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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549FORM
10-QSB

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2002OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934

For the transition period from
___________ to ___________Commission File No. 33-960-70-LA

THANKSGIVING COFFEE COMPANY, INC.(Exact name of small business issuer as specified in its charter)

| | California                               |  | 94-2823626             | 
| | ---------------------------------------- |  | ---------------------- | 
| | (State or other jurisdiction of          |  | (IRS Employer          | 
| | incorporation or organization)           |  | Identification Number) | 
| |                                          |  |                        | 
| | 19100 South Harbor Drive                 |  |                        | 
| | Fort Bragg, California 95437             |  |                        | 
| | (Address of principal executive offices) |  | (Zip Code)             | 
| |                                          |  |                        | 

|
|
|

(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    o

As of August 8, 2002, there were 1,234,544 shares outstanding of common stock of the issuer.Transitional Small Business Disclosure Format (check one):

Yes    o
                        No    x

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THANKSGIVING COFFEE COMPANY, INC.INDEXPART I. FINANCIAL INFORMATION

|Item 1.    Financial Statements and Notes to Financial Statements                               
|------------------------------------------------------------------------------------------------
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Item 2.   
Managements Discussion and Analysis of Financial Condition and Results of Operations

|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                   

2



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Financial StatementsThanksgiving Coffee Company, Inc.For the Three and Six Month Periods EndedJune 30, 2002 and
2001



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Thanksgiving Coffee Company, Inc.Unaudited Financial Statements

For the Three and Six
Month Periods ended June 30, 2002 and 2001

|Reviewed Financial Statements    
|---------------------------------
|                                 
|Balance Sheets                   
|Statements of Income             
|Statements of Accumulated Deficit
|Statements of Cash Flows         
|Notes to Financial Statements    



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Thanksgiving Coffee Company, Inc.

Balance SheetsUnaudited

|                                       | June 30,
|-------------------------------------- | --------
|                                       |         
|                                       | 2002    
|                                       |         
|Assets                                 |         
|Current assets                         |         
|Cash                                   | $       
|Accounts receivable                    |         
|Note receivable-Griswold               |         
|Inventory                              |         
|Prepaid expenses                       |         
|                                       |         
|Total current assets                   |         
|                                       |         
|Property and equipment                 |         
|Property and equipment                 |         
|Accumulated depreciation               |         
|                                       |         
|Total property and equipment           |         
|                                       |         
|Other assets                           |         
|Deposits and other assets              |         
|Note receivable-Griswold               |         
|Goodwill                               |         
|Other intangibles, net of amortization |         
|Deferred tax asset                     |         
|                                       |         
|Total other assets                     |         
|                                       |         
|Total assets                           | $       
|                                       |         

|See accompanying notes | 5
|---------------------- | -



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Thanksgiving Coffee Company, Inc.Balance SheetsUnaudited

|                                            | June 30,
|------------------------------------------- | --------
|                                            |         
|                                            | 2002    
|                                            |         
|Liabilities and shareholders equity        |         
|Current liabilities                         |         
|Accounts payable                            | $       
|Notes payable-bank, current portion         |         
|Notes payable-other, current portion        |         
|Notes payable-shareholders, current portion |         
|Capital lease obligations, current portion  |         
|Accrued liabilities                         |         
|Deferred income taxes                       |         
|                                            |         
|Total current liabilities                   |         
|                                            |         
|Long term debt                              |         
|Notes payable-bank                          |         
|Notes payable-other                         |         
|Notes payable-shareholders                  |         
|                                            |         
|Total long term debt                        |         
|                                            |         
|Total liabilities                           |         
|                                            |         
|Shareholders equity                        |         
|Common stock, no par value,                 |         
|1,960,000 shares authorized,                |         
|1,234,544 shares issued and outstanding     |         
|Additional paid in capital                  |         
|Accumulated deficit                         |         
|                                            |         
|Total shareholders equity                  |         
|                                            |         
|Total liabilities and shareholders equity  | $       
|                                            |         

|See accompanying notes | 6
|---------------------- | -



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Thanksgiving Coffee Company, Inc.Statements of IncomeUnaudited

