UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549







FORM
10-Q









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





For the
quarterly period ended:  January 31, 2010




OR




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 number:  001-32491




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.)3475
      Victory Boulevard, Staten Island, New York
            
            10314(Address
      of principal executive offices)
            
            (Zip
      Code)





(718)
832-0800


(Registrant’s
telephone number including area code)




N/A(Former
      name, former address and former fiscal year, if changed from last
      report)






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
preceding 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  þ  No  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such period that the registrant
was required to submit and post such
files).                Yes   o  No   o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large accelerated
      filer
            o
            Accelerated filer
            oNon-accelerated
      filer
            o
            Smaller reporting
      company
            þ




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


Yeso  No  þ





Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of the latest practicable date.




5,440,823
shares of common stock, par value $0.001 per share, are outstanding at March 9,
2010.












PAGEPART
      I – FINANCIAL INFORMATIONItem
    1.
            Financial
      Statements
            1Item
    2.
            Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations.
            14Item
    3.
            Quantitative and Qualitative
      Disclosures About Market Risk.
            20Item
      4T.
            Controls and
      Procedures.
            20PART
      II – OTHER INFORMATIONItem
    1.
            Legal
      Proceedings.
            21Item
      1A.
            Risk
      Factors.
            21Item
    2.
            Unregistered Sales of Equity in
      Securities and Use of Proceeds.
            21Item
    3.
            Defaults upon Senior
      Securities.
            21Item
    4.
            Submission of Matters to a Vote
      of Security Holders.
            21Item
    5.
            Other
      Information.
            21Item
    6.
            Exhibits.
            21Signatures
            22









PART
I –  FINANCIAL INFORMATION


ITEM 1.
              FINANCIAL
      STATEMENTS


COFFEE
HOLDING CO., INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


JANUARY
31, 2010 AND OCTOBER 31, 2009




January 31,
      2010
            
            
            October 31,
      2009(unaudited)-
      ASSETS -CURRENT
      ASSETS:Cash
      and cash equivalents
            
            $
            1,543,042
            
            
            $
            1,367,933Commodities
      held at broker
            
            
            617,530
            
            
            
            482,746Accounts
      receivable, net of allowances of $165,078 for 2010 and
2009
            
            
            9,616,508
            
            
            
            10,174,221Inventories
            
            
            4,949,728
            
            
            
            4,800,143Prepaid
      expenses and other current assets
            
            
            432,441
            
            
            
            419,740Prepaid
      and refundable income taxes
            
            
            40,356
            
            
            
            36,068Deferred
      income tax assets
            
            
            394,000
            
            
            
            286,000TOTAL  CURRENT
      ASSETS
            
            
            17,593,605
            
            
            
            17,566,851Property
      and equipment, at cost, net of accumulated depreciation of $4,792,560
      and  $4,681,558 for 2010 and 2009, respectively
            
            
            1,618,206
            
            
            
            1,648,214Deposits
      and other assets
            
            
            587,455
            
            
            
            588,573TOTAL
      ASSETS
            
            $
            19,799,266
            
            
            $
            19,803,638-
      LIABILITIES AND STOCKHOLDERS’ EQUITY -CURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
            
            $
            5,414,333
            
            
            $
            6,655,916Line
      of credit
            
            
            1,424,553
            
            
            
            791,628Income
      taxes payable
            
            
            401,709
            
            
            
            453,512Deferred
      income tax liabilities
            
            
            -
            
            
            
            121,000TOTAL
      CURRENT LIABILITIES
            
            
            7,240,595
            
            
            
            8,022,056Deferred
      income tax liabilities
            
            
            205,000
            
            
            
            14,500Deferred
      rent payable
            
            
            105,489
            
            
            
            99,067Deferred
      compensation payable
            
            
            514,451
            
            
            
            489,782TOTAL
      LIABILITIES
            
            
            8,065,535
            
            
            
            8,625,405STOCKHOLDERS’
      EQUITY:Coffee
      Holding Co., Inc. 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; 5,440,823 shares outstanding for 2010 and
    2009
            
            
            5,530
            
            
            
            5,530Additional
      paid-in capital
            
            
            7,327,023
            
            
            
            7,327,023Retained
      earnings
            
            
            4,653,649
            
            
            
            4,095,671Less:
      Treasury stock, 89,007 common shares, at cost for 2010 and
      2009
            
            
            (295,261
            )
            
            
            (295,261
            )Total
      Coffee Holding Co., Inc. Stockholders’ Equity
            
            
            11,690,941
            
            
            
            11,132,963Noncontrolling
      interest
            
            
            42,790
            
            
            
            45,270TOTAL
    EQUITY
            
            
            11,733,731
            
            
            
            11,178,233TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            19,799,266
            
            
            $
            19,803,638








1


COFFEE
HOLDING CO., INC.


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


THREE
MONTHS ENDED JANUARY 31, 2010 AND 2009


(Unaudited)




2010
            
            
            2009NET
      SALES
            
            $
            21,359,151
            
            
            $
            18,857,870COST OF SALES(including
      $6.6 and $3.4 million of related party costs in 2010 and 2009,
      respectively)
            
            
            18,721,387
            
            
            
            16,742,775GROSS
      PROFIT
            
            
            2,637,764
            
            
            
            2,115,095OPERATING
      EXPENSES:Selling
      and administrative
            
            
            1,439,025
            
            
            
            1,256,831Officers’
      salaries
            
            
            149,849
            
            
            
            149,849TOTALS
            
            
            1,588,908
            
            
            
            1,406,680INCOME
      FROM OPERATIONS
            
            
            1,048,856
            
            
            
            708,415OTHER
      INCOME (EXPENSE):Interest
      income
            
            
            1,319
            
            
            
            2,265Interest
      expense
            
            
            (53,415
            )
            
            
            (40,794
            )TOTALS
            
            
            (52,096
            )
            
            
            (38,529
            )INCOME
      BEFORE INCOME TAXES AND NONCONTROLLING INTEREST  IN
      SUBSIDIARY
            
            
            996,760
            
            
            
            669,886Provision
      for income taxes
            
            
            441,262
            
            
            
            276,636NET
      INCOME
            
            
            555,498
            
            
            
            393,250Less:
      Net loss (income) attributable to the noncontrolling
    interest
            
            
            2,480
            
            
            
            (1,449
            )NET
      INCOME ATTRIBUTABLE TO COFFEE HOLDING CO., INC.
            
