---

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-KSB/A

Amendment No. 1



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- | ----------------------------------------------------

SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2002



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|- | --------------------------------------------------------

SECURITIES EXCHANGE ACT OF 1934



For the transition period from
 to



Commission File No. 33-960-70-LA



---



THANKSGIVING COFFEE COMPANY, INC.

(Name of small business issuer in its
charter)



|California                                                     |  | 94-2823626                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



|19100 South Harbor Drive Fort Bragg, California |  |  |  | 95437 (Zip Code)
|----------------------------------------------- |  |  |  | ----------------
|(Address of principal executive officers)       |  |  |  |                 



Issuers
telephone number: (707) 964-0118



---



Securities registered under Section 12(b) of the Exchange Act:



|Title of each class |  |  |  | Name of each exchange on which registered
|------------------- |  |  |  | -----------------------------------------



Securities
registered under Section 12(g) of the Exchange Act:



(Title of class)

(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 filing 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 not 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/A or any amendment to this Form 10-KSB/A.    x



State issuers revenues for its most recent fiscal year: $5,010,650



There have been no trades in the Companys Common Stock since 1999. See Part II, Item 5, Market for Common Equity and
Related Stockholder Matters.



As of March 25, 2003, there were
1,234,544 shares outstanding of common stock of the issuer.



DOCUMENTS INCORPORATED BY REFERENCE.



List
hereunder the documents if incorporated by reference and the Part of this Form 10-KSB/A into which the document is incorporated: None.



Explanatory Note



This amendment on Form 10-KSB/A is being filed to amend the Annual Report of Thanksgiving Coffee Company, Inc. (the Company) on Form 10-KSB
previously filed for the year ended December 31, 2002 (the Prior Report) for the purposes of correcting an inadvertent omission from the report of the Companys independent accountants of the location of their offices and to add the
accountants conformed signature to the filed report. No changes have been made to the financial statements contained in the Prior Report. We direct you to refer to our Quarterly Reports on Form 10-QSB and to the other reports we file with the
Securities and Exchange Commission from time to time after the date of this report for more current information regarding the Company.



---



---

PART II



ITEM 7 FINANCIAL STATEMENTS



Information in response to this item is set forth in Item 14 beginning on page F-1 of this filing.



PART III



ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K



|(a) | Exhibits
|--- | --------



|3.1   |  | Restated Articles of Incorporation of the Company.+                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | By laws of the Company.+                                                                                                                      
|3.2.1 |  | Amendment No. 1 to Bylaws of the Company, dated June 3, 1996.++                                                                               
|10.1  |  | Business Loan Agreement dated as of September 5, 1995 by and between the Company
and Wells Fargo Bank, N.A., as amended on August 11, 1997.+++
|10.2  |  | Lease agreements for the Companys Fort Bragg facilities.                                                                                     
|      |  | 10.2.1                                                                                                                                        
|      |  | 10.2.2                                                                                                                                        
|      |  | 10.2.3                                                                                                                                        
|      |  | 10.2.4                                                                                                                                        
|10.3  |  | Lease Agreement for the Companys Bakery in Mendocino. ++++                                                                                   
|10.4  |  | Sample Coffee Purchase Agreement. +                                                                                                           
|10.5  |  | Promissory Note issued by the Company to Joan and Paul Katzeff dated as of April 17, 1996.++++                                                
|10.6  |  | Promissory Note issued by the Company to Joan and Paul Katzeff dated as of December 30,
1990.++++                                             
|10.7  |  | Stock Purchase Agreement between the Company, Sustainable Harvest, Inc. and David Griswold as of December 31, 1997.++++!                      
|10.8  |  | Summary Plan Description of the Companys Profit Sharing Plan. ++++                                                                           
|10.9  |  | Business Loan Agreement dated as of August 13, 1997 by and between the Company and Wells Fargo Bank, N.A.
+++++                               
|10.10 |  | Business Loan Agreement dated as of January 6, 1999 by and between the Company and Wells Fargo Bank, N.A.
+++++                               
|10.11 |  | Non-exclusive License Agreement dated as of July 14, 1998 by and between the Company and Wyland International, LLC.+++++!!                    
|10.12 |  | Business Loan Agreement dated as of November 30, 2000 by and between the Company and Wells Fargo Bank,
N.A.!!!                                
|10.13 |  | Promissory Note issued by the Company to Joan and Paul Katzeff dated as of April 1, 2001.**                                                   
|10.14 |  | Promissory Note issued by the Company to Joan and Paul Katzeff dated as of October, 2001.***                                                  
|10.15 |  | Promissory Note issued by the Company to Joan and Paul Katzeff as of April 1, 2002.****                                                       
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                           
|31.2  |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                           
|32.1  |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                           
|32.2  |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           

---

|+ | Incorporated by reference to the exhibits to the Companys Registration Statement on Form S-1 (File No 33-96070-LA).
|- | --------------------------------------------------------------------------------------------------------------------

|++ | Incorporated by reference to the exhibits to the Companys Form 10-QSB for the quarter ended June 30, 1997.
|-- | -----------------------------------------------------------------------------------------------------------

|+++ | Incorporated by reference to the exhibits to the Companys Form 10-QSB for the quarter ended September 30, 1997.
|--- | ----------------------------------------------------------------------------------------------------------------

|++++ | Incorporated by reference to the exhibits to the Companys Form 10-KSB for the year ended December 31, 1997.
|---- | ------------------------------------------------------------------------------------------------------------

|+++++ | Incorporated by reference to the exhibits to the Companys Form 10-KSB for the year ended December 31, 1998.
|----- | ------------------------------------------------------------------------------------------------------------

|! | Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Securities and Exchange Commission pursuant to a Confidential Treatment Request under
Rule 24-b2 of the Securities Exchange Act of 1934, as amended, filed on March 31, 1998.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|!! | Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Securities and Exchange Commission pursuant to a Confidential Treatment Request under
Rule 24-b2 of the Securities Exchange Act of 1934, as amended, filed on March 31, 1999.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|!!! | Incorporated by reference to the exhibits to the Companys Form 10-KSB for the year ended December 31, 2000.
|--- | ------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference to the exhibits to the Companys Form 10-QSB for the quarter ended June 30, 2001.
|-- | -----------------------------------------------------------------------------------------------------------

|*** | Incorporated by reference to the exhibits to the Companys Form 10-QSB for the quarter ended September 30, 2001.
|--- | ----------------------------------------------------------------------------------------------------------------

|**** | Incorporated by reference to the exhibits to the Companys Form 10-QSB for the quarter ended June 30, 2002.
|---- | -----------------------------------------------------------------------------------------------------------



|(b) | Reports on 8-K None.
|--- | --------------------



---

SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



THANKSGIVING COFFEE COMPANY, INC.



|/s/ Paul Katzeff       
|-----------------------
|Paul Katzeff           
|Chief Executive Officer
|October 8, 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 dates indicated.



|Name             |  | Title                                                                                        |  | Date           
|---------------- |  | -------------------------------------------------------------------------------------------- |  | ---------------
|/s/ Paul Katzeff |  | Chief Executive Officer (Principal Executive Officer) and Director                           |  | October 8, 2003
|Paul Katzeff     |  |                                                                                              | 
|                 |  |                                                                                              |  |                
|/s/ Joan Katzeff |  | President, Chief Financial Officer (Principal Financial and Accounting Officer) and Director |  | October 8, 2003
|Joan Katzeff     |  |                                                                                              | 
|                 |  |                                                                                              |  |                
|/s/ Roy Doughty  |  | Director                                                                                     |  | October 8, 2003
|Roy Doughty      |  |                                                                                              |  |                



---

ITEM 14 FINANCIAL STATEMENTS



|Financial Statements                  
|--------------------------------------
|Thanksgiving Coffee Company, Inc.     
|Years Ended December 31, 2002 and 2001
|with Report of Independent Accountants



---

|Thanksgiving Coffee Company, Inc.     
|--------------------------------------
|Audited Financial Statements          
|Years Ended December 31, 2002 and 2001
|Report                                
|                                      
|Report of Independent Accountants     
|                                      
|Reviewed Financial Statements         
|                                      
|Balance Sheets                        
|                                      
|Statements of Income                  
|                                      
|Statements of Accumulated Deficit     
|                                      
|Statements of Cash Flows              
|                                      
|Notes to Financial Statements         



---

[Letterhead of

SALLMANN, YANG & ALAMEDA

An Accountancy Corporation,

Certified Public Accountants

6601 Koll Center
Parkway, Suite 180

Pleasanton, California 94566-3118

Phone: (925) 426-7744

Fax: (925) 426-7772

Web: www.taxaccess.com]



Report of Independent Accountants



To The Board of
Directors

Thanksgiving Coffee Company, Inc.

Fort Bragg,
California



We have audited the accompanying balance sheets of Thanksgiving
Coffee Company, Inc. (a California Corporation) as of December 31, 2002 and 2001 and the related statements of income, retained earnings, and cash flows for each of the three years ended December 31, 2002, 2001 and 2000. 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
audits 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 present fairly, in all material respects, the
financial position of Thanksgiving Coffee Company, Inc. at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years ended December 31, 2002, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States of America.



|/s/ SALLMANN, YANG & ALAMEDA
|----------------------------
|An Accountancy Corporation  



SALLMANN, YANG & ALAMEDA

An Accountancy Corporation



Pleasanton, California



March 5, 2003



F-3



---

|Thanksgiving Coffee Company, Inc.  Balance Sheets | 
|------------------------------------------------- | 
|                                                  | 
|                                                  | 
|Assets                                            | 
|                                                  | 
|Current assets                                    | 
|                                                  | 
|Cash                                              | 
|                                                  | 
|Accounts receivable                               | 
|                                                  | 
|Employee receivable                               | 
|                                                  | 
|Inventory                                         | 
|                                                  | 
|Prepaid expenses                                  | 
|                                                  | 
|Deferred tax asset                                | 
|                                                  | 
|Total current assets                              | 
|                                                  | 
|Property and equipment                            | 
|                                                  | 
|Property and equipment                            | 
|                                                  | 
|Property held under capital lease                 | 
|                                                  | 
|Accumulated depreciation                          | 
|                                                  | 
|Total property and equipment                      | 
|                                                  | 
|Other assets                                      | 
|                                                  | 
|Deposits and other assets                         | 
|                                                  | 
|Goodwill                                          | 
|                                                  | 
|Other intangibles, net of amortization            | 
|                                                  | 
|Deferred tax asset                                | 
|                                                  | 
|Total other assets                                | 
|                                                  | 
|Total assets                                      | 
|                                                  | 



See accompanying
notes and accountants report



F-4



---

Thanksgiving Coffee Company, Inc.



