SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC  20549
                                 ______________
                                    FORM 10-K

            ANNUAL  REPORT  PURSUANT  TO  SECTION  13  OR  15(D)  OF  THE
                    SECURITIES  EXCHANGE  ACT  OF  1934

     FOR  THE  FISCAL  YEAR  ENDED  DECEMBER  28,  2003

                                       OR

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

                         COMMISSION FILE NUMBER 0-32233

                            PEET'S COFFEE & TEA, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
               ______________________________

WASHINGTON                                               91-0863396
 (STATE  OR  OTHER  JURISDICTION  OF                    (I.R.S.EMPLOYER
 INCORPORATION  OR  ORGANIZATION)                        IDENTIFICATION  NO.)

                                1400 PARK AVENUE
                       EMERYVILLE, CALIFORNIA  94608-3520
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)

                                 (510) 594-2100
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                           COMMON STOCK, NO PAR VALUE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                      NONE
                            ________________________

     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be  filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  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      No.

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.

     Indicate  by  check mark whether the registrant is an accelerated filer (as
defined  in  Exchange  Act  Rule  12b-2).  Yes      No

     The  approximate  aggregate  market  value  of  the  voting  stock  held by
non-affiliates  of the registrant based on the closing price of the Common Stock
on  June  29, 2003 (the registrant's most recently completed second quarter) and
February  27,  2004  as reported by the Nasdaq National Market, was $204,043,391
and $255,352,259, respectively.


                                        1
<PAGE>


Shares  of  Common Stock held by each officer and director and each person known
to  the  Company  to  hold 10% or more of the outstanding Common Stock have been
excluded  as  such  persons  may be deemed to be affiliates of the Company. Such
determination  of affiliate status is not necessarily a conclusive determination
for  other  purposes. As of February 27, 2004, 13,146,328 shares of registrant's
Common  Stock  were  outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the  proxy  statement related to the registrant's 2004 annual
meeting  of  stockholders,  which  proxy  statement  will  be  filed  under  the
Securities  Exchange  Act of 1934 within 120 days of the end of the registrant's
fiscal year ended December 28, 2003, are incorporated by reference into Part III
of  this  Form  10-K.


                                        2
<PAGE>


<TABLE>
<CAPTION>


                                            TABLE OF CONTENTS
          -------------------------------------------------------------------------------------
                                                                                                 PAGE
                                                                                                 ----
                                                 PART I
          -------------------------------------------------------------------------------------
<S>       <C>                                                                                    <C>

Item 1..  Business                                                                                  4
--------  -------------------------------------------------------------------------------------  ----
Item 2..  Properties                                                                                9
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Item 3..  Legal Proceedings                                                                         9
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Item 4..  Submission of Matters to a Vote of Security Holders                                      10
--------  -------------------------------------------------------------------------------------  ----

          PART II
          -------------------------------------------------------------------------------------

Item 5..  Market for Registrant's Common Equity and Related Stockholder Matters                    10
--------  -------------------------------------------------------------------------------------  ----
Item 6..  Selected Financial Data                                                                  11
--------  -------------------------------------------------------------------------------------  ----
Item 7..  Management's Discussion and Analysis of Financial Condition and Results of Operations    12
--------  -------------------------------------------------------------------------------------  ----
Item 7A.  Quantitative and Qualitative Disclosure About Market Risk                                21
--------  -------------------------------------------------------------------------------------  ----
Item 8 .  Financial Statements and Supplementary Data                                              27
--------  -------------------------------------------------------------------------------------  ----
Item 9 .  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     27
--------  -------------------------------------------------------------------------------------  ----
Item 9A.  Controls and Procedures                                                                  27
--------  -------------------------------------------------------------------------------------  ----

          PART III
          -------------------------------------------------------------------------------------

Item 10.  Directors and Executive Officers of the Registrant                                       27
--------  -------------------------------------------------------------------------------------  ----
Item 11.  Executive Compensation                                                                   28
--------  -------------------------------------------------------------------------------------  ----
Item 12.  Security Ownership of Certain Beneficial Owners and Management                           28
--------  -------------------------------------------------------------------------------------  ----
Item 13.  Certain Relationships and Related Transactions                                           28
--------  -------------------------------------------------------------------------------------  ----
Item 14.  Principal Accounting Fees and Services                                                   28
--------  -------------------------------------------------------------------------------------  ----

          PART IV
          -------------------------------------------------------------------------------------

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         28
--------  -------------------------------------------------------------------------------------  ----
          Signatures                                                                               32
          -------------------------------------------------------------------------------------  ----
</TABLE>


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<PAGE>


                           FORWARD-LOOKING STATEMENTS

     Some  of  the  matters  discussed  under  the  captions  "Risk  Factors,"
"Management's  Discussion  and  Analysis  of  Financial Condition and Results of
Operation,"  "Business"  and  elsewhere  in  this report include forward-looking
statements.  We  have  based  these  forward-looking  statements  on our current
expectations and assumptions about future events, including, among other things:

-     Implementing  our  business  strategy;
-     Attracting  and  retaining  customers;
-     Obtaining  and  expanding  our  market presence in new geographic regions;
-     The  availability  of  high  quality  Arabica  coffee  beans;
-     Consumers  tastes  and  preferences;  and
-     Competition  in  our  market.

     In  some  cases, you can identify forward-looking statements by terminology
such  as  "may,"  "will," "should," "could," "predict," "potential," "continue,"
"expect,"  "anticipate,"  "future,"  "intend," "plan," "believe," "estimate" and
similar expressions (or the negative of such expressions).  These statements are
based  on our current beliefs, expectations and assumptions and are subject to a
number  of  risks  and  uncertainties.  Actual  results,  levels  of  activity,
performance,  achievements  and events may vary significantly from those implied
by  the forward-looking statements.  A description of risks that could cause our
results  to  vary appears under the caption "Risk Factors" and elsewhere in this
report.  Forward-looking statements speak only as of the date of this report and
we  assume  no  obligation  to  update  any  forward-looking  statements.


                                     PART I

ITEM  1.     BUSINESS

     Peet's  is a specialty coffee roaster and marketer of branded fresh roasted
whole  bean  coffee.  We  sell  our  fresh roasted coffee under strict freshness
standards  through  multiple  channels of distribution including grocery stores,
online  and  mail  order,  office,  restaurant  and food service accounts and 76
company-operated  stores  in  seven  states.

     We  believe  that  roasted  coffee  is  a  perishable product and we pursue
distribution  channels  that are consistent with our strict freshness standards.
For  instance,  our  distribution  to  grocery  stores  emphasizes the use of an
existing  network  of  distributors  who  deliver  fresh  goods  to our targeted
accounts.  Our  online and mail order customers are shipped coffee directly from
our  facility  and  we  roast  to  order.  Our  goal is to ensure that customers
receive  coffee  within  days  of  roasting.

     Over  the  past seven years, we have expanded from a regional retailer that
operates its own outlets into a national coffee brand available through multiple
channels  of  distribution.  We  extended  our  retail  presence  to  Southern
California  in  1997, Chicago and Portland in 1998, Boston in 1999, and Seattle,
Denver,  and  Austin  in  2003.  We  signed our first office coffee distribution
agreement  in  1997  and  have since added a number of restaurants, food service
accounts,  and  office  coffee  distributors in select markets.  We added online
ordering capability to our website in 1997 to complement our existing mail order
business  and  have since invested in marketing programs designed to support our
online and mail order channel.  In 1998, we initiated a strategic expansion into
specialty  grocery  and  gourmet  food  stores.  During the last two years, this
expansion  was  further developed to include distribution to mainstream grocers;
as  we  expanded our grocery accounts from 130 to over 2,700 stores.  We believe
our  expansion  strategy  emphasizes  disciplined  growth and enhancement of our
brand's image and quality reputation.  See Note 13, "Segment Information" to the
"Notes to Consolidated Financial Statements", included elsewhere in this report.

     Our  website  is located at www.peets.com.  Our annual report on Form 10-K,
quarterly  reports  on Form 10-Q and current reports on Form 8-K, as well as any
amendments  or  exhibits  to those reports, are available free of charge through
our  website  at  http://investor.peets.com/edgar.cfm  as  soon  as  reasonably
practicable  after  we  file them with, or furnish them to, the SEC.  Peet's was
organized  as  a  Washington  corporation  in  1971.


                                        4
<PAGE>


COMPANY  RETAIL  STORES

     We  operate  76  retail  stores in seven states through which we sell whole
bean  coffee,  beverages and pastries, tea, and other related items.  Our stores
are  designed to facilitate the sale of fresh whole bean coffee and to encourage
customer  trial  of  our  coffee  through  coffee  beverages.  Each  store has a
dedicated  staff  person at the bean counter to take orders and assist customers
with  questions  and  issues.  Upon  order,  beans are scooped and ground to the
customer's  specific requirement.  To ensure that the freshest beans are sold to
customers,  we  implemented  a  policy  to  not  sell beans beyond ten days from
roasting  and  we  train  our store managers to order and replenish coffee.  Our
beverage  counter features coffee based beverages that promote the sale of whole
bean  coffee  with  a  standard  rotation of coffee brewed from each category of
coffees  we  sell.  It  is  our  policy  to  brew a new batch of coffee every 30
minutes  and not re-heat milk in espresso based drinks to ensure freshness.  See
"Item  2.  Properties"  for  further  discussion  about  our  retail  stores.

SPECIALTY  SALES

     In  addition  to  sales  through  our  retail  stores, we have expanded the
availability  of  our  products  through  a network of grocery stores, including
Safeway  Inc.,  Albertson's,  Ralph's  and  Whole Foods Market.  To support this
expansion,  we  have  developed  a  direct  store  delivery  ("DSD")  sales  and
distribution  system.  Peet's  DSD  route sales representatives deliver to their
stores  weekly,  properly  shelve  the  product,  work  to  resolve  pricing
discrepancies,  rotate  to  ensure  freshness,  sell  and  erect  free-standing
displays,  and  forge  store-level  selling  relationships.  We  currently  have
approximately 50 DSD route sales representatives in 2004, of which approximately
34 will be full-time Peet's employees, to support the expansion into new grocery
accounts  in  the  western United States as well as existing grocery stores.  In
the  food  service  and  office  business,  we have a staff of sales and account
managers  who make sales calls to potential and existing accounts and manage our
distributor  network.  Additionally  we  have  established  relationships  with
office,  restaurant  and food service distributors to expand our account base in
select  markets.  These distributors have their own sales and account management
resources.  In  the  online  and mail order channel, we have a dedicated website
and  customer  service  representatives  that  provide  points of contact to our
customers  for  coffee  ordering  and coffee knowledge.  Our website features an
Express Buy function for registered customers for speed and ease, special coffee
and  tea  programs,  and  a  coffee  and  tea selector to assist the customer in
choosing  a  product  based  upon  certain  characteristics.  In addition to our
website,  we  have  a  team  of  mail order customer service representatives who
assist  customers  in  placing  customer orders, choosing a gift item, providing
product  information,  and  resolving  customer  issues.  Customer  service
representatives are regularly trained on Peet's product offerings through weekly
coffee  and  tea  tastings.

OUR  COFFEE

   Coffee  Beans

     Coffee is an agricultural crop that undergoes price fluctuation and quality
differences  depending  on  weather, economic and political conditions in coffee
producing  countries.  We  purchase  only  Arabica  coffee  beans,  which  are
considered  superior to the Robusta coffee beans traded in the commodity market.
Arabica beans usually grow at high elevations, absorb little moisture and mature
slowly.  Thus,  although most coffee trades in the commodity market, the Arabica
beans  purchased  by  us  tend  to  trade on a negotiated basis at a substantial
premium  above  commodity coffee prices, depending upon the supply and demand at
the  time  of purchase.  Our access to high quality Arabica beans depends on our
relationships  with  coffee  brokers,  exporters  and growers, with whom we have
built  long-term  relationships  to  ensure a steady supply of coffee beans.  In
2003, we purchased over half of our coffee beans through one broker.  We believe
that,  as  a result of our reputation that has been built over 37 years, we have
access  to  some of the highest quality coffee beans from the finest estates and
growing  regions  around  the  world  and  we  are  occasionally  presented with
opportunities  to  purchase  unique  and  special  coffees.

     Unlike  roasted coffee beans, green coffee beans are not highly perishable.
We  generally  turn  our  inventory of green coffee beans two to three times per
year.  We  generally carry approximately $4 million to $8 million worth of green
coffee  beans  in  our  inventory.  If Arabica coffee beans from a region become
unavailable  or  prohibitively  expensive,  we  may  be  forced  to  discontinue
particular coffee types and blends or substitute coffee beans from other regions
in  our  blends.  From  time  to  time,  we  mitigate  the risks associated with
fluctuations  in  coffee  prices  by  entering  into fixed price commitments and
hedging  agreements  for  a  portion  of  our  green  coffee  bean requirements.


                                        5
<PAGE>


   Our  Roasting  Method

     Our roasting method was first developed by Alfred Peet and further honed by
our talented and skilled roasting personnel.  We roast by hand in small batches,
and  we  rely  on the skills and training of each roaster to maximize the flavor
and  potential  in  our  beans.  Our  roasters undergo a two year apprenticeship
program  to  learn our roasting method and to gain the skills necessary to roast
coffee  at  Peet's.

   Coffee  Types  and  Blends

     Beyond  sourcing  and  roasting,  we have developed a reputation for expert
coffee  blending.  Our  blends,  such  as  Major  Dickason's  Blend(R), are well
regarded  by  our customers for their uniqueness, consistency and special flavor
characteristics.  We  sell  approximately  32  types  of  coffee as regular menu
items.  Included  in  this  figure  are approximately 21 blends with the balance
being  single  origin  coffees  from  countries  such as Colombia, Guatemala and
Kenya.  In 2001, we introduced a line of high-end reserve coffees, such as Kona,
Jamaica  Blue  Mountain, Aged Moka Java, and JR Reserve Blend(R).  We are active
in  seeking,  roasting  and selling unique special lot and one-time coffees.  On
average, we offer four to six such coffees every year, including our Anniversary
Blend  and  Holiday  Blend.

TEA,  FOOD  AND  MERCHANDISE

     Peet's  offers  a  line  of  hand  selected whole leaf and bagged tea.  Our
quality standards for tea are very high. We purchase tea directly from importers
and  brokers and store and pack the tea at our facility in Emeryville.  We offer
a  limited  line  of  specialty  food  items, such as jellies, jams and candies.
These  products  are  carefully  selected  for  quality  and  uniqueness.

     Our  merchandise  program  consists  of items such as brewing equipment for
coffee  and  tea,  paper  filters  and  brewing  accessories  and  branded  and
non-branded cups, saucers, travel mugs and serveware.  We do not emphasize these
items, but we carry them in retail stores and offer them through online and mail
order  as  a  means  to  reinforce  our  authenticity  in  coffee  and  tea.

COMPETITIVE  POSITIONING

     The specialty coffee market can be characterized as highly fragmented.  Our
primary  competitors in whole bean specialty coffee sales include Gevalia (Kraft
Foods),  Green  Mountain  Coffee,  Illy  Caffe ,  Millstone  (Procter & Gamble),
Seattle's  Best (Starbucks) and Starbucks.  There are numerous smaller, regional
brands  that  also compete in this category.  We also compete indirectly against
all other coffee brands on the market.  A number of nationwide coffee marketers,
such  as  Kraft  Foods,  Procter  &  Gamble and Nestle, are distributing premium
coffee  brands  in  supermarkets.  These  premium  coffee  brands  may  serve as
substitutes  for  our  whole  bean  coffee.

     In  addition  to competing with other distributors of whole bean coffee, we
compete  with  retailers  of  prepared beverages, including coffee house chains,
particularly  Starbucks,  numerous convenience stores, restaurants, coffee shops
and  street  vendors.

     Despite  competing  in a fragmented category, increased consumer demand has
resulted  in  specialty  coffee  brands  being  established  across  multiple
distribution  channels.  Several  competitors  are  aggressive  in  obtaining
distribution  in  specialty  grocery  and  gourmet  food  stores, and in office,
restaurant and food service locations.  We have only recently begun to penetrate
these  channels.