|                                             |   | Three Months  |   | Six Months    |   | Three Months  |   | Six Months   
|-------------------------------------------- | - | ------------- | - | ------------- | - | ------------- | - | -------------
|                                             |   | Period Ended  |   | Period Ended  |   | Period Ended  |   | Period Ended 
|                                             |   | June 30, 2002 |   | June 30, 2002 |   | June 30, 2001 |   | June 30, 2001
|                                             |   |              
|Income                                       |   |               |   |               |   |               |   |              
|Net sales                                    | $ | 1,230,714     | $ | 2,411,363     | $ | 1,284,341     | $ | 2,505,775    
|Cost of sales                                |   | 637,044       |   | 1,251,151     |   | 690,644       |   | 1,390,866    
|                                             |   |              
|Gross profit                                 |   | 593,670       |   | 1,160,212     |   | 593,697       |   | 1,114,909    
|                                             |   |               |   |               |   |               |   |              
|Operating expenses                           |   |               |   |               |   |               |   |              
|Selling, general and administrative expenses |   | 526,703       |   | 1,044,999     |   | 547,923       |   | 1,080,860    
|Depreciation and amortization                |   | 39,575        |   | 82,254        |   | 51,411        |   | 103,589      
|                                             |   |              
|Total operating expenses                     |   | 566,278       |   | 1,127,253     |   | 599,334       |   | 1,184,449    
|                                             |   |              
|Operating income (loss)                      |   | 27,392        |   | 32,959        |   | (5,637)       |   | (69,540      
|                                             |   |               |   |               |   |               |   |              
|Other income (expense)                       |   |               |   |               |   |               |   |              
|Interest income                              |   | 55            |   | 195           |   | 428           |   | 1,156        
|Miscellaneous expense                        |   | (6,656)       |   | (13,265)      |   | (770)         |   | 31,113       
|Loss on sale of equipment                    |   |              |   |              |   | (138)         |   | (138         
|Interest expense                             |   | (16,199)      |   | (30,440)      |   | (19,194)      |   | (46,639      
|                                             |   |              
|Total other income (expense)                 |   | (22,800)      |   | (43,510)      |   | (19,674)      |   | (14,508      
|                                             |   |              
|Income (loss) before income taxes            |   | 4,592         |   | (10,551)      |   | (25,311)      |   | (84,048      
|Income tax expense                           |   |              |   | (800)         |   |              |   | (800         
|                                             |  
|Net income (loss)                            | $ | 4,592         | $ | (11,351)      | $ | (25,311)      | $ | (84,848      
|                                             |   |              
|                                             |   |               |   |               |   |               |   |              
|                                             |   |               |   |               |   |               |   |              
|Earnings (loss) per share (basic)            | $ | 0.004         | $ | (0.009)       | $ | (0.021)       | $ | (0.069       
|                                             |   |              
|                                             |   |               |   |               |   |               |   |              
|                                             |   |               |   |               |   |               |   |              
|Earnings (loss) per share (dilutive)         | $ | 0.004         | $ | (0.009)       | $ | (0.020)       | $ | (0.068       
|                                             |   |              

|See accompanying notes | 7
|---------------------- | -



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Statements of Accumulated DeficitUnaudited

|                               | June 30, |         
|------------------------------ | -------- | --------
|                               |          |         
|                               | 2002     | 2001    
|                               |          |         
|Accumulated deficit, beginning | $        | (70,507)
|Net loss                       |          | (11,351)
|                               |          |         
|Accumulated deficit, ending    | $        | (81,858)
|                               |          |         

|See accompanying notes | 8
|---------------------- | -



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Thanksgiving Coffee Company, Inc.Statements of Cash FlowsUnaudited

