross
      profit for the year ended October 31, 2006 was $7,595,239, a decrease of $74,133
      from $7,669,372 for the year ended October 31, 2005. Gross profit as a
      percentage of net sales decreased by 3.7% to 14.8% for the year ended October
      31, 2006 from 18.5% for the year ended October 31, 2005. The decrease in our
      margins is mainly attributable to increases in coffee prices.




***Operating
      Expenses.*** Total
      operating expenses increased $532,669 or 9.3% to $6,230,932 for the year ended
      October 31, 2006 from $5,698,263 for the fiscal year ended October 31, 2005
      due
      to increases in selling and administrative expenses and officers’ salaries
      partially offset by a decrease in bad debt expense. Selling and administrative
      expenses increased $731,769 or 15% to $5,585,787 for the year ended October
      31,
      2006 from $4,854,018 for 2005. The increase in selling and administrative
      expenses reflects several factors, including increases of approximately $485,000
      in labor costs $155,000 in professional fees and $234,000 in shipping costs,
      partially offset by decreases of $60,000 in show and demo costs, $50,000 in
      advertising and promotion and $40,000 in bank charges.




The
      increase in labor costs is attributable to an increase in administrative and
      sales staff, salary increases and bonuses. The increase in professional fees
      was
      due to the requirements of implementing our compliance with Section 404 of
      the
      Sarbanes-Oxley Act. The increase in shipping costs was attributable to increased
      sales as well as higher fuel prices which resulted in increased trucking rates.
      The decrease in show and demo costs represents a change in our sales strategy.
      The decrease in advertising and promotion is attributable to reduced allowances
      to customers which resulted in reduced chargebacks.




Officers’
      salaries increased $41,807 to $616,052 for the year ended October 31, 2006
      from
      $574,245 for the year ended October 31, 2005. The increase was mainly due to
      a
      fiscal year 2006 bonus paid to our President and Chief Executive Officer and
      was
      partially offset by a $35,000 reduction in his annual salary effective in August
      of 2006.




***Other
      Income and Expense.*** Other
      expense increased $8,011 or 13.3% from $60,321 for the year ended October 31,
      2005 to $68,332 for the year ended October 31, 2006. The increase was
      attributable a loss in the initial year of our Café La Rica joint venture of
      $176,911 and an increase in interest expense of $19,417. The increase was
      partially offset by an increase in interest income of $78,604, a $65,310
      increase in other income and $44,403 in management fee income earned from
      providing administrative services to the Café La Rica joint venture. We believe
      the loss by Café La Rica, which was formed in March 2006, is consistent with the
      typical initial performance of a start-up venture of this type.




***Income
      Before Taxes.*** We had
      income of $1,295,975 before income taxes for the year ended October 31, 2006
      compared to income of $1,910,788 before income taxes for the year ended October
      31, 2005. The decrease was attributable to increased cost of sales due to
      increased commodity prices and operating expenses, partially offset by increased
      net sales.




***Income
      Taxes*** **.** Our
      provision for income taxes for the year ended October 31, 2006 totaled $602,059
      compared to $725,653 for the year ended October 31, 2005 as a result of
      decreased income before taxes. Our effective tax rate remained the
      same.




23




**Year
      Ended October 31, 2005 (Fiscal 2005) Compared to the Year Ended October 31,
      2004
      (Fiscal 2004)**




**Net
      Income.** Net
      income increased $309,793, or 35.4%, to $1,185,135 or $0.25 per share for the
      year ended October 31, 2005 compared to $875,342 or $0.22 per share for the
      year
      ended October 31, 2004. The increase in net income primarily reflects increased
      net sales, offset in part by an increase in cost of sales.




***Net
      Sales.*** Net
      sales totaled $41,545,345 for the year ended October 31, 2005, an increase
      of
      $13,514,956 or 48.2% from $28,030,389 for the year ended October 31, 2004.
      The
      increase in net sales reflects a 20.6% increase in coffee pounds sold from 26.2
      million pounds in 2004 to 31.6 million pounds in 2005. The increase in pounds
      of
      coffee sold is the result of increased sales of our private label, branded
      and
      specialty green coffees. Sales of our Café Caribe brand, as measured by
      Information Resources Incorporated data, increased approximately 21.0% over
      fiscal 2004 due in part to the efforts of our third party marketing specialists
      through label redesigns and new distribution. The number of our customers in
      the
      specialty green coffee area grew approximately 7.3% to 281 customers. These
      customers are predominately independent gourmet/specialty roasters, some of
      whom
      own their own retail outlets. Sales to new customers in this area historically
      start slowly because many of these companies are start up ventures. Because
      the
      specialty green coffee area is the fastest growing segment of the coffee market,
      we believe that our customer base and sales will grow in this area. The increase
      in the price of the underlying commodity (coffee) also contributed to the
      increase in net sales.




***Cost
      of Sales.*** Cost of
      sales for the year ended October 31, 2005 was $33,875,973 or 81.5% of net sales,
      as compared to $20,927,506 or 74.7% of net sales for the year ended October
      31,
      2004. Cost of sales consists primarily of the cost of green coffee and packaging
      materials and realized and unrealized gains or losses on hedging activity.
      The
      increase in cost of sales reflects increased purchases of green coffee in the
      amount of approximately $12.5 million due to increased pounds sold and higher
      green coffee prices during the period as prices increased $0.23 per pound year
      to year, an increase in packaging costs associated with the increase in net
      sales of approximately $1.0 million, and a decrease in net gains on future
      contracts. As the price of coffee is cyclical and volatile and subject to many
      factors, including weather, politics and economics, we are unable to predict
      the
      purchase price of green coffee for fiscal 2006. We began to acquire futures
      contracts with longer terms (generally three to four months) primarily for
      the
      purpose of guaranteeing an adequate supply of green coffee at favorable prices
      beginning in the latter half of fiscal 2000 and continuing through fiscal 2005.
      The use of these derivative financial instruments has enabled us to mitigate
      the
      effect of changing prices, to increase our margins as coffee prices have
      increased and to be more competitive with our pricing.




***Gross
      Profit.*** Gross
      profit for the year ended October 31, 2005 was $7,669,372, an increase of
      $566,489 or 8.0%, from $7,102,883 for the year ended October 31, 2004. Gross
      profit as a percentage of net sales decreased by 6.8% to 18.5% for the year
      ended October 31, 2005 from 25.3% for the year ended October 31, 2004. The
      decrease in our margins is mainly attributable to decreased net gains on future
      contracts during fiscal 2005 compared to fiscal 2004 and increases in coffee
      prices.




***Operating
      Expenses.*** Total
      operating expenses increased $297,881 or 5.5% to $5,698,263 for the year ended
      October 31, 2005 from $5,400,382 for the fiscal year ended October 31, 2004
      due
      to increases in selling and administrative expenses and bad debt expense,
      partially offset by decreased officers’ salaries. Selling and administrative
      expenses increased $107,123 or 2.3% to $4,854,018 for the year ended October
      31,
      2005 from $4,746,895 for 2004. The increase in selling and administrative
      expenses reflects several factors, including increases of approximately $194,000
      in insurance and $162,000 in shipping costs, partially offset by decreases
      of
      $167,000 in office salaries and $83,000 in payroll taxes.




24


The
      increase in insurance was due to the purchase of directors’ and officers’
insurance following our initial public offering. The increase in shipping costs
      was attributable to increased sales. The decrease in office salaries and payroll
      was due to the departure of our Chief Financial Officer and other administrative
      staff. Our President and Chief Executive Officer has since assumed the duties
      previously associated with our Chief Financial Officer.




Officers’
      salaries decreased $48,328 to $574,245 for the year ended October 31, 2005
      from
      $622,573 for the year ended October 31, 2004. The decrease was mainly due to
      our
      President and Chief Executive Officer’s decision not to accept a bonus for
      2005.




***Other
      Income and Expense.*** Other
      expense decreased $73,643 or 55.0% from $133,964 for the year ended October
      31,
      2004 to $60,321 for the year ended October 31, 2005. The decrease was
      attributable to both an increase in interest income of $38,397 and a decrease
      in
      interest expense of $35,246.




***Income
      Before Taxes.*** We had
      income of $1,910,788 before income taxes for the year ended October 31, 2005
      compared to income of $1,568,537 before income taxes for the year ended October
      31, 2004. The increase was attributable to increased income from operations
      and
      decreased other expense.




***Income
      Taxes.*** Our
      provision for income taxes for the year ended October 31, 2005 totaled $725,653
      compared to $693,195 for the year ended October 31, 2004 as a result of
      increased income before taxes. There was a slight change in the effective rate
      due to income tax refunds.




**Liquidity
      and Capital Resources**




As
      of
      October 31, 2006, we had working capital of $8,357,022 which represented an
      $83,073 increase from our working capital of $8,273,849 as of October 31, 2005,
      and total stockholders’ equity of $11,341,704, which increased by $700,082 from
      our total stockholders’ equity of $10,641,622 as of October 31, 2005. Our
      working capital increased primarily due to an decrease of $1,597,035 in
      inventories, an increase of $1,336,095 in the commodities held at broker and
      an
      increase in our accounts receivable of $1,375,272. Obligations under our line
      of
      credit borrowings increased by $1,479,714. At October 31, 2006, the outstanding
      balance on our line of credit was $2,542,881 compared to $1,063,167 at October
      31, 2005. Total stockholders’ equity increased due to our net income for the
      fiscal year.