            $
            557,978
            
            
            $
            391,801Basic
      and diluted earnings per share attributable to Coffee Holding Co., Inc.
      common stockholders
            
            $
            .10
            
            
            $
            .07Weighted
      average common shares outstanding:Basic
            
            
            5,440,823
            
            
            
            5,442,603Diluted
            
            
            5,440,823
            
            
            
            5,442,603









2


COFFEE
HOLDING CO., INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


THREE
MONTHS ENDED JANUARY 31, 2010 AND 2009


(Unaudited)




2010
            
            
            2009OPERATING
      ACTIVITIES:Net
      income
            
            $
            555,498
            
            
            $
            393,250Adjustments
      to reconcile net income to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
            
            
            111,002
            
            
            
            141,059Unrealized
      loss (gain) on commodities
            
            
            262,862
            
            
            
            (130,636
            )Realized
      gain on commodities
            
            
            (397,551
            )
            
            
            (152,375
            )Bad
      debt expense
            
            
            13,500
            
            
            
            -Deferred
      rent
            
            
            6,422
            
            
            
            7,276Deferred
      income taxes
            
            
            (38,500
            )
            
            
            264,500Changes
      in operating assets and liabilities:Commodities
      held at broker
            
            
            (95
            )
            
            
            (150,328
            )Accounts
      receivable
            
            
            544,213
            
            
            
            1,042,416Inventories
            
            
            (149,585
            )
            
            
            243,060Prepaid
      expenses and other current assets
            
            
            (12,701
            )
            
            
            32,127Prepaid
      and refundable income taxes
            
            
            (4,288
            )
            
            
            11,136Accounts
      payable and accrued expenses
            
            
            (1,241,583
            )
            
            
            (281,312
            )Deposits,
      other assets, and deferred compensation
            
            
            25,787
            
            
            
            (28,419
            )Income
      taxes payable
            
            
            (51,803
            )
            
            
            1,000Net
      cash (used in) provided by operating activities
            
            
            (376,822
            )
            
            
            1,392,754INVESTING
      ACTIVITIES:Purchases
      of property and equipment
            
            
            (80,994
            )
            
            
            (67,327
            )Net
      cash used in investing activities
            
            
            (80,994
            )
            
            
            (67,327
            )FINANCING
      ACTIVITIES:Advances
      under bank line of credit
            
            
            22,465,558
            
            
            
            14,919,844Principal
      payments under bank line of credit
            
            
            (21,832,633
            )
            
            
            (15,359,975
            )Purchase
      of treasury stock
            
            
            -
            
            
            
            (4,132
            )Net
      cash provided by (used in) financing activities
            
            
            632,925
            
            
            
            (444,263
            )NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            175,109
            
            
            
            881,164Cash
      and cash equivalents, beginning of period
            
            
            1,367,933
            
            
            
            963,298CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            1,543,042
            
            
            $
            1,844,462SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW DATA:Interest
      paid
            
            $
            63,366
            
            
            $
            51,879Income taxes paid
            
            $
            489,788
            
            
            $
            -




See notes
to Condensed Consolidated Financial Statements.
 3


COFFEE HOLDING CO., INC. AND
SUBSIDIARY


NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JANUARY 31, 2010 AND
2009




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 it
sells green coffee.  The Company’s sales are primarily to customers
that are located throughout the United States with limited sales in
Canada.  Such customers include supermarkets, wholesalers, gourmet
roasters and individually-owned and multi-unit retailers.  The Company
closed its manufacturing operations at its Brooklyn, New York location in May
2009.  The majority of the Company’s coffee processing capacity has
been moved to its La Junta, Colorado facility and its facility in Brecksville,
Ohio.  The Company has leased office and warehouse space located in
Staten Island, New York to house the corporate offices and serve as temporary
storage of its branded product.  The Company sold the property located
in Brooklyn, New York in October 2009.




On April
7, 2006, the Company entered into a joint venture with Caruso’s Coffee, Inc. and
formed Generations Coffee Company, LLC (“GCC”).  The Company owns a
60% equity interest in GCC.  GCC operates the facility located in
Brecksville, Ohio and is in the same general business as the
Company.  The Company also exercises control of GCC.  As a
result of its 60% equity interest and control of GCC, the financial statements
of GCC are consolidated with those of the Company.




NOTE   2   -
            BASIS
      OF PRESENTATION:




The
interim condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the “SEC”).  Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles (“U.S.
GAAP”) have been condensed or omitted pursuant to such rules and regulations,
although we believe that the disclosures made are adequate to provide for fair
presentation and a reasonable understanding of the information
presented.  The Condensed Consolidated Financial Statements and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations included in this Form 10-Q should be read in conjunction with the
consolidated financial statements and the related notes, as well as Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2009, previously filed with the SEC.




In the
opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair statement of financial position as of
January 31, 2010, and results of operations for the three months ended January
31, 2010 and 2009 and cash flows for the three months ended January 31, 2010 and
2009, as applicable, have been made.


4




NOTE   2   -
            BASIS
      OF PRESENTATION (cont’d):




The
results of operations for the three months ended January 31, 2010 and 2009 are
not necessarily indicative of the operating results for the full fiscal year or
any future periods.




The
condensed consolidated financial statements include the accounts of the Company
and GCC.  All significant inter-company transactions and balances have
been eliminated in consolidation.