|                                               | Six Months Periods Ended June 30,
|---------------------------------------------- | ---------------------------------
|                                               |                                  
|                                               | 2002                             
|                                               |                                  
|Operating activities                           |                                  
|Net loss                                       | $                                
|Noncash items included in net loss             |                                  
|Depreciation and amortization                  |                                  
|Loss on disposal of equipment                  |                                  
|Changes in operating assets and liabilities    |                                  
|Receivables                                    |                                  
|Inventory                                      |                                  
|Prepaid expenses                               |                                  
|Deposits and other assets                      |                                  
|Accounts payable                               |                                  
|Accrued liabilities                            |                                  
|                                               |                                  
|Net cash provided by operating activities      |                                  
|                                               |                                  
|Investing activities                           |                                  
|Proceeds from disposal of equipment            |                                  
|Purchases of property and equipment            |                                  
|                                               |                                  
|Net cash used by investing activities          |                                  
|                                               |                                  
|Financing activities                           |                                  
|Proceeds from note payable                     |                                  
|Repayments of notes payable and capital leases |                                  
|                                               |                                  
|Net cash used by financing activities          |                                  
|                                               |                                  
|Net increase (decrease) in cash                |                                  
|Cash at January 1, 2002 and 2001               |                                  
|                                               |                                  
|Cash at June 30, 2002 and 2001                 | $                                
|                                               |                                  

|See accompanying notes | 9
|---------------------- | -



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Thanksgiving Coffee Company, Inc.Notes to Financial Statements June 30, 2002

1.    Summary of Significant Accounting PoliciesDescription of
Business

Thanksgiving Coffee Company, Inc. (the Company), is a corporation that purchases and roasts high-quality whole bean coffees and sells them to restaurants, grocery
stores and other retail outlets. These products are sold primarily through its own distribution network in the Northern California area. Outside of Northern California, the Company ships nationally throughout the fifty states by common carriers
selling direct or through brokers and distributors. Distributors and retailers do not have the right to return products. Additionally, the Company produces and sells a line of high-quality tea products under the trademark of Royal Gardens Tea
Company. The Company also sells coffee, tea and related specialty products through mail order and Internet sales on a nationwide basis. The Company sells sandwiches, pastries, coffee and tea through a bakery located in Mendocino, California.
Basis of Presentation The Company has prepared the financial statements on the accrual basis of accounting in accordance with generally accepted accounting principles.    In the opinion of management, all
adjustments considered necessary for a fair presentation have been included. Concentration of Credit Risk The Company grants credit to customers in the retail and food service industries throughout the country. Consequently,
the Companys ability to collect the amounts due from customers is affected by economic fluctuations in the retail and food service industries. InventoryInventory 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 income. Investments in Consolidated Companies  On October 31, 1996, the
Company acquired the assets of Mendocino Bakery, Inc. in a business combination accounted for as a purchase.



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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 to the profit sharing plan were made for the six month period ended June 30, 2002. 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 June 30,
2002. 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. 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.

12



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Reclassifications

Certain amounts in the prior periods financial statements have
been reclassified to conform to the current periods presentation. Such reclassification had no effect on the reported net profit.

Thanksgiving Coffee Company,
Inc.

Notes to Financial Statements (continued)

2.       Accounts Receivable

Accounts receivable consist of the following:

|Accounts receivable                   | $ | 307,326 |  
|------------------------------------- | - | ------- | -
|Less: Allowance for doubtful accounts |   | (7,384  | )
|                                      |  
|Accounts receivable, net              | $ | 299,942 |  
|                                      |  

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 June 30, 2002. Bad debt expense for the six month period ended June 30, 2002 was $4,003. The adjustment to the allowance account for the six month period ended June 30, 2002 was $675.

3.       Inventory

|                                                        |   |           | 
|------------------------------------------------------- | - | --------- | 
|Inventory consists of the following:                    |   |           | 
|                                                        |   |           | 
|Coffee                                                  |   |           | 
|Unroasted                                               | $ | 91,347    | 
|Roasted                                                 |   | 88,900    | 
|Tea                                                     |   | 15,724    | 
|Packaging, supplies and other merchandise held for sale |   | 191,738   | 
|                                                        |   |          
|Total inventory                                         | $ | 387,709   | 
|                                                        |   |          
|                                                        |   |           | 
|                                                        |   |           | 
|4.       Property and Equipment                         |   |           | 
|                                                        |   |           | 
|Property and equipment consists of the following:       |   |           | 
|                                                        |   |           | 
|Equipment and fixtures                                  | $ | 1,551,823 | 
|Furniture and equipment                                 |   | 282,166   | 
|Leasehold improvements                                  |   | 410,107   | 
|Transportation equipment                                |   | 91,571    | 

13



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|Marketing equipment                |   | 137,964    |  
|---------------------------------- | - | ---------- | -
|Property held under capital leases |   |           |  
|                                   |   |           
|Total property and equipment       |   | 2,473,631  |  
|Accumulated depreciation           |   | (1,896,570 | )
|                                   |   |           
|Property and equipment, net        | $ | 577,061    |  
|                                   |   |           

14



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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements
(continued)

4.       Property and Equipment (continued)

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 six month period ended June 30, 2002 was $90,217.