     We  believe  that  our customers choose among specialty coffee brands based
upon  quality,  variety,  convenience,  and to a lesser extent, price.  Although
consumers  may  differentiate coffee brands based on freshness (as an element of
coffee  quality), to our knowledge, few significant competitors focus on product
freshness  and  roast-dating  in the same manner as Peet's.  We believe that our
market  share  in  the  specialty  category is based on a solidly differentiated
position  built  on our freshness standards and artisan-roasting style.  Because
of  the  fragmented  nature of the specialty coffee market, we cannot accurately
estimate  our  market  share.  However,  many  of  our existing competitors have
significantly  greater  financial,  marketing  and  operating resources than us.

     Our roasted coffee is priced in tiers.  Our regular menu coffees are priced
within  a  range  of  $8.95  to  $17.95 per pound.  Our line of high-end reserve
coffees,  which  we  introduced in 2001, is priced between $49.90 and $79.90 per


                                        6
<PAGE>


pound.  We believe our higher quality and freshness standards allow us to charge
a  higher  price  for  our  coffee  products.

INTELLECTUAL  PROPERTY

     We  regard  intellectual property and other proprietary rights as important
to  our  success.  We  own  several  trademarks and service marks that have been
registered  with  the  United  States  Patent  and  Trademark  Office, including
Peet's(R),  Peet's  Coffee  &  Tea(R),  peets.com(R),  Blend  101(R),  Espresso
Forte(R),  Gaia  Organic  Blend(R), Garuda Blend(R), JR Reserve Blend(R), Maduro
Blend(R),  Major Dickason's Blend(R), Pride of the Port(R), Pumphrey's Blend(R),
Sierra Dorada Blend(R), Summer House(R), Top Blend(R), and Vine Street Blend(R).
We  also  have registered trademarks on our stylized logo.  In addition, we have
applications  pending  with  the United States Patent and Trademark Office for a
number  of  additional  marks,  including  Fresh Days(TM) and Fresh Fridays(TM).

     We own registered trademarks for our name and logo in Argentina, Australia,
Brazil,  Canada,  Chile,  China,  the  European  Community,  Hong  Kong,  Japan,
Paraguay,  Singapore,  South  Korea,  Taiwan,  and  Thailand.  We  have  filed
additional  applications  for  trademark  protection  in  the  Philippines.  In
addition to peets.com and coffee.com, we own several other domain names relating
to  coffee,  Peet's  and  our  roasting  process.

     In addition to registered and pending trademarks, we consider the packaging
for our coffee beans (consisting of dark brown coloring with African-style motif
and lettering with a white band running around the lower quarter of the bag) and
the  design  of  the  interior  of our stores (consisting of dark wood fixtures,
classic  lighting,  granite  countertops  and  understated  color)  to be strong
identifiers  of  our brand.  Although we consider our packaging and store design
to  be  essential  to  our brand identity, we have not applied to register these
trademarks  and  trade  dress,  and  thus  cannot  rely on the legal protections
afforded  by  trademark  registration.

     Our  ability  to  differentiate  our  brand  from  those of our competitors
depends,  in  part,  on the strength and enforcement of our trademarks.  We must
constantly  protect  against  any  infringement by competitors.  If a competitor
infringes  on  our  trademark  rights,  we  may  have to litigate to protect our
rights,  in which case, we may incur significant expenses and divert significant
attention  from  our  business  operations.

INFORMATION  SYSTEMS

     The  information  systems  installed  at  Peet's  are  used  to  manage our
operations  and  increase  the  productivity  of  our workforce.  We believe our
advanced  point-of-sale  system  increases store productivity, provides a higher
level  of  service  to  our  customers  and  maintains  timely  information  for
performance  evaluation.  Our  registers  have  touch screen components and full
point-of-sale  capability.  In  2002,  we  implemented a Peet's cash card in our
retail  stores  and  website  that  will,  in  the future, allow us to implement
customer  loyalty  programs.  In  2002,  during  the rollout of our direct store
delivery system in the grocery channel, we implemented a grocery order entry and
invoice system with handheld capability that allows our route representatives to
provide  service  and information on the spot.  In 2003, we implemented business
intelligence  software  to  better  support  and  analyze  our  business  in all
channels.  Currently, we are in the process of deploying an integrated labor and
scheduling system in our retail stores that we believe will improve productivity
as  well  as  provide  better  customer  service.

     Our  website,  www.peets.com,  is  hosted  at our corporate headquarters in
Emeryville,  California.  All  website  applications  are built on Microsoft ASP
with in-house development.  We offer full-functioning e-commerce and our site is
integrated  with  our call center for access to orders placed at both locations.
Online delivery confirmation is provided by United Parcel Service and the United
States  Postal  Service.  Our  site contains several customer-centered functions
such as Express Buy (which stores customer-specific lists of favorite coffee and
items),  multiple  ''ship-to''  capability on a single bill and extensive coffee
search  and  product matching.  Website and call center system functionality are
designed  to  accommodate  the  need  for  customers  to  place repeat orders or
automatic  orders  delivered  on a pre-set schedule.  We designed our website to
provide  fast,  easy and effective operation when navigating and shopping on our
site.  We have dedicated information technology employees and marketing staffers
for  website  maintenance,  improvement,  development  and  performance.

EMPLOYEES

     As  of  February  27,  2004,  we  employed  a  workforce  of  1,751 people,
approximately  371  of  whom  are  considered  full-time  employees. None of our
employees  are  represented  by  a  labor  union.  We  consider  our


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<PAGE>


relationship  with  our  employees to be good. Since 1979, we have provided full
benefits  to  all  employees who work at least 21 hours per week. We continue to
offer  competitive  benefits  packages to attract and retain valuable employees.

GOVERNMENT  REGULATION

     Our coffee roasting operations and our retail stores are subject to various
governmental  laws,  regulations,  and  licenses relating to customs, health and
safety,  building  and  land  use,  and  environmental protection.  Our roasting
facility is subject to state and local air-quality and emissions regulation.  If
we  encounter difficulties in obtaining any necessary licenses or complying with
these  laws  and  regulations,  then:

-     The  opening  of  new  retail  locations  could  be  delayed;
-     The  operation  of  existing  retail  locations  or  our  coffee  roasting
operations  could  be  interrupted;  or
-     Our  product  offerings  could  be  limited.

     We believe that we are in compliance in all material respects with all such
laws  and  regulations  and that we have obtained all material licenses that are
required  for  the  operation  of  our  business.  We  are  not  aware  of  any
environmental  regulations  that  have  or  that we believe will have a material
adverse  effect  on  our  operations.

OUR  EXECUTIVE  OFFICERS

     Set  forth  below is information with respect to the names, ages, positions
and  offices  of  our  executive  officers  as  of  February  27,  2004.

<TABLE>
<CAPTION>

NAME                 AGE                                   POSITION
-------------------  ---  ---------------------------------------------------------------------------
<S>                  <C>  <C>

Patrick J. O'Dea. .   42  Chief Executive Officer, President and Director
-------------------  ---  ---------------------------------------------------------------------------
Thomas P. Cawley. .   43  Chief Financial Officer, Vice President, and Secretary
-------------------  ---  ---------------------------------------------------------------------------
Michael J. Cloutier   49  Vice President, Information Technology
-------------------  ---  ---------------------------------------------------------------------------
James E. Grimes . .   48  Vice President, Operations and Information Systems
-------------------  ---  ---------------------------------------------------------------------------
William M. Lilla. .   48  Vice President, Strategic Partners
-------------------  ---  ---------------------------------------------------------------------------
Peter B. Mehrberg .   45  Vice President, Business Development, General Counsel & Assistant Secretary
-------------------  ---  ---------------------------------------------------------------------------
James A. Reynolds .   65  Vice President, Coffee and Tea
-------------------  ---  ---------------------------------------------------------------------------
Bruce E. Schroder .   44  Vice President, Specialty
-------------------  ---  ---------------------------------------------------------------------------
</TABLE>


Patrick  J.  O'Dea  has  served  as  Chief Executive Officer, President and as a
director  since  May  2002.  From  April  1997  to  March  2001,  he  was CEO of
Archway/Mother's Cookies and Mother's Cake & Cookie Company.  From 1995 to 1997,
Mr.  O'Dea  was  the  Vice President and General Manager of the Specialty Cheese
Division  of  Stella  Foods.  From  1984  to 1995, he was with Procter & Gamble,
where  he  marketed  several  of  the  company's  snack  and  beverage  brands.

Thomas  P.  Cawley  has served as Chief Financial Officer since July 2003.  From
August  2000  to  June  2003,  he  was at Gap, Inc. serving in various positions
within  the organization from Senior Vice President - Finance to Chief Financial
Officer,  Gap  Brand.  From  1986  to August 2000, Mr. Cawley was at Pepsico/Yum
Brands  (formerly  Tricon Global Restaurants), holding various positions such as
Senior  Treasury  Analyst, Director of Finance, Vice President - Controller, and
Chief  Financial  Officer; Pizza Hut.  Previous to 1986, Mr. Cawley was with The
Quaker  Oats  Company  and  General  Foods.

Michael  J.  Cloutier has served as Vice President, Information Technology since
August  1999.  He  was  our  Systems  Manager from August 1999 to December 1999.
Between  October  1997  and  August  1999,  Mr.  Cloutier  founded  two computer
consulting  businesses,  1 - 2 - 1 Solutions and Pleasanton Partners, Inc.  From
April 1996 to October 1997, Mr. Cloutier served as Vice President, Operations of
M1 Software, Inc., a software development company.  From 1993 to April 1996, Mr.
Cloutier  was  the  Deputy  Business  and Strategic Planning Officer at the Mare
Island  Naval  Shipyard.

James  E.  Grimes  has  served  as  Vice President of Operations and Information
Systems  since  July  2002.  In  August  2001,  Mr.  Grimes founded Supply Chain
Consulting,  where  he  provided supply chain management expertise. From January
2001  through  August  2001,  Mr.  Grimes was Senior Vice President of Strategic
Planning-Operations  at  Parmalat  Bakery  Division, North America. From 1998 to
2001,  he  was  Senior  Vice  President  of  Operations  at


                                        8
<PAGE>


Archway/Mother's  Cookies.Previously,  Mr.  Grimes  held  various  positions  at
Mother's  Cake  and Cookie Company. Before joining Mother's, he was at Frito Lay
and  Procter  &  Gamble.

William  M.  Lilla has served as Vice President since April 1998.  He has served
the  Company  in several roles, including Vice President, Marketing and Strategy
and  Vice  President, Food Service/Office and New Business Development, and Vice
President, Strategic Partners.  Before joining Peet's, Mr. Lilla was employed by
The  Heublein  Wines  Group  as  Vice President of Strategy from October 1997 to
April 1998, Vice President of Marketing from September 1994 to October 1997, and
Director  of  Marketing  from  September  1993  to  September  1994.

Peter  B.  Mehrberg  has served as Vice President since 1997.  He has served the
Company  in  several  roles,  including Vice President, Business Development and
Vice  President,  Real  Estate.  Mr. Mehrberg has also served as General Counsel
since  September  1994.  From  July  1994  to  June  1997,  Mr. Mehrberg was our
Director  of  Real  Estate.

James  A.  Reynolds  has served as Vice President, Coffee and Tea since February
1994, and served as Secretary from February 1988 to May 2001.  He also served as
a  director  from  1985  to  1997.  Mr.  Reynolds  joined  Peet's  in  1984.

Bruce E. Schroder has served as Vice President, Specialty since June 2003.  From
December  2001  through  May 2003, he was CEO for HomeGain.com, Inc. an Internet
based  real  estate company.  Prior to that, Mr. Schroder spent a combined total
of  nearly  16  years  with  PepsiCo,  in  finance, sales, marketing and general
management  roles  for Pepsi Bottling Group, Taco Bell, Pepsi Fountain Beverage,
The  North  American Coffee Partnership and SoBe.  Mr. Schroder began his career
as  a  CPA with Arthur Andersen & Co and also served as Executive Vice President
of  Retail  Marketing  for  Wells  Fargo  Bank.


ITEM  2.     PROPERTIES

     Peet's  headquarters  are  located  in  Emeryville,  California,  where the
Company  leases approximately 60,000 square feet of office and production space,
including  roasting  and  direct  delivery fulfillment facilities.  Within these
facilities,  we  have 15,000 square feet devoted to general corporate and retail
overhead  and a call center for the direct delivery business.  Our lease expires
in  2005  and we have an option to extend the lease for an additional ten years.

     We  operate 76 retail stores in seven states.  Our retail locations are all
company  operated  in  leased facilities.  Our store size averages approximately
1,800  square  feet.  Our  stores  are typically located in urban neighborhoods,
suburban  shopping centers (usually consisting of grocery, specialty and service
stores)  and  high-traffic  streets.

     The  following  table  lists  the  number  of retail stores we have in each
location  as  of  February  27,  2004:

<TABLE>
<CAPTION>


LOCATION               NUMBER
---------------------  ------
<S>                    <C>

Northern California .      47
---------------------  ------
Southern California .      14
---------------------  ------
Chicago, Illinois . .       2
---------------------  ------
Portland, Oregon. . .       4
---------------------  ------
Boston, Massachusetts       6
---------------------  ------
Seattle, Washington .       1
---------------------  ------
Austin, Texas . . . .       1
---------------------  ------
Denver, Colorado. . .       1
---------------------  ------

TOTAL . . . . . . . .      76
---------------------  ======
</TABLE>


ITEM  3.     LEGAL  PROCEEDINGS

     On February 25, 2003 and March 7, 2003, two lawsuits were filed against the
Company  entitled  Brian  Taraz, et al. vs. Peet's Coffee & Tea, Inc., and Tracy
Coffee, et al. vs. Peet's Coffee & Tea, Inc. Each was filed in Superior Court of
the  State  of  California,  County  of  Orange,  and  sought  class  action
certification.  These  suits  were  filed  by  one  former and one current store
manager  alleging  misclassification  of employment position and sought damages,
restitution,  reclassification  and attorneys' fees and costs. On March 4, 2004,
the Superior Court granted preliminary approval of a settlement of the suits and
conditional  certification  of  the  class  for settlement purposes. The Company
recorded  a  charge  of  $2.7 million during the third quarter for the estimated
payment  of  claims  to


                                        9
<PAGE>


eligible class members, attorneys' fees and costs, costs to a third-party claims
administrator,  as  well  as  applicable  employer payroll taxes. This charge is
included  in "General and administrative expenses" in the Company's consolidated
statement  of  income  for  2003. The settlement is subject to the court's final
approval,  the  Company's  right to terminate if more than 10% of the settlement
class  opts  out  of  the  settlement, and the plaintiffs' right to terminate if
claims  by  class members in the aggregate exceed more than 10% of the number of
work  weeks  specified  in  the  settlement  agreement.

     In  addition  to  the  lawsuits  described  above, we may from time to time
become involved in certain legal proceedings in the ordinary course of business.
Currently,  the  Company  is  not  party  to  any  other  legal proceedings that
management  believes  would  have  a  material  adverse  effect on the financial
position  or  results  of  operations  of  the  Company.


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

     No  matters  were  submitted  to  a vote of our security holders during the
quarter  ended  December  28,  2003.


                                     PART II

ITEM  5.     MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED STOCKHOLDER
MATTERS

MARKET  FOR  THE  REGISTRANT'S  STOCK

     The  Company's  common stock is traded on the Nasdaq National Market System
under  the  symbol  ''PEET''.  The  following  table sets forth, for the periods
indicated,  the  high and low closing prices for our common stock as reported on
the  Nasdaq  National  Market for each quarter during the last two fiscal years.

<TABLE>
<CAPTION>

                                      HIGH    LOW
                                     ------  ------
<S>                                  <C>     <C>

FISCAL YEAR ENDED DECEMBER 28, 2003
-----------------------------------
     Fourth Quarter . . . . . . . .  $20.93  $15.45
-----------------------------------  ------  ------
     Third Quarter. . . . . . . . .  $23.14  $17.47
-----------------------------------  ------  ------
     Second Quarter . . . . . . . .  $18.60  $15.48
-----------------------------------  ------  ------
     First Quarter. . . . . . . . .  $16.74  $12.95
-----------------------------------  ------  ------
FISCAL YEAR ENDED DECEMBER 29, 2002
-----------------------------------
     Fourth Quarter . . . . . . . .  $16.24  $10.80
-----------------------------------  ------  ------
     Third Quarter. . . . . . . . .  $17.03  $12.00
-----------------------------------  ------  ------
     Second Quarter . . . . . . . .  $18.89  $12.88
-----------------------------------  ------  ------
     First Quarter. . . . . . . . .  $16.15  $10.85
-----------------------------------  ------  ------
</TABLE>


     As of February 27, 2004, there were approximately 295 registered holders of
record  of the Company's common stock. On February 27, 2004, the last sale price
reported  on  the  Nasdaq National Market System for the common stock was $20.48
per  share.