NOTE   3   -
            RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE
  COMPANY:




Noncontrolling
Interests in Consolidated Financial Statements




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
authoritative guidance clarifying that a noncontrolling interest in a subsidiary
is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements.  This guidance
requires that a change in a parent’s ownership interest in a subsidiary be
reported as an equity transaction in the consolidated financial statements when
it does not result in a change in control of the subsidiary.  When a
change in a parent’s ownership interest results in deconsolidation, a gain or
loss should be recognized in the consolidated financial
statements.  This guidance was adopted and is effective as of November
1, 2009.  The provisions of this guidance have been applied to all
noncontrolling interests prospectively, except for the presentation and
disclosure requirements, which have been applied retrospectively for all periods
presented.  The retrospective impact of applying this guidance was to
reclassify minority interest as a part of equity noncontrolling interest. The
following table summarizes the changes in total stockholders’
equity:




For
      the three Months Ended January 31,2010

              Unaudited
            
            
            2009
              UnauditedCoffeeHolding
      Co., Inc.
            
            
            NoncontrollingInterests
            
            
            TotalEquity
            
            
            CoffeeHolding
      Co., Inc.
            
            
            NoncontrollingInterests
            
            
            TotalEquityBalance,
      beginning of period
            
            $
            11,132,963
            
            
            $
            45,270
            
            
            $
            11,178,233
            
            
            $
            7,843,291
            
            
            $
            6,123
            
            
            $
            7,846,516Net
      (loss) income
            
            
            557,978
            
            
            
            (2,480
            )
            
            
            555,498
            
            
            
            391,801
            
            
            
            1,449
            
            
            
            393,250Balance,
      end of period
            
            $
            11,690,941
            
            
            $
            42,790
            
            
            $
            11,733,731
            
            
            $
            8,235,092
            
            
            $
            4,674
            
            
            $
            8,239,766




Collaborative
Arrangements




In
December 2007, the FASB issued authoritative guidance to participants in a
collaborative arrangement.  A collaborative arrangement is a
contractual arrangement that involves a joint operating activity. These
arrangements involve two (or more) parties who are both (a) active participants
in the activity and (b) exposed to significant risks and rewards dependent on
the commercial success of the activity. Many collaborative arrangements involve
licenses of intellectual property, and the participants may exchange
consideration related to the license at the inception of the arrangement.
Participants in a collaborative arrangement shall report costs incurred and
revenue generated from transactions with third parties (that is, parties that do
not participate in the arrangement) in each entity’s respective income statement
pursuant to such guidance. An entity should not apply the equity method of
accounting to activities of collaborative arrangements.




5




NOTE   3   -
            RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY
      (cont’d):




This
guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
Company adopted this standard as of November 1, 2009 and it did not have a
material impact on the consolidated financial statements.




Business
Combinations




In
December 2007, the FASB revised the authoritative guidance for business
combinations.  Transaction costs are now required to be expensed as
incurred and adjustments to the acquired entity’s deferred tax assets and
uncertain tax position balances occurring outside the measurement period are
recorded as a component of income tax expense, rather than goodwill, among other
changes.




In April
2009, the FASB revised the authoritative guidance related to the initial
recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business
combination.  Generally, assets acquired and liabilities assumed in a
business combination that arise from contingencies must be recognized at fair
value at the acquisition date.  This guidance is effective for the
Company as of November 1, 2009.  As this guidance is applied
prospectively to business combinations with an acquisition date on or after the
date the guidance became effective, the impact to the Company cannot be
determined until the transactions occur.




Pension
and Other Postretirement Benefit Plan Asset Disclosures




In
December 2008, the FASB issued authoritative guidance requiring additional
disclosures for employers’ pension and other postretirement benefit plan
assets.  This guidance requires employers to disclose information
about fair value measurements of plan assets, the investment policies and
strategies for the major categories of plan assets, and significant
concentrations of risk within plan assets.  This guidance will be
effective for the Company as of October 31, 2010.  As this guidance
provides only disclosure requirements, the adoption of this standard will not
impact the Company’s consolidated results of operations, cash flows or financial
positions.




Fair
Value Measurements




In
February 2008, the FASB delayed the effective date of fair value measurement and
disclosure guidance for all nonrecurring fair value measurements of nonfinancial
assets and liabilities until fiscal years beginning after November 15,
2008.  The Company adopted this standard as of November 1, 2009 and it
did not have a material impact on the consolidated financial
statements.




In
September 2009, the FASB issued authoritative guidance that provides further
clarification for measuring the fair value of investments in entities that meet
the FASB’s definition of an investment company.  This guidance permits
a company to estimate the fair value of an investment using the net asset value
per share of the investment if the net asset value is determined in accordance
with the FASB’s guidance for investment companies as of the company’s
measurement date.  This creates a practical expedient to determining a
fair value estimate and certain attributes of the investment (such
as




6




NOTE   3   -
            RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY
      (cont’d):




redemption
restrictions) will not be considered in measuring fair
value.  Additionally, companies with investments within the scope of
this guidance must disclose additional information related to the nature and
risks of the  investments.  This guidance will become
effective for the Company as of October 31, 2010 and is required to be applied
prospectively.  The Company does not expect that the adoption of this
standard will have a material impact on its consolidated financial
statements.




In
January 2010, the FASB issued authoritative guidance that requires new
disclosures about recurring and nonrecurring fair-value measurements including
significant transfers in and out of Level 1 and Level 2 fair-value measurements
and a description of the reasons for the transfers. In addition, the standard
requires new disclosures regarding activity in Level 3 fair value measurements,
including information on purchases, sales, issuances, and settlements on a gross
basis in the reconciliation of Level 3 fair-value measurements. The Company will
adopt the guidance for Level 1 and Level 2 fair-value measurements for our
second fiscal quarter beginning on February 1, 2010, as required. The Company
will adopt the guidance for Level 3 fair-value measurements for our second
fiscal quarter beginning on February 1, 2011, as required. The Company does not
expect the adoption of this standard will have a material impact on our
disclosures for fair-value measurements.