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 June 30, 2002.

The change in the carrying value of
goodwill during the six month period ended June 30, 2002 follows:

|Carrying value - beginning of year                                  | $ | 171,773 |  
|------------------------------------------------------------------- | - | ------- | -
|Goodwill acquired                                                   |   |        |  
|Goodwill impairment losses                                          |   |        |  
|                                                                    |   |        
|Carrying value  June 30, 2002                                      | $ | 171,773 |  
|                                                                    |   |        
|Intangible assets subject to amortization consist of the following: |   |         |  
|                                                                    |   |         |  
|Leasehold value                                                     | $ | 67,000  |  
|Trademark                                                           |   | 2,500   |  
|Refinance cost                                                      |   | 5,127   |  
|                                                                    |   |        
|Total intangible assets                                             |   | 74,627  |  
|Accumulated amortization                                            |   | (28,548 | )
|                                                                    |   |        
|Intangible assets, net                                              | $ | 46,079  |  
|                                                                    |   |        

Amortization expense for the six month period ended June 30, 2002 was $2,728.

15



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Thanksgiving Coffee Company, Inc.

|Notes to Financial Statements (continued)
|-----------------------------------------
|                                         
|                                         
|6.                                       
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         

16



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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.              |  | $ | 10,553   |  
|                                                                                                                                                                                   |  |   |          |  
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of interest only at 10%, with balance due in lump sum on October 1,
2002, unsecured. |  |   | 15,000   |  
|                                                                                                                                                                                   |  |   |         
|                                                                                                                                                                                   |  |   | 479,651  |  
|Less current portion                                                                                                                                                               |  |   | (206,204 | )
|                                                                                                                                                                                   |  |   |         
|Long term portion of notes payable                                                                                                                                                 |  | $ | 273,447  |  
|                                                                                                                                                                                   |  |   |         
|                                                                                                                                                                                   |  |   |          |  
|Interest paid for the six month period ended June 30, 2002 was $30,440.                                                                                                            |  |   |          |  
|                                                                                                                                                                                   |  |   |          |  
|As of June 30, 2002, maturities of notes payable are as follows:                                                                                                                   |  |   |          |  
|                                                                                                                                                                                   |  |   |          |  
|2002                                                                                                                                                                               |  | $ | 123,829  |  
|2003                                                                                                                                                                               |  |   | 160,748  |  
|2004                                                                                                                                                                               |  |   | 99,081   |  
|2005 and thereafter                                                                                                                                                                |  |   | 95,993   |  
|                                                                                                                                                                                   |  |   |         
|                                                                                                                                                                                   |  | $ | 479,651  |  
|                                                                                                                                                                                   |  |   |         

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

17



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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements
(continued)

7.       Income Taxes

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 six month period ended June 30, 2002. Deferred tax liabilities recognized for taxable temporary differences are not material for the six month period ended June 30, 2002. The
Company has a federal general business credit carryforward of $14,354 which may be used to offset federal income taxes in the future. The Company also has a California manufacturers credit carryforward of $27,017, which may be used to offset
California income taxes in the future.