DIVIDEND  POLICY

We  have not declared or paid any dividends on our capital stock since 1990.  We
expect  to  retain  any future earnings to fund the development and expansion of
our  business.  Therefore,  we  do  not  anticipate paying cash dividends on our
common  stock  in the foreseeable future.  Our current credit facility restricts
our  ability  to  pay  dividends.  See ''Management's Discussion and Analysis of
Financial  Condition  and  Results  of  Operations  -  Liquidity  and  Capital
Resources.''

USE  OF  PROCEEDS  FROM  SALES  OF  REGISTERED  SECURITIES

     We completed our initial public offering of our common stock in January and
February  2001  pursuant to a Registration Statement on Form S-1 initially filed
on  October  13,  2000, as subsequently amended (the ''Registration Statement'')
(File  No.  333-47597).  As  of  February  27,  2004,  $17.4  million of the net
proceeds  from  the offering had been used for debt reduction, and the remainder
of  the  net  proceeds  was invested in short-term, interest-bearing, investment
grade  securities.


                                       10
<PAGE>


     We  completed  our  secondary  public offering of our common stock in April
2002  pursuant  to a Registration Statement on Form S-3 initially filed on March
27,  2002,  as  subsequently  amended  (the  "Registration  Statement" (File No.
333-85085).  The  aggregate proceeds to us from the offering were $43.9 million.
We  paid  expenses  of  approximately  $2.9 million, of which approximately $2.4
million  represented  expenses related to underwriters' fees.  Net proceeds from
the  offering  were  $41.0  million.  As  of  February  27, 2004, all of the net
proceeds were invested in short-term and long-term, United States Government and
Agency  securities.  We  expect  that our use of proceeds from the offering will
conform  to  the  intended  use of proceeds as described in our prospectus dated
April  19,  2002,  except that the proceeds have been invested in short-term and
long-term, interest-bearing United States Government and Agency securities until
required  for  working  capital  purposes.

SHARE  REPURCHASE

     On  February  11,  2004,  the  Company's  Board of Directors authorized the
company  to  repurchase  up  to  1.0  million shares of Peet's common stock. The
repurchases  will  be  made  from  time to time on the open market at prevailing
market prices or in negotiated transactions off the market.  The repurchases are
expected to continue through the end of 2004 unless extended or shortened by the
Board  of  Directors.


ITEM  6.     SELECTED  FINANCIAL  DATA

     The  table  below  shows  selected consolidated financial data for our last
five fiscal years.  Our fiscal year is based on a 52 or 53 week year and ends on
the  Sunday  closest  to  the  last  day  in  December.

     The  following  selected  consolidated  financial  data  should  be read in
conjunction  with  our  consolidated  financial statements and related notes and
"Management's  Discussion  and  Analysis  of  Financial Condition and Results of
Operations"  included  elsewhere  in  this  report.


                                       11
<PAGE>


<TABLE>
<CAPTION>

                                      SELECTED CONSOLIDATED FINANCIAL DATA
                                     (in thousands, except per share data)

                                                                                  YEAR
                                                             -------------------------------------------------

                                                               1999      2000      2001      2002       2003
                                                             --------  --------  --------  ---------  ---------
<S>                                                          <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . .  $69,059   $84,302   $94,400   $104,073   $119,816
Cost of sales and related occupancy expenses. . . . . . . .   33,641    40,655    45,357     48,146     54,961
Operating expenses. . . . . . . . . . . . . . . . . . . . .   22,115    28,073    30,617     33,221     38,751
Marketing and advertising expenses. . . . . . . . . . . . .    3,491     6,069     4,812      4,554      4,525
General and administrative expenses . . . . . . . . . . . .    5,551     5,893     6,243      6,732      9,193
Depreciation and amortization expenses. . . . . . . . . . .    3,404     4,576     5,038      4,568      4,890
                                                             --------  --------  --------  ---------  ---------
Income (loss) from operations . . . . . . . . . . . . . . .      857      (964)    2,333      6,852      7,496
Interest income (expense), net. . . . . . . . . . . . . . .     (985)   (1,907)     (429)       540      1,163
                                                             --------  --------  --------  ---------  ---------
Income (loss) before income taxes . . . . . . . . . . . . .     (128)   (2,871)    1,904      7,392      8,659
Income tax (provision) benefit. . . . . . . . . . . . . . .      (16)      596      (749)    (2,735)    (3,481)
                                                             --------  --------  --------  ---------  ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . . .  $  (144)  $(2,275)  $ 1,155   $  4,657   $  5,178
                                                             ========  ========  ========  =========  =========

Net income (loss) per share:
     Basic. . . . . . . . . . . . . . . . . . . . . . . . .  $ (0.03)  $ (0.50)  $  0.15   $   0.43   $   0.41
                                                             ========  ========  ========  =========  =========
     Diluted. . . . . . . . . . . . . . . . . . . . . . . .  $ (0.03)  $ (0.50)  $  0.14   $   0.40   $   0.39
                                                             ========  ========  ========  =========  =========

Shares used in calculation of net income (loss) per share:
     Basic. . . . . . . . . . . . . . . . . . . . . . . . .    4,489     4,515     7,941     10,919     12,589
                                                             ========  ========  ========  =========  =========
     Diluted. . . . . . . . . . . . . . . . . . . . . . . .    4,489     4,515     8,212     11,627     13,236
                                                             ========  ========  ========  =========  =========

BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . . . . . . .  $ 1,074   $ 1,598   $ 2,718   $  7,572   $ 30,263
Working capital (deficit) . . . . . . . . . . . . . . . . .   (5,486)   (2,853)    3,315     22,499     44,485
Total assets. . . . . . . . . . . . . . . . . . . . . . . .   34,650    39,721    41,409     95,145    110,455
Borrowings under line of credit . . . . . . . . . . . . . .    5,600     4,246     1,968          -          -
Current portion of long-term borrowings . . . . . . . . . .    2,816     2,037       513        468          3
Long-term borrowings, less current portion. . . . . . . . .    7,240    14,544       895        424          -
Total shareholders' equity. . . . . . . . . . . . . . . . .   11,191     9,167    28,770     80,504     95,234
</TABLE>


ITEM  7.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
RESULTS  OF  OPERATIONS

     You  should  read the following discussion and analysis in conjunction with
our  consolidated  financial  statements and related notes included elsewhere in
this  report.  Except  for historical information, the discussion below contains
forward-looking  statements  within the meaning of Section 21E of the Securities
Exchange  Act  of  1934.

COMPANY  OVERVIEW  AND  INDUSTRY  OUTLOOK

     Peet's  is a specialty coffee roaster and marketer of branded fresh roasted
whole  bean  coffee  sold  through multiple channels of distribution.  Since the
founding of our business in 1966, we have established a strong customer base and
brand  recognition  in  California.  Our national expansion strategy is based on
the  sale of whole bean coffee in multiple channels of distribution.  Currently,
our  expansion  strategy  is focused in the western United States, where we have
more  physical  presence  and  higher  customer  awareness.

     We  expect  the  specialty coffee industry to continue to grow.  We believe
that  this  growth will be fueled by continued consumer interest in high quality
coffee  and  related  products.


                                       12
<PAGE>


     Our operations are vertically integrated.  We purchase Arabica coffee beans
from  countries around the world, apply our artisan-roasting techniques and ship
fresh  coffee  daily  to  our  stores and customers within 24 hours of roasting.
Control of purchasing, roasting, packaging and distribution of our coffee allows
us  to  maintain  our commitment to freshness is cost effective and enhances our
margins  and  profit  potential.

CRITICAL  ACCOUNTING  POLICIES  AND  ESTIMATES

     The  preparation  of  financial  statements  in  conformity  with generally
accepted  accounting  principles requires the appropriate application of certain
accounting  policies, many of which require us to make estimates and assumptions
about  future  events  and  their  impact  on  amounts reported in our financial
statements  and  related  notes.  Since future events and their impact cannot be
determined  with  certainty,  the actual results will inevitably differ from our
estimates.  Such  differences  could  be  material  to the financial statements.

     We  believe  our  application  of  accounting  policies,  and the estimates
inherently  required  therein,  are  reasonable.  These  accounting policies and
estimates  are periodically reevaluated, and adjustments are made when facts and
circumstances  dictate a change.  Historically, we have found our application of
accounting  policies  to  be  appropriate,  and actual results have not differed
materially  from  those  determined  using  necessary  estimates.

     Our  accounting  policies  are  more  fully described in Note 2 "Summary of
Significant  Accounting  Policies"  in  the "Notes to the Consolidated Financial
Statements,"  included  elsewhere  in  this  report.  We  have  identified  the
following  critical  accounting  policies:

-Inventory.  Raw  materials  consist  primarily  of green bean coffee.  Finished
goods  include  roasted  coffee,  tea,  accessory products, spices, and packaged
foods.  All  products  are  valued  at  the  lower  of  cost or market using the
first-in,  first-out  method,  except  green  bean  and roasted coffee, which is
valued  at  the  average  cost.  We  continually evaluate the composition of our
coffee  related  merchandise  and  mark  down  such  inventory  as  needed.  Our
historical  inventory  write-offs  have  been  immaterial.

-Intangibles  and  other  assets.  During  2002,  we  entered into a contractual
agreement  with  Safeway  Inc.,  a national grocery chain, to sell Peet's coffee
through its grocery stores.  We began shipping during the third quarter of 2002.
The  agreement  included  an upfront payment to Safeway Inc. that we recorded in
intangibles  and  other  assets and is being amortized as a reduction of revenue
based  upon  estimated  sales  during  the  contract  period.

-Long-lived  assets.  In  evaluating  the  fair  value  and  future  benefits of
long-lived assets, we perform an analysis of the anticipated undiscounted future
net  cash  flows of the related long-lived asset and reduce their carrying value
by  the  excess,  if any, of the result of such calculation.  We believe at this
time that the long-lived assets' carrying values and useful lives continue to be
appropriate.

-Accrued  workers'  compensation.  In  March  2002,  we  modified  our  workers'
compensation  insurance  policy  to  a high deductible insurance program with an
overall  program  ceiling to minimize exposure.  We began recording an estimated
liability for the self-insured portion of the workers' compensation claims.  The
liability  of  $1.1 million recorded as of December 28, 2003 is determined based
on  information received from our insurance carrier including claims paid, filed
and  reserved  for,  as  well  as using historical experience.  Should a greater
amount  of  claims  occur  compared to what is estimated or the settlement costs
increase  beyond  what  was  anticipated,  the  recorded  liability  may  not be
sufficient.

-Accrued  litigation.  During  2003, two lawsuits were filed against us alleging
misclassification  of  employment  position.  The  lawsuits  sought class action
status  in  addition  to  damages, restitution, reclassification, and attorneys'
fees  and  costs.  The  Superior  Court  of  the  State of California, County of
Orange,  granted preliminary approval of the proposed settlement of the lawsuits
that,  subject  to  the  Court's  final approval, would fully resolve all claims
brought  by  the plaintiffs.  A charge of $2.7 million was recorded in the third
quarter  of  2003 for the estimated payment of claims to eligible class members,
attorneys'  fees,  costs  to  a third-party claims administrator, and applicable
employer  payroll taxes.  The liability recorded as of December 28, 2003 of $2.3
million  is  an  estimate  and should a greater amount of claims occur or if the
court  does  not  certify  the  settlement,  the  recorded  liability may not be
sufficient.


                                       13
<PAGE>


-Income  taxes.  In  establishing deferred income tax assets and liabilities, we
make  judgments  and interpretations based on enacted tax laws and published tax
guidance  applicable  to  its  operations.  We  record  deferred  tax assets and
liabilities  and  evaluate  the need for valuation allowances to reduce deferred
tax  assets to realizable amounts.  Changes in our valuation of the deferred tax
assets  or  changes  in the income tax provision may affect its annual effective
income  tax  rate.

-Hedge accounting.  We have in the past used coffee futures and options to hedge
price increases in price-to-be-fixed coffee purchase commitments and anticipated
coffee  purchases.  These  derivative  instruments qualify for hedge accounting.
If  these  derivative instruments did not qualify for hedge accounting, we would
have  to  record  the  changes  in  the fair value of the derivative instruments
directly  to  earnings.   See "Item 7A. Quantitative and Qualitative Disclosures
about  Market  Risk"  and  Note  12  "Hedging  Activities"  in  the  "Notes  to
Consolidated  Financial  Statements"  included  elsewhere  in  this  report.

     We have also chosen certain accounting policies when options are available,
including  the  intrinsic  value method under APB Opinion No. 25, Accounting for
Stock  Issued  to  Employees,  to  account  for  our stock option awards.  These
accounting  policies  are  applied  consistently  for  all years presented.  Our
operating  results  would  be  affected  if  other  alternatives  were  used.
Information  about  the impact on our operating results of using the alternative
of  SFAS No. 123, Accounting for Stock-Based Compensation, is included in Note 2
"Summary  of  Significant  Accounting  Policies"  and  Note 10 "Stock Option and
Employee  Purchase  Plans"  in the "Notes to Consolidated Financial Statements,"
included  elsewhere  in  this  report.

BUSINESS  SEGMENTS

     Our  coffee  and  related  items  are  sold  through  multiple  channels of
distribution  that are considered separate segments under Statement of Financial
Accounting  Standards  No.  131, Disclosures About Segments of an Enterprise and
Related  Information.  These channels provide broad market exposure to potential
purchasers  of  fresh roasted whole bean coffee.  Historically, we have operated
in  three  reportable  segments:  retail,  online  and  mail order and specialty
sales.  Management  evaluates segment performance primarily based on revenue and
segment  operating  income.  Effective at the beginning of the second quarter of
2002,  due  to  the  nature  of  cross-channel  marketing  and consumer purchase
behavior  from our multi-channel selling strategy, we have had an organizational
change,  combining  the  online  and  mail order segment and the specialty sales
segment.  We  are  indifferent  as  to  where consumers purchase our coffees and
teas,  so we have aggregated these individual sales channels into one reportable
segment.  Company-operated  retail  stores  operations remain a separate channel
due  to  the  beverage  component  of  this  business and the percent of overall
revenues  it  represents.  Therefore, we currently have two reportable segments,
consisting  of:

-     Our  retail  stores;  and
-     Specialty  sales,  which  consist  of  sales  to  online  and  mail  order
customers,  and  sales to grocery stores, restaurant and food service companies,
and  office  accounts.

     We believe growth opportunities exist in all these channels.  Our expansion
is  focused  first  in  developing  the  western  U.S. existing markets where we
already  have a presence and have a higher customer awareness.  We will continue
to  open  new stores in strategic locations that meet our demographic profile in
these markets, make our coffees more broadly and conveniently located in grocery
stores,  and  partner  with distributors and companies who share our passion for
quality  and  freshness  and  are willing and able to execute accordingly in the
food  service  and  office  environment.  We  also  will  penetrate new domestic
markets  and  channels that we believe can support the sale of specialty coffee,
and  continue  to  explore  opportunities  internationally.

BUSINESS  CATEGORIES

     In  addition  to  our  reportable  segments,  we  measure  our  business by
monitoring  the  volume  and revenue growth of two distinct business categories:

-     Whole  bean  coffee  and  related  products;  and
-     Beverages  and  pastries.

     We  believe  these  business  categories  are  useful  in understanding our
results  of  operations  for the periods presented because we operate our stores
and  record  sales  through  these  two  categories.  Our  stores  are primarily


                                       14
<PAGE>


designed  to facilitate the sale of whole bean coffee.  The format of our stores
replicates  that of a specialty grocer. Beans are scooped from under the counter
bins,  weighed  on  counter  top  scales  and  hand  packed  into  branded bags.

     In addition, each store has a beverage bar that is dedicated to the sale of
prepared  beverages  and  artisan  baked  pastries.  Moreover,  our two business
categories  within a store mature at different rates.  When we open a store, the
initial  sales  are  primarily  beverage  and  pastry  related.  The  distance a
consumer  will  travel,  or  trade  area,  for  beverages  and pastries is short
(usually one to three miles) representing a convenience purchase.  Consequently,
the beverage and pastry business matures rapidly.  The trade area for whole bean
coffee  is  much  larger (usually three to five miles), representing destination
shopping.  Whole  bean  sales from stores mature more slowly (typically three to
five  years).  Therefore,  sales at newer stores have a much higher beverage and
pastry  component  and  shift  to  a  higher  whole bean percentage as the store
matures.  In  2003,  whole  bean  coffee  and related products sales from stores
opened for less than 5 years was 38% of net revenue versus 48% for stores opened
for  more  than  5 years.  The dynamics of opening many new stores over the past
few  years  have  resulted in a higher beverage and pastry percentage within our
net  revenue.


