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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2004



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)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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.)



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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 12, 2004 there were 1,236,744 shares outstanding of common stock of the issuer.



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



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##### Table of Contents

THANKSGIVING COFFEE COMPANY, INC.



INDEX



|                                                                                   |  |                                                                                       |  |     
|---------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                                                                                   |  |                                                                                       |  | Page
|                                                                                   |  | PART I. FINANCIAL INFORMATION                                                         |  |     
|                                                                                   |  |                                                                                      
|Item 1.                                                                            |  | Financial Statements and Notes to Financial Statements                                |  |     
|                                                                                   | 
|Balance Sheets as of March 31, 2004 and 2003                                       |  | 1  2                                                                                
|                                                                                   | 
|Statements of Income for the Three Months Ended March 31, 2004 and 2003            |  | 3                                                                                    
|                                                                                   | 
|Statements of Retained Earnings for the Three Months Ended March 31, 2004 and 2003 |  | 4                                                                                    
|                                                                                   | 
|Statements of Cash Flows for the Three Months Ended March 31,2003 and 2003         |  | 5                                                                                    
|                                                                                   | 
|Notes to Financial Statements                                                      |  | 6-17                                                                                 
|                                                                                   |  |                                                                                      
|Item 2.                                                                            |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18  
|                                                                                   |  |                                                                                      
|Item 3.                                                                            |  | Controls and Procedures                                                               |  | 23  
|                                                                                   |  |                                                                                      
|                                                                                   |  | PART II. OTHER INFORMATION                                                            |  |     
|                                                                                   |  |                                                                                      
|Item 1.                                                                            |  | Legal Proceedings                                                                     |  | 23  
|                                                                                   |  |                                                                                      
|Item 2.                                                                            |  | Changes in Securities                                                                 |  | 24  
|                                                                                   |  |                                                                                      
|Item 3.                                                                            |  | Defaults Upon Senior Securities                                                       |  | 24  
|                                                                                   |  |                                                                                      
|Item 4.                                                                            |  | Submission of Matters to a Vote of Security-Holders                                   |  | 24  
|                                                                                   |  |                                                                                      
|Item 5.                                                                            |  | Other Information                                                                     |  | 24  
|                                                                                   |  |                                                                                      
|Item 6.                                                                            |  | Exhibits and Reports on Form 8-K                                                      |  | 24  



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Thanksgiving Coffee Company, Inc.



Unaudited
Financial Statements



For the Three Months Ended March 31, 2004
and 2003



Table of Contents



|                                                        |  |     
|------------------------------------------------------- |  | ----
|                                                        |  | Page
|Financial Statements                                    |  |     
|                                                        | 
|Balance Sheets                                          |  | 1   
|Statements of Operations                                |  | 3   
|Statements of Retained Earnings and Accumulated Deficit |  | 4   
|Statements of Cash Flows                                |  | 5   
|Notes to Financial Statements                           |  | 6   



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Balance Sheets

Unaudited



|                                       |  |           |            |   |      |   |            |  
|-------------------------------------- |  | --------- | ---------- | - | ---- | - | ---------- | -
|                                       |  | March 31, |           
|                                       |  | 2004      |            |   | 2003 |  
|Assets                                 |  |           |            |   |      |   |            |  
|Current assets                         |  |           |            |   |      |   |            |  
|Cash                                   |  | $         | 19,958     |   |      | $ | 77,422     |  
|Accounts receivable                    |  |           | 294,465    |   |      |   | 288,981    |  
|Inventories                            |  |           | 388,800    |   |      |   | 410,493    |  
|Prepaid expenses                       |  |           | 21,867     |   |      |   | 20,198     |  
|Deferred tax asset                     |  |           | 39,300     |   |      |   |           |  
|                                       |  |           |            |   |      |   |            |  
|Total current assets                   |  |           | 764,390    |   |      |   | 797,094    |  
|                                       |  |          
|Property and equipment                 |  |           |            |   |      |   |            |  
|Property and equipment                 |  |           | 2,666,401  |   |      |   | 2,657,613  |  
|Accumulated depreciation               |  |           | (2,097,027 | ) |      |   | (2,034,401 | )
|                                       |  |           |            |   |      |   |            |  
|Total property and equipment           |  |           | 569,374    |   |      |   | 623,212    |  
|                                       |  |          
|Other assets                           |  |           |            |   |      |   |            |  
|Deposits and other assets              |  |           | 60,907     |   |      |   | 42,835     |  
|Goodwill                               |  |           | 171,773    |   |      |   | 171,773    |  
|Other intangibles, net of amortization |  |           | 38,034     |   |      |   | 41,820     |  
|Deferred tax asset                     |  |           | 44,300     |   |      |   | 71,407     |  
|                                       |  |           |            |   |      |   |            |  
|Total other assets                     |  |           | 315,014    |   |      |   | 327,835    |  
|                                       |  |           |            |   |      |   |            |  
|Total assets                           |  | $         | 1,648,778  |   |      | $ | 1,748,141  |  
|                                       |  |           |            |   |      |   |            |  



