##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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

| |  | EXCHANGE ACT OF 1934
| |  | --------------------



For the quarterly period ended March 31, 2003



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



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THANKSGIVING COFFEE COMPANY, INC.

(Exact name of small business issuer as specified 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     
|----------------------------------------------- |  | ----------
|(Address of principal executive offices)        |  | (Zip Code)



Issuers telephone number, including area code: (707) 964-0118





(Former name, former address and former fiscal year, if changed since last report.)



---



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ̈



As of May 8, 2003 there were 1,234,544 shares outstanding of common stock of the issuer.



Transitional Small Business Disclosure Format (check
one):  Yes ̈No  x



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THANKSGIVING COFFEE COMPANY, INC.



INDEX



|PART I. FINANACIAL
INFORMATION                                                               |  |                                                                                      
|-------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|                                                                                            
|Item 1.                                                                                      |  | Financial Statements and Notes to Financial Statement                                
|                                                                                            
|Balance Sheets as of March 31, 2003 and 2002                                                 |  | 4 - 5                                                                                
|                                                                                            
|Statements of Income for the Three Months Ended March 31, 2003 and 2002                      |  | 6                                                                                    
|                                                                                            
|Statements of Retained Earnings (Deficit) for the Three Months Ended March 31, 2003 and 2002 |  | 7                                                                                    
|                                                                                            
|Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002                  |  | 8                                                                                    
|                                                                                            
|Notes to Financial Statements                                                                |  | 9 - 19                                                                               
|                                                                                            
|Item 2.                                                                                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                            
|Item 3.                                                                                      |  | Controls and Procedures                                                              
|                                                                                            
|PART II. OTHER INFORMATION                                                                   |  |                                                                                      
|                                                                                            
|Item 1.                                                                                      |  | Legal Proceedings                                                                    
|                                                                                            
|Item 2.                                                                                      |  | Changes in Securities                                                                
|                                                                                            
|Item 3.                                                                                      |  | Defaults Upon Senior Securities                                                      
|                                                                                            
|Item 4.                                                                                      |  | Submission of Matters to a Vote of Security-Holders                                  
|                                                                                            
|Item 5.                                                                                      |  | Other Information                                                                    
|                                                                                            
|Item 6.                                                                                      |  | Exhibits and Reports on Form 8-K                                                     



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Thanksgiving
Coffee Company, Inc.



Unaudited Financial
Statements



For the Three Months Ended March 31,
2003 and 2002



Financial Statements



|                                         
|-----------------------------------------
|Balance Sheets                           
|                                         
|Statements of Income                     
|                                         
|Statements of Retained Earnings (Deficit)
|                                         
|Statements of Cash Flows                 
|                                         
|Notes to Financial Statements            



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Thanksgiving Coffee Company, Inc.



Balance Sheets

Unaudited



|                                       |  | March 31, |           
|-------------------------------------- |  | --------- | ----------
|                                       |  | 2003      |           
|Assets                                 |  |           |           
|Current assets                         |  |           |           
|Cash                                   |  | $         | 77,422    
|Accounts receivable                    |  |           | 287,328   
|Employee receivable                    |  |           | 1,653     
|Inventory                              |  |           | 410,493   
|Prepaid expenses                       |  |           | 20,198    
|                                       |  |           |           
|Total current assets                   |  |           | 797,094   
|Property and equipment                 |  |           |           
|Property and equipment                 |  |           | 2,657,613 
|Accumulated depreciation               |  |           | (2,034,401
|                                       |  |           |           
|Total property and equipment           |  |           | 623,212   
|Other assets                           |  |           |           
|Deposits and other assets              |  |           | 42,835    
|Goodwill                               |  |           | 171,773   
|Other intangibles, net of amortization |  |           | 41,820    
|Deferred tax asset                     |  |           | 71,407    
|                                       |  |           |           
|Total other assets                     |  |           | 327,835   
|                                       |  |           |           
|Total assets                           |  | $         | 1,748,141 
|                                       |  |           |           



See
accompanying notes



4



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Thanksgiving Coffee Company, Inc.