                                       15
<PAGE>


RESULTS  OF  OPERATIONS

     The  following  discussion  on  results  of  operations  should  be read in
conjunction  with  "Item  6.  Selected  Consolidated  Financial  Data,"  the
consolidated financial statements and accompanying notes and the other financial
data  included elsewhere in this report.  Our fiscal year is based on a 52 or 53
week  year.  The  fiscal  year  ends  on  the  Sunday closest to the last day of
December.

<TABLE>
<CAPTION>

                                                                                        YEAR
                                                                                ----------------------

                                                                                 2001    2002    2003
                                                                                ------  ------  ------
<S>                                                                             <C>     <C>     <C>
STATEMENT OF OPERATIONS DATA AS A PERCENT OF NET REVENUE:
Net revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  100.0%  100.0%  100.0%
Cost of sales and related occupancy expenses . . . . . . . . . . . . . . . . .   48.1    46.3    45.9
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   32.4    31.9    32.3
Marketing and advertising expenses . . . . . . . . . . . . . . . . . . . . . .    5.1     4.4     3.8
General and administrative expenses. . . . . . . . . . . . . . . . . . . . . .    6.6     6.5     7.7
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . .    5.3     4.4     4.1
                                                                                ------  ------  ------
Income (loss) from operations. . . . . . . . . . . . . . . . . . . . . . . . .    2.5     6.5     6.2
Interest income (expense), net . . . . . . . . . . . . . . . . . . . . . . . .   (0.5)    0.5     1.0
                                                                                ------  ------  ------
Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . . . . .    2.0     7.0     7.2
Income tax (provision) benefit . . . . . . . . . . . . . . . . . . . . . . . .   (0.8)   (2.6)   (2.9)
                                                                                ------  ------  ------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1.2%    4.4%    4.3%
                                                                                ======  ======  ======

PERCENT OF NET REVENUE BY BUSINESS SEGMENT:
Retail stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   79.5%   75.2%   71.6%
Specialty sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20.5    24.8    28.4
                                                                                ======  ======  ======

PERCENT OF NET REVENUE BY BUSINESS CATEGORY:
Whole bean coffee and related products . . . . . . . . . . . . . . . . . . . .   59.3%   60.1%   60.1%
Beverages and pastries . . . . . . . . . . . . . . . . . . . . . . . . . . . .   40.7    39.9    39.9
                                                                                ======  ======  ======

COST OF SALES AND RELATED OCCUPANCY EXPENSES AS A PERCENT OF SEGMENT REVENUE:
Retail stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   47.5%   45.7%   45.3%
Specialty sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   50.4    48.0    47.3

OPERATING EXPENSES AS A PERCENT OF SEGMENT REVENUE:
Retail stores. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   35.5%   35.2%   35.5%
Specialty sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20.4    22.1    24.3

PERCENT INCREASE (DECREASE) FROM PRIOR YEAR:
Net revenue                                                                              10.2%   15.1%
     Retail stores                                                                        4.3     9.5
     Specialty sales                                                                     33.2    32.1
Cost of sales and related occupancy expenses                                              6.1    14.2
Operating expenses                                                                        8.5    16.6
Marketing and advertising expenses                                                       (5.4)   (0.6)
General and administrative expenses                                                       7.8    36.6
Depreciation and amortization expenses                                                   (9.3)    7.0

SELECTED OPERATING DATA:
Number of retail stores in operation:
     Beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . .     58      60      65
     Store openings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      2       5      10
     Store closures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      0       0       0
                                                                                ------  ------  ------
     End of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . .     60      65      75
                                                                                ======  ======  ======
</TABLE>


                                       16
<PAGE>


2003  COMPARED  WITH  2002

Net  revenue

     Net  revenue  for  2003  increased  versus  2002  as  a result of continued
expansion  of  our  retail  and  specialty  sales segment, mostly in the western
United  States.  Sales  of  whole  bean  and related products increased 15.0% to
$72.0  million.  Sales  from  beverages  and  pastries  increased 15.3% to $47.8
million.  A  key  element  of our multi-channel strategy emphasizes the sales of
whole  bean  coffee and related products.  As a result, we continued to derive a
majority  of  our  net  revenue  from  the sale of whole bean coffee and related
products.  For  2003, whole bean coffee and related products as a percent of net
revenue  was  60.1%,  same  as  in  2002.

     In the retail segment, revenue increased 9.5% compared to 2002 primarily as
a  result  of increased sales from 15 new stores we opened since August 2002 and
existing  stores.  Sales of whole bean coffee and related products in the retail
segment  increased  by  2.8%,  to  $39.1  million,  while sales of beverages and
pastries  increased  by  15.9%  to  $46.7 million.  The increase in beverage and
pastry sales is primarily due to the introduction, during the second quarter, of
new  iced  drinks  and  a revamped bar menu that emphasized many of our customer
favorites.  The  slower  growth  in  whole  bean and related products was due to
cannibalization  of bean sales in retail stores as we increased the availability
of  Peet's  coffee  in  grocery  stores, and the slower maturation of whole bean
sales  in  new stores.  During 2003, we opened a total of 10 stores, an increase
of  5  from  last  year.  This  focus  will  continue  as  we  expect  to  open
approximately  15  to  20  stores  in  2004.     In the specialty sales segment,
revenue  increased  as the result of our continued focus on the grocery and food
service  channel.  The  $8.3  million  increase  consisted  primarily  of a $5.9
million  increase  in  grocery  sales  and  a  $2.1 million increase in sales to
restaurants  and  food  service  companies.  The increase in the grocery channel
sales  was  primarily  due  to  sales to approximately 2,400 new stores we added
during  the  last  15  months.  During  the  second  half  of  2002,  we  added
approximately 1,200 Safeway stores, 860 of them in the western U.S.  In 2003, we
added  approximately 1,200 points of distribution, primarily in the western U.S.
through  multi-location  chains  such  as  Albertsons,  Ralph's, and Whole Foods
Market.  This  brought  the total number of grocery stores selling Peet's coffee
to  over  2,700 at the end of 2003.  The increased sales were also driven by the
transition,  during  the first quarter, to a direct store delivery system, where
our  own  route  sales  representatives deliver to stores weekly, from warehouse
distribution.  We  believe  the  direct  store delivery system ensures freshness
through  proper  rotation  and  weekly  delivery,  optimizes store specific item
assortments,  achieves  proper  shelf  space  and improves free-standing display
levels, thus increasing the unit sales in each grocery store.  In the restaurant
and  food  service  area,  the  sales increase was primarily due to new accounts
added last year and earlier this year such as Omni Hotels.  Sales to the online,
mail  order  and  office  channels  grew  4.1% primarily due to more emphasis on
loyalty programs and the stabilizing office population as the job market and the
economy  began  to recover.  Sales to kiosks and licensed partners, representing
1.4%  of  net  revenue,  were down 15.1% primarily as our Japan Licensed Partner
ceased  its  retail  operation.

Cost  of  sales  and  related  occupancy  expenses

     Cost  of  sales  and  related  occupancy expenses consist of product costs,
including  hedging  costs,  manufacturing costs, rent and other occupancy costs.
Cost  of  sales  increased by 14.2% primarily as a result of the increase in net
revenue and the addition of 10 new stores.  As a percent of net revenue, cost of
sales  decreased  from 46.3% to 45.9% due higher retail revenue, which benefited
from higher price points generated from new iced drinks and a revamped bar menu.
Specialty  sales  costs decreased as a percent of net revenue as compared to the
prior  year  due  to  favorable  sales  mix.

Operating  expenses

     Operating  expenses  for  2003 increased as compared to 2002 as we grew our
business.  Operating  expenses  as  a percent of net revenue increased primarily
due  to  opening of new stores and the transition to a direct delivery system to
support  growth  in  our  grocery  channel.

     In  the  retail segment, operating expenses as a percent of sales increased
by  0.3%, to 35.5%.  The increase was due to a 0.7% increase from opening 15 new
stores in the last 18 months and was partially offset by 0.4% improvement in our
existing  store  operation.  New stores generally have higher operating expenses
due  to lower


                                       17
<PAGE>


sales  volume and higher startup cost, including more activities to drive sales.
The  improvement  in  existing  operation was mainly due to leveraging our sales
growth.

Our  focus on growing the specialty sales segment, especially grocery, led to an
increase  in specialty sales operating expenses as a percent of segment revenue.
The  factors  contributing  to  the  increase included the continued upgrade and
addition  of  sales  staff  and an increase in distribution costs in the grocery
channel.  In  the  first quarter of 2003, we implemented a direct store delivery
system,  or  DSD,  with  dedicated  route  sales  representatives delivering our
product  to grocery stores weekly.  This increased our operating expenses in the
areas  of  payroll, the associated commission and vehicle expenses.  The startup
phase  of  this  was  completed  by  the  second  quarter.  We  currently  have
approximately  50  DSD  route  sales  representatives, of which 34 are full-time
Peet's  employees.  We  expect to maintain and leverage this operating structure
as  we  continue  our  expansion  in  the  western  U.S.  market  this  year.

Marketing  and  advertising  expenses

     For  2003, marketing and advertising expenses were essentially in line with
prior  year.  Our  focus  this year has been to attract new customers in our new
retail  stores  and  in the grocery channel.  We were able to leverage marketing
expenses  in  other  channels.

General  and  administrative  expenses

     General  and  administrative  expenses  increased 36.5%, or $2.5 million as
compared  to 2002.  The increase was due to a $2.7 million charge related to the
settlement  of  a  wage  and hour lawsuit and $0.7 million in severance expenses
related to the departure of two veteran executives.  These charges, taken in the
third  quarter,  reduced our full year diluted earnings per share by $0.16.  The
settlement  is subject to risks identified in Note 11 of the "Notes to Condensed
Consolidated  Financial  Statements."  The  increase was partially offset by the
restructuring  of  the executive bonus program and reduced expenses in the areas
of  stock  plan  administration  and  proxy  related  activities.

Depreciation  and  amortization  expenses

     Depreciation  and  amortization expenses increased in 2003 primarily due to
the five stores we opened during the last five months of 2002 and the ten stores
we  opened  in  2003.  This  increase  was  partially  offset  by certain assets
becoming  fully  depreciated  during  the  year.

Investment  income,  net

     We  currently  invest  excess  cash  in  short-term  and  long-term
interest-bearing,  U.S.  government  and  agency  securities.  Investment income
includes  interest  income  and  gains  from the sale of these instruments.  For
2003,  investment  income  increased $0.6 million due to the full year impact of
income earned from the proceeds of our 2002 public offering as compared to seven
months  in  2002.

Income  tax  provision

     This  year's  corporate income tax rate was 40.2% versus 37.0% in the prior
year.  Our  taxable  income was reduced primarily by the tax benefit provided by
the  exercise  of stock options and acceleration of depreciation of fixed assets
for  tax  purposes.  These  tax  benefits  reduced  our  ability  to release the
valuation  allowance  on federal and state charitable contribution carryforwards
in  the  current  year,  thus,  increasing  our  tax  rate.


2002  COMPARED  WITH  2001

Net  revenue

     Net  revenue for 2002 increased by 10.2% as compared to 2001.  During 2002,
we  continued our strategy of selling through multiple channels of distribution.
We  accelerated growth in the specialty sales segment, especially in the grocery
and  food  service channels.  Revenue derived from the sale of whole bean coffee
and related products as a percent of net revenue increased from 59.3% in 2001 to
60.1%  in  2002.


                                       18
<PAGE>


     In the retail segment, revenue increased 4.3% compared to 2001 primarily as
a  result  of  increased  sales in existing stores and the opening of new retail
stores.  The  $3.2  million  revenue  increase  consisted  of  $2.8 million from
existing  stores  and  $0.4  million  from  new stores.  In existing stores, the
revenue  increase  of $2.0 million was due to increased traffic and $0.8 million
was  due  to  higher  average sales transactions.  There were no price increases
during  the year.  During 2002, we opened five new stores compared to two stores
opened  in  2001.  One  store  was  opened  during  the  third quarter while the
remaining four stores were opened during the fourth quarter.  We opened more new
stores  in  2002  as we saw the cost and availability of real estate become more
favorable  in  2002.

     In  the  specialty  sales segment, revenue increased primarily due to sales
initiatives  focused in the grocery and food service channels.  The $6.4 million
revenue  increase  consists  of  $3.5  million  in grocery, $1.6 million in food
service,  and  $1.3 million in all other channels such as online and mail order,
kiosks and license partners, and office coffee sales.  The accelerated growth in
grocery  was  the  result of developing relationships with larger multi-location
chains such as Safeway Inc. and Whole Foods Markets.  We increased the number of
grocery stores selling Peet's coffee from 130 locations in 2001 to over 1,400 in
2002.  In  2002,  we  entered  into  an agreement with Safeway to distribute our
coffees to approximately 1,200 Safeway stores across the country.  In July 2002,
we  rolled  out  distribution  to approximately 860 stores in the western United
States,  including  California,  Colorado,  Pacific  Northwest, Arizona, and New
Mexico.  In September, we rolled out distribution to the remaining 340 stores in
the  eastern United States, including Texas, Illinois, and Pennsylvania.  In the
food  service  area,  the  sales  increase  was  due  to  the acquisition of new
customers  like  the  Omni  Hotel and the full year impact of existing customers
like  Wolfgang  Puck  Fine  Dining  and  Anton Airfoods.  In the other channels,
including  online and mail order, office coffee, and kiosk operations, the sales
increase  was  entirely  attributable  to  the  full  year  impact  of our kiosk
operations  in  Larry's  Markets.

Cost  of  sales  and  related  occupancy  expenses

     Cost  of  sales  and  related  occupancy expenses consist of product costs,
including  hedging  costs,  manufacturing costs, rent and other occupancy costs.
Primarily  as  a  result  of  increased net revenue and the addition of five new
stores,  cost  of sales increased by 6.1% in 2002.  As a percent of net revenue,
cost  of  sales  decreased  mainly  because  of  lower coffee costs, lower world
commodity coffee prices and the sales of special lot and seasonal coffees, which
have  a  higher margin than regular menu coffees.  These benefits were partially
offset  by the increase in revenue from the specialty sales segment, which has a
lower  price  point  than  retail  and  higher  shipping  and  packaging  costs.

Operating  expenses

     Operating  expenses  for  2002 increased as compared to 2001 as we grew our
business.  However,  operating  expenses  as  a percent of net revenue decreased
primarily  due  to  the  continued  productivity initiative affecting our retail
stores  and the revenue increase in our specialty sales segment, which has lower
operating  expenses  without the intensive labor component of the retail stores.
Our focus on growing the specialty sales segment led to an increase in specialty
sales  operating  expenses  as  a  percent  of  segment  revenue.  The  factors
contributing  to  the  increase  included  the continued upgrade and addition of
specialty  sales  staff  and an increase in consulting and distribution costs in
the  grocery  channel.

Marketing  and  advertising  expenses

     The  decrease  in marketing and advertising expenses in 2002 as compared to
2001  is  attributable  to  the  leverage  gained from marketing across multiple
channels  of  distribution,  as  well  as the shift in spending to improve store
operations,  recognizing  that  stores  are  our  most  valuable marketing tool.

General  and  administrative  expenses

     General and administrative expenses increased by 7.8% in 2002 as the result
of  higher  expenses in the areas of stock plan administration, public relations
and  proxy  related  activities,  higher  insurance  coverage  for directors and
officers,  and  our  CEO  search.


                                       19
<PAGE>


Depreciation  and  amortization  expenses

     Depreciation  and  amortization expenses decreased in 2002 due primarily to
certain  assets  becoming fully depreciated during the year.  In addition, while
we  opened  three  more  stores  than  2001,  depreciation expense was minimally
impacted  as  most  of  the  stores  were  opened  in  the  fourth  quarter.

Interest  (income)  expense,  net

     Net  interest  income  was  generated  in  2002  from the investment of the
proceeds  of  our  April  2002  follow-on  public offering of common stock.  The
investments are short and long-term interest bearing, U.S. Government and Agency
securities.