See accompanying notes



1



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Balance Sheets

Unaudited



|                                                                                                 |  |           |           |   |      |   |          
|------------------------------------------------------------------------------------------------ |  | --------- | --------- | - | ---- | - | ---------
|                                                                                                 |  | March 31,
|                                                                                                 |  | 2004      |           |   | 2003
|Liabilities and shareholders equity                                                             |  |           |           |   |      |   |          
|Current liabilities                                                                              |  |           |           |   |      |   |          
|Accounts payable                                                                                 |  | $         | 337,718   |   |      | $ | 341,936  
|Notes payable - bank                                                                             |  |           | 252,406   |   |      |   | 69,600   
|Notes payable - other                                                                            |  |           | 8,654     |   |      |   | 39,890   
|Notes payable - shareholders                                                                     |  |           | 28,919    |   |      |   | 37,558   
|Capital lease obligations                                                                        |  |           | 28,486    |   |      |   | 14,201   
|Accrued liabilities                                                                              |  |           | 34,277    |   |      |   | 77,283   
|                                                                                                 |  |           |           |   |      |   |          
|Total current liabilities                                                                        |  |           | 690,460   |   |      |   | 580,468  
|                                                                                                 |  |          
|Long term debt                                                                                   |  |           |           |   |      |   |          
|Notes payable - bank                                                                             |  |           | 131,250   |   |      |   | 185,600  
|Notes payable - other                                                                            |  |           | 12,081    |   |      |   | 23,212   
|Capital lease obligations                                                                        |  |           | 83,256    |   |      |   | 61,983   
|                                                                                                 |  |           |           |   |      |   |          
|Total long term debt                                                                             |  |           | 226,587   |   |      |   | 270,795  
|                                                                                                 |  |           |           |   |      |   |          
|Total liabilities                                                                                |  |           | 917,047   |   |      |   | 851,263  
|                                                                                                 |  |          
|Shareholders equity                                                                             |  |           |           |   |      |   |          
|Common stock, no par value, 1,960,000 shares authorized, 1,236,744 shares issued and outstanding |  |           | 861,816   |   |      |   | 861,816  
|Additional paid in capital                                                                       |  |           | 24,600    |   |      |   | 24,600   
|Retained earnings (accumulated deficit)                                                          |  |           | (154,685  | ) |      |   | 10,462   
|                                                                                                 |  |           |           |   |      |   |          
|Total shareholders equity                                                                       |  |           | 731,731   |   |      |   | 896,878  
|                                                                                                 |  |           |           |   |      |   |          
|Total liabilities and shareholders equity                                                       |  | $         | 1,648,778 |   |      | $ | 1,748,141
|                                                                                                 |  |           |           |   |      |   |          



See accompanying notes



2



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Thanksgiving Coffee Company, Inc.



Statements of Operations

Unaudited



|                                             |  |                                     |           |   |      |   |           |  
|-------------------------------------------- |  | ----------------------------------- | --------- | - | ---- | - | --------- | -
|                                             |  | For the Three Months EndedMarch 31, |          
|                                             |  | 2004                                |           |   | 2003 |  
|Income                                       |  |                                     |           |   |      |   |           |  
|Net sales                                    |  | $                                   | 1,095,269 |   |      | $ | 1,112,314 |  
|Cost of sales                                |  |                                     | 570,687   |   |      |   | 553,282   |  
|                                             |  |                                     |           |   |      |   |           |  
|Gross profit                                 |  |                                     | 524,582   |   |      |   | 559,032   |  
|                                             |  |                                    
|Operating expenses                           |  |                                     |           |   |      |   |           |  
|Selling, general and administrative expenses |  |                                     | 541,653   |   |      |   | 543,509   |  
|Depreciation and amortization                |  |                                     | 33,652    |   |      |   | 40,128    |  
|                                             |  |                                     |           |   |      |   |           |  
|Total operating expenses                     |  |                                     | 575,305   |   |      |   | 583,637   |  
|                                             |  |                                     |           |   |      |   |           |  
|Operating loss                               |  |                                     | (50,723   | ) |      |   | (24,605   | )
|                                             |  |                                    
|Other income (expense)                       |  |                                     |           |   |      |   |           |  
|Miscellaneous income (expense)               |  |                                     | 2,128     |   |      |   | (412      | )
|Loss on sale of equipment                    |  |                                     | (107      | ) |      |   |          |  
|Interest expense                             |  |                                     | (9,122    | ) |      |   | (6,842    | )
|                                             |  |                                     |           |   |      |   |           |  
|Total other income (expense)                 |  |                                     | (7,101    | ) |      |   | (7,254    | )
|                                             |  |                                     |           |   |      |   |           |  
|Loss before income taxes                     |  |                                     | (57,824   | ) |      |   | (31,859   | )
|Income tax expense                           |  |                                     | (800      | ) |      |   | (800      | )
|                                             |  |                                     |           |   |      |   |           |  
|Net loss                                     |  | $                                   | (58,624   | ) |      | $ | (32,659   | )
|                                             |  |                                     |           |   |      |   |           |  
|Loss per share (basic)                       |  | $                                   | (0.047    | ) |      | $ | (0.026    | )
|                                             |  |                                     |           |   |      |   |           |  
|Loss per share (dilutive)                    |  | $                                   | (0.047    | ) |      | $ | (0.026    | )
|                                             |  |                                     |           |   |      |   |           |  



See accompanying notes



3



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Thanksgiving Coffee Company, Inc.