The components of income tax expense for the six month period ended June 30, 2002 is as follows:

State  current
                                        
                                        
                                $        
      800

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

|Federal      |   |         |   |               |   |               |   |         | 
|------------ | - | ------- | - | ------------- | - | ------------- | - | ------- | 
|Years ending |   | Capital |   |               |   | Net Operating |   |         | 
|December 31, |   | Loss    |   | Contributions |   | Loss          |   | Total   | 
|             |  
|2002         | $ | 29,471  | $ | 11,419        | $ |              | $ | 40,890  | 
|2003         |   |        |   | 11,289        |   |              |   | 11,289  | 
|2005         |   |        |   | 12,067        |   |              |   | 12,067  | 
|2006         |   |        |   | 1,063         |   |              |   | 1,063   | 
|2012         |   |        |   |              |   | 394,334       |   | 394,334 | 
|2018         |   |        |   |              |   | 128,576       |   | 128,576 | 
|             |   |        
|             | $ | 29,471  | $ | 35,838        | $ | 522,910       | $ | 588,219 | 
|             |   |        

|California   |   |         |   |               |   |               |   |         | 
|------------ | - | ------- | - | ------------- | - | ------------- | - | ------- | 
|Years ending |   | Capital |   |               |   | Net Operating |   |         | 
|December 31, |   | Loss    |   | Contributions |   | Loss          |   | Total   | 
|             |  
|2002         | $ | 29,471  | $ |              | $ | 28,950        | $ | 58,421  | 
|2003         |   |        |   | 10,728        |   | 64,341        |   | 75,069  | 
|2004         |   |        |   | 14,863        |   |              |   | 14,863  | 
|2005         |   |        |   | 12,299        |   |              |   | 12,299  | 
|             |   |        
|             | $ | 29,471  | $ | 37,890        | $ | 93,291        | $ | 160,652 | 
|             |   |        

Income taxes paid for the six month period ended June 30, 2002 were $800.

18



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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 June 30, 2002, minimum annual lease
payments due under these agreements are as follows:

|2002                | $ | 75,430 
|------------------- | - | -------
|2003                |   | 62,110 
|2004                |   | 58,130 
|2005                |   | 56,577 
|2006 and thereafter |   | 39,152 
|                    |  
|                    | $ | 291,399
|                    |  

Total operating lease payments were $20,106 for the six month period ended June 30,
2002.

9.       Common Stock

| |                                    |  | Number of |  |   | No Par 
| | ---------------------------------- |  | --------- |  | - | -------
| |                                    |  | Shares    |  |   | Value  
| |                                    |  |          
| | Beginning balance, January 1, 2001 |  | 1,234,544 |  | $ | 861,816
| | No activity                        |  |          |  |   |       
| |                                    |  |          
| | Balance, December 31, 2001         |  | 1,234,544 |  |   | 861,816
| | No activity                        |  |          |  |   |       
| |                                    |  |          
| | Ending balance, June 30, 2002      |  | 1,234,544 |  | $ | 861,816
| |                                    |  |          

981,000 shares originally issued are restricted.



---

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements
(continued)

10. Stock Option Purchase Plan

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

|Beginning balance, January 2, 2001           |  | 16,000
|-------------------------------------------- |  | ------
|Shares expired during the year               |  |      
|Shares exercised during the year             |  |      
|                                             | 
|Balance, December 31, 2001                   |  | 16,000
|Shares expired during the six month period   |  |      
|Shares exercised during the six month period |  |      
|                                             | 
|Ending balance, June 30, 2002                |  | 16,000
|                                             | 

The related compensation expense for the six month period ended June 30, 2002 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.

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 $51,600
for the six month period ended June 30, 2002. The Company has made substantial leasehold improvements (see Note 4) and intends, along with its major shareholders, to exercise all options under the terms of this lease.

The Company leases a bakery establishment in Mendocino, California. The lease currently provides for monthly rental payments of $3,150 as of June 30, 2002. The lease term expires on September 30,
2010.

20



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Thanksgiving Coffee Company, Inc.Notes to Financial Statements (continued)

11.   Long Term Leases (continued)

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

As of June 30, 2002, minimum future rental payments for all leases are as
follows:

|2002       | $ | 75,940 
|---------- | - | -------
|2003       |   | 141,907
|2004       |   | 141,000
|2005       |   | 141,000
|2006       |   | 141,000
|Thereafter |   | 270,750
|           |  
|           | $ | 911,597
|           |  

12.   Related Party Transactions

As of June 30, 2002, the Company has (i) two interest only notes 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 six month period ended June 30, 2002 are as follows:

|Principal on notes | $ |  | 30,104
|------------------ | - |  | ------
|Interest expense   |   |  | 5,008 
|Rent expense       | $ |  | 51,600

13.   Commitments

In 1996, the Company purchased a bakery from Laoma Yaski for $350,000. Under the terms of the purchase agreement, the Company agreed to pay an additional $25,000 to Laoma Yaski upon the seven year anniversary of the
purchase provided she does not own, manage or operate a bakery within 250 miles of Mendocino, California during such seven year period.

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.



---

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, consumer acceptance of the Companys new
products, 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 which speak only as of the date of this Quarterly Report on Form
10-QSB.

|Three Months Ended June 30, 2002 Compared With Three Months Ended June 30, 2001
|-------------------------------------------------------------------------------
|                                                                               
|                                                                               
|Consolidated                                                                   
|                                                                               
|                                                                               
|Net Sales                                                                      
|Cost of Sales                                                                  
|Gross Margin                                                                   
|Selling, G&A Expense                                                           
|Depreciation & Amortization                                                    
|Interest Expense                                                               
|Net Income                                                                     

Consolidated net sales for the three months ended June 30, 2002 were $1,230,714, down 4.2% when compared with net sales
of $1,284,341 for the same period in fiscal 2001.

Distribution revenues (e.g., revenues generated on our own truck distribution) declined by $42,000 or 5.6% in the three month period
ended June 30, 2002 when compared to the same period in fiscal 2001. Nearly 80% of the decline was a result of a customer in one of the territories beginning to roast their own coffee in the last quarter of 2001. The remainder is a result of one
lost account in two other territories changing coffee vendors.

National revenues (e.g., revenues not derived by mail order and direct truck distribution) declined by approximately
$10,000 or 3.2% in the three month period ended June 30, 2002 when compared to same period in fiscal 2001 because of a large national account ordering in June last year but not ordering until July of this year.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) declined nearly $7,000 or 7.5% in the three month period ending June 30, 2002 when
compared to the same period in fiscal 2001. The decrease in revenue for mail order reflects the lack of spending on new mailings to grow the mailing list and attrition of the current list, offset in part by increased Internet sales of $8,000
(representing nearly a 30% increase over the same period in fiscal 2001). With respect to its mail order business, the Company has shifted its emphasis to Internet sales and increased its expenditures for development of its website and
webstore.

Sales attributable to operations of the Companys bakery increased nearly $1,000, or .5% in the three months ended June 30, 2002 over the same period in 2001, reflecting
a price increase of 5% implemented in May 2002 and a new wholesale account obtained in the first quarter of 2002.

Consolidated cost of sales for the three months ended June 30, 2002
were $637,044, down nearly 8% when compared with the cost of sales of $690,644 for the same period in fiscal 2001. This decrease was a result of lower per pound green bean costs and improved labor productivity for the quarter.

Consolidated gross margin (gross profit as a percentage of net sales) for the three months ended June 30, 2002 was 48.2%, up 2 percentage points when compared with gross margin of 46.2% for the same
period in fiscal 2001. This was a result of lower per pound green bean costs that have dropped from an average of $1.63 per pound during the second quarter of 2001 to an average of $1.46 per pound during the second quarter of 2002.

22



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Consolidated selling, general and administrative expenses were $526,703 for the three months ending June 30, 2002, a 3.9% drop when compared with the selling,
general and administrative expenses of $547,923 for the same period in fiscal 2001. This drop was a result of lower wages paid to six new drivers who replaced older drivers when they left the Company.

Depreciation and amortization expenses for the three months ended June 30, 2002 were $39,575, a decrease of 23% when compared with depreciation and amortization expenses of $51,411 for the same period in fiscal 2001.
This decrease was a result of a reduction in purchases of fixed assets and a change in accounting method for startup and other organization costs that were written off at December 31, 2001.

Interest expense for the three months ended June 30, 2002 was $16,199, a nearly 16% decline from interest of $19,194 for the same period in fiscal 2001. The decrease in interest was primarily a result of a decline in total borrowings at
June 30, 2002 by nearly $225,000 compared to June 30, 2001.

As a result of the foregoing factors, the Company had a consolidated net profit of $4,592 for the three months ended June
30, 2002, compared to a $25,311 loss for the same period in 2001. Because of the decline in sales, there can be no assurances that the Company will be profitable in any future period.

|Six Months Ended June 30, 2002 Compared With Six Months Ended June 30, 2001
|---------------------------------------------------------------------------
|                                                                           
|                                                                           
|Consolidated                                                               
|                                                                           
|                                                                           
|Net Sales                                                                  
|Cost of Sales                                                              
|Gross Margin                                                               
|Selling, G&A Expense                                                       
|Depreciation & Amortization                                                
|Interest Expense                                                           
|Net Income                                                                 

Consolidated net sales for the six months ended June 30, 2002 were $2,411,363, a 3.8% decline from net sales of
$2,505,775 for the same period in fiscal 2001.

Distribution revenues (e.g., revenues generated on our own truck distribution) declined by $90,000, or 6% in the six months ended June
30, 2002 when compared to the same period in 2001. Nearly 60% of the decline was a result of a customer in one of the territories who began doing their own roasting during the fourth quarter of 2001. The remaining difference is a result of the loss
of a customer in two different territories which changed coffee vendors.

National revenues (e.g. revenues not derived by mail order and direct truck distribution) declined by $8,000 or
..8% for the six months ended June 30, 2002 compared to the same period in 2001. The decline in volume in the national business was due to a large national account ordering in June last year but not ordering until July of this year.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) declined by $13,000 or 4.4% for the six months ended June 30,
2002 when compared to the same period in 2001. The decrease in mail order revenue reflects the lack of spending on new mailings to grow the mailing list and the attrition of the current list, offset by increased Internet sales of nearly $18,000
(representing a 33% increase over the same period in fiscal 2001). With respect to its mail order business, the Company has shifted its emphasis to Internet sales and increased its expenditures for the development on the website and
webstore.

Sales attributable to operation of the Companys bakery were up by $19,000 or 5.7% for the first six months of fiscal 2002 compared to the same period in 2001. Half of
the increase is due to an acquisition of a new wholesale account in the first quarter of 2002 and the remainder is attributable to a price increase of approximately 5% implemented in May 2002.

Consolidated cost of sales for the six months ended June 30, 2002 were $1,251,151, a 10.1% decline from cost of sales of $1,390,866 for the same period in fiscal 2001. This decline was a result of lower per pound green bean costs and
improved productivity. Per pound green bean costs dropped to an average of $1.46 in the first half of this year from an average of $1.67 for the same period in 2001.

Consolidated gross
margin (gross profit as a percentage of net sales) for the six months ended June 30, 2002 was 48.1% a 3.6 percentage point improvement when compared with gross margin of 44.5% for the same period in fiscal 2001. This increase was a result of lower
average per pound green bean costs and improved productivity.

Consolidated selling, general and administrative expenses for the six months ended June 30, 2002 were $1,044,999, a 3.4%
decline from selling, general and administrative expense of $1,080,860 for the same period in 2001. This drop was a result of lower wages paid to six new drivers who replaced drivers who left the Company.

Depreciation and amortization expenses for the six months ended June 30, 2002 were $82,254, a 20.6% decrease from depreciation and amortization expenses of $103,589 for the same period in fiscal 2001. This decline was
a result of fewer capital expenditures, the change of

23



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accounting method for startup and other organization costs that were written off at December 31, 2001and a change in accounting method for amortizing goodwill
effected January 1, 2002.

Interest expenses for the six months ended June 30,2002 were $30,440, a decrease of 34.3% from interest expenses of $46,639 for the same period in fiscal
2001. This was primarily a result of a decrease in total borrowings at June 30, 2002 by $225,000 compared to June 30, 2001.

As a consequence of the foregoing factors, the Company
incurred a consolidated net loss of $11,351 for the six months ended June 30, 2002, compared with a net loss of $84,848 for the six months ended June 30, 2001. There can be no assurances that the Company will be profitable in any future
period.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, the Company has working capital of $181,757 versus
a working capital of $106,761 as of June 30, 2001. This increase in working capital is due to a reduction in bank debt and lease obligations offset in part by slightly lower inventory and receivables.

Net cash provided by operating activities was $123,570 for the six months ended June 30, 2002 compared to $161,108 provided by operating activities for the six months ended June 30, 2001. The reduction in net cash
provided by operating activities in the first six months of 2002 was the result of an increase in inventory of $8,000, as well as lower depreciation and amortization.

Cash used by
investing activities was $59,127 for the six months ending June 30, 2002 compared to $51,475 for the same period in 2001. Capital additions for the first six months of 2002 include $17,000 for the Companys website and webstore, $10,000 for new
equipment for the bakery, $8,000 for replacement of equipment in the coffee company and $5,000 for new computer programs.

Net cash used in financing activities for the six months ended
June 30, 2002 was $115,167 compared to $47,067 during the same period in 2001. The increase in cash used in financing activities in the six months ended June 30, 2002 was the result of a higher repayments of debt and no additional financing that was
available last year.

Because of the lower cash generated by operations and higher debt repayment, cash at June 30, 2002 was $56,309 lower than at June 30, 2001.

At June 30, 2002, the Company had total borrowings of $479,650, including $328,134 owing to Wells Fargo Bank. This compares to total borrowings of $717,486 as of June 30, 2001, including $440,934
outstanding to Wells Fargo at that time. The Companys accounts receivable, inventory, equipment, fixtures and improvements secure the borrowings. These borrowings are guaranteed by the Companys majority shareholders.

In December of 2000, the majority shareholders loaned the Company $50,000, payable in monthly installments of $1,649, unsecured, due in November 2003. As of June 30, 2002, the principal amount of
$25,752 remained outstanding on such loan. In April 2001 the majority shareholders loaned the Company $60,000, due October 1, 2001 in a lump sum. All debt due to the majority shareholders is subordinated to Wells Fargo. Subsequent to September 30,
2001, the Company made a payment to the majority shareholders of $30,000 on the $60,000 note including accrued interest thereon and refinanced the remaining $30,000 such that it became due on April 1, 2002 in a lump sum. On April 1, 2002, the
Company paid $15,000 of the $30,000 note including accrued interest thereon and refinanced the remaining $15,000 such that it becomes due on October 1, 2002, in a lump sum.

A summary
of the Companys principal contractual obligations and other commitments as of June 30, 2002 is shown in the following table:

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

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. If the $15,000 note due in October 2002 to the majority shareholders should cause an undue
strain on the Companys finances, the majority shareholders indicated they would be willing to extend the note beyond its current maturity, but the Company cannot give any assurances as to any such extension.

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

24



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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.

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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

-Not Applicable-

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

-Not Applicable-

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

-Not Applicable-

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

At the Companys annual
meeting held in Fort Bragg at 10:00 a.m. on June 10, 2002, the Company submitted for a vote of security holders the reelection of all three members of the board of directors and ratification of Sallman, Yang and Alameda as independent public
accountants. Below is a summary of the results.

Proposal No. 1: Election of three directors.

25



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|Name         | Shares for | Against/Withheld | Abstain
|------------ | ---------- | ---------------- | -------
|             |            |                  |        
|Paul Katzeff | 948,220    | 0                | 0      
|Joan Katzeff | 948,220    | 0                | 0      
|Roy Doughty  | 948,220    | 0                | 0      

Proposal No. 2: Ratification of Sallman, Yang and Alameda An Accountancy Corporation, as
Independent Public Accountants for the Company.

| | Shares for | Against/Withheld | Abstain
| | ---------- | ---------------- | -------
| |            |                  |        
| | 947,170    | 0                | 0      

ITEM 5. OTHER INFORMATION

- Not Applicable 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|a. | Exhibits
|-- | --------
|   |         
|   | 1.      
|   |         
|   | 2.      
|   |         
|b. | Form 8-K

No reports on Form 8-K were filed during the period from March 31, 2002 to June 30,
2002

26



---

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 Paul Katzeff |  | Chief Executive Officer |  | August 12, 2002 | 
|                              |  |                         |  |                 | 
|/s/ Joan Katzeff Joan Katzeff |  | President               |  | August 12, 2002 | 
|                              |  |                         |  |                 |