Income  tax  provision

     Taxes  on net income in 2002 were $2.7 million, reflecting an effective tax
rate  of  37.0%.  The  decrease  in  the  effective  rate over the prior year is
attributable  to  the  change  in  the  valuation  allowance  of  charitable
contributions  carryforwards.


LIQUIDITY  AND  CAPITAL  RESOURCES

     At  December  28,  2003,  we  had a total of $42.6 million in cash and cash
equivalents  and  short-term  investments.  Total  cash and cash equivalents and
liquid investments totaled $59.2 million.  Also, we had $44.5 million of working
capital.

     Net cash provided by operations was $16.3 million in 2003 compared to $11.6
million  in  2002.  Operating  cash  flows  were  positively impacted in 2003 by
increased  net  income  and the tax benefit from the increased exercise of stock
options  and  higher  accounts  payable  balances.

     Net  cash used in investing activities was $1.2 million in 2003.  Investing
activities  primarily  consisted  of  the  net  proceeds  of  $11.2  million  of
short-term  investments and long-term U.S. Government and Agency securities, and
$10.0  million  in  capital  expenditures  for  property,  plant  and equipment.
Capital  expenditures  included:

-     $6.3  million  used for the buildout of new stores and remodel of existing
stores;
-     $1.6  million  used  for  DSD  vans  and  equipment  for  specialty sales;
-     $1.5  million  used  for  manufacturing  plant  capacity  and  additional
machinery;  and
-     $0.5  million  used  for  web  development, information technology support
systems,  and  software  to  support  our  growing  infrastructure.

     Net  cash  provided  by  financing  activities  was  $5.2  million in 2003.
Financing  activities in 2003 consisted primarily of $6.1 million in exercise of
stock  options,  offset  by  $0.9  million  of  repayment  of  debt.

     We  have  a  credit facility with General Electric Capital Corporation that
provides  for  a revolving line of credit of $15.0 million that expires in 2005.
At  December  28,  2003,  there  was  no  outstanding  balance and $14.9 million
available  under  the revolving line of credit after other senior funded debt of
$0.1  million,  consisting  of  capital  leases.  See Note 6 "Borrowings" in the
"Notes to Consolidated Financial Statements," included elsewhere in this report.

     Our 2004 capital expenditure requirements consist primarily of expenditures
relating  to  new  store openings, remodeling of existing stores, upgrade of our
packaging system, and continued improvement of our data processing capabilities.
Our  2004  capital  expenditures  are  expected  to  be  between $12.0 and $14.0
million.  Approximately  $7.0  to  $9.0  million  is expected to be used for the
opening  of  15  to 20 new retail stores scheduled for 2004 and expenditures for
new  stores  in progress for 2005.  Approximately $2.0 million is expected to be
used  for  purchase of new packaging and roasting equipment.  The remaining $3.0
million  is expected to be used for the remodeling of existing stores, equipment
for  the  grocery  channel,  and  information  technology  enhancements.


                                       20
<PAGE>


     We are exploring capacity and office space needs as we continue to grow our
business.  Our  lease  for  our  corporate office and plant facilities expire in
2005  and we have an option to extend the lease for an additional ten years.  We
believe  that  in  2005 we will need additional production and office space that
will  exceed  our  current  facilities.  We  are  in  the  process  of exploring
alternatives  including  but not limited to extending of the existing lease with
additional  leasing  of  production,  warehouse,  and  office  spaces.

<TABLE>
<CAPTION>

                                          PAYMENTS DUE BY PERIOD
                                              (IN THOUSANDS)
                                              --------------

                                                  LESS THAN
CONTRACTUAL OBLIGATIONS                   TOTAL     1 YEAR    1-3 YEARS   4-5 YEARS   AFTER 5 YEARS
---------------------------------------  -------  ----------  ----------  ----------  --------------
<S>                                      <C>      <C>         <C>         <C>         <C>
Equipment leases. . . . . . . . . . . .  $   280  $       69  $      130  $       81
Consulting and service agreements . . .      256         232          24
Retail store operating leases . . . . .   28,083       6,206      11,021       6,564  $        4,292
Fixed-price coffee purchase commitments   16,152      12,116       4,036
                                         -------  ----------  ----------
     Total contractual cash obligations  $44,771  $   18,623  $   15,211  $    6,645  $        4,292
                                         =======  ==========  ==========  ==========  ==============
</TABLE>


     For  the  next  twelve months, we expect our cash flows from operations and
cash  and  investments  to  be  sufficient  for  our  operating  and  capital
requirements,  our  share repurchase program, and our contractual obligations as
they  come  due.  Other  business  opportunities  or  store  expansion  rates
substantially  in excess of those presently planned may require outside funding.

INFLATION

     We  do  not believe that inflation has had a material impact on our results
of  operation in recent years.  However, we cannot predict what effect inflation
may  have  on  our  results  of  operation  in  the  future.


ITEM  7A.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     We  invest excess cash in money market accounts, short-term investments and
long-term  U.S.  Government  and Agency securities.  These financial instruments
are  all  subject  to  fluctuations  of  daily  interest  rates.  Therefore  our
investment  portfolio  is  exposed  to  market  risk  from  these  changes.

     The  supply  and  price of coffee are subject to significant volatility and
can  be  affected  by  multiple  factors  in  the producing countries, including
weather,  political  and  economic  conditions.  In  addition, green coffee bean
prices have been affected in the past, and may be affected in the future, by the
actions  of  certain  organizations  and  associations  that  have  historically
attempted to influence commodity prices of green coffee beans through agreements
establishing  export  quotas  or  restricting  coffee  supplies  worldwide.

     Our  coffee  hedging strategy is intended to limit the cost exposure of the
main  commodity  used  in  our business, green coffee beans.  We use fixed-price
purchase  commitments,  coffee  futures,  and  coffee  futures options to manage
coffee  supply  and  price  risk.

   Fixed-Price  Purchase  Commitments

     We  enter  into  fixed-price  purchase  commitments  in  order to secure an
adequate  supply  of quality green coffee beans and fix our cost of green coffee
beans.  These  commitments  are  made  with  established  coffee brokers and are
denominated  in  U.S.  dollars.  As  of  December 28, 2003, we had approximately
$16.2  million  in  open  fixed-priced  purchase commitments with delivery dates
ranging  from  January  2004  through  November  2006.  We  believe,  based  on
relationships  established  with  our  suppliers  in  the  past that the risk of
non-delivery  on  such  purchase  commitments  is  low.

   Coffee  Futures  and  Futures  Options

     We  use  coffee futures and futures options to reduce the price risk of our
coffee  purchase  requirements  that  we  cannot  make  or  have  not  made on a
contractual basis.  These instruments are traded on the New York Coffee, Sugar &
Cocoa  Exchange.  We  use these futures and options solely for financial hedging
purposes  and  never  take actual delivery of the coffee traded on the exchange.
The  extent  of  our  coffee futures and coffee futures options positions at any
given  time  depends on the amount of coffee we have contracted to purchase, the
amount  of  coffee


                                       21
<PAGE>


qualified  for  hedge  accounting, and general market conditions and trends. Our
hedging  positions  are  only  placed by the Chief Financial Officer through one
brokerage firm that we believe to be reputable. As of December 28, 2003, we held
no  coffee  futures  or  futures  options.

     The  following  table  reflects  the  outstanding  coffee  futures  hedging
positions  as of December 29, 2002.  We had no outstanding positions at December
28,  2003.

<TABLE>
<CAPTION>


                     CONTRACT                                 TRADE   SETTLEMENT
NUMBER OF CONTRACTS  MONTH                                    PRICE     PRICE     GAIN/(LOSS)
-------------------  ---------------------------------------  ------  ----------  ------------
<C>                  <S>                                      <C>     <C>         <C>
       25            May-03. . . . . . . . . . . . . . . . .  $60.50       63.85  $     31,410
                                                                                  ------------
                     Unrealized Gain as of December 29, 2002                      $     31,410
                                                                                  ============
</TABLE>


     These  derivative  instruments qualify for hedge accounting.  The effective
portion  of  the  gains  and losses are accounted for as inventory costs and are
recorded  as expense or income when the related coffee is sold.  The ineffective
portion  is  recorded  as  an  expense or income immediately.  We do not hold or
issue  derivative  instruments  for  trading  purposes.

RECENT  ACCOUNTING  PRONOUNCEMENTS

     During April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on  Derivative  Instruments  and  Hedging  Activities.  SFAS  No. 149 amends and
clarifies  accounting  for  derivative instruments, including certain derivative
instruments  embedded  in  other  contracts,  and  for  hedging activities under
Statement 133.  SFAS No. 149 is effective for contracts entered into or modified
after  June  30,  2003  and  for hedging relationships designated after June 30,
2003.  The  guidance  should be applied prospectively.  The adoption of SFAS No.
149  did  not  have  a  significant impact on our operating results or financial
position.

     During  May  2003,  the  FASB  issued  SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.  SFAS
No.  150  clarifies  the  accounting  for  certain  financial  instruments  with
characteristics  of  both  liabilities  and  equity  and  requires  that  those
instruments  be  classified  as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity.  SFAS
No.  150  is  effective for financial instruments entered into or modified after
May  31,  2003  and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003.  The adoption of SFAS No. 150 did not have
a  significant  impact  on  our  operating  results  or  financial  position.

     In  January  2003  the  FASB  issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation  of  Variable  Interest  Entities  and was subsequently revised in
December 2003.  FIN 46 clarifies the application of Accounting Research Bulletin
No.  51,  explains  how  to  identify  variable  interest  entities,  and how an
enterprise  should  assess  its  interest  in  an  entity  to  decide whether to
consolidate  such  entity.  Further,  FIN  46  requires  existing unconsolidated
entities  to  be  consolidated by their primary beneficiaries if the entities do
not  effectively  disperse risks among parties involved.  The revision of FIN 46
further defines and narrows the scope of the variable interest entity as well as
defers  the  effective  date  of the guidance to the first quarter of 2004.  The
adoption  of  FIN  46  is  not  expected  to  have  an  impact on our results of
operations  or  financial  position.


                                       22
<PAGE>


RISK  FACTORS

WE  MAY  NOT BE SUCCESSFUL IN THE IMPLEMENTATION OF OUR BUSINESS STRATEGY OR OUR
BUSINESS  STRATEGY MAY NOT BE SUCCESSFUL, EITHER OF WHICH WILL IMPEDE OUR GROWTH
AND  OPERATING  RESULTS.

     Our  business  strategy  emphasizes  expansion through multiple channels of
distribution.  Currently,  our  retail stores, which generated nearly 72% of our
2003  net  revenue,  continue to be an important element of our business.  We do
not know whether we will be able to successfully implement our business strategy
or  whether  our business strategy will be successful.  Our ability to implement
this  business  strategy  is  dependent  on  our  ability  to:

-     Market  our  products  on  a  national or international scale and over the
internet;
-     Enter  into distribution and other strategic arrangements with third party
retailers  and  other  potential  distributors  of  our  coffee;
-     Increase  our  brand  recognition  on  a national and international scale;
-     Identify  and  lease  strategic  locations  suitable  for  new stores; and
-     Manage  growth in administrative overhead and distribution costs likely to
result  from  the  planned  expansion  of our retail and non-retail distribution
channels.

     Our  revenue may be adversely affected if we fail to implement our business
strategy or if we divert resources to a business strategy that ultimately proves
unsuccessful.

BECAUSE  OUR BUSINESS IS HIGHLY DEPENDENT ON A SINGLE PRODUCT, SPECIALTY COFFEE,
IF  THE  DEMAND  FOR  SPECIALTY  COFFEE  DECREASES,  OUR  BUSINESS COULD SUFFER.

     Sales  of  specialty coffee constituted nearly 84% of our 2003 net revenue.
Demand  for  specialty  coffee  is  affected  by  many  factors,  including:

-     Consumer  tastes  and  preferences;
-     National,  regional  and  local  economic  conditions;  and
-     Demographic  trends.

     Because  we are highly dependent on consumer demand for specialty coffee, a
shift in consumer preferences away from specialty coffee would harm our business
more  than if we had more diversified product offerings.  If customer demand for
specialty  coffee  decreases,  our  sales  would  decrease  accordingly.

IF  WE  FAIL  TO  CONTINUE TO DEVELOP AND MAINTAIN OUR BRAND, OUR BUSINESS COULD
SUFFER.

     We  believe  that  maintaining  and developing our brand is critical to our
success and that the importance of brand recognition may increase as a result of
competitors  offering  products  similar  to  ours.  Because the majority of our
retail  stores are located on the West Coast, primarily in California, our brand
recognition  remains  largely  regional.  Our brand building initiative involves
increasing  the  availability of our products and opening new stores to increase
awareness  of  our  brand  and  create and maintain brand loyalty.  If our brand
building  initiative is unsuccessful, we may never recover the expenses incurred
in  connection  with  these  efforts and we may be unable to increase our future
revenue  or  implement  our  business  strategy.

     Our success in promoting and enhancing the Peet's brand will also depend on
our  ability  to  provide  customers  with  high  quality  products and customer
service.  Although  we  take  measures to ensure that we sell only fresh roasted
whole  bean  coffee  and  that  our retail employees properly prepare our coffee
beverages, we have no control over our whole bean coffee products once purchased
by  customers.  Accordingly,  customers  may  prepare coffee from our whole bean
coffee  inconsistent  with  our  standards, store our whole bean coffee for long
periods  of  time  or resell our whole bean coffee without our consent, which in
each  case,  potentially  affects  the  quality  of the coffee prepared from our
products.  If  customers  do not perceive our products and service to be of high
quality,  then  the  value of our brand may be diminished and, consequently, our
ability  to  implement  our  business  strategy  may  be  adversely  affected.


                                       23
<PAGE>


BECAUSE  OUR  BUSINESS IS BASED PRIMARILY IN CALIFORNIA, A WORSENING OF ECONOMIC
CONDITIONS,  A  DECREASE  IN  CONSUMER  SPENDING  OR A CHANGE IN THE COMPETITIVE
CONDITIONS  IN  THIS  MARKET  MAY  SUBSTANTIALLY  DECREASE  OUR  REVENUE AND MAY
ADVERSELY  IMPACT  OUR  ABILITY  TO  IMPLEMENT  OUR  BUSINESS  STRATEGY.

     Our  California  retail  stores generated 63% of our 2003 net revenue and a
substantial  portion  of  the  revenue  from  our other distribution channels is
generated in California.  We expect that our California operations will continue
to  generate  a substantial portion of our revenue.  In addition, our California
retail  stores  provide  us  with means for increasing brand awareness, building
customer loyalty and creating a premium specialty coffee brand.  As a result, an
economic  downturn  or other decrease in consumer spending in California may not
only  lead  to  a substantial decrease in revenue, but may also adversely impact
our  ability to market our brand, build customer loyalty, or otherwise implement
our  business  strategy.

THE  GROCERY WORKERS STRIKE IN SOUTHERN CALIFORNIA HAS ENDED, HOWEVER, A SIMILAR
STRIKE  IN  OTHER  REGIONS  COULD  NEGATIVELY  IMPACT  OUR  GROCERY  BUSINESS.

     The  Southern  California  grocery  workers  strike  impacted  Safeway,
Albertson's,  and  Ralph's.  We sell coffee to each of these supermarkets in the
area  as  well  as  in other regions in the Western United States.  If a similar
strike  were  to  occur  in  other  regions  such as Northern California and the
Pacific  Northwest,  where we have the majority of our distribution, our grocery
revenue  could  be  negatively  impacted.

IF  WE  ARE UNABLE TO CONTINUE LEASING OUR RETAIL LOCATIONS OR OBTAIN LEASES FOR
NEW  STORES,  OUR EXISTING OPERATIONS AND OUR ABILITY TO EXPAND MAY BE ADVERSELY
AFFECTED.

     All of our 76 retail locations are on leased premises.  If we are unable to
renew  these  leases,  our  revenue  and  profits could suffer.  In addition, we
intend  to  lease other premises in connection with the planned expansion of our
retail  operations.  Because we compete with other retailers and restaurants for
store sites and some landlords may grant exclusive locations to our competitors,
we  may  not be able to obtain new leases or renew existing leases on acceptable
terms.  This  could  adversely  impact  our  revenue  growth  and brand building
initiatives.