Balance Sheets



|                                                                                                 |  | December 31 |          
|------------------------------------------------------------------------------------------------ |  | ----------- | ---------
|                                                                                                 |  | 2002        |          
|Liabilities and shareholders equity                                                             |  |             |          
|                                                                                                 |  |            
|Current liabilities                                                                              |  |             |          
|                                                                                                 |  |            
|Accounts payable                                                                                 |  | $           | 302,903  
|                                                                                                 |  |            
|Notes payable-bank, current portion                                                              |  |             | 92,800   
|                                                                                                 |  |            
|Notes payable-other, current portion                                                             |  |             | 53,906   
|                                                                                                 |  |            
|Notes payable-shareholders, current portion                                                      |  |             | 42,055   
|                                                                                                 |  |            
|Capital lease obligations, current portion                                                       |  |             | 15,290   
|                                                                                                 |  |            
|Accrued liabilities                                                                              |  |             | 54,798   
|                                                                                                 |  |            
|Deferred income taxes                                                                            |  |             |         
|                                                                                                 |  |             |          
|Total current liabilities                                                                        |  |             | 561,752  
|                                                                                                 |  |            
|Long term debt                                                                                   |  |             |          
|                                                                                                 |  |            
|Notes payable-bank                                                                               |  |             | 185,600  
|                                                                                                 |  |            
|Notes payable-other                                                                              |  |             | 23,211   
|                                                                                                 |  |            
|Notes payable-shareholders                                                                       |  |             |         
|                                                                                                 |  |            
|Capital lease obligations                                                                        |  |             | 47,920   
|                                                                                                 |  |             |          
|Total long term debt                                                                             |  |             | 256,731  
|                                                                                                 |  |             |          
|Total liabilities                                                                                |  |             | 818,483  
|                                                                                                 |  |            
|Shareholders equity                                                                             |  |             |          
|                                                                                                 |  |            
|Common stock, no par value, 1,960,000 shares authorized, 1,234,544 shares issued and outstanding |  |             | 861,816  
|                                                                                                 |  |            
|Additional paid in capital                                                                       |  |             | 24,600   
|                                                                                                 |  |            
|Retained earnings (accumulated deficit)                                                          |  |             | 43,121   
|                                                                                                 |  |             |          
|Total shareholders equity                                                                       |  |             | 929,537  
|                                                                                                 |  |             |          
|Total liabilities and shareholders equity                                                       |  | $           | 1,748,020
|                                                                                                 |  |             |          



See accompanying notes and
accountants report



F-5



---

Thanksgiving Coffee Company, Inc.



Statements of Income



|                                                                                            |  | Years Ended December 31 |          
|------------------------------------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                                            |  | 2002                    |          
|Income                                                                                      |  |                         |          
|                                                                                            |  |                         |          
|Net sales                                                                                   |  | $                       | 5,010,650
|                                                                                            |  |                         |          
|Cost of sales                                                                               |  |                         | 2,587,937
|                                                                                            |  |                         |          
|Gross profit                                                                                |  |                         | 2,422,713
|                                                                                            |  |                         |          
|Operating expenses                                                                          |  |                         |          
|                                                                                            |  |                         |          
|Selling, general and administrative expenses                                                |  |                         | 2,108,374
|                                                                                            |  |                         |          
|Depreciation and amortization                                                               |  |                         | 169,786  
|                                                                                            |  |                         |          
|Total operating expenses                                                                    |  |                         | 2,278,160
|                                                                                            |  |                         |          
|Operating income                                                                            |  |                         | 144,553  
|                                                                                            |  |                         |          
|Other income (expense)                                                                      |  |                         |          
|                                                                                            |  |                         |          
|Interest income                                                                             |  |                         | 330      
|                                                                                            |  |                         |          
|Miscellaneous income (expense)                                                              |  |                         | 965      
|                                                                                            |  |                         |          
|Gain on sale of equipment                                                                   |  |                         | 628      
|                                                                                            |  |                         |          
|Labor settlement expense                                                                    |  |                         |         
|                                                                                            |  |                         |          
|Interest expense                                                                            |  |                         | (57,457  
|                                                                                            |  |                         |          
|Total other income (expense)                                                                |  |                         | (55,534  
|                                                                                            |  |                         |          
|Income (loss) before income taxes and cumulative effect of a change in accounting principle |  |                         | 89,019   
|                                                                                            |  |                         |          
|Income tax benefit (expense)                                                                |  |                         | 24,609   
|                                                                                            |  |                         |          
|Cumulative effect of change in accounting Principle                                         |  |                         |         
|                                                                                            |  |                         |          
|Net income (loss)                                                                           |  | $                       | 113,628  
|                                                                                            |  |                         |          
|Earnings (loss) per share (basic)                                                           |  | $                       | 0.09     
|                                                                                            |  |                         |          
|Earnings (loss) per share (dilutive)                                                        |  | $                       | 0.09     
|                                                                                            |  |                         |          



See accompanying notes and
accountants report



F-6



---

Thanksgiving Coffee Company, Inc.