Statements of Retained Earnings and Accumulated Deficit

Unaudited



|                                                |  |                                     |          |   |      |   |         |  
|----------------------------------------------- |  | ----------------------------------- | -------- | - | ---- | - | ------- | -
|                                                |  | For the Three Months EndedMarch 31, |         
|                                                |  | 2004                                |          |   | 2003 |  
|Retained earnings (deficit), beginning          |  | $                                   | (96,061  | ) |      | $ | 43,121  |  
|Net loss                                        |  |                                     | (58,624  | ) |      |   | (32,659 | )
|                                                |  |                                     |          |   |      |   |         |  
|Retained earnings (accumulated deficit), ending |  | $                                   | (154,685 | ) |      | $ | 10,462  |  
|                                                |  |                                     |          |   |      |   |         |  



See accompanying notes



4



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Thanksgiving Coffee Company, Inc.



Statements of Cash Flows

Unaudited



|                                                                           |  |                                     |         |   |      |   |         |  
|-------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                           |  | For the Three Months EndedMarch 31, |        
|                                                                           |  | 2004                                |         |   | 2003 |  
|Operating activities                                                       |  |                                     |         |   |      |   |         |  
|Net loss                                                                   |  | $                                   | (58,624 | ) |      | $ | (32,659 | )
|Adjustments to reconcile net loss to cash flows from operating activities: |  |                                     |         |   |      |   |         |  
|Depreciation and amortization                                              |  |                                     | 38,867  |   |      |   | 45,477  |  
|Allowance for bad debts                                                    |  |                                     | (739    | ) |      |   | (799    | )
|(Increase) decrease in:                                                    |  |                                     |         |   |      |   |         |  
|Accounts receivable                                                        |  |                                     | 38,752  |   |      |   | 24,751  |  
|Inventories                                                                |  |                                     | 20,898  |   |      |   | (31,615 | )
|Prepaid expenses                                                           |  |                                     | 18,836  |   |      |   | 8,754   |  
|Deposits and other assets                                                  |  |                                     | 2,046   |   |      |   | (5,263  | )
|Increase (decrease) in:                                                    |  |                                     |         |   |      |   |         |  
|Accounts payable                                                           |  |                                     | (8,546  | ) |      |   | 39,033  |  
|Accrued liabilities                                                        |  |                                     | (27,121 | ) |      |   | 22,485  |  
|                                                                           |  |                                     |         |   |      |   |         |  
|Net cash provided by operating activities                                  |  |                                     | 24,369  |   |      |   | 70,164  |  
|                                                                           |  |                                    
|Investing activities                                                       |  |                                     |         |   |      |   |         |  
|Purchases of property and equipment                                        |  |                                     | (72,093 | ) |      |   | (29,179 | )
|Loss on disposition of property and equipment                              |  |                                     | 98      |   |      |   |        |  
|                                                                           |  |                                     |         |   |      |   |         |  
|Net cash used in investing activities                                      |  |                                     | (71,995 | ) |      |   | (29,179 | )
|                                                                           |  |                                    
|Financing activities                                                       |  |                                     |         |   |      |   |         |  
|Proceeds from notes payable and capital leases                             |  |                                     | 60,845  |   |      |   | 16,644  |  
|Repayments of notes payable and capital leases                             |  |                                     | (33,724 | ) |      |   | (45,381 | )
|                                                                           |  |                                     |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                        |  |                                     | 27,121  |   |      |   | (28,737 | )
|                                                                           |  |                                    
|Net increase (decrease) in cash                                            |  |                                     | (20,505 | ) |      |   | 12,248  |  
|Cash at January 1, 2004 and 2003                                           |  |                                     | 40,463  |   |      |   | 65,174  |  
|                                                                           |  |                                     |         |   |      |   |         |  
|Cash at March 31, 2004 and 2003                                            |  | $                                   | 19,958  |   |      | $ | 77,422  |  
|                                                                           |  |                                     |         |   |      |   |         |  



See accompanying notes



5



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements



March 31, 2004
and 2003



1. Summary of Significant Accounting Policies



Nature of Operations



Thanksgiving Coffee Company, Inc. (the Company), was incorporated in California in 1985. The
Company purchases and roasts high-quality whole bean coffees and sells them to restaurants, grocery stores and other retail outlets. Additionally, the Company produces and sells a line of high-quality tea products under the trademark of Royal
Gardens Tea Company. Products are sold through the Companys distribution network in Northern California, nationally through common carriers selling direct, or through brokers and distributors. Distributors and retailers do not have the right
to return products. The Company also sells coffee, tea and related specialty products through mail order and Internet sales on a nationwide basis. Additionally, the Company operates a sandwich and baked goods store 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 United States of America. 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.



Inventories



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



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 of the assets. The following
useful lives are used:



|                                      |  |              
|------------------------------------- |  | -------------
|Equipment                             |  | 7 to 12 years
|Furniture and fixtures                |  | 5 to 7 years 
|Leasehold improvements                |  | 7 to 39 years
|Transportation equipment              |  | 5 years      
|Marketing equipment                   |  | 5 to 7 years 
|Capitalized website development costs |  | 3 years      



6



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Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)



Property and Equipment (continued)



Leasehold improvements are carried at cost and are amortized over the shorter of their estimated useful lives or the related lease term. Expenditures for major renewals
that extend the useful lives of property, fixtures and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation and amortization expense related to production facilities is included in
cost of sales.