BECAUSE  WE RELY HEAVILY ON COMMON CARRIERS TO SHIP OUR COFFEE ON A DAILY BASIS,
ANY  DISRUPTION  IN THEIR SERVICES OR INCREASE IN SHIPPING COSTS COULD ADVERSELY
AFFECT  OUR  BUSINESS.

     We  rely  on a number of common carriers to deliver coffee to our customers
and  retail stores.  We consider roasted coffee a perishable product and we rely
on  these  common carriers to deliver fresh roasted coffee on a daily basis.  We
have no control over these common carriers and the services provided by them may
be  interrupted  as  a  result  of  labor  shortages, contract disputes or other
factors.  If  we  experience an interruption in these services, we may be unable
to  ship  our  coffee  in  a  timely  manner.  A  delay  in  shipping  could:

-     Have  an  adverse impact on the quality of the coffee shipped, and thereby
adversely  affect  our  brand  and  reputation;
-     Result in the disposal of an amount of coffee that could not be shipped in
a  timely  manner;  and
-     Require  us  to  contract  with  alternative, and possibly more expensive,
common  carriers.

     Any  significant  increase in shipping costs could lower our profit margins
or  force  us  to  raise  prices,  which  could cause our revenue and profits to
suffer.

WE  DEPEND  ON  THE  EXPERTISE  OF KEY PERSONNEL.  IF THESE INDIVIDUALS LEAVE OR
CHANGE  THEIR  ROLE  WITHIN  OUR  COMPANY  WITHOUT  EFFECTIVE  REPLACEMENTS, OUR
OPERATIONS  MAY  SUFFER.

     The  success  of  our  business  is  dependent  to  a  large  degree on our
management and our coffee roasters and purchasers.  If members of our management
leave  without  effective  replacements,  our  ability to implement our business
strategy  could be impaired.  If we lost the services of our coffee roasters and
purchasers,  our  ability  to  source  and  purchase a sufficient supply of high
quality  coffee  beans  and  roast  coffee  beans  consistent  with  our quality
standards  could  suffer.  In  either case, our business and operations could be
adversely  affected.


                                       24
<PAGE>


WE  MAY  NOT BE ABLE TO HIRE OR RETAIN ADDITIONAL MANAGEMENT AND OTHER PERSONNEL
AND OUR RECRUITING AND TRAINING COSTS MAY INCREASE AS A RESULT OF TURNOVER, BOTH
OF  WHICH MAY INCREASE OUR COSTS AND REDUCE OUR PROFITS AND MAY ADVERSELY IMPACT
OUR  ABILITY  TO  IMPLEMENT  OUR  BUSINESS  STRATEGY.

     The  success of our business depends upon our ability to attract and retain
highly  motivated,  well-qualified  management  and  other  personnel, including
technical  personnel  and  retail employees.  We face significant competition in
the  recruitment  of  qualified  employees.  Our ability to execute our business
strategy  may  suffer  if:

-     We  are  unable  to  recruit  or  retain  a sufficient number of qualified
employees;
-     The  costs of employee compensation or benefits increase substantially; or
-     The  costs  of outsourcing certain tasks to third party providers increase
substantially.

     We  expend  significant  resources  in  training  our  retail  managers and
employees.  During the past few years, retail employee turnover has increased to
approximately  75%  per  year.  If  turnover continues to increase, we may incur
additional  recruiting  and  training  costs.

BECAUSE  WE  HAVE  ONLY ONE ROASTING FACILITY, A SIGNIFICANT INTERRUPTION IN THE
OPERATION  OF  THIS  FACILITY  COULD  POTENTIALLY  DISRUPT  OUR  OPERATIONS.

     We  have only one coffee roasting and distribution facility.  A significant
interruption in the operation of this facility, whether as a result of a natural
disaster  or other causes, could significantly impair our ability to operate our
business.  Moreover,  our  roasting  and  distribution  facility and most of our
stores  are located near several major earthquake faults.  The impact of a major
earthquake on our facilities, infrastructure and overall operations is difficult
to  predict  and  an  earthquake  could  seriously  disrupt our entire business.

     Our  earthquake  insurance  covers  net income, continuing normal operating
expenses  and extra expenses incurred during the period of restoration. However,
in  the event of a catastrophic earthquake, our coverage is limited and we would
incur  additional  expenses.

WE  HAVE  A  HIGH  DEDUCTIBLE  WORKERS'  COMPENSATION INSURANCE PROGRAM AND MORE
CLAIMS  AND  HIGHER  COSTS  FROM  THESE  CLAIMS MAY ADVERSELY AFFECT OUR PROFIT.

     Our  current  workers'  compensation  insurance  program  is  a  modified
self-insured  program  with a high deductible with an overall program ceiling to
limit  exposure.  The  California  workers'  compensation  environment  has been
unpredictable  with  continually  increasing  costs in the past five years.  The
majority of our business is in California, therefore, we are exposed to the same
increased  costs.  Additionally,  we  have  had  to  estimate  our liability for
existing  claims  whose  outcome  is  uncertain.  While  we  believe our reserve
methodology  on  these  claims  is appropriate today, unfavorable development in
this area will also affect any open claims that were filed beginning March 2002,
the  date we transitioned to a high deductible program.  Should a greater amount
of  claims  occur  or the settlement costs increase beyond what was anticipated,
our  expenses  could  increase  and  our  profitability  may  decrease.

INCREASES  IN  THE  COST  AND  DECREASES IN AVAILABILITY OF HIGH QUALITY ARABICA
COFFEE  BEANS  COULD  IMPACT  OUR  PROFITABILITY  AND  GROWTH  OF  OUR BUSINESS.

     Coffee  prices  are  currently near historical lows and we believe they are
likely  to increase in the future.  Coffee is a trade commodity and, in general,
its  price  can  fluctuate  depending  on:

-     Weather  patterns  in  coffee-producing  countries;
-     Economic  and  political  conditions affecting coffee-producing countries;
-     Foreign  currency  fluctuations;  and
-     The  ability  of  coffee-producing  countries  to  agree to export quotas.

     If  the  cost  of  our  green coffee beans increases due to any of these or
other  factors  impacting us negatively, we many not be able to pass along those
costs to our customers because of the competitive nature of the specialty coffee
industry.  If  we  are  unable  to pass along increased coffee costs, our margin
will decrease and our profitability will suffer accordingly.  If we are not able
to  purchase  sufficient  quantities of high quality Arabica beans due to any


                                       25
<PAGE>


of  the above factors, we many not be able to fulfill the demand for our coffee,
our revenue may decrease and our ability to expand our business may also suffer.

OUR  ROASTING  METHODS  ARE  NOT  PROPRIETARY,  SO  COMPETITORS  MAY  BE ABLE TO
DUPLICATE  THEM,  WHICH  COULD  HARM  OUR  COMPETITIVE  POSITION.

     We  consider  our  roasting methods essential to the flavor and richness of
our  roasted  whole bean coffee and, therefore, essential to our brand.  Because
we  do not hold any patents for our roasting methods, it may be difficult for us
to  prevent  competitors  from copying our roasting methods.  If our competitors
copy  our roasting methods, the value of our brand may be diminished, and we may
lose  customers  to  our  competitors.  In  addition, competitors may be able to
develop roasting methods that are more advanced than our roasting methods, which
may  also  harm  our  competitive  position.

COMPETITION  IN  THE  SPECIALTY  COFFEE  MARKET  IS INTENSE AND COULD AFFECT OUR
PROFITABILITY.

     Competition in the specialty coffee market is becoming increasingly intense
as  relatively  low  barriers  to  entry  encourage new competitors to enter the
specialty  coffee market.  Our whole bean specialty coffee competes with several
major  national  brands,  such  as Gevalia (Kraft Foods), Green Mountain Coffee,
Illy  Caffe ,  Millstone  (Procter  &  Gamble),  Seattle's  Best (Starbucks) and
Starbucks,  as  well  as  numerous  smaller,  regional  brands.  In addition, we
compete  indirectly  against all other coffee brands on the market.  A number of
nationwide  coffee  marketers, such as Kraft Foods, Procter & Gamble and Nestle,
are  distributing  premium  coffee brands in supermarkets.  These premium coffee
brands  may  serve  as  substitutes  for  our whole bean coffee.  In addition to
competing  with  other  distributors  of  whole  bean  coffee,  we  compete with
retailers  of  prepared  beverages,  including coffee house chains, particularly
Starbucks,  numerous  convenience  stores,  restaurants, coffee shops and street
vendors.  If we do not succeed in effectively differentiating ourselves from our
competitors  or  our  competitors  adopt  our  strategies,  then our competitive
position  will  be  weakened.

     Despite  competing  in  a fragmented product category, whole bean specialty
coffee  brands  are  being  established  across  multiple distribution channels.
Several  competitors have been aggressive in obtaining distribution in specialty
grocery  and  gourmet  food stores, through online and mail order and in office,
restaurant and food service locations.  We have only recently begun to penetrate
these  channels.  Other competitors may have an advantage over us based on their
earlier  entry  into  these  distribution  channels.

       Many  of  these  new  market  entrants  may  have  substantially  greater
financial,  marketing and operating resources than us.  In addition, many of our
existing  competitors  have  substantially  greater  financial,  marketing  and
operating  resources  than  us.

LAWSUITS  AND  OTHER  CLAIMS  AGAINST  THE  COMPANY  MAY  ADVERSELY  AFFECT  OUR
PROFITABILITY.

     We  may  from  time to time become involved in certain legal proceedings in
the  ordinary course of business, such as the two lawsuits filed in 2003 against
us entitled Brian Taraz, et al. vs. Peet's Coffee & Tea, Inc., and Tracy Coffee,
et  al.  vs.  Peet's Coffee & Tea, Inc.  In investigating any claims against the
Company  or defending any allegations, we may incur legal fees, settlement fees,
damages  or  remediation expenses that may harm our business, reducing our sales
and  adversely  affecting  our profitability.  Further, while the Superior Court
has  granted  preliminary  approval to the settlement of the lawsuits brought by
Taraz  et al., the settlement remains subject to the court's final approval, our
right  to  terminate  if  more  than 10% of the settlement class opts out of the
settlement, and the plaintiffs' right to terminate if claims by class members in
the  aggregate exceed more than 10% of the number of work weeks specified in the
settlement  agreement,  and  may  therefore  never  be  consummated.

ADVERSE  PUBLIC  OR  MEDICAL  OPINION  ABOUT  CAFFEINE  MAY  HARM  OUR BUSINESS.

     Our  specialty  coffee  contains  significant amounts of caffeine and other
active  compounds, the health effects of some of which are not fully understood.
A  number  of research studies conclude or suggest that excessive consumption of
caffeine may lead to increased heart rate, nausea and vomiting, restlessness and
anxiety,  depression, headaches, tremors, sleeplessness and other adverse health
effects.  An  unfavorable  report  on  the  health  effects of caffeine or other
compounds  present  in  coffee could significantly reduce the demand for coffee,
which  could  harm  our  business  and  reduce  our  sales  and  profits.


                                       26
<PAGE>


ADVERSE  PUBLICITY  REGARDING  CUSTOMER  COMPLAINTS  MAY  HARM  OUR  BUSINESS.

     We  may  be the subject of complaints or litigation from customers alleging
beverage  and food-related illnesses, injuries suffered on the premises or other
quality,  health or operational concerns.  Adverse publicity resulting from such
allegations  may  materially  adversely  affect  us,  regardless of whether such
allegations  are  true  or  whether  we  are  ultimately  held  liable.


ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

     All  information  required by this item is included on pages F-1 to F-20 in
Item  15 of this Form 10-K Report and is incorporated in this item by reference.


ITEM  9.     CHANGES  IN  AND  DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL  DISCLOSURE

     None.


ITEM  9A.  CONTROLS  AND  PROCEDURES

     We  maintain disclosure controls and procedures that are designed to ensure
that  information  required  to  be  disclosed  in  our  Exchange Act reports is
recorded,  processed,  summarized and reported within the time periods specified
in  the  SEC's  rules  and  forms,  and that such information is accumulated and
communicated  to our management, including our Chief Executive Officer and Chief
Financial Officers, as appropriate, to allow timely decisions regarding required
disclosure.  In designing and evaluating the disclosure controls and procedures,
our  management  recognizes that any controls and procedures, no matter how well
designed  and  operated,  can provide only reasonable assurance of achieving the
desired  control objectives, and our management necessarily is required to apply
its  judgment  in  evaluating the cost-benefit relationship of possible controls
and  procedures.

     As  of  December 28, 2003, the end of the period covered by this report, we
carried  out  an evaluation, under the supervision and with the participation of
our  management,  including  our Chief Executive Officer and our Chief Financial
Officer,  of  the  effectiveness  of  the design and operation of our disclosure
controls and procedures. Based on the foregoing, our Chief Executive Officer and
Chief  Financial  Officer  concluded that our disclosure controls and procedures
were  effective  at  the  reasonable-assurance  level.

     There  has been no change in our internal controls over financial reporting
during  our  most  recent  fiscal  quarter  that  has materially affected, or is
reasonably  likely  to  materially  affect, our internal controls over financial
reporting.


                                    PART III


ITEM  10.       DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

     Information  respecting continuing directors and nominees of the Company is
set  forth  under  the  caption  "Election  of Directors" in the Company's Proxy
Statement  relating  to  its  2004  Annual  Meeting  of  Stockholders  and  is
incorporated  by reference into this Form 10-K Report.  The Proxy Statement will
be  filed  with  the  Securities and Exchange Commission in accordance with Rule
14a-6(c)  promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange  Act.").  With  the  exception  of the foregoing information and other
information  specifically  incorporated by reference into this Form 10-K Report,
the Proxy Statement is not being filed as a part hereof.  Information respecting
executive  officers  of  the  Company  is  set  forth  at Part I of this Report.

     Information respecting compliance with Section 16(a) of the Exchange Act is
set  forth  under  the  caption  "Section  16(a)  Beneficial Ownership Reporting
Compliance"  in  the  Proxy Statement and is incorporated by reference into this
Form  10-K  Report.


                                       27
<PAGE>


ITEM  11.       EXECUTIVE  COMPENSATION

     Information  concerning  executive  compensation required by Item 11 is set
forth  under  the  captions  "Executive  Compensation," "Stock Option Grants and
Exercises,"  "Employment  Agreements" and "Compensation Committee Interlocks" in
the Proxy Statement and is incorporated by reference into this Form 10-K Report.


ITEM  12.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND  MANAGEMENT

     Information  concerning security ownership of certain beneficial owners and
management  required  by  Item  12  is  set  forth  under  the caption "Security
Ownership of Certain Beneficial Owners and Management" and "Our Equity Incentive
Plans"  in  the  Proxy Statement and is incorporated by reference into this Form
10-K  Report.


ITEM  13.       CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     Information  concerning  certain  relationships  and  related  transactions
required  by Item 13 is set forth under the captions "Employment Agreements" and
"Certain  Transactions"  in the Proxy Statement and is incorporated by reference
into  this  Form  10-K  Report.


ITEM  14.  PRINCIPAL  ACCOUNTING  FEES  AND  SERVICES

     Information  concerning  principal accounting fees and services required by
Item  14  is set forth under the caption "Proposal 2 - Ratification of Selection
of Independent Auditors" in the Proxy Statement and is incorporated by reference
into  this  Form  10-K  Report.


                                     PART IV

ITEM  15.  EXHIBITS,  FINANCIAL  STATEMENT  SCHEDULES,  AND  REPORTS ON FORM 8-K

     The  following  documents  are  filed  as  part  of  this  Form  10-K.

     (a)(1)  Index  to  Consolidated  Financial  Statements.

     The following Consolidated Financial Statements of Peet's Coffee &Tea, Inc.
and  its  subsidiaries  are  filed  as  part  of  this  Form  10-K:

<TABLE>
<CAPTION>


                                                                                                 PAGE
                                                                                                 ----
<S>                                                                                              <C>

Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-2
-----------------------------------------------------------------------------------------------  ----

Consolidated Balance Sheets as of December 29, 2002 and December 30, 2003 . . . . . . . . . . .  F-3
-----------------------------------------------------------------------------------------------  ----

Consolidated Statements of Operations for the Years Ended December 30, 2001, December 29, 2002,
and December 28, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-4
-----------------------------------------------------------------------------------------------  ----

Consolidated Statements of Shareholders' Equity for the Years Ended December 30, 2001,
December 29, 2002, and December 30, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-5
-----------------------------------------------------------------------------------------------  ----

Consolidated Statements of Cash Flows for the Years Ended December 30, 2001, December 29, 2002,
and December 28, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-6
-----------------------------------------------------------------------------------------------  ----

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .  F-7
-----------------------------------------------------------------------------------------------  ----
</TABLE>


     (a)(2)  Index  to  Financial  Statement  Schedule.