Subsequent
Events




In May
2009, the FASB issued authoritative guidance which incorporates the principles
and accounting guidance for recognizing and disclosing subsequent events that
originated as auditing standards into the body of authoritative literature
issued by the FASB, and prescribes disclosures regarding the date through which
subsequent events have been evaluated.




In
February 2010, the FASB revised the authoritative guidance related to subsequent
events. The Company is required to evaluate subsequent events through the date
the financial statements are issued. The Company is not required to disclose the
date through which subsequent events have been evaluated.  This
guidance was effective upon issuance for the Company for the period ended
January 31, 2010.  Since this guidance is not intended to
significantly change the current practice of reporting subsequent events, it did
not have an impact on the Company’s consolidated results of operations, cash
flows or financial positions.




Transfers
of Financial Assets




In June
2009, the FASB issued authoritative guidance amending the accounting for the
transfers of financial assets.  Key provisions include (i) the removal
of the concept of qualifying special purpose entities, (ii) the introduction of
the concept of a participating interest, in circumstances in which a portion of
a financial asset has been transferred, and (iii) the requirement that to
qualify for sale accounting, the transferor must evaluate whether it maintains
effective control over transferred financial assets either directly or
indirectly.  Furthermore, this guidance requires enhanced disclosures
about transfers of financial assets and a transferor’s continuing
involvement.  This guidance is effective for the Company beginning
November 1, 2010, and is required to be applied prospectively.




7


NOTE   3   -
            RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS AFFECTING THE COMPANY
      (cont’d):




The
Company does not expect that adoption of this statement will have a material
impact on its consolidated financial statements.




Consolidation
of Variable Interest Entities (“VIEs”)




In June
2009, the FASB issued authoritative guidance to amend the manner in which
entities evaluate whether consolidation is required for VIEs.  The
model for determining which enterprise has a controlling financial interest and
is the primary beneficiary of a VIE has changed significantly under the new
guidance.  Previously, variable interest holders had to determine
whether they had a controlling financial interest in a VIE based on a
quantitative analysis of the expected gains and/or losses of the
entity.  In contrast, the new guidance requires an enterprise with a
variable interest in a VIE to qualitatively assess whether it has a controlling
financial interest in the entity, and if so, whether it is the primary
beneficiary.  Furthermore, this guidance requires that companies
continually evaluate VIEs for consolidation, rather than assessing based upon
the occurrence of triggering events.  This revised guidance also
requires enhanced disclosures about how a company’s involvement with a VIE
affects its financial statements and exposure to risks.  This guidance
is effective for the Company beginning November 1, 2010.  The Company
is currently assessing the impact, if any, this may have on their consolidated
financial statements.




Revenue
Arrangements with Multiple Deliverables




In
October 2009, the FASB issued authoritative guidance that amends existing
guidance for identifying separate deliverables in a revenue-generating
transaction where multiple deliverables exist, and provides guidance for
allocating and recognizing revenue based on those separate
deliverables.  The guidance is expected to result in more
multiple-deliverable arrangements being separable than under current
guidance.  This guidance is effective for the Company beginning on
November 1, 2011 and is required to be applied prospectively to new or
significantly modified revenue arrangements.  The Company is currently
assessing the impacts this guidance may have on their consolidated financial
statements.




NOTE   4   -
            ACCOUNTS
      RECEIVABLE:




Accounts
receivable are recorded net of allowances.  The allowance for doubtful
accounts represents the estimated uncollectible portion of accounts
receivable.  The Company establishes the allowance for doubtful
accounts based on a history of past writeoffs and collections and current credit
considerations.  The reserve for sales discounts represents the
estimated discount that customers will take upon payment.  The
allowances are summarized as follows:




January 31,
      2010 (unaudited)
            
            
            October 31,
      2009(audited)Allowance
      for doubtful accounts
            
            $
            105,078
            
            
            $
            105,078Reserve
      for sales discounts
            
            
            60,000
            
            
            
            60,000Totals
            
            $
            165,078
            
            
            $
            165,078




8




NOTE  5   -
            INVENTORIES:




Inventories
at January 31, 2010 and October 31, 2009 consisted of the
following:




January 31,
      2010 (unaudited)
            
            
            October 31,
      2009(audited)Packed
      coffee
            
            $
            1,523,038
            
            
            $
            1,388,547Green
      coffee
            
            
            2,614,602
            
            
            
            2,484,518Packaging
      supplies
            
            
            812,088
            
            
            
            927,078Totals
            
            $
            4,949,728
            
            
            $
            4,800,143




NOTE   6   -
            COMMODITIES:




The
Company uses options and futures contracts, which are not designated and do not
qualify as hedging instruments, to partially hedge the effects of fluctuations
in the price of green coffee beans.  Options and futures contracts are
measured at fair value each reporting period 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 a broker
which includes primarily cash and commodities for futures and options in the
amount of $617,530 and $482,746, at January 31, 2010 and October 31, 2009,
respectively, net of unrealized losses of $185,566 at January 31, 2010 and an
unrealized gain of $77,306 at October 31, 2009.  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 as a separate component of stockholders’
equity.




At
January 31, 2010, the Company held 60 options (generally with terms of two
months or less) covering an aggregate of 2,250,000 pounds of green coffee beans
at a price of $1.32 per pound.  The fair value of these options was
$63,900 at January 31, 2010.  At January 31, 2009, the Company held
160 options (generally with terms of two months or less) covering an aggregate
of 6,000,000 pounds of green coffee beans at a price of $1.20 per
pound.  The fair market value of these options was $344,000 at January
31, 2009.




