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, 2003

                        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.)


     3845 Atherton Road, Suite 9
     Rocklin, California                             95765
     (Address of Principal Executive Office)         (ZipCode)

                                 (916) 632-6090
                           (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)


Check  whether the issuer (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]

State issuer's revenues for its most recent fiscal year:   $2,543,286

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<PAGE>

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 27, 2003, [in the past 60 days], was approximately $3,297,831.

The  number of shares  outstanding  of each of the  Issuer's  classes  of common
equity, as of the latest practicable date, is 22,988,343 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                                              23
Item 3   Directors, Executive Officers and Significant Employees              24
Item 4   Remuneration of Directors and Officers                               25
Item 5   Security Ownership of Management and Certain Securityholders         26
Item 6   Interest of Management and Others in Certain Transactions            27

PART II

Item 1   Market Price of and Dividends on the Registrant's Common
         Equity and Other Shareholder Matters                                 28
Item 2   Legal Proceedings                                                    30
Item 3   Changes in and Disagreements with Accountants                        30
Item 4   Submission of Matters to a Vote of Security Holders                  31
Item 5   Compliance with Section 16(a) of the Exchange Act                    31
Item 6   Reports on Form 8-K                                                  31

PART F/S

PART III

Index to Exhibits                                                             55

SIGNATURES                                                                    56

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                    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
coffees.  We plan to focus our efforts on establishing  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.  We currently
sell our coffee beverages and whole bean coffees through company-operated retail
stores and  espresso  bars  (kiosks),  positioned  primarily  in  corporate  and
institutional  locations  and  have  made  our  initial  sales  of  Black  Rhino
Coffee(TM) to four distribution centers in central and eastern United States. As
of March 31, 2003, we operated ten coffee kiosks and three retail stores located
throughout  California.  Our four largest  clients  represent 47.4% of our gross
revenue for the year ended March 31, 2003 and 59.6% of the gross revenue for the
year ended  March 31,  2002 which  gross  revenues  were  generated  through our
company-operated retail stores and espresso bars (kiosks).

     As described in more detail below,  despite  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,
2003,  we had a net  operating  loss of  $1,132,219,  and an overall net loss of
$1,713,691.

     We  have   recently   converted  all  our   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 recently  announced its 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.

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.  The  Peabodys CA model is the basis of our
existing full service retail operations today.

                                      -4-
<PAGE>

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
were the surviving company in a merger 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 as the disappearing  corporation
and our company as the surviving  corporation.  All shares of Peabodys CA common
stock were converted to shares of our common stock.

INDUSTRY OVERVIEW

     We believe  that the  specialty  coffee  industry  will  continue  to grow.
According to Mr.  Robert F.  Nelson,  President  and CEO of the National  Coffee
Association,  "...in 2001, 10% of American  adults say they drink gourmet coffee
every day, that is, premium whole bean or ground varieties - exactly double from
a year ago." Mr. Nelson also reported,  "...occasional  consumption of specialty
coffee has surged  during the past five years in the United  States,  increasing
from 35% of the adult population in 1997 to 62% in 2001 - from 80 million to 127
million  drinkers."  (transcript  of  presentation  titled "U.S.  Coffee Trends:
1991-2001,"  in May 2001).  According to the  Specialty  Coffee  Association  of
America, total U.S. retail sales of specialty coffee beverages were $5.3 billion
in 2000 while retail sales of specialty coffee beans reached $2.5 billion.

     We believe that 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;

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

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<PAGE>

     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:
Environmental, Economic, and 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:  protection of the environment
and 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;
they are Organic,  Shade Grown and Fair Trade,  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.

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. As Taylor Maid Farms'  Roastmaster,  Mark Inman states, "The checks and
balances that result from an organic system comes from the interaction of a wide
variety of life forms.  Organic  agriculture  is more a system of  relationships
than a means to a marketable seal." (from "Navigating the Sea of Terms: a Coffee
Buyers' Guide," posted on Taylor Maid Farms' website).  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.

                                      -6-
<PAGE>

     According to the Sustainable  Coffee Survey of the North American Specialty
Coffee Industry,  published in July 2001, Organic coffee has demonstrated steady
20% annual growth rates in recent years.  The  Sustainable  Coffee Survey of the
North  American  Specialty  Coffee  Industry also  indicates  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.  In addition,  the  Sustainable  Coffee Survey of the North American
Specialty Coffee Industry reports that many North American  supermarkets  either
do not stock  sustainable  coffees or present only one, often as a single origin
or blend, and usually Organic. According to the Sustainable Coffee Survey of the
North American Specialty Coffee Industry,  although  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.  According to  Datamonitor  (Natural Foods  Merchandiser,  Organic Trade
Association), retail sales of organic products in the U.S. are growing steadily,
showing  an  annual  compound  growth  rate of more  than 22% over the last five
years.  A  recent  study  published  by  the  Natural  Marketing   Institute  in
cooperation with the Organic Trade Association  estimated that U.S. retail sales
of  organics in 2001 would be $9.3  billion  and $20 billion by 2005  assuming a
"conservative" annual growth rate of 20%.

     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.

     According to Roper  Starch  Worldwide,  in a report  released in July 2001,
concerns about food safety,  coupled with the assurances of health  benefits and
high quality of certified organic products,  are strengthening consumer interest
in organic foods. The Roper report also indicates:

     o    51% of  Americans  predict  that organic food will be a bigger part of
          their diet within the next five years;

     o    Six in ten  Americans  (63%) buy organic  foods and beverages at least
          occasionally;

     o    Two-thirds  (68%) say  organics  will be a major food trend in the new
          millennium.

     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. It is important to
note that while 63% of U.S. consumers say they buy organic foods or

                                      -7-
<PAGE>

beverages  at least  occasionally  when they shop,  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).

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 have begun the  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,

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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 focus 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.

     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, 2003, we operated ten coffee kiosks and three retail stores
located throughout California.  Our thirteen operating units were located in the
following  venues:  six were  located at  educational  sites (i.e.  colleges and
universities);  four were  located at  hospitals;  two were  store-front  retail
locations, and one was a drive-through retail location. As of March 31, 2003, we
were  profitable at the "unit level" at ten  locations.  We designate a kiosk or
retail store to be profitable  at the "unit level" when the kiosk  generates net
income after accounting for all expenses  directly related to the specific unit.
These direct expenses consist of: cost of goods sold, occupancy costs, operating
expenses  and fully  loaded labor costs which  include  employer  contributions,
benefits and workers compensation. This "unit level" profitability measure is an
internal  measure of performance  and is not a measure of financial  performance
under GAAP.

