COMMODITIES HELD BY BROKER

3 Months Ended

Jan. 31, 2012

Notes to Financial Statements

COMMODITIES HELD BY BROKER

NOTE 8 - COMMODITIES HELD BY BROKER:

The commodities held at the broker represent the market value of the Company’s trading account, which consists of options and future contracts for coffee held with a brokerage firm. The Company uses options and futures contracts, which are not designated or qualifying as hedging instruments, to partially hedge the effects of fluctuations in the price of green coffee beans. Options and futures contracts are recognized at fair value in the condensed consolidated financial statements with current recognition of gains and losses on such positions. The Company’s accounting for options and futures contracts may increase earnings volatility in any particular period. 

The Company has open position contracts held by the broker, which are summarized as follows: 

	January 31, 2012 unaudited	October 31, 2011
Option Contracts	(337,114)	129,750
Future Contracts	46,850	(1,997,308)
Commodities due to broker	(290,264)	(1,867,558)

The Company classifies its options and future contracts as trading securities and accordingly, unrealized holding gains and losses are included in earnings and not reflected as a net amount as a separate component of stockholders’ equity. 

At January 31, 2012, the Company held 153 futures contracts for the purchase of 3,200,000 pounds of green coffee at a weighted average price of $.82 per pound. The fair market value of coffee applicable to such contracts was $.83 per pound at that date. 

At January 31, 2011, the Company held 150 options (generally with terms of two months or less) covering an aggregate of 5,625,000 pounds of green coffee beans at $2.25 per pound. The fair market value of these options, which was obtained from observable market data of similar instruments was $121,062. At January 31, 2011, the Company did not hold any futures contracts. Included in cost of sales for the three months ended January 31, 2012 and 2011, the Company recorded realized and unrealized gains and losses respectively, on these contracts as follows: 

	Three Months Ended January 31,
	2012 unaudited			2011 unaudited
Gross realized gains	$	182,530		$	835,260
Gross realized losses		(787,400	)		(2,419	)
Unrealized gains (losses)		1,577,294			(154,437	)
Total	$	972,424		$	678,404