The Company adopted Emerging Issues Tax Force (EITF) No. 00-2,
Accounting for Web Site DevelopmentCosts, in 2001. This accounting rule provides guidance regarding capitalization or expense of certain website development costs. Accordingly, website development costs incurred in the operation phase that
will result in future added functionality are capitalized and expenditures for training, administration and maintenance of an existing website are expensed 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



As of January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards (FASB) No. 142, Goodwill and Other Intangibles. Goodwill is assigned to a specific reporting unit and is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when
circumstances indicate that the reporting units carrying amount is greater than its fair value. Intangible assets with definite lives are amortized over their useful economic lives. Financial condition and results of operations in accordance
with FASB Statement No. 142 are reflected in the accompanying March 31, 2004 financial statements.



7



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Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)



Goodwill and Other Intangible Assets (continued)



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



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



Income Taxes



The Company accounts for income taxes under the asset and liability method as prescribed by
Statement of Financial Accounting Standards (FASB) No. 109, Accounting for Income Taxes. As such, deferred income tax assets and liabilities are recognized for the future tax consequences of the differences between the financial
statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.



Retirement Plan



In 2003 the Company converted their existing profit sharing plan into a
401(k) savings plan. The plan covers substantially all Company employees and allows pre-tax contributions through a salary deferral program. Employer contributions are on a discretionary basis with substantially all employees eligible for allocation
of employer contributions. Employees are 100% vested in amounts they contribute and vest over years of service in employer contributions. No employer contributions to the profit sharing/401(k) plan were made for the three months ended March 31,
2004. No such contributions have been made to the plan in over ten years.



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. The Companys policy is that fully vested vacation is accrued at each quarter end. The accrued liability for vacation
pay was $13,300 as of March 31, 2004 and such amounts are included in accrued liabilities. Carryover paid sick days are not available, nor ever considered vested.



8



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Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



1. Summary of Significant Accounting Policies (continued)



Advertising



Advertising costs are expensed as incurred, except for direct-response advertising, which is capitalized and amortized over its expected period of future benefits.
Direct-response advertising consists primarily of mail order solicitation and catalog costs. For the three months ended March 31, 2004 the Company did not engage in any direct response advertising that would require capitalization. Advertising costs
charged to expense were $9,622 for the three months ended March 31, 2004 and relate primarily to a retainer for the Companys public relations firm.



Use of Estimates



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



Revenue Recognition



The Company adopted Securities and Exchange Commission Staff Accounting Bulletins No. 101 (SAB101). Revenue Recognition in Financial Statements in 2002, retroactive to November 1, 2000. No
restatement of the consolidated financials was necessary since the financials were already in conformity with the revenue recognition principles and no material transactions were effected by this adoption.



Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs, the
sales price is fixed or determinable and collectibility is reasonably assured. Product is considered delivered and revenue is recognized when title and risk of loss have been transferred to the customer. Under the terms and conditions of the sale,
the transfer of title may occur either at the time of shipment or when product is delivered to the customer.



2. Accounts Receivable



Accounts
receivable at March 31, 2004 consist of the following:



|                                      |  |   |         |  
|------------------------------------- |  | - | ------- | -
|Accounts receivable                   |  | $ | 303,918 |  
|Due from employees                    |  |   | 345     |  
|                                      |  |   |         |  
|                                      |  |   | 304,263 |  
|Less: Allowance for doubtful accounts |  |   | (9,798  | )
|                                      |  |   |         |  
|                                      |  | $ | 294,465 |  
|                                      |  |   |         |  



9



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Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



2. Accounts Receivable (continued)



The Company utilizes a percentage method to establish the allowance for doubtful accounts. The estimated allowance ranges from 1% to 10% of outstanding receivables. Bad
debt expense for the three months ended March 31, 2004 was $739.



3.
Inventories



Inventories at March 31, 2004 consist of the following:



|                                                        |  |   |        
|------------------------------------------------------- |  | - | -------
|Coffee                                                  |  |   |        
|Unroasted                                               |  | $ | 101,011
|Roasted                                                 |  |   | 77,556 
|Tea                                                     |  |   | 19,102 
|Packaging, supplies and other merchandise held for sale |  |   | 191,131
|                                                        |  |   |        
|Total inventory                                         |  | $ | 388,800
|                                                        |  |   |        



4. Property and Equipment



Property and equipment at March 31, 2004 consist of the following:



|                                      |  |   |            |  
|------------------------------------- |  | - | ---------- | -
|Equipment                             |  | $ | 1,502,257  |  
|Furniture and fixtures                |  |   | 281,403    |  
|Leasehold improvements                |  |   | 377,565    |  
|Transportation equipment              |  |   | 128,246    |  
|Marketing equipment                   |  |   | 24,077     |  
|Capitalized website development costs |  |   | 148,506    |  
|Property held under capital leases    |  |   | 204,347    |  
|                                      |  |   |            |  
|Total property and equipment          |  |   | 2,666,401  |  
|Accumulated depreciation              |  |   | (2,097,027 | )
|                                      |  |   |            |  
|Property and equipment, net           |  | $ | 569,374    |  
|                                      |  |   |            |  



Depreciation expense for the three
months ended March 31, 2004 was $38,614.



10



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



5. Goodwill and Other Intangible Assets



As part of the adoption of Statement of Financial Accounting Standards (FASB) No. 142, Goodwill and Other Tangible Assetsas 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, 2003. Consequently, there was no change in the carrying value of goodwill in the three months ended March 31,
2004.