Statements of Retained Earnings



|                                                |  | December 31 |        
|----------------------------------------------- |  | ----------- | -------
|                                                |  | 2002        |        
|Accumulated deficit, beginning                  |  | $           | (70,507
|                                                |  |             |        
|Net income (loss)                               |  |             | 113,628
|                                                |  |             |        
|Retained earnings (accumulated deficit), ending |  | $           | 43,121 
|                                                |  |             |        



See accompanying notes and
accountants report



F-7



---

Thanksgiving Coffee Company, Inc.



Statements of Cash Flows



|                                                    |  | Years Ended December 31 |         
|--------------------------------------------------- |  | ----------------------- | --------
|                                                    |  | 2002                    |         
|Operating activities                                |  |                         |         
|                                                    |  |                         |         
|Net income (loss)                                   |  | $                       | 113,628 
|                                                    |  |                         |         
|Noncash items included in net income (loss)         |  |                         |         
|                                                    |  |                         |         
|Depreciation and amortization                       |  |                         | 191,185 
|                                                    |  |                         |         
|Gain on sale of equipment                           |  |                         | (628    
|                                                    |  |                         |         
|Cumulative effect of change in accounting principle |  |                         |        
|                                                    |  |                         |         
|Deferred income tax expense (benefit)               |  |                         | (25,409 
|                                                    |  |                         |         
|Changes in operating assets and liabilities         |  |                         |         
|                                                    |  |                         |         
|Receivables                                         |  |                         | 11,822  
|                                                    |  |                         |         
|Inventory                                           |  |                         | 592     
|                                                    |  |                         |         
|Prepaid expenses                                    |  |                         | 31,982  
|                                                    |  |                         |         
|Deposits and other assets                           |  |                         | 3,647   
|                                                    |  |                         |         
|Accounts payable                                    |  |                         | (19,330 
|                                                    |  |                         |         
|Accrued liabilities                                 |  |                         | 7,774   
|                                                    |  |                         |         
|Net cash provided by operating activities           |  |                         | 315,263 
|                                                    |  |                         |         
|Investing activities                                |  |                         |         
|                                                    |  |                         |         
|Purchases of property and equipment                 |  |                         | (217,319
|                                                    |  |                         |         
|Proceeds from sale of equipment                     |  |                         | 2,389   
|                                                    |  |                         |         
|Purchases of intangible assets                      |  |                         |        
|                                                    |  |                         |         
|Net cash used by investing activities               |  |                         | (214,930
|                                                    |  |                         |         
|Financing activities                                |  |                         |         
|                                                    |  |                         |         
|Payments from notes receivable                      |  |                         |        
|                                                    |  |                         |         
|Proceeds from notes payable and capital leases      |  |                         | 87,699  
|                                                    |  |                         |         
|Repayments of notes payable and capital leases      |  |                         | (221,734
|                                                    |  |                         |         
|Net cash used by financing activities               |  |                         | (134,035
|                                                    |  |                         |         
|Net increase (decrease) in cash                     |  |                         | (33,702 
|                                                    |  |                         |         
|Cash at beginning of year                           |  |                         | 98,876  
|                                                    |  |                         |         
|                                                    |  |                         |         
|Cash at end of year                                 |  | $                       | 65,174  
|                                                    |  |                         |         



See accompanying notes and
accountants report



F-8



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements



December 31,
2002 and 2001



1. Summary of Significant Accounting Policies



Description of Business



Thanksgiving Coffee Company, Inc. (the Company), is a corporation that purchases and roasts
high-quality whole bean coffees and sells them to restaurants, grocery stores and other retail outlets. These products are sold primarily through its own distribution network in the Northern California area. Outside of Northern California, the
Company ships nationally throughout the fifty states by common carriers selling direct or through brokers and distributors. Distributors and retailers do not have the right to return products. Additionally, the Company produces and sells a line of
high-quality tea products under the trademark of Royal Gardens Tea Company. The Company also sells coffee, tea and related specialty products through mail order and Internet sales on a nationwide basis. The Company sells sandwiches, pastries, coffee
and tea through a bakery located in Mendocino, California.



Basis of
Presentation



The Company has prepared the financial statements on the
accrual basis of accounting in accordance with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation have been included.



Concentration of Credit Risk



The Company grants credit to customers in the retail and food service industries throughout
the country. Consequently, the Companys ability to collect the amounts due from customers is affected by economic fluctuations in the retail and food service industries.



Inventory



Inventory is stated at the lower of cost or market (first-in, first-out).



Property and Equipment



Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided on the straight-line and 150% declining balance methods over estimated useful lives generally ranging from five to
twelve years.



Leasehold improvements are carried at cost and are amortized
over the shorter of their estimated useful lives or the related lease term (including options), generally ranging from five to thirty-nine years.



F-9



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)



Property and Equipment (continued)



The portion of depreciation and amortization expense related to production facilities is
included in cost of sales.



Expenditures for major renewals that extend useful
lives of property, fixtures and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.



For income tax purposes, depreciation is computed using the accelerated cost recovery system and the modified cost recovery system.



Goodwill and Other Intangible Assets  Adoption of FASB No. 142



Effective January 1, 2002, the Company adopted FASB 142, Goodwill and Other Intangible
Assets (the Statement). The Statement makes significant changes to the methods and criteria used to amortize goodwill and intangible assets. Under the Statement, goodwill is no longer amortized, but, on an annual basis, must be tested for
impairment and possibly written down to reflect an impairment loss. The Statement also requires that certain intangible assets other than goodwill that have indefinite lives, not be amortized until the lives become finite. Intangible assets that do
not have indefinite lives are amortized over their useful economic lives.



Intangible assets are amortized over the following estimated useful lives using primarily straight-line basis.



|                |  | Life in Years
|--------------- |  | -------------
|Leasehold value |  | 14           
|                | 
|Trademark       |  | 17           
|                | 
|Refinance costs |  | 5            



Goodwill will not be reduced unless
events or circumstances occur indicating that impairment exists within a particular reporting unit. Impairment losses, if any, are recorded in the statement of income as part of operating income.



Investments in Consolidated Companies



On October 31, 1996, the Company acquired the assets of Mendocino Bakery, Inc. in a business
combination accounted for as a purchase.



F-10



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)



Profit Sharing Plan



The Company has a profit sharing plan covering substantially all of its employees. Benefits are based upon years of service and the
employees compensation during the employment period. No contributions to the profit sharing plan were made for the years ended December 31, 2002, 2001 and 2000.



Futures and Options Contracts



The Company occasionally enters into exchange traded coffee futures and options contracts with the objective of minimizing cost risk due to market fluctuations. The
Company does not define these contracts as hedge instruments pursuant to accounting principles and practices designated in Statement of Financial Accounting Standards No. 80, Accounting for Futures Contracts. Accordingly, changes in the
market value of futures contracts (unrealized gains and losses) are reported by the Company in the period in which the change occurs and are included as a component of shareholders equity. Realized gains and losses are a component of cost of
sales. The Company did not have any futures or options contracts in effect as of December 31, 2002, 2001 and 2000.



Compensated Absences



Employees of the Company are entitled to paid vacation, paid sick days and personal days off, depending on job classification, length of service, and other factors.



Advertising



The Company expenses costs of advertising the first time the advertising takes place, except direct-response advertising, which is
capitalized and amortized over its expected period of future benefits. Direct-response advertising consists primarily of mail order solicitation costs, typically mailed to customers who have specifically responded to this type of advertising. The
mail order department documents whether orders come from catalogs or other sources when processing orders. Catalog costs are amortized over the period from the catalog mailing until the next catalog is issued. Advertising costs charged to expense
were $14,907, $26,413 and $33,454 for the years ended December 31, 2002, 2001 and 2000, respectively.



Use of Estimates



The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.



F-11



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



2. Accounts Receivable



Accounts receivable consist of the following:



|                                      |  | 2002 |         |   | 2001 |  
|------------------------------------- |  | ---- | ------- | - | ---- | -
|Accounts receivable                   |  | $    | 317,693 |   |      | $
|                                      |  |     
|Less: Allowance for doubtful accounts |  |      | (9,033  | ) |      |  
|                                      |  |      |         |   |      |  
|                                      |  |     
|Accounts receivable, net              |  | $    | 308,660 |   |      | $
|                                      |  |      |         |   |      |  



The Company uses the percentage method
for uncollectible accounts. The allowance for doubtful accounts is estimated from 1% to 10% of total outstanding receivables as of December 31, 2002. The allowance for doubtful accounts was estimated at approximately 1% of total non-cash sales as of
December 31, 2001. Bad debt expense for the years ended December 31, 2002, 2001 and 2000 was $3,224, $13,970, and $5,506, respectively. The adjustments to the allowance account for the years ended December 31, 2002 and 2001 was $974 and $3,019,
respectively.



3. Inventory



Inventory consists of the following:



|                                                        |  | 2002 |         | 2001
|------------------------------------------------------- |  | ---- | ------- | ----
|Coffee                                                  |  |      |         |     
|                                                        |  |     
|Unroasted                                               |  | $    | 112,237 |     
|                                                        |  |     
|Roasted                                                 |  |      | 90,394  |     
|                                                        |  |     
|Tea                                                     |  |      | 12,175  |     
|                                                        |  |     
|Packaging, supplies and other merchandise held for sale |  |      | 164,072 |     
|                                                        |  |      |         |     
|Total inventory                                         |  | $    | 378,878 |     
|                                                        |  |      |         |     



F-12



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



4. Property and Equipment



Property and equipment consists of the following:



|                                   |  | 2002 |            |   | 2001 |  
|---------------------------------- |  | ---- | ---------- | - | ---- | -
|Equipment and fixtures             |  | $    | 1,562,635  |   |      | $
|                                   |  |     
|Furniture and equipment            |  |      | 287,653    |   |      |  
|                                   |  |     
|Leasehold improvements             |  |      | 423,200    |   |      |  
|                                   |  |     
|Transportation equipment           |  |      | 111,007    |   |      |  
|                                   |  |     
|Marketing equipment                |  |      | 155,241    |   |      |  
|                                   |  |     
|Property held under capital leases |  |      | 88,699     |   |      |  
|                                   |  |      |            |   |      |  
|Total property and equipment       |  |      | 2,628,435  |   |      |  
|                                   |  |     
|Accumulated depreciation           |  |      | (1,990,354 | ) |      |  
|                                   |  |      |            |   |      |  
|Property and equipment, net        |  | $    | 638,081    |   |      | $
|                                   |  |      |            |   |      |  



Marketing equipment includes costs to
develop and periodically update a website for on-line sales and promotion. Costs related to the Companys website are depreciated on the straight-line method over three years.



Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was $185,628, $210,880 and $212,037, respectively.



5. Goodwill and Other Intangible Assets



As part of the adoption of FASB Statement 142 as of January 1, 2002, the Company no longer
amortizes goodwill. The Company performed a test of impairment on goodwill which resulted in no impairment loss as of December 31, 2002.



The change in the carrying value of goodwill during the year ended December 31, 2002 follows:



|Carrying value - beginning of year |  |   | $171,773
|---------------------------------- |  | - | --------
|                                   | 
|Goodwill acquired                  |  |   |        
|                                   | 
|Goodwill impairment losses         |  |   |        
|                                   |  |   |         
|Carrying value - end of year       |  | $ | 171,773 
|                                   |  |   |         



F-13



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



5. Goodwill and Other Intangible Assets (continued)



Intangible assets subject to amortization consist of the following:



|                             |  | 2002 |         |   | 2001 |  
|---------------------------- |  | ---- | ------- | - | ---- | -
|Leasehold value              |  | $    | 67,000  |   |      | $
|                             |  |     
|Trademark                    |  |      | 5,127   |   |      |  
|                             |  |     
|Refinance cost               |  |      | 2,500   |   |      |  
|                             |  |      |         |   |      |  
|Total intangible assets      |  |      | 74,627  |   |      |  
|                             |  |     
|Accumulated amortization     |  |      | (31,377 | ) |      |  
|                             |  |      |         |   |      |  
|Other intangible assets, net |  | $    | 43,250  |   |      | $
|                             |  |      |         |   |      |  



Amortization expense for the years
ended December 31, 2002, 2001 and 2000 was $5,557, 13,938 and $16,882, respectively.



6. Long Term Debt



Notes Payable



|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 2002 |         | 2001
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ----
|Note payable to Wells Fargo Bank, monthly installments of $7,733 plus interest at 3% over prime rate beginning December 15, 2000 (7.25% at December 31, 2002), final payment is due on
January 15, 2005. The note payable is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights. The note is guaranteed by the Companys
majority shareholders. |  | $    | 278,400 |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |     
|Note payable to Wells Fargo Bank, payable in monthly installments of $1,667 plus interest at 1% over prime rate (5.75% at December 31, 2001), final payment became due and was paid on
August 15, 2002. The note was secured by all accounts receivable, inventory, equipment, fixtures and improvements.                                                                                                                                                   |  |      |        |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |     
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of interest only at 12.00%, with balance due on demand after June 30, 1996. The
shareholders have subordinated this note to all notes payable including Wells Fargo Bank as described above. Deferred interest is $0 and $3,780 at December 31, 2002 and 2001, respectively.                                                                                  |  |      | 24,919  |     



F-14



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



6. Long Term Debt (continued)



Notes Payable



|                                                                                                                                                                                                                                                  |  | 2002 |        | 2001
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ----
|                                                                                                                                                                                                                                                  |  |     
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of $1,649 including interest at 11.50%, with final payment due on November 17, 2003,
unsecured.                                                     |  | $    | 17,136 |     
|                                                                                                                                                                                                                                                  |  |     
|Note payable to the Estate of Laoma Yaski for the purchase of Mendocino Bakery, payable in monthly installments of $4,249, including interest at 10.00%, secured by property and
equipment at the bakery, final payment due on November 14, 2003. |  |      | 44,488 |     
|                                                                                                                                                                                                                                                  |  |     
|Note payable to Chase Manhattan Bank, payable in monthly installments of $324, including interest at 8.637%, secured by a vehicle, final payment due on October 26, 2004. This note is
guaranteed by the Companys majority shareholders.         |  |      | 6,575  |     
|                                                                                                                                                                                                                                                  |  |     
|Note payable to Chase Manhattan Bank, payable in monthly installments of $304, including interest at 9.90% secured by vehicle, final payment due on November 16, 2005. This note is
guaranteed by the Companys majority shareholders.            |  |      | 9,223  |     
|                                                                                                                                                                                                                                                  |  |     
|Note payable to Chrysler financing, payable in monthly installments of $335, including interest at 6.00% secured by vehicle, final payment due on October 30, 2007.                                                                               |  |      | 16,831 |     
|                                                                                                                                                                                                                                                  |  |     
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of interest only at 10.00%, the balance was due in lump sum and was paid on October 1,
2002, unsecured.                                             |  |      |       |     
|                                                                                                                                                                                                                                                  |  |     
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in one lump sum on April 1, 2002, including interest at 10.00% unsecured.                                                                                                   |  |      |       |     



F-15



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



6. Long Term Debt (continued)



Capital Lease Obligations



|                                                                                                                                                                                                     |  | 2002 |          |   | 2001 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | -
|                                                                                                                                                                                                     |  |     
|Note payable to First Sierra Computer Equipment, payable in monthly installments of $1,297, including interest at 14.00%, secured by equipment, final payment was due and paid on
February 26, 2002. |  | $    |         |   |      | $
|                                                                                                                                                                                                     |  |     
|Note payable to Avaya Financial Services, payable in monthly installments of $372, including interest at 12.00%, secured by equipment, final payment due on June 12, 2007.                           |  |      | 15,418   |   |      |  
|                                                                                                                                                                                                     |  |     
|Note payable to Nationwide Financial Services, payable in monthly installments of $1,414, including interest at 10.512%, secured by equipment, final payment due on May 10,
2006.                    |  |      | 47,792   |   |      |  
|                                                                                                                                                                                                     |  |     
|Note payable to Security Financial, payable in monthly installments of $910, including interest at 15.529%, secured by equipment, final payment was due and paid on February 22,
2002.               |  |      |         |   |      |  
|                                                                                                                                                                                                     |  |      |          |   |      |  
|                                                                                                                                                                                                     |  |     
|                                                                                                                                                                                                     |  |      | 460,782  |   |      |  
|                                                                                                                                                                                                     |  |     
|Less current portion                                                                                                                                                                                 |  |      | (204,051 | ) |      |  
|                                                                                                                                                                                                     |  |      |          |   |      |  
|                                                                                                                                                                                                     |  |     
|Long term portion of notes payable and capital lease obligations                                                                                                                                     |  | $    | 256,731  |   |      | $
|                                                                                                                                                                                                     |  |      |          |   |      |  



F-16



---

Interest paid for the years ended December 31, 2002, 2001 and 2000 was $57,457, $84,743 and $97,650, respectively.



As of December 31, 2002, maturities of notes payable and capital lease
obligations for each of the next five years and in the aggregate are as follows:



|Years Ending December 31 |  |  
|------------------------ |  | -
|2003                     |  | $
|                         | 
|2004                     |  |  
|                         | 
|2005                     |  |  
|                         | 
|2006                     |  |  
|                         | 
|2007 and thereafter      |  |  
|                         |  |  
|                         |  | $
|                         |  |  



Based on current borrowing rates, the
fair value of the notes payable and capital lease obligations approximate their carrying amounts.



F-17



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



7. Income Taxes



The components of income tax (benefit) expense for the years ended December 31, 2002, 2001 and 2000 are as follows:



|                   |  | 2002 |         |   | 2001 |    |         | 2000
|------------------ |  | ---- | ------- | - | ---- | -- | ------- | ----
|Federal  current  |  | $    |        |   |      | $  |        |     
|Federal  deferred |  |      | (27,466 | ) |      |    | (22,759 | )   
|State  current    |  |      | 800     |   |      |    | 800     |     
|State  prior      |  |      |        |   |      |    |        |     
|State  deferred   |  |      | 2,057   |   |      |    | (25,691 | )   
|                   |  |      |         |   |      |    |         |     
|Total              |  | $    | (24,609 | ) |      | ($ | 47,650  | )   
|                   |  |      |         |   |      |    |         |     



The Company computes income taxes
using the asset and liability method under which deferred income taxes are provided for temporary differences between the financial bases of the Companys assets and liabilities. As of December 31, 2002 and 2001, deferred tax assets recognized
for deductible temporary differences and loss carryforwards total $71,407 and $60,352, respectively. Deferred tax liabilities recognized for taxable temporary differences total $0 and $14,354, respectively. The Company has a California
manufacturers credit carryforward of $13,271 as of December 31, 2002 which may be used to offset California income taxes in the future.



The Company has capital loss, contribution and net operating loss carryovers to offset future income tax. If not used, these credits will expire as follows:



|Federal                   |  |              |   |               |   |                    |  |       |         |  |   |        
|------------------------- |  | ------------ | - | ------------- | - | ------------------ |  | ----- | ------- |  | - | -------
|                          |  |              |   |              
|Years Ending December 31, |  | CapitalLoss  |   | Contributions |   | Net Operating Loss |  | Total
|                          |  |              |  
|2003                      |  | $            |  |               | $ | 11,289             |  | $     |        |  | $ | 11,289 
|2005                      |  |              |  |               |   | 12,067             |  |       |        |  |   | 12,067 
|2006                      |  |              |  |               |   | 758                |  |       |        |  |   | 758    
|2017                      |  |              |  |               |   |                   |  |       | 290,210 |  |   | 290,210
|2018                      |  |              |  |               |   |                   |  |       | 128,576 |  |   | 128,576
|                          |  |              |   |               |   |                    |  |       |         |  |   |        
|                          |  | $            |  |               | $ | 24,114             |  | $     | 418,786 |  | $ | 442,900
|                          |  |              |   |               |   |                    |  |       |         |  |   |        
|California                |  |              |   |               |   |                    |  |       |         |  |   |        
|                          |  |              |   |              
|Years Ending December 31, |  | Capital Loss |   | Contributions |   | Net Operating Loss |  | Total
|                          |  |              |  
|2003                      |  | $            |  |               | $ |                   |  | $     |        |  | $ |       
|2004                      |  |              |  |               |   | 4,177              |  |       | 28,950  |  |   | 33,127 
|2005                      |  |              |  |               |   | 12,299             |  |       | 64,092  |  |   | 76,391 
|2007                      |  |              |  |               |   | 5,396              |  |       |        |  |   | 5,396  
|                          |  |              |   |               |   |                    |  |       |         |  |   |        
|                          |  | $            |  |               | $ | 21,872             |  | $     | 93,042  |  | $ | 114,914
|                          |  |              |   |               |   |                    |  |       |         |  |   |        



Income taxes paid for
the years ended December 31, 2002, 2001 and 2000 were $800, $800 and $800, respectively.



F-18



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



8. Operating Leases



The Company leases its delivery fleet, other vehicles and some office equipment under non-cancelable operating leases with terms ranging from three to five years.



As of December 31, 2002, minimum annual lease payments due under these
agreements for each of the next five years and in the aggregate are as follows:



|Years Ending December 31, |  |  
|------------------------- |  | -
|                          | 
|2003                      |  | $
|                          | 
|2004                      |  |  
|                          | 
|2005                      |  |  
|                          | 
|2006                      |  |  
|                          | 
|2007 and thereafter       |  |  
|                          |  |  
|                          |  | $
|                          |  |  



Total operating lease payments were
$60,337, $77,567 and $93,319 for the years ended December 31, 2002, 2001 and 2000, respectively.



9. Common Stock



|                                   |  | Number of Shares |  | No ParValue
|---------------------------------- |  | ---------------- |  | -----------
|                                   | 
|Beginning balance, January 1, 2001 |  | 1,234,544        |  | $          
|                                   |  |                 
|No activity                        |  |                 |  |            
|                                   |  |                  |  |            
|Balance, December 31, 2001         |  | 1,234,544        |  |            
|                                   |  |                 
|No activity                        |  |                 |  |            
|                                   |  |                  |  |            
|Ending balance, December 31, 2002  |  | 1,234,544        |  | $          
|                                   |  |                  |  |            



981,000 shares originally issued are restricted.



F-19



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



10. Stock Option Purchase Plan



Under the terms of the Companys stock option purchase plan (see Note 13), options to purchase shares of its common stock are granted
at a price of $5 per share. Options expire at various dates through 2003. Following is a summary of transactions:



|Beginning balance, January 1, 2001 |  | 16,000
|---------------------------------- |  | ------
|                                   | 
|Shares expired during the year     |  |      
|                                   | 
|Shares exercised during the year   |  |      
|                                   |  |       
|Balance, December 31, 2001         |  | 16,000
|                                   | 
|Shares expired during the year     |  |      
|                                   | 
|Shares exercised during the year   |  |      
|                                   |  |       
|Ending balance, December 31, 2002  |  | 16,000
|                                   |  |       



The related compensation expense for
the years ended December 31, 2002, 2001 and 2000 was $0, $0 and $13,250, respectively.



11. Long Term Leases



The Company leases its corporate
headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Companys majority shareholders). The lease provides for monthly rental payments of $8,600 and the Company is responsible for all real estate taxes, insurance and
maintenance costs related to the facilities. The lease provides for periodic cost of living increases during the term of the lease, including the option periods. The Company exercised an option to renew for one five-year term on March 31, 1995, and
the lease was extended for successive one year terms on March 31, 2001 and March 31, 2002. The company has options to renew the lease for three successive five year renewal periods when the current one-year term expires on March 31, 2003.



Any deferred amounts are due based upon available cash flow as determined by
the Companys management or upon demand of the Companys majority shareholders. Rental expense under the above lease was $103,200 $103,200 and $103,200 for the years ended December 31, 2002, 2001 and 2000, respectively. The Company has
made substantial leasehold improvements (see Note 4) and intends, along with its major shareholders, to exercise all options under the terms of this lease.



The Company leases a bakery establishment in Mendocino, California. The lease currently provides for monthly rental payments of $3,150, $3,150 and $3,000 as of December
31, 2002, 2001 and 2000, respectively. The lease term expires on September 30, 2011.



F-20



---

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



11. Long Term Leases (continued)



The Company leased warehouse premises in Santa Rosa, California for a one-year period commencing February 1, 2000 at a base rent of $928 per
month. The Company has options to renew the lease for two successive two year renewal periods after the one year term expires. The Company exercised an option to renew for a two year term on February 1, 2001. Pursuant to the terms of the renewal,
the base rent was reduced to $907 per month effective as of February 1, 2002.



As of December 31, 2002, minimum future rental payments for all leases for each of the next five years and in the aggregate are as follows:



|Years Ending December 31, |  |  
|------------------------- |  | -
|2003                      |  | $
|                          | 
|2004                      |  |  
|                          | 
|2005                      |  |  
|                          | 
|2006                      |  |  
|                          | 
|Thereafter                |  |  
|                          |  |  
|                          |  | $
|                          |  |  



12. Related Party Transactions



As of December 31, 2002, the Company had (i) one interest only note
payable due on demand and (ii) a principal and interest note, in each case payable to Paul and Joan Katzeff (the Companys majority shareholders, see Note 6). The Company also leases properties from its majority shareholders (see Note 11).



The summary of payments made to Paul and Joan Katzeff in connection with these
related party transactions for the years ended December 31, 2002, 2001 and 2000 is as follows:



|                   |  | 2002 |         | 2001 |   | 2000   
|------------------ |  | ---- | ------- | ---- | - | -------
|Principal on notes |  | $    | 53,720  |      | $ | 44,941 
|                   |  |      |        
|Interest expense   |  | $    | 7,583   |      | $ | 8,387  
|                   |  |      |        
|Rent expense       |  | $    | 103,200 |      | $ | 103,200



13. Commitments



A total of 16,000 stock options may be exercised or sold at any time at the discretion of a
past officer, subject to the Companys first right of refusal. The options will expire on December 31, 2003.



F-21