Balance Sheets

Unaudited



|                                                                                                 |  | March 31, |          
|------------------------------------------------------------------------------------------------ |  | --------- | ---------
|                                                                                                 |  | 2003      |          
|Liabilities and shareholders equity                                                             |  |           |          
|Current liabilities                                                                              |  |           |          
|Accounts payable                                                                                 |  | $         | 341,936  
|Notes payable-bank, current portion                                                              |  |           | 69,600   
|Notes payable-other, current portion                                                             |  |           | 39,890   
|Notes payable-shareholders, current portion                                                      |  |           | 37,558   
|Capital lease obligations, current portion                                                       |  |           | 14,201   
|Accrued liabilities                                                                              |  |           | 77,283   
|Deferred income taxes                                                                            |  |           |         
|                                                                                                 |  |           |          
|Total current liabilities                                                                        |  |           | 580,468  
|Long term debt                                                                                   |  |           |          
|Notes payable-bank                                                                               |  |           | 185,600  
|Notes payable-other                                                                              |  |           | 23,212   
|Notes payable-shareholders                                                                       |  |           |         
|Capital lease obligations                                                                        |  |           | 61,983   
|                                                                                                 |  |           |          
|Total long term debt                                                                             |  |           | 270,795  
|                                                                                                 |  |           |          
|Total liabilities                                                                                |  |           | 851,263  
|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 (deficit)                                                                      |  |           | 10,462   
|                                                                                                 |  |           |          
|Total shareholders equity                                                                       |  |           | 896,878  
|                                                                                                 |  |           |          
|Total liabilities and shareholders equity                                                       |  | $         | 1,748,141
|                                                                                                 |  |           |          



See
accompanying notes



5



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Statements of Income

Unaudited



|                                             |  | Three Months Ended March 31, |          
|-------------------------------------------- |  | ---------------------------- | ---------
|                                             |  | 2003                         |          
|Income                                       |  |                              |          
|Net sales                                    |  | $                            | 1,112,314
|Cost of sales                                |  |                              | 553,282  
|                                             |  |                              |          
|Gross profit                                 |  |                              | 559,032  
|Operating expenses                           |  |                              |          
|Selling, general and administrative expenses |  |                              | 543,509  
|Depreciation and amortization                |  |                              | 40,128   
|                                             |  |                              |          
|Total operating expenses                     |  |                              | 583,637  
|                                             |  |                              |          
|Operating income (loss)                      |  |                              | (24,605  
|Other income (expense)                       |  |                              |          
|Interest income                              |  |                              | 21       
|Miscellaneous expense                        |  |                              | (433     
|Interest expense                             |  |                              | (6,842   
|                                             |  |                              |          
|Total other income (expense)                 |  |                              | (7,254   
|                                             |  |                              |          
|Income (loss) before income taxes            |  |                              | (31,859  
|Income tax expense                           |  |                              | (800     
|                                             |  |                              |          
|Net income (loss)                            |  | $                            | (32,659  
|                                             |  |                              |          
|Earnings (loss) per share (basic)            |  | $                            | (0.026   
|                                             |  |                              |          
|Earnings (loss) per share (dilutive)         |  | $                            | (0.026   
|                                             |  |                              |          



Sees
accompanying notes



6



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Thanksgiving
Coffee Company, Inc.



Statements of
Retained Earnings

Unaudited



|                                       |  | March 31, |        
|-------------------------------------- |  | --------- | -------
|                                       |  | 2003      |        
|Retained earnings (deficit), beginning |  | $         | 43,121 
|Net income (loss)                      |  |           | (32,659
|                                       |  |           |        
|Retained earnings (deficit), ending    |  | $         | 10,462 
|                                       |  |           |        



Sees
accompanying notes



7



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Thanksgiving
Coffee Company, Inc.