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 strength of Marathon Global,

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an  Arkansas  corporation  which  is a sales  and  marketing  consultant  to our
company,  and its mass  market  relationships,  supported  by  favorable  market
dynamics (see Industry Overview) will provide fast growth  opportunities for the
Black  Rhino  Coffee(TM).  We have  entered  into a  consulting  agreement  with
Marathon which provides that in  consideration of 100,000 shares of common stock
and an option to purchase  200,000  shares of common stock received by Marathon,
it has agreed to provide us in  promoting  and selling  Black Rhino  Coffee(TM).
Marathon  is also  entitled  to a 5%  commission  on all  sales of  Black  Rhino
Coffee(TM)  made  directly by Marathon on our behalf and 7%  commission on sales
made through representatives to sell Black Rhino Coffee(TM). We entered into the
consulting  agreement  with  Marathon  on January 3, 2002 and it will  expire on
December 31, 2004. In addition, we believe that the Black Rhino Coffee(TM) brand
has a compelling set of brand  characteristics that clearly differentiate itself
from its competitors.

     We  have  already  experienced  significant  interest  in our  Black  Rhino
Coffee(TM) brand including a willingness of mass-market buyers to speak with our
representatives  and us in order to  evaluate  and sample our  product,  provide
feedback on our packaging and marketing plans,  commencing discussions regarding
the  requirements  for the buyers to place  purchase  orders with us and placing
orders for our product.  Beginning in September 2002, we shipped orders of Black
Rhino Coffee(TM) to the following major food distributors:

     o    Associated Wholesale Grocers based in Kansas;
     o    Bi-Lo Inc. based in South Carolina;
     o    SuperValu Rich Foods based in Virginia; and
     o    SuperValu Rich Foods based in Pennsylvania.

     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 joint efforts with  Marathon  Global,  we anticipate  having a shelf
presence in more than 1,000  supermarkets or mass market retailers by the end of
the calendar year 2003.

     We do intend to allocate resources for the purpose of generating new growth
opportunities  for our  full  service  retail  operations.  Should  high-quality
opportunities  present  themselves  within  existing  geographic  markets,  with
existing operating management and supply  infrastructure,  we may, given optimal
conditions,  open  additional  full service  units.  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.

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<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, spend
and 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 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  participate  in the selection of our green coffee beans and provide our
proprietary   specifications  for  degree  of  roast  and  blending  recipes  to
Terranova,  which in turn purchases  green beans,  and then roasts and blends to
our exact  specifications.  Finished  product is packaged,  sealed,  and shipped
through our various distribution channels as ordered. We are planning changes to
our supply chain in which we will purchase our own green coffee beans  directly.
We believe  that this change may improve our gross  margin for this product line
in excess of 75%.

     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

                                      -11-
<PAGE>

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.

     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.

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".

     For the year ended  March 31,  2003,  the  Statements  of Loss show a 16.8%
decrease in sales and an 8.7%  decrease in gross profit over the prior year.  We
incurred a net loss for the year ended March 31, 2003 of $1,713,691.

REVENUES

     Net  revenues  for the  year  ended  March  31,  2003  decreased  16.9%  to
$2,543,286  from  $3,059,676 for the  corresponding  period in fiscal 2002. This
decrease was due  primarily to the closure of two  hospital  kiosk  locations in
Southern  California in June 2002. These locations  accounted for  approximately
$569,000 of the decrease in revenue. In addition, our new Black Rhino Coffee(TM)
product line began shipping during the year ended March 31, 2003.  Sales of this
product accounted for approximately 4.2% of our total revenue for the year ended
March 31,  2003.  For the year ended  March 31,  2003,  kiosk and retail  outlet
revenue was generated from 6 different  major  clients,  with the largest client
representing 13.2% of total net revenue.

COSTS AND EXPENSES

     Cost of  goods  sold  for the  year  ended  March  31,  2003  decreased  to
$1,049,071  from  $1,149,629 for the same period in fiscal 2002. As a percentage
of net revenues,  cost of goods sold increased to 41.2% for the year ended March
31, 2003 from 37.6% for the comparable  period in fiscal 2002. The increase as a
percentage  of net revenues was  primarily  due to a shift in the sales mix from
higher  margin  kiosks to lower  margin  kiosks and the Black  Rhino  Coffee(TM)
product line. Lower margin kiosks are those that offer food products in addition
to the higher margin beverages.

                                      -12-
<PAGE>

     Employee  compensation  and  benefits  for the year  ended  March 31,  2003
decreased to $1,387,544 from $1,445,385 for the same period in fiscal 2002. As a
percentage  of net revenues,  employee  compensation  and benefits  increased to
54.6% for the year ended March 31, 2003 from 47.2% for the comparable  period in
fiscal 2002.  The increase as a percentage  of net revenues was primarily due to
higher staffing levels at our retail cafe relative to our traditional sites, and
increased workers compensation insurance rates in effect throughout the state of
California.

     General  and  administrative  expenses  for the year ended  March 31,  2003
increased to $367,353  from  $303,688  for the same period in fiscal 2002.  As a
percentage of net revenues,  general and  administrative  expenses  increased to
14.4% for the year ended March 31, 2003 from 9.9% for the  comparable  period in
fiscal 2002.  The increase as a percentage  of net revenues was primarily due to
slotting fees,  commissions,  trade shows,  and travel  expenses  related to our
Black Rhino Coffee(TM) product line.

     Occupancy  costs for the year ended  March 31, 2003  decreased  to $298,819
from  $341,657  for the same  period  in fiscal  2002.  As a  percentage  of net
revenues,  occupancy  costs for the year ended March 31, 2003 were comparable to
the same period in fiscal 2002.

     Director and professional  fees for the year ended March 31, 2003 increased
to $392,016  from  $316,651 for the same period in fiscal 2002.  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, 2003 increased to $1,132,219
from  $632,402  for the same  period  in fiscal  2002.  As a  percentage  of net
revenues,  operating losses increased to 44.5% for the year ended March 31, 2003
from 20.7% for the  comparable  period in fiscal 2002.  The increased  operating
loss is primarily due to lower gross profit dollars on reduced sales, and higher
employee  compensation  and benefits costs and higher director and  professional
fees.

     Legal expense related to our pending  litigation against a former executive
amounted  to  $153,253  for the year ended March 31,  2003.  On May 8, 2002,  we
initiated legal action against our former CEO, Clifford Brent Young, and others.
The complaint alleged, among other things, that Mr. Young, in association with a
former employee,  had breached  contractual  duties,  and/or committed torts, in
connection with the purported cancellation of contracts between us 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. Our ultimate  ability to pursue  relief  against Mr. Young remains to be
determined, and there can be no assurance that we will be successful in pursuing
our  claims in that  forum.  We have  settled  our  claims  against  the  former
employee.

     Net loss for the year ended March 31, 2003  increased  to  $1,713,691  from
$611,965 for the same period in fiscal 2002.  As a percentage  of net  revenues,
net losses  increased  to 67.4% for the year ended March 31, 2003 from 20.0% for
the comparable period in fiscal 2002. The increased net loss is primarily due to
financing  costs related to our secured  convertible  debentures,  legal expense
related to our former CEO, and the increased operating loss.

                                      -13-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Despite the "unit level"  profitability  described above under Full Service
Operations,   we  have  not  been  profitable.  As  the  accompanying  financial
statements  show,  for the  fiscal  year  ended  March  31,  2003,  we had a net
operating  loss of $1,132,219,  and an overall net loss of $1,713,691.  At March
31, 2003, we ended our fiscal year with a working capital deficit of $1,222,897,
and a shareholders' deficit of $872,007.