As
      of
      October 31, 2006, we had a financing agreement with Merrill Lynch Business
      Financial Services Inc. This line of credit is for a maximum $4,000,000, expires
      on October 31, 2007 and requires monthly interest payments at a rate of LIBOR
      plus 2.15%. This loan is secured by a blanket lien on all of our
      assets.




The
      credit facility contains covenants that place restrictions on our operations.
      Among other things, these covenants: require us to maintain certain financial
      ratios; require us to maintain a minimum net worth; and prohibit us from merging
      with or into other companies, acquiring all or substantially all of the assets
      of other companies, or selling all or substantially all of our assets without
      the consent of the lender. These restrictions could adversely impact our ability
      to implement our business plan, or raise additional capital, if needed. In
      addition, if we default under our existing credit facility or if our lender
      demands payment of a portion or all of our indebtedness, we may not have
      sufficient funds to make such payments. As of October 31, 2006, we were in
      compliance with all covenants contained in the credit facility.




25


We
      also
      leased machinery and equipment under a capital lease which expired in July
      2006.
      The interest rate on the capital lease was 7.347% per annum. The outstanding
      balance was paid in full during the year.




For
      the
      year ended October 31, 2006 compared to 2005 our operating activities used
      net
      cash of $319,564 as compared to the year ended October 31, 2005 when net cash
      used by operating activities was $3,879,082. The increased cash flow from
      operations for the year ended October 31, 2006 was primarily due to a decrease
      of $1,597,035 in inventories and also, a decrease in accounts payable and
      accrued expenses of $397,112 and less of an increase in commodities held at
      broker of $1,336,095.




For
      the
      year ended October 31, 2006, our investing activities used net cash of $776,458
      as compared to the year October 31, 2005 when net cash used by investing
      activities was $474,147. The increase in net cash used by investing activities
      for fiscal 2006 was due to the investments in our joint ventures, partially
      offset by decreased purchases of property and equipment.




The
      change in cash flow from financing activities for the year ended October 31,
      2006 was primarily due to net proceeds from our May 2005 initial public offering
      of $6,436,016.




For
      the
      year ended October 31, 2005, our operating activities used net cash of
      $3,879,082 as compared to the year ended October 31, 2004 when net cash provided
      by operating activities was $1,616,465. The decreased cash flow from operations
      for the year ended October 31, 2005 was primarily due to an increase of
      $2,238,389 in inventories, an increase of $2,120,493 in the commodities held
      at
      broker and an increase of $1,423,821 in accounts receivable.




For
      the
      year ended October 31, 2005, our investing activities used net cash of $474,147
      as compared to the year October 31, 2004 when net cash used by investing
      activities was $1,056,179. The decrease in net cash used by investing activities
      for fiscal 2005 was due to decreased purchases of property and equipment as
      the
      purchase of property and equipment from Premier Roasters occurred in February
      2004.




For
      the
      year ended October 31, 2005, our financing activities provided net cash of
      $4,446,552 as compared to the year ended October 31, 2004 when net cash provided
      by financing activities was $8,027. The increased cash flow from financing
      activities was primarily due to net proceeds from our May 2005 initial public
      offering of $6,436,016, offset in part by increased net cash payments under
      our
      line of credit. Net cash used on our line of credit increased $2,014,857 to
      net
      cash used of $1,621,878 for the year ended October 31, 2005 compared to net
      cash
      provided of $392,979 for the year ended October 31, 2004. In addition, during
      fiscal 2005, we used $252,000 to fully pay off a term loan we no longer
      utilize




We
      expect
      to fund our operations, including paying our liabilities, funding capital
      expenditures and making required payments on our debts, through October 31,
      2007
      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. We also
      believe we could, if necessary, obtain additional loans by mortgaging our
      headquarters.




**Off-Balance
      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, capital
      expenditures or capital resources that is material to investors.




26




**ITEM
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




Market
      risks relating to our operations result primarily from changes in interest
      rates
      and commodity prices as further described below.




***Interest
      Rate Risks.*** ** We
      are
      subject to market risk from exposure to fluctuations in interest rates. At
      October 31, 2006, our debt consisted of $2,542,881 of variable rate debt under
      our revolving line of credit. At October 31, 2006, interest on the variable
      rate
      debt was payable primarily at 7.47% (or 2.15% above the one-month LIBOR rate)
      for the revolving line of credit.




***Commodity
      Price Risks.*** ** 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
      short-term coffee futures and options contracts primarily for the purpose of
      partially hedging and minimizing the effects of changing green coffee prices,
      as
      further explained in Note 2 of the notes to financial statements in this report.
      In addition, during the latter half of fiscal 2000, we began to acquire futures
      contracts with longer terms (generally three to four months) primarily for
      the
      purpose of guaranteeing an adequate supply of green coffee. The use of these
      derivative financial instruments has enabled us to mitigate the effect of
      changing prices although we generally remain exposed to loss when prices decline
      significantly in a short period of time and remain at higher levels, preventing
      us from obtaining inventory at favorable prices. We generally have been able
      to
      pass green coffee price increases through to customers, thereby maintaining
      our
      gross profits. However, we cannot predict whether we will be able to pass
      inventory price increases through to our customers in the future. We believe
      our
      hedging policies remain a vital 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 minimizing margin
      compression during a time of historically high coffee prices.




At
      October 31, 2006, we held 70 options (generally with terms of two months or
      less) covering an aggregate of 2,625,000 pounds of green coffee beans at prices
      of $1.05 per pound. The fair market value of these options, which was obtained
      from major financial institutions, was $116,813 at October 31,
      2006.




At
      October 31, 2006, we held 129 future contracts for the purchase of 2,465,000
      pounds of coffee at an average price of $1.05 per pound. The market price of
      coffee applicable to such contracts was $1.05 per pound at October 31,
      2006.






**ITEM
      8.** **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**




See
      pages
      F-1 through F-21 following the Exhibit Index of this Annual Report on Form
      10-K.




**ITEM
        9.** **CHANGES
        IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL**
 **DISCLOSURE**




None.




27




**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES**




Management,
      including the Company’s President, Treasurer and Chief Executive Officer (who is
      the Company’s principal executive officer and principal accounting officer), has
      evaluated the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of
      the
      period covered by this report. Based upon that evaluation, the Company’s
      President, Chief Executive Officer and Treasurer concluded that the disclosure
      controls and procedures were effective to ensure that information required
      to be
      disclosed in the reports the Company files and submits under the Exchange Act
      is
      (i) recorded, processed, summarized and reported as and when required and
      (ii) accumulated and communicated to the Company’s management, including
      its principal executive officer and financial officer, as appropriate to allow
      timely decisions regarding disclosure.




There
      have been no changes in the Company’s internal control over financial reporting
      identified in connection with the evaluation that occurred during the Company’s
      last fiscal quarter that has materially affected, or that is reasonably likely
      to materially affect, the Company’s internal control over financial
      reporting.




**ITEM
      9B.**  **OTHER
      INFORMATION**




None.




28




**PART
      III**




**ITEM
      10.** **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




Information
      required by this item is incorporated by reference to the Company’s Proxy
      Statement for the 2007 Annual Meeting of Stockholders.




**ITEM
      11.** **EXECUTIVE
      COMPENSATION**




Information
      required by this item is incorporated by reference to the Company’s Proxy
      Statement for the 2007 Annual Meeting of Stockholders.




**ITEM
      12.** **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND**


**RELATED
      STOCKHOLDER MATTERS**




Information
      required by this item is incorporated by reference to the Company’s Proxy
      Statement for the 2007 Annual Meeting of Stockholders.




The
      following table sets forth the aggregate information of our equity compensation
      plans in effect as of October 31, 2006.




**Equity
      Compensation Plan Information**




Plan
                category
            
            Number
                of securities
              to
                be issued
              upon
                exercise of outstanding options, warrants and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            —
            
            —
            
            800,000Equity
                compensation plans not approved by security holders
            
            —
            
            —
            
            —Total
            
            —
            
            —
            
            800,000





**ITEM
      13.** **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




Information
      required by this item is incorporated by reference to the Company’s Proxy
      Statement for the 2007 Annual Meeting of Stockholders.




29




**ITEM
      14.** **PRINCIPAL
      ACCOUNTING FEES AND SERVICES**




Information
      required by this item is incorporated by reference to the Company’s Proxy
      Statement for the 2007 Annual Meeting of Stockholders.




30


**PART
      IV**






**ITEM 15** **EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES**




The
      financial statements listed below are filed as a part of this report. See Index
      to Financial Statements beginning on Page F-1.




Consolidated
      Financial Statements:




-  Index
      to
      Consolidated Financial Statements.




-  Report
      of
      Independent Registered Public Accountants.




-  Consolidated
      Balance Sheets as of October 31, 2006 and 2005.




-  Consolidated
      Statements of Income - Years Ended October 31, 2006, 2005 and 2004.




-  Consolidated
      Statements of Changes in Stockholders’ Equity - Years Ended October 31, 2006,
      2005 and 2004.




-  Statements
      of Cash Flows - Years Ended October 31, 2005 and 2004.




- Notes
      to
      Consolidated Financial Statements.