     Schedules  are  omitted  because  they  are not applicable, not required or
because  the  required  information  is  included  in the Consolidated Financial
Statements  or  Notes  thereto.


                                       28
<PAGE>


     (a)(3)  Listing  of  Exhibits

EXHIBIT     DESCRIPTION
-------     -----------
3.1     Amended  and  Restated  Articles  of  Incorporation.*
3.2     Amended  and  Restated  Bylaws.*
4.1     Form  of  common  stock  certificate.*
10.1    Credit  Agreement,  dated  as of September 1, 2000, among Peet's Coffee
        and Tea, Inc.,  Peet's  Companies,  Inc.,  Peet's  Trademark Company
        and General Electric Capital  Corporation.*
10.2    Letter  Agreement  dated  October 11, 2000 among Peet's Coffee and Tea,
        Inc.,  Peet's  Companies,  Inc.,  Peet's  Trademark Company and General
        Electric Capital  Corporation.*
10.3    First  Amendment to Credit Agreement dated as of January 19, 2001 among
        Peet's  Operating  Company,  Inc. (formerly Peet's Coffee and Tea,
        Inc.), Peet's Coffee  &  Tea, Inc. (formerly Peet's Companies, Inc.),
        Peet's Trademark Company and  General  Electric  Capital  Corporation.*
10.4    Loan Agreement, dated as of December 1, 1995, by and between California
        Statewide  Communities  Development  Authority  and Peet's Coffee and
        Tea, Inc.*
10.5    Amended  and  Restated  1993  Stock  Option  Plan.  (1)*
10.6    1994  California  Stock  Option  Plan.  (1)*
10.7    1997  Equity  Incentive  Plan  and form of Stock Option Agreement. (1)*
10.8    Peet's  Operating  Company,  Inc.  Savings  and  Retirement  Plan. (1)*
10.9    2000  Equity  Incentive  Plan  and form of Stock Option Agreement. (1)*
10.10   2000 Non-Employee Director Plan and form of Stock Option Agreement.(1)*
10.11   2000  Employee  Stock  Purchase  Plan  and  form  of  Offering.  (1)*
10.12   Peet's Operating Company, Inc. Key Employee Severance Benefit Plan.(2)*
10.13   Change  of  Control  Option  Acceleration  Plan.  (1)*
10.14   Advisory  Engagement  Letter  dated  December  9,  1996,  between Peet's
        Operating  Company,  Inc.  and  Jesse.Hansen&Co.*
10.15   Peet's  Operating  Company,  Inc.  Key  Employment  Agreement  for  Vice
        President, Real Estate dated as of January 4, 1999.  (2)
10.16   Peet's  Operating  Company,  Inc.  Key  Employment  Agreement  for  Vice
        President of Operations dated as of June 24, 2002.  (2)
10.17   Peet's  Operating  Company,  Inc.  Key  Employment  Agreement  for  Vice
        President,  Coffee  dated  as  of  June  6,  2000.  (2)*
10.18   Peet's  Operating  Company,  Inc.  Key  Employment  Agreement  for  Vice
        President of Information Systems  dated  as  of  January 20,  2000.  (2)


                                       29
<PAGE>


10.19   Peet's  Operating  Company,  Inc.  Key  Employment  Agreement  for  Vice
        President,  Marketing  dated  as  of  January  4,  1999.  (2)*
10.20   Form  of  Indemnity  Agreement  between  the  registrant  and  each  of
        its  directors  and  officers.  (2)
10.21   Second  Amendment  to  Credit  Agreement,  dated  as  of June  29, 2001,
        among  Peet's  Operating  Company,  Inc.,  Peet's  Trademark  Company,
        Peet's  Coffee  &  Tea, Inc.  and General  Electric Capital Corporation.
        Incorporated  by  reference  to  Exhibit  10.23  to  the  Company's
        quarterly  report on  Form  10-Q  for the quarter  ended  July  1, 2001.
10.22   Third  Amendment to Credit Agreement, dated as of March 1, 2002, among
        Peet's  Operating  Company,  Inc.,  Peet's  Trademark Company, Peet's
        Coffee & Tea, Inc. and  General  Electric  Capital  Corporation.
        Incorporated  by  reference  to Exhibit  10.24  to  the Company's annual
        filing  on  Form  10-K  for the year  ended December  30,  2001.
10.23   Fourth  Amendment to Credit Agreement dated as of April 23, 2002 among
        Peet's  Operating  Company, Inc., Peet's Trademark Company, Peet's
        Coffee & Tea, Inc.  and  General  Electric  Capital Corporation.
        Incorporated by reference to Exhibit  10.24  to  the  Company's
        quarterly report on Form 10-Q for the quarter ended  March  31,  2002.
10.24   Peet's Coffee & Tea, Inc. Key Employment Agreement for Chief Executive
        Officer  dated as of May 6, 2002.  Incorporated by reference to
        Exhibit 10.17 to the Company's quarterly report on Form 10-Q for the
        quarter ended June 30, 2002. (2)
10.25   Peet's  Coffee  &  Tea,  Inc.  Amended  and Restated 2000 Non-Employee
        Director  Stock Option Plan and Form of Stock Option Agreement.
        Incorporated by reference  to  Exhibit  10.10 to the Company's
        quarterly report on Form 10-Q for the quarter ended
        September 29, 2002. (1)
10.26   Fifth  Amendment  to  Credit  Agreement  dated as of December 31, 2002
        among  Peet's Operating Company, Inc., Peet's Trademark Company,
        Peet's Coffee & Tea, Inc.  and  General  Electric Capital Corporation.
10.27   Sixth  Amendment  to  Credit  Agreement  dated as of February 21, 2003
        among Peet's Operating Company, Inc., Peet's Trademark Company, Peet's
        Coffee & Tea,  Inc.  and  General  Electric  Capital  Corporation.
10.28   Peet's Coffee & Tea, Inc. Key Employment Agreement for Vice President,
        Specialty dated as of June 9, 2003. Incorporated by reference to
        Exhibit 10.17 to  the  Company's  quarterly report on Form 10-Q for
        the quarter ended June 29, 2003.  (2)
10.29   Peet's Coffee & Tea, Inc. Key Employment Agreement for Chief Financial
        Officer  dated  as of June 25, 2003.  Incorporated by reference to
        Exhibit 10.17 to  the  Company's quarterly report on Form 10-Q for the
        quarter ended September 28,  2003.  (2)
21.1    Subsidiaries  of  the  registrant.*


                                       30
<PAGE>


23.1    Consent  of  Deloitte  &  Touche  LLP.
31.1    Certification  of the Company's Chief Executive Officer, Patrick O'Dea,
        pursuant  to  Rule  13a-14(a)  under  the  Securities  Exchange
        Act of 1934, as amended.
31.2    Certification  of the Company's Chief Financial Officer, Thomas Cawley,
        pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934,
        as amended
32.1    Certification  of the Company's Chief Executive Officer, Patrick O'Dea,
        pursuant  to  Section  906  of  Sarbanes-Oxley  Act  of  2002
32.2    Certification  of the Company's Chief Financial Officer, Thomas Cawley,
        pursuant  to  Section  906  of  Sarbanes-Oxley  Act  of  2002.

______________
*     Incorporated by reference to Exhibit 10.18 to the Registrant's Information
Statement  on  Form  S-1  (File  No.  333-47957)  filed  on October 13, 2000, as
subsequently  amended.
     (1)     Compensatory  plan  or  arrangement.
     (2)     Management  contract.

     (b)  Reports  on  Form  8-K

Current  Report on Form 8-K filed on October 27, 2003 to furnish under Item 12 a
press  release  guidance  dated  October  27,  2003

Current  Report on Form 8-K filed on October 29, 2003 to furnish under Item 12 a
press  release  dated  October  29,  2003


                                       31
<PAGE>


                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its  behalf  by  the  undersigned,  thereunto  duly  authorized.


Date:  March  12,  2004               PEET'S  COFFEE  &  TEA,  INC.
                                      By:  /s/  Patrick  J.  O'Dea
                                       -----------------------
                                       Patrick  J.  O'Dea
                                       President  and  Chief  Executive  Officer


                                POWER OF ATTORNEY

     KNOW  ALL  PERSONS  BY  THESE  PRESENTS,  that  each person whose signature
appears below constitutes and appoints Patrick J. O'Dea and Thomas P. Cawley and
each  of  them,  as  his true and lawful attorneys-in-fact and agents, with full
power  of  substitution  and resubstitution, for him and in his name, place, and
stead,  in any and all capacities, to sign any and all amendments to this report
and  to file the same, with all granting unto said attorneys-in-fact and agents,
and  each of them, full power and authority to do and perform each and every act
and  thing  requisite and necessary to be done in connection therewith, as fully
to  all intents and purposes as he might or could do in person, hereby ratifying
and  confirming  all  that said attorneys-in-fact and agents, or any of them, or
their  or  his substitute or substitutes, may lawfully do or cause to be done by
virtue  hereof.

     Pursuant  to  the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
registrant  and  in  the  capacities  and  on  the  dates  indicated.

     SIGNATURE              TITLE                                DATE
     ---------              -----                                ----

/s/  PATRICK  J.  O'DEA     President, Chief Executive Officer    March 12, 2004
-----------------------     and Director (Principal  Executive
     Patrick  J.  O'Dea     Officer)

/s/  THOMAS P. CAWLEY       Vice President, Chief Financial       March 12, 2004
---------------------       Officer, and Secretary (Principal
     Thomas  P.  Cawley     Financial and  Accounting  Officer)

/s/  JEAN-MICHEL  VALETTE        Chairman                       March  12,  2004
-------------------------
     Jean-Michel  Valette

/s/  GERALD  BALDWIN             Director                       March  12,  2004
--------------------
     Gerald  Baldwin

/s/  HILARY  BILLINGS            Director                       March  12,  2004
---------------------
     Hilary  Billings

/s/  GORDON  A.  BOWKER          Director                       March  12,  2004
-----------------------
     Gordon  A.  Bowker

/s/  H.  WILLIAM  JESSE, JR.     Director                         March 12, 2004
----------------------------
     H.  William  Jesse,  Jr.

/s/  CHRISTOPHER  P. MOTTERN     Director                         March 12, 2004
----------------------------
     Christopher  P.  Mottern


                                       32
<PAGE>


<TABLE>
<CAPTION>


                             INDEX  TO  FINANCIAL  STATEMENTS

                                                                                                 Page
                                                                                                 ----
<S>                                                                                              <C>

Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-2
-----------------------------------------------------------------------------------------------  ----

Consolidated Balance Sheets as of December 29, 2002 and December 28, 2003 . . . . . . . . . . .  F-3
-----------------------------------------------------------------------------------------------  ----

Consolidated Statements of Operations for the Years Ended December 30, 2001, December 29, 2002,
and December 28, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-4
-----------------------------------------------------------------------------------------------  ----

Consolidated Statements of Shareholders' Equity for the Years Ended December 30, 2001,
December 29, 2002, and December 28, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-5
-----------------------------------------------------------------------------------------------  ----

Consolidated Statements of Cash Flows for the Years Ended December 30, 2001, December 29, 2002
and December 28, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-6
-----------------------------------------------------------------------------------------------  ----

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .  F-7
-----------------------------------------------------------------------------------------------  ----
</TABLE>


                                      F - 1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


To  the  Board  of  Directors  and  Shareholders
     Peet's  Coffee  &  Tea,  Inc.

     We  have  audited  the  accompanying  consolidated balance sheets of Peet's
Coffee  &  Tea,  Inc.  and subsidiaries as of December 29, 2002 and December 28,
2003,  and  the  related consolidated statements of income, shareholders' equity
and  cash  flows  for  each  of the three years in the period ended December 28,
2003.  These  financial  statements  are  the  responsibility  of  the Company's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements  based  on  our  audits.

     We  conducted  our  audits  in accordance with auditing standards generally
accepted  in the United States of America.  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

     In  our  opinion, such consolidated financial statements present fairly, in
all  material  respects, the financial position of Peet's Coffee & Tea, Inc. and
subsidiaries  as  of  December 29, 2002 and December 28, 2003 and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  28,  2003,  in  conformity with accounting principles generally
accepted  in  the  United  States  of  America.

     As  discussed  in Note 12 to the financial statements, effective January 1,
2001,  the  Company  changed  its  method of accounting for derivative financial
instruments  to  conform to Statement of Financial Accounting Standards No. 133.

/s/  DELOITTE  &  TOUCHE  LLP

San  Francisco,  California
March  11,  2004


                                      F - 2
<PAGE>


<TABLE>
<CAPTION>

                                          PEET'S COFFEE & TEA, INC.
                                       CONSOLIDATED BALANCE SHEETS
                                   (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


                                                                             DECEMBER 29,   DECEMBER 28,
                                                                                 2002           2003
                                                                             -------------  -------------
<S>                                                                          <C>            <C>
ASSETS

Current assets:
  Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .  $       7,572  $      30,263
  Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . .         12,100         12,328
  Accounts receivable (net of allowance of $75 and $54) . . . . . . . . . .          2,210          3,115
  Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . .          1,117            340
  Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         11,007         10,720
  Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .            461            563
  Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,342          1,548
                                                                             -------------  -------------

           Total current assets . . . . . . . . . . . . . . . . . . . . . .         35,809         58,877

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . .         27,929         32,322

Intangible and other assets, net. . . . . . . . . . . . . . . . . . . . . .          3,305          2,684

Long-term U.S. Government & Agency securities . . . . . . . . . . . . . . .         28,102         16,572
                                                                             -------------  -------------

Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $      95,145  $     110,455
                                                                             =============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------

Current liabilities:
  Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       6,463  $       4,770
  Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . .          3,741          4,157
  Gift certificates and stored value cards. . . . . . . . . . . . . . . . .          1,200          1,346
  Accrued litigation expense                                                                        2,343
  Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . .          1,438          1,773
  Current portion of long-term borrowings . . . . . . . . . . . . . . . . .            468              3
                                                                             -------------  -------------

           Total current liabilities. . . . . . . . . . . . . . . . . . . .         13,310         14,392

Long-term borrowings, less current portion. . . . . . . . . . . . . . . . .            424

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .            181             10

Deferred lease credits. . . . . . . . . . . . . . . . . . . . . . . . . . .            726            819
                                                                             -------------  -------------

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         14,641         15,221
                                                                             -------------  -------------

Commitments and contingencies

Shareholders' equity:
  Preferred stock, no par value; authorized 10,000,000 shares; none issued
  Common stock, no par value; authorized 50,000,000 shares; issued and
    outstanding:  12,103,000 shares and 12,983,000 shares . . . . . . . . .         78,014         87,808
  Accumulated other comprehensive income, net of tax. . . . . . . . . . . .            265             23
  Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2,225          7,403
                                                                             -------------  -------------

           Total shareholders' equity . . . . . . . . . . . . . . . . . . .         80,504         95,234
                                                                             -------------  -------------

Total liabilities and shareholders' equity. . . . . . . . . . . . . . . . .  $      95,145  $     110,455
                                                                             =============  =============
</TABLE>

See  notes  to  consolidated  financial  statements.