Statements of Cash
Flows

Unaudited



|                                               |  | Three Months Ended March 31, |        
|---------------------------------------------- |  | ---------------------------- | -------
|                                               |  | 2003                         |        
|Operating activities                           |  |                              |        
|Net income (loss)                              |  | $                            | (32,659
|Noncash items included in net income (loss)    |  |                              |        
|Depreciation and amortization                  |  |                              | 45,477 
|Changes in operating assets and liabilities    |  |                              |        
|Receivables                                    |  |                              | 23,952 
|Inventory                                      |  |                              | (31,615
|Prepaid expenses                               |  |                              | 8,754  
|Deposits and other assets                      |  |                              | (5,263 
|Accounts payable                               |  |                              | 39,033 
|Accrued liabilities                            |  |                              | 22,485 
|                                               |  |                              |        
|Net cash provided by operating activities      |  |                              | 70,164 
|Investing activities                           |  |                              |        
|Purchases of property and equipment            |  |                              | (29,179
|                                               |  |                              |        
|Net cash used in investing activities          |  |                              | (29,179
|Financing activities                           |  |                              |        
|Advances on notes payable and capital leases   |  |                              | 16,644 
|Repayments of notes payable and capital leases |  |                              | (45,381
|                                               |  |                              |        
|Net cash used in financing activities          |  |                              | (28,737
|Net increase in cash                           |  |                              | 12,248 
|Cash at January 1, 2003 and 2002               |  |                              | 65,174 
|                                               |  |                              |        
|Cash at March 31, 2003 and 2002                |  | $                            | 77,422 
|                                               |  |                              |        



Supplemental
disclosure of cash flow information:



Interest paid for the
three months ended March 31, 2003 and 2002 was $ 6,842 and $ 14,241, respectively.

Income taxes paid for the three months ended March 31,
2003 and 2002 were $800 and $800, respectively.



See accompanying notes



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Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements



March 31, 2003



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 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.



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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 cost  |  | 5            



Goodwill will not be
amortized 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 expense.



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.



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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 have been made to the profit sharing plan in over ten years.



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 March 31, 2003.



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 $ 19,862 for the three months ended March 31, 2003.



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.



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Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements (continued)



1. Summary of Significant
Accounting Policies (continued)



Reclassifications



Certain amounts in the prior periods financial
statements have been reclassified to conform to the current periods presentation. Such reclassifications had no effect on the reported net income (loss).



2. Accounts Receivable



Accounts receivable consist of the following:



|Accounts receivable                   |  | $ | 295,562 |  
|------------------------------------- |  | - | ------- | -
|Less: Allowance for doubtful accounts |  |   | (8,234  | )
|                                      |  |   |         |  
|Accounts receivable, net              |  | $ | 287,328 |  
|                                      |  |   |         |  



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 March 31,2003. Bad debt expense (recovery) for the three months ended March 31, 2003 was ($792). The
adjustment to the allowance account for the three months ended March 31, 2003 was $799.



3. Inventory



Inventory consists
of the following:



|Coffee                                                  |  |   |        
|------------------------------------------------------- |  | - | -------
|Unroasted                                               |  | $ | 132,473
|Roasted                                                 |  |   | 86,486 
|Tea                                                     |  |   | 15,872 
|Packaging, supplies and other merchandise held for sale |  |   | 175,662
|                                                        |  |   |        
|Total inventory                                         |  | $ | 410,493
|                                                        |  |   |        



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Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements (continued)



4. Property and Equipment



Property and equipment consists of the following:



|Equipment and fixtures             |  | $ | 1,562,978  |  
|---------------------------------- |  | - | ---------- | -
|Furniture and equipment            |  |   | 293,022    |  
|Leasehold improvements             |  |   | 424,829    |  
|Transportation equipment           |  |   | 111,976    |  
|Marketing equipment                |  |   | 159,466    |  
|Property held under capital leases |  |   | 105,342    |  
|                                   |  |   |            |  
|Total property and equipment       |  |   | 2,657,613  |  
|Accumulated depreciation           |  |   | (2,034,401 | )
|                                   |  |   |            |  
|Property and equipment, net        |  | $ | 623,212    |  
|                                   |  |   |            |  



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 three months ended March 31, 2003 was $ 44,048.



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 March 31, 2003.