-  (a)(2)
      Schedule II Valuation and Qualifying Accounts.




See
      Exhibit Index following the signature page to this report.


31




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized on January 26, 2007.




COFFEE
              HOLDING
              CO., INC.By:
            /s/ Andrew
              GordonAndrew
              GordonPresident
              and
              Chief Executive Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




**Signature**
            
            **Title**/s/
                Andrew Gordon
            
            President,
                Chief Executive Officer, Chief Financial Officer, Treasurer andAndrew
                Gordon
            
            Director
                (principal executive officer and principal financial and accounting
                officer)Date:
                January 26, 2007/s/
                David Gordon
            
            Executive
                Vice President -- Operations, Secretary and DirectorDavid
                GordonDate:
                January 26, 2007/s/
                Gerard DeCapua
            
            DirectorGerard
                DeCapuaDate:
                January 26, 2007/s/
                Daniel Dwyer
            
            DirectorDaniel
                DwyerDate:
                January 26, 2007DirectorBarry
                KnepperDate:/s/
                John Rotelli
            
            DirectorJohn RotelliDate:
                January 26, 2007/s/ Robert
              M.
              Williams
            
            DirectorRobert
              M. WilliamsDate:
                January 26, 2007





32





**Exhibit
      Index**





**Exhibit
                No.**
            
            **Description**2.1
            
            Agreement
                and Plan of Merger by and among Transpacific International Group
                Corp. and
                Coffee Holding Co., Inc. (incorporated herein by reference to Exhibit
                2 to
                Post-Effective Amendment No. 1 to the Registration Statement on Form
                SB-2
                (file No. 333-00588-NY) as filed with the Securities and Exchange
                Commission on November 10, 1997).2.2
            
            Asset
                Purchase Agreement, dated February 4, 2004, by and between Coffee
                Holding
                Co., Inc. and Premier Roasters LLC (incorporated herein by reference
                to
                Exhibit 2.1 to the Current Report on Form 8-K dated February 4, 2004
                as
                filed with the SEC on February 20, 2004).3.1
            
            Amended
                and Restated Articles of Incorporation of Coffee Holding Co., Inc.,
                (incorporated herein by reference to Exhibit 3.1 to the Coffee Holding
                Co., Inc. Form 8-A, filed with the Securities and Exchange Commission
                on
                May 2, 2005).3.2
            
            By-Laws
                of Coffee Holding Co., Inc. (incorporated herein by reference to
                Exhibit
                3.2 to the Coffee Holding Co., Inc. Form 8-A, filed with the Securities
                and Exchange Commission on May 2, 2005).4.1
            
            Form
                of Stock Certificate of Coffee Holding Co., Inc. (incorporated herein
                by
                reference to the Coffee Holding Co., Inc. Registration Statement
                on Form
                SB-2, filed with the Securities and Exchange Commission on June 24,
                2004).10.1
            
            Lease
                with T&O Management Corp. dated August 15, 1997 (incorporated herein
                by reference to Exhibit 10.1 to the Coffee Holding Co., Inc. Quarterly
                Report on Form 10-Q for the quarter ended April 30, 1998, filed with
                the
                Securities and Exchange Commission on October 27,
                2000).10.2
            
            1998
                Stock Option Plan (incorporated herein by reference to Exhibit 10.2
                to the
                Coffee Holding Co., Inc. Quarterly Report on Form 10-Q for the quarter
                ended April 30, 1998, filed with the Securities and Exchange Commission
                on
                October 27, 2000).10.3
            
            Working
                Capital Management Account Loan and Security Agreement with Merrill
                Lynch
                Business Financial Services Inc. (incorporated herein by reference
                to
                Exhibit 10.3 to the Coffee Holding Co., Inc. Annual Report on Form
                10-KSB,
                filed with the Securities and Exchange Commission on February 10,
                2005).10.4
            
            Amendment
                to Working Capital Account Loan and Security Agreement with Merrill
                Lynch
                Business Financial Services, Inc. (incorporated herein by reference
                to
                Exhibit 10.4 to the Coffee Holding Co., Inc. Quarterly Report on
                Form
                10-QSB for the quarter ended January 31, 2005, filed with the Securities
                and Exchange Commission on March 17, 2005).10.9
            
            Capital
                Lease Agreement with HSBC Business Credit (USA), Inc. (incorporated
                herein
                by reference to Exhibit 10.9 to Amendment No. 1 to the Coffee Holding
                Co.,
                Inc. Registration Statement on Form SB-2/A, filed with the Securities
                and
                Exchange Commission on August 12, 2004).10.10
            
            Sales
                contract with Supervalu and Cub Foods (incorporated herein by reference
                to
                Exhibit 10.10 to Amendment No. 1 to the Coffee Holding Co., Inc.
                Annual
                Report on Form 10-KSB/A for the year ended October 31, 2002, filed
                with
                the Securities and Exchange Commission on August 26, 2004) (confidential
                portions have been redacted pursuant to a request for confidential
                treatment and filed separately with the Securities and Exchange
                Commission).











10.11
            
            Sales
                contract with Shurfine Central (incorporated herein by reference
                to
                Exhibit 10.11 to Amendment No. 1 to the Coffee Holding Co., Inc.
                Annual
                Report on Form 10-KSB/A for the year ended October 31, 2002, filed
                with
                the Securities and Exchange Commission on August 26, 2004) (confidential
                portions have been redacted pursuant to a request for confidential
                treatment and filed separately with the Securities and Exchange
                Commission).10.12
            
            Lease
                dated February 4, 2004 by and between Coffee Holding Co., Inc. and
                the
                City of La Junta, Colorado (incorporated herein by reference to Exhibit
                10.12 to Amendment No. 1 to the Coffee Holding Co., Inc. Registration
                Statement on Form SB-2/A, filed with the Securities and Exchange
                Commission on August 12, 2004).10.13
            
            Trademark
                License Agreement dated February 4, 2004 between Del Monte Corporation
                and
                Coffee Holding Co, Inc. (incorporated herein by reference to Exhibit
                10.13
                to the Coffee Holding Co., Inc. Quarterly Report on Form 10-QSB/A
                for the
                quarter ended April 30, 2004, filed with the Securities and Exchange
                Commission on August 26, 2004).10.14
            
            Employment
                agreement by and among Coffee Holding Co., Inc. and Andrew Gordon
                (incorporated herein by reference to the Coffee Holding Co., Inc.
                Registration Statement on Form SB-2, filed with the Securities and
                Exchange Commission on June 24, 2004).10.15
            
            Employment
                agreement by and among Coffee Holding Co., Inc. and David Gordon
                (incorporated herein by reference to the Coffee Holding Co., Inc.
                Registration Statement on Form SB-2, filed with the Securities and
                Exchange Commission on June 24, 2004).10.17
            
            Corporate
                Brands Agreement dated as of March 30, 2004 by and between Albertson’s,
                Inc. and Coffee Holding Co., Inc. (incorporated herein by reference
                to
                Amendment No. 2 to the Coffee Holding Co., Inc. Registration Statement
                on
                Form SB-2/A, filed with the Securities and Exchange Commission on
                October
                25, 2004) (confidential portions have been redacted pursuant to a
                request
                for confidential treatment and filed separately with the Securities
                and
                Exchange Commission).10.19
            
            Coffee
                Holding Co., Inc. Non-Qualified Deferred Compensation Plan (incorporated
                herein by reference to the Coffee Holding Co., Inc. Quarterly Report
                on
                Form 10-QSB, filed with the Securities and Exchange Commission on
                June 14,
                2005).11.1
            
            Earnings
                Per Share.31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification.32.1
            
            Section
                1350 Certification.












**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





PAGEFINANCIAL
                STATEMENTS:REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
            F-2CONSOLIDATED
                BALANCE SHEETS AS OF OCTOBER 31, 2006 AND 2005
            F-3CONSOLIDATED
                STATEMENTS OF INCOME - YEARS ENDED OCTOBER 31, 2006, 2005 AND 2004
            F-4CONSOLIDATED
                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - YEARS ENDED OCTOBER
                31,
                2006, 2005 AND 2004
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS - YEARS ENDED OCTOBER 31, 2006, 2005 AND
                2004
            F-6NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-7/21





*
      *
      *


F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS**





To
      the
      Board of Directors


Coffee
      Holding Co., Inc. and Subsidiary





We
      have
      audited the accompanying consolidated balance sheets of Coffee Holding Co.,
      Inc.
      and Subsidiary as of October 31, 2006 and 2005 and the related consolidated
      statements of income, changes in stockholders’ equity and cash flows for each of
      the three years in the period ended October 31, 2006. Our audits also included
      the financial statement schedule listed in Part IV, Item 15. These consolidated
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Coffee Holding Co., Inc.
      and
      Subsidiary as of October 31, 2006 and 2005 and the results of its operations
      and
      cash flows for each of the three years in the period ended October 31, 2006,
      in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also, in our opinion, the related financial statement schedule, when
      considered in relation to the basic financial statements taken as a whole,
      presents fairly in all material respects the information set forth
      therein.




**/s/
                LAZAR LEVINE & FELIX, LLP****LAZAR
                LEVINE & FELIX,
                LLP**




New
      York,
      New York


January
      9, 2007




F-2


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEETS**


**OCTOBER
      31, 2006 AND 2005**





**2006**
            
            2005**-
                ASSETS -****CURRENT
                ASSETS:**Cash
            
            **$**
            **1,112,165**
            
            $
            735,468Commodities
                held at broker
            
            
            **4,330,489**
            
            
            2,994,394Accounts
                receivable, net of allowance for doubtful accounts of $420,349 for
                2006
                and 2005, respectively
            
            
            **6,534,848**
            
            
            5,159,576Inventories
            
            
            **2,899,543**
            
            
            4,496,578Prepaid
                expenses and other current assets
            
            
            **328,544**
            
            
            272,541Prepaid
                and refundable income taxes
            
            
            **302,003**
            
            
            11,629Deferred
                income tax assets
            
            
            **221,000**
            
            
            318,600**TOTAL
                CURRENT ASSETS**
            
            
            **15,728,592**
            
            
            13,988,786Property
                and equipment, at cost, net of accumulated depreciation of $4,159,274
                and
                $3,727,524 for 2006 and 2005, respectively
            
            
            **2,138,951**
            
            
            2,379,952Investment
                in joint venture
            
            
            **408,798**
            
            
            **-**Due
                from joint venture
            
            
            **73,658**
            
            
            **-**Deposits
                and other assets
            
            
            **631,859**
            
            
            176,575**TOTAL
                ASSETS**
            
            **$**
            **18,981,858**
            
            $
            16,545,313**-
                LIABILITIES AND STOCKHOLDERS' EQUITY -****CURRENT
                LIABILITIES:**Accounts
                payable and accrued expenses
            
            **$**
            **4,828,689**
            
            $
            4,431,577Current
                portion of obligations under capital lease
            
            
            **-**
            
            
            1,329Line
                of credit borrowings
            
            
            **2,542,881**
            
            
            1,063,167Income
                taxes payable - current
            
            
            **-**
            
            
            218,864**TOTAL
                CURRENT LIABILITIES**
            
            
            **7,371,570**
            
            
            5,714,937Deferred
                income tax liabilities
            
            
            **12,300**
            
            
            53,700Deferred
                compensation payable
            
            
            **256,284**
            
            
            135,054**TOTAL
                LIABILITIES**
            
            
            **7,640,154**
            
            
            5,903,691**MINORITY
                INTEREST**
            
            
            **-**
            
            
            **-****COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                EQUITY:**Preferred
                stock, par value $.001 per share; 10,000,000 shares authorized; none
                issued
            
            
            **-**
            
            
            -Common
                stock, par value $.001 per share; 30,000,000 shares authorized, 5,529,830
                shares issued and outstanding for 2006 and 2005,
                respectively
            
            
            **5,530**
            
            
            5,530Additional
                paid-in capital
            
            
            **7,327,023**
            
            
            7,327,023Retained
                earnings
            
            
            **4,009,151**
            
            
            3,309,069**TOTAL
                STOCKHOLDERS' EQUITY**
            
            
            **11,341,704**
            
            
            10,641,622**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            **$**
            **18,981,858**
            
            $
            16,545,313




The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-3


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**YEARS
      ENDED OCTOBER 31, 2006, 2005 AND 2004**





**2006**
            
            2005
            
            2004**NET
                SALES**
            
            **$**
            **51,171,202**
            
            $
            41,545,345
            
            $
            28,030,389**COST
                OF SALES**
            
            
            **43,575,963**
            
            
            33,875,973
            
            
            20,927,506**GROSS
                PROFIT**
            
            
            **7,595,239**
            
            
            7,669,372
            
            
            7,102,883**OPERATING
                EXPENSES:**Selling
                and administrative
            
            
            **5,585,787**
            
            
            4,854,018
            
            
            4,746,895Bad
                debt expense
            
            
            **29,093**
            
            
            270,000
            
            
            30,914Officers'
                salaries
            
            
            **616,052**
            
            
            574,245
            
            
            622,573**TOTALS**
            
            
            **6,230,932**
            
            
            5,698,263
            
            
            5,400,382**INCOME
                FROM OPERATIONS**
            
            
            **1,364,307**
            
            
            1,971,109
            
            
            1,702,501**OTHER
                INCOME (EXPENSE)**Interest
                income
            
            
            **128,967**
            
            
            50,363
            
            
            11,966Other
                income
            
            
            **65,310**
            
            
            -
            
            
            -Equity
                in loss of joint venture
            
            
            **(176,911**
            **)**
            
            -
            
            
            -Management
                fee income
            
            
            **44,403**
            
            
            -
            
            
            -Interest
                expense
            
            
            **(130,101**
            **)**
            
            (110,684
            )
            
            (145,930
            )**TOTALS**
            
            
            **(68,332**
            **)**
            
            (60,321
            )
            
            (133,964
            )**INCOME
                BEFORE INCOME TAXES AND MINORITY INTEREST IN
                SUBSIDIARY**
            
            
            **1,295,975**
            
            
            1,910,788
            
            
            1,568,537Provision
                for income taxes
            
            
            **602,059**
            
            
            725,653
            
            
            693,195**INCOME
                BEFORE MINORITY INTEREST**
            
            
            **693,916**
            
            
            -
            
            
            -Minority
                interest in subsidiary
            
            
            **6,166**
            
            
            -
            
            
            -**NET
                INCOME**
            
            **$**
            **700,082**
            
            $
            1,185,135
            
            $
            875,342Basic
                and diluted earnings per share
            
            **$**
            **.13**
            
            $
            .25
            
            $
            .22Weighted
                average common shares outstanding:Basic
            
            
            **5,529,830**
            
            
            4,721,327
            
            
            3,999,650Diluted
            
            
            **5,599,830**
            
            
            4,776,757
            
            
            3,999,650





The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-4


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


**YEARS
      ENDED OCTOBER 31, 2006, 2005 AND 2004**




Common
                Stock
            
            Additional
                Paid - inCapital
            
            Retained
                Earnings
            
            Total$.001
                Par ValueNumber
                ofShares
            
            AmountBalance,
                October 31, 2003
            
            
            3,999,650
            
            $
            4,000
            
            $
            867,887
            
            $
            1,248,592
            
            $
            2,120,479Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            875,342
            
            
            875,342Balance,
                October 31, 2004
            
            
            3,999,650
            
            
            4,000
            
            
            867,887
            
            
            2,123,934
            
            
            2,995,821Sale
                of common stock
            
            
            1,610,000
            
            
            1,610
            
            
            6,434,496
            
            
            -
            
            
            6,436,016Return
                of stock to Treasury-Cancelled
            
            
            (89,820
            )
            
            (90
            )
            
            -
            
            
            -
            
            
            -Issuance
                of common stock for services
            
            
            10,000
            
            
            10
            
            
            24,640
            
            
            -
            
            
            24,650Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            1,185,135
            
            
            1,185,135Balance,
                October 31, 2005
            
            
            5,529,830
            
            
            5,530
            
            
            7,327,023
            
            
            3,309,069
            
            
            10,641,622**Net
                income**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **700,082**
            
            
            **700,082****Balance,
                October 31, 2006**
            
            
            **5,529,830**
            
            **$**
            **5,530**
            
            **$**
            **7,327,023**
            
            **$**
            **4,009,151**
            
            **$**
            **11,341,704**




The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-5


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**YEARS
      ENDED OCTOBER 31, 2006, 2005 AND 2004**




**2006**
            
            2005
            
            2004**OPERATING
                ACTIVITIES:**Net
                income
            
            **$**
            **700,082**
            
            $
            1,185,135
            
            $
            875,342Adjustments
                to reconcile net income to net cash (used in) provided by operating
                activities:Depreciation
            
            
            **431,750**
            
            
            373,106
            
            
            363,612Bad
                debt expense
            
            
            **5,421**
            
            
            270,000
            
            
            30,914Deferred
                income taxes
            
            
            **56,200**
            
            
            (173,200
            )
            
            (27,200
            )Loss
                from joint venture
            
            
            **176,911**
            
            
            **-**
            
            
            **-**Changes
                in operating assets and liabilities:Commodities
                held at broker
            
            
            **(1,336,095**
            **)**
            
            (2,120,493
            )
            
            20,222Accounts
                receivable
            
            
            **(1,380,693**
            **)**
            
            (1,423,821
            )
            
            (1,881,986
            )Inventories
            
            
            **1,597,035**
            
            
            (2,238,289
            )
            
            (476,865
            )Prepaid
                expenses and other current assets
            
            
            **(56,003**
            **)**
            
            563,558
            
            
            (244,963
            )Prepaid
                and refundable income taxes
            
            
            **(290,374**
            **)**
            
            (11,629
            )
            
            **-**Due
                from joint venture
            
            
            **(73,658**
            **)**
            
            **-**
            
            
            **-**Accounts
                payable and accrued expenses
            
            
            **397,112**
            
            
            (227,259
            )
            
            2,797,389Income
                tax payable
            
            
            **(218,864**
            **)**
            
            58,864
            
            
            160,000Deposits
                and other assets
            
            
            **(328,388**
            **)**
            
            (135,054
            )
            
            -**Net
                cash (used in) provided by operating activities**
            
            
            **(319,564**
            **)**
            
            (3,879,082
            )
            
            1,616,465**INVESTING
                ACTIVITIES:**Purchases
                of property and equipment
            
            
            **(190,749**
            **)**
            
            (466,122
            )
            
            (1,039,479
            )Investment
                in joint venture
            
            
            **(585,709**
            **)**
            
            **-**
            
            
            **-**Security
                deposits
            
            
            **-**
            
            
            (8,025
            )
            
            (16,700
            )**Net
                cash used in investing activities**
            
            
            **(776,458**
            **)**
            
            (474,147
            )
            
            (1,056,179
            )**FINANCING
                ACTIVITIES:**Principal
                payments on term loan
            
            
            -
            
            
            (252,000
            )
            
            (84,000
            )Net
                proceeds from initial public offering
            
            
            -
            
            
            6,436,016
            
            
            -Advances
                under bank line of credit
            
            
            **41,847,244**
            
            
            27,754,052
            
            
            28,108,814Principal
                payments under bank line of credit
            
            
            **(40,367,530**
            **)**
            
            (29,375,930
            )
            
            (27,715,835
            )Payments
                to related parties
            
            
            -
            
            
            -
            
            
            (79,646
            )Principal
                payments of obligations under capital leases
            
            
            **(1,329**
            **)**
            
            (115,586
            )
            
            (221,306
            )**Net
                cash provided by financing activities**
            
            
            **1,478,385**
            
            
            4,446,552
            
            
            8,027**MINORITY
                INTEREST**
            
            
            **(5,666**
            **)**
            
            -
            
            
            -**NET
                INCREASE IN CASH**
            
            
            **376,697**
            
            
            93,323
            
            
            568,313Cash,
                beginning of year
            
            
            **735,468**
            
            
            642,145
            
            
            73,832**CASH,
                END OF YEAR**
            
            **$**
            **1,112,165**
            
            $
            735,468
            
            $
            642,145**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW DATA:**Interest
                paid
            
            **$**
            **121,844**
            
            $
            103,286
            
            $
            145,930Income
                taxes paid
            
            **$**
            **831,503**
            
            $
            460,744
            
            $
            370,850


On
        June
        10, 2005, 10,000 shares of restricted stock valued at $24,650 were issued
        for
        services to be rendered.


The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-6




**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      1 -**  **BUSINESS
      ACTIVITIES:**




Coffee
      Holding Co., Inc. (the “Company”) conducts wholesale coffee operations,
      including manufacturing, roasting, packaging, marketing and distributing roasted
      and blended coffees for private labeled accounts and its own brands, and sells
      green coffee. The Company’s sales are primarily to customers that are located
      throughout the United States and Canada consisting of supermarkets, wholesalers,
      gourmet roasters, and individually owned and multi-unit retailers.




The
      Company owns a 60% interest in Generations Coffee Company, LLC (“GCC”) effective
      April 7, 2006. GCC is in the same business as the Company and had limited
      operations during the period ended October 31, 2006. The Company also exercises
      control of GCC. As a result of its 60% interest and control, the financial
      statements of GCC are consolidated with the Company.




The
      Company also owns a 50% interest in Cafe La Rica, LLC (“CLR”) effective March
      10, 2006. CLR is in the same business as the Company and is being recorded
      as an
      investment in joint venture. The Company does not exercise control of CLR.
      As a
      result, the financial statements of CLR are not consolidated and is accounted
      for by the equity method of accounting.





**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES:**




The
      Company’s accounting policies are in accordance with accounting principles
      generally accepted in the United States of America. Outlined below are those
      policies considered to be particularly significant.




**USE
      OF ESTIMATES:**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect certain reported amounts and disclosures.
      Accordingly, actual results could differ from those amounts.




**BASIS
      OF PRESENTATION:**




The
      consolidated financial statements include the accounts of the Company and GCC.
      In 2006, the equity method of accounting was used to record the Company’s share
      of the loss in CLR. All significant inter-company balances and transactions
      have
      been eliminated in consolidation.




**CASH
      EQUIVALENTS:**




Cash
      equivalents represent highly liquid investments with maturities of three months
      or less at the date of purchase.




**INVENTORIES:**




Inventories
      are valued at the lower of cost (first-in, first-out basis) or
      market .




**PROPERTY
      AND EQUIPMENT:**




Property
      and equipment are recorded at cost and depreciated using the straight-line
      method over the estimated useful lives of the assets .




F-7





**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, ,2005 AND 2004**





**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**





**HEDGING:**




The
      Company uses options and futures contracts to partially hedge the effects of
      fluctuations in the price of green coffee beans. Options and futures contracts
      are marked to market with current recognition of gains and losses on such
      positions. The Company's accounting for options and futures contracts may
      increase earnings volatility in any particular period. The Company has open
      position contracts held by the broker which includes commodities for cash,
      futures and options in the amount of $4,330,489 and $2,994,394 at October 31,
      2006 and 2005, respectively. The Company classifies its options and future
      contracts as trading securities and accordingly, unrealized holding gains and
      losses are included in earnings and not reflected as a net amount in a separate
      component of shareholders’ equity.





At
      October 31, 2006, the Company held 70 options (generally with terms of two
      months or less) covering an aggregate of 2,625,000 pounds of green coffee beans
      at $1.05 per pound. The fair market value of these options, which was obtained
      from major financial institutions, was $116,813 at October 31, 2006.





At
      October 31, 2005, the Company held 300 options (generally with terms of two
      months or less) covering an aggregate of 11,250,000 pounds of green coffee
      beans
      at prices of $.9750 to $1.00 per pound. The fair market value of these options,
      which was obtained from a major financial institution, was $159,750 at October
      31, 2005.





At
      October 31, 2006, the Company held 129 future contracts for the purchase of
      4,837,500 pounds of coffee at an average price of $1.05 per pound. The market
      price of coffee applicable to such contracts was $1.08 per pound aggregating
      $2,662,200 at October 31, 2006. At October 31, 2005, the Company did not hold
      any future contracts.





The
      Company currently has agreements with two of its wholesale vendors in which
      it
      is the supplier at fixed prices for lines of private label ground coffee. The
      Company is the exclusive customer of one of these wholesale vendors. The
      agreements generally contain only pricing terms and do not contain minimum
      purchase requirements.





Included
      in cost of sales and due from broker for the years ended October 31, 2006,
      2005
      and 2004, the Company recorded realized and unrealized gains and losses
      respectively, on these contracts as follows:





**YEARS
                ENDED**
              **OCTOBER
                31,****2006**
            
            2005
            
            2004Gross
                realized gains
            
            **$**
            **2,769,507**
            
            $
            4,081,339
            
            $
            3,129,479Gross
                realized losses
            
            **$**
            **(1,462,183**
            **)**
            $
            (3,264,522
            )
            $
            (1,415,505
            )Unrealized
                gains (losses)
            
            **$**
            **347,494**
            
            $
            11,111
            
            $
            (92,236
            )




F-8


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**




**ADVERTISING:**




The
      Company expenses the cost of advertising and promotion as incurred. Advertising
      costs charged to operations totaled $123,839, $163,007 and $163,007 in 2006,
      2005 and 2004, respectively.




**INCOME
      TAXES:**




The
      Company accounts for **** income
      taxes pursuant to the asset and liability method which requires **** deferred
      income tax assets and liabilities to be computed for temporary differences
      between the financial statement and tax bases of assets and liabilities that
      will result in taxable or deductible amounts in the future based on enacted
      tax
      laws and rates applicable to the periods in which the differences are expected
      to affect taxable income. Valuation allowances are established when necessary
      to
      reduce deferred tax assets to the amount expected to be realized. The income
      tax
      provision or credit is the tax payable or refundable for the period plus or
      minus the change during the period in deferred tax assets and liabilities (see
      also Note 8).




**STOCK
      OPTIONS:**




Effective
      November 1, 2005, the Company accounted for any stock options in accordance
      with
      the recognition and measurement provisions of Statement of Financial Accounting
      Standards (“FAS”) No 123 (revised 2004), Share-Based Payment (“FAS 123(R)”),
      which replaces FAS No. 123, Accounting for Stock - Based Compensation, and
      supersedes Accounting Principles Board Opinion (“APB”) No 25, Accounting for
      Stock Issued to Employees, and related interpretations. FAS 123(R) requires
      compensation costs related to share-based payment transactions, including
      employee stock options, to be recognized in the financial statements. In
      addition, the Company adheres to the guidance set forth within Securities and
      Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 107, which
      provides the Staff’s views regarding the interaction between SFAS No. 123(R) and
      certain SEC rules and regulations and provides interpretations with respect
      to
      the valuation of share-based payments for public companies.




Prior
      to
      November 1, 2005, the Company accounted for any stock options in accordance
      with
      APB No. 25 which employed the intrinsic value method of measuring compensation
      cost. Accordingly, compensation expense would have been recognized for fixed
      stock options if the exercise price of the option equaled or exceeded the fair
      value of the underlying stock at the grant date (See Note 11).




**EARNINGS
      PER SHARE:**




The
      Company presents “basic’ and, if applicable, “diluted” earnings per common share
      pursuant to the provisions of Statement of Financial Accounting Standards No.
      128, “Earnings per Share” (“SFAS 128”) and certain other financial accounting
      pronouncements. Basic earnings per common share are calculated by dividing
      net
      income by the weighted average number of common shares outstanding during each
      period. The calculation of diluted earnings per common share is similar to
      that
      of basic earnings per common share, except that the denominator is increased
      to
      include the number of additional common shares that would have been outstanding
      if all potentially dilutitive common shares, such as those issuable upon the
      exercise of stock options, were issued during the period.