     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 successful 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  500  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 believe this is a crucial new opportunity for us given the
continuing uncertainty of conventional equity markets.

     We also believe our strategic alliance with Marathon Global will facilitate
rapid market  penetration  by providing a level of credibility  and  negotiating
strength  otherwise  unavailable  to us. We  further  believe  that our  gradual
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.

     We had net cash provided from financing activities for the year ended March
31, 2003 totaling $937,533.  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. In December 2002, we entered into
a  Securities  Purchase  Agreement  for the  sale of an  aggregate  of  $750,000
principal  amount of  convertible  debentures.  Cash from  financing  activities
primarily consists of $500,000 from net borrowings under the secured convertible
debentures,  $269,000 from borrowings under the line of credit, and $128,658 net
proceeds from the sale of our stock.  These amounts were  primarily  utilized in
our day-to-day operations.

                                      -14-
<PAGE>

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.

     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 on the same scale as us, or which has a number of units approaching
that  of our  company.  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

     We have a registered  service  mark for our  rhinoceros  logo.  We aware of
another  entity in North  Carolina that is utilizing the name  "Peabodys" in the
coffee  industry.  The North  Carolina  entity has received a federal  trademark
registration  of the name  "Peabodys."  We believe that we have the right to use
the name  "Peabodys" in the areas in which it is used by us because of first use
of the name in those areas. However, if it were determined that we were not able
to continue  utilizing  the name  "Peabodys,"  it could have a material  adverse
effect on our  company  in that we would have to select a  different  name under
which to do business,  and we would have to  re-establish  any lost goodwill and
name  recognition.  Because of its speculative  nature,  such potential  adverse
effect is impossible to quantify at this time.

     We have applications  pending with the U.S. Patent and Trademark Office for
the  registration  of the  following  trademarks:  "Black Rhino  Coffee,"  "Alma
Blend,"  "Spiritu  Blend,"  "Coffee with Body and Soul," and "Black Rhino Coffee
with Rhinoceros design." We have also filed applications for the registration of
the "Black Rhino Coffee" trademark in Canada and the European Community.

     The  applications  for "Black  Rhino  Coffee" and "Black  Rhino Coffee with
Rhinoceros  design"  were  denied by the U.S.  Patent  and  Trademark  Office on
January 27, 2003.  We plan to file an appeal prior to July 27, 2003. We are also
in  negotiations  to enter a coexistence  agreement with the holder of a similar
mark.

EMPLOYEES

     We currently have 71 employees of which 22 are full-time employees and five
of which are administrative.

                                      -15-
<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. However, those kiosks located in educational facilities are affected by
the seasons to the extent that sales are  significantly  less when school is not
in session.

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 $1,713,691  for the year ended March 31, 2003 and
$611,965  for the year ended March 31,  2002.  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)  and  increase  the  operating
contribution of our full service  operations.  Our possible success is dependent
upon the successful  development and marketing of our services and 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.

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.

                                      -16-
<PAGE>

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 June 26, 2003, our  independent  auditors stated that
our  financial  statements  for the year  ended  March 31,  2003  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, 2003 in the amount of $1,713,691 and stockholders  deficit of $872,007 as of
March 31, 2003. 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, 2003, we
were in default on the  principal  balance of the Secured Notes in the amount of
$35,000 and approximately  $38,430 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
     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 its 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 47.4% of our gross revenue for the year
ended March 31, 2003. The four largest  clients  represented  59.6% 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.

                                      -17-
<PAGE>

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.

     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.

                                      -18-
<PAGE>

WE HAVE RECENTLY  COMMENCED  SALES TO  SUPERMARKETS,  SPECIALTY  FOOD STORES AND
OTHER MASS RETAIL  VENUES.  AS WE HAVE  RECENTLY  COMMENCED  ACTIVITIES  IN MASS
RETAIL MARKETS, WE DO NOT HAVE DETAILED INFORMATION WITH RESPECT TO SALES WITHIN
THE MASS RETAIL  MARKET AND WE CANNOT  GUARANTEE  THAT WE WILL BE  SUCCESSFUL IN
THIS MARKET.  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.  We do not presently have detailed
information with respect to the levels of retail sales of these products. Due to
an inadequate  amount of  information  with respect to the retail sales of Black
Rhino  Coffee(TM),  we cannot at this time  determine if our initial  efforts to
enter the mass retail markets have been successful or if these efforts will ever
be  successful.  If we are not successful in entering the mass retail market our
revenue may be severely impacted.

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.

     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 for the purchase of up to $750,000 of the  Company's  10%  Convertible
Debentures  (the  "Convertible  Debentures").  As of  March  31,  2003,  we  had
21,861,124  shares  of common  stock  issued  and  outstanding  and  convertible
debentures outstanding that may be converted into an estimated 11,702,149 shares
of common stock at current market prices,  and outstanding  warrants to purchase
1,250,000 shares of common stock and an obligation to issue warrants to purchase
625,000  shares of common stock in the near future.  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  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.  For  a  complete
description of the terms of the Convertible Debentures, please refer to our Form
SB-2 filed effective May 14, 2003.

     In  addition,  pursuant to the Plan and  Agreement  of  Reorganization  and
merger we assumed the rights and  obligations  or convertible  promissory  notes
that are  convertible  into  77,295  shares.  Furthermore,  there are  currently
outstanding  3,852,429  options  to  purchase  shares  of our  common  stock and
outstanding warrants to purchase 1,384,907 shares 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 May 30, 2003 of $0.13.

                                      -19-
<PAGE>

                                                    Number             % of
% Below        Price Per      With Discount        of Shares        Outstanding
Market           Share           at 50%            Issuable            Stock
------           -----           ------            --------            -----

25%             $.0975          $.04875           15,384,615           40.63%
50%             $.0650          $.03250           23,076,923           50.65%
75%             $.0325          $.01625           46,153,846           67.24%

     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 50%  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 4.99% 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.

                                      -20-
<PAGE>

IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE  CONVERTIBLE  DEBENTURES  AND REGISTERED  PURSUANT TO THIS
PROSPECTUS  MAY NOT BE  ADEQUATE  AND WE MAY BE  REQUIRED  TO FILE A  SUBSEQUENT
REGISTRATION  STATEMENT  COVERING  ADDITIONAL  SHARES.  IF THE  SHARES  WE  HAVE
ALLOCATED  AND  REGISTERED  ARE  NOT  ADEQUATE  AND WE ARE  REQUIRED  TO FILE AN
ADDITIONAL  REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN CONNECTION
THEREWITH.

     Based on our current market price and the potential  decrease in our market
price as a result of the issuance of shares upon  conversion of the  convertible
debentures,  we have made a good  faith  estimate  as to the amount of shares of
common stock that we are required to register and allocate for conversion of the
convertible debentures. Accordingly, we have allocated and registered 18,750,000
shares to cover the conversion of the convertible debentures.  In the event that
our stock price  decreases,  the shares of common  stock we have  allocated  for
conversion of the convertible  debentures and are registering  hereunder may not
be adequate.  If the shares we have allocated to the registration  statement are
not adequate and we are required to file an additional  registration  statement,
we may incur  substantial costs in connection with the preparation and filing of
such registration statement.

