U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

            [_] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
                             SECURITIES ACT OF 1934

                       FOR THE PERIOD ENDED MARCH 31, 2004

                        COMMISSION FILE NUMBER 000-28595

                              PEABODYS COFFEE, INC.
                 (Name of Small Business Issuer in its Charter)

Nevada                                                   87-0468654
(State or other jurisdiction of                          (I.R.S. Employer
Incorporation or organization)                           Identification No.)



660 Commerce Drive, Ste B
Roseville, California                                    95678
(Address of Principal Executive Office)                  (ZipCode)


                                 (916) 788-2630
                          (Issuer's Telephone Number)

             Securities registered under Section 12(b) of the Act:
                                      None

             Securities registered under Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value
                                (Title of Class)


Indicate by check mark whether the registrant (1) filed all reports  required to
be filed by  Section 13 or 15(d) of the  Exchange  Act during the past 12 months
(or for such  shorter  period  that the  registrant  was  required  to file such
reports),  and (2) has been subject to such filings requirements for the past 90
days. Yes [X] No [_]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to the Form 10-KSB. [X]

Indicate by check mark  whether the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [_]  No [_]

<PAGE>

State issuer's revenues for its most recent fiscal year: $1,775,518

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates, based upon the average bid and asked price of such common equity
as of June 25, 2004, , was approximately $2,812,042.

The  number of shares  outstanding  of each of the  Issuer's  classes  of common
equity, as of the latest practicable date, is 37,506,605 shares of common stock,
$0.001 par value.

Transitional Small Business Disclosure Format (Check one):  Yes [X]  No [_]

                                      -2-
<PAGE>

                               TABLE OF CONTENTS


PART I      (Alternative 2)

Item 1      Description of Business                                           4
Item 2      Description of Property                                           21
Item 3      Directors, Executive Officers and Significant Employees           22
Item 4      Remuneration of Directors and Officers                            23
Item 5      Security Ownership of Management and Certain Securityholders      24
Item 6      Interest of Management and Others in Certain Transactions         25

PART II

Item 1      Market Price of and Dividends on the Registrant's Common Equity
            and Other Shareholder Matters                                     26
Item 2      Legal Proceedings                                                 28
Item 3      Changes in and Disagreements with Accountants                     28
Item 4      Submission of Matters to a Vote of Security Holders               28
Item 5      Compliance with Section 16(a) of the Exchange Act                 28
Item 6      Reports on Form 8-K                                               28

PART F/S

PART III

Index to Exhibits                                                             56

SIGNATURES                                                                    57

                                      -3-
<PAGE>

                   INFORMATION REQUIRED IN ANNUAL REPORTS OF
                      TRANSITIONAL SMALL BUSINESS ISSUERS


                             PART I (ALTERNATIVE 2)


ITEM 1.     DESCRIPTION OF BUSINESS
            (FORM 1-A  MODEL B  ITEM 6)


OVERVIEW

      We are a Nevada  corporation  engaged in the  retailing  and  marketing of
certified organic branded specialty coffee beverages and packaged whole bean and
ground  coffees.  We plan to focus our efforts on continued  development  of our
wholesale operations targeted at penetrating the mass retail markets through the
sale of packaged whole bean and ground coffees in  supermarkets,  specialty food
stores and other mass retail  venues.  We currently  sell our coffee  beverages,
whole bean coffees and ground coffees through company-operated retail stores and
espresso bars (kiosks), positioned primarily in institutional locations and have
made our sales of Black Rhino  Coffee(TM) to seven  distribution  throughout the
United States.  As of March 31, 2004, we operated two coffee kiosks,  two retail
stores and one drive-thru located throughout California.  Wholesale revenues for
our packaged Black Rhino  Coffee(TM)  products for the year ended March 31, 2004
increased  189.6% to $309,465  from  $106,862  for the  corresponding  period in
fiscal 2003. Black Rhino Coffee(TM) sales accounted for  approximately  17.4% of
our total  revenue for the year ended  March 31,  2004.  Black Rhino  Coffee(TM)
sales accounted for approximately  4.2% of our total revenue for the ended March
31, 2003. For the year ended March 31, 2004,  company-operated  kiosk and retail
outlet  (kiosks)  revenue  decreased 39.8% to $1,456,491 from $2,420,810 for the
same period in fiscal 2003.  Kiosk  revenue was generated  from eight  different
clients, with the largest client representing 18.2% of total net revenue.

      As described in more detail below,  despite growing wholesale revenues and
profitability  with respect to individual  stores and kiosks, as a whole we have
not been profitable.  As shown in the accompanying  financial statements for the
fiscal year ended March 31, 2004, we had a net operating loss of $1,088,986, and
an overall net loss of $1,270,772.

      We have converted all our retail operations from the use of conventionally
grown coffee to using only certified  organic  coffee.  Our organic  coffees are
independently certified by Quality Assurance  International,  a global leader in
organic certification who has accreditation from the United States Department of
Agriculture  to certify  organic  claims under the United  States  Department of
Agriculture's  National  Organic  Program.  We have  developed  the Black  Rhino
Coffee(TM) trade name for marketing certified organic coffee.

                                      -4-
<PAGE>

OUR BACKGROUND

PEABODYS CA

      Our current business began with the formation of Peabodys Coffee,  Inc., a
California corporation,  in 1995. Co-founder, Todd Tkachuk (who is currently one
of our officers and directors),  conceived of a company that would contract with
foodservice  companies,  which held contracts for  institutional  venues such as
corporate facilities,  universities or hospitals. Peabodys CA would enter into a
subcontract  with the client  (which  had a general  contract  to  provide  food
services  to  the  host   facility)  to  install   coffee  kiosks  at  the  host
organization.  In return,  Peabodys CA paid the client a percentage of the gross
revenues  generated by each kiosk.  Our focus and direction has changed over the
past couple years with a different  strategic goal aimed at  establishing  Black
Rhino  Coffee(TM)  as a  sustainable  and dominant  packaged  brand of certified
organic  coffee in the domestic  mass retail  market.  Our goal is to transition
from our full  service  units  (kiosks and retail  stores) in  limited-geography
institutional  markets to a widely  distributed  packaged  consumer brand called
Black Rhino Coffee(TM).


THE MERGER

      On March 12, 1999, we entered into a Plan and Agreement of  Reorganization
with Peabodys CA. Prior to March 12, 1999 we operated under the name, Mine-A-Max
Corporation,  a Nevada  corporation.  We were a development stage mining company
until our merger with Peabodys CA. We were initially incorporated under the laws
of the State of Nevada on July 26, 1989 with the name Kimberly  Mines,  Inc. for
the purpose of mineral exploration and mine development. Several months later we
merged with Blue Ute Mining & Exploration,  Inc., a Utah corporation.  On August
15, 1997, we changed our name to Mine-A-Max Corporation.  The Plan and Agreement
of Reorganization provided for a share exchange in which we offered shareholders
of  Peabodys  CA one  share of our  common  stock in  exchange  for one share of
Peabodys  CA common  stock.  The shares  were  offered by us in  reliance on the
exemption from  registration  provided by Rule 506 of Regulation D. The Plan and
Agreement  of  Reorganization  provided  further  that,  after we had acquired a
majority of the  outstanding  stock of Peabodys  CA, we would effect a merger of
Peabodys  CA into our  company.  On March 15,  1999,  we filed an  Amendment  to
Articles  of  Incorporation  with the  State of  Nevada  changing  our name from
Mine-A-Max  Corporation to Peabodys Coffee, Inc. On June 30, 1999, we effected a
merger with  Peabodys CA whereby  Peabodys CA was merged into our  company.  All
shares of Peabodys CA common stock were converted to shares of our common stock.


INDUSTRY OVERVIEW



      Although  we cannot  provide  guarantees,  we believe  that the  specialty
coffee  industry  will  continue  to grow as a result of  several  factors  have
contributed to the increase in demand for specialty  coffee and will continue to
do so, including:

      o     Greater  consumer  awareness of specialty  coffee as a result of its
            increasing availability;

      o     Increased quality  differentiation  over commercial grade coffees by
            consumers;

      o     Increased demand for all premium food products,  including specialty
            coffee,  where the differential in price from the commercial  brands
            is small compared to the perceived  improvement  in product  quality
            and taste;

                                      -5-
<PAGE>

      o     Ease  of  preparation  of  specialty   coffees  resulting  from  the
            increased  use of  automatic  drip coffee  makers and home  espresso
            machines; and

      o     Increased pace and pressures of everyday life. Specialty coffee fits
            within   the   "affordable   luxury"   or  "small   self-indulgence"
            categories, and as such directly addresses a significant trend among
            consumers  to make  low-cost  self-reward  purchases  to temper  the
            stresses of everyday life.


SUSTAINABLE COFFEES

      The industry  buzzword  "Sustainable  Coffee" emerged to represent a broad
spectrum of ideas  relating  to the  production  and  consumption  of  specialty
coffees.  In September 1997, the Specialty Coffee Association of America created
a special  task force to define  the term.  The  result  was the  adoption  of a
Statement of Understanding, which defined the issue as having three legs:

      o     Environmental,
      o     Economic, and
      o     Social.

      We  believe   that  most  coffee   consumers   are  unaware  of  the  many
environmental,  economic, and social ramifications surrounding the production of
coffee.  We also believe that the majority of the  conventional  coffee industry
does not meet two basic tests of sustainability:

      o     protection of the environment and
      o     social fairness.

We believe a growing number of coffee producers,  coffee companies and consumers
are actively  taking steps to encourage the coffee  industry to move toward more
environmentally   friendly   practices  and  toward  practices  which  are  more
economically and socially beneficial for producers.

      Three categories of coffees attempt to meet some or all of these criteria.
The three categories are

      o     Organic,
      o     Shade Grown and
      o     Fair Trade,

The above are collectively termed "sustainable coffees". Each sustainable coffee
has its own criteria,  creating considerable confusion.  Fair Trade coffee means
that coffee  farmers  receive fair  payments in the form of a "floor"  price for
their beans.  Although this allows coffee farmers to make minimal profits during
depressed market  conditions,  Fair Trade  guidelines do not adequately  address
issues  surrounding  the  environment,  biodiversity,  species  preservation  or
whether or not the coffee trees come from genetically modified rootstocks. Shade
Grown  refers to the  condition  under  which the coffee is grown.  Shade  Grown
coffees ensure that multiple species have habitat and that there is preservation
of the dwindling tropical rainforests. However, Shade Grown does not address the
use of agrochemicals, or whether the coffee trees come from genetically modified
rootstocks. Nor does Shade Grown coffee address important socioeconomic issues.

                                      -6-
<PAGE>

CERTIFIED-ORGANIC COFFEE

      Certified Organic coffee is produced with methods that preserve the soil
and prohibit the use of agrochemicals. Organic coffee farming ensures that
shade-friendly varieties of coffee are planted and that full-sun hybrids or
genetically modified coffee trees cannot (by law) be used. In addition, we
believe, similar to Fair Trade, Certified-Organic coffees offer a premium to
farmers and during low markets Certified-Organic farmers are able to turn
profits. We believe organic growers are also rewarded with farms that remain
fertile for decades, with clean water, and with good health. We believe that
Certified-Organic coffee is the only coffee that addresses the social, economic
and environmental issues surrounding the sustainability of the coffee industry.

      We also believe that consumers are willing to pay a modest premium for
sustainable coffee but they prefer one-stop shopping for their food needs, and
availability implies both convenience and visibility. Many North American
supermarkets either do not stock sustainable coffees or present only one, often
as a single origin or blend, and usually Organic. Further, although we believe
considerable quantities of Organic coffee are sold through the grocery and
supermarket channel, their ready availability is limited to the West Coast and
select urban areas.


ORGANICS

      We believe  that  organic  products are emerging as a major trend in the
U.S.  market.  We  believe  the U.S.  boom in  organic  products  is fueled by
increasing consumer demand resulting from:

      o     consumer concerns about the general safety of their food;

      o     the higher quality of certified organic products;

      o     the  social  and  environmental  benefits  that  organic  production
            represents; and

      o     the perceived health benefits of consuming organic products.



      We believe that  certified  organic foods and beverages  provide  American
consumers  with peace of mind,  an  assurance of safety and the chance to cast a
vote for a more  environmentally  friendly kind of agriculture.  We believe that
the lack of availability at conventional  supermarkets and grocery stores is one
reason many people don't buy more organic.  With high growth forecast  resulting
from rising consumer  awareness and demand, we believe that the organic movement
is clearly moving from the commercial fringes into the mainstream.


BUSINESS STRATEGY

      Our strategic goal is to establish Black Rhino Coffee(TM) as a sustainable
and dominant  packaged  brand of certified  organic  coffee in the domestic mass
retail market.  This strategy  represents our  adolescence - the transition from
our  full  service  units  (kiosks  and  retail  stores)  in   limited-geography
institutional  markets to a widely  distributed  packaged  consumer brand called
Black Rhino Coffee(TM).

                                      -7-
<PAGE>

BLACK RHINO COFFEE(TM)

      We believe the  specialty  coffee market  environment  is one that depends
heavily on brand presence for sustainable  success.  The Black Rhino  Coffee(TM)
brand differentiates itself from other specialty coffee brands by the following:

      Certified  Organic Only. We offer only certified organic coffee. We do not
offer any coffees that are produced using  conventional  coffee  practices.  All
Black Rhino Coffee(TM) is naturally grown - no chemical pesticides,  herbicides,
fungicides  or chemical  fertilizers  have ever come in contact with Black Rhino
Coffee(TM) beans.

      High Quality Coffee.  We source and procure the highest quality  certified
organic arabica beans available from the world's coffee-producing  regions. Each
varietal  of coffee is  roasted by hand in small  batches  to  achieve  its peak
flavor.  We believe  that  organically  grown coffee beans mature more slowly as
nature intended - resulting in superior flavor.

      Competitive   Price.   We  believe  the  biggest   barrier  to  converting
non-organic  consumers to quality  organic  products is excessive price premiums
typically  associated with organic products.  We offer Black Rhino Coffee(TM) at
prices   comparable  to  non-organic  high  quality  specialty  brands  such  as
Starbucks.  We believe that pricing high quality  organic  coffee  comparable to
leading  non-organic  brands  distinguishes  Black Rhino  Coffee(TM)  from other
organic coffees.

      We are in  transition  from an  operations  intensive  company to a highly
skilled  corporation  focusing  on  brand  ownership  and  management.   At  the
appropriate  time,  we intend to exit our full service  operations  entirely and
redeploy the capital in support of our strategic goal.  Full service  operations
are entirely different in modus operandi, capital needs, system requirements and
essential  management skills from those of packaged consumer brand ownership and
management.  We will exit the full  service  business  at the right time for the
right  price  given the  circumstances  of each site.  In the  meantime  we will
continue to give our full service operations appropriate support.

      We recognize the need to develop in-house skills for brand management.  We
believe this can be  accomplished  with a "light" but "highly  skilled"  central
staff. Although we intend to outsource production, packaging and fulfillment, it
is essential to recruit or develop  top-level  skills for the  management of the
Black  Rhino  Coffee(TM)  supply  chain.  We  believe  that  much of the  sales,
marketing and  distribution  tasks  associated with the Black Rhino brand can be
outsourced or executed through  strategic  alliances,  however,  we will require
high quality consumer brand management skills within the organization.


FULL SERVICE OPERATIONS

      Our  existing  full  service  business  has been  developed  on a business
strategy based on the following concepts:

      Business and  Institutional  Locations.  We focused on locating our coffee
kiosks in business and institutional  facilities. We have experienced both lower
competition and reduced  advertising and marketing expenses by installing kiosks
in such areas,  since the kiosks have a nearby captive audience of employees and
students at business and institutional sites.

                                      -8-
<PAGE>

      Low Cost Operations.  The cost of opening and operating each kiosk is less
than the cost of opening and operating the fixed, retail stores operated by many
other specialty coffee retailers.

      We  utilize  a  client-host/captive-consumer  model.  This  model  has two
distinctive  components.  The  client-host  component  means  that we  establish
relationships with our "clients" (large institutions and food service providers)
with the  intention of multiple  kiosk  placements  within the client's  area of
operation.  In lieu of rent,  we  normally  pay the client a  percentage  of the
revenues generated by each kiosk,  thereby giving the client incentive to assist
us in a successful kiosk placement. The captive-consumer component refers to the
placement of kiosks in heavy  traffic areas where people  (potential  customers)
have already  congregated for other reasons.  Examples of typical placements are
hospitals, or school campuses.

      Our typical  site,  which  includes  the kiosk,  related  components,  and
workspace for employees,  occupies a footprint of approximately 150 square feet.
Due to the client-host/captive-consumer  model described above, we usually incur
no fixed  rental  expense for this real estate.  Likewise,  there are usually no
common area maintenance charges, and all utilities,  such as electricity,  heat,
air  conditioning,  and water, are furnished by the host or client at no cost to
us.

      As of March 31, 2004, we operated two coffee kiosks, two retail stores and
one drive-thru  located  throughout  California.  Our five operating  units were
located in the  following  venues:  three were located at  hospitals;  one was a
store-front retail locations, and one was a drive-through retail location.


EXPANSION PLANS

      As previously  discussed,  our strategic goal is to establish our packaged
consumer  Black Rhino  Coffee(TM)  brand in domestic  mass  retail  markets.  We
believe  that  the  Black  Rhino  Coffee(TM)  brands  compelling  set  of  brand
characteristics  that clearly  differentiate  itself from its  competitors  (see
Business  Strategy)   supported  by  favorable  market  dynamics  (see  Industry
Overview) will provide fast growth opportunities.

      During the year ended  March 31,  2004,  we shipped  orders of Black Rhino
Coffee(TM) to the following major food distributors:

      o     WalMart;
      o     Bi-Lo Inc.;
      o     SuperValu Rich Foods; and
      o     Ingles.

      In  addition,  we have  secured the  services of several  food  brokers to
represent  the Black  Rhino  Coffee(TM)  brand in  various  regions  of the U.S.
Through our efforts, we anticipate that the brand has the potential of achieving
shelf presence in more than 1,500  supermarkets or mass market  retailers by the
end of the calendar year 2004.

      We do not intend to allocate  resources for the purpose of generating  new
growth  opportunities for our full service retail operations.  All existing full
service operations will be given appropriate  support. As previously  indicated,
we have clearly defined our strategic goal and focus to be the rapid development
of Black Rhino  Coffee(TM) as a packaged  consumer brand available  through mass
retail markets.

                                      -9-
<PAGE>

MARKETING STRATEGY

RETAIL SALES OF BLACK RHINO COFFEE(TM)

      We are aware of the potential  pitfalls  associated  with brand  marketing
budgets.  We believe that today's consumers are nearly blind to the thousands of
brand  messages  they are exposed to on a daily  basis.  The risk is to spend on
creating consumer brand awareness and trial purchase. While we accept that a "No
Spend" route is not an option,  we do not  anticipate  any  material  "above the
line"  marketing   campaigns  during  our  initial   strategic  cycle  aimed  at
establishing shelf presence in the domestic mass retail markets. We will support
the brand, but only through targeted tactical  programs  mutually  developed and
implemented with our retail clients.  Support costs for this grassroots approach
will  be  identified  and  budgeted   within  the  basic  economic  model  on  a
project-by-project basis.


KIOSK SALES

      Working within the framework of our business strategy, we plan to re-brand
all of our full service retail  operations to Black Rhino  Coffee(TM).  We fully
implemented  certified  organic  coffee  into our  full  service  operations  in
November 2001 and have seen  positive  results  across the board.  We anticipate
that full service  operations  will benefit  from the  development  of the Black
Rhino Coffee(TM) brand. Full service retail units have recently gained access to
packaged  Black  Rhino  whole bean  coffees as well as other  quality  marketing
materials.  Our plans to re-brand all of our full service  retail  operations to
Black Rhino Coffee(TM) will be implemented as soon as practicable,  however such
plans are subject to cash constraints of our company.


SUPPLIERS

      We  procure  the  roasting  and  packaging  of our coffee  from  Terranova
Roasting Co., Inc. in Sacramento,  California.  Terranova is a Quality Assurance
International  certified coffee roaster serving central  California.  We have no
contract in effect with Terranova  other than the purchase  orders we place.  We
believe that  Terranova may not be able to meet our needs in the near future and
that it may be  necessary  to contract  out to other  certified  organic  coffee
roasters.  We have been in contact with other qualified  suppliers and certified
organic  roasters who could fulfill our supply  requirements  in the foreseeable
future.  Any risk  associated  with having  only one  certified  organic  coffee
roaster, therefore, appears to be minimal.

      We purchase and participate in the selection of our green coffee beans and
provide our proprietary  specifications for degree of roast and blending recipes
to Terranova, which then roasts and blends to our exact specifications. Finished
product is  packaged,  sealed,  and shipped  through  our  various  distribution
channels as ordered.

      We use only the highest quality  certified  organic  "arabica"  species of
coffee.  The supply and price of coffee are subject to  significant  volatility.
Although  most  coffee  trades in the  commodity  market,  coffee of the quality
sought by us tends to trade on a negotiated basis at a substantial premium above
commodity  coffee  prices,  depending  upon the supply and demand at the time of
purchase.  We acknowledge that high quality  certified organic coffee is limited
in availability.  We depend upon our relationship with our roaster,  with coffee
brokers and  importers and with  exporters  for our supply of certified  organic
green coffee. We believe, based on relationships  established with our suppliers
in the past, that the risk of non-delivery is low.

                                      -10-
<PAGE>

      In recent years, green coffee prices have been under considerable downward
pressure due to oversupply, and this situation is likely to persist in the short
term. We believe that low coffee price ranges  generally  experienced  in recent
years are not  considered  high enough to support  proper farming and processing
practices. With the growth of the specialty coffee segment, it is important that
prices  remain  high enough to support  world  consumption  of the high  quality
coffees.  We generally try to pass on coffee price  increases to our  customers.
There can be no assurance  that we will be successful in passing on green coffee
price increases without losses in sales volume or gross margin.


MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

The  preparation of this section  requires us to make estimates and  assumptions
about our past, current and future activities, business practices, and financial
records.  Actual  results  may differ  from  these  estimates  and  assumptions.
Foreseeable risks and  uncertainties are described  elsewhere in this report and
in detail under "Risk Factors Affecting the Company".

SUMMARY

      For the year ended March 31,  2004,  the  Statements  of Loss show a 30.2%
decrease in sales and a 36.6%  decrease in gross profit over the prior year.  We
incurred a net loss for the year ended March 31, 2004 of $1,270,772.

REVENUES

      Net  revenues  for the  year  ended  March  31,  2004  decreased  30.2% to
$1,775,518  from  $2,543,286 for the  corresponding  period in fiscal 2003. This
decrease was primarily due to lost revenue of approximately $1,088,000 resulting
from the sale or closure of ten university kiosk locations, three hospital kiosk
locations and one retail store. Revenues for our packaged Black Rhino Coffee(TM)
products  for the year ended March 31, 2004  increased  189.6% to $309,465  from
$106,862 for the  corresponding  period in fiscal 2003.  Black Rhino  Coffee(TM)
sales accounted for approximately  17.4% of our total revenue for the year ended
March 31,  2004.  For the year ended  March 31,  2004,  kiosk and retail  outlet
revenue  decreased  39.8% to $1,456,491  from  $2,420,810 for the same period in
fiscal 2003.  Kiosk and retail outlet revenue was generated from eight different
clients, with the largest client representing 18.2% of total net revenue.

COSTS OF GOODS SOLD

      Cost of goods sold for the year ended March 31, 2004 decreased to $827,399
from  $1,049,071  for the same period in fiscal  2003.  As a  percentage  of net
revenues,  cost of goods sold  increased  to 46.6% for the year ended  March 31,
2004 from 41.2% for the  comparable  period in fiscal  2003.  The  increase  was
primarily due to a shift in the sales mix resulting from  increased  Black Rhino
Coffee(TM)  revenues as  percentage  of total net  revenues.  For the year ended
March 31, 2004,  net revenues for Black Rhino  Coffee(TM)  represented  17.4% of
total  revenues as compared to 4.2% for the  comparable  period in fiscal  2003.
Cost of goods sold for our Black Rhino Coffee(TM) product line was 56.4% for the
year ended March 31, 2004.

                                      -11-
<PAGE>

OPERATING EXPENSES

      Employee  compensation  and  benefits  for the year ended  March 31,  2004
decreased to $882,710 from  $1,387,544  for the same period in fiscal 2003. As a
percentage  of net revenues,  employee  compensation  and benefits  decreased to
49.7% for the year ended March 31, 2004 from 54.6% for the comparable  period in
fiscal 2003.  The decrease as a percentage  of net revenues was primarily due to
the elimination of administrative and corporate level positions  associated with
the restructuring of our central costs. Employee compensation for administrative
and corporate  level  employees  for the year ended March 31, 2004  decreased to
$81,570 from $193,276 for the same period in fiscal 2003. The $111,706  decrease
in administrative and corporate level employee  compensation  represents 6.3% of
net revenues for the year ended March 31, 2004.

      General  and  administrative  expenses  for the year ended  March 31, 2004
decreased to $319,275  from  $367,353  for the same period in fiscal 2003.  As a
percentage of net revenues,  general and  administrative  expenses  increased to
18.0% for the year ended March 31, 2004 from 14.4% for the comparable  period in
fiscal 2003.  The increase as a percentage  of net revenues was primarily due to
commissions,  and promotional  expenses related to the growth of our Black Rhino
Coffee(TM)  product  line.  For the  year  ended  March  31,  2004  Black  Rhino
Coffee(TM)   promotional  expenses  for  in-store  samplings,   temporary  price
reductions  and ad support  increased  to $31,761 from $0 for the same period in
fiscal  2003.  For the year ended March 31, 2004  commission  expenses  directly
related to Black Rhino Coffee(TM) sales increased to $25,893 from $7,160 for the
same period in fiscal 2003.

      Occupancy  costs for the year ended March 31, 2004  decreased  to $208,243
from  $298,819  for the same  period  in fiscal  2003.  As a  percentage  of net
revenues, occupancy costs for the year ended March 31, 2004 were 11.7%, which is
comparable to the same period in fiscal 2003.

      Director and professional fees for the year ended March 31, 2004 decreased
to $303,940 from $392,016 for the same period in fiscal 2003. As a percentage of
net revenues,  director and  professional  fees  increased to 17.1% for the year
ended March 31, 2004 from 15.4% for the  comparable  period in fiscal 2003.  The
majority of these expenses result from the engagement of various consultants and
legal fees to assist us in obtaining  growth  financing and in  penetrating  new
markets with our packaged consumer brand of Black Rhino Coffee(TM).

      Operating losses for the year ended March 31, 2004 decreased to $1,088,986
from  $1,132,219  for the same period in fiscal  2003.  As a  percentage  of net
revenues,  operating losses increased to 61.3% for the year ended March 31, 2004
from 44.5% for the  comparable  period in fiscal 2003.  The increased  operating
loss is primarily due to  redemption  premiums of $181,124  associated  with the
December 4, 2003 Settlement Agreement with a convertible debenture holder.


NET LOSS

      Net loss for the year ended March 31, 2004  decreased to  $1,270,772  from
$1,713,691  for the same period in fiscal 2003. As a percentage of net revenues,
net losses  increased  to 71.6% for the year ended March 31, 2004 from 67.4% for
the comparable period in fiscal 2003. The increased net loss is primarily due to
other operating expenses of $181,124.  These other operating expenses consist of
redemption  premiums  associated with the December 4, 2003 Settlement  Agreement
with a convertible debenture holder.

LIQUIDITY AND CAPITAL RESOURCES

      As the accompanying  financial  statements show, for the fiscal year ended
March 31, 2004, we had a net operating  loss of  $1,088,986,  and an overall net
loss of  $1,270,772.  At March 31, 2004, we ended our fiscal year with a working
capital deficit of $1,422,887, and a shareholders' deficit of $1,269,026.

                                      -12-
<PAGE>

      Because of our operating losses and financial  situation,  the Independent
Auditor's Report of the  accompanying  financial  statements  expresses a "going
concern" opinion.  Going concern  contemplates the realization of assets and the
satisfaction  of  liabilities in the normal course of business over a reasonable
length of time.  Our ability to continue as a going  concern is  dependent  upon
several factors.  These factors include our ability to: generate sufficient cash
flows to meet our  obligations on a timely basis;  obtain  acceptance of payment
terms for certain  payables  to key  vendors;  obtain  additional  financing  or
refinancing  as  may be  required;  aggressively  control  costs,  and;  achieve
profitability and positive cash flows.

      We plan to  address  these  challenges  by  building  on the launch of our
organic Black Rhino  Coffee(TM)  brand into the U.S. mass retail  sector.  Since
introduction  in May  2002 at the FMI  supermarket  convention,  the  brand  has
penetrated the shelves of approximately  800  supermarkets.  The benefit of this
channel of trade is that a small number of orders can significantly increase our
revenues  and  earnings.  We believe  that entry to this new market  sector will
expose us to different and potentially  more fertile  financing  opportunities -
such as  project-based  debt  financing  secured by  purchase  order or accounts
receivable  notes.  We  also  believe  that  our  transition  from  reliance  on
full-service  units  to an  asset-light  company  concentrating  more  on  brand
ownership and management will reduce the capital needs for future large tangible
asset acquisitions.

      Our  operating  activities  decreased  cash by $701,922 for the year ended
March 31, 2004. Net loss of $1,270,772,  debt settlement of $181,124,  financing
costs of  $120,681,  and  gain/loss  on disposal  of assets of $83,085  were the
primary reasons.  The debt settlement is due to redemption  premiums of $181,124
associated  with the December 4, 2003  Settlement  Agreement  with a convertible
debenture holder.

      We had net cash  provided  from  financing  activities  for the year ended
March 31, 2004 totaling $631,680. In December 2003, we entered into a Securities
Purchase  Agreement for the sale of $250,000  principal  amount of a convertible
debenture in conjunction  with warrant to purchase  2,500,000  million shares of
our  common  stock.  In  January  2002,  we  secured a line of credit  for up to
$300,000.  This line of credit is for the acquisition of equipment and kiosks as
well as for meeting working capital needs.


COMPETITION

      The  specialty  coffee  market  is  highly  competitive.  We  have a minor
position  within  both the  overall  coffee  industry  as well as the  certified
organically  grown segment of the coffee industry.  We attempt to compete within
the industry by providing superior taste and quality,  value, and on the organic
aspect of our  product,  rather than on price of our  products.  We compete with
both large providers of specialty coffees as well as certified organically grown
coffees that have supermarket shelf presence in multiple regions.  However, such
providers of certified  organically  grown coffees  generally  only provide such
organic coffee as a supplement to their core conventional  coffees. We are aware
of several small regional brands with limited shelf presence, offering certified
organic coffee. A number of nationwide  coffee  manufacturers  distribute coffee
products in supermarkets and convenience  stores and have the potential to enter
the organic coffee market.

                                      -13-
<PAGE>

      We are aware of other  companies  which sell specialty  coffee from kiosks
and coffee carts,  but these are all very small operations with only a few kiosk
locations  each. We are not aware of any other company,  on either a regional or
national level,  which  specializes in sales of specialty  coffee from kiosks or
coffee carts.  We acknowledge  that several large,  well-capitalized  multi-unit
retailers  are capable of entering the kiosk and coffee cart market.  Currently,
however, to our knowledge,  none of these retailers are focusing on the kiosk or
coffee cart market.


INTELLECTUAL PROPERTY

      Another  entity in North  Carolina has been using the  trademark and trade
name "Peabody's  Coffee Co." in the coffee industry.  This North Carolina entity
received a federal trademark registration for "Peabody's Coffee Co." on February
25, 1997.  This  federal  registration  was  canceled on November  29, 2003.  We
believe  we have the right to  continue  using the  trade  names and  trademarks
"Peabodys"  and  Peabodys  Coffee,  Inc." at  least  in those  areas in which we
established  use  prior to the date  the  North  Carolina  entity  obtained  its
now-canceled  trademark  registration  for "Peabodys  Coffee,  Inc." Indeed,  we
believe it is now highly  unlikely the North Carolina  entity or any other party
could prevent us from using the  "Peabodys"  and "Peabodys  Coffee,  Inc." trade
names and  trademarks  anywhere in the U.S.  However,  if for any reason it were
determined  that we  could  not  continue  using  the  trade  name or  trademark
"Peabodys"  or "Peabodys  Coffee,  Inc.",  this could have a materially  adverse
effect on our  company  in that we would have to select a  different  name under
which to do  business,  and have to  re-establish  any  lost  goodwill  and name
recognition.  Again,  we believe it is now highly unlikely we could be forced to
discontinue  using the  "Peabodys"  or "Peabodys  Coffee,  Inc." trade names and
trademarks anywhere in the U.S.

      We have recently  obtained U.S. federal  trademark  registrations  for the
trademarks ALMA BLEND, SPIRITU BLEND and COFFEE WITH BODY AND SOUL. We also have
an earlier U.S. federal trademark registration for Rhinoceros Design (Regis. No.
2, 097,721),  but have ceased using this mark as part of our conversion to a new
logo design.  As part of this  conversion,  we have also recently  abandoned our
pending application for BLACK RHINO COFFEE & Design (Serial No. 76/406,291).  We
have pending  applications with the U.S. Patent and Trademark Office (USPTO) for
BLACK  RHINO  COFFEE  (word mark) and BLACK  RHINO  COFFEE & Design  (Serial No.
76/540,932), which corresponds to our new logo design. We have received a Notice
of  Allowance in respect of our  application  for BLACK RHINO COFFEE (word mark)
and expect to receive a U.S.  federal  trademark  registration for the same soon
after we file a statement of use with the USPTO.  We expect our  application for
BLACK RHINO COFFEE & Design (Serial No.  76/540,932) to result in a U.S. federal
trademark registration in due course.

We have obtained a (European)  Community trademark  registration for BLACK RHINO
COFFEE (word mark) and a Notice of  Allowance  has been issued in respect of our
application  for  registration  of BLACK RHINO COFFEE  (word mark) in Canada.  A
Canadian trademark  registration for BLACK RHINO COFFEE (word mark) should issue
if we timely file a statement  of use with the  Canadian  Intellectual  Property
Office.

EMPLOYEES

      We currently have 44 employees of which 8 are full-time employees and five
of which are administrative.

                                      -14-
<PAGE>

SEASONALITY

      Because  we serve  both  hot and  cold  coffee  drinks,  the  sales of our
products at most kiosk locations do not appear to be  significantly  affected by
the seasons.

LEGAL PROCEEDINGS

On May 8, 2002, the Company filed an action in the United States District Court,
Eastern  District of California,  against its former CEO,  Clifford Brent Young,
and  others.  Peabodys  Coffee  Inc.  v.  Young  et al.,  No.  S-02-994  LLK PAN
("Peabodys v. Young").  The complaint sought  declaratory and injunctive  relief
precluding  the  defendants  from  transferring  in  violation  of  the  federal
securities laws unregistered stock originally issued to Mr. Young. The complaint
also  alleged  that Mr.  Young,  in  association  with a former  employee of the
Company, had breached contractual duties,  and/or committed torts, in connection
with the purported  cancellation of contracts  between the Company and a client,
and in connection with other acts of competition, disparagement, and conversion.
The complaint further sought Mr. Young's removal as a director of the Company.

      On May 29,  2002,  the  Company  moved for a temporary  restraining  order
precluding  any stock  transfers  and (as to Mr. Young and the former  employee)
from  competition  at  certain  sites  that  are the  subject  of a  non-compete
agreement  between the Company and Mr. Young.  Immediately  prior to the May 30,
2002 hearing on that motion,  Mr. Young filed a petition for bankruptcy with the
United States  Bankruptcy  Court,  Central  District of California,  staying the
action  as to him  (although  he did  not  list  the  action  in his  bankruptcy
petition). The Court denied the remainder of the motion.  Subsequently,  on June
17, 2002, Mr. Young resigned as a director of the Company.

      The  Company  also  challenged  the  client's  legal  right to cancel  the
contracts.  On June 25, 2002, the Company settled the potential dispute with the
client and the former employee. The settlement provides that the client will pay
the  Company in exchange  for being  allowed to cancel the  contracts;  that the
claims  against the former  employee in Peabodys v. Young will be dismissed with
prejudice; and for other consideration.

RISK FACTORS AFFECTING THE COMPANY

WE HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE,  REQUIRING US TO SEEK ADDITIONAL
SOURCES OF CAPITAL WHICH MAY NOT BE AVAILABLE,  REQUIRING US TO CURTAIL OR CEASE
OPERATIONS.

      We incurred net losses of $1,270,772 for the year ended March 31, 2004 and
$1,713,691  for the year ended March 31, 2003.  We cannot assure you that we can
achieve or sustain  profitability  on a quarterly or annual basis in the future.
If revenues grow more slowly than we anticipate, or if operating expenses exceed
our  expectations or cannot be adjusted  accordingly,  we will continue to incur
losses.  We will  continue  to  incur  losses  until  we are  able to  establish
significant sales of Black Rhino  Coffee(TM).  Our possible success is dependent
upon the successful development and marketing of our products, as to which there
is no  assurance.  Any future  success that we might enjoy will depend upon many
factors,  including  factors out of our control or which  cannot be predicted at
this  time.  These  factors  may  include  changes  in or  increased  levels  of
competition, including the entry of additional competitors and increased success
by existing  competitors,  changes in general economic conditions,  increases in
operating costs, including costs of supplies,  personnel and equipment,  reduced
margins caused by competitive pressures and other factors.  These conditions may
have a  materially  adverse  effect upon us or may force us to reduce or curtail
operations.  In addition, we will require additional funds to sustain and expand
our sales and marketing activities,  particularly if a well-financed  competitor
emerges. We anticipate that we will require  approximately  $500,000 to fund our
continued  operations  for the next twelve  months,  depending  on revenue  from
operations.  There can be no  assurance  that  financing  will be  available  in
amounts  or on terms  acceptable  to us,  if at all.  The  inability  to  obtain
sufficient funds from operations or external sources would require us to curtail
or cease operations.

                                      -15-
<PAGE>

IF WE ARE UNABLE TO OBTAIN  ADDITIONAL  FUNDING OUR BUSINESS  OPERATIONS WILL BE
HARMED AND IF WE DO OBTAIN ADDITIONAL  FINANCING OUR THEN EXISTING  SHAREHOLDERS
MAY SUFFER SUBSTANTIAL DILUTION.

      Additional capital will be required to effectively  support the operations
and to otherwise implement our overall business strategy, including rapid growth
in establishing the Black Rhino Coffee brand. However, there can be no assurance
that financing will be available when needed on terms that are acceptable to us.
The inability to obtain additional capital will restrict our ability to grow and
may reduce our  ability to continue to conduct  business  operations.  If we are
unable to obtain additional financing, we will likely be required to curtail our
marketing  and  development  plans  and  possibly  cease  our  operations.   Any
additional  equity  financing  may  involve  substantial  dilution  to our  then
existing shareholders.


OUR INDEPENDENT  AUDITORS HAVE EXPRESSED  SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE  AS A GOING  CONCERN,  WHICH MAY  HINDER OUR  ABILITY TO OBTAIN  FUTURE
FINANCING.

      In their report dated July 6, 2004, our  independent  auditors stated that
our  financial  statements  for the year  ended  March 31,  2004  were  prepared
assuming that we would continue as a going concern. Our ability to continue as a
going  concern is an issue raised as a result of a loss for the year ended March
31, 2004 in the amount of $1,270,772 and  stockholders  deficit of $1,269,027 as
of March 31, 2004. We continue to experience net operating  losses.  Our ability
to  continue  as a going  concern is subject to our ability to generate a profit
and/or  obtain  necessary  funding from  outside  sources,  including  obtaining
additional  funding  from  the  sale  of our  securities,  increasing  sales  or
obtaining loans and grants from various financial  institutions  where possible.
Our continued  net  operating  losses and  stockholders'  deficit  increases the
difficulty  in  meeting  such  goals and there  can be no  assurances  that such
methods will prove successful.


WE MAY BE  REQUIRED  TO PAY  OUTSTANDING  SECURED  PROMISSORY  NOTES  WHICH  ARE
CURRENTLY  IN  DEFAULT.  IF WE ARE  REQUIRED TO REPAY THE  OUTSTANDING  DEBT OUR
WORKING CAPITAL MAY BE DEPLETED OR WE MAY BE REQUIRED TO RAISE  ADDITIONAL FUNDS
TO REPAY SUCH DEBT.  OUR  FAILURE TO REPAY THE  SECURED  PROMISSORY  NOTES COULD
RESULT IN LEGAL ACTION  AGAINST US, WHICH COULD REQUIRE THE SALE OF  SUBSTANTIAL
ASSETS.

      In an earlier private placement, we offered and sold units, with each unit
consisting  of a secured  promissory  note  ("Secured  Note")  and  warrants  to
purchase  common stock.  We are now obligated to make quarterly  payments on the
interest  outstanding  and to repay such Secured Notes. As of March 31, 2004, we
were in default on the  principal  balance of the Secured Notes in the amount of
$35,000 and approximately  $45,336 in arrears on such interest payments relating
to the Secured Notes.  Under the terms of the Security Agreement relating to the
Secured Notes, a noteholder has the right to:

      o     declare all principal and interest immediately due and owing;
      o     exercise its rights and  remedies  under the  California  Commercial
            Code  as a  secured  creditor  having  a  security  interest  in the
            collateral,  which  includes,  but is  not  limited  to,  equipment,
            inventory,   accounts,   trademarks   and   tradenames   and   other
            intellectual property rights (the "Collateral"), and, in particular,
            sell any part of the Collateral; and

                                      -16-
<PAGE>

      o     exercise  any other  rights or  remedies  of a secured  party  under
            California law.

      As of the date hereof, we have not received any notice of default relating
to the Secured Notes.  It is our  understanding  that the  noteholders  lien has
lapsed due to the noteholders failure to file a continuation with the California
Secretary of State. Due to the noteholders  failure to file a continuation,  the
California Secretary of State has purged the lien from our records.


A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE AND
IF WE ARE UNABLE TO MAINTAIN OUR CURRENT CUSTOMER BASE OR ATTRACT A NEW CUSTOMER
BASE WE WILL BE REQUIRED TO CURTAIL OR CEASE OPERATIONS.

      Our four largest clients represent 59.4% of our gross revenue for the year
ended March 31, 2003. The four largest  clients  represented  47.4% of the gross
revenue for the year ended March 31, 2002. We would likely experience a material
decline in revenues if we were to lose any of our major clients.


HIGH QUALITY CERTIFIED ORGANIC COFFEE IS LIMITED IN AVAILABILITY AND TRADED ON A
NEGOTIATED  BASIS.  IF WE ARE UNABLE TO OBTAIN AN ADEQUATE  SUPPLY OF  CERTIFIED
ORGANIC COFFEE, THEN OUR PROFITS MAY BE NEGATIVELY IMPACTED.

      The  supply and price of coffee are  subject  to  significant  volatility.
Although  most  coffee  trades in the  commodity  market,  coffee of the quality
sought by our  company  tends to trade on a  negotiated  basis at a  substantial
premium above commodity  coffee prices,  depending upon the supply and demand at
the time of purchase.  We acknowledge that high quality certified organic coffee
is limited in availability.  We depend upon our  relationship  with our roaster,
with coffee brokers and importers and with exporters for our supply of certified
organic green coffee.  We believe,  based on relationships  established with our
suppliers  in the  past,  that  the risk of  non-delivery  is low.  However,  an
increase in the prices of specialty  coffees could have an adverse effect on our
profitability.


THERE  CAN BE NO  ASSURANCE  THAT WE WILL BE  ABLE  TO  MANAGE  ANY  SUBSTANTIAL
EXPANSION  OF OUR  BUSINESS,  AND A  FAILURE  TO DO SO COULD  HAVE A  MATERIALLY
ADVERSE EFFECT ON OUR OPERATING RESULTS.

      Our success will require significant  expansion of our business.  Any such
expansion could place a significant strain on our resources and would require us
to hire  additional  personnel to implement  additional  operating and financial
controls and improve coordination between marketing,  administration and finance
functions.  We would be required to install additional  reporting and management
information  systems  for sales  monitoring,  inventory  control  and  financial
reporting.  There  can be no  assurance  that we  would  be able to  manage  any
substantial  expansion  of our  business,  and a failure  to do so could  have a
materially adverse effect on our operating results.


IF WE ARE UNABLE TO RETAIN THE  SERVICES  OF MR.  TKACHUK OR IF WE ARE UNABLE TO
SUCCESSFULLY  RECRUIT QUALIFIED MANAGERIAL AND SALES PERSONNEL HAVING EXPERIENCE
IN BUSINESS, WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS.

                                      -17-
<PAGE>

      Our success depends to a significant  extent upon the continued service of
Mr. Todd Tkachuk, our President,  Chief Financial Officer and Secretary. Loss of
the services of Mr. Tkachuk could have a material  adverse effect on our growth,
revenues,  and prospective business. We do not maintain key-man insurance on the
life of Mr. Tkachuk. In addition, in order to successfully  implement and manage
our business plan, we will be dependent upon,  among other things,  successfully
recruiting  qualified  managerial  and  sales  personnel  having  experience  in
business.  Competition  for qualified  individuals  is intense.  There can be no
assurance that we will be able to find, attract and retain existing employees or
that we will  be  able to  find,  attract  and  retain  qualified  personnel  on
acceptable terms.


WE HAVE RECENTLY  COMMENCED  SALES TO  SUPERMARKETS,  SPECIALTY  FOOD STORES AND
OTHER  MASS  RETAIL  VENUES AND IF WE ARE NOT  SUCCESSFUL  IN  ESTABLISHING  OUR
COMPANY WITHIN THE MASS RETAIL MARKET OUR REVENUE MAY BE SEVERELY IMPACTED.

      Our company's  strategic goal is to establish our packaged  consumer Black
Rhino  Coffee(TM)  brand in domestic mass retail  markets.  We recently  shipped
orders of Black Rhino Coffee(TM) to major national food  distributors in Kansas,
South Carolina,  Pennsylvania and Virginia. If we are not successful in entering
the mass retail market our revenue may be severely impacted.


RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:


RISKS RELATING TO OUR COMMON STOCK:

RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:

THERE ARE A LARGE NUMBER OF SHARES  UNDERLYING OUR CONVERTIBLE  DEBENTURES,  AND
WARRANTS  THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

      As of July 13, 2004, we had  39,645,313  shares of common stock issued and
outstanding and convertible debentures outstanding that may be converted into an
estimated  42,719,361  shares of common  stock at  current  market  prices,  and
outstanding  warrants and options to purchase  9,519,836 shares of common stock,
including,  2,291,460  shares of common stock issued  pursuant to the Securities
Purchase Agreement dated December 5, 2003. In addition, pursuant to the Plan and
Agreement of Reorganization  and merger we assumed the rights and obligations or
convertible  promissory  noted  that are  convertible  into  75,604  shares.  In
addition,  the number of shares of common stock issuable upon  conversion of the
outstanding convertible debentures may increase if the market price of our stock
declines.  All  of  the  shares,  including  all of  the  shares  issuable  upon
conversion of the  debentures  and upon  exercise of our  warrants,  may be sold
without  restriction.  The sale of these shares may adversely  affect the market
price of our common stock.

THE  CONTINUOUSLY   ADJUSTABLE  CONVERSION  PRICE  FEATURE  OF  OUR  CONVERTIBLE
DEBENTURES  COULD REQUIRE US TO ISSUE A SUBSTANTIALLY  GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.

      Our  obligation  to  issue  shares  upon  conversion  of  our  convertible
debentures is essentially  limitless.  The following is an example of the amount
of  shares  of our  common  stock  that are  issuable,  upon  conversion  of our
convertible debentures (excluding accrued interest), based on market prices 25%,
50% and 75% below the market price, as of July 13, 2004 of $0.07.

                                    Number of       % of
% Below  Price Per  With Discount   of Shares   Outstanding
Market     Share        at 20%      Issuable       Stock
------     -----        ------      --------       -----

25%       $.0525        $.0420      57,722,969     59.28%
50%       $.0350        $.0280      87,730,183     68.88%
75%       $.0175        $.0140     177,751,826     81.76%

                                      -18-
<PAGE>

      As  illustrated,  the  number  of shares of  common  stock  issuable  upon
conversion of our  convertible  debentures  will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.

THE  CONTINUOUSLY   ADJUSTABLE  CONVERSION  PRICE  FEATURE  OF  OUR  CONVERTIBLE
DEBENTURES  MAY  ENCOURAGE  INVESTORS  TO MAKE SHORT SALES IN OUR COMMON  STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.

      The convertible debentures are convertible into shares of our common stock
at a 20%  discount  to the  trading  price  of the  common  stock  prior  to the
conversion.  The significant  downward pressure on the price of the common stock
as the selling  stockholder  converts and sells material amounts of common stock
could  encourage  short sales by investors.  This could place  further  downward
pressure on the price of the common stock.  The selling  stockholder  could sell
common  stock  into the market in  anticipation  of  covering  the short sale by
converting their securities,  which could cause the further downward pressure on
the stock price. In addition, not only the sale of shares issued upon conversion
or exercise of debentures,  warrants and options,  but also the mere  perception
that these sales  could  occur,  may  adversely  affect the market  price of the
common stock.

THE  ISSUANCE  OF SHARES  UPON  CONVERSION  OF THE  CONVERTIBLE  DEBENTURES  AND
EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO
OUR EXISTING STOCKHOLDERS.

      The issuance of shares upon conversion of the  convertible  debentures and
exercise of warrants  may result in  substantial  dilution to the  interests  of
other  stockholders  since the selling  stockholders may ultimately  convert and
sell the full amount issuable on conversion.  Although the selling  stockholders
may not convert their  convertible  debentures and/or exercise their warrants if
such  conversion  or  exercise  would  cause  them to own more  than 4.9% of our
outstanding  common  stock,  this  restriction  does  not  prevent  the  selling
stockholders  from converting  and/or exercising some of their holdings and then
converting  the rest of their  holdings.  In this way, the selling  stockholders
could sell more than this limit while never holding more than this limit.  There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.

IF WE FAIL TO OBTAIN  STOCKHOLDER  APPROVAL TO INCREASE OUR AUTHORIZED SHARES OF
COMMON STOCK, WE MAY BE REQUIRED TO REPAY THE  CONVERTIBLE  DEBENTURE AS WELL AS
VARIOUS PENALTIES.

We presently do not have an adequate amount of authorized and unissued shares of
common  stock to issue in  connection  with the  financing  entered into with La
Jolla Cover  Investors,  Inc. In the near future we intend to hold a meeting for
the purpose of obtaining  stockholder approval to increase our authorized shares
of common  stock of which we can  provide no  assurance  that we will be able to
obtain.  In the event that we are unable to obtain an increase in our authorized
common stock,  we will be required to repay the debenture and we will be subject
to prepayment penalties.

IF WE  ARE  REQUIRED  FOR  ANY  REASON  TO  REPAY  OUR  OUTSTANDING  CONVERTIBLE
DEBENTURES,  WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL,  IF AVAILABLE,
OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE  DEBENTURES,  IF
REQUIRED,  COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.

In December 2003, we entered into a Securities  Purchase  Agreement for the sale
of an aggregate of $250,000  principal  amount of  convertible  debentures.  The
convertible debentures are due and payable, with 7 3/4% interest, two years from
the date of issuance,  unless sooner  converted into shares of our common stock.
In  addition,  any event of default  could  require the early  repayment  of the
convertible  debentures  at a price  equal to 125% of the  amount  due under the

                                      -19-
<PAGE>

debentures.  We anticipate that the full amount of the  convertible  debentures,
together  with accrued  interest,  will be  converted  into shares of our common
stock,  in accordance with the terms of the  convertible  debentures.  If we are
required to repay the  convertible  debentures,  we would be required to use our
limited working capital and raise  additional  funds. If we were unable to repay
the debentures when required,  the debenture holders could commence legal action
against us and  foreclose  on all of our assets to recover the amounts  due. Any
such action would require us to curtail or cease operations.

IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS,  WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF  BROKER-DEALERS  TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR  SECURITIES IN
THE SECONDARY MARKET.

      Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports  under  Section 13, in order to maintain  price
quotation  privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements,  we could be removed from the OTC Bulletin Board. As
a result,  the market liquidity for our securities  could be severely  adversely
affected by limiting the ability of  broker-dealers  to sell our  securities and
the ability of stockholders to sell their securities in the secondary market.


OUR DIRECTORS AND EXECUTIVE OFFICERS  BENEFICIALLY OWN APPROXIMATELY 9.7% OF OUR
STOCK;  THEIR  INTERESTS COULD CONFLICT WITH YOURS;  SIGNIFICANT  SALES OF STOCK
HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE;  STOCKHOLDERS  MAY
BE UNABLE TO EXERCISE CONTROL.

      As of March 31, 2004,  our executive  officers,  directors and  affiliated
persons  beneficially owned approximately 9.7% of our common stock. As a result,
our executive  officers,  directors and affiliated persons will have significant
influence to:

      o     elect or defeat the election of our directors;
      o     amend or prevent  amendment  of our  articles  of  incorporation  or
            bylaws;
      o     effect  or  prevent a  merger,  sale of  assets  or other  corporate
            transaction; and
      o     control  the  outcome  of  any  other   matter   submitted   to  the
            stockholders for vote.

      As a result of their ownership and positions,  our directors and executive
officers collectively are able to significantly  influence all matters requiring
stockholder  approval,  including  the  election of  directors  and  approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and  executive  officers,  or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock  ownership may discourage a potential  acquirer from making a tender offer
or otherwise  attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders  from realizing a premium over our stock
price.


OUR  COMMON  STOCK IS  SUBJECT  TO THE  "PENNY  STOCK"  RULES OF THE SEC AND THE
TRADING MARKET IN OUR  SECURITIES IS LIMITED,  WHICH MAKES  TRANSACTIONS  IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

      The  Securities  and  Exchange  Commission  has  adopted  Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes  relevant to us,
as any equity  security  that has a market price of less than $5.00 per share or
with an  exercise  price of less  than  $5.00  per  share,  subject  to  certain
exceptions.  For any  transaction  involving a penny stock,  unless exempt,  the
rules require:

                                      -20-
<PAGE>

      o     that a broker or dealer approve a person's  account for transactions
            in penny stocks; and
      o     the broker or dealer  receive from the investor a written  agreement
            to the  transaction,  setting forth the identity and quantity of the
            penny stock to be purchased

      In order to approve a person's  account for  transactions in penny stocks,
the broker or dealer must:

      o     obtain financial information and investment experience objectives of
            the person; and
      o     make a  reasonable  determination  that  the  transactions  in penny
            stocks are  suitable  for that person and the person has  sufficient
            knowledge  and  experience  in  financial  matters  to be capable of
            evaluating the risks of transactions in penny stocks.

      The broker or dealer  must also  deliver,  prior to any  transaction  in a
penny stock, a disclosure  schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:

      o     sets  forth  the  basis on  which  the  broker  or  dealer  made the
            suitability determination; and
      o     that the broker or dealer received a signed,  written agreement from
            the investor prior to the transaction.

      Generally,  brokers  may  be  less  willing  to  execute  transactions  in
securities  subject to the "penny stock" rules.  This may make it more difficult
for  investors  to dispose of our common stock and cause a decline in the market
value of our stock.

      Disclosure  also has to be made  about  the  risks of  investing  in penny
stocks  in  both  public  offerings  and in  secondary  trading  and  about  the
commissions payable to both the broker-dealer and the registered representative,
current  quotations for the securities and the rights and remedies  available to
an  investor  in cases of fraud in penny stock  transactions.  Finally,  monthly
statements  have to be sent  disclosing  recent price  information for the penny
stock held in the account and information on the limited market in penny stocks.


ITEM 2.     DESCRIPTION OF PROPERTY
            (FORM 1-A  MODEL B  ITEM 7)

      Our principal  executive offices were located at 3845 Atherton Road, Suite
9, Rocklin, CA, 95675, and our telephone number was (916) 788-2630.  On April 1,
2004 we moved our offices to 660 Commerce Drive, Suite B, Roseville,  CA, 95678.
Our new  telephone  number is  (916)-788-2630.  The  facility is utilized in the
following manner:

      o     administrative offices; and
      o     professional offices.


      The facility  consists of approximately  six hundred fourteen (614) square
feet of office space,  leased for $786 per month. The lease expires on March 31,
2005. We believe that our existing facilities are adequate for our current use.

      Our kiosks used for our day-to-day  operations on our sites vary from site
to site, but generally occupy 150 square feet with related equipment and display
space.  Standard equipment on each kiosk includes an espresso machine,  espresso
grinders,  a coffee brewer,  blender,  cash register and display racks for baked

                                      -21-
<PAGE>

goods and other  non-coffee  items.  Kiosks are usually equipped with wheels for
unit  mobility,  although at most sites the kiosk  remains in the same  location
permanently.  Historically,  the cost of a kiosk,  including  internal plumbing,
equipment, inventory and signage, was approximately $35,000.

ITEM 3.     DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
            (FORM 1-A  MODEL B  ITEM 8)

      The following table sets forth certain information  regarding the officers
and directors of Peabodys:

Name                  Age      Position
--------------------------------------------------------------------------------
Todd N. Tkachuk       43       President, Chief Financial Officer, Secretary and
                               Director
Richard Azevedo       70       Director
Barry Gibbons         58       Director
Roman Kujath          71       Director
David Lyman           57       Director

      Directors  are  elected  to  serve  until  the  next  annual   meeting  of
stockholders  and until their  successors are elected and  qualified.  Currently
there are five seats on our board of directors.

      Directors  serve  without  cash   compensation  and  without  other  fixed
remuneration.  Officers  are elected by the Board of  Directors  and serve until
their successors are appointed by the Board of Directors.  Biographical  resumes
of each officer and director are set forth below.

      TODD N. TKACHUK has been an officer and director of our company  since our
inception.  In connection  with the merger entered with Peabodys CA, Mr. Tkachuk
became President, Chief Financial Officer, and Secretary, and a Director, of our
company. In January of 2000, Mr. Tkachuk became Chairman of the Board and served
in that capacity until the appointment of Mr.  Phillips in April 2002.  Prior to
his  involvement  with our company,  Mr.  Tkachuk  served as President of Tony's
Coffee Company, a Vancouver, Canada-based specialty coffee company. From 1987 to
1991,  Mr.  Tkachuk  served as  President  and CEO of  Skytech  Data  Supply,  a
wholesale distributor of computer consumables and peripherals. Mr. Tkachuk holds
a B.A. in Business Management from Western Washington University (1983).

      RICHARD AZEVEDO brings more than 30 years of business acumen with a proven
track record in  takeovers  and  turnarounds.  He served as mayor of the city of
Auburn,  CA for 2 terms and in 1987 was the  recipient  of the  American  Cancer
Society's  "Man of the Year"  award.  Mr.  Azevedo  has  founded  and  served as
President of numerous  companies  within the health care industry.  He currently
manages  a  substantial  real  estate  investment  corporation  and is a general
partner in a 4 major mini storage projects valued in excess of $20 million.


      BARRY J.  GIBBONS  became a Director and Chairman of the Board of Peabodys
CA in  October  1996,  and became a Director  and  Chairman  of the Board of our
company in connection  with the Merger.  In January of 2000, Mr. Gibbons stepped
down from being Chairman of the Board, but remains as one of our directors. From
January 1989 to December 1993, Mr. Gibbons served as Chief Executive Officer and
Chairman  of Burger  King  Corporation.  From 1984 to 1989,  Mr.  Gibbons was an
employee of Grand  Metropolitan,  the U.K.-based  international  food, drink and
retailing group. Mr. Gibbons graduated from Liverpool  University in 1969 with a
degree in Economics.

                                      -22-
<PAGE>

      ROMAN  KUJATH has been a director of  Peabodys CA since June 1998,  and of
our company since the Merger.  Mr. Kujath has been  president of Roman M. Kujath
Architects, Ltd. since 1975. Mr. Kujath has been responsible for over $1 billion
worth of  construction,  including the $100 million Place De Ville in Ottawa for
the  Campeau  Corporation.  Mr.  Kujath is a member  of the Royal  Architectural
Institute  of Canada,  a past  corporate  member of the  American  Institute  of
Architects,  a member of the Architectural Institute of British Columbia and the
Alberta Association of Architects.

      DAVID LYMAN is currently a partner of Capital Resource Partners  (formerly
Jones,  Taylor & Co.), a merchant  banking firm providing merger and acquisition
financing, capital funding and advisory services to the transportation industry.
Prior to that, Dr. Lyman worked with a number of companies  including Frito Lay,
Pizza Hut, North American Van Lines, Capitol Records,  Family Vision Centers and
American Hospitality Concepts as an executive or consultant.  Additionally,  Dr.
Lyman was a principal with the Synectics  Group, a consulting firm that provided
strategic funding and operating solutions to emerging companies. Dr. Lyman has a
Bachelor  of Arts from  Dakota  Wesleyan  University  and a  Masters  and PhD in
Counseling Psychology from the University of Nebraska at Lincoln.


ITEM 4.     REMUNERATION OF DIRECTORS AND OFFICERS
            (FORM 1-A  MODEL B  ITEM 9)

(a) The following table sets forth the aggregate annual  remuneration of each of
the three highest paid persons who are officers or directors for the fiscal year
ending March 31, 2004.

      The following tables set forth certain  information  regarding our CEO and
each of our most highly-compensated executive officers whose total annual salary
and bonus for the fiscal  year ending  March 31,  2004,  2003 and 2002  exceeded
$100,000:


<TABLE>
<CAPTION>
                                                SUMMARY COMPENSATION TABLE

                                                   ANNUAL COMPENSATION

                                                             Other
                                                             Annual      Restricted     Options      LTIP
   Name & Principal                Salary        Bonus       Compen-       Stock         SARs       Payouts      All Other
       Position           Year       ($)          ($)        sation ($)   Awards($)       (#)         ($)      Compensation
------------------------ ------- ------------ ------------ ------------ ------------- ----------- ------------ --------------
<S>             <C>       <C>      <C>             <C>          <C>          <C>          <C>          <C>           <C>
Todd N. Tkachuk (1)       2004     78,000          0            0            -            -            -             -
  President, CEO, CFO     2003     78,000          0            0            -            -            -             -
  and Secretary           2002     78,000          0            0            -            720,000      -             -
</TABLE>

(1) Mr.  Tkachuk does not have an  employment  agreement  with our  company.  He
serves in his  capacity as  President,  Chief  Financial  Officer and  Secretary
pursuant to his election to those positions by the Board of Directors.

                                      -23-
<PAGE>

ITEM 5.     SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
            SECURITYHOLDERS
            (FORM 1-A  MODEL B  ITEM 10)

(a)   Voting Securities

      The following table sets forth certain  information  regarding  beneficial
ownership of our common stock as of March 31, 2004:

      o     by each person who is known by us to  beneficially  own more than 5%
            of our common stock;
      o     by each of our officers and directors; and
      o     by all of our officers and directors as a group.


NAME AND ADDRESS                                 NUMBER OF         PERCENTAGE OF
OF OWNER                        TITLE OF CLASS   SHARES OWNED(1)   CLASS(2)
--------------------------------------------------------------------------------

Todd N. Tkachuk                 Common Stock     1,361,269         3.4%
3845 Atherton Road, Suite #9
Rocklin, CA 95765

Barry Gibbons                   Common Stock     1,465,000         3.7%
6665 S. W. 69th Lane
Miami, FL 33143

Roman Kujath                    Common Stock     613,297           1.5%
8926 119th Street
Edmonton, Alberta
Canada T6G 1W9

David Lyman                     Common Stock     149,480           0.4%
2789 Hospital Road
Saginaw, MI  48603

John Phillips                   Common Stock     275,000           0.7%
5210 Village Parkway
Rogers, AR  72758

All Officers and Directors      Common Stock     3,704,046         9.7%
As a Group (5 persons)

Ronald Eckman                   Common Stock     3,675,000         9.7%

All Beneficial Ownership        Common Stoce     7,379,046        19.4%

---------------------------------
      (1) Beneficial Ownership is determined in accordance with the rules of the
      Securities  and  Exchange  Commission  and  generally  includes  voting or
      investment  power  with  respect  to  securities.  Shares of common  stock
      subject to options or warrants  currently  exercisable or convertible,  or
      exercisable  or  convertible  within 60 days of March 31,  2004 are deemed
      outstanding for computing the percentage of the person holding such option
      or warrant but are not deemed  outstanding for computing the percentage of
      any other person.

                                      -24-
<PAGE>

      (2) Percentage based on 39,645,313  shares of common stock  outstanding as
      of July 11, 2004.

(b)   No other person holds or shares the power to vote the securities described
      below.  - 31 - (c) The  Company  currently  has no  non-voting  securities
      outstanding.

(d)   Options, Warrants and Rights

<TABLE>
<CAPTION>
                         SECURITIES CALLED FOR BY           EXERCISE                EXERCISE
NAME OF HOLDER           OPTIONS, WARRANTS AND RIGHTS       PRICE                   DATE
--------------           ----------------------------       -----                   ----

<S>                      <C>                                <C>                     <C>
Todd N. Tkachuk          770,000 Shares of Common Stock     $0.05 (720,000 shares)  fully vested
                                                            $0.80 (50,000 shares)   fully vested

Barry Gibbons            120,000 Shares of Common Stock     $0.05 (120,000 shares)  fully vested

Roman Kujath             140,000 Shares of Common Stock     $0.05 (120,000 shares)  fully vested
                                                            $0.80 (20,000 shares)   fully vested

David Lyman              240,000 Shares of Common Stock     $0.20 (240,000 shares)  fully vested

John Phillips            530,000 Shares of Common Stock     $0.40 (180,000 shares)  fully vested
                                                            $0.40 (200,000 shares)  fully vested
                                                                                    in Dec. 2004
                                                            $0.20 (150,000 shares)  fully vested

All Officers and Dirs.   1,800,000 Shares of Common Stock   $0.05 (960,000 shares)
As a Group (5 persons)                                      $0.20 (390,000 shares)
                                                            $0.40 (380,000 shares)
                                                            $0.80  (70,000 shares)
</TABLE>

(e) The Company has no parents.


ITEM 6.     INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
            (FORM 1-A  MODEL B  ITEM 11)

      We have engaged the services of Marathon Global, an Arkansas  corporation,
to  represent us in selling our 100% organic  coffee to the  mass-market  retail
sector.  Mr.  Phillips,  who was Chairman of the Board of Directors at March 31,
2004, is the owner of Marathon Global. The agreement expires December 31, 2004.

                                      -25-
<PAGE>

                                    PART II


ITEM 1.     MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
            OTHER SHAREHOLDER MATTERS


(A)   MARKET INFORMATION

      Our  common  stock is quoted on the OTC  Bulletin  Board  under the symbol
"PBDY". Our common stock has been quoted on the OTCBB since November of 1997.

      For the periods indicated, the following table sets forth the high and low
bid  prices  per share of common  stock.  These  prices  represent  inter-dealer
quotations  without  retail  markup,   markdown,   or  commission  and  may  not
necessarily represent actual transactions.

                                Sales Price
                                -----------

                           High              Low
                           ----              ---

            2002
      Second Quarter       0.88              0.51
      Third Quarter        0.60              0.22
      Fourth Quarter       0.38              0.25

            2003
      First Quarter        0.38              0.08
      Second Quarter       0.27              0.06
      Third Quarter        0.21              0.07
      Fourth Quarter       0.14              0.05

            2004
      First Quarter        0.14              0.07





            Our Common  Stock is not  listed on an  exchange  or NASDAQ,  but is
currently traded in the over-the-counter  market with price quotes listed on the
OTC Bulletin  Board of the  National  Association  of  Securities  Dealers,  Inc
("NASD").  Accordingly, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the market value of the common stock.

      Recent changes to the rules of the NASD require that companies  trading on
the OTC Bulletin Board, such as ours, must be reporting issuers under Section 12
of the Securities Exchange Act of 1934, as amended, and must be current in their
reports under Section 13, in order to maintain price quotation privileges on the
OTC Bulletin Board ("OTC Eligibility Rule"). If we fail to remain current on our
reporting  requirements,  we could be removed from the OTC Bulletin  Board. As a
result,  the market  liquidity for our  securities  could be severely  adversely
affected by limiting the ability of  broker-dealers  to sell our  securities and
the ability of shareholders to sell their securities in the secondary market.

                                      -26-
<PAGE>

(B)   HOLDERS

      As of July 11, 2004 we had  approximately 444 holders of our common stock.
The number of record  holders was  determined  from the records of our  transfer
agent and does not include  beneficial  owners of common  stock whose shares are
held in the names of various security brokers,  dealers, and registered clearing
agencies.  The transfer agent of our common stock is Interwest Transfer Company,
Inc., 1981 4800 South, Suite 100, Salt Lake City, Utah 84117.


(C)   DIVIDENDS

      We have never declared or paid any cash dividends on our common stock.  We
do not anticipate  paying any cash dividends to  stockholders in the foreseeable
future. In addition,  any future  determination to pay cash dividends will be at
the  discretion  of the  Board  of  Directors  and  will be  dependent  upon our
financial condition, results of operations, capital requirements, and such other
factors as the Board of Directors deem relevant.


(D)   EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                    Number of securities to   Weighted average
                                    be issued upon exercise   exercise price of         Number of securities
                                    of outstanding options,   outstanding options,      remaining available
Plan Category                       warrants and rights       warrants and rights       for future issuance
---------------------------------   ------------------------  ------------------------  ----------------------
<S>                                         <C>                            <C>                         <C>
Equity compensation plans
approved by security holders                   70,000                      $0.80                       -0-

Equity compensation plans not
approved by security holders                8,527,370                      $0.45                       -0-

Total                                       8,597,370                      $0.45                       -0-
</TABLE>

      Our  two  stock  option  plans  were  adopted  with  the  approval  of the
stockholders.  Our equity  securities,  which have been  authorized for issuance
without  the  approval  of   stockholders,   are  pursuant  only  to  individual
compensation  arrangements.  These  arrangements  are  comprised  of  consulting
agreements,  broker  warrants  and other  warrants in  connection  with  private
offerings of our securities, and various non-plan option agreements.

                                      -27-
<PAGE>

ITEM 2.   DESCRIPTION OF EXHIBITS

      The Company has provided each of the required exhibits which are set forth
on the exhibit index.



ITEM 3.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      Our  principal   accountant  is  Nicholson  &  Olson,  LLP  of  Roseville,
California.  There have been no  disagreements  between our  management  and our
accountant.


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

      No matters were submitted to a vote of the shareholders  during the fourth
quarter of the fiscal year covered by this report.



ITEM 5.   COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      We were  furnished  with no late  reports  on Forms  3, 4 or 5 during  the
period covered by this report.


ITEM 6.   REPORTS ON FORM 8-K

      No reports on Form 8-K were  filed  during the last  quarter of the period
covered by this report.

                                      -28-
<PAGE>


                              PEABODYS COFFEE, INC.
                             (A NEVADA CORPORATION)




                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                              FINANCIAL STATEMENTS



                                   YEARS ENDED
                             MARCH 31, 2004 AND 2003



                                       29
<PAGE>


                                TABLE OF CONTENTS


INDEPENDENT AUDITOR'S REPORT..................................................35

FINANCIAL STATEMENTS

         Balance Sheets.......................................................36

         Statements of Loss...................................................37

         Statements of Stockholders' Deficit..................................38

         Statements of Cash Flows.............................................39

         Notes to Financial Statements.....................................40-54



                                       30
<PAGE>



                                                                      NICHOLSON
                                                                        & OLSON
                                                   CERTIFIED PUBLIC ACCOUNTANTS
                                                  729 Sunrise Avenue, Suite 303
                                                    Roseville, California 95661
                                                                 (916) 786-7997

                        REPORT OF INDEPENDENT REGISTERED
                             PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders of Peabodys Coffee, Inc.

We have audited the  accompanying  balance  sheets of Peabodys  Coffee,  Inc. (a
Nevada corporation) as of March 31, 2004 and 2003, and the related statements of
loss,  stockholders'  deficit,  and cash flows for the years then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Oversight  Board  (United  States).  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Peabodys Coffee,  Inc. as of
March 31, 2004 and 2003,  and the results of its  operations  and its cash flows
for the years then ended in  conformity  with  accounting  principles  generally
accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a net deficit in both working capital and stockholders' equity, which
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Nicholson & Olson
Certified Public Accountants
Roseville, California
July 6, 2004


                                       31
<PAGE>

<TABLE>
<CAPTION>

                              PEABODYS COFFEE, INC.
                                 Balance Sheets
                             March 31, 2004 and 2003

                                                             2004           2003
                                                         -----------    -----------
ASSETS

Current Assets
<S>                                                      <C>            <C>
   Cash                                                  $     2,100    $     6,116
   Accounts Receivable                                        82,695         16,958
   Inventories                                                42,781         74,667
   Prepaid Expenses                                           20,655         48,454
                                                         -----------    -----------
        Total Current Assets                                 148,231        146,195

   Property and Equipment (Net)                              100,260        270,963
   Goodwill (Net)                                                 --         36,839
   Deposits and Other Assets                                  79,252         89,565
                                                         -----------    -----------
        Total Assets                                     $   327,743    $   543,562
                                                         ===========    ===========


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
   Cash Overdraft                                             21,710         24,644
   Accounts Payable                                          279,018        361,017
   Accrued Expenses                                          295,690        343,509
   Short-term Borrowings                                     430,882         69,000
   Current Portion of Long-Term Debt                          87,318         46,477
   Secured Convertible Debentures                            239,000        500,000
   Bridge Note Financing                                      35,000         35,000
   Current Portion of Deferred Revenues                       12,500             --
   Advances for Future Conversion of Warrants                170,000             --
                                                         -----------    -----------
        Total Current Liabilities                          1,571,118      1,379,647

Long-Term Liabilities
   Deferred Revenues (Net of Current Portion)                  3,125             --
   Long-Term Debt (Net of Current Portion)                    22,526         35,922
                                                         -----------    -----------
        Total Liabilities                                  1,596,769      1,415,569

Stockholders' Deficit
   Common Stock Authorized - 50,000,000 Shares
     issued and outstanding, 37,506,605
     and 21,861,124 $.001 Par Value                           37,507         21,861

   Additional Paid in Capital                              6,794,439      5,968,831
   Deferred Expenses                                         (30,832)       (63,331)
   Accumulated Deficit                                    (8,070,140)    (6,799,368)
                                                         -----------    -----------
        Total Stockholders' Deficit                       (1,269,026)      (872,007)

                                                         -----------    -----------
        Total Liabilities and Stockholders' Deficit      $   327,743    $   543,562
                                                         ===========    ===========

</TABLE>

See accompanying notes to financial statements

                                       32
<PAGE>

                              PEABODYS COFFEE, INC.
                               Statements of Loss
                      Years Ended March 31, 2004 and 2003

                                                      2004          2003
                                                  -----------    -----------
Sales                                             $ 1,775,518    $ 2,543,286

Cost of Sales                                         827,399      1,049,071
                                                  -----------    -----------
          Gross Profit                                948,119      1,494,215

Operating Expenses
   Employee Compensation and Benefits                 882,710      1,387,544
   General and Administrative Expenses                319,276        367,353
   Occupancy                                          208,243        298,819
   Director and Professional Fees                     303,940        392,016
   Depreciation and Amortization                       51,755        164,349
   Loss on Disposal of Assets                          90,057         16,353
   Other Operating Expenses                           181,124             --
                                                  -----------    -----------
          Total Operating Expenses                  2,037,105      2,626,434

                                                  -----------    -----------
          Operating Loss                           (1,088,986)    (1,132,219)

Other Income                                               --            242
Legal Expense - Former Director                            --       (153,253)
Financing Costs - Secured Convertible Debenture      (120,681)      (500,000)
Interest and Other Expenses                           (69,379)       (67,080)
                                                  -----------    -----------
   Net Loss Before Extraordinary Item              (1,279,046)    (1,852,310)

Extraordianry Item                                      8,274        138,619
                                                  -----------    -----------
   Net Loss                                       $(1,270,772)   $(1,713,691)
                                                  ===========    ===========


Basic and Diluted Earnings Per Share:
   Net Loss Before Extraordinary Item                   (0.04)         (0.09)
   Extraordinary Item                                    0.00           0.01
                                                  -----------    -----------
      Net Loss                                          (0.04)         (0.08)
                                                  ===========    ===========

See accompanying notes to financial statements

                                       33
<PAGE>

                              PEABODYS COFFEE, INC.
                       Statement of Stockholder's Deficit
                      Years Ended March 31, 2004 and 2003

<TABLE>
<CAPTION>

                             Commom Stock                                                                            Total
                             ------------                      Additional        Deferred      Accumulated   Stockholders'
                               Shares          Amount       Paid In Capital      Expenses          Deficit         Deficit
                            ------------------------------  --------------  --------------   --------------  --------------

<S>                            <C>               <C>          <C>               <C>           <C>               <C>
Balance at March 31, 2002      19,048,524        $ 19,049     $ 4,946,129       $ (64,466)    $ (5,085,677)     $ (184,965)

Conversion of Convertible
   Debt into Common Stock       1,501,781           1,501         298,855               -                -         300,356
Exercise of Warrants and
   Stock Options                  460,819             461          17,539               -                -          18,000
Stock Issued under
   Settlement Agreements                -               -               -               -                -               -
Sale of Common Stock              575,000             575         110,083               -                -         110,658
Stock Issued Under Service
   Agreements                     275,000             275          96,225           1,135                -          97,635
Stock Issued Under Asset
   Purchase Agreements                  -               -               -               -                -               -
Financing Costs - Secured
   Convertible Debt                     -               -         500,000               -                -         500,000

Net Loss                                                                                        (1,713,691)     (1,713,691)

                            --------------  --------------  --------------  --------------   --------------  --------------
Balance at March 31, 2003      21,861,124          21,861       5,968,831         (63,331)      (6,799,368)       (872,007)


Conversion of Convertible
   Debt into Common Stock      11,486,217          11,486         394,586               -                -         406,072
Exercise of Warrants and
   Stock Options                1,384,264           1,384         152,366               -                -         153,750
Stock Issued under
   Settlement Agreements          500,000             500          29,501               -                -          30,001
Sale of Common Stock            2,000,000           2,000          98,000               -                -         100,000
Stock Issued Under Service
   Agreements                     275,000             275          30,475          32,499                -          63,249
Stock Issued Under Asset
   Purchase Agreements                  -               -               -               -                -               -
Financing Costs - Secured
   Convertible Debt                     -               -         120,681               -                -         120,681
Prepaid Warrants                        -               -               -               -                -               -

Net Loss                                -               -               -               -       (1,270,772)     (1,270,772)

                            --------------  --------------  --------------  --------------   --------------  --------------
Balance at March 31, 2004      37,506,605        $ 37,506     $ 6,794,440       $ (30,832)    $ (8,070,140)   $ (1,269,026)
                            ==============  ==============  ==============  ==============   ==============  ==============
</TABLE>

See accompanying notes to financial statements

                                       34
<PAGE>

                              PEABODYS COFFEE, INC.
                             Statement of Cash Flow
                      Years Ended March 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                   2004            2003
                                                                   ----            ----
<S>                                                        <C>             <C>
Cash Flows From Operating Activities
   NET INCOME                                              $ (1,270,772)   $ (1,713,691)

   ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH APPLIED
     TO OPERATING ACTIVITIES:
       Depreciation & Amortization                               51,181         164,349
       Debt Settlement and Forgiveness of debt                  181,124        (138,619)
       Gain/Loss on Disposal of Assets                           83,085          16,353
       Non-Cash Consulting Fees                                  63,249          56,500
       Slotting Fee Expense                                      41,375          49,375
       Financing Costs - Secured Convertible Debenture          120,681         500,000

   CHANGES IN OPERATING ASSETS AND LIABILITIES:
       Accounts Receivable                                      (65,737)        (79,128)
       Inventories                                               31,886         (11,429)
       Prepaid Expenses                                         (13,574)         33,539
       Deposits and Other Assets                                 17,360           3,714
       Cash Overdraft                                            (2,934)        (23,851)
       Account Payable                                           45,068         194,368
       Accrued Expenses                                             461          65,498
       Deferred Revenue                                          15,625               -
                                                           -------------   -------------
     NET CASH PROVIDED BY OPERATING ACTIVITIES                 (701,922)       (883,022)

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds on Sale and Disposal of Assets                       94,400          57,379
   Additions to Property and Equipment                           (8,989)        (86,011)
   Brand Development Costs                                      (19,185)        (27,070)
                                                           -------------   -------------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                   66,226         (55,702)

CASH FLOWS FROM FINANCING ACTIVITIES
   Net Proceeds from Sale of Common Stock                       100,000         128,658
   Issuance of Common Stock from Conversion of Warrants          43,750               -
   Proceeds from Issuance of Secured Convertible Debentures     500,000         500,000
   Proceeds from Advances for Future Conversion of Warrants     280,000               -
   Proceeds from Issuance of Notes Payable                            -         389,000
   Principal Reductions of Short-term Borrowings               (292,070)        (80,125)
                                                           -------------   -------------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                  631,680         937,533

NET DECREASE IN CASH                                             (4,016)         (1,191)
CASH AT BEGINNING OF YEAR                                         6,116           7,307
                                                           -------------   -------------
CASH AT END OF YEAR                                               2,100           6,116
                                                           =============   =============
</TABLE>

See accompanying notes to financial statements

                                       35
<PAGE>


                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

The notes to the financial statements include a summary of significant
accounting policies and other notes considered essential to fully disclose and
fairly present the transactions and financial position of the company as
follows:

Note 1     -    Significant Accounting Policies

Note 2     -    Related Party Transactions

Note 3     -    Going Concern

Note 4     -    Inventories

Note 5     -    Property and Equipment, and Intangible Assets

Note 6     -    Accounts Payable

Note 7     -    Accrued Expenses

Note 8     -    Short-Term Borrowings

Note 9     -    Secured Convertible Debentures

Note 10    -    Lease Obligations

Note 11    -    Long-Term Debt

Note 12    -    Bridge Note Financing

Note 13    -    Income Taxes

Note 14    -    Stock Options and Warrants

Note 15    -    Earnings Per Common Share

Note 16    -    Supplemental Disclosures to Statement of Cash Flows

Note 17    -    Forgiveness of Debt

Note 18    -    Risks and Uncertainties

Note 19    -    Concentrations

Note 20    -    Commitments and Contingencies

Note 21    -    Subsequent Events


                                       36
<PAGE>


                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Peabodys  Coffee,  Inc. (the  "Company") is a retailer and marketer of certified
organic  specialty coffee beverages and packaged  coffees.  The Company owns and
operates  retail  espresso  coffee  bar  kiosks  in a variety  of  institutional
locations  throughout  California.  The Company has also  established  wholesale
operations to enter the mass retail  markets  through the sale of packaged whole
bean coffees in supermarkets, specialty food stores and other mass retail venues
under its Black Rhino Coffee(TM) brand.

Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses  during the reporting  period.  Actual  results may differ
from these estimates.

Cash and Cash Equivalents
The Company consists of highly liquid instruments with an original or remaining
maturity of three months or less at the time of purchase to be cash equivalents.

Concentration of Credit Risk
The Company  maintains its cash in bank deposit  accounts which,  at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant  credit risk for
cash and cash equivalents.

Allowance for Doubtful Accounts
The company provides an allowance for accounts receivable it believes it may not
collect  in  full.  It  evaluates  collectibility  of its  accounts  based  on a
combination  of  factors.  In  circumstances  where it is  aware  of a  specific
customer's  inability to meet its financial  obligations such as bankruptcy,  it
records a specific  reserve.  For all other  customers,  the Company  recognized
reserves for bad debts based on current and  historical  collection  experience.
Accounts  receivable are considered  delinquent based on contractual  terms. The
company does not charge interest on delinquent accounts.

Inventories
Inventories  are  stated at the lower of cost  (first-in,  first-out  method) or
market.

Property and Equipment
Property and equipment are recorded at cost.  Depreciation  and amortization are
primarily  accounted for on the  straight-line  method over the estimated useful
lives  of  the  assets,   generally  ranging  from  five  to  seven  years.  The
amortization  of site  improvements is based on the shorter of the lease term or
the life of the improvement.

The estimated lives used in determining depreciation and amortization are:

                      Buildings                                         10 Years
                      Equipment                                        5-7 Years
                      Leasehold Improvements                             7 Years
                      Furniture and Fixtures                           5-7 Years


                                       37
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Advances for Future Conversion of Warrants
As part of the 2003  Debenture  agreement  (see Footnote 9, Secured  Convertible
Debenture),  an investor remits funds in the amount of $50,000 monthly, which is
50,000  warrants  at $1.00  per  warrant,  increasing  the  liability.  When the
investor  converts all or a portion of the  outstanding  convertible  debenture,
they are obligated to exercise an equal amount of warrants at an exercise  price
of $1.00 per share and therefore relieving the liability.

Revenue Recognition
Revenue from retail  operations is recognized upon deposit of cash and/or credit
card settlements. Revenue from wholesale sales is recognized when shipped.

Shipping and Handling
Freight in and freight out for wholesale  production  and sales is recorded as a
cost of goods sold.  Shipping  and  handling for our retail sites is captured in
general and administrative expenses.

Stock Options
At March 31, 2004 the Company has one stock-based  employee  compensation plans.
The  company  accounts  for these plans under the  recognition  and  measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,  and
related Interpretations.  No stock-based employee compensation cost is reflected
in net income,  as all options  granted under those plans had an exercise  price
equal to the  market  value of the  underlying  common  stock on the date of the
grant. The following table illustrates the effect of net income and earnings per
share if the Company had applied the fair value  recognition  provisions of FASB
Statement No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based
employee compensation.

<TABLE>
<CAPTION>

                                                                         March 31, 2004             March 31, 2003
                                                                         --------------             --------------

<S>                                                                       <C>                        <C>
  Net Income, as reported                                                 $ (1,270,772)              $ (1,713,691)
  Deduct:  Total stock-based employee compensation expense
  determined under fair value based method for all awards                       (1,803)                   (51,272)

  Pro Forma Net Income                                                      (1,272,575)                 (1,764963)

  Earnings Per Share:
     Basic and diluted net income per share - as reported                        (0.04)                     (0.09)
     Basic and diluted net income per share - pro forma                          (0.04)                     (0.06)

  Weighted average fair value of options granted to employees during the year     0.00                       0.35

</TABLE>

Accounting for Long-Lived Assets
Long-lived  assets are recorded at the lower of amortized cost or fair value. As
part of an ongoing review of long-lived assets, management assesses the carrying
value of such assets if facts and circumstances suggest they may be impaired. If
this review  indicates that the carrying value of these assets may not be


                                       38
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

recoverable,  as  determined  by a  non-discounted  cash flow  analysis over the
remaining useful life, the carrying value would be reduced to its estimated fair
value.  During the year  ending  March 31, 2004 we wrote off $40,930 of Goodwill
and $4,091 of corresponding Accumulated  Amortization.  The write-off was due to
the sale of one of our kiosk sites that There has been no impairment  recognized
in these financial statements.

Intangibles
Goodwill  represents  the  excess of  acquisition  costs  over the fair value of
assets acquired. It is the Company's policy that goodwill and certain intangible
assets with indeterminable lives be evaluated based on the ongoing profitability
of the  assets  in order to  determine  if any  impairment  of the net value has
occurred.

Non-compete  agreements and other intangible assets with determinable  lives, if
any, are  amortized on a  straight-line  basis over the term of the agreement or
estimated useful life.

Income Taxes
The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial  Accounting  Standards (SFAS) No. 109,  "Accounting for Income Taxes,"
which requires the use of the asset and liability  method of computing  deferred
income taxes.  Deferred income tax assets and liabilities result from the future
tax  consequences  associated  with temporary  differences  between the carrying
amounts and the tax bases of assets and  liabilities.  A valuation  allowance is
established  to reduce  deferred tax assets if it is more likely than not,  that
all, or some portion, of such deferred tax assets will not be realized.

Stock Transaction Costs
Transaction  costs  related  to the sale of  common  shares  are  recorded  as a
reduction to capital raised by the Company.

Compensated Absences
Employees  of the  Company  are  entitled  to  paid  vacation  depending  on job
classification, length of service and other factors. The liability for such paid
vacation time has been accrued in the accompanying financial statements.

Fair Value of Financial Instruments
The carrying value of cash and cash equivalents  approximates fair value because
of the short-term maturity of those instruments. The carrying value of long-term
debt approximates fair value.

Deferred Expenses
Deferred  expenses  represent  the  deferred  portion of the fair value of stock
issued to a consultant  for services that are being expensed over the respective
lives of the contracts. The current amortization charge to operations is related
to the Company receiving services in connection with the underlying  agreements.
The Company will  continue to evaluate  the  recoverability  of the  unamortized
portion of the deferred consulting expense in subsequent periods.

Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents,  money market accounts, accounts
receivable, accounts payable and accrued expenses approximate fair value because
of the  short-term  nature of such  instruments.  The  carrying  amount of debt,
debentures  and bridge note  approximate  fair value because  interest  rates on
these instruments approximate market interest rates.


                                       39
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED


Reclassifications
Certain  amounts  from  the  March  31,  2003  financial  statements  have  been
reclassified to conform to the current year presentation.

New Accounting Pronouncements

SFAS 149

In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative  Instruments  and Hedging  Activities."  SFAS No. 149 amends SFAS No.
133to  provide  clarification  on the  financial  accounting  and  reporting  of
derivative  instruments and hedging  activities and requires that contracts with
similar  characteristics be accounted for on a comparable basis. The standard is
effective  for  contracts  entered  into or modified  after June 30,  2003.  The
adoption  of SFAS No. 149 did not have any impact on our  financial  position or
results of operations.

SFAS 150

In May  2003,  the FASB  issued  SFAS  150,  Accounting  for  Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and  Equity.  SFAS 150
specifies that instruments within its scope embody obligations of the issuer and
that, therefore, the issuer must classify them as liabilities.  SFAS 150 did not
have any impact on our financial position or results of operations.

Interpretation No. 46

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  ("Interpretation  46") which was then  revised in
December  2003.  Interpretation  46  clarifies  the  application  of  Accounting
Research  Bulletin  No.  51,  "Consolidated  Financial  Statements,"  to certain
entities  in  which  equity  investors  do not  have  the  characteristics  of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance  its  activities  without  additional  subordinated  financial
support from other  parties.  The  recognition  and  measurement  provisions  of
Interpretation  46 are effective for newly created  variable  interest  entities
formed after January 31, 2003, and for existing variable interest  entities,  on
the first interim or annual reporting period beginning after March 31, 2004. The
adoption  of FIN 46  did  not  impact  our  financial  position  or  results  of
operations.

SOP 03-3

In October 2003, the AICPA issued SOP 03-3  Accounting for Loans or Certain Debt
Securities Acquired in a Transfer.  SOP 03-3 applies to a loan with the evidence
of deterioration of credit quality since origination acquired by completion of a
transfer for which it is probable at acquisition,  that the Partnership  will be
unable to collect all contractually  required payments  receivable.  SOP 03-3 is
effective for loans acquired in fiscal years  beginning after December 31, 2004.
SOP 03-3 does not impact on our financial position or results of operations.


                                       40
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

EITF 00-21
Emerging  Issue  Task  Force  00-21  ("EITF  00-21"),   Accounting  for  Revenue
Arrangements  with Multiple  Deliverables,  issued during the fourth  quarter of
2003,  provides  guidance on revenue  recognition  for  revenues  derived from a
single  contract that contains  multiple  products or services.  EITF 00-21 also
provides  additional  requirements  to  determine  when  these  revenues  may be
recorded  separately  for  accounting  purposes.  EITF  00-21 did not impact our
financial statements.
SAB 104
In December 2003, the SEC issued Staff Accounting  Bulletin No. 104 ("SAB 104"),
Revenue Recognition,  which supercedes SAB 101, Revenue Recognition in Financial
Statements.  SAB 104's  primary  purpose is to rescind the  accounting  guidance
contained  in  SAB  101  related  to  multiple  element  revenue   arrangements,
superceded as a result of the issuance of EITF 00-21. SAB 104 did not impact our
financial statements.

NOTE 2 - RELATED PARTY TRANSACTIONS

At March  31,  2004  and  2003,  amounts  due to and due  from  related  parties
consisted of the following:

                                                         2004          2003
                                                       --------      --------
         Receivables from related parties               $ 1,460     $   1,158
                                                        =======     =========

         Payables to related parties                   $ 13,342      $ 28,935
                                                       ========      ========

Related parties provided management, sales representation, and other services to
the Company on various business  issues.  Fees incurred for such services during
the years  ended  March 31,  2004 and 2003  amounted  to  $11,359  and  $65,492,
respectively.

During the years ended March 31, 2004 and 2003,  the following  stock option and
warrant transactions occurred with members of the Company's board of directors:

                                                         2004         2003
                                                       --------     --------
         Options and warrants granted,
         prices from $.05 to $.40 per share                   -      330,000

         Options and warrants expired
         price $1.00 per share                          127,429       70,000

         Options and warrants exercised,
         price $.05 per share                                 -      240,000

         Options and warrants held at year-end,
         prices from $.05 to $1.00 per share          1,560,000    1,927,429



                                       41
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003


NOTE 3 - GOING CONCERN

The  accompanying  financial  statements  have been prepared in conformity  with
accounting principles generally accepted in the United States of America,  which
contemplates  continuation  of the  Company as a going  concern.  Going  concern
contemplates  the  realization of assets and the  satisfaction of liabilities in
the normal course of business  over a reasonable  length of time.  However,  the
Company has sustained  operating  losses since its inception and has deficits in
both working  capital and  stockholders  equity of  $1,270,772  and  $1,269,027,
respectively, as of March 31, 2004.

The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  and  classification of recorded asset amounts or the amounts and
classification  of  liabilities  that might be  necessary  should the Company be
unable to continue as a going  concern.  The Company's  ability to continue as a
going  concern is dependent  upon several  factors.  These  factors  include its
ability to:  generate  sufficient cash flows to meet its obligations on a timely
basis;  obtain  acceptance of payment terms for certain payables to key vendors;
obtain  additional  financing or  refinancing  as may be required;  aggressively
control costs, and; achieve profitability and positive cash flows.

Management  plans  to  address  these  challenges  by  focusing  on the  further
development of the Black Rhino  Coffee(TM) brand in the U.S. mass retail sector.
Since introduction in May 2002 at the FMI supermarket convention,  the brand has
penetrated the shelves of approximately  500  supermarkets.  The benefit of this
channel  of trade is that a small  number of orders can  significantly  increase
corporate revenues and earnings.  The brand has experienced reorders from all of
its retail  distribution  channels and  management  believes that further orders
will continue, quite possibly on an accelerated basis.

Management  believes  that the  introduction  of Black Rhino ground  coffee will
increase  revenue,  allowing  access to a broader  consumer  market and that new
redesigned  brand  packaging will improve the in-store shelf impact.  Management
has also re-aligned  upstream supply chain to meet  operational  requirements of
the grocery and mass  retail  distribution  channels  and  re-designed  business
processes to support those operational requirements.

Management  believes that entry to this new market sector will eventually expose
the Company to financing  opportunities - such as  project-based  debt financing
secured by purchase orders or accounts receivable. Management also believes that
an orderly  exit from full  service  retail will allow for the  redeployment  of
capital to support the Company's  strategic goal while reducing central overhead
costs.

There  is  no  assurance  that  management's  plans  will  be  successful  or if
successful,  that they will result in the Company continuing as a going concern.
Additionally,  the sale of additional  equity or other securities will result in
dilution of the Company's stockholders.


                                       42
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 4 - INVENTORIES

At March 31, 2004 and 2003,
inventories were comprised of the following:

                                                         2004          2003
                                                       --------      --------
         Coffee                                           1,285      $ 27,515
         Other merchandise held for sale                 11,485        20,477
         Packaging and other supplies                    30,011        26,675
                                                       --------      --------
                                                       $ 42,781      $ 74,667
                                                       ========      ========

NOTE 5 - PROPERTY AND EQUIPMENT, AND INTANGIBLE ASSETS

At March  31,  2004 and 2003,  property  and
equipment  were  comprised  of the following:

                                                         2004          2003
                                                      ---------     ---------
         Kiosk carts                                 $   60,030     $ 156,078
         Kiosk equipment                                 57,250       148,850
         Equipment and furniture                         49,964       165,436
         Signage                                         25,119        61,507
         Site improvements                                    -        73,929
         Assets not in service                           23,456       93 ,824
                                                      ---------     ---------
                                                        224,484       699,624
         Less: accumulated depreciation                (124,223)     (428,661)
                                                      ---------     ---------
                                                      $ 100,261     $ 270,963
                                                      =========     =========

Included in other  assets at March 31,
2004 and 2003,  were  intangible  assets
comprised of the following:

                                                           2004          2003
                                                      ---------     ---------
         Amortized assets:
         Non competition agreement                    $  25,000     $  25,000
         Other identifiable intangibles                  27,341        27,341
                                                      ---------     ---------
                                                         52,341        52,341
         Less: accumulated amortization                 (39,800)      (39,800)
                                                      ---------     ---------
                                                      $  12,541     $  12,541
                                                      =========     =========

         Unamortized assets:
         Trade name                                   $  52,569     $  50,053
                                                      =========     =========

The Company recognized depreciation and
amortization expense for the years ended
March 31, 2003 and 2002 as follows:

                                                           2004          2003
                                                       --------      --------
         Depreciation                                $   48,285     $ 151,293
         Amortization                                     3,470        13,056
                                                     ----------    ----------
                                                      $  51,755     $ 164,349
                                                     ==========     =========


                                       43
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 6 - ACCOUNTS PAYABLE

At March  31,  2004  and  2003,  approximately  65% and 40% of the  balances  in
accounts payable, respectively, have been outstanding for more than 90 days.

NOTE 7 - ACCRUED EXPENSES

At March 31, 2004 and 2003, accrued expenses were comprised of the following:

                                                       2004             2003
                                                    ---------         --------
         Accrued interest                          $   61,562       $   49,937
         Accrued wages                                 31,052           58,263
         Accrued payroll taxes                        147,295          201,145
         Estimated use tax                             40,189           32,008
         Other                                         15,592            2,156
                                                   ----------       ----------
                                                    $ 295,690        $ 343,509
                                                   ==========       ==========

The Company has accrued past due payroll tax obligations to the Internal Revenue
Service and the State of  California.  As of March 31, 2004 and 2003,  the total
amounts past due were $138,727 and $181,312, respectively. The Company continues
to work with the Internal Revenue Service and the State of California to resolve
these issues.  Subsequent to March 31, 2004,  the Company has paid an additional
$30,000 towards the past due obligations.

NOTE 8 - SHORT-TERM BORROWINGS

The Company  periodically  borrows funds to provide  short-term working capital.
These  working  capital  loans are  unsecured.  As of March  31,  2004 and 2003,
short-term borrowings were comprised of the following:

                                                          2004            2003
                                                     ---------        --------
Unsecured short-term note, payable
to a shareholder, interest only
payable monthly at 8% per annum                      $  50,000       $  50,000

Unsecured, non-interest bearing
obligation, payable to a
shareholder, due on demand                              10,000          10,000

Unsecured,  non-interest  bearing obligation,
payable to the Company's former legal counsel,
due in monthly installments of $3,000 through
July 1, 2003                                                 -           9,000

Unsecured, short-tem note, payable to
vendor, interest bearing at 8%,
through November 2004                                   51,317               -

Unsecured, short-term note, payable
to vendor, interest bearing at
7%, through February 2005                               15,235               -

Unsecured,  short-term  note,
in settlement  of  Convertible

Debenture, non-interest bearing,
payable due in monthly Installments
of $50,000, through October 5, 2004                    304,331               -
                                                     ---------      ----------

                                                    $  430,883       $  69,000
                                                    ==========       =========



                                       44
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 9 - SECURED CONVERTIBLE DEBENTURES

2002 DEBENTURES

In order to provide  working  capital and financing for the Company's  operation
and expansion,  as of December 20, 2002,  the Company  entered into a securities
purchase agreement and related  agreements with three accredited  investors (the
"Purchasers")  for  the  purchase  of  up  to  $750,000  of  the  Company's  10%
Convertible Debentures. The debentures bear interest at a rate of 10% per annum,
payable  quarterly in common stock or cash at the option of the Purchasers.  The
debentures  are  to be  sold  in  three  separate  tranches.  The  terms  of the
securities  purchase  agreement  and related  agreements  restrict the Company's
ability to issue stock without the Purchasers'  approval,  except to comply with
existing  contractual  arrangements;  specifically with investors holding bridge
notes, notes payable, options and warrants.

The first tranche, in the amount of $250,000, was consummated December 20, 2002,
and the  convertible  debentures  relating to the first tranche are due December
20, 2003. The aggregate net proceeds of the December 2002 tranche, after payment
of some related expenses,  were approximately  $201,000.  The second tranche, in
the amount of $250,000,  was  consummated  January 23, 2003 and the  convertible
debentures  relating  to the  second  tranche  are due  January  23,  2004.  The
aggregate net proceeds of the January 2003 tranche were approximately  $215,000.
The third tranche, in the amount of $250,000 was consummated on May 20, 2003 and
the convertible  debentures  relating to the third tranche are due May 20, 2004.
The aggregate net proceeds of the third tranche were approximately $212,000.

On December 4, 2003,  the Company  entered into a Redemption  Agreement with the
three accredited investors.  Pursuant to the Redemption  Agreement,  the Company
has  made  an  initial  payment  against  the  outstanding  Secured  Convertible
Debentures  issued to the three  accredited  investors and has agreed to further
payments  each month  thereafter,  until the  debentures  are  redeemed in full.
During  such  time  as the  Company  has  met its  prepayment  obligations,  the
accredited  investors have agreed to refrain from  converting  their  debentures
into shares of the Company's common stock.

The  debentures  initially  are  convertible  into shares of common stock at the
lesser of $0.30 per share or 50% of the  average  of the three  lowest  intraday
trading  prices  for a share of common  stock  during the  twenty  trading  days
immediately preceding conversion.

Pursuant to the Rules and Regulations of the Securities and Exchange  Commission
regarding beneficial conversion features,  using the intrinsic value method, the
Company allocated the total $250,000 for each tranche to the conversion  feature
resulting in a corresponding  credit to additional paid in capital.  The Company
is  recording  as  financing  costs,  the excess of the fair market value of the
common stock at the debenture  issuance date over the conversion  price. For the
nine months ended  December 31, 2003,  the financing cost amounted to a total of
$500,000.


                                       45
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 9 - SECURED CONVERTIBLE DEBENTURES - CONTINUED

Upon the issuance of the  December  2002  debentures,  the  Purchasers  received
five-year term warrants to purchase 625,000 shares of the Company's common stock
at an  initial  exercise  price of $0.25 per  share.  Upon the  issuance  of the
January 2003  debentures,  the  Purchasers  received  five-year term warrants to
purchase  625,000  shares of the Company's  common stock at an initial  exercise
price of $0.25 per share. Subsequent to March 31, 2003, upon the issuance of the
May 2003 debentures, the Purchasers received five-year term warrants to purchase
625,000  shares of the Company's  common stock at an initial  exercise  price of
$0.25 per share. The fair market value of the warrants were deemed immaterial as
estimated on the grant date using the  Black-Scholes  option  pricing  method as
required under SFAS 123.

2003 DEBENTURE

To obtain  funding for our ongoing  operations,  to pay the 2002  debentures  we
entered into a Securities  Purchase  Agreement  with an accredited  investors in
December 2003 for the sale of (i) $250,000 in  convertible  debentures  and (ii)
warrants to buy 2,500,000  shares of our common stock.  La Jolla Cove  Investors
provided us with an aggregate of $250,000 as follows:

      o     $100,000 was disbursed to the 2002 debenture  holders on December 8,
            2003;
      o     $100,000 was disbursed to us on December 8, 2003; and
      o     $50,000 has been  retained for  services  provided to our company by
            various professionals, which was disbursed upon effectiveness of our
            registration statement;

The  debentures  bear  interest  at 7 3/4%,  mature  two years  from the date of
issuance,   and  are   convertible   into  our  common  stock,  at  the  selling
stockholder's option. The convertible debentures are convertible into the number
of our shares of common stock equal to the  principal  amount of the  debentures
being  converted  multiplied  by 11,  less the product of the  conversion  price
multiplied by ten times the dollar amount of the debenture. The conversion price
for the convertible  debenture is the lesser of (i) $0.25 or (ii) eighty percent
of the of the average of the five lowest volume  weighted  average prices during
the twenty (20) trading days prior to the conversion.  Accordingly,  there is in
fact no limit on the number of shares into which the debenture may be converted.
In  addition,  the selling  stockholder  is  obligated  to exercise  the warrant
concurrently  with  the  submission  of  a  conversion  notice  by  the  selling
stockholder. The warrant is exercisable into 2,500,000 shares of common stock at
an exercise  price of $1.00 per share.  The investor  agreed to make payments to
our  current  debt  holders in the amount of  $50,000  per month  until the debt
holders  are paid in full.  Such  payments  shall be  applied  toward the future
exercise of the warrants held by the investor.

La Jolla Cove  Investors  has  contractually  committed to convert not less than
5.0% and not more than 15.0% of the original face value of the debenture monthly
beginning  the month  after the  effective  date of the  Registration  Statement
covering the debenture. The 15% maximum is not applicable if the market price at
the time of the conversion at anytime during the applicable month is higher than
the market  price at  closing  of the  financing.  La Jolla  Cove  Investors  is
required to exercise  warrants  concurrently  with the  exercise of a conversion
notice  under the  debenture  and is  committed to exercise at least 5%, but not
more than 15%, of the warrants per month.  The 15% maximum is not  applicable if
the market price at the time of the  conversion at anytime during the applicable
month is higher than the market price at closing of the financing.  In the event
that La Jolla  Investors  breaches the minimum and maximum  restrictions  on the
debenture and warrant,  La Jolla will not be entitled to collect interest on the
debenture for that month.


                                       46
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 9 - SECURED CONVERTIBLE DEBENTURES- CONTINUED

La Jolla has further contractually agreed to restrict its ability to convert the
debenture or exercise their warrants and receive shares of our common stock such
that the  number of shares  held by the  Holder  and its  affiliates  after such
conversion or exercise  does not exceed 4.9% of the then issued and  outstanding
shares of our common stock.

In the event that the  registration  statement is not declared  effective by the
required deadline, La Jolla may demand repayment of the debenture at 125% of the
face amount outstanding,  plus all accrued and unpaid interest,  in cash. If the
repayment  is  accelerated,  we are also  obligated  to issue to La Jolla 50,000
shares of common stock for each 30 day period, or portion thereof,  during which
the face amount,  including  interest thereon,  remains unpaid. If La Jolla does
not elect to accelerate the debenture,  we are required to immediately  issue to
La Jolla  50,000  shares of  common  stock for each 30 day  period,  or  portion
thereof,  during  which the face amount,  including  interest  thereon,  remains
unpaid.

NOTE 10 - LEASE OBLIGATIONS

During the year ended March 31, 2004 we rented office space on a  month-to-month
basis,  following a lease that expired on October 31, 2003. Rental expense under
the  agreement  amounted to $36,773 and $34,823 for the years  ending  March 31,
2004 and 2003, respectively.

Future minimum rental payments under these operating leases are as follows:

         Year ended March 31                                Amount
         -------------------                              --------
                  2005                                 $    46,485
                  2006                                      37,980
                  2007                                      38,930
                  2008                                      33,114
                  Thereafter                                     -
                                                       -----------
                                                          $156,509

NOTE 11 - LONG-TERM DEBT

The  outstanding  balance  of  long-term  debt at  March  31,  2004  and 2003 is
summarized as follows:

                                                            2004         2003
                                                          --------     --------
10% note, unsecured, payable in monthly installments
of $3,136.77 including interest, through June 30, 2005    $ 64,215     $ 69,340

10% notes, unsecured, payable in monthly installments
of $106 to $212 including interest, due
through June 30, 2007                                       11,391       13,059

10% note, unsecured, payable in monthly installments
of $509.68 including interest, through June 24, 2005        34,238            -

Less current portion                                       (22,526)     (35,922)
                                                        ----------    ---------
                                                        $   87,318    $  46,477
                                                        ==========    =========

                                       47
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003


NOTE 11 - LONG-TERM DEBT - CONTINUED

Aggregate maturities of long-term debt over the next five years are as follows:

         Year ended March 31                                          Amount
         -------------------                                        --------
                  2004                                            $   72,170
                  2005                                                32,551
                  2006                                                 3,468
                  2007                                                 1,655
                  2008                                                     -
                                                                   ---------
                                                                   $ 109,844
                                                                   =========
NOTE 12 - BRIDGE NOTE FINANCING

In May 1996,  the  Company  issued  "units"  consisting  of secured  convertible
promissory  notes and warrants to purchase the  Company's  common  stock.  As of
March 31, 2004 and 2003,  there were  $35,000 of bridge notes  outstanding.  The
notes are secured by all assets of the Company.

The Company is obligated to make  quarterly  interest  payments on the principal
balance  outstanding  at nine percent (9%) per annum and was  obligated to repay
the  principal  balance in full on December 31,  1998.  As of March 31, 2004 and
2003, the Company has accrued  $38,430 and $32,132 of interest  payable on these
notes,  respectively.  As of March 31,  2004,  the Company has not  received any
notice of default relating to the notes.

NOTE 13 - INCOME TAXES

The Company has  recorded a valuation  allowance  as an offset to the income tax
benefits  of its net  operating  losses for the years  ended  March 31, 2003 and
2002. This allowance is due to the uncertainty of realizing the necessary income
to utilize the loss carry forwards.

In addition to future income consideration,  there is additional  uncertainty as
to the ultimate  availability of some or all of the net operating  losses due to
past and potential future ownership changes.  Income tax laws can severely limit
the  availability of losses after a certain level of ownership  changes.  Due to
the  complexity of these rules  coupled with ongoing  losses the Company has not
determined any potential limitation.


                                       48
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 13 - INCOME TAXES - CONTINUED

The Company's net operating loss carryovers and related  expiration dates are as
follows:

                    Expires                            Expires
      Federal      Tax Year            California     Tax Year
      -------      --------            ----------     --------
 $    480,000          2008     $               -      Expired
    1,014,000          2009                     -      Expired
    1,034,000          2010                     -      Expired
      935,000          2017                     -      Expired
      635,000          2018               317,000         2003
      585,000          2019               322,000         2004
      350,000          2021               193,000         2006
    1,710,000          2022               942,000         2007
 ------------                         -----------
    1,383,000          2023               761,000         2008
 ------------                       -------------
  $ 8,126,000                         $ 2,631,000
  ===========                         ===========

The details of deferred tax assets and liabilities are as follows:

                                                         2004         2003
                                                      --------      --------
         Deferred tax liabilities                   $        -    $        -
         Deferred tax assets                         2,260,000     1,840,000
         Valuation allowance                        (2,260,000)   (1,840,000)
                                                    ----------    ----------
         Net deferred tax asset                     $        -    $        -
                                                    ==========    ==========


NOTE 14 - STOCK OPTIONS AND WARRANTS

The  Company  maintains  stock  option  plans  under which the Company may grant
incentive   stock  options  and   non-qualified   stock  options  to  employees,
consultants and non-employee directors.

Under the 1995 and 1999 Stock  Option  Plans,  the Company can grant  options to
purchase common shares,  up to an aggregate of 500,000 shares for each plan. The
maximum term of the options is ten years.  Options vest and expire  according to
the terms established at the grant date.

Under the 1995 Plan,  options to purchase  70,000 shares of common stock,  at an
exercise  price of $0.80 per share,  were  outstanding  as of March 31, 2004 and
2003.

Under the 1999 Plan,  options to purchase 0 (Zero) shares and 145,429  shares of
common stock,  at an exercise price ranging from $0.70 to $1.00 per share,  were
outstanding as of March 31, 2004 and 2003.

Non-plan options to purchase  3,475,000 and 3,637,000 shares of common stock, at
an exercise price ranging from $0.05 to $2.00 per share,  were outstanding as of
March 31, 2004 and 2003, respectively,

The Company accounts for its stock-based awards using the intrinsic value method
in accordance with APB Opinion 25 and related interpretations.  Accordingly,  no
compensation expense has been recognized in the financial statements.


                                       49
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 14 - STOCK OPTIONS AND WARRANTS - CONTINUED

A summary of the stock option activity for the two years ended of March 31, 2004
follows:

                                                    Number of   Weighted-Average
                                                     Options     Exercise Price
                                                   Outstanding     Per Share
                                                  ------------  ----------------

         Balance at March 31, 2002                 2,116,279           $ .432
         Granted                                   1,175,000             .154
         Exercised                                  (474,000)            .050
         Canceled                                          -             .000
         Forfeited                                  (110,000)            .050
                                                  ----------          -------
         Balance at March 31, 2002                 3,852,429           $ .314
                                                   =========           ======
         Exercisable at March 31, 2003             3,579,879           $ .321
                                                   =========           ======

         Granted                                           -           $ .000
         Exercised                                  (160,000)            .050
         Canceled                                          -             .000
         Forfeited                                    (2,000)            .050
                                                  ----------          -------
         Balance at March 31, 2004                 3,545,000           $ .309
                                                   =========           ======
         Exercisable at March 31, 2004             3,545,000           $ .309
                                                   =========           ======

The number of options outstanding, and the exercise prices as of March 31, 2003
and 2002 are as follows:

         Exercise Price                               2004              2003
         --------------                             --------          --------
           $ 0.05                                  1,600,000         1,562,000
           $ 0.15                                    250,000           250,000
           $ 0.20                                    545,000           545,000
           $ 0.25                                          -           200,000
           $ 0.35                                    200,000           200,000
           $ 0.40                                    380,000           380,000
           $ 0.50                                    200,000           200,000

NOTE 14 - STOCK OPTIONS AND WARRANTS (CONTINUED)

           $ 0.70                                          -           127,429
           $ 0.80                                     70,000            70,000
           $ 1.00                                    100,000           118,000
           $ 1.50                                    100,000           100,000
           $ 2.00                                    100,000           100,000
                                                   ---------         ---------
                                                   3,545,000         3,852,429
                                                   =========         =========

A summary of the  warrant  activity  for the two years  ended of March 31,  2004
follows:


                                       50
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
                                                                     Weighted-
                                                      Number of       Average
                                                      Warrants    Exercise Price
                                                     Outstanding     Per Share
                                                     -----------  --------------
         Balance at March 31, 2002                    1,359,907       $ .872
         Granted                                      1,919,000         .214
         Exercised                                            -         .000
         Canceled                                      (294,000)        .400
         Forfeited                                     (350,000)        .794
                                                     ----------       ------
         Outstanding and
          exercisable at March 31, 2003               2,634,907       $ .456
                                                      =========       ======

         Granted                                      4,000,000       $ .653
         Exercised                                   (1,285,000)        .125
         Canceled                                             -         .000
         Forfeited                                     (297,537)        .907
                                                      ---------       ------
         Outstanding and
          exercisable at March 31, 2004               5,052,370       $ .548
                                                     ==========       ======

The number of warrants outstanding,
and the exercise prices as of March 31, 2004
and 2003 are as follows:

         Exercise Price                                2004          2003
         --------------                              --------      --------
           $ 0.0003                                         -       300,000
           $ 0.01                                     100,000       100,000
           $ 0.08                                   1,875,000             -
           $ 0.10                                     150,000       150,000
           $ 0.25                                     200,000     1,350,000
           $ 0.35                                     100,000             -
           $ 0.40                                      15,000        15,000
           $ 0.50                                     200,000       200,000
           $ 0.70                                           -        92,500
           $ 1.00                                   2,412,370       227,407
           $ 2.00                                           -       100,000
           $ 2.50                                           -       100,000
                                                   ----------     ---------
                                                    5,052,370     2,634,907
                                                    =========     =========

NOTE 15 - EARNINGS PER COMMON SHARE

Earnings  per common  share are  computed by dividing  net income by the average
number of common  shares and common  stock  equivalents  outstanding  during the
year. The weighted average number of common shares  outstanding during the years
ended March 31, 2004 and 2003,  were  approximately  28,857,872 and  20,578,034,
respectively.

Common stock  equivalents are the net additional  number of shares that would be
issuable upon the exercise of the outstanding common stock options and warrants.
For the years ended March 31, 2004 and 2003,  fully diluted  earnings per common
share are  equal to basic  earnings  per  common  share  because  the  effect of
potentially  dilutive  securities  under the stock option plans and warrants are
anti-dilutive and therefore not included.


                                       51
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 16 - SUPPLEMENTAL DISCLOSURES TO STATEMENT OF CASH FLOWS

Non-cash investing and financing transactions for the years ended March 31, 2004
and 2003 are as follows:

                                                          2004          2003
                                                        --------      --------
Issuance of Common Stock in Exchange for
Discharge of Obligations on Long-term Borrowings,
Trade Payables, and Other Liabilities                          -     $ 300,356

Issuance of common stock from conversion of
Convertible Debenture (Inclusive of Accrued
Interest)                                                406,073             -

Issuance of Common Stock from Exercise of Warrants       110,000             -

Issuance of Common Stock as Part of Settlement Costs      30,000             -

Issuance of Common Stock in Exchange for
Services Provided                                         30,750        96,500

Issuance of Note Payable in Exchange for Convertible
Debenture                                                403,207             -

Issuance of Note Payable in Exchange for Convertible
Debenture                                                151,124             -

Trade Payables and Accrued Expenses Forgiven                   -       138,619

Conversion of Trade Payables to Notes Payable            127,067        89,557

Credit Memos Issued to customers for Slotting Agreements   7,250        82,500

Write-Off of Fully Depreciated Assets                    133,462             -

NOTE 17 - FORGIVENESS OF DEBT

There was no forgiveness of debt for the year ending March 31, 2004. Forgiveness
of  debt  was  $138,619  for  the  year  ending  March  31,  2003.   Significant
transactions  relating to  forgiveness  of debt are  explained in the  following
paragraph.

During the year ended March 31, 2003,  the  Company's  legal  counsel  agreed to
forgive  accrued  legal fees  totaling  $75,059.  These fees were accrued in the
Company's litigation against a former executive.  Another of the Company's legal
counsel  agreed to accept an option to purchase  250,000 shares of common stock,
with an  exercise  price of $0.15  per share as full and  final  settlement  for
accrued  legal fees totaling  $24,665.  These fees were accrued in the Company's
regular course of business.


                                       52
<PAGE>


                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

NOTE 18 - RISKS AND UNCERTAINTIES

The Company's  success depends  significantly  upon the continued service of its
President.  Loss of the services of the President could have a material  adverse
effect on the Company's growth,  revenues, and prospective business. The Company
does not maintain key-man life insurance on the President.

NOTE 19 - CONCENTRATIONS

The Company  purchases 100% of its coffee bean inventory from one supplier.  The
Company believes the supplier's  current roasting capacity may not be sufficient
to meet its needs for the  foreseeable  future.  In the event such  relationship
terminates or the supplier's capacity is insufficient, the Company believes that
numerous other suppliers can fulfill the Company's inventory requirements.

The Company's kiosks are located throughout California. The Company's four major
clients represent 59% and 47% of its gross revenues,  with the largest client in
each year  representing  18% and 13% for the years ended March 31, 2004and 2003,
respectively.

As of March  31,  2004 and  2003,  the  Company's  officers  and  directors  own
approximately  9.7% and 13%,  respectively,  of the outstanding shares of common
stock. The Company's dividend policy, as well as

NOTE 19 - CONCENTRATIONS - CONTINUED

other major decisions such as wages,  acquisitions  and financing by the Company
will be significantly influenced and controlled by such officers and directors.

NOTE 20 - COMMITMENTS AND CONTINGENCIES

On May 8, 2002,  the  Company  initiated  legal  action  against its former CEO,
Clifford Brent Young,  and others.  The complaint  alleged,  among other things,
that Mr.  Young,  in  association  with a former  employee of the  Company,  had
breached  contractual  duties,  and/or  committed  torts, in connection with the
purported  cancellation  of contracts  between the Company and a client,  and in
connection with other acts of competition, disparagement, and conversion. On May
30,  2002,  Mr.  Young filed a petition for  bankruptcy  with the United  States
Bankruptcy Court, Central District of California,  staying the action as to him.
The ultimate  ability of the Company to pursue relief  against Mr. Young remains
to be  determined,  and  there  can be no  assurance  that the  Company  will be
successful  in pursuing  its claims in that  forum.  The Company has settled its
claims against the former employee.

In the normal course of business, the Company has various legal claims and other
contingent matters outstanding.  Management believes that any ultimate liability
arising from these contingencies would not have a material adverse effect on the
Company's  results of  operations  or financial  condition at March 31, 2004 and
2003.

NOTE 21 - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

In March 2004 the following adjustments were made:


                                       53
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

Depreciation  was  overstated by $33,741 due to an incorrect  recurring  monthly
entry. The correction was offset against Accumulated Depreciation.

Certain trade  payables  vendor entered into  agreements to convert  accounts in
arrearage to notes  payable.  There were three vendors that  converted  past due
accounts payable totaling $120,097.

Fully depreciated assets totaling $133,462 were written off against  accumulated
depreciation.

NOTE 22 - SEGMENT REPORTING

We have determined that we have two reportable  segments:  retail and wholesale.
Retail segment  represents sales through our California retail sites.  Wholesale
represents sales to  supermarkets/distribution  centers. The reportable segments
are business units that sell our coffee products through  distinct  distribution
channels as required by SFAS No. 131,  "Disclosures about Segments of Enterprise
and Related Information".

The  following  segment  information  is prepared  on the basis of  management's
review of financial information and it's decision-making process.



<TABLE>
<CAPTION>
                                                                           Retail       Wholesale          Total
<S>                                                                     <C>               <C>          <C>
   2004
   Net Sales                                                            1,380,443         309,465      1,689,908
   Cost of Goods Sold                                                     619,711         174,437        794,148
                                                                  ---------------- --------------- --------------
       Gross Profit                                                       760,732         135,028        895,760

   Employee Compensation & Benefits                                       612,654               -        612,654
   General & Administrative                                                71,744          46,173        117,917
   Occupancy                                                              159,752               -        159,752
                                                                  ---------------- --------------- --------------
      Total Operating Expenses                                            844,150          46,173        890,323

                                                                  ---------------- --------------- --------------
      Total Operating Income/(Loss)                                      (83,418)          88,855          5,437
                                                                  ================ =============== ==============

   2003
   Net Sales                                                            2,252,268         106,862      2,359,130
   Cost of Goods Sold                                                     897,109          70,090        967,199
                                                                  ---------------- --------------- --------------
       Gross Profit                                                     1,355,159          36,772      1,391,931

   Employee Compensation & Benefits                                       854,529               -        854,529
   General & Administrative                                                92,317          20,232        112,549
   Occupancy                                                              247,496               -        247,496
                                                                  ---------------- --------------- --------------
      Total Operating Expenses                                          1,194,342          20,232      1,214,574
                                                                  ---------------- --------------- --------------

                                                                  ---------------- --------------- --------------
      Total Operating Income/Loss                                         160,817          16,540        177,357
</TABLE>


                                       54
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003

                                    PART III

ITEM 1.  INDEX TO EXHIBITS

Exhibit No.                Description

2.1*                       Articles of Incorporation of Kimberley Mines, Inc.

2.2*                       Certificate of Amendment of Articles of Incorporation
                           (Mine-A-Max Corp.)

2.3*                       Certificate of Amendment of Articles of Incorporation
                           (Peabodys Coffee, Inc.)

2.4*                       Amended and Restated Bylaws of Peabodys Coffee, Inc.

2.5                        Amendment No. 1 to Bylaws

3.1*                       Peabodys Coffee, Inc. 1995 Stock Option Plan

3.2*                       Peabodys Coffee, Inc. 1999 Stock Option Plan

6.1*                       Executive Services Agreement with Barry J. Gibbons

6.2**                      Asset Purchase Agreement with Arrosto Coffee Company,
                           LLC

6.3***                     Amendment No. 1--Arrosto Asset Purchase Agreement

6.4***                     Amendment No. 2--Arrosto Asset Purchase Agreement

6.5                        Manufacturers Representative Agreement.

6.6****                    Securities Purchase Agreement for the Convertible
                           Debentures.

31.1                       Certification  of the  Principal  Executive  Officer
                           and Principal  Financial  Officer of Peabodys Coffee,
                           Inc. Pursuant  to Section  906 of the  Sarbanes-Oxley
                           Act of 2002.

32.1                       Certification of the Principal Executive  Officer and
                           Principal  Financial Officer of Peabodys Coffee, Inc.
                           Pursuant to Section 302 of the Sarbanes-Oxley Act of
                           2002.

*Incorporated  by  reference  to the  Company's  Registration  Statement on Form
10-SB, as amended,  originally  filed with the Commission under the Exchange Act
on December 21, 1999.

**Incorporated by reference to the Company's Annual Report on Form 10-KSB, filed
with the Commission on June 29, 2000.

***Incorporated  by reference to the Company's  Amended Quarterly Report for the
Period  Ending  September 30, 2000,  filed on Form 10-QSB/A with the  Commission
under the Exchange Act on February 1, 2001.


                                       55
<PAGE>

****Incorporated by reference to the Company's Form SB-2, as amended, originally
filed with the Commission on January 9, 2003.

ITEM 2.   DESCRIPTION OF EXHIBITS

      The Company has provided each of the required exhibits which are set forth
on the exhibit index.


                                       56
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 of the Securities  Exchange Act of 1934, the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                          PEABODYS COFFEE, INC.,
                                          A Nevada Corporation



                                          By: /S/ Todd Tkachuk
                                              ----------------------------------
                                              Todd Tkachuk, President

                                          Date: July 14, 2004

      In accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

[DELETE CONFORMED SIGNATURE IF DO NOT SIGN]

Signature             Title                                           Date
---------             -----                                           ----
/S/ Todd N. Tkachuk   President, Chief Financial Officer,          July 14, 2003
Todd N. Tkachuk       and Director (Principal Executive
                      Officer and Principal Financial Officer)


/S/ Roman Kujath      Director                                     July 14, 2003
-------------------
Roman Kujath


/S/ Barry Gibbons     Director                                     July 14, 2003
-----------------
Barry Gibbons


/S/ David Lyman       Director                                     July 14, 2003
----------------
David Lyman


/S/ Richard Azevedo   Director                                     July 14, 2003
-------------------
Richard Azevedo



                                       57