The change in the carrying value of goodwill during the three months ended March 31, 2003 follows:



|Carrying value  beginning of year |  | $ | 171,773
|---------------------------------- |  | - | -------
|Goodwill acquired                  |  |   |       
|Goodwill impairment losses         |  |   |       
|                                   |  |   |        
|Carrying value  March 31, 2003    |  | $ | 171,773
|                                   |  |   |        



Intangible assets
subject to amortization consist of the following:



|Leasehold value          |  | $ | 67,000  |  
|------------------------ |  | - | ------- | -
|Trademark                |  |   | 5,127   |  
|Refinance cost           |  |   | 2,500   |  
|                         |  |   |         |  
|Total intangible assets  |  |   | 74,627  |  
|Accumulated amortization |  |   | (32,807 | )
|                         |  |   |         |  
|Intangible assets, net   |  | $ | 41,820  |  
|                         |  |   |         |  



Amortization expense for
the three months ended March 31, 2003 was $1,429.



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Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements (continued)



6. Long Term Debt



Notes Payable as of March 31, 2003



|Note payable to Wells Fargo Bank, monthly installments of $7,733 plus interest at 3% over prime rate
beginning December 15, 2000 (7.75% at March 31, 2003), 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. This note is personally guaranteed by the Companys majority shareholders. |  | $ | 255,200
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of interest
only at 12%, 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.                                                                                                                                                                              |  |   | 24,919 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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.                                                                                                                                                                                                                                                                       |  |   | 12,639 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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%, secured by property and equipment at the bakery, final payment due on November 14, 2003.                                                                                                                                                                                                                       |  |   | 32,755 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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 personally guaranteed by the Companys majority shareholders.                                                                                                                                                                                                                 |  |   | 5,739  



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Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements (continued)



6. Long Term Debt (continued)



|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 personally guaranteed by the Companys majority shareholders. |  | $ | 8,533    |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|                                                                                                                                                                                                                                                  
|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.                                                                               |  |   | 16,075   |  
|                                                                                                                                                                                                                                                  
|Capital Lease Obligations as of March 31, 2003                                                                                                                                                                                                     |  |   |          |  
|                                                                                                                                                                                                                                                  
|Lease 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.                                                                        |  |   | 14,763   |  
|                                                                                                                                                                                                                                                  
|Lease 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.                                                                 |  |   | 44,777   |  
|                                                                                                                                                                                                                                                  
|Lease payable to US Bancorp Manifest Funding Services, payable in monthly installments of $444, including interest at
12.203%, secured by equipment, final payment due on April 1, 2007.                                                           |  |   | 16,644   |  
|                                                                                                                                                                                                                                                   |  |   |          |  
|                                                                                                                                                                                                                                                   |  |   | 432,044  |  
|Less current portion                                                                                                                                                                                                                               |  |   | (161,249 | )
|                                                                                                                                                                                                                                                   |  |   |          |  
|Long term portion of notes payable and capital lease obligations                                                                                                                                                                                   |  | $ | 270,795  |  
|                                                                                                                                                                                                                                                   |  |   |          |  



Interest paid for the
three months ended March 31, 2003 was $8,680.



As of March 31,
2003, maturities of notes payable and capital lease obligations for each of the next five years and in the aggregate are as follows:



|2003                |  | $ | 190,880
|------------------- |  | - | -------
|2004                |  |   | 94,362 
|2005                |  |   | 122,615
|2006 and thereafter |  |   | 24,187 
|                    |  |   |        
|                    |  | $ | 432,044
|                    |  |   |        



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



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Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements (continued)



7. Income Taxes



The components of income tax expense for the three months ended March 31,
2003 are as follows:



|State  current |  | $ 800
|--------------- |  | -----



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. Deferred tax assets recognized for deductible
temporary differences and loss carryforwards are immaterial for the three months ended March 31, 2003. Deferred tax liabilities recognized for taxable temporary differences are not material for the three months ended March 31, 2003. The Company also
has a California manufacturers credit carryforward of $13,271, which may be used to offset California income taxes in the future.