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 2002, we entered into a Securities  Purchase  Agreement for the
sale of an aggregate of $750,000 principal amount of convertible debentures. The
convertible debentures are due and payable, with 10% interest, one year from the
date of issuance,  unless sooner  converted into shares of our common stock.  At
March 31, 2003, we have $500,000 of convertible debentures outstanding,  and the
investor  purchased  additional  convertible  debentures  in  the  aggregate  of
$250,000 on May 20, 2003. In addition,  any event of default such as our failure
to repay the  principal  or interest  when due,  our failure to issue  shares of
common  stock upon  conversion  by the  holder,  our  failure  to timely  file a
registration  statement or have such registration  statement declared effective,
breach of any covenant,  representation  or warranty in the Securities  Purchase
Agreement or related convertible  debenture,  the assignment or appointment of a
receiver to control a substantial  part of our property or business,  the filing
of a money  judgment,  writ or similar  process against our company in excess of
$50,000,  the  commencement  of  a  bankruptcy,  insolvency,  reorganization  or
liquidation proceeding against our company and the delisting of our common stock
could require the early  repayment of the  convertible  debentures,  including a
default  interest  rate  of 15%  on the  outstanding  principal  balance  of the
debentures  if the  default is not cured with the  specified  grace  period.  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.

RISKS RELATING TO OUR COMMON STOCK:
-----------------------------------

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.

                                      -21-
<PAGE>

     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 16.5% 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 May 30,  2003,  our  executive  officers,  directors  and  affiliated
persons beneficially owned approximately 16.5% 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:

     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:

                                      -22-
<PAGE>

     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 are located at 3845 Atherton Road, Suite 9,
Rocklin,  California,  95765,  and our telephone  number is (916) 632-6090.  The
facility is utilized in the following manner:

     o    administrative offices;
     o    professional offices;
     o    storage and warehousing; and
     o    product development.

     The facility  consists of approximately  three thousand (3,000) square feet
of office and warehouse space, leased for $2,993 per month. The lease expires on
October 31,  2002,  but was  extended  until  October  31,  2003  pursuant to an
amendment to the lease. 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
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.

                                      -23-
<PAGE>

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      42         President, Chief Financial Officer,
                                Secretary and Director
John Phillips        53         Chairman of the Board of Directors
Barry Gibbons        57         Director
Roman Kujath         70         Director
David Lyman          56         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,  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).

     JOHN  PHILLIPS is  chairman  of  Arkansas-based  Marathon  Global,  a fully
integrated marketing, sales and service company, and a consultant to our company
for strategic marketing, sales planning and infrastructure support. Mr. Phillips
is also chairman of international  wine importer Marathon Imports.  For 30 years
prior to his involvement  with Marathon Global and Marathon  International,  Mr.
Phillips built,  owned and operated the Phillips  Company  supermarket  chain, a
privately owned retail company with sales in excess of $300 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.

     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.

                                      -24-
<PAGE>

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, 2003.

Name of                        Capacities in which                 Aggregate
Individual or Group            Remuneration was received          Remuneration
--------------------------------------------------------------------------------

Todd N. Tkachuk                Officer and Director                $ 77,800.00
Officers and Directors as                                          $ 77,800.00
a Group (1 person)

(b) 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.

                                      -25-
<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, 2003:

     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       1,331,269          5.9%
3845 Atherton Road, Suite #9
Rocklin, CA 95765

Barry Gibbons                     Common Stock       1,345,000          6.0%
6665 S. W. 69th Lane
Miami, FL 33143

Roman Kujath                      Common Stock         603,297          2.7%
8926 119th Street
Edmonton, Alberta
Canada T6G 1W9

David Lyman                       Common Stock         149,480          0.7%
2789 Hospital Road
Saginaw, MI  48603

John Phillips                     Common Stock         275,000          1.2%
5210 Village Parkway
Rogers, AR  72758

All Officers and Directors        Common Stock       3,704,046         16.5%
As a Group (5 persons)
_________________________________

     (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, 2003 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.

                                      -26-
<PAGE>

     (2) Percentage based on 22,484,886 shares of common stock outstanding as of
     May 30, 2003.

(b)  No other person holds or shares the power to vote the securities  described
     below.

(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            866,000 Shares of Common Stock              $0.05 (720,000 shares)    fully vested
                                                                                                 in June 2003
                                                                       $0.70 (96,000 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               241,429 Shares of Common Stock              $0.05 (120,000 shares)    fully vested
                                                                                                 in June 2003
                                                                       $0.70 (31,429 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
                                                                                                 in July 2003

John Phillips              380,000 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.     1,927,429 Shares of Common Stock            $0.05 (960,000 shares)
As a Group (5 persons)                                                 $0.20 (390,000 shares)
                                                                       $0.40 (380,000 shares)
                                                                       $0.70 (127,429 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,  Chairman  of the  Board of  Directors,  is the owner of
Marathon Global. The agreement expires December 31, 2004.

                                      -27-
<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 (1)
                                 ---------------

                                       High          Low
                                       ----          ---

             2001
         Second Quarter                0.14          0.03
         Third Quarter                 0.85          0.04
         Fourth Quarter                1.38          0.38

             2002
         First Quarter                 0.755         0.51
         Second Quarter                0.88          0.42
         Third Quarter                 0.60          0.22
         Fourth Quarter                0.38          0.25

             2003
         First Quarter                 0.38          0.08

     (1)  The source for data used in this chart is an OTC Quote Summary  Report
          provided by NASDAQ Trading and Marketing Services.

     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,

                                      -28-
<PAGE>

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.

(B)  HOLDERS

     As of April 22, 2003, we had approximately 456 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                  215,429                $0.76                    358,500

Equity compensation plans not
approved by security holders                6,271,907                $0.36                        -0-

Total                                       6,487,336                $0.37                    358,500
</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.

                                      -29-
<PAGE>

ITEM 2.   LEGAL PROCEEDINGS

     On May 8, 2002,  we filed an action in the United  States  District  Court,
Eastern  District of California,  against our former CEO,  Clifford Brent Young,
and others.  Peabodys  Coffee Inc. v. Young et al.,  No.  S-02-994  LLK PAN. 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 our company,  had  breached  contractual
duties, and/or committed torts, in connection with the purported cancellation of
contracts  between  us 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 our company.

     On May 29, 2002, we 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 us 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 our
director.

     We also  challenged the client's  legal right to cancel the  contracts.  On
June 25, 2002, we settled the  potential  dispute with the client and the former
employee.  The settlement  provided that the client pay us in exchange for being
allowed to cancel the contracts;  that the claims against the former employee in
Peabodys v. Young be dismissed with prejudice;  and for other consideration.  We
have agreed with most of the other defendants who hold the  unregistered  stock,
that the claims  against them be dismissed  without  prejudice,  in exchange for
their  agreement not to transfer the stock before the date such transfers may be
made under the federal  securities  laws. We are assessing our options as to our
claims against Mr. Young in light of his bankruptcy filing.

