**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**_____________________**




**FORM
      10-Q**




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




For
      the
      quarterly period ended: **July
      31, 2006**


OR




[_]  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.)*





**4401
                First Avenue, Brooklyn, New York**
            **11232-0005***(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 twelve 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
      __ .




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 ___  Accelerated
      filer ___  Non-accelerated filer X




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes __ No X .




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




**5,529,830
      shares of common stock, par value $0.001 per share, outstanding at August 31,
      2006**












**PAGE**


**PART
      I — FINANCIAL INFORMATION**





**Item
                1.****Financial
                Statements**
            
            
            1Condensed
                Balance SheetsJuly
                31, 2006 (unaudited) and October 31, 2005
            
            
            1Condensed
                Statements of OperationsNine
                and Three Months Ended July 31, 2006 and 2005 (unaudited)
            
            
            2Condensed
                Statements of Cash FlowsNine
                Months Ended July 31, 2006 and 2005 (unaudited)
            
            
            3Notes
                To Condensed Financial Statements (unaudited)
            
            
            4**Item
                2.****Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**
            
            
            8**Item
                3.****Quantitative
                and Qualitative Disclosures About Market Risk**
            
            
            15**Item
                4.****Controls
                and Procedures**
            
            
            16**PART
                II****—
                OTHER INFORMATION****Item
                1.****Legal
                Proceedings**
            
            
            17**Item
                1A.****Risk
                Factors**
            
            
            17**Item
                2.****Unregistered
                Sales of Equity Securities and Use of Proceeds**
            
            
            17**Item
                3.****Defaults
                Upon Senior Securities**
            
            
            17**Item
                4.****Submission
                of Matters to a Vote of Security Holders**
            
            
            17**Item
                5.****Other
                Information**
            
            
            17**Item
                6.****Exhibits**
            
            
            17**Signatures**
            
            
            18










**PART
      I** *—* **FINANCIAL INFORMATION**


**Item
      1.**  **Financial Statements**





**COFFEE
      HOLDING CO., INC.**


**CONDENSED
      BALANCE SHEETS**


**JULY
      31, 2006 AND OCTOBER 31, 2005**





**July
                31, 2006**
            
            October
                31, 2005**(unaudited)****-
                ASSETS -****CURRENT
                ASSETS:**Cash
            
            **$**
            **3,039,506**
            
            $
            735,468Due
                from brokers
            
            
            **3,170,874**
            
            
            2,994,394Accounts
                receivable, net of allowance for doubtful accounts of $425,770 and
                $420,349 for 2006 and 2005, respectively
            
            
            **5,067,933**
            
            
            5,159,576Inventories
            
            
            **4,214,884**
            
            
            4,496,578Prepaid
                expenses and other current assets
            
            
            **568,832**
            
            
            284,170Deferred
                tax asset
            
            
            **245,000**
            
            
            318,600**TOTAL
                CURRENT ASSETS**
            
            
            **16,307,029**
            
            
            13,988,786Property
                and equipment, at cost, net of accumulated depreciation of $4,056,485
                and
                $3,727,524 for 2006 and 2005, respectively
            
            
            **2,208,631**
            
            
            2,379,952Investment
                in joint ventures
            
            
            **614,394**
            
            
            **-**Deposits
                and other assets
            
            
            **366,669**
            
            
            176,575**TOTAL
                ASSETS**
            
            **$**
            **19,496,723**
            
            $
            16,545,313**-
                LIABILITIES AND STOCKHOLDERS’ EQUITY -****CURRENT
                LIABILITIES:**Accounts
                payable and accrued expenses
            
            **$**
            **4,625,829**
            
            $
            4,431,577Line
                of credit borrowings
            
            
            **3,562,549**
            
            
            1,063,167Current
                portion of obligations under capital lease
            
            
            **-**
            
            
            1,329Income
                taxes payable - current
            
            
            **-**
            
            
            218,864**TOTAL
                CURRENT LIABILITIES**
            
            
            **8,188,378**
            
            
            5,714,937Deferred
                compensation payable
            
            
            **225,669**
            
            
            135,054Income
                taxes payable - deferred
            
            
            **26,200**
            
            
            53,700**TOTAL
                LIABILITIES**
            
            
            **8,440,247**
            
            
            5,903,691**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
            
            
            **3,723,923**
            
            
            3,309,069**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            **11,056,476**
            
            
            10,641,622**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            **$**
            **19,496,723**
            
            $
            16,545,313





See
      Notes
      to Condensed Financial Statements.