The Company has 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, |  | Contributions |        | Net Operating Loss |   | Total  
|------------------------- |  | ------------- | ------ | ------------------ | - | -------
|2003                      |  | $             | 11,289 |                    | $ |       
|2005                      |  |               | 12,067 |                    |   |       
|2006                      |  |               | 758    |                    |   |       
|2017                      |  |               |       |                    |   | 290,210
|2018                      |  |               |       |                    |   | 128,576
|                          |  |               |        |                    |   |        
|                          |  | $             | 24,114 |                    | $ | 418,786
|                          |  |               |        |                    |   |        



California



|Years ending December 31, |  | Contributions |        | Net Operating Loss |   | Total 
|------------------------- |  | ------------- | ------ | ------------------ | - | ------
|2004                      |  | $             | 4,177  |                    | $ | 28,950
|2005                      |  |               | 12,299 |                    |   | 64,092
|2006                      |  |               | 5,396  |                    |   |      
|                          |  |               |        |                    |   |       
|                          |  | $             | 21,872 |                    | $ | 93,042
|                          |  |               |        |                    |   |       



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##### Table of Contents



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 noncancellable operating leases with terms ranging from three to five years.



As of March 31, 2003, minimum annual lease payments due under these agreements for each of the next five years and in the aggregate are as follows:



|2003                |  | $ | 57,274 
|------------------- |  | - | -------
|2004                |  |   | 53,638 
|2005                |  |   | 52,010 
|2006                |  |   | 39,319 
|2007 and thereafter |  |   | 13,628 
|                    |  |   |        
|                    |  | $ | 215,869
|                    |  |   |        



Total operating lease
payments were $16,115 for the three months ended March 31, 2003.



9. Common Stock



|                                   |  | Number of Shares |  | No Par Value
|---------------------------------- |  | ---------------- |  | ------------
|Beginning balance, January 1, 2002 |  | 1,234,544        |  | $           
|No activity                        |  |                 |  |             
|                                   |  |                  |  |             
|Balance, December 31, 2002         |  | 1,234,544        |  |             
|No activity                        |  |                 |  |             
|                                   |  |                  |  |             
|Ending balance, March 31, 2003     |  | 1,234,544        |  | $           
|                                   |  |                  |  |             



981,000 shares
originally issued are restricted.



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##### Table of Contents



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 have been granted at a price of $5 per share. All of the options expire at December 31, 2003. Following is a summary of transactions:



|Beginning balance, January 1, 2002             |  | 16,000
|---------------------------------------------- |  | ------
|Shares expired during the year                 |  |      
|Shares exercised during the year               |  |      
|                                               |  |       
|Balance, December 31, 2002                     |  | 16,000
|Shares expired during the three month period   |  |      
|Shares exercised during the three month period |  |      
|                                               |  |       
|Ending balance, March 31, 2003                 |  | 16,000
|                                               |  |       



The related compensation
expense for the three months ended March 31, 2003 was $0.



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, 2000, 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. The lease has been renewed for another one year term expiring March 31, 2004.



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 $25,800 for the
three months ended March 31, 2003. 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 $3,307 as of March 31, 2003. The lease term expires on September 30, 2011.



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##### Table of Contents



Thanksgiving
Coffee Company, Inc.



Notes to Financial
Statements (continued)



11. Long Term Leases (continued)



The Company leased warehouse premises in Santa Rosa,
California from a unrelated third party for a one-year period commencing February 1, 2000 at a base rent of $928 per month. The Company has exercised options to renew the lease for two successive two year renewal periods after the one year term
expired on February 1, 2001. The Company exercised its options to renew on February 1, 2001 and February 1, 2003. Pursuant to the terms of the renewal, the base rent was reduced to $907 per month effective as of February 1,2003.



As of March 31, 2003, minimum future rental payments for all
leases for each of the next five years and in the aggregate, assuming all extensions and renewals are exercised, as follows:



|2003       |  | $ | 113,909
|---------- |  | - | -------
|2004       |  |   | 151,879
|2005       |  |   | 141,907
|2006       |  |   | 141,000
|Thereafter |  |   | 270,750
|           |  |   |        
|           |  | $ | 819,445
|           |  |   |        



12. Related Party
Transactions



As of March 31, 2003, the Company has (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 three months ended March 31, 2003 are as follows:



|Principal on notes |  | $ | 4,497 
|------------------ |  | - | ------
|Interest expense   |  | $ | 450   
|Rent expense       |  | $ | 25,800



The majority
shareholders also guarantee the debt of Wells Fargo and Chase Manhattan (See Note 6)



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. These options expire at December 31, 2003.



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##### Table of Contents



THANKSGIVING
COFFEE COMPANY, INC.