     We have engaged in settlement  negotiations  for over nine months regarding
the status of the 500,000 shares transferred by Mr. Young to various individuals
with no  resolution  as of  this  date.  We  anticipate  that  we  will  reach a
settlement  within the next three to six  months  and that the  settlement  will
provide for the  redemption by us of the 500,000 shares  currently  owned by Mr.
Young and his  transferees.  At the very  least,  we expect  that the court will
enjoin Mr. Young and his transferees  from registering any of the 500,000 shares
received by them.

     In June 2002, we received correspondence from the trustee of the bankruptcy
estate of a former  vendor  requesting  payment  on a  $250,000  obligation.  We
believed  that we had settled this  obligation  in 1999 with an agreement to pay
$20,000.  The matter has been  clarified  and  resolved  with the United  States
Bankruptcy  Court for the Northern  District of California.  We are obligated to
pay the sum of $20,000  over a six-month  period in exchange  for a release from
any claim the Trustee might have against us.

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.

                                      -30-
<PAGE>

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.

                                      -31-
<PAGE>

                              PEABODYS COFFEE, INC.
                             (A NEVADA CORPORATION)


                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                              FINANCIAL STATEMENTS


                                   YEARS ENDED
                             MARCH 31, 2003 AND 2002

                                      -32-
<PAGE>

                                TABLE OF CONTENTS


INDEPENDENT AUDITOR'S REPORT..................................................34

FINANCIAL STATEMENTS

     Balance Sheets...........................................................35

     Statements of Loss.......................................................36

     Statements of Stockholders' Deficit......................................37

     Statements of Cash Flows.................................................38

     Notes to Financial Statements.........................................39-54

                                      -33-
<PAGE>

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

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, 2003 and 2002, 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 auditing standards generally accepted
in the  United  States of  America.  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, 2003 and 2002,  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.

/s/ Nicholson & Olson
Nicholson & Olson
Certified Public Accountants
Roseville, California
June 26, 2003

                                      -34-
<PAGE>

                              PEABODYS COFFEE, INC.
                                 BALANCE SHEETS
                             MARCH 31, 2003 AND 2002

<TABLE>
<CAPTION>
ASSETS                                                       2003             2002
                                                         ------------     ------------
Current Assets
<S>                                                      <C>              <C>
   Cash                                                  $      6,116     $      7,307
   Other receivables                                           16,958           20,330
   Inventories                                                 74,667           63,238
   Prepaid expenses                                            48,454            4,400
                                                         ------------     ------------
         Total Current Assets                                 146,195           95,275

Property and equipment (net)                                  270,963          415,610
Goodwill (net)                                                 36,839           36,839
Deposits and other assets                                      89,565           82,598
                                                         ------------     ------------
         Total Assets                                    $    543,562     $    630,322
                                                         ============     ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
   Cash overdraft                                        $     24,644     $     48,495
   Accounts payable                                           361,017          412,072
   Accrued expenses                                           343,509          279,720
   Short-term borrowings                                       69,000               --
   Secured convertible debentures                             500,000               --
   Current portion of long-term debt                           35,922            6,491
   Bridge note financing                                       35,000           35,000
                                                         ------------     ------------
         Total Current Liabilities                          1,369,092          781,778
                                                         ------------     ------------

Long-term debt, net of current portion                         46,477           33,509
                                                         ------------     ------------
         Total Liabilities                                  1,415,569          815,287

Stockholders' Deficit
   Common stock authorized - 50,000,000 shares,
   issued and outstanding, 21,861,124 and 19,048,524,
   $.001 par value                                             21,861           19,049

   Additional paid-in capital                               5,968,831        4,946,129
   Deferred expenses                                          (63,331)         (64,466)
   Accumulated deficit                                     (6,799,368)      (5,085,677)
                                                         ------------     ------------
         Total Stockholders' Deficit                         (872,007)        (184,965)
                                                         ------------     ------------

         Total Liabilities and Stockholders' Deficit     $    543,562     $    630,322
                                                         ============     ============
</TABLE>

See accompanying notes to financial statements

                                      -35-
<PAGE>

                              PEABODYS COFFEE, INC.
                               STATEMENTS OF LOSS
                       YEARS ENDED MARCH 31, 2003 AND 2002


                                                       2003             2002
                                                   ------------    ------------

Sales                                              $  2,543,286    $  3,059,676

Cost of Sales                                         1,049,071       1,149,629
                                                   ------------    ------------

         Gross Profit                                 1,494,215       1,910,047

Operating Expenses
   Employee compensation and benefits                 1,387,544       1,445,385
   General and administrative expenses                  367,353         303,688
   Occupancy                                            298,819         341,657
   Director and professional fees                       392,016         316,651
   Depreciation and amortization                        164,349         131,964
   Loss on disposal of property and equipment            16,353              --
   Other operating expenses                                  --           3,104
                                                   ------------    ------------
         Total Operating Expenses                     2,626,434       2,542,449
                                                   ------------    ------------

         Operating Loss                              (1,132,219)       (632,402)

Other income                                                242          24,000
Legal expense - former executive                       (153,253)             --
Financing costs - secured convertible debentures       (500,000)             --
Interest and other expense                              (67,080)        (58,230)
                                                   ------------    ------------

   Net loss before extraordinary item                (1,852,310)       (666,632)
   Extraordinary item - forgiveness of debt             138,619          54,667
                                                   ------------    ------------

         Net Loss                                  $ (1,713,691)   $   (611,965)
                                                   ============    ============

Earnings Per Common Share:
   Net loss before extraordinary item              $      (0.09)   $      (0.04)
   Extraordinary item                                       .01             .00
                                                   ------------    ------------
   Net loss                                        $      (0.08)   $      (0.04)
                                                   ============    ============

See accompanying notes to financial statements

                                      -36-
<PAGE>

                              PEABODYS COFFEE, INC.
                       STATEMENTS OF STOCKHOLDERS' DEFICIT
                       YEARS ENDED MARCH 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                      Common Stock            Additional                                           Total
                              ----------------------------      Paid-in         Deferred       Accumulated     Stockholders'
                                 Shares          Amount         Capital         Expenses         Deficit          Deficit
                              ------------    ------------    ------------     ------------     ------------     ------------
<S>                           <C>             <C>             <C>              <C>              <C>              <C>
Balance at March 31, 2001       14,120,217    $     14,120    $  4,261,758     $    (69,610)    $ (4,473,712)    $   (267,444)

Conversion of convertible
   debt into common stock           12,500              13           4,987               --               --            5,000
Exercise of warrants and
   stock options                   354,807             355            (355)              --               --               --
Stock issued under
   settlement agreements             6,000               6           2,394               --               --            2,400
Sale of common stock             2,440,000           2,440         532,710               --               --          535,150
Stock issued under service
   agreements                    1,875,000           1,875         126,875            5,144               --          133,894
Stock issued under asset
   purchase agreements             240,000             240          17,760               --               --           18,000
Net Loss                                --              --              --               --         (611,965)        (611,965)
                              ------------    ------------    ------------     ------------     ------------     ------------