The
Company acquires futures contracts with longer terms (generally three to four
months) primarily for the purpose of guaranteeing an adequate supply of green
coffee.  At January 31, 2010, the Company held 50 futures contracts
for the purchase of 1,875,000 pounds of coffee at an average price of $1.36 per
pound.  The market price of coffee applicable to such contracts was
$1.32 per pound at that date.  At January 31, 2009, the Company did
not hold any futures contracts




Included
in cost of sales for the three months ended January 31, 2010 and 2009, the
Company recorded realized and unrealized gains and losses, respectively, on
these contracts as follows:




9




Three
      Months Ended January 31,2010unaudited
            
            
            2009unauditedGross
      realized gains
            
            $
            400,919
            
            
            $
            211,275Gross
      realized (losses)
            
            
            (3,368)
            
            
            
            (58,900)Unrealized
      gains (losses)
            
            
            (262,862)
            
            
            
            130,636Total
            
            $
            134,689
            
            
            $
            283,011




NOTE   7   -
            LINE
      OF CREDIT:




On
February 17, 2009, the Company entered into a financing agreement with Sterling
National Bank (“Sterling”) for a $5,000,000 credit facility.  The
credit facility is a revolving $5,000,000 line of credit and the Company can
draw on the line at an amount up to 85% of eligible accounts receivable and 25%
of eligible inventory consisting of green coffee beans and finished coffee not
to exceed $1,000,000.  Sterling shall have the right from time to time
to adjust the foregoing percentages based upon, among other things, dilution,
its sole determination of the value or likelihood of collection of eligible
accounts receivables owed to the Company, considerations regarding inventory,
and other factors.  The credit facility is payable monthly in arrears
on the average unpaid balance of the line of credit at an interest rate equal to
a per annum reference rate (currently 4.25%) plus 1.0%.  The initial
term of the credit facility is three years, expiring on February 17, 2012, and
shall be automatically extended for successive periods of one year each unless
one party shall have provided the other party with a written notice of
termination at least ninety days prior to the expiration of the initial contract
term or any renewal term.  The credit facility is secured by all
tangible and intangible assets of the Company and was personally guaranteed by
two officers/stockholders of the Company.  The personal guarantees of
the two officers/stockholders was released by Sterling effective October 31,
2009.




The
credit facility contains covenants that place annual restrictions on the
Company’s operations, including covenants relating to mergers, debt
restrictions, capital expenditures, tangible net worth, net profit, leverage,
fixed charge coverage, employee loan restrictions, distribution restrictions
(common stock and preferred stock), dividend restrictions, restrictions on lease
payments to affiliates, restrictions on changes in business, asset sale
restrictions, restrictions on acquisitions and intercompany transactions,
restrictions on fundamental changes.  The credit facility also
requires that the Company maintain a minimum working capital at all
times.  The Company was in compliance with all required financial
covenants at January 31, 2010 and October 31, 2009. The initial borrowings under
the revolving credit facility were used to repay the outstanding principal and
accrued interest under the $4,500,000 line of credit previously held with
Merrill Lynch, which was terminated and replaced with the revolving line of
credit, with the excess being available for working capital
purposes.




NOTE   8   -
            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 basis of assets
and liabilities that will




10




NOTE   8   -
            INCOME
      TAXES (cont’d):




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 benefit is the tax incurred for
the period plus or minus the change during the period in deferred tax assets and
liabilities.




On
November 1, 2007, the Company adopted FASB authoritative guidance for accounting
for uncertainty in income taxes.   There was no impact on the
Company’s consolidated financial position, results of operations or cash flows
at October 31, 2008 and for the fiscal year then ended as a result of
implementing the guidance.  As of January 31, 2010 and October 31,
2009, the Company did not have any unrecognized tax benefits. The Company’s
practice is to recognize interest and/or penalties related to income tax matters
in income tax expense.  As of January 31, 2010 and October 31, 2009,
the Company had no accrued interest or penalties related to income taxes. The
Company currently has no federal or state tax examinations in
progress.




NOTE   9   -
            EARNINGS
      PER SHARE:




The
Company presents “basic” and “diluted” earnings per common share in accordance
with FASB authoritative guidance.  Basic earnings (loss) per common
share is computed by dividing the net income (loss) attributable to the
Company’s controlling interest by the sum of the weighted-average number of
common shares outstanding and diluted earnings (loss) per share is computed by
dividing the net income (loss) attributable to the Company’s controlling
interest by the weighted-average number of common shares outstanding plus the
dilutive effect of common shares issuable upon exercise of potential sources of
dilution.  Through April 30, 2009, on a common share equivalent basis,
70,000 warrants, all of which expired as of May 6, 2009, have been excluded from
the diluted earnings (loss) per share calculation due to the anti-dilution
impact.




NOTE   10   -
            ECONOMIC
      DEPENDENCY:




Approximately
43% of the Company’s sales were derived from one customer during the three
months ended January 31, 2010.  This customer also accounted for
approximately $1,720,500 of the Company’s accounts receivable balance at January
31, 2010.   Approximately 34% of the Company’s sales were derived
from one customer during the three months ended January 31,
2009.  This customer also accounted for approximately $1,203,000 of
the Company’s accounts receivable balance at January 31,
2009.  Concentration of credit risk with respect to other trade
receivables is 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.




For the
three months ended January 31, 2010, approximately 35% and 6% of the Company’s
purchases were from two vendors.   These vendors accounted for
approximately $208,000 of the Company’s accounts payable at January 31,
2010.  For the three months ended January 31, 2009, approximately 22%
and 12% of the Company’s purchases were from two vendors.  These
vendors accounted for approximately $1,012,000 of the Company’s accounts payable
at January 31, 2009.




11





NOTE   11   -
            RELATED
      PARTY TRANSACTIONS:




The
Company has engaged its 40% partner in Generation Coffee Company, LLC as an
outside contractor (the “Partner”).  Included in contract labor
expense are expenses incurred from the Partner during the three months ended
January 31, 2010 of $151,270 for the processing of finished
goods.  There were no contract labor expenses incurred from the
Partner during the three months and January 31, 2009.