Intangible assets subject to amortization consist as of March 31, 2004
of the following:



|                         |  |   |         |  
|------------------------ |  | - | ------- | -
|Leasehold value          |  | $ | 67,000  |  
|Trademarks               |  |   | 5,127   |  
|Refinance cost           |  |   | 4,500   |  
|                         |  |   |         |  
|Total intangible assets  |  |   | 76,627  |  
|Accumulated amortization |  |   | (38,593 | )
|                         |  |   |         |  
|Intangible assets, net   |  | $ | 38,034  |  
|                         |  |   |         |  



Amortization expense for the three
months ended March 31, 2004 was $254.



6. Long Term Debt



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------
|Notes Payable and Capital Lease Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |   |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|Note payable to Merrill Lynch, monthly installments of $4,687 plus interest at 3.3% over the one month LIBOR rate beginning August 1, 2003 (4.39% at March 31, 2004), final payment is due on July
1, 2007. The note payable and the Companys credit line are collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal
guarantee of up to $150,000 by the Companys majority shareholders. |  | $ | 187,500
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|Working capital line of credit ($200,000 maximum), payable to Merrill Lynch, interest only installments, at 3.3% over the one month LIBOR rate (4.39% at March 31, 2004), maturing June 30, 2004.
The credit line and the Companys note payable are collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee of
up to $150,000 by the Companys majority shareholders.           |  |   | 196,156



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



6. Long Term Debt (continued)



|                                                                                                                                                                                                                                                    |  |   |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------
|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.                                                                              |  | $ | 19,919
|                                                                                                                                                                                                                                                    | 
|Note payable to majority shareholders, Paul & Joan Katzeff, payable in six monthly installments of $4,000 each and a seventh payment of $1,000, plus interest at 10% per annum. Final payment
is due on May 15, 2004.                               |  |   | 9,000 
|                                                                                                                                                                                                                                                    | 
|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. The note is personally
guaranteed by the Companys majority shareholders. |  |   | 2,206 
|                                                                                                                                                                                                                                                    | 
|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. The note is personally
guaranteed by the Companys majority shareholders.    |  |   | 5,594 
|                                                                                                                                                                                                                                                    | 
|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.                                                                                 |  |   | 12,935
|                                                                                                                                                                                                                                                    | 
|Capital Lease Obligations                                                                                                                                                                                                                           |  |   |       
|                                                                                                                                                                                                                                                    | 
|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.                                                                          |  |   | 11,938



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



6. Long Term Debt (continued)



|                                                                                                                                                                                |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Note payable to Manifest Leasing, payable in monthly installments of $444, including interest at 12.909%, secured by equipment, final payment due March 2007.                   |  |   | 13,151   |  
|                                                                                                                                                                                | 
|Note payable to National Financial Services, payable in monthly installments of $1,414, including interest at 10.512%, secured by equipment, final payment due on May 10, 2006. |  |   | 31,895   |  
|                                                                                                                                                                                | 
|Note payable to Nationwide Funding, LLC, payable in monthly installments of $1,354, including interest at 16.78%, secured by equipment, final payment due March 2009.           |  |   | 54,758   |  
|                                                                                                                                                                                |  |   |          |  
|                                                                                                                                                                                |  |   | 545,052  |  
|Less current portion                                                                                                                                                            |  |   | (318,465 | )
|                                                                                                                                                                                |  |   |          |  
|Long term portion of notes payable                                                                                                                                              |  | $ | 226,587  |  
|                                                                                                                                                                                |  |   |          |  



Interest paid for the three months
ended March 31, 2004 was $9,122.



As of March 31, 2004, 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, |  |  
|2004                      |  | $ | 295,623
|2005                      |  |   | 94,862 
|2006                      |  |   | 84,826 
|2007                      |  |   | 51,528 
|2008 and thereafter       |  |   | 18,213 
|                          |  |   |        
|                          |  | $ | 545,052
|                          |  |   |        



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



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



7. Income Taxes



The components of the provision for income tax as of March 31, 2004 are as follows:



|                              |  |   |      |  
|----------------------------- |  | - | ---- | -
|Current tax (expense) - state |  | $ | (800 | )
|                              |  |   |      |  



A reconciliation of the Companys
income tax benefit rate to the U.S. federal statutory rate is as follows:



|                                            |  |      |   
|------------------------------------------- |  | ---- | --
|Statutory income tax (expense) benefit rate |  | 15.0 | % 
|Property and equipment differences          |  | (2.1 | )%
|Nondeductible expense                       |  | (1.4 | )%
|Officers life insurance                    |  | (2.0 | )%
|Net operating loss                          |  | 0.0  | % 
|Net operating loss valuation adjustment     |  | 0.0  | % 
|Other                                       |  | (2.0 | )%
|                                            |  |      |   
|Effective income tax benefit rate           |  | 7.5  | % 
|                                            |  |      |   



The primary components of temporary
differences which give rise to the Companys net deferred tax assets are as follows:



|                                                |  |   |         |  
|----------------------------------------------- |  | - | ------- | -
|Net operating loss and tax credit carryforwards |  | $ | 93,700  |  
|Depreciation and amortization                   |  |   | (15,500 | )
|Other                                           |  |   | 5,400   |  
|                                                |  |   |         |  
|Net deferred tax asset                          |  | $ | 83,600  |  
|                                                |  |   |         |  