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
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
Financing costs - secured
   convertible debentures               --              --         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)
                              ============    ============    ============     ============     ============     ============
</TABLE>

See accompanying notes to financial statements

                                      -37-
<PAGE>

                              PEABODYS COFFEE, INC.
                            STATEMENTS OF CASH FLOWS
                       YEARS ENDED MARCH 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                                             2003             2002
                                                         ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                      <C>              <C>
Net Loss                                                 $ (1,713,691)    $   (611,965)
Adjustments to reconcile net loss to net cash
applied to operating activities:
   Depreciation and amortization                              164,349          131,964
   Debt settlements and forgiveness of debt                  (138,619)         (54,667)
   Loss on disposal of assets                                  16,353               --
   Non-cash consulting fees                                    56,500          143,124
   Slotting fee expense                                        49,375               --
   Financing costs- secured convertible debenture             500,000               --
   Other income from reduction of obligation to issue
   shares of common stock                                          --          (24,000)
Changes in operating assets and liabilities:
   Receivables                                                (79,128)           1,175
   Inventories                                                (11,429)         (12,855)
   Prepaid expenses                                            33,539              892
   Cash overdraft                                             (23,851)             (63)
   Accounts payable                                           194,368           75,002
   Accrued expenses                                            65,498          (29,573)
                                                         ------------     ------------
         Net cash applied to operating activities            (886,736)        (380,966)
                                                         ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds on sale and transfer of equipment                     57,379            8,745
Additions to property and equipment                           (86,011)        (155,156)
Brand development costs                                       (27,070)              --
Changes to deposits and other assets                            3,714          (34,004)
                                                         ------------     ------------
         Net cash applied to investing activities             (51,988)        (180,415)
                                                         ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of stock                               128,658          535,150
Proceeds from issuance of notes payable                       389,000           40,000
Proceeds from issuance secured convertible debentures         500,000               --
Principal reductions of short-term borrowings                 (80,125)         (14,820)
                                                         ------------     ------------
         Net cash provided by financing activities            937,533          560,330
                                                         ------------     ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                      (1,191)          (1,051)

CASH AND CASH EQUIVALENTS
Beginning of year                                               7,307            8,358
                                                         ------------     ------------
End of year                                              $      6,116     $      7,307
                                                         ============     ============
</TABLE>

See accompanying notes to financial statements

                                      -38-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

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

                                      -39-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of Business
-----------------------
Peabodys  Coffee,  Inc. (the  "Company") is a retailer and marketer of certified
organic specialty coffee beverages and packaged whole bean coffees.  The Company
owns and operates  retail  espresso  coffee bar kiosks in a variety of corporate
and  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  considers  all highly liquid  instruments  with a 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.

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.

Intangible Assets
-----------------
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.  No impairment of the net goodwill value has occurred during the years
ended March 31, 2003 and 2002.

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.

                                      -40-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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 consultants and one director 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.

Reclassifications
-----------------
Certain  amounts  from  the  March  31,  2002  financial  statements  have  been
reclassified to conform to the current year presentation.

NOTE 2 - RELATED PARTY TRANSACTIONS

At March  31,  2003  and  2002,  amounts  due to and due  from  related  parties
consisted of the following:

                                             2003            2002
                                         ------------    ------------
     Receivables from related parties    $      1,158    $     10,188
                                         ============    ============

     Payables to related parties         $     28,935    $     22,285
                                         ============    ============

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,  2003  and  2002  amounted  to  $65,492  and  -0-,
respectively.

Purchases  from a related party  supplier for the years ended March 31, 2003 and
2002  totaled $-0- and $43,934 for  equipment,  and $-0- and $128,762 for coffee
and related products, respectively.

                                      -41-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 2 - RELATED PARTY TRANSACTIONS (CONTINUED)

During the years ended March 31, 2003 and 2002,  the following  stock option and
warrant transactions occurred with members of the Company's board of directors:

                                                    2003               2002
                                                ------------       ------------
     Options and warrants granted,
     prices from $.05 to $.40 per share              330,000          2,360,000

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

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

     Options and warrants cancelled,
     price $.05 per share                                  -            720,000

     Options and warrants held at year-end,
     prices from $.05 to $1.00 per share           1,927,429          1,907,429

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  $1,222,897  and  $872,007,
respectively, as of March 31, 2003.

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.

                                      -42-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 3 - GOING CONCERN (CONTINUED)

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.


NOTE 4 - INVENTORIES

At March 31, 2003 and 2002, inventories were comprised of the following:

                                                       2003            2002
                                                 ----------      ----------
     Coffee                                      $   27,515      $   17,330
     Other merchandise held for sale                 20,477          33,722
     Packaging and other supplies                    26,675          12,186
                                                 ----------      ----------
                                                 $   74,667      $   63,238
                                                 ==========      ==========


NOTE 5 - PROPERTY AND EQUIPMENT, AND INTANGIBLE ASSETS

At March  31,  2003 and 2002,  property  and  equipment  were  comprised  of the
following:

                                                       2003            2002
                                                 ----------      ----------
     Kiosk carts                                 $  156,078      $  281,983
     Kiosk equipment                                148,850         293,415
     Equipment and furniture                        165,436         232,482
     Signage                                         61,507          50,613
     Site improvements                               73,929         127,434
     Assets not in service                           93,824              --
                                                 ----------      ----------
                                                    699,624         985,927
     Less: accumulated depreciation                (428,661)       (570,317)
                                                 ----------      ----------
                                                 $  270,963      $  415,610
                                                 ==========      ==========

                                      -43-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 5 - PROPERTY AND EQUIPMENT, AND INTANGIBLE ASSETS (CONTINUED)

Included in other  assets at March 31,  2003 and 2002,  were  intangible  assets
comprised of the following:

                                                       2003            2002
                                                 ----------      ----------
     Amortized assets:
     Non competition agreement                   $   25,000      $   25,000
     Other identifiable intangibles                  27,341          15,770
                                                 ----------      ----------
                                                     52,341          40,770
     Less: accumulated amortization                 (39,800)        (26,544)
                                                 ----------      ----------
                                                 $   12,541      $   14,226
                                                 ==========      ==========

     Unamortized assets:
     Trade name                                  $   50,053      $   22,673
                                                 ==========      ==========

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

                                                       2003            2002
                                                 ----------      ----------
     Depreciation                                $  151,293      $  115,020
     Amortization                                    13,056          16,944
                                                 ----------      ----------
                                                 $  164,349      $  131,964
                                                 ==========      ==========

NOTE 6 - ACCOUNTS PAYABLE

At March  31,  2003  and  2002,  approximately  40% and 39% of the  balances  in
accounts payable, respectively, have been outstanding for more than 90 days.