An
employee of one of the top two vendors is a director of the
Company.  Purchases from that vendor totaled approximately $6,600,000
and $3,364,000 for the three months ended January 31, 2010 and 2009,
respectively.  The corresponding accounts payable balance to this
vendor was approximately $138,000 at January 31, 2010 and $829,000 at October
31, 2009.  Management does not believe the loss of any one vendor
would have a material adverse effect of the Company’s operations due to the
availability of many alternate suppliers.




The
deferred compensation payable represents the liability due to an officer of the
Company.  Deferred compensation expenses included in officers’
salaries were approximately $7,000 and $40,000 during the three months ended
January 31, 2010 and 2009, respectively.




NOTE   12   -
            STOCKHOLDERS’
      EQUITY:




a.
            
            Warrants
      to Purchase 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 which
      concluded on June 16, 2005.  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 participated in the underwriting syndicate of the
      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 value of these warrants were credited
      to additional paid-in capital.  The warrants were exercisable
      for a period of five (5) years and contained provisions for cashless
      exercise, anti-dilution and piggyback registration rights.  The
      warrants expired on May 6, 2009 and are no longer
      exercisable.b.
            
            Treasury
      Stock:The
      Company utilizes the cost method of accounting for treasury
      stock.  The cost of reissued shares is determined under the
      last-in, first-out method.  The Company did not purchase any
      shares during the three months ended January 31, 2010.  The
      Company purchased 17,800 shares for $88,017 during the three months ended
      January 31, 2009.




12


NOTE   13   -
            FAIR
      VALUE MEASUREMENTS:




The
Company adopted the authoritative guidance on “Fair Value Measurements” as of
November 1, 2008.  The guidance defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, not adjusted
for transaction costs.  The guidance also establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels giving the highest priority to quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3) as described below:




Level 1
Inputs – Unadjusted quoted prices in active markets for identical assets or
liabilities that is accessible by the Company;




Level 2
Inputs – Quoted prices in markets that are not active or financial instruments
for which all significant inputs are observable, either directly or
indirectly;




Level 3
Inputs – Unobservable inputs for the asset or liability including significant
assumptions of the Company and other market participants.




The
Company determines fair values for its investment assets as
follows:




Investments,
at fair value – The Company’s investments, at fair value, consist of commodities
securities – marked to market.  The Company’s marketable securities
are classified within level 1 of the fair value hierarchy as they are valued
using quoted market prices from an exchange.




The
following tables present the Company’s assets that are measured at fair value on
a recurring basis and are categorized using the fair value
hierarchy.  The fair value hierarchy has three levels based on the
reliability of the inputs used to determine fair value.




Unaudited
              Fair
      Value Measurements as of January 31, 2010Total
            
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3Assets:Commodities
      – Futures
            
            $
            617,530
            
            
            $
            617,530
            
            
            
            –
            
            
            
            –Total
      Assets
            
            $
            617,530
            
            
            $
            617,530
            
            
            
            –
            
            
            
            –





Audited
              Fair
      Value Measurements as of October 31, 2009Total
            
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3Assets:Commodities
      – Futures
            
            $
            482,746
            
            
            $
            482,746
            
            
            
            –
            
            
            
            –Total
      Assets
            
            $
            482,746
            
            
            $
            472,746
            
            
            
            –
            
            
            
            –





13




ITEM 2.MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.





Cautionary
Note on Forward-Looking Statements




Some of
the matters discussed under the caption “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” “Business,” “Risk Factors” and
elsewhere in this quarterly report include forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.  We have based these forward-looking statements
upon information available to management as of the date of this Form 10-Q and
management’s expectations and projections about future events, including, among
other things:




●
            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;




●
            the macro global economic
environment;




●
            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 (the “SEC”).




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 quarterly report and in any other public
statements we make may turn out to be wrong.  They can be affected by
inaccurate assumptions we might make or by known or unknown risks and
uncertainties.  Consequently, no forward looking statement can be
guaranteed.  In addition, we undertake no responsibility to update any
forward-looking statement to reflect events or circumstances, that occur after
the date of this quarterly report.




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.




14




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, LLC, 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 April 2006, we entered into a joint
venture with Caruso’s Coffee, Inc. of Brecksville, Ohio and formed Generations
Coffee Company, LLC, a Delaware limited liability company, which engages in the
roasting, packaging and sale of private label specialty coffee
products.  We own a 60% equity interest in Generations Coffee Company
and we are the exclusive supplier of its coffee inventory.  We believe
that the joint venture will allow us to bid on the private label gourmet whole
bean business which 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, the
number of our customers in all three areas increased.




We closed our manufacturing operations
at our Brooklyn, New York location in May 2009. The majority of our processing
has been moved to our Colorado facility with our Generations Coffee Company
facility in Brecksville, Ohio becoming more involved with our everyday coffee
production. We have leased office and warehouse space located in Staten Island,
New York to house the corporate offices and serve as temporary storage of our
branded product. We sold the property located in Brooklyn, New York in October
2009 for a pre-tax gain of approximately $2,108,000, which enhanced our already
strong cash position and liquidity.  We used the proceeds of the sale
to pay down our line of credit borrowings and reduce interest
expense.  Although we incurred a related severance cost of $78,500 in
the third quarter of fiscal 2009, we believe that these measures will reduce
long-term operating expenses, increase efficiencies and ultimately increase the
profitability of our Company.




15





In July
2007, we entered into a three-year licensing agreement with Entenmann’s
Products, Inc., a subsidiary of Entenmann’s, Inc., which is one of the nation’s
oldest baking companies.  The agreement gives us the exclusive rights
to manufacture, market and distribute a full line of Entenmann’s brand coffee
products throughout the United States.  We are continuing to develop
not only mainstream Entenmann’s coffee items, but upscale flavored Entenmann’s
products in twelve-ounce valve bags as well.  These products will give
the line a visible upscale image to our retailers and their customers, which we
believe will be integral to the long-term success of this
arrangement.