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



7. Income Taxes (continued)



At December 31, 2003 the Company has available unused contributions, manufacturers investment credit, and net operating loss carryforwards that may provide future tax
benefits and that expire as follows:



Federal



|                          |  |               |        |                   |   |         |  |   |        
|------------------------- |  | ------------- | ------ | ----------------- | - | ------- |  | - | -------
|Years Ending December 31, |  | Contributions |        | Net OperatingLoss |   | Total  
|2005                      |  | $             | 12,067 |                   | $ |        |  | $ | 12,067 
|2006                      |  |               | 758    |                   |   |        |  |   | 758    
|2008                      |  |               | 3,767  |                   |   |        |  |   | 3,767  
|2017                      |  |               |       |                   |   | 290,210 |  |   | 290,210
|2018                      |  |               |       |                   |   | 128,576 |  |   | 128,576
|2023                      |  |               |       |                   |   | 96,867  |  |   | 96,867 
|                          |  |               |        |                   |   |         |  |   |        
|                          |  | $             | 16,592 |                   | $ | 515,653 |  | $ | 532,245
|                          |  |               |        |                   |   |         |  |   |        



California



|                          |  |                                |        |               |   |                   |  |       |         |  |   |        
|------------------------- |  | ------------------------------ | ------ | ------------- | - | ----------------- |  | ----- | ------- |  | - | -------
|Years Ending December 31, |  | ManufacturersInvestment Credit |        | Contributions |   | Net OperatingLoss |  | Total
|2004                      |  | $                              |       |               | $ |                  |  | $     | 28,950  |  | $ | 28,950 
|2005                      |  |                                |       |               |   | 12,051            |  |       | 64,092  |  |   | 76,143 
|2006                      |  |                                | 5,609  |               |   |                  |  |       |        |  |   | 5,609  
|2008                      |  |                                | 4,382  |               |   | 3,767             |  |       |        |  |   | 8,149  
|2009                      |  |                                | 306    |               |   |                  |  |       |        |  |   | 306    
|2010                      |  |                                | 1,082  |               |   |                  |  |       |        |  |   | 1,082  
|2011                      |  |                                | 1,892  |               |   |                  |  |       |        |  |   | 1,892  
|2012                      |  |                                | 59     |               |   |                  |  |       |        |  |   | 59     
|2013                      |  |                                |       |               |   |                  |  |       | 49,041  |  |   | 49,041 
|                          |  |                                |        |               |   |                   |  |       |         |  |   |        
|                          |  | $                              | 13,330 |               | $ | 15,818            |  | $     | 142,083 |  | $ | 171,231
|                          |  |                                |        |               |   |                   |  |       |         |  |   |        



Income taxes paid for the three months
ended March 31, 2004 were $800.



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



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



|                          |  |   |        
|------------------------- |  | - | -------
|Years Ending December 31, |  |  
|2004                      |  | $ | 54,924 
|2005                      |  |   | 49,966 
|2006                      |  |   | 35,617 
|2007                      |  |   | 13,111 
|2008                      |  |   | 1,590  
|Thereafter                |  |   |       
|                          |  |   |        
|                          |  | $ | 155,208
|                          |  |   |        



Total operating lease payments for the
three months ended March 31, 2004 were $14,120.



9. 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 is classified as an operating lease and provides for monthly rental payments of $8,600. 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. The
lease has been extended for successive one year terms since March 31, 2000. The Company continues to hold options to renew the lease for three successive five year renewal periods. Rental expense under the lease was $25,800 for the three months
ended March 31, 2004. The Company intends to exercise all options under the terms of this lease.



The Company also leases a bakery establishment in Mendocino, California and warehouse premises in Santa Rosa, California under operating leases expiring in 2011 and 2005, respectively. Rental expense under these
operating leases was $13,567 for the three months ended March 31, 2004.



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##### Table of Contents

Thanksgiving Coffee Company, Inc.



Notes to Financial Statements (continued)



9. Long Term Leases (continued)



As of December 31, 2003, minimum future rental payments under non-cancelable facilities operating leases for each of the next five years and in the aggregate are as
follows:



|                          |  |   |        
|------------------------- |  | - | -------
|Years Ending December 31, |  |  
|2004                      |  | $ | 157,645
|2005                      |  |   | 149,791
|2006                      |  |   | 151,110
|2007                      |  |   | 153,420
|2008                      |  |   | 78,450 
|Thereafter                |  |   | 158,025
|                          |  |   |        
|                          |  | $ | 848,441
|                          |  |   |        



10. Related Party Transactions



As of March 31, 2004, 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). The Company also leases properties from its majority shareholders (see Note 9).



The summary of payments made to Paul and Joan Katzeff in connection with these related party
transactions for the three months ended March 31, 2004 are as follows:



|                   |  |   |       
|------------------ |  | - | ------
|Principal on notes |  | $ | 13,000
|Interest expense   |  | $ | 1,116 
|Rent expense       |  | $ | 25,800



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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.



Summary



Sales of the Company have continued to erode over the last four years primarily due to
declines in the distribution segment of the Companys business. Additional competition, customers that have gone out of business, and customers that have begun roasting coffee beans for their own use has had a negative impact on the
Companys sales. The Company has tried a number of strategies that have not proven effective in abating these declines. Recently, it has changed its method of distribution, and is now using an independent distributor in a test region to
determine if such method could stop the erosion of sales. If the Company cannot stop the decline in its sales volume, its business, results of operations and financial condition will be severely affected.