1


**COFFEE
      HOLDING CO., INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**NINE
      AND THREE MONTHS ENDED JULY 31, 2006 AND 2005**


**(Unaudited)**








**Nine
                Months Ended**
              **July
                31**,
            
            **Three
                Months Ended**
              **July,
                31****2006**
            
            2005
            
            **2006**
            
            2005**NET
                SALES**
            
            **$**
            **37,714,354**
            
            $
            29,016,190
            
            **$**
            **11,858,581**
            
            $
            10,782,680**COST
                OF SALES**
            
            
            **32,584,566**
            
            
            23,657,607
            
            
            **9,916,930**
            
            
            9,749,222**GROSS
                PROFIT**
            
            
            **5,129,788**
            
            
            5,358,583
            
            
            **1,941,651**
            
            
            1,033,458**OPERATING
                EXPENSES:**Selling
                and administrative
            
            
            **3,916,707**
            
            
            3,801,669
            
            
            **1,414,412**
            
            
            1,420,090Bad
                debt expense
            
            
            **5,421**
            
            
            270,000
            
            
            **5,421**
            
            
            270,000Officers’
                salaries
            
            
            **408,155**
            
            
            399,271
            
            
            **135,975**
            
            
            135,975**TOTALS**
            
            
            **4,330,283**
            
            
            4,470,940
            
            
            **1,555,808**
            
            
            1,826,065**INCOME
                (LOSS) FROM OPERATIONS**
            
            
            **799,505**
            
            
            887,643
            
            
            **385,843**
            
            
            (792,607
            )**OTHER
                INCOME (EXPENSE)**Interest
                income
            
            
            **90,907**
            
            
            25,426
            
            
            **33,618**
            
            
            18,219Equity
                in loss of joint venture
            
            
            **(74,611**
            **)**
            
            **-**
            
            
            **(69,289**
            **)**
            
            **-**Interest
                expense
            
            
            **(80,951**
            **)**
            
            (88,130
            )
            
            **(42,726**
            **)**
            
            (24,908
            )**(64,655**
            **)**
            
            (62,704
            )
            
            **(78,397**
            **)**
            
            (6,689
            )**INCOME
                (LOSS) BEFORE INCOME TAXES**
            
            
            **734,850**
            
            
            824,939
            
            
            **307,446**
            
            
            (799,296
            )(Provision)
                benefit for income taxes
            
            
            **(319,996**
            **)**
            
            (272,179
            )
            
            **(127,996**
            **)**
            
            351,421**NET
                INCOME (LOSS)**
            
            **$**
            **414,854**
            
            $
            552,760
            
            **$**
            **179,450**
            
            $
            (447,875
            )Basic
                and diluted earnings (loss) per share
            
            **$**
            **.08**
            
            $
            .12
            
            **$**
            **.03**
            
            $
            (.08
            )




See
      Notes to Condensed Financial
      Statements.





2





**COFFEE
      HOLDING CO., INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**NINE
      MONTHS ENDED JULY 31, 2006 AND 2005**


**(Unaudited)**





**2006**
            
            2005**OPERATING
                ACTIVITIES:**Net
                income
            
            **$**
            **414,854**
            
            $
            552,760Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            **328,962**
            
            
            281,409Bad
                debts
            
            
            **5,421**
            
            
            270,000Deferred
                taxes
            
            
            **46,100**
            
            
            (77,000
            )Loss
                from joint venture
            
            
            **74,611**
            
            
            **-**Changes
                in operating assets and liabilities:Due
                from brokers
            
            
            **(176,480**
            **)**
            
            (1,281,036
            )Accounts
                receivable
            
            
            **86,222**
            
            
            (334,705
            )Inventories
            
            
            **281,694**
            
            
            (1,301,542
            )Prepaid
                expenses and other current assets
            
            
            **(284,662**
            **)**
            
            266,425Accounts
                payable and accrued expenses
            
            
            **194,252**
            
            
            (1,977,786
            )Other
                assets
            
            
            **(99,479**
            **)**
            
            **-**Income
                taxes payable
            
            
            **(218,864**
            **)**
            
            (160,000
            )**Net
                cash provided by (used in) operating activities**
            
            
            **652,631**
            
            
            (3,761,475
            )**INVESTING
                ACTIVITIES:**Purchases
                of property and equipment
            
            
            **(157,641**
            **)**
            
            (357,936
            )Security
                deposits
            
            
            **-**
            
            
            (8,025
            )Investment
                in joint ventures
            
            
            **(689,005**
            **)**
            
            -**Net
                cash (used in) investing activities**
            
            
            **(846,646**
            **)**
            
            (365,961
            )**FINANCING
                ACTIVITIES:**Principal
                payments on term loan
            
            
            **-**
            
            
            (252,000
            )Advances
                under bank line of credit
            
            
            **31,322,458**
            
            
            17,315,427Net
                proceeds from IPO
            
            
            **-**
            
            
            6,436,016Principal
                payments under bank line of credit
            
            
            **(28,823,076**
            **)**
            
            (18,672,311
            )Principal
                payments of obligations under capital leases
            
            
            **(1,329**
            **)**
            
            (107,699
            )**Net
                cash provided by financing activities**
            
            
            **2,498,053**
            
            
            4,719,433**NET
                INCREASE IN CASH**
            
            
            **2,304,038**
            
            
            591,997Cash,
                beginning of year
            
            
            **735,468**
            
            
            642,145**CASH,
                END OF PERIOD**
            
            **$**
            **3,039,506**
            
            $
            1,234,142**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW DATA:**Interest
                paid
            
            **$**
            **36,034**
            
            $
            81,495Income
                taxes paid
            
            **$**
            **269,784**
            
            $
            297,145







See
      Notes to Condensed Financial
      Statements.


3


**COFFEE
      HOLDING CO., INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**July
      31, 2006 AND 2005**


**(Unaudited)**





**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. See Note 9 for recent activity.




**NOTE
      2 -**  **BASIS
      OF PRESENTATION:**





In
      the
      opinion of management, the accompanying unaudited condensed financial statements
      reflect all adjustments, consisting of normal recurring accruals, necessary
      to
      present fairly the financial position of the Company as of July 31, 2006, its
      results of operations and its cash flows for the nine months ended July 31,
      2006
      and 2005. Information included in the balance sheet as of October 31, 2005
      has
      been derived from the Company’s audited balance sheet included in the Company’s
      Annual Report on Form 10-KSB for the year ended October 31, 2005 (the “Form
      10-KSB”) previously filed with the Securities and Exchange Commission (the
“SEC”). Pursuant to the rules and regulations of the SEC for interim financial
      statements, certain information and disclosures normally included in financial
      statements prepared in accordance with accounting principles generally accepted
      in the United States of America have been condensed or omitted from these
      financial statements unless significant changes have taken place since the
      end
      of the most recent fiscal year. Accordingly, these unaudited condensed financial
      statements should be read in conjunction with the audited financial statements
      and the other information in the Form 10-KSB.





Operating
      results for the nine months ended July 31, 2006 are not necessarily indicative
      of the results that may be expected for the year ending October 31, 2006 or
      any
      other period.




**NOTE
      3 -**  **INVENTORIES:**





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








**July
                31, 2006**
            
            October
                31, 2005Packed
                coffee
            
            $
            1,269,290
            
            $
            1,276,050Green
                coffee
            
            
            2,180,668
            
            
            2,483,061Packaging
                supplies
            
            
            764,926
            
            
            737,467Totals
            
            **$**
            **4,214,884**
            
            $
            4,496,578




4




**COFFEE
      HOLDING CO., INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**July
      31, 2006 AND 2005**


**(Unaudited)**




**NOTE
      4 -**  **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 does not defer such gains and losses since its positions
      are not considered hedges for financial reporting purposes. The Company’s
      accounting for options and futures contracts may increase earnings volatility
      in
      any particular period.





At
      July
      31, 2006, the Company held 243 options (generally with terms of two months
      or
      less) covering an aggregate of 9,112,500 pounds of green coffee beans at prices
      of $.975 and $1.10 per pound. The fair market value of these options, which
      was
      obtained from major financial institutions, was $487,961 at July 31, 2006.





At
      July
      31, 2005, 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 $1.05 per pound. The fair market value of these options, which was obtained
      from a major financial institution, was $84,375 at July 31, 2005.





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
      July
      31, 2006, the Company held 58 futures contracts for the purchase of 2,175,000
      pounds of coffee at prices ranging from $.9755 up to $.9930 per pound for
      September 2006 contracts. The market price of coffee applicable to such
      contracts was $.995 per pound at that date.





At
      July
      31, 2005, the Company held 192 futures contracts for the purchase of 7,200,000
      pounds of coffee at prices ranging from $.9975 up to $1.15 per pound for
      September 2005 contracts. The market price of coffee applicable to such
      contracts was $1.02 per pound at that date.





Included
      in cost of sales and due from brokers for the three and nine months ended July
      31, 2006 and 2005, the Company recorded realized and unrealized gains and losses
      respectively, on these contracts as follows:





**Three
                Months Ended July 31,****2006**
            
            2005Gross
                realized gains
            
            $
            758,664
            
            $
            444,543Gross
                realized losses
            
            $
            (684,232
            )
            $
            (383,584
            )Unrealized
                gains and (losses)
            
            $
            89,206
            
            $
            (767,089
            )




**Nine
                Months Ended July 31,****2006**
            
            2005Gross
                realized gains
            
            **$**
            **1,569,909**
            
            $
            2,757,254Gross
                realized losses
            
            **$**
            **(1,344,993**
            **)**
            $
            (2,219,387
            )Unrealized
                gains and (losses)
            
            **$**
            **307,397**
            
            $
            (283,575
            )







5





**COFFEE
      HOLDING CO., INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**July
      31, 2006 AND 2005**


**(Unaudited)**





**NOTE
      5 -**  **LINE
      OF CREDIT:**





The
      Company has a line of credit facility with Merrill Lynch Business Financial
      Services, Inc. up to a maximum amount of $4.0 million with an interest rate
      of
      LIBOR plus 2.15% which at July 31, 2006 was 7.55%. The facility expires on
      October 31, 2006. The loan 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
      and also requires the Company to comply with various financial covenants. The
      Company was in compliance with all financial covenants as of July 31, 2006.




**NOTE
      6 -**  **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 results of operations or financial position in future
      periods.




**NOTE
      7 -**  **EARNINGS
      (LOSS) PER SHARE:**





The
      Company presents “basic” and “diluted” earnings (loss) per common share pursuant
      to the provisions of Statement of Financial Accounting Standards No. 128,
“Earnings per Share”. Basic earnings (loss) per share is based on the
      weighted-average number of common shares outstanding and diluted earnings (loss)
      per share is based on the weighted-average number of common shares outstanding
      plus all potential dilutive common shares outstanding.




**NOTE
      8 -**  **ECONOMIC
      DEPENDENCY:**




For
      the
      nine months ended July 31, 2006, sales to one customer was in excess of 10%
      of
      the Company’s total sales. Sales to this customer were approximately $13,370,000
      and the corresponding accounts receivable at July 31, 2006 from this customer
      was approximately $1,009,000.





For
      the
      nine months ended July 31, 2005, sales to one customer were in excess of 10%
      of
      the Company’s total sales. Sales to this customer were approximately $8,690,000
      and the corresponding accounts receivable at July 31, 2005 from this customer
      was approximately $944,000.





For
      the
      nine months ended July 31, 2006, purchases from two suppliers were in excess
      of
      10% of the Company’s total purchases. Purchases from these suppliers were
      approximately $11,718,000 and $3,827,000 and the corresponding accounts payable
      to these suppliers at July 31, 2006 were approximately $934,000 and $94,000,
      respectively.





For
      the
      nine months ended July 31, 2005, purchases from one supplier were in excess
      of
      10% of the Company’s total purchases. Purchases from this supplier were
      approximately $10,487,000 and the corresponding accounts payable to this
      supplier at July 31, 2005 was approximately $188,000.




6





**COFFEE
      HOLDING CO., INC.**


**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**July
      31, 2006** **AND 2005**


**(Unaudited)**








**NOTE
      9 -**  **INVESTMENT
      IN JOINT VENTURES:**





**Café
      La Rica, LLC Investment:**





The
      Company and Coffee Bean Trading-Roasting LLC (“CBT”) formed a limited liability
      company called Café La Rica, LLC (“CLR”) on March 10, 2006. The purpose of CLR
      is to engage in the roasting, packaging and sale of branded and food service
      coffee products in the Southeastern United States coffee markets. CLR was funded
      by an initial contribution of $250,000 by the Company. In addition, the Company
      contributed specified equipment valued at approximately $335,000 and CBT
      contributed equipment and inventory of coffee and packaging materials valued
      at
      $119,316. The Company and CBT also entered into separate trademark licensing
      agreements with CLR for the use of the Café Caribe trademark and the Café La
      Rica trademark. The respective trademarks Café Caribe and Café La Rica are
      licensed to CLR as exclusive, non-assignable, non-transferable, royalty free
      rights to use them worldwide in connection with the 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% membership in the profits and losses of CLR.





Separate
      agreements have been entered into between the Company and CLR for the Company
      to
      provide administrative services to CLR for a fee, to supply CLR with coffee
      inventory at fair market prices 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 will engage in roasting other non-company
      brands coffee for which the profits and losses will be shared by both
      partners.





Generations
      Coffee Company LLC Investment:





The
      Company and PMD Enterprises, Inc. (DBA Caruso’s Coffee) (“Caruso”) formed a
      limited liability company called Generations Coffee Company, LLC (“GCC”) on
      April 7, 2006. The purpose of GCC is to engage 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 will be equipment
      and by Caruso will be use of equipment and plant/warehouse space. The
      Company has made an initial deposit on a piece of equipment in the amount of
      $103,296 as of July 31, 2006. The Company and Caruso will share in
      profits and losses in the ratio of 60:40 and initial membership interests are
      600 shares and 400 shares, respectively. GCC’s operating agreement provides
      that, in the event Caruso makes additional capital contributions, the sharing
      ratio in profits and losses will be adjusted so that the Company and Caruso
      will
      each have a 50% interest in GCC. As of July 31, 2006, GCC had not conducted
      any
      operations.








7





**Item
      2.**  **Management’s
      Discussion and Analysis** **of
      Financial Condition and Results of Operations.**




**Cautionary
      Note on Forward Looking Statements**




This
      report contains 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 report.




8




**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.




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, a roaster-dealer located 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 and increased attendance at trade shows to promote
      our
      food service and private label coffee business. 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. By operating
      a new
      production facility in Florida through the Cafe La Rica joint venture, we
      believe that we will be able to service the Southeastern United States markets
      more effectively and will be in an excellent position to gain market share
      in
      the Florida food service and Hispanic coffee markets. We believe that the
      operation of a new facility in Florida will accelerate the significant growth
      opportunities that the state of Florida has for our Hispanic-targeted brands.
      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
      of
      July 31, 2006, Generations Coffee had not conducted any operations.




9




As
      a
      result of these efforts, we have increased net sales in our specialty green
      coffee, private label and branded coffee business lines in both dollars and
      pounds sold. In addition, we have 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, among others. 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 over 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
      and generally have not had a material effect on our results of operations,
      liquidity and capital resources. 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, increased green coffee
      prices also generally result in increased cost of sales. Cost of sales consists
      primarily of the cost of green coffee and packaging materials and realized
      and
      unrealized gains or losses on hedging activity. Increased green coffee prices
      cause our margins to shrink to the extent we are unable to pass the full amount
      of increase through to our customers.




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. 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 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 reduce our operating
                income
                by approximately $55,000.






10




·
            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 write-down
                would have reduced operating income by approximately $42,000 for
                the three
                months ended July 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 $218,800 could need to be written off if we
                do not
                remain profitable.




**Comparison
      of Results of Operations for the Three Months Ended July 31, 2005 and
      2006**




***Net
      Income.*** We had
      net income of $179,450, or $.03 per share, for the three months ended July
      31,
      2006 compared to a net loss of $447,875, or ($.08) per share, for the three
      months ended July 31, 2005. The increase in net income primarily reflects
      increased gross profit and decreased operating expenses. This increase was
      partially offset by a $71,708 increase in other expense, $69,289 of which was
      attributable to a loss by our 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.




***Net
      Sales.*** Net
      sales totaled $11,858,581 for the three months ended July 31, 2006, an increase
      of $1,075,901 or 10.0% from $10,782,680 for the three months ended July 31,
      2006. The increase in net sales reflects an increase in pounds of coffee sold
      due to increased sales of our private label, branded and specialty green
      coffees. The number of our customers in the specialty green coffee area grew
      approximately 7% from 290 customers at July 31, 2005 to 310 customers
      at July 31, 2006. These customers are predominately independent
      gourmet/specialty roasters, some of whom own their own retail outlets. 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.




***Cost
      of Sales.*** Cost of
      sales for the three months ended July 31, 2006 was $9,916,930 or 83.6% of net
      sales, as compared to $9,749,222 or 90.4% of net sales for the three months
      ended July 31, 2005. The increase in cost of sales reflects increased purchases
      of green coffee associated with the increase in net sales and an increase in
      the
      price of robusta coffee on the London Robusta Market. Purchases increased
      $1,479,752 from $7,717,080 to $9,196,832 due to increased pounds sold. The
      increase in coffee purchases was partially offset by an increase in net gains
      on
      future contracts of $869,768. 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. We had net gains on futures
      contracts of $163,638 for the three months ended July 31, 2006 compared to
      net
      losses of $706,130 for the three months ended July 31, 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.




11




***Gross
      Profit.*** Gross
      profit for the three months ended July 31, 2006 was $1,941,651, an increase
      of
      $908,193 or 87.9%, from $1,033,458 for the three months ended July 31, 2005.
      Gross profit as a percentage of net sales increased to 16.4% for the three
      months ended July 31, 2006 from 9.6% for the three months ended July 31, 2005.
      The increase in our margins is primarily attributable to net gains on future
      contracts during the three months ended July 31, 2006 compared to net losses
      during the same period the previous year. Excluding
      the impact of futures contracts, gross profit as a percentage of sales was
      15.0%
      and 16.1% for 2006 and 2005, respectively.During the period, our net
      margins continued to be negatively impacted by an increase in robusta coffee
      prices on the London Robusta Market. While the price of Arabica coffee on the
      New York Arabica Market decreased approximately 18% from mid-April 2006 to
      the
      end of July 2006, robusta coffee prices on the London Robusta Market have
      increased by approximately 26% since July 2005. As a result, the margins on
      our
      espresso brands (Café Caribe, Café Supremo and Via Roma) continued to be
      negatively impacted. The increased cost of robusta coffee could not be offset
      by
      price increases or substitutions of other coffees in these blends. In addition,
      we continued to promote these brands during the period, which further
      exacerbated the situation of lower margins due to higher robusta costs. These
      factors negatively affected margins on our leading brand, Café Caribe, by
      approximately 16%.




***Operating
      Expenses.*** Total
      operating expenses decreased by $270,257 or 14.8% to $1,555,808 for the three
      months ended July 31, 2006 from $1,826,065 for the three months ended July
      31,
      2005. The decrease in operating expenses primarily reflects a decrease in bad
      debt expense, repairs and maintenance expense and advertising expense. This
      decrease was partially offset by increases in shipping costs, office salaries
      and insurance expense. The increase in shipping costs was attributable to
      increased sales as well as higher trucking rates due to fuel surcharges
      reflecting the higher price of oil. The increase in office salaries reflected
      new personnel added to assist with the additional administrative duties
      associated with our increase in net sales. The increased insurance expense
      was
      due to higher insurance premiums resulting from increased sales volume as well
      as higher costs associated with insuring product stored in New Orleans following
      Hurricane Katrina.




***Other
      Expense.*** Other
      expense increased $71,708 to $78,397 for the three months ended July 31, 2006
      compared to $6,689 for the three months ended July 31, 2005. The increase in
      other expense was primarily due to a loss by our Café La Rica joint venture. Our
      share of the loss by the joint venture equaled $69,289. 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 $307,446 before income taxes for the three months ended July 31,
      2006
      compared to a loss of $799,296 before income taxes for the three months ended
      July 31, 2005. The increase was attributable to increased income from
      operations, partially offset by increased other expense.




***Income
      Taxes*** **.**  Our
      provision for income taxes for the three months ended July 31, 2006 totaled
      $127,996 compared to a benefit of $351,421 for the three months ended July
      31,
      2005 as a result of income before taxes for the three months ended July 31,
      2006
      compared to a loss before taxes for the three months ended July 31,
      2005.




**Comparison
      of Results of Operations for the Nine Months Ended July 31, 2005 and
      2006**




***Net
      Income and Earnings Per Share*** **.** Net
      income decreased $137,906, or 24.9%, to $414,854 or $.08 per share for the
      nine
      months ended July 31, 2006 compared to $552,760 or $.12 per share for the nine
      months ended July 31, 2005. The decrease in net income primarily reflects
      increased cost of sales and lower margins on our branded and private label
      offerings due to market conditions, increased promotional activities and an
      equity loss in our Café La Rica joint venture, offset in part by increased net
      sales and decreased operating expenses. 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.




12




***Net
      Sales.*** Net
      sales totaled $37,714,354 for the nine months ended July 31, 2006, an increase
      of $8,698,164 or 30.0% from $29,016,190 for the nine months ended July 31,
      2005.
      The increase in net sales reflects an increase in pounds of coffee sold due
      to
      increased sales of our private label, branded and specialty green coffees.
      The
      number of our customers in the specialty green coffee area grew approximately
      7%
      from 290 customers at July 31, 2005 to 310 customers at July 31, 2006. These
      customers are predominately independent gourmet/specialty roasters, some of
      whom
      own their own retail outlets. 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.




***Cost
      of Sales.*** Cost of
      sales for the nine months ended July 31, 2006 was $32,584,566 or 86.4% of net
      sales, as compared to $23,657,607 or 81.5% of net sales for the nine months
      ended July 31, 2005. The increase in cost of sales reflects increased purchases
      of green coffee associated with the increase in net sales, increased freight
      in
      costs and an increase in the price of robusta coffee on the London Robusta
      Market. Purchases increased by $8,490,007 from $19,387,063 to $27,877,070 due
      to
      increased pounds sold. Freight in costs increased by $61,104 from $290,569
      for
      the nine months ended July 31, 2005 to $351,673 for the nine months ended July
      31, 2006. These increases were partially offset by an increase in net gains
      on
      future contracts of $278,021. 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. We had net gains on futures
      contracts of $532,313 for the nine months ended July 31, 2006 compared to
      $254,292 for the nine months ended July 31, 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 nine months ended July 31, 2006 was $5,129,788, a decrease of
      $228,795 or 4.3%, from $5,358,583 for the nine months ended July 31, 2005.
      Gross
      profit as a percentage of net sales decreased to 13.6% for the nine months
      ended
      July 31, 2006 from 18.5% for the nine months ended July 31, 2005. During the
      period, our net margins continued to be negatively impacted by an increase
      in
      robusta coffee prices on the London Robusta Market, which have increased 26%
      since July 2005. As a result, the margins on our espresso brands (Café Caribe,
      Café Supremo and Via Roma) continued to be negatively impacted. The increased
      cost of robusta coffee could not be offset by price increases or substitutions
      of other coffees in these blends. In addition, we continued to promote these
      brands during the period, which further exacerbated the situation of lower
      margins due to higher robusta costs. These factors negatively affected margins
      on our leading brand, Café Caribe, by approximately 16%.




***Operating
      Expenses.*** Total
      operating expenses decreased by $140,657 or 3.1% to $4,330,283 for the nine
      months ended July 31, 2006 from $4,470,940 for the nine months ended July 31,
      2006. The decrease in operating expenses primarily reflects a decrease in bad
      debt expense, commission expense and advertising expense. The decrease in
      commissions paid reflected a higher percentage of green coffee sales which
      do
      not customarily have commission expense associated with them. These decreases
      were partially offset by increases in shipping costs, office salaries and
      insurance. The increase in shipping costs was attributable to increased sales
      as
      well as higher trucking rates due to fuel surcharges reflecting the higher
      price
      of oil. The increase in office salaries reflected new personnel added to assist
      with the additional administrative duties associated with our increase in net
      sales. The
      increase in insurance expense was due to higher premiums resulting from
      increased sales volume as well as higher costs associated with insuring product
      stored in New Orleans following Hurricane Katrina.




***Other
      Expense.*** Other
      expense increased by $1,951 to $64,655 for the nine months ended July 31, 2006
      compared to other expense of $62,704 for the nine months ended July 31, 2005. While
      interest income increased and interest expense decreased between the two
      periods, other expense for the nine months ended July 31, 2006 was adversely
      affected by a loss by our Café La Rica joint venture. Our share of the loss
      equaled $74,611.  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. Increased
      interest income of $65,481 and decreased interest expense of $7,179 resulted
      from improved cash flow and decreased reliance on line of credit borrowings
      due
      to our initial public offering in May 2005.




13




***Income
      Before Taxes.*** We had
      income of $734,850 before income taxes for the nine months ended July 31, 2006
      compared to income of $824,939 before income taxes for the nine months ended
      July 31, 2005. The decrease was attributable to decreased income from
      operations, including the loss by the Café La Rica joint venture.




***Income
      Taxes*** **.** Our
      provision for income taxes for the nine months ended July 31, 2006 totaled
      $319,996 compared to $272,179 for the nine months ended July 31, 2005 as a
      result of additional state taxes which were not recorded in the prior
      period.




**Liquidity
      and Capital Resources**





As
      of
      July 31, 2006, we had working capital of $8,118,651 which represented a $155,198
      decrease from our working capital of $8,273,849 as of October 31, 2005, and
      total stockholders’ equity of $11,056,476, which increased by $434,854 from our
      total stockholders’ equity of $10,641,622 as of October 31, 2005. Our working
      capital decreased primarily due to an increase in line of credit borrowings
      of
      $2,499,382, a decrease in inventories of $281,694, an increase in accounts
      payable and accrued expenses of $194,252 and a decrease in accounts receivable
      of $91,643, offset in part by a $2,304,038 increase in cash, a $284,662 increase
      in prepaid expenses and other current assets, a decrease in current income
      taxes
      payable of $218,864 and an increase of $176,480 due from brokers. At July 31,
      2006, the outstanding balance on our line of credit was $3,562,549 compared
      to
      $1,063,167 at October 31, 2005. Total stockholders’ equity primarily increased
      due to net income for the nine month period.




As
      of
      July 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, 2006 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 July 31, 2006, we were in
      compliance with all covenants contained in the credit facility.




For
      the
      nine months ended July 31, 2006, our operating activities provided net cash
      of
      $652,631 as compared to the nine months ended July 31, 2005 when net cash used
      by operating activities was $3,761,475. The increased cash flow from operations
      for the nine months ended July 31, 2006 was primarily due to increased sales
      and
      collections from customers and decreased inventories, partially offset by an
      increase in prepaid expenses and other current assets and due from
      brokers.




For
      the
      nine months ended July 31, 2006, our investing activities used net cash of
      $846,646 as compared to the nine months ended July 31, 2005 when net cash used
      by investing activities was $365,961. The increase in net cash used by investing
      activities for the nine months ended July 31, 2006 was due to our investment
      in
      joint ventures, partially offset by a decrease in purchases of property and
      equipment. We believe that our investment in the Cafe La Rica joint venture
      will
      enhance our prospects for long term growth by accelerating growth opportunities
      in the state of Florida and 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 and 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.




14




For
      the
      nine months ended July 31, 2006, our financing activities provided net cash
      of
      $2,498,053 as compared to the nine months ended July 31, 2005 when net cash
      provided by financing activities was $4,719,433. The decreased cash flow from
      financing activities reflects the receipt of net proceeds of $6,434,016 from
      our
      public offering in May 2005 and the exercise of the underwriters over-allotment
      option in June 2005. The decreased cash flow from operations also reflects
      increased net cash payments under our line of credit. We expect to fund our
      operations, including paying our liabilities, funding capital expenditures
      and
      making required payments on our debts, through the next twelve months 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, results of
      operations, liquidity, capital expenditures or capital resources, that is
      material to investors.




**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
      July
      31, 2006, our debt consisted of $3,562,549 of variable rate debt under our
      revolving line of credit. At July 31, 2006, interest on the variable rate debt
      was payable at 7.55% (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 4 of the notes to financial statements in this report.
      At July 31, 2006 we held 243 options covering an aggregate of 9,112,500 pounds
      of green coffee beans at prices of $.975 and $1.10 per pound. The fair market
      value of these options, which was obtained from major financial institutions,
      was $487,961 at July 31, 2006. 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 July 31, 2006, we held
      58
      futures contracts for the purchase of 2,175,000 pounds of coffee at prices
      ranging from $.9975 to $.9930 per pound for September 2006 contracts. The market
      price of coffee applicable to such contracts was $.995 per pound at that date.
      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. Increased green coffee prices cause our margins to shrink to the extent
      we are unable to pass the full amount of increase through to our customers.
      During the quarter, our net margins continued to be negatively impacted by
      an
      increase in robusta coffee prices on the London Robusta Market. While the price
      of Arabica coffee on the New York Arabica Market decreased approximately 18%
      from mid-April 2006 to the end of July 2006, robusta coffee prices on the London
      Robusta Market have increased by approximately 26% since July 2005. As a result,
      the margins on our espresso brands (Café Caribe, Café Supremo and Via Roma)
      continued to be negatively impacted. The increased cost of robusta coffee could
      not be offset by price increases or substitutions of other coffees in these
      blends. In addition, we continued to promote these brands during the period,
      which further exacerbated the situation of lower margins due to higher robusta
      costs. These factors negatively affected margins on our leading brand, Café
Caribe, by approximately 16%.




15




**Item
      4.**  **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 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 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 (i) recorded, processed, summarized and reported as and
      when required and (ii) accumulated and communicated to the Company’s management,
      including its President and Chief Executive Officer, who is also the principal
      executive officer and principal financial officer, as appropriate 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.




16




**Part
      II — OTHER INFORMATION**




**Item
      1.**  **Legal
      Proceedings** **.**





We
      are a
      party to various legal proceedings that, in our opinion, are routine in nature
      and will not have a material adverse effect on our results of operations or
      financial position in future periods.





**Item
      1A.**  **Risk
      Factors.**





Not
      applicable.




**Item
      2.**  **Unregistered
      Sales of Equity in Securities and Use of Proceeds** **.**





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. 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 portions of the proceeds
      to
      pay down bank debt, to build up our inventories for sales expansion, to fund
      our
      joint ventures and for general corporate purposes, including working capital
      and
      capital expenditures. We also intend to use certain proceeds to implement a
      branded sales and marketing campaign, to purchase equipment for our La Junta,
      Colorado facility and to grow our food service distribution. As strategic
      opportunities arise, we may use the proceeds of the offering to fund
      acquisitions, licensing and other strategic alliances.




**Item
      3.**  **Defaults
      upon Senior Securitie** **s.**





None.




**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders** **.**





During
      the three months ended July 31, 2006, no matters were submitted to a vote of
      security holders.





**Item
      5.**  **Other
      Information** **.**





None.




**Item
      6.**  **Exhibits.**


11.1
            Earnings
                Per Share Calculation.31.1
            Rule
                13a - 14(a)/15d - 14a Certification.32.1
            Section
                1350 Certification.




17




**SIGNATURE** **S**




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.






Coffee
              Holding
              Co.,
              Inc.(Registrant)September
              8,
              2006
            By:
            /s/ Andrew
              GordonAndrew
              GordonPresident,
              Chief
              Executive Officer and Chief Financial
              Officer






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