NOTE 7 - ACCRUED EXPENSES

At March 31, 2003 and 2002, accrued expenses were comprised of the following:

                                                       2003            2002
                                                 ----------      ----------
     Accrued interest                            $   49,937      $   32,272
     Accrued wages                                   58,263          47,393
     Estimated use tax                               32,008          32,008
     Accrued payroll taxes                          201,145         162,397
     Other                                            2,156           5,650
                                                 ----------      ----------
                                                 $  343,509      $  279,720
                                                 ==========      ==========

The Company has accrued past due payroll tax obligations to the Internal Revenue
Service and the State of  California.  As of March 31, 2003 and 2002,  the total
amounts past due were $181,312 and $134,827, respectively. The Company continues
to work with the Internal Revenue Service and the State of California to resolve
these issues.  Subsequent to March 31, 2003,  the Company has paid an additional
$21,000 towards the past due obligations.

                                      -44-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

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,  2003 and 2002,
short-term borrowings were comprised of the following:

                                                                2003       2002
                                                             ---------   -------
     Unsecured short-term note, payable to a shareholder,
     interest only payable monthly at 8% per annum           $  50,000   $    --

     Unsecured, non-interest bearing obligation, payable
     to a shareholder, due on demand                            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        --
                                                             ---------   -------
                                                             $  69,000   $    --
                                                             =========   =======

NOTE 9 - SECURED CONVERTIBLE 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.
Subsequent to March 31, 2003, the third  tranche,  in the amount of $250,000 was
consummated  on May 20, 2003.  The  aggregate  net proceeds of the third tranche
were approximately $212,000.

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.

                                      -45-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 9 - SECURED CONVERTIBLE DEBENTURES (CONTINUED)

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
year ended March 31, 2003,  the  financing  cost amounted to a total of $500,000
for the debentures due December 20, 2003 and January 23, 2004.

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. As of the date of this  report no  warrants  have been
exercised.

NOTE 10 - LEASE OBLIGATIONS

The Company leases office space under an operating  lease  expiring  October 31,
2003. Rental expense under this lease agreement  amounted to $34,823 and $32,086
for the years ending March 31, 2003 and 2002, respectively.

During the year ended March 31, 2002, the Company  entered a long-term lease for
store space under an operating  lease expiring  January 31, 2008, with an option
to renew for an additional five years. Rental expense under this lease agreement
amounted  to $39,389  and  $16,750  for the years ended March 31, 2003 and 2002,
respectively.

During the year ended March 31, 2003, the Company  entered a long-term lease for
store space under an operating  lease expiring  January 31, 2008, with an option
to renew for an additional five years. Rental expense under this lease agreement
amounted to $3,200 for the year ended March 31, 2003.

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

          Year ended March 31                    Amount
          -------------------                  ---------
                  2004                         $ 113,448
                  2005                            95,776
                  2006                            99,195
                  2007                           102,763
                  2008                            89,677
                  Thereafter                           -
                                               ---------
                                               $ 500,859
                                               =========

                                      -46-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 11 - LONG-TERM DEBT

The  outstanding  balance  of  long-term  debt at  March  31,  2003  and 2002 is
summarized as follows:

                                                              2003       2002
                                                            --------   --------
     10% note, unsecured, payable in monthly installments
     of $4,164 including interest, due December 1, 2004     $ 69,340   $     --

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

     10% note, unsecured, payable in monthly installments
     of $850 including interest, due March 31, 2007
     (converted to common stock)                                  --     40,000

     Less current portion                                    (35,922)    (6,491)
                                                            $ 46,477   $ 33,509
                                                            ========   ========

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

          Year ended March 31                    Amount
          -------------------                  ---------
                  2004                         $  35,922
                  2005                            38,970
                  2006                             3,219
                  2007                             3,556
                  2008                               732
                                               ---------
                                               $  82,399
                                               =========

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, 2003 and 2002,  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, 2003 and
2002, the Company has accrued  $38,430 and $32,132 of interest  payable on these
notes,  respectively.  As of March 31,  2003,  the Company has not  received any
notice of default relating to the notes.

                                      -47-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

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.

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
          -----------                         -----------
          $ 6,743,000                         $ 1,774,000
          ===========                         ===========

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

                                                       2003            2002
                                                 ----------      ----------
     Deferred tax liabilities                    $       --      $       --
     Deferred tax assets                          1,840,000       1,340,000
     Valuation allowance                         (1,840,000)     (1,340,000)
                                                 ----------      ----------
     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, 2003 and
2002.

                                      -48-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 14 - STOCK OPTIONS AND WARRANTS (CONTINUED)

Under the 1999 Plan,  options to purchase  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, 2003 and 2002.

Non plan options to purchase  3,637,000 and 3,046,000 shares of common stock, at
an exercise price ranging from $0.05 to $2.00 per share,  were outstanding as of
March 31, 2003 and 2002, 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.

SFAS  123  requires  the  disclosure  of  pro  forma  net  income/loss  and  net
income/loss  per  share as if the  Company  adopted  the fair  value  method  of
accounting for  stock-based  awards.  Had  compensation  costs for the Company's
stock-based compensation plans been accounted for using the fair value method at
the grant dates using the  Black-Scholes  model,  the Company's net loss and net
loss per share would have been as follows:

                                                 Pro Forma          As Reported
                                              --------------     --------------
     Fiscal Year Ended March 31, 2003
     Net Loss                                 $   (1,713,691)    $   (1,764,963)
     Net Loss per Common Share                $        (0.08)    $        (0.09)

     Fiscal Year Ended March 31, 2002
     Net Loss                                 $     (611,965)    $     (626,423)
     Net Loss per Common Share                $        (0.04)    $        (0.04)

A summary of the stock option activity for the two years ended of March 31, 2003
follows:

                                                  Number of   Weighted-Average
                                                   Options     Exercise Price
                                                 Outstanding       Per Share
                                                 ----------       ----------
     Balance at March 31, 2001                      683,429       $     .967
     Granted                                      3,396,000             .137
     Exercised                                      (70,000)            .200
     Canceled                                      (720,000)            .050
     Forfeited                                      (28,000)            .661
                                                 ----------       ----------
     Balance at March 31, 2002                    3,261,429       $     .325
                                                 ==========       ==========
     Exercisable 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, 2003                    3,852,429       $     .314
                                                 ==========       ==========
     Exercisable at March 31, 2003                3,579,879       $     .321
                                                 ==========       ==========

                                      -49-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 14 - STOCK OPTIONS AND WARRANTS (CONTINUED)

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

         Exercise Price                       2003                  2002
         --------------                  ---------             ---------
           $ 0.05                        1,562,000             1,626,000
           $ 0.15                          250,000                     -
           $ 0.20                          545,000               320,000
           $ 0.25                          200,000               200,000
           $ 0.35                          200,000               200,000
           $ 0.40                          380,000               200,000
           $ 0.50                          200,000               200,000
           $ 0.70                          127,429               127,429
           $ 0.80                           70,000                70,000
           $ 1.00                          118,000               118,000
           $ 1.50                          100,000               100,000
           $ 2.00                          100,000               100,000
                                         ---------             ---------
                                         3,852,429             3,261,429
                                         =========             =========

A summary of the  warrant  activity  for the two years  ended of March 31,  2003
follows:

                                                  Number of    Weighted-Average
                                                   Warrants     Exercise Price
                                                 Outstanding       Per Share
Balance at March 31, 2001                         1,428,638       $     .760
Granted                                             240,000             .483
Exercised                                          (308,731)            .050
Canceled                                                 --             .000
Forfeited                                                --             .000
                                                 ----------       ----------
Outstanding and exercisable 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
                                                 ==========       ==========

                                      -50-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 14 - STOCK OPTIONS AND WARRANTS (CONTINUED)

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

         Exercise Price                    2003               2002
         --------------               ---------          ---------
           $ 0.0003                     300,000                  -
           $ 0.01                       100,000                  -
           $ 0.10                       150,000            150,000
           $ 0.25                     1,350,000                  -
           $ 0.35                             -            100,000
           $ 0.40                        15,000             40,000
           $ 0.50                       200,000            200,000
           $ 0.70                        92,500            332,500
           $ 1.00                       227,407            337,407
           $ 2.00                       100,000            100,000
           $ 2.50                       100,000            100,000
                                      ---------          ---------
                                      2,634,907          1,359,907
                                      =========          =========

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, 2003 and 2002,  were  approximately  20,578,034 and  17,195,799,
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, 2003 and 2002,  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.

NOTE 16 - SUPPLEMENTAL DISCLOSURES TO STATEMENT OF CASH FLOWS

Non-cash investing and financing transactions for the years ended March 31, 2003
and 2002 are as follows:

                                                              2003          2002
                                                        ----------    ----------
     Issuance of common stock in exchange for
     discharge of obligations on long-term borrowings,
     trade payables, and other liabilities              $  300,356    $   15,400

     Trade payables and accrued expenses forgiven          138,619        54,667

     Issuance of common stock in exchange for
     services provided                                      96,500       128,750

                                      -51-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 16 - SUPPLEMENTAL DISCLOSURES TO STATEMENT OF CASH FLOWS (CONTINUED)

                                                              2003          2002
                                                        ----------    ----------
     Conversion of trade payables to notes payable      $   89,557             -

     Credit memos issued to customers for
     slotting agreements                                    82,500             -

     Sale of equipment in exchange for obligations
     on trade payables and other liabilities                     -        47,195

     Reduction of obligation to issue shares of
     common stock                                                -        24,000

     Issuance of common stock in exchange for
     property and equipment                                      -        10,000

NOTE 17 - FORGIVENESS OF DEBT

Forgiveness  of debt amounted to $138,619 and $54,667 for the years ending March
31, 2003 and 2002, respectively. This income represents the forgiveness of trade
payables  and  accrued  expenses  recorded  as expenses in the current and prior
years. Significant transactions relating to forgiveness of debt are explained in
the following paragraphs.

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.

During the year ended March 31, 2002, a client of the Company  agreed to forgive
accrued revenue sharing obligations  totaling $35,026.  The Company continues to
operate its retail espresso coffee bar kiosks at the client's facilities.

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.

The Company has a registered  service mark for its rhinoceros  logo. The Company
is  aware of  another  entity  in  North  Carolina  that is  utilizing  the name
"Peabodys"  in the coffee  industry.  The North  Carolina  entity has received a
federal  trademark  registration  of the  name  "Peabodys".  While  the  Company
believes that it has the right to use the name "Peabodys", if it were determined
that the Company were not able to continue  utilizing  the name  "Peabodys",  it
could have a material  adverse  effect on the Company and the Company would have
to re-establish any lost goodwill and name recognition.

                                      -52-
<PAGE>

                              PEABODYS COFFEE, INC.
                          NOTES TO FINANCIAL STATEMENTS
                             MARCH 31, 2003 AND 2002

NOTE 18 - RISKS AND UNCERTAINTIES (CONTINUED)

The Company has  applications  pending with the U.S. Patent and Trademark Office
for the  registration of the following  trademarks:  "Black Rhino Coffee," "Alma
Blend,"  "Spiritu  Blend,"  "Coffee with Body and Soul," and "Black Rhino Coffee
with Rhinoceros  design." It has also filed applications for the registration of
the "Black Rhino  Coffee"  trademark in Canada and the European  Community.  The
applications  for "Black Rhino  Coffee" and "Black Rhino Coffee with  Rhinoceros
design" were denied by the U.S. Patent and Trademark Office on January 27, 2003.
The  Company  plans to file an  appeal  prior to July  27,  2003.  It is also in
negotiations to enter a coexistence agreement with the holder of a similar mark.

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 47% and 60% of its gross revenues,  with the largest client in
each year  representing 13% and 24% for the years ended March 31, 2003 and 2002,
respectively.

As of March  31,  2003 and  2002,  the  Company's  officers  and  directors  own
approximately  13% and 15%,  respectively,  of the outstanding  shares of common
stock. The Company's  dividend policy,  as well as 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.

The  Company  has  engaged  in  settlement  negotiations  for over  nine  months
regarding the status of the 500,000  shares  transferred by Mr. Young to various
individuals with no resolution as of this date.  Management  anticipates that it
will  reach a  settlement  within  the  next  three to six  months  and that the
settlement  will provide for the redemption by the Company of the 500,000 shares
currently owned by Mr. Young and his transferees.  At the very least, management
expect that the court will enjoin Mr. Young and his transferees from registering
any of the 500,000 shares received by them.

                                      -53-
<PAGE>

NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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, 2003 and
2002.

NOTE 21 - SUBSEQUENT EVENTS

Subsequent to March 31, 2003,  the Company sold two operating  units in Southern
California. These units accounted for approximately 11.6% of the Company's sales
revenue  and 13.0% of the  Company's  gross  profit for the year ended March 31,
2003.

Subsequent  to  March  31,  2003,  the  purchasers  of  the  Company's   secured
convertible  debentures  have elected to convert a total of $63,000 plus accrued
interest into 1,119,492 shares of common stock.

                                      -54-
<PAGE>

                                    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.

99.1           Certification  Pursuant  to 18  U.S.C.  Section  1350 As  Adopted
               Pursuant to Section 906 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.

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

                                      -55-
<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, President

                                        Date: July 15, 2003


     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.

Signature                            Title                             Date
---------                            -----                             ----


________/S/_____________     President, Chief Financial            July 15, 2003
Todd N. Tkachuk              Officer, and Director (Principal
                             Executive Officer and Principal
                             Financial Officer)

________/S/_____________     Director                              July 15, 2003
Roman Kujath


________/S/_____________     Director                              July 15, 2003
Barry Gibbons


________/S/_____________     Director                              July 15, 2003
David Lyman


________/S/_____________     Director                              July 15, 2003
John Phillips

                                      -56-
<PAGE>

I, Todd N. Tkachuk, certify that:

1.   I have reviewed this annual report on Form 10-KSB of Peabodys Coffee, Inc.,
     ("the registrant");

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based  on  my  knowledge,   the  financial   statements,   other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most  recent  evaluation  to the  registrant's  auditors  and the audit
     committee of registrant's board of directors:

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors and material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


                           /s/ Todd N. Tkachuk
                           ----------------------------
                           Todd N. Tkachuk
                           President, Chief Executive Officer,
                           Chief Financial Officer
                           July 15, 2003