The Company has enjoyed favorable margins in the last four years because of the decline in
the price of green beans. Although the Company pays substantially more for its product than the market price, because of quality, organic nature of many of its lines and the fact that it uses fair-traded coffees, it still has purchased green beans
at lower prices than it has purchased in past years. If there should be a rise in green bean prices as a consequence of inclement weather in a major producing area or any other event that effects coffee pricing it would have a negative impact on the
Company and its margins.



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##### Table of Contents

The Company has a revolving line of credit with Merrill Lynch that is a current liability and that is renewed annually.
While the Company believes the credit line will be renewed, should the line not be renewed, the stability of the Companys business would be in question.



Three Months Ended March 31, 2004 Compared With Three Months Ended March 31, 2003



|                     |  |                     |         |    |                |        |   
|-------------------- |  | ------------------- | ------- | -- | -------------- | ------ | --
|Consolidated         |  | Increase (Decrease) |         |    | Percent Change |       
|Net Sales            |  | $                   | (17,045 | )  |                | (1.5   | )%
|Cost of Sales        |  | $                   | 17,405  |    |                | 3.1    | % 
|Gross Margin         |  |                     | (2.40   | )% |                | (4.8   | )%
|Selling, G&A Expense |  | $                   | (1,856  | )  |                | (.30   | )%
|Deprec. And Amort.   |  | $                   | (6,476  | )  |                | (16.14 | )%
|Interest Expense     |  | $                   | 2,280   |    |                | 33.30  | % 
|Net Income           |  | $                   | (25,965 | )  |                |       |   



Consolidated net sales for the three
months ended March 31, 2004 were $1,095,269 down 1.5% or more than $17,000 when compared with net sales of $1,112,314 for the same period in fiscal 2002.



Distribution revenues (e.g., revenues generated on our own truck distribution) declined by nearly $95,000 or 16% for the three month period ended March 31, 2004 when
compared to the same period in fiscal 2003. The decline was a result of dropping two routes and replacing them with direct shipments and two distributors. The Company believes that a substantial portion of the decline is now reflected in the
increase in the national segment of the Companys business. The Company continues to test the concept of direct delivery and the use of distributors in its existing truck distribution.



National revenues (e.g., revenues not derived by mail order and direct truck distribution)
increased by $96,000 or 31% for the three month period ended March 31, 2004, when compared to the same period in fiscal 2003. This increase was a result of switching two routes from Company truck delivery to UPS and outside distributors.



Mail order revenues (e.g., revenues generated from product sold directly to
the consumer either through print media or the Internet) increased nearly $3,000 or 2.6%, for the three months ended March 31, 2004 when compared to the same period in fiscal 2003. 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 $2,500 while Internet sales were up $8,000 or 15% 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.



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##### Table of Contents

Sales attributable to operations of the Companys bakery were down $17,000 for the three months ended March 31,
2004, or 11%, when compared to the same period in fiscal 2003. The decline in sales is a result of a closing of the operation for nearly a week in February to make needed improvements to the facility and closing earlier during the winter months to
save labor and utility costs.



Consolidated cost of sales for the three
months ended March 31, 2004 were $570,687, up 3.1% or $17,405 when compared with the cost of sales of $553,282 for the same period in fiscal 2003. This increase was a result of higher production wages of $7,000 and higher workers compensation
and health care costs of $10,500.



Consolidated gross margin (gross profit as a
percentage of net sales) for the three months ended March 31, 2004 was 47.90%, down 2.4% when compared with gross margin of 50.30% for the same period in fiscal 2003. Higher workers compensation and health care insurance costs as indicated
above and slightly lower average selling prices for distributors as compared to selling prices on our own truck distribution resulted in lower gross margins.



Consolidated selling, general and administrative expenses were $541,653 for the three months ended March 31, 2004, a .30% decrease when compared with the selling, general
and administrative expenses of $543,509 for the same period in fiscal 2003.



Depreciation and amortization expenses for the three months ended March 31, 2004 were $33,652, a decrease of nearly $6,500 or 16.14% when compared to depreciation and amortization expenses of $40,128 for the same period in fiscal 2003.
Lower net property and equipments totals have resulted in lower depreciation amounts.



Interest expense for the three months ended March 31, 2004 was $9,122, over 33% increase or $2,280, when compared to interest of $6,842 for the same period in fiscal 2003. The increase in interest was a result of higher debt balances. In
the first quarter of 2004, the balance was $545,052 compared to a balance of $432,044 for the same period in 2003.



As a result of the foregoing factors, the Company had a consolidated net loss of $58,624 for the three months ended March 31, 2004, compared to a $32,659 consolidated net
loss for the same period in 2003. Because of the decline in sales and an increase in cost of sales as well as other factors noted herein, there are no assurances that the Company will be profitable in any future period.



LIQUIDITY AND CAPITAL RESOURCES



As of March 31, 2004, the Company has working capital of $73,930 versus working capital of
$216,626 as of March 31, 2003. This decrease in working capital is due to an increase in debt resulting from a drawing down of a line of credit of over $196,000 that is listed as a current liability.



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##### Table of Contents

Net cash provided by operating activities was $24,369 for the three months ended March 31, 2004, compared to $70,164
provided by operating activities for the three months ended March 31, 2003. The decline in net cash provided by operating activities in the first three months of 2004 was the result of a larger loss for the quarter, lower depreciation and
amortization and lower current assets.



Cash used by investing
activities was $71,995 for the three months ended March 31, 2004 compared to $29,179 for the same period in 2003. Capital additions for the first three months of 2004 include $10,000 for brewers and grinders, $18,000 for a portion-control filler,
$30,000 for a new afterburner for the roaster, $8,000 for new label plates and artwork and $4,000 for signage for the company vans.



Net cash provided by financing activities for the three months ended March 31, 2004 was $27,121 compared to cash used by financing activities of $28,737 during the same
period in 2003. The increase in cash provided by financing was a result of receiving funds for the increases in capital improvements noted above.



Because of the higher loss for the quarter in 2004 compared to last year and increased capital purchases cash at March 31, 2004 was $19,958 compared to cash at March 31,
2003 of $77,422.



In June 2003, the Company refinanced its debt with Wells
Fargo by securing a term note with Merrill Lynch for $225,000. This note is payable over four years at 3.3% over LIBOR (London Interbank Offering Rate). At March 31, 2004 the rate was 4.4%. This note extended the period for repayment of the loan
over four years rather than two and reduced the interest rate from 7.25% (3% over prime rate) to 4.4%. The cost of the loan facility was $2,000. In addition to the term loan, the Company negotiated a line of credit for $200,000. This line is
renewable annually, with an interest rate of 3.3% above LIBOR at a cost of $2,000. At March 31, 2004, the credit line had a loan balance of $196,156. The Companys accounts receivable, inventory, equipment, fixtures and improvements secure the
borrowings. The Companys majority shareholders have guaranteed $150,000 of the Merrill Lynch debt and the two vehicles related to the Chase Manhattan notes. (See Note 6 of Notes to the Financial Statements)



The Company has two notes payable to the majority shareholders, one that was due on demand
after June 30, 1996 for $24,919, unsecured, and previously subordinated to Wells Fargo notes. The second is a note payable to the majority shareholders dated November 15, 2003 for $25,000 payable in monthly installments of $4,000, unsecured, due May
15, 2004. At March 31, 2004, the Company owes $19,919 and $9,000 respectively on the notes. (See Note 10 of Notes to the Financial statements)



At March 3, 2004, the Company had total borrowings of $545,052 including $383,656 owing to Merrill Lynch. This compares to total borrowings of $432,044 as of March 31,
2003, including $255,200 outstanding to Wells Fargo at that time.



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.



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##### Table of Contents

|                        |  |                        |           |                    |   |           |  |           |         |               |   |         |  |   |        
|----------------------- |  | ---------------------- | --------- | ------------------ | - | --------- |  | --------- | ------- | ------------- | - | ------- |  | - | -------
|                        |  | Payments Due By Period
|Contractual Obligations |  | Total                  |           | Less than One year |   | 1-3 years |  | 4-5 years |         | After 5 years
|Long Term Debt          |  | $                      | 545,052   |                    | $ | 295,623   |  | $         | 179,688 |               | $ | 69,741  |  | $ |       
|Operating Leases        |  |                        | 155,208   |                    |   | 54,924    |  |           | 85,583  |               |   | 14,701  |  |   |       
|Real Estate Leases      |  |                        | 848,441   |                    |   | 157,645   |  |           | 300,901 |               |   | 231,870 |  |   | 158,025
|                        |  |                        |           |                    |   |           |  |           |         |               |   |         |  |   |        
|Total Cash Obligations  |  | $                      | 1,548,701 |                    | $ | 508,182   |  | $         | 566,172 |               | $ | 316,312 |  | $ | 158,025
|                        |  |                        |           |                    |   |           |  |           |         |               |   |         |  |   |        



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 10  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



None



22



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##### Table of Contents

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



Management has
performed, with the participation of the Companys principal executive and principal financial officers, an evaluation of the effectiveness of the Companys disclosure controls and procedures as of March 31, 2004. Based upon this
evaluation, management has concluded that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Management also has concluded that the Companys controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to
management, including the Companys principal executive and principal financial officers, as appropriate to allow for timely decisions regarding disclosures. Management also has evaluated, with the participation of the Companys principal
executive and principal financial officers, the Companys internal controls over financial reporting and has concluded that no change in such controls occurred during the period from January 1, 2004 through March 31, 2004 that has materially
affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.



Part II  Other Information



ITEM 1. LEGAL PROCEEDINGS



-None-



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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
| | -- | --------



| | 31.1 | Rule 13a-15(e)/15d-15(e) Certification (Chief Executive Officer)
| | ---- | ----------------------------------------------------------------



| | 31.2 | Rule 13a-15(e)/15d-15(e) Certification (President)
| | ---- | --------------------------------------------------



| | 31.3 | Rule 13a-15(e)/15d-15(e) Certification (Chief Financial Officer)
| | ---- | ----------------------------------------------------------------



| | 32.1 | 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).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------



| | 32.3 | 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 from January 1, 2004 through March 31, 2004



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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 Katzeff                  |  | Chief Executive Officer |  | May 12, 2004
|Paul Katzeff                      |  |                         |  |             
|                                  |  |                        
|/s/ Joan Katzeff                  |  | President               |  | May 12, 2004
|Joan Katzeff                      |  |                         |  |             



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