MANAGEMENT DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FORWARD LOOKING STATEMENTS



In addition
to historical information, this Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Words
such as believe, anticipate, expect, intend, plan, will, may, and other similar expressions identify forward-looking statements. In addition, any statements that
refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements relate to, among other things, sources of liquidity and capital (see Liquidity and Capital Resources).
Any such statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. The various risks and uncertainties include, but are not limited
to: changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products and in the availability and costs of green beans, increased competition within the Companys
businesses, variances from budgeted sales mix and growth rate, inability to hire, train and retain qualified personnel, concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully
implement its business plan, natural disasters, civil unrest in countries which produce coffee and tea, weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only
as of the date of this Quarterly Report on Form 10-QSB.



Three Months Ended March 31, 2003 Compared With Three Months Ended March 31, 2002



|Consolidated         |  | Increase (Decrease) |         |   | Percent Change |     
|-------------------- |  | ------------------- | ------- | - | -------------- | ----
|Net Sales            |  | $                   | (68,335 | ) |                | (5.8
|Cost of Sales        |  | $                   | (60,825 | ) |                | (10 
|Gross Margin         |  |                     | 2.3     | % |                | 4.7 
|Selling, G&A Expense |  | $                   | 25,213  |   |                | 4.9 
|Deprec. And Amort.   |  | $                   | (2,551  | ) |                | (6  
|Interest Expense     |  | $                   | (7,399  | ) |                | (52 
|Net Income           |  | $                   | (16,716 | ) |                | (105



Consolidated net sales
for the three months ended March 31, 2003 were $1,112,314 down 5.8% or $68,000 when compared with net sales of $1,180,649 for the same period in fiscal 2002.



Distribution revenues (e.g., revenues generated on our own truck distribution) declined by $50,000 or 7.5% for the three month period ended March 31, 2003
when compared to the same period in fiscal 2002. The decline was a result of a general slowdown in all the territories of the Company as no customers were lost during this quarter. Foodservice customers had a larger decline than the retail
customers.



National revenues (e.g., revenues not derived by mail
order and direct truck distribution) decreased by $14,000 or 5% for the three month period ended March 31, 2003, when compared to the same period in fiscal 2002, because of slow sales at a distributor in the southeast. The distributor had not lost
any accounts.



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##### Table of Contents

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through
print media or the Internet) increased nearly $8,000 or 8.2%, for the three months ended March 31, 2003 when compared to the same period in fiscal 2002. The increase in revenue for mail order reflects the addition of the Companys
Cornucopia program, an extension of the mail order business that is designed to provide an avenue for non-profit organizations to raise money by selling the Companys coffee to their constituency. This program was established during
the third quarter of 2002. The traditional mail order catalog business was up nearly $1,000 while Internet sales were up $9,000 or 23% for the quarter when compared to the same period last year. Some of the increase in the Internet sales reflects
the migration of traditional mail order customers to the Companys website and Internet store.



Sales attributable to operations of the Companys bakery were down $13,000 for the three months ended March 31, 2003, or 8%, when compared to the same period in fiscal 2002. A lower customer count
when compared to last year resulted in the lower volume. Slower visitor business appeared to affect most local Mendocino businesses.



Consolidated cost of sales for the three months ended March 31, 2003 were $553,282, down 10% when compared with the cost of sales of $614,107 for the same
period in fiscal 2002. This decrease was a result of lower sales and a drop in per pound green bean costs of 4% over last year and slightly lower production labor costs.



Consolidated gross margin (gross profit as a percentage of net sales) for the three months ended March 31, 2003 was 50.3%, up
4.7 percent when compared with gross margin of 48% for the same period in fiscal 2002. Lower per pound green bean cost and slightly lower production labor costs resulted in improved gross margins. There are no assurances that the Company will be
able to sustain lower raw material and labor costs in the future.



Consolidated selling, general and administrative expenses were $543,509 for the three months ended March 31, 2003, a 4.9% increase when compared with the selling, general and administrative expenses of $518,296 for the same period in
fiscal 2002. The increase was a result of a $6,000 increase in workers compensation insurance costs because of increased rates, higher health insurance costs of $5,000, higher fuel and oil cost of $8,000 and a $4,000 increase in public relations as
the company has retained a public relations firm.