                                      F - 3
<PAGE>


<TABLE>
<CAPTION>

                                PEET'S COFFEE & TEA, INC.
                           CONSOLIDATED STATEMENTS OF INCOME
                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                                                       2001      2002       2003
                                                     --------  ---------  ---------
<S>                                                  <C>       <C>        <C>
Net revenue . . . . . . . . . . . . . . . . . . . .  $94,400   $104,073   $119,816
                                                     --------  ---------  ---------

Operating expenses:
  Cost of sales and related occupancy expenses. . .   45,357     48,146     54,961
  Operating expenses. . . . . . . . . . . . . . . .   30,617     33,221     38,751
  Marketing and advertising . . . . . . . . . . . .    4,812      4,554      4,525
  Depreciation and amortization . . . . . . . . . .    5,038      4,568      4,890
  General and administrative expenses . . . . . . .    6,243      6,732      9,193
                                                     --------  ---------  ---------

           Total operating costs and expenses . . .   92,067     97,221    112,320
                                                     --------  ---------  ---------

Income from operations. . . . . . . . . . . . . . .    2,333      6,852      7,496

Interest income . . . . . . . . . . . . . . . . . .       47        660      1,251
Interest expense. . . . . . . . . . . . . . . . . .     (476)      (120)       (88)
                                                     --------  ---------  ---------

Income before income taxes. . . . . . . . . . . . .    1,904      7,392      8,659

Income tax provision. . . . . . . . . . . . . . . .      749      2,735      3,481
                                                     --------  ---------  ---------

Net income. . . . . . . . . . . . . . . . . . . . .  $ 1,155   $  4,657   $  5,178
                                                     ========  =========  =========

Net income per share:
     Basic. . . . . . . . . . . . . . . . . . . . .  $  0.15   $   0.43   $   0.41
                                                     ========  =========  =========
     Diluted. . . . . . . . . . . . . . . . . . . .  $  0.14   $   0.40   $   0.39
                                                     ========  =========  =========

Shares used in calculation of net income per share:
     Basic. . . . . . . . . . . . . . . . . . . . .    7,941     10,919     12,589
                                                     ========  =========  =========
     Diluted. . . . . . . . . . . . . . . . . . . .    8,212     11,627     13,236
                                                     ========  =========  =========
</TABLE>

See  notes  to  consolidated  financial  statements.


                                      F - 4
<PAGE>


<TABLE>
<CAPTION>

                                               PEET'S COFFEE & TEA, INC.
                                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                     (IN THOUSANDS)

                                               SERIES A                                   RETAINED       ACCUMULATED
                                            PREFERRED STOCK          COMMON STOCK          EARNINGS/     OTHER
                                            ---------------          ------------
                                            SHARES                  SHARES               (ACCUMULATED    COMPREHENSIVE
                                         OUTSTANDING    AMOUNT   OUTSTANDING   AMOUNT      DEFICIT)      INCOME/(LOSS)
                                         ------------  --------  ------------  -------  --------------  ---------------
<S>                                      <C>           <C>       <C>           <C>      <C>             <C>
Balance at December 31, 2000. . . . . .          471   $ 4,537          4,516  $ 8,217  $      (3,587)   $           -

Conversion of preferred shares. . . . .         (471)   (4,537)           943    4,537
Stock sold in Initial Public Offering                                   2,682   17,793
Stock options exercised, including
   tax benefit                                                             94      507
Stock sold in Employee Stock
   Purchase Program                                                        37      250
Amortization of stock compensation                                                 305
Cumulative effect of accounting
   change - FAS 133, net of tax of $519                                                                 $         (785)
Unrealized losses on cash flow
   hedges, net of tax of $195                                                                                     (295)
Reclassification of net losses on
   cash flow hedges to cost of goods
   sold, net of tax of $445                                                                                        673
                                                                                                        ---------------
Other comprehensive loss                                                                                          (407)
Net income                                                                                      1,155
                                         ------------  --------         -----  -------  --------------  ---------------
Balance at December 30, 2001. . . . . .            -   $     -          8,272  $31,609  $      (2,432)  $         (407)

Stock sold in public offering                                           3,138   41,030
Stock options and warrants
   exercised, including tax benefit                                       610    4,517
Stock sold in Employee Stock
   Purchase Program                                                        83      568
Amortization of stock compensation                                                 290
Unrealized gains on cash flow
   hedges, net of tax of $38                                                                                        66
Reclassification of net losses on
   cash flow hedges to cost of goods
   sold, net of tax of $252                                                                                        379
Net unrealized gain on investments,
   net of tax of $133                                                                                              227
                                                                                                        ---------------
Other comprehensive income                                                                                         672
Net income                                                                                      4,657
                                         ------------  --------        ------  -------  --------------  ---------------
Balance at December 29, 2002. . . . . .            -   $     -         12,103  $78,014  $       2,225   $          265

Stock options exercised,
   including tax benefit                                                  798    8,876

Stock sold in Employee Stock
   Purchase Program                                                        82      727

Amortization of stock compensation                                                 191
Unrealized losses on cash flow
   hedges, net of tax of $12                                                                                       (20)
Reclassification of net losses on cash
   flow hedges to cost of goods sold,
   net of tax of $14                                                                                               (21)
Net unrealized loss on investments,
   net of tax of $134                                                                                             (201)
                                                                                                        ---------------
Other comprehensive loss                                                                                          (242)
Net income                                                                                      5,178
                                         ------------  --------  ------------  -------  --------------  ---------------
Balance at December 28, 2003. . . . . .            -   $     -         12,983  $87,808  $       7,403   $           23
                                         ============  ========  ============  =======  ==============  ===============

                                             TOTAL
                                          SHAREHOLDERS'    COMPREHENSIVE
                                             EQUITY        INCOME/(LOSS)
                                         ---------------  ---------------
<S>                                      <C>              <C>
Balance at December 31, 2000. . . . . .  $        9,167

Conversion of preferred shares. . . . .               -
Stock sold in Initial Public Offering .          17,793
Stock options exercised, including
   tax benefit. . . . . . . . . . . . .             507
Stock sold in Employee Stock
   Purchase Program . . . . . . . . . .             250
Amortization of stock compensation. . .             305
Cumulative effect of accounting
   change - FAS 133, net of tax of $519
Unrealized losses on cash flow
   hedges, net of tax of $195
Reclassification of net losses on
   cash flow hedges to cost of goods
   sold, net of tax of $445

Other comprehensive loss. . . . . . . .            (407)  $         (407)
Net income. . . . . . . . . . . . . . .           1,155            1,155
                                         ---------------  ---------------
Balance at December 30, 2001. . . . . .  $       28,770   $          748
                                                          ===============
Stock sold in public offering . . . . .          41,030
Stock options and warrants
   exercised, including tax benefit . .           4,517
Stock sold in Employee Stock
   Purchase Program . . . . . . . . . .             568
Amortization of stock compensation. . .             290
Unrealized gains on cash flow
   hedges, net of tax of $38
Reclassification of net losses on
   cash flow hedges to cost of goods
   sold, net of tax of $252
Net unrealized gain on investments,
   net of tax of $133

Other comprehensive income. . . . . . .             672              672
Net income. . . . . . . . . . . . . . .           4,657            4,657
                                         ---------------  ---------------
Balance at December 29, 2002. . . . . .  $       80,504   $        5,329
                                                          ===============
Stock options exercised,
   including tax benefit. . . . . . . .           8,876

Stock sold in Employee Stock
   Purchase Program . . . . . . . . . .             727

Amortization of stock compensation. . .             191
Unrealized losses on cash flow
   hedges, net of tax of $12
Reclassification of net losses on cash
   flow hedges to cost of goods sold,
   net of tax of $14
Net unrealized loss on investments,
   net of tax of $134

Other comprehensive loss. . . . . . . .            (242)            (242)
Net income. . . . . . . . . . . . . . .           5,178            5,178
                                         ---------------  ---------------
Balance at December 28, 2003. . . . . .  $       95,234   $        4,936
                                         ===============  ===============
</TABLE>


See  notes  to  consolidated  financial  statements.


                                      F - 5
<PAGE>


<TABLE>
<CAPTION>

                                         PEET'S COFFEE & TEA, INC.
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (IN THOUSANDS)


                                                                         2001        2002       2003
                                                                       ---------  ----------  ---------
<S>                                                                    <C>        <C>         <C>
Cash flows from operating activities:
  Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  1,155   $   4,657   $  5,178
  Adjustments to reconcile net income to net cash provided by
  operating activities:
    Depreciation and amortization . . . . . . . . . . . . . . . . . .     5,693       5,251      5,795
    Amortization of interest purchased                                                  (32)       110
    Tax benefit from exercise of stock options                                        1,253      3,523
    Amortization of discounted stock options. . . . . . . . . . . . .       305         290        191
    Deferred income taxes . . . . . . . . . . . . . . . . . . . . . .       718       1,141       (127)
    Reclassification of hedging losses in OCI . . . . . . . . . . . .       673         379        (21)
    Ineffective portion of hedges . . . . . . . . . . . . . . . . . .       169          27
    Gain on investments                                                                 (27)      (294)
    Loss on disposition of assets . . . . . . . . . . . . . . . . . .         6          11          2
  Changes in other assets and liabilities:
    Accounts receivable . . . . . . . . . . . . . . . . . . . . . . .      (309)     (1,956)      (129)
    Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . .    (1,309)     (2,062)       287
    Prepaid expenses and other. . . . . . . . . . . . . . . . . . . .      (217)       (211)      (237)
    Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . .        22      (1,530)       392
    Accounts payable, accrued liabilities and other liabilities . . .    (1,123)      4,419      1,639
                                                                       ---------  ----------  ---------
           Net cash provided by operating activities. . . . . . . . .     5,783      11,610     16,309
                                                                       ---------  ----------  ---------

Cash flows from investing activities:
  Purchases of property and equipment . . . . . . . . . . . . . . . .    (6,511)     (9,316)    (9,963)
  Proceeds from sales of property and equipment . . . . . . . . . . .        17                      3
  Additions to intangible assets. . . . . . . . . . . . . . . . . . .      (350)        (35)
  Proceeds from sales and maturities of investments                                 229,383     97,915
  Purchases of investments                                                         (269,166)   (86,765)
                                                                                  ----------  ---------
           Net cash used in investing activities. . . . . . . . . . .    (6,844)    (49,134)     1,190
                                                                       ---------  ----------  ---------

Cash flows from financing activities:
  Repayments of debt. . . . . . . . . . . . . . . . . . . . . . . . .   (17,451)     (2,484)      (888)
  Net proceeds from issuance of common stock. . . . . . . . . . . . .    19,632      44,862      6,080
                                                                       ---------  ----------  ---------
           Net cash provided by financing activities. . . . . . . . .     2,181      42,378      5,192
                                                                       ---------  ----------  ---------

Change in cash and cash equivalents . . . . . . . . . . . . . . . . .     1,120       4,854     22,691
Cash and cash equivalents, beginning of period. . . . . . . . . . . .     1,598       2,718      7,572
                                                                       ---------  ----------  ---------

Cash and cash equivalents, end of period. . . . . . . . . . . . . . .  $  2,718   $   7,572   $ 30,263
                                                                       =========  ==========  =========

Supplemental cash flow disclosures:
     Cash paid for:
          Interest. . . . . . . . . . . . . . . . . . . . . . . . . .  $    478   $      48   $      8
          Income taxes. . . . . . . . . . . . . . . . . . . . . . . .        29       2,050          0

NON CASH INVESTING AND FINANCING ACTIVITIES -
  Conversion of preferred stock to common stock upon IPO. . . . . . .  $  4,537
  IPO fees accrued at December 31, 2000 applied to proceeds in 2001 .     1,082

</TABLE>

See  notes  to  consolidated  financial  statements.


                                      F - 6
<PAGE>


                            PEET'S COFFEE & TEA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     HISTORY  AND  ORGANIZATION
     Peet's  Coffee  &  Tea, Inc., (the ''Company'') sells fresh roasted coffee,
hand  selected tea and related items in several distribution channels, including
specialty  grocery  and  gourmet  food stores, online and mail order, office and
restaurant  accounts  and  company-operated retail stores.  At December 29, 2002
and  December  28,  2003,  the  Company  operated  65  and  75  retail  stores,
respectively,  in  California,  Colorado, Illinois, Oregon, Massachusetts, Texas
and  Washington.

2.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the  accounts of the Company and its subsidiaries.  All significant intercompany
transactions  have  been  eliminated  in  consolidation.

     USE  OF  ESTIMATES  - The preparation of financial statements in conformity
with  accounting  principles  generally accepted in the United States of America
requires  management  to make estimates and assumptions that affect the reported
amounts  of  assets  and  liabilities  and  disclosures of contingent assets and
liabilities  at the date of the financial statements and the reported amounts of
revenues  and  expenses during the reporting period. Actual results could differ
from  those  estimates.

     RECLASSIFICATIONS  -  Certain  reclassifications  have  been  made to prior
years'  financial  statements  in  order  to  conform  with  the  current year's
presentation.

     YEAR END - The Company's year end is the Sunday closest to December 31. The
years  2003,  2002,  and  2001  included  52  weeks.

     CASH  AND  CASH  EQUIVALENTS - The Company considers all liquid investments
with  original  maturities  of  three  months  or  less  to be cash equivalents.

     INVENTORIES  -  Raw  materials  consist  primarily  of  green  bean coffee.
Finished  goods  include  roasted  coffee,  tea, accessory products, spices, and
packaged foods. All products are valued at the lower of cost or market using the
first-in,  first-out  method,  except  green  bean  and roasted coffee, which is
valued  at  the  average  cost.

     PROPERTY  AND  EQUIPMENT  are stated at cost. Depreciation and amortization
are  recorded on the straight-line method over the estimated useful lives of the
property  and  equipment, which range from 3 to 10 years. Leasehold improvements
are  amortized  using  the straight-line method over the lesser of the estimated
useful  life  or  the term of the related lease, which range from 3 to 10 years.

     INTANGIBLES  AND  OTHER  ASSETS  include lease rights, contract acquisition
costs,  deposits,  and restricted cash.  Lease rights represent payments made to
lessors  and  others  to  secure  retail  locations  and  are  amortized  on the
straight-line  method  over  the  life  of the related lease from 5 to 15 years.
Intangibles,  primarily  lease  rights, net of amortization, were $1,040,000 and
$809,000  at December 29, 2002 and December 28, 2003, respectively.  The related
accumulated  amortization was $1,882,000 and $1,944,000 at December 29, 2002 and
December  28, 2003, respectively.  Amortization expense for 2001, 2002, and 2003
was  $238,000, $246,000 and $203,000, respectively.  Future amortization expense
for  2004  through  2008 is estimated at $155,000, $134,000, $118,000, $112,000,
and  $112,000,  respectively.  Contract  acquisition  costs represents a payment
made  to a retailer to obtain distribution for a specified period of time and is
being  amortized  as  a  reduction  of  revenue  over  the  contract  period.

     INVESTMENT  POLICY  -  Investments are classified as available for sale and
are  recorded at fair market value. Any unrealized gains and losses are recorded
in  other  comprehensive  income  (loss).


                                      F - 7
<PAGE>


     IMPAIRMENT  OF LONG-LIVED ASSETS - The Company evaluates the recoverability
of  its  long-lived  assets  whenever  events  or  changes in circumstances have
indicated  that  the  carrying amount of its assets might not be recoverable. If
the  fair  value  is  less  than  the  carrying  amount  of the asset, a loss is
recognized  for the difference. No impairment charges were recorded during 2001,
2002,  or  2003.

     ACCRUED  COMPENSATION  AND  BENEFITS - Beginning in March 2002, the Company
modified its workers' compensation insurance policy to a high deductible program
with  an  overall  program  ceiling to minimize exposure.  We began recording an
estimated  liability  for  the self-insured portion of the workers' compensation
claims.  The  liability  is  determined  based  on information received from the
Company's  insurance  adjuster including claims paid, filed and reserved for, as
well  as  using historical experience.  As of December 29, 2002 and December 28,
2003,  we  had  $703,000  and  $1,136,000  accrued  for  workers'  compensation.

A  summary  of  the  accrual  activity  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>

                                                                        BALANCE AT    ADDITIONS             BALANCE
                                                                         BEGINNING   CHARGED TO   CLAIMS   AT END OF
                                                                         OF PERIOD     EXPENSE     PAID      PERIOD
                                                                        -----------  -----------  -------  ----------
<S>                                       <C>                           <C>          <C>          <C>      <C>
Accrual related to workers' compensation
                                          Year ended December 29, 2002  $         0  $       792    ($89)  $      703
                                          Year ended December 28, 2003          703          792    (359)       1,136

</TABLE>


     STORE  CLOSURE  - The Company continually reviews the operating performance
of  individual  stores.  An  estimate  for  the  costs  associated  with closing
under-performing  stores  in  the period in which the store is closed.  The plan
includes  the method of disposition and the expected date of completion.  Costs,
which are considered to have no future economic benefit, include direct costs to
terminate  a  lease  or  sublease a property and the difference between the book
value  and  estimated recovery of fixed assets.  Significant changes to the plan
are  unlikely.  The  operating costs, including depreciation, of stores or other
facilities  to  be  sold or closed are expensed during the period they remain in
use.

     No  expense  was recorded in 2001, 2002, or 2003.  As of December 30, 2001,
the  Company  had  an  accrual  of  $59,000,  which  was  paid  during  2002.

     In August 2001, the Company assigned, with the consent of the landