Forward-Looking Statements

Certain statements contained in this quarterly report on Form 10-Q regarding the risks, circumstances and financial trends that may affect our future operating results, financial position and cash flows are not based on historical fact and are forward-looking statements within the meaning of federal securities laws and regulations. These statements are based on management's current expectations, assumptions, estimates and observations of future events and include any statements that do not directly relate to any historical or current fact. These forward-looking statements can be identified by the use of words like "anticipates," "feels," "estimates," "projects," "expects," "plans," "believes," "intends," "will," "assumes" and other words of similar meaning. Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those set forth in forward-looking statements. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Users should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws. Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, fluctuations in availability and cost of green coffee, competition, organizational changes, our ability to successfully integrate both the DSD Coffee Business and CBI acquisitions, the impact of a weaker economy, business conditions in the coffee industry and food industry in general, the Company's continued success in attracting new customers, variances from budgeted sales mix and growth rates, weather and special or unusual events, and changes in the quality or dividend stream of third parties' securities and other investment vehicles in which the Company

has invested its short-term assets, as well as other risks described in this report, including in Part II, Item 1A, and other factors described from time to time in the Company's filings with the SEC.

Acquisition

Effective as of February 28, 2009, the Company completed the acquisition from Sara Lee Corporation, a Maryland corporation ("Seller"), and Saramar, L.L.C., a Delaware limited liability company ("Saramar" and collectively with Seller, "Seller Parties") of certain assets used in connection with Seller Parties' direct store delivery coffee business in the United States (the "DSD Coffee Business"). The acquired business generally consists of manufacturing and selling coffee, tea and related products through a network of facilities and vehicles which was acquired to complement and expand the Company's previously existing operations. This business also includes the distribution, sale and service of brewed and liquid coffee equipment. The results of operations of the DSD Coffee Business are included in the Company's consolidated financial statements beginning on March 1, 2009.

The assets purchased include, among other things, the following: (i) a manufacturing plant in Houston, Texas, a spice plant in Oklahoma City, Oklahoma, and a warehouse in Indianapolis, Indiana; (ii) 64 leased branch facilities in 31 states; (iii) a vehicle fleet consisting of 431 owned and leased vehicles;
(iv) certain tangible personal property; (v) inventories of raw materials, work in process, finished goods and packaging; (vi) certain contracts, permits, books and records; (vii) prepaid expenses relating to the DSD Coffee Business; and
(viii) all goodwill relating to the DSD Coffee Business. The Company also acquired Seller Parties' rights (including related goodwill) in the trademarks and trade names relating to the SUPERIOR®, MCGARVEY®, CAIN'S®, IRELAND®, JUSTIN LLOYD®, METROPOLITAN®, PREBICA®, WECHSLER®, WORLD'S FINEST® and CAFÉ ROYAL® brands.

Subject to certain post-closing adjustments relating to the amount of consumable inventory and prepaid expenses at closing, and after giving effect to certain reimbursement obligations of the parties relating to accounting costs, IT carve-out costs, and transfer taxes and fees, as well as real and personal property tax and utility prorations, the amount paid to Seller was $45.6 million, which consisted of $16.1 million of Company cash and proceeds of a bank loan of $29.5 million. The Company also paid approximately$2.7 million of acquisition related expenses. At closing, the Company assumed certain liabilities, including obligations under contracts, environmental liabilities with respect to the transferred facilities, pension liabilities, advertising and trade promotion accruals, and accrued vacation as of the closing for hired personnel. These liabilities are estimated to be $609,000 for accrued vacation and $95,000 in other estimated liabilities. Seller Parties retained all liabilities that were not specifically assumed by the Company. The Company is currently negotiating the re-finance of existing truck leases in order to replace the current financing. This is expected to be completed in the fourth quarter of fiscal 2009.

The Company assumed leases for sixty-four warehouse leases with lease terms that generally do not exceed three years. The Company's future minimum warehouse lease payments under all its warehouse leases, including these sixty four warehouses, are as follows (in thousands):

Three months ending June 30, 2009   $ 1,354
              2010                    5,015
              2011                    1,577
              2012                      940
              2013                      483
              2014                      257
           thereafter                     8
              Total                 $ 9,634

In connection with the closing, Seller Parties and the Company entered into certain operational agreements, including trademark and formula license agreements, co-pack agreements, a liquid coffee distribution agreement, a transition services agreement, and a green coffee and tea purchase agreement. One of the co-pack agreements provides that Seller will manufacture branded products for the Company for a period of three years. Under this agreement the Company has agreed to purchase certain minimum product quantities from Seller subject to certain permitted reductions. The transition services agreement provides that Seller will perform a number of services for the Company on an interim basis, including distribution and warehousing of finished goods for up to six months and hosting, maintaining and supporting IT infrastructure and communications for up to eighteen months.

The accompanying unaudited consolidated financial statements do not include pro-forma historical information, as if the results of the DSD Coffee Business had been included from the beginning of the periods presented, since the use of forward-looking information would be necessary in order to meaningfully present the effects of the acquisition. Forward-looking information, rather than historical information, would be required since the DSD Coffee Business was operated as part of a larger business within Seller and there will be a different operating cost structure and different operations support under the Company's ownership. Net revenue of the DSD Coffee Business for the eight months ended February 28, 2009 (the effective date of the acquisition) was approximately $134 million, and approximately $228 million for the fiscal year ended June 30, 2008. However the Company has not provided forward-looking information with respect to incremental costs and expenses to be incurred because such information is not determinable.

The acquisition has been accounted for as an asset purchase. The total purchase price has been allocated to tangible and intangible assets based on their estimated fair values as of February 28, 2009 as determined by management based upon a third-party valuation. The purchase price allocation has not been finalized, since it is possible that certain refinements may be made if additional facts or circumstances become known that impact the estimates as of the acquisition date. Revisions to the allocation, which may be significant, will be reported as changes to various assets and liabilities. The purchase price allocation is expected to be further refined and finalized during fiscal 2010. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition, based on the preliminary purchase price allocation (dollars in thousands):

Preliminary Fair Value of Assets Acquired      Estimated Useful Life (years)
Inventory                           $ 16,437
Prepaid Expense                        1,138
Current assets                        17,575

Vehicles                                 993                 5
Machinery                             10,838                3-5
Property, plant and equipment          5,314                30
Land                                   1,849
Fixed assets                          18,994

Trademarks                             2,010            indefinite
Customer Relationships                 7,324                 8
Distribution Agreement                 2,370                10
Co-pack Agreement                        718                 6
Intangible assets                     12,422

Total assets acquired                 48,991
Liabilities assumed                     (704 )
Net assets acquired                 $ 48,287

Liquidity and Capital Resources

Credit Facility

On March 2, 2009 the Company and CBI, as Borrowers, entered into a Loan and Security Agreement (the "Loan Agreement"), with Wachovia Bank, National Association, as Lender, providing for a $50 million senior secured revolving credit facility expiring in February 2012 to help finance the DSD Coffee Business acquisition and for general corporate purposes. The Loan Agreement contains a variety of restrictive covenants customary in an asset-based lending facility, including a cash flow coverage requirement,

and it places limits on capital expenditures and dividends. All outstanding obligations under the Loan Agreement are collateralized by perfected security interests in the assets of the Company and CBI, excluding the preferred stock held in investment accounts. The revolving line provides for advances of 85% of eligible accounts receivable and 65% of eligible inventory, as defined. The agreement has an unused commitment fee of 0.375%. The interest rate varies based upon line usage, borrowing base availability and market conditions. The range is PRIME + 0.25% to PRIME + 0.75% or LIBOR + 2.25% to LIBOR + 2.75%, subject to a minimum for LIBOR based advances of 3.25%. The interest rate was 3.75% at March 31, 2009.

The Company is in compliance with all restrictive covenants and limitations as of March 31, 2009. The Company anticipates being in compliance with all restrictive covenants for the foreseeable future. On March 31, 2009 the Company had additional availability under the credit line of $21.8 million.

Liquidity

The continued weakness in the economy and the sustained decline in the housing market have kept pressure on the financial markets and reduced the value and liquidity of the preferred stock we hold. In order to have sufficient liquidity to complete the acquisition of the DSD Coffee Business without selling our preferred stock investments, we obtained a $50 million senior secured revolving line of credit with Wachovia Bank described above. Although we expect cost reductions and other positive synergies from integrating the DSD Coffee Business with the Company's operations, the timing of these improvements is uncertain. We believe this credit facility, in addition to the Company's other liquid assets, provides sufficient capital resources and flexibility to allow the Company to make investments in the DSD Coffee Business, fund integration expenses, meet necessary working capital requirements and implement its business plan without relying solely on cash flow from operations. Future liquidity, both short and long term, can be negatively affected by current economic conditions.

During the fiscal quarter ended March 31, 2009 we incurred approximately $2,385,000 of capital expenditures. This included vehicles of $1,100,000, machinery and equipment of $465,000 and development costs related to integrating the DSD Coffee Business into the Company's IT infrastructure. Improvements to the Torrance plant have been delayed as a result of the acquisition and construction delays, and will continue into fiscal 2010. The Company's mobile sales system installation was completed in April 2009.

The Company is re-evaluating its previously planned capital expenditures in light of the acquisition and integration of the DSD Coffee Business. This process is expected to continue through the balance of fiscal 2009. Our revised business plan is likely to require an increase in the previous amount of investment and will change the priority and timing of capital expenditures for the remainder of fiscal 2009 and for fiscal 2010.

Our working capital is composed of the following (in thousands):

                                   March 31, 2009
                                    (Unaudited)       June 30, 2008
Current assets                    $        195,335   $       217,750
Current liabilities                         70,640            28,909
Working Capital                   $        124,695   $       188,841

Capital expenditures              $         30,740   $        24,293
Purchase of DSD Coffee Business   $         48,587   $             -
Dividends paid                    $          5,257   $         6,670

At March 31, 2009 we had no material commitments for capital expenditures other than those described above.

Results of Operations

The Company's net sales in the third quarter of fiscal 2009 increased $18,328,000, or 21%, to $85,604,000 as compared to $67,276,000 in the third quarter of fiscal 2008. Net sales for the first nine months of fiscal 2009 increased $29,081,000, or 15%, to $228,657,000 as compared to $199,576,000 in the same period of fiscal 2008. This increase is primarily the result of increased sales at CBI of $2,404,000 in the third quarter and $11,430,000 in the first nine months of fiscal 2009, and the added sales from the DSD

Coffee Business of $14,391,000 for the period from March 1, 2009 through March 31, 2009. Unit sales, not including the DSD Coffee Business, for the third quarter and first nine months of fiscal 2009 increased 0.2% and 0.1%, respectively.

The recent acquisition of the DSD Coffee Business has added to our top line sales and our geographic reach. Some of the new regions we now serve, for example in Michigan, are experiencing more negative economic conditions than in our pre-acquisition service area. We expect the ongoing weakness in the economy and reduced consumer spending will continue to impact our sales through the remainder of calendar 2009.

Gross profit in the third quarter of fiscal 2009 increased 39% to $42,659,000, or 50% of sales, as compared to $30,658,000, or 46% of sales, in the third quarter of fiscal 2008. Approximately 14% of this increase is from CBI, and approximately 50% of this increase is from the addition of the DSD Coffee Business. Gross profit in the first nine months of fiscal 2009 increased $17,365,000 to $110,926,000, or 49% of sales, as compared to $93,561,000, or 47% of sales, in the same period of fiscal 2008. Approximately 9% of this increase results from CBI. Additionally, coffee brewing equipment costs for the three month periods ended March 31, 2009 and 2008 were $2,568,000 and $5,120,000 respectively, and for the nine month periods ended March 31, 2009 and 2008, were $7,071,000 and $15,359,000, respectively. Coffee brewing equipment cost decreased in the current fiscal year because we began capitalizing certain coffee brewing equipment in the fourth quarter of fiscal 2008.