Depreciation
and amortization expenses for the three months ended March 31, 2003 were $40,128, a decrease of 6% when compared with depreciation and amortization expenses of $42,679 for the same period in fiscal 2002. This decrease was a result of a reduction in
purchases of fixed assets.



Interest expense for the three months
ended March 31, 2003 was $6,842, a 52% decline from interest of $14,241 for the same period in fiscal 2002. The decrease in interest was a result of a decline in total borrowings by over $114,000 from $546,258 at March 31, 2002 to $432,044 at March
31, 2003



As a result of the foregoing factors, the
Company had a consolidated net loss of $32,659 for the three months ended March 31, 2003, compared to a $15,943 consolidated net loss for the same period in 2002. Because of the decline in sales and an increase in selling, general and administrative
expenses as well as other factors noted herein there can be no assurances that the Company will be profitable in any future period.



LIQUIDITY AND CAPITAL RESOURCES



As of March 31, 2003, the Company has working capital of $216,626 versus working capital of $207,734 as of March 31, 2002. This increase in working
capital is due to a reduction in bank debt and lease obligations offset in part by lower receivables.



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Net cash provided by operating activities was $70,164 for the three months ended March 31, 2003 compared
to $80,620 provided by operating activities for the three months ended March 31, 2002. The decline in net cash provided by operating activities in the first three months of 2003 was the result of a larger loss this year compared to the same period
in fiscal 2002.



Cash used by investing activities was
$29,179 for the three months ended March 31, 2003 compared to $21,178 for the same period in 2002. Capital additions for the first three months of 2003 include $5,000 for the Companys website and web store, and $16,000 for brewers and
grinders.



Net cash used in financing activities for the three
months ended March 31, 2003 was $28,737 compared to $48,560 during the same period in 2002. The reduction in net cash used in financing activities was a result of new debt incurred through capital leases. Three new leases have been added since March
of 2002. The first to Nationwide Financial Services was for a new local area network, upgrade of computers and programs for the finance and operating systems of the Company. The second was to Avaya Financial Services to upgrade the phone system and
to provide for an automated operator and directory. The third was with US Bancorp to secure additional grinders and brewers for replacement of old equipment (See Note 6 of Notes to Financial Statements).



Because of lower cash levels at January 1, 2003, cash at March 31, 2003 was
$77,422 compared to cash at March 31, 2002 of $109,758.



At March
31, 2003, the Company had total borrowings of $432,044 including $255,200 owing to Wells Fargo Bank. This compares to total borrowings of $546,258 as of March 31, 2002, including $356,334 outstanding to Wells Fargo at that time. The Companys
accounts receivable, inventory, equipment, fixtures and improvements secure the borrowings. The Companys majority shareholders guarantee the Wells Fargo debt and the two vehicle related Chase Manhattan notes (See Note 6 of Notes to the
Financial Statements).



In December of 2000, the majority
shareholders loaned the Company $50,000, on an unsecured basis, payable in monthly installments of $1,649, due in November 2003. As of March 31, 2003, the principal amount of $12,639 remained outstanding on such loan. The Company has a loan
outstanding for $24,919 at March 31,2003 payable to the majority shareholders with interest only payments made monthly. The majority shareholders have subordinated this note to Wells Fargo Bank debt.



For long term debt, see Note 6 and Note 12 of the Notes to Financial
Statements. For operating leases, see Note 8 of the Notes to Financial Statements. For real estate leases, see Note 11 and Note 12 of the Notes to Financial Statements.



|                        |  | Payments Due By Period
|----------------------- |  | ----------------------
|Contractual Obligations |  | Total                 
|Long Term Debt          |  | $                     
|Operating Leases        |  |                       
|Real Estate Leases      |  |                       
|                        |  |                       
|Total Cash Obligations  |  | $                     
|                        |  |                       



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The Company believes that its existing capital resources and revenues that it anticipates will be
generated from operations will be sufficient to meet its cash requirements for the next 12 months at its current level of operations.



The Company is dependent on successfully executing its business plan to achieve profitable operations, obtaining additional sources of borrowings
(including normal trade credit) and securing favorable financing arrangements (including lease financing) to finance its working capital needs. There can be no assurance that the Company will be successful in this regard. If the Company is not able
to meet its credit obligations the Companys business could be materially and adversely affected.



RELATED PARTY TRANSACTIONS



From time to time, the Company enters into various transactions with its majority shareholders, Paul and Joan Katzeff. See note 12Related Party Transactions in the Notes to the Financial Statements.



SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE



The Companys business is seasonal in nature. The
seasonal availability of green bean coffee in the first two quarters of the year and increased sales in the last quarter historically creates a high use of cash and a build up in inventories in the first two quarters, with a corresponding decrease
in inventory and increase in cash in the last quarter. Because of the seasonality of the Companys business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past
seasonal patterns are not necessarily indicative of future results.



Equity Compensation Plan



The only equity
compensation plan maintained by the Company is an option granted to a past officer of the Company in fiscal 1997. This option expires on December 31, 2003.



Equity Compensation Plan Information



|                                                           |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Exercise price of outstanding options, warrants and rights |   | Number of securities Remaining available for future issuance under equity compensation Plans
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | - | --------------------------------------------------------------------------------------------
|Equity compensation Plans approved by Security holders     |  | 0                                                                                           |  |                                                            | 0 |                                                                                             
|Equity compensation Plans not approved by Security holders |  | 16,000                                                                                      |  | $                                                          | 5 |                                                                                             
|                                                           |  |                                                                                             |  |                                                            |   |                                                                                             
|Total                                                      |  | 16,000                                                                                      |  | $                                                          | 5 |                                                                                             
|                                                           |  |                                                                                             |  |                                                            |   |                                                                                             



See Note 10 and Note 12
of the Notes to Financial Statements.



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INDEMNIFICATION MATTERS



The Companys Bylaws provide that the Company may indemnify its directors, officers, employees and other agents to the
fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or
her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such liability insurance for its directors and certain officers and employees.



At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or proceeding that might result in a claim for such indemnification.



CONTROLS AND PROCEDURES



An evaluation was performed under the supervision and with the participation
of the Companys management, including the Chief Executive Officer and the President and Chief Financial Officer, of the effectiveness of the design, maintenance, and operation of the Companys disclosure controls and procedures within 90
days before the filing date of this quarterly report. Based on that evaluation, the Companys management, including the Chief Executive Officer and the President and Chief Financial Officer, concluded that the Companys disclosure controls
and procedures were effective. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation.



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##### Table of Contents

Part IIOther Information



ITEM 1. LEGAL PROCEEDINGS



 None 



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



 None 



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



 None 



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



 None 



ITEM 5. OTHER INFORMATION



 None 



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



a. Exhibits



99.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer).99.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer).




b.
Form 8-K



No reports on Form 8-K were filed during the period
through March 31, 2003



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##### Table of Contents

SIGNATURES



In accordance with the requirements 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.



|Name                            |  | Title                   |  | Date       
|------------------------------- |  | ----------------------- |  | -----------
|                               
|/s/    PAUL
KATZEFFPaul Katzeff |  | Chief Executive Officer |  | May 7, 2003
|                               
|/s/    JOAN KATZEFFJoan Katzeff |  | President               |  | May 7, 2003



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CERTIFICATIONS



I, Paul Katzeff, certify that:



1. I have reviewed this quarterly report on Form 10-QSB of Thanksgiving Coffee Company, Inc.;



2. Based on my knowledge, this quarterly 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 quarterly report;



3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 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 quarterly 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
quarterly report (the Evaluation Date); and



c)
presented in this quarterly 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 (or persons performing the equivalent functions):



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 any 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 quarterly 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.



Date: May 7, 2003



|   
|---
|By:
|   



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CERTIFICATIONS



I, Joan Katzeff, certify that:



1. I have reviewed this quarterly report on Form 10-QSB of Thanksgiving Coffee Company, Inc.;



2. Based on my knowledge, this quarterly 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 quarterly report;



3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 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 quarterly 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
quarterly report (the Evaluation Date); and



c)
presented in this quarterly 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 (or persons performing the equivalent functions):



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 any 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 quarterly 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.



Date: May 7, 2003



|   
|---
|By:
|   



28