Our net
sales are affected by the price of green coffee.  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.  The
supply and price of coffee beans are subject to volatility and are influenced by
numerous factors which are beyond our control.  For example, in
Brazil, which produces approximately 40% of the world’s green coffee, the coffee
crops are historically susceptible to frost in June and July and drought in
September, October and November.  However, because we purchase coffee
from a number of countries and are able to freely substitute one country’s
coffee for another in our products, price fluctuations in one country generally
have not had a material impact on the price we pay for
coffee.  Accordingly, price fluctuations in one country generally have
not had a material effect on our results of operations, liquidity and 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.




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 would 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
into 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 of America (“U.S.
GAAP”) 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 the relevant authoritative
      guidance.  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 generally
      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 decrease our
      operating income by approximately $96,000 for the quarter ended January
      31, 2010.




16




●
            Inventories
      are stated at lower of cost (determined on a first-in, first-out basis) or
      market.  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
      decreased operating income by approximately $49,000 for the quarter ended
      January 31, 2010.




●
            We
      account for income taxes in accordance with the relevant authoritative
      guidance.  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 as of January
      31, 2010 of $189,000 may require a valuation allowance if we do not
      generate taxable income.




Quarter
Ended January 31, 2010 Compared to the Quarter Ended January 31,
2009






Net
Income.  We had net income of $557,978, or $0.10 per share
(basic and diluted), for the three months ended January 31, 2010 compared to net
income of $391,801, or $0.07 per share (basic and diluted), for the three months
ended January 31, 2009.  The increase in net income primarily reflects
increased net sales, which resulted in an increase in gross profit.




Net
Sales.  Net sales totaled $21,359,151 for the three months
ended January 31, 2010, an increase of $2,501,281, or 13.3%, from $18,857,870
for the three months ended January 31, 2009.  The increase in net
sales reflects increased sales of both green coffee and private label coffee to
our largest customers.




Cost of
Sales.  Cost of sales for the three months ended January 31,
2010 was $18,721,387, or 87.7% of net sales, as compared to $16,742,775, or
88.8%, of net sales for the three months ended January 31, 2009.  The
decrease in cost of sales as a percentage of net sales reflects the benefits we
are beginning to realize due to our cost cutting measures as well as a more
favorable green coffee inventory position.  Net gains on options and
futures contracts, a component of cost of sales, decreased $148,322 from
$283,011 for the quarter ended January 31, 2009 to $134,689 for the quarter
ended January 31, 2010.




Gross
Profit.  Gross profit increased $522,669 to $2,637,764 for the
three months ended January 31, 2010 as compared to gross profit of $2,115,095
for the three months ended January 31, 2009.  Gross profit as a
percentage of net sales increased by 1.1% to 12.3% for the three months ended
January 31, 2010 as compared to 11.2% for the three months ended January 31,
2009.  The increase in our margins primarily reflects the decreased
cost of sales as a percentage of net sales.




Operating
Expenses.  Total operating expenses increased by $182,228, or
13.0%, to $1,588,908 for the three months ended January 31, 2010 as compared to
operating expenses of $1,406,680 for the three months ended January 31,
2009.  The increase in operating expenses was due to increased selling
and administrative expense due mainly to increases of approximately $170,000 in
contract labor expense, $30,000 in Entenmann’s setup expenses, $28,000 in
freight expense, $27,000 in travel and entertainment expense, $10,000 in
packaging development costs and $9,000 in advertising expense, partially offset
by $60,000 in insurance expense, decreases of approximately $7,000 in payroll
costs, and $8,000 in each of depreciation, security and utilities expenses.
The added expenses
were justified due to the high level of business during this
period.




Other
Expense.  Other expense increased by $13,567 to $52,096 for the
three months ended January 31, 2010 compared to other expense of $38,529 for the
three months ended January 31, 2009.  Interest income decreased by
$946 and interest expense increased $12,621 during the quarter compared to the
same period in 2009.  The decrease in interest income resulted from
lower interest rates.  The increase in interest expense resulted from
an increase in the average balance outstanding on our line of
credit.




17




Income
Taxes.Our provision for income taxes for the three months
ended January 31, 2010 totaled $441,262 compared to a provision of $276,636 for
the three months ended January 31, 2009.  The increase reflects higher
pre-tax income for the 2010 quarter.




Liquidity
and Capital Resources






As of
January 31, 2010, we had working capital of $10,353,010 which represented a
$808,215 increase from our working capital of $9,544,795 as of October 31, 2009,
and total stockholders’ equity of $11,733,731 which increased by $555,498 from
our total stockholders’ equity of $11,178,233 as of October 31,
2009.  Our working capital increased primarily due to modest increases
in cash and cash equivalents, commodities held at broker, inventories and
deferred income tax assets and a $1,241,583 decrease in accounts payable,
partially offset by a $557,713 decrease in accounts receivable and a $632,925
increase in the outstanding balance on our line of credit.  At January
31, 2010, the outstanding balance on our line of credit was $1,424,553 compared
to $791,628 at October 31, 2009. Total stockholders’ equity increased due to an
increase in retained earnings as a result of our net income for the quarter
ended January 31, 2010.




For the
three months ended January 31, 2010, our operating activities used net cash of
$376,822 as compared to the three months ended January 31, 2009 when net cash
provided by operating activities was $1,392,754.  The decreased cash
flow from operations for the three months ended January 31, 2010 was primarily
due to a $960,271 decrease in accounts payable and accrued expenses, and a
$498,203 decrease in accounts receivable.




For the
three months ended January 31, 2010, our investing activities used net cash of
$80,994, as compared to the three months ended January 31, 2009 when net cash
used in investing activities was $67,327.  The increase in net cash
used in investing activities for the three months ended January 31, 2010 was due
to the increase in purchases of property and equipment.