F-9





**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**




**EARNINGS
      PER SHARE (Continued):**




The
      weighted average common shares outstanding used in the computation of basic
      earnings per share was 5,529,830, 4,721,327 and 3,999,650 for 2006, 2005 and
      2004, respectively. The weighted average common shares outstanding used in
      the
      computation of diluted earnings per share was 5,599,830, 4,776,757 and 3,999,650
      for 2006, 2005 and 2004, respectively.




**FAIR
      VALUE OF FINANCIAL INSTRUMENTS:**




The
      carrying amounts of cash and cash equivalents, accounts receivable and accounts
      payable approximate fair value because of the short-term nature of these
      instruments. Fair value estimates are made at a specific point in time, based
      on
      relevant market information about the financial instrument when available.
      These
      estimates are subjective in nature and involve uncertainties and matters of
      significant judgment and therefore, cannot be determined with precision. Changes
      in assumptions could significantly affect the estimates.




**REVENUE
      RECOGNITION:**




The
      Company recognizes revenue in accordance with Securities and Exchange Commission
      Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”). Under SAB
      104, revenue is recognized at the point of passage to the customer of title
      and
      risk of loss, when there is persuasive evidence of an arrangement, the sales
      price is determinable, and collection of the resulting receivable is reasonably
      assured. The Company recognizes revenue at the time of shipment.




The
      Company sells its products without the right of return. Returns and allowances
      are recorded when a customer claims receipt of damaged goods. The Company in
      turn seeks reimbursement from the shipper.




Slotting
      fees: Certain retailers require the payment of slotting fees in order to obtain
      space for the Company’s products on the retailer’s store shelves. The cost of
      these fees is recognized at the earlier of the date cash is paid or a liability
      to the retailer is created. These amounts are included in the determination
      of
      cost of goods sold.




Discounts:
      The cost of these discounts are recognized at the date of the sale. These
      amounts are included in the determination of net sales.




Volume-based
      incentives: These incentives typically involve rebates or refunds of a specific
      amount of cash consideration that are redeemable only if the reseller completes
      a specified cumulative level of sales transactions. Under incentive programs
      of
      this nature, the Company estimates the anticipated cost of the rebate when
      it
      records the sale. These amounts are included in the determination of net
      sales.




Cooperative
      advertising: Under these arrangements, the Company will agree to reimburse
      the
      reseller for a portion of the costs incurred by the reseller to advertise and
      promote certain of the Company’s products. The Company will recognize the cost
      of cooperative advertising programs in the period in which the advertising
      and
      promotional activity first takes place. The costs of these incentives are
      included in advertising expense.




F-10


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**




**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**




**SHIPPING
      AND HANDLING FEES AND COSTS:**




In
      accordance with EITF No. 00-10 “Accounting for Shipping and Handling Fees and
      Costs”, revenue received from shipping and handling fees is reflected in net
      sales. Costs associated with shipping product to customers aggregating
      approximately $1,592,000, $1,358,000 and $1,197,000 for the years ended October
      31, 2006, 2005 and 2004, respectively is included in selling and administrative
      expenses.




**RECLASSIFICATIONS:**




Prior
      years financial statements have been reclassified to conform with current years
      presentation.




**RECENT
      ACCOUNTING PRONOUNCEMENTS:**





***Statement
      of Financial Accounting Standard 155, Accounting for Certain Hybrid Financial
      Instruments (“SFAS No. 155”)***




In
      February 2006, the FASB amended SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities”, and SFAS No. 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities”, with the
      issuance of SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”.
      SFAS No. 155 resolves issues addressed in the earlier standards and is effective
      for all financial instruments acquired or issued after the beginning of an
      entity’s first fiscal year that begins after September 15, 2006.




***Statement
      of Financial Accounting Standard 156, Accounting for Servicing of Financial
      Assets (“SFAS No. 156”)***




In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets”, which amended SFAS No. 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities”, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      SFAS 156 permits an entity to choose either the amortization method or the
      fair
      value measurement method for each class of separately recognized servicing
      assets or servicing liabilities. The application of this statement is not
      expected to have an impact on the Company’s financial statement




***Statement
      of Financial Accounting Standard 157, Fair Value Measurements (“SFAS
      157”)***




In
      September 2006, the Financial Accounting Standard Board issued a standard that
      provides enhanced guidance for using fair value to measure assets and
      liabilities. The standard applies whenever other standards require (or permit)
      assets or liabilities to be measured at fair value. The standard does not expand
      the use of fair value in any new circumstances.




This
      Statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. Earlier application is encouraged, provided that the reporting entity
      has
      not yet issued financial statements for that fiscal year, including financial
      statements for an interim period within that fiscal year.




F-11




**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**




**RECENT
      ACCOUNTING PRONOUNCEMENTS (Continued):**




***Statement
      of Financial Accounting Standard 158, Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)***




In
      September 2006, the Financial Accounting Standard Board issued a standard that
      provides improved financial reporting by requiring an employer to recognize
      the
      overfunded or underfunded status of a defined benefit postretirement plan (other
      than a multiemployer plan) as an asset or liability in its statement of
      financial position and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income of a business entity or
      changes in unrestricted net assets of a not-for-profit organization. This
      Statement also improves financial reporting by requiring an employer to measure
      the funded status of a plan as of the date of its year-end statement of
      financial position, with limited exceptions. This Statement amends Statement
      87,
      FASB Statement No. 88, *Employers’
      Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
      and
      for Termination Benefits,* Statement 106, and FASB Statement No. 132 (revised 2003), *Employers’
      Disclosures about Pensions and Other Postretirement Benefits,* and
      other related accounting literature. The required date of adoption of the
      recognition and disclosure provisions of this Statement differs for an employer
      that is an issuer of publicly traded equity securities (as defined) and an
      employer that is not. An employer with publicly traded equity securities is
      required to initially recognize the funded status of a defined benefit
      postretirement plan and to provide the required disclosures as of the end of
      the
      fiscal year ending after December 15, 2006.




***SEC
      Staff Accounting Bulletin 108 (“SAB 108”), Considering the Effects of Prior Year
      Misstatements when Qualifying Misstatements in Current Year Financial
      Statements***





In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,
      "Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements." SAB 108 was issued in
      order
      to eliminate the diversity of practice surrounding how public companies quantify
      financial statement misstatements.





Traditionally,
      there have been two widely-recognized methods for quantifying the effects of
      financial statement misstatements: the “roll-over” method and the “iron curtain”
method. The roll-over method focuses primarily on the impact of a misstatement
      on the income statement—including the reversing effect of prior year
      misstatements—but its use can lead to the accumulation of misstatements in the
      balance sheet. The iron-curtain method, on the other hand, focuses primarily
      on
      the effect of correcting the period-end balance sheet with less emphasis on
      the
      reversing effects of prior year errors on the income statement.





In
      SAB
      108, the SEC staff established an approach that requires quantification of
      financial statement misstatements based on the effects of the misstatements
      on
      each of the company's financial statements and the related financial statement
      disclosures.




F-12




**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      2 -**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued):**





**RECENT
      ACCOUNTING PRONOUNCEMENTS (Continued):**





This
      model is commonly referred to as a "dual approach" because it requires
      quantification of errors under both the iron curtain and the roll-over methods.
      SAB 108 permits existing public companies to initially apply its provisions
      either by (i) restating prior financial statements as if the "dual approach"
      had
      always been used or (ii) recording the cumulative effect of initially applying
      the "dual approach" as adjustments to the carrying values of assets and
      liabilities as of January 1, 2006 with an offsetting adjustment recorded to
      the
      opening balance of retained earnings.





***Financial
      Accounting Standards Board (FASB) No. 48, Accounting for Uncertainty in Income
      Taxes (“FIN 48”)***





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109* (FIN
      48),
      which provides clarification related to the process associated with accounting
      for uncertain tax positions recognized in consolidated financial statements.
      FIN
      48 prescribes a more-likely-than-not threshold for financial statement
      recognition and measurement of a tax position taken, or expected to be taken,
      in
      a tax return. FIN 48 also provides guidance related to, among other things,
      classification, accounting for interest and penalties associated with tax
      positions, and disclosure requirements. We are required to adopt FIN 48 on
      November 1, 2007, although early adoption is permitted. We are currently
      evaluating the impact of adopting FIN 48 on our consolidated financial
      statements.




F-13





**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      3 -**  **FORMATION
      OF SUBSIDIARY - GENERATIONS COFFEE COMPANY, LLC:**




The
      Company and PMD Enterprises, Inc. (DBA Caruso’s Coffee, (“Caruso”)) formed GCC
      on April 7, 2006. GCC engages in the roasting, packaging and sale of private
      label specialty coffees for sale and distribution, throughout the United States.
      The initial capital contribution by the Company was cash aggregating $328,388
      and by Caruso, the use of equipment and plant/warehouse space. The Company
      and
      Caruso share in profits and losses in the ratio of 60:40 and initial membership
      interests are 600 shares and 400 shares, respectively. The agreement provides
      for an increase of capital contribution by Caruso to make each partner equal
      and
      to share equally a 50% ratio in profits and losses. The operations of GCC have
      been consolidated with the Company from the commencement of operations to
      October 31, 2006.




**NOTE
      4** -  **FORMATION
      OF JOINT VENTURE - CAFÉ LA RICA, LLC:**





The
      Company and Coffee Bean Trading-Roasting LLC (“CBT”) formed CLR on March 10,
      2006. The purpose of CLR is to engage in the roasting, packaging and sale of
      branded coffee products in the Southeastern United States markets. CLR was
      funded by an initial cash contribution of $250,000 by the Company. In addition,
      the Company contributed cash in order to purchase equipment valued at $335,709
      and CBT contributed equipment, and inventory of coffee and packaging materials
      valued at $119,316. The Company and CBT also contributed their respective
      intellectual property which had minimal value consisting of licenses for the
      use
      of the Company’s Café Caribe trademark and CBT’s Café La Rica trademark per
      separate licensing agreements. The trademarks are licensed to CLR as exclusive,
      non-assignable, non-transferable, royalty free rights to use them worldwide
      in
      connection with manufacture, packaging, sale, marketing and distribution of
      the
      licensed products (as defined) within the territory (as defined) in the
      respective agreements. The Company and CBT each have a 50% allocation in the
      profits and losses of CLR. CLR is being accounted for under the equity method
      of
      accounting.





Separate
      agreements were entered into between the Company and CLR for the Company to
      provide administrative services to CLR for a fee, to sell CLR with coffee
      inventory and to pay CLR a roasting fee for all coffee roasted and sold as
      one
      of the Company’s proprietary brands, for which CLR will not receive a share of
      profits. CLR also engages in roasting other non-company brands coffee for which
      the profits/losses will be shared by both partners. Administrative changes
      by
      the Company to the joint venture for the period ended October 31, 2006
      aggregated $44,403.





F-14




**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      4** -  **FORMATION
      OF JOINT VENTURE - CAFÉ LA RICA, LLC (Continued):**





The
      following represents condensed financial information of Café La Rica, LLC as of
      October 31, 2006 and date of commencement to October 31, 2006.


Current
                  assets
              
              $
              406,041Machinery
                  and other assets
              
              
              481,023Total
                  assets
              
              $
              887,064Current
                  liabilities
              
              $
              569,057Other
                  liabilities
              
              
              3,926Capital
              
              
              314,081Total
                  liabilities and capital
              
              $
              887,064Sales
              
              $
              903,242Expenses
              
              
              1,257,064Net
                  loss
              
              $
              (353,822
              )Company’s
                  share of net loss
              
              $
              (176,911
              )





**NOTE
      5 -**  **INVENTORIES:**




Inventories
      at October 31, 2006 and October 31, 2005 consisted of the
      following:





**2006**
            
            2005Packed
                coffee
            
            **$**
            **700,284**
            
            $
            1,276,050Green
                coffee
            
            
            **1,466,161**
            
            
            2,483,061Packaging
                supplies
            
            
            **733,098**
            
            
            737,467Totals
            
            **$**
            **2,899,543**
            
            $
            4,496,578




F-15


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      6 -**  **PROPERTY
      AND EQUIPMENT:**




Property
      and equipment at October 31, 2006 and 2005 consisted of the
      following:




Estimated
              Useful
                Life
            
            **2006**
            
            2005Building
                and improvements
            
            
            30
                years
            
            **$**
            **1,401,016**
            
            $
            1,393,516Machinery
                and equipment
            
            
            7
                years
            
            
            **3,853,272**
            
            
            3,784,129Machinery
                and equipment under capital lease
            
            
            7
                years
            
            
            **458,179**
            
            
            458,179Automobile
            
            
            3
                years
            
            
            **84,925**
            
            
            43,617Furniture
                and fixtures
            
            
            7
                years
            
            
            **359,833**
            
            
            287,035**6,157,225**
            
            
            5,966,476Less
                accumulated depreciation
            
            
            
            
            
            **4,159,274**
            
            
            3,727,524**1,997,951**
            
            
            2,238,952Land
            
            
            
            
            
            **141,000**
            
            
            141,000**$**
            **2,138,951**
            
            $
            2,379,952




Depreciation
      expense totaled $431,750, $373,106 and $363,612 in 2006, 2005 and 2004,
      respectively. As of October 31, 2006 the Company has paid $328,388 as a deposit
      towards the purchase of equipment to be used at GCC.




**NOTE
      7 -**  **LINE
      OF CREDIT:**




The
      Company has a financing agreement with Merrill Lynch Business Financial Services
      Inc. which was originally entered into in November 2004 and amended in March
      2005 for a line of credit of up to $4,000,000. The line of credit is secured
      by
      a blanket lien on all the assets of the Company and the personal guarantees
      of
      two of the Company’s officer/shareholders, requires monthly interest payments at
      a rate of LIBOR plus 2.4% (7.47% at October 31, 2006 and 6.23% at October 31,
      2005) and requires the Company to comply with various financial covenants.
      The
      agreement expires on October 31, 2007. As of October 31, 2006 and 2005, the
      Company was in compliance with all financial covenants. As of October 31, 2006
      and 2005, the borrowing under the line of credit was $2,542,881 and $1,063,167,
      respectively.




In
      April
      2005, the Company entered into an additional term loan with Merrill Lynch
      Business Financial Services Inc. in order to finance the purchase of roasting
      equipment. This term loan was paid in full prior to October 31,
      2005.




F-16


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**




**NOTE
      8 -**  **INCOME
      TAXES:**





The **** tax
      effects of the temporary differences that give rise to the deferred tax assets
      and liabilities as of October 31,





**2006**
            
            2005Deferred
                tax assets:Accounts
                receivable
            
            **$**
            **167,000**
            
            $
            168,855Inventory
            
            
            **54,000**
            
            
            149,745**$**
            **221,000**
            
            $
            318,600Deferred
                tax liabilities:Fixed
                assets
            
            **$**
            **12,300**
            
            $
            53,700





The **** Company’s
      provision (benefit) for income taxes in 2006, 2005 and 2004 consisted of the
      following:





**2006**
            
            2005
            
            2004Federal
                - current
            
            **$**
            **430,211**
            
            $
            726,364
            
            $
            497,421Federal
                - deferred
            
            
            **37,800**
            
            
            (134,700
            )
            
            (29,072
            )State
                and local - current
            
            
            **112,648**
            
            
            172,489
            
            
            232,174State
                and local - deferred
            
            
            **21,400**
            
            
            (38,500
            )
            
            (7,328
            )Total
            
            **$**
            **602,059**
            
            $
            725,653
            
            $
            693,195





A
      reconciliation of the difference between the expected income tax rate using
      the
      statutory federal tax rate and the Company’s effective tax rate is as
      follows:








**2006**
            
            2005
            
            2004Federal
                income tax statutory rate
            
            
            **34**
            **%**
            
            34
            %
            
            34
            %State
                income taxes, net of federal tax benefit
            
            
            **6**
            **%**
            
            8
            %
            
            8
            %Other
                - benefit of tax refunds
            
            
            **-**
            **%**
            
            **-**
            **%**
            
            **2**
            **%**Effective
                tax rate
            
            
            **40**
            **%**
            
            42
            %
            
            44
            %




F-17





**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**





**NOTE
      9 -**  **COMMITMENTS
      AND CONTINGENCIES:**





**OPERATING
      LEASES:**





a)
            The
                Company occupies warehouse facilities under an operating lease, which
                was
                set to expire on August 31, 2006. The lease was renegotiated effective
                February 2006 for a term of five years, expiring on January 31, 2011,
                at a
                monthly rental of $15,000. The lease requires the Company to pay
                utilities
                and other maintenance expenses. Rent charged to operations amounted
                to
                $161,000, $90,000 and $59,030 in 2006, 2005 and 2004, respectively.





The
      Company also uses a variety of independent, bonded commercial warehouses to
      store its green coffee beans.





b)
            In
                February 2004, the Company entered into a lease for office and warehouse
                space in La Junta City, Colorado. This lease, which is at a monthly
                rental
                of $8,341 beginning January 2005, expires on January 31,
                2024.





The
      aggregate minimum future lease payments as of October 31, 2006 for each of
      the
      next five years and thereafter are as follows:





October
                31,2007
            
            $
            280,0932008
            
            
            280,0932009
            
            
            280,0932010
            
            
            280,0932011
            
            
            145,093Thereafter
            
            
            1,326,232$
            2,591,697





**LEGAL
      PROCEEDINGS:**





The
      Company is a party to various legal proceedings. In the opinion of management,
      these actions are routine in nature and will not have a material adverse effect
      on the Company’s financial statements in subsequent years.





**401
      (K) RETIREMENT PLAN:**





The
      Company has a 401(k) Retirement Plan, which covers all the full time employees
      who have completed one year of service and have reached their 21 st birthday. The Company matches 100% of the aggregate salary reduction
      contribution up to the first 3% of compensation and 50% of aggregate
      contribution of the next 2% of compensation. Contributions to the plan
      aggregated $54,807, $53,350 and $12,500 for 2006, 2005 and 2004, respectively.




F-18


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**




**NOTE
      9 -**  **COMMITMENTS
      AND CONTINGENCIES (Continued):**




**MARKETING
      AGREEMENT:**




In
      May
      2005, the Company entered into a one-year agreement with a marketing firm.
      The
      Company paid the firm $8,000 per month and at closing, issued 10,000 shares
      of
      stock valued at $24,650 for services rendered. As of October 31, 2006, this
      agreement has been terminated.




**NOTE
      10 -**  **CONCENTRATION
      OF CREDIT RISK:**




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist principally of cash and cash equivalents, commodities held at
      broker and trade accounts receivable. The Company maintains its cash and cash
      equivalents in bank and brokerage accounts, the balances of which, at times,
      may
      exceed Federal insurance limits. Although at October 31, 2006 and 2005 the
      Company did have cash balances that exceeded the Federal insurance limits,
      they
      have not experienced any losses in such accounts and monitor the soundness
      of
      the financial institutions on a periodic basis. The net balance of the Company’s
      investments in derivative financial instruments also represents commodities
      held
      at broker. Exposure to credit risk is reduced by placing such deposits and
      investments with major financial institutions and monitoring their credit
      ratings.




Approximately
      30% and 6% of the Company’s sales were derived from two customers in 2006. Those
      customers also accounted for approximately $777,000 and $241,000 of the
      Company’s accounts receivable balance as of October 31, 2006. Approximately 28%
      and 8% of the Company’s sales were derived from two customers in 2005. Those
      customers also accounted for approximately $314,000 and $249,000 of the
      Company’s account receivable balance at October 31, 2005. Approximately 22% and
      11% of the Company’s sales were derived from two customers in 2004. Those
      customers also accounted for approximately $400,000 and $458,000 of the
      Company’s accounts receivable balance as of October 31, 2004. Concentration of
      credit risk with respect to other trade receivables are limited due to the
      short
      payment terms generally extended by the Company; by ongoing credit evaluations
      of customers; and by maintaining an allowance for doubtful accounts that
      management believes will adequately provide for credit losses.




Management
      does not believe that credit risk was significant at October 31, 2006 and
      2005.




**NOTE
      11 -**  **STOCK
      OPTION PLAN:**




On
      February 10, 1998, the Company’s stockholders consented to the adoption of the
      Company’s stock option plan (the “Plan”) whereby incentive and/or non-incentive
      stock options for the purchase of up to 2,000,000 shares of the Company’s common
      stock may be granted to the Company’s directors, officers, other key employees
      and consultants. Under the Plan, the exercise price of all options must be
      at
      least 100% of the fair market value of the common stock on the date of grant
      (the exercise price of an incentive stock option for an optionee that holds
      more
      than 10% of the combined voting power of all classes of stock of the Company
      must be at least 110% of the fair market value on the date of grant). On June
      21, 2004, the plan was amended to reduce the number of shares of common stock
      reserved for issuance under the plan from 2,000,000 to 800,000, subject to
      adjustment for stock splits, stock dividends, reorganizations, mergers,
      recapitalizations or other capital adjustments.




As
      of
      October 31, 2006 no options had been granted under the Plan, since its
      inception.




F-19


**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**




**NOTE
      12 -**  **MAJOR
      VENDORS/RELATED PARTY:**




During
      fiscal 2006, 77% of the Company’s purchases were from ten vendors. Two of these
      vendors accounted for 30% and 10% of total purchases, respectively. These two
      vendors accounted for approximately $605,000 and $410,000 of the Company’s
      accounts payable at October 31, 2006 respectively.




During
      fiscal 2005, 85% of the Company’s purchases were from ten vendors. Two of these
      vendors accounted for 43% and 8% of total purchases, respectively. These two
      vendors accounted for approximately $1,457,000 and $165,000 of the Company’s
      accounts payable at October 31, 2005, respectively.




During
      fiscal 2004, 81% of the Company’s purchases were from ten vendors. Two of these
      vendors accounted for 34% and 11% of total purchases, respectively. These two
      vendors accounted for approximately $1,028,000 and $246,000 of the Company’s
      accounts payable at October 31, 2004, respectively.




In
      addition, an employee of one of these vendors is a director of the Company.
      Purchases from that vendor totaled approximately $13,841,000, $12,969,000 and
      $6,075,000 in 2006, 2005 and 2004, respectively. Management does not believe
      that the loss of any one vendor would have a material adverse effect on the
      Company’s operations due to the availability of many alternate
      suppliers.




**NOTE
      13 -**  **NON-QUALIFIED
      DEFERRED COMPENSATION PLAN:**




In
      January 2005, the Company established the “Coffee Holding Co., Inc.
      Non-Qualified Deferred Compensation Plan.” Currently, there is only one
      participant in the plan. Within the plan guidelines, this employee is deferring
      a portion of his current salary and bonus.




**NOTE
      14 -**  **SALE
      OF COMMON STOCK:**




The
      Company entered into an agreement with Maxim Group LLC (“Maxim”) for Maxim to
      serve as the Company’s financial advisors and lead managing underwriter for a
      public offering of the Company’s common stock. Subsequently, Maxim and Joseph
      Stevens & Company, Inc. (“Joseph Stevens”) entered into an agreement
      pursuant to which Joseph Stevens agreed to act as managing underwriter and
      Maxim
      agreed to participate in the underwriting syndicate for the offering.




The
      offering of 1,400,000 shares concluded on May 6, 2005 and on June 16, 2005
      the
      underwriters exercised their right to purchase 210,000 additional shares of
      common stock (the over-allotment option) at the public offering price less
      the
      underwriting discount (ten percent). An aggregate of 1,610,000 shares of the
      Company’s common stock were sold in the offering at a price of $5.00 per share.
      The Company paid $25,000 to Maxim upon the filing of a registration statement
      for the offering with the United States Securities and Exchange Commission,
      which amount was split between Joseph Stevens and Maxim. The Company also paid
      to Joseph Stevens and Maxim a non-accountable expense allowance less amounts
      previously paid to Maxim, equal to three percent of the gross proceeds derived
      from the public offering. The Company also sold to Joseph Stevens and Maxim
      for
      $100, warrants to purchase 70,000 shares of common stock at a price of $6.00
      per
      share. The fair market value of these warrants was charged and credited to
      additional paid-in capital. The warrants are exercisable for a period of five
      years and contain provisions for cashless exercise, anti-dilution and piggyback
      registration rights.




During
      2005, a former shareholder returned 89,820 shares of common stock for no
      consideration.




F-20




**COFFEE
      HOLDING CO., INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**OCTOBER
      31, 2006, 2005 AND 2004**




**NOTE
      15 -**  **QUARTERLY
      RESULTS OF OPERATIONS:**





The
      following table presents unaudited quarterly results of operations for the
      four
      quarters ended October 31, 2006 and 2005. We believe that all necessary
      adjustments, consisting only of normal recurring adjustments, have been included
      in the amounts stated below to present fairly such quarterly information.




FirstQuarter
            
            SecondQuarter
            
            ThirdQuarter
            
            FourthQuarter2006Net
                Sales
            
            $
            13,844,845
            
            $
            12,010,928
            
            $
            11,858,581
            
            $
            13,456,848Gross
                profit
            
            
            2,325,443
            
            
            862,694
            
            
            1,941,651
            
            
            2,465,451Income
                (loss) from operations
            
            
            906,631
            
            
            (492,969
            )
            
            385,843
            
            
            564,802Net
                income (loss)
            
            
            519,638
            
            
            (284,234
            )
            
            179,450
            
            
            285,228Diluted
                earnings (loss) per share
            
            $
            .09
            
            $
            (.05
            )
            $
            .03
            
            $
            .052005Net
                Sales
            
            $
            8,060,280
            
            $
            10,173,230
            
            $
            10,782,680
            
            $
            12,529,155Gross
                profit
            
            
            2,072,267
            
            
            2,252,858
            
            
            1,033,458
            
            
            2,310,789Income
                (loss) from operations
            
            
            676,881
            
            
            1,003,371
            
            
            (792,607
            )
            
            1,083,464Net
                income (loss)
            
            
            402,281
            
            
            598,356
            
            
            (447,875
            )
            
            632,373Diluted
                earnings (loss) per share
            
            $
            .10
            
            $
            .15
            
            $
            (.08
            )
            $
            .13




F-21
  **Schedule
        II**
  ****Coffee
        Holding Co., Inc.****
 **Valuation
        and qualifying accounts**
 **for
        the years ended October 31, 2006, 2005, and 2004**
 
 **(a)
                  Description**
              
              **(b)
                  Balance at**
                **Beginning
                  of Year**
              
              **(c)
                  Additions Charged to (reversed from) Costs and
                  Expenses**
              
              **(d)
                  Deductions - Net Write-Offs**
              
              **(e)
                  Balance at End of Year****Year
                  Ended October 31, 2006:**Allowance
                  for doubtful accounts on
                trade
                  receivables
              
              $
              420,349
              
              $
              -
              
              $
              -
              
              $
              420,349**Year
                  Ended October 31, 2005:**Allowance
                  for doubt accounts on
                trade
                  receivables
              
              $
              150,349
              
              $
              270,000
              
              $
              -
              
              $
              420,349**Year
                  Ended October 31, 2004:**Allowance
                  for doubtful accounts on
                trade
                  receivables
              
              $
              119,435
              
              $
              30,914
              
              $
              -
              
              $
              150,349