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. We intend these forward-looking statements to speak only at the time of this report and do not undertake to update or revise these statements as more information becomes available except as required under federal securities laws and the rules and regulations of the SEC. 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 the CBI and DSD Coffee Business acquisitions, the impact of a weaker economy, business conditions in the coffee industry and food industry in general, our 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 we have invested our assets, as well as other risks described in this report, and other factors described from time to time in our filings with the SEC.

Liquidity and Capital Resources

Credit Facility

On March 2, 2009 we 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 fixed charge coverage requirement, and it places limits on capital expenditures and dividends. The Loan Agreement allows us to pay dividends at the current rate, subject to certain cash flow and liquidity requirements.

All outstanding obligations under the Loan Agreement are collateralized by perfected security interests in our assets, 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 Loan 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 3.5% at September 30, 2009. Due to the short-term nature of the credit facility and the variable interest rate, fair value of the balance outstanding approximates carrying value.

We are in compliance with all restrictive covenants and limitations as of September 30, 2009 and anticipate being in compliance with all restrictive covenants for the foreseeable future. On September 30, 2009 borrowings under the credit facility were $8.1 million and we had excess availability under the credit facility of $34.8 million. As of October 31, 2009, approximately $12.3 million was outstanding under this credit facility.

Liquidity

During the first quarter of fiscal 2010 we continued to finalize our planning and begin the integration of the DSD Coffee Business into our existing operations. This is a broad based effort that is expected to include SKU optimization, branch and route consolidation, conversion to the Company's IT systems, including implementation of our mobile sales software across the DSD Coffee Business sales network, and supply chain and manufacturing streamlining. We currently estimate that integration expenses during fiscal 2010 will be approximately $13.0 million, of which approximately $5.0 million is expected to be capitalized. During fiscal 2010 we expect to incur approximately $6.0 million in expenditures associated with the

installation of two roasters and other production equipment at our Torrance facility and expenditures to replace normal wear and tear of coffee brewing equipment, vehicles and machinery and equipment. Of these planned expenditures, we incurred approximately $8.6 million during the fiscal quarter ended September 30, 2009. This included $0.5 million for vehicles, $6.8 million for machinery and equipment including machinery and equipment for the DSD Coffee Business. Approximately $4.0 million of the total capital expenditures during the quarter ended September 30, 2009 was associated with the integration of the DSD Coffee Business.

As described above, we maintain a $50 million senior secured revolving line of credit with Wachovia Bank. Although we expect cost reductions and other positive synergies from integrating the DSD Coffee Business with our operations, the timing of these improvements is uncertain. We believe this credit facility, in addition to our other liquid assets, provides sufficient capital resources and flexibility to allow us to make investments in the DSD Coffee Business, fund integration expenses, meet necessary working capital requirements and implement our business plan without relying solely on cash flows from operations.

Our working capital is composed of the following:

                              As of September 30,     As of June 30,
(In thousands)                       2009                  2009
                                  (Unaudited)
Current assets               $             181,564   $        186,546
Current liabilities                         69,746             76,457
Working capital              $             111,818   $        110,089

Capital expenditures         $               8,613   $         38,901
Purchase of business         $                   -   $         48,287
Dividends paid and payable   $               1,855   $          6,631

As of September 30, 2009 we had no material commitments for capital expenditures other than those described above.

Results of Operations

Our net sales in the first quarter of fiscal 2010 increased $45.6 million, or 69%, to $112.1 million as compared to $66.5 million in the first quarter of fiscal 2009. This increase is primarily due to the addition of $43.7 million in net sales from the DSD Coffee Business and a $2.7 million increase in net sales from CBI. Total combined unit sales for the first quarter of fiscal 2010 increased 62% from the first quarter of fiscal 2009. Unit sales, excluding CBI, for the first quarter of fiscal 2010 increased 70% from the first quarter of fiscal 2009. This increase resulted primarily from the acquisition of the DSD Coffee Business, which has been included in our consolidated financial statements since March 1, 2009.

The 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, continue to experience 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 fiscal 2010.

Gross profit in the first quarter of fiscal 2010 increased $23.3 million, or 75%, to $54.3 million, as compared to $31.0 million in the first quarter of fiscal 2009. Gross margin increased to 48% in the first quarter of fiscal 2010 from 47% in the first quarter of fiscal 2009. Approximately 93% of this increase is from the addition of the DSD Coffee Business and 6% of this increase is from CBI. Additionally, total coffee brewing equipment and service costs in the first quarter of fiscal 2010 was $5.5 million as compared to $2.2 million in the first quarter of fiscal 2009.

In the first quarter of fiscal 2010, operating expenses increased $21.6 million, or 61%, to $56.8 million, or 51% of sales, from $35.2 million, or 53% of sales, in the comparable quarter of fiscal 2009. Operating expenses in the first quarter of fiscal 2010 include $18.3 million in operating expenses associated with the DSD Coffee Business.

Our loss from operations in the first quarter of fiscal 2010 was ($2.5) million as compared to ($4.3) million in the first quarter of fiscal 2009. Cash flow remains strong, with non-cash expenses for depreciation and amortization, and ESOP and share-based compensation expense in the amount of $7.4 million in the first quarter of fiscal 2010, as compared to $4.7 million in the same quarter of the prior fiscal year.

Total other income for the first quarter of fiscal 2010 was $5.1 million as compared to total other expense of ($8.3) million in the first quarter of fiscal 2009. The improvement in total other income in the first quarter of fiscal 2010 is primarily the result of improved results from our preferred stock portfolio which recorded net realized and unrealized gains in the first quarter of fiscal 2010 as compared to net realized and unrealized losses in the first quarter of fiscal 2009.

As a result of the forgoing factors, net income in the first quarter of fiscal 2010 was $2.2 million, or $0.15 per share, as compared to net loss of ($6.1) million, or ($0.42) per share, in the first quarter of fiscal 2009.