For the
three months ended January 31, 2010, our financing activities provided net cash
of $632,925 compared to net cash used in financing activities of $444,263 for
the three months ended January 31, 2009.  The change in cash flow from
financing activities for the three months ended January 31, 2010 was primarily
due to increased advances under our line of credit, partially offset by
increased principal payments under the line of credit.




As of
October 31, 2008, we had a financing agreement with Merrill Lynch Business
Financial Services Inc. (“Merrill Lynch”).  This $4,500,000 line of
credit was to expire on February 28, 2009 and required monthly interest payments
at a rate of LIBOR plus 1.95%.  This loan was secured by a blanket
lien on all of our assets.  On February 17, 2009, we entered into a
Loan and Security Agreement with Sterling National Bank (“Sterling”) for a new
credit facility to provide for our working capital requirements and we
terminated the credit facility with Merrill Lynch.  The new credit facility
is a revolving $5,000,000 line of credit and the Company can draw on the
line at an amount up to 85% of eligible accounts receivable and 25% of
eligible inventory consisting of green coffee beans and finished coffee not to
exceed $1,000,000.   The credit facility is payable monthly in arrears
on the average unpaid balance of the line of credit at an interest rate equal to
a per annum reference rate (currently 4.25%) plus 1.0%.  The
initial term of the credit facility is three years and shall be
automatically extended for successive periods of one (1) year each unless one
party shall have provided the other party with a written notice of termination,
at least ninety (90) days prior to the expiration of the initial contract term
or any renewal term.  The credit facility is secured by all tangible and
intangible assets of the Company.  The personal guarantees of the two
officers and shareholders was released by Sterling effective October 31,
2009.  The credit facility contains covenants that place restrictions
on our operations, including covenants relating to mergers, debt restrictions,
capital expenditures, tangible net worth, leverage, fixed charge coverage,
minimum working capital, dividend restrictions, restrictions on lease payments
to affiliates, restrictions on changes in business, asset sale restrictions,
restrictions on acquisitions and restrictions on fundamental
changes.




18




We expect
to fund our operations, including paying our liabilities, funding capital
expenditures and making required payments on our debts, through October 31, 2010
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 closed
our manufacturing operations at our Brooklyn, New York location in May 2009. The
majority of our processing has been moved to our La Junta, Colorado facility
with our Generations Coffee Company facility in Brecksville, Ohio becoming more
involved with our everyday coffee production. We have leased office and
warehouse space located in Staten Island, New York to house the corporate
offices and serve as temporary storage of our branded product. We sold the
property located in Brooklyn, New York in October 2009 for a pre-tax gain of
approximately $2,108,000, which enhanced our already strong cash position and
liquidity. We believe that these measures will reduce long-term operating
expenses, increase efficiencies and ultimately increase the profitability of our
Company.


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.


Recent
Accounting Pronouncements






See Note
3 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this
Form 10-Q.




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ITEM
3. 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 January 31, 2010, our debt
consisted of $1,424,553 of variable rate debt under our 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 (generally with terms of two months or less) primarily for the
purpose of partially hedging and minimizing the effects of changing green coffee
prices, as further explained in Note 6 of the notes to financial statements in
this report.  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.  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.  We believe that, in normal economic times, our hedging
policies are a vital element to our business model which not only control our
cost of sales, but also give us the flexibility to obtain the inventory
necessary to continue to grow our sales while minimizing margin compression if
coffee prices were to suddenly rise.




At
January 31, 2010 we held 60 options covering an aggregate of 2,250,000 pounds of
green coffee beans at $1.32 per pound.  The market price of these
options was $63,900 at January 31, 2010.  At January 31, 2009, we held
160 options covering an aggregate of 6,000,000 pounds of green coffee beans at
$1.36 per pound.  The market price of these options was $344,000 at
January 31, 2009.




At
January 31, 2010, we held 50 futures contracts for the purchase of 1,875,000
pounds of coffee at a weighted average price of $1.36 per pound.  The
market price of coffee applicable to such contracts was $1.32 per pound at that
date.  At January 31, 2009, we did not hold any future
contracts.






ITEM
4T. CONTROLS
AND PROCEDURES.


Management,
including our President, Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) as of the end of the period covered by this
report.  Based upon that evaluation, the President and Chief Executive
Officer, who is also the Chief Financial Officer, concluded that the disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports that we file and submit under the Exchange Act is
(1) recorded, processed, summarized and reported as and when required; and
(2) accumulated and communicated, as is appropriate, to the Company’s
management, including its President and Chief Executive Officer, who is also the
principal executive officer and principal financial officer, to allow timely
discussions regarding disclosure.




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




20


PART
II –  OTHER INFORMATION




ITEM 1.              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
1A. RISK
FACTORS.


There
were no material changes during the quarter ended January 31, 2010 to the Risk
Factors disclosed in Item 1A “Risk Factors” in our annual report on Form 10-K
for the fiscal year ended October 31, 2009.




ITEM 2.              UNREGISTERED
SALES OF EQUITY IN SECURITIES AND USE OF PROCEEDS.


None.






ITEM
3. DEFAULTS
UPON SENIOR SECURITIES.





None.




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





None.


ITEM 5. OTHER
INFORMATION.





None.




ITEM 6. EXHIBITS.





31.1           Principal
Executive Officer and Principal Financial Officer’s Certification Pursuant
toSection 302 of the Sarbanes-Oxley Act of
2002.




32.1           Principal
Executive Officer and Principal Financial Officer’s Certification furnishedPursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.




21


Signatures




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized and in the capacities indicated on March 15, 2010.






Coffee
      Holding Co., Inc.By:
              /s/ Andrew GordonAndrew
      GordonPresident,
      Chief Executive Officer and Chief Financial Officer(Principal
      Executive and Accounting Officer)






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