Operating expenses in the third quarter of fiscal 2009 increased $12,060,000 to $44,264,000, or 52% of sales, from $31,662,000 in the same period of fiscal 2008. Operating expenses for the first nine months of fiscal 2009 increased to $116,574,000, or 51% of sales, from $96,301,000, or 48% of sales, in the same period of fiscal 2008. This includes additional operating expenses associated with the DSD Coffee Business for the period from March 1, 2009 through March 31, 2009 in the amount of $4,759,000. Other significant cost increases for the first nine months of fiscal 2009 include freight costs of $1,761,000, reflecting higher fuel prices and increased shipping costs related to increased sales by CBI and an increase in salaries and benefits of approximately 3% over the prior nine month period, not including the payroll and benefit costs for hired personnel in the DSD Coffee Business.

Our loss from operations in the third quarter of fiscal 2009 was ($1,606,000) as compared to ($1,004,000) in the same quarter of fiscal 2008. Our loss from operations for the first three quarters of fiscal 2009 was ($5,647,000) as compared to ($2,740,000) in the same period of the prior fiscal year.

Total other expense for the third quarter of fiscal 2009 was ($1,317,000) as compared to ($2,013,000) in the same period of fiscal 2008. Total other expense for the first three quarters of fiscal 2009 was ($9,093,000) as compared to ($5,775,000) in the same period of fiscal 2008. These changes are primarily the result of changes in Other, net (expense) income, which reflects realized and unrealized losses (gains) in our preferred stock portfolio. Financial market conditions described in our Form 10-K for the fiscal year ended June 30, 2008 have continued in fiscal 2009. The downturn in the housing market combined with real estate financing and liquidity issues have contributed to the overall market downturn. The Company has no direct exposure to sub-prime mortgages, but the financial companies caught in the mortgage downturn compose approximately 85% of the universe of preferred stocks. Selling pressure from leveraged investors who need liquidity and a new supply of preferred issues taking advantage of lower dividend rates have resulted in a downward pressure on values.

Investor demand for the safety of U.S. Treasury instruments has flattened the U.S. Treasury yield curve and widened spreads between preferred stocks and U.S. Treasury instruments. We believe that preferred stocks are currently priced cheaper to U.S. Treasury bond yields than they have ever traded. Although aggressive easing of interest rates by the world's central banks and other economic stimulus actions by governments may eventually have positive effects on this situation, we expect little improvement until the housing market stabilizes.

As a result of the forgoing factors, net loss for the third quarter of fiscal 2009 was ($1,437,000), or ($0.10) per share, as compared to a net loss of ($2,710,000), or ($0.19) per share, in the third quarter of fiscal 2008. Net loss for the first nine months of fiscal 2009 was ($7,627,000), or ($0.53) per share as compared to a net loss of ($3,891,000), or ($0.27) per share, in the same period of the prior fiscal year.

Quarterly Financial Data



                                June 30,     September 30,     December 31,     March 31,
                                  2008           2008              2008           2009
                                            (In thousands, except share data)
Net Sales                       $  66,907   $        66,524   $       76,530   $    85,604
Gross Profit                    $  25,851   $        30,951   $       37,318   $    42,658
(Loss) Income from Operations   $  (7,901 ) $        (4,255 ) $          213   $    (1,606 )
Net Loss                        $  (4,034 ) $        (6,085 ) $         (106 ) $    (1,438 )
Earnings per share              $   (0.27 ) $         (0.42 ) $         0.01   $     (0.10 )




                                June 30,     September 30,     December 31,     March 31,
                                  2007           2007              2007           2008
                                            (In thousands, except share data)
Net Sales                       $  58,137   $        60,943   $       71,359   $    67,276
Gross Profit                    $  29,452   $        28,727   $       34,177   $    30,657
(Loss) Income from Operations   $    (232 ) $        (2,528 ) $          789   $    (1,004 )
Net Loss                        $   1,337   $          (953 ) $         (227 ) $    (2,710 )
Earnings per share              $    0.09   $         (0.07 ) $        (0.02 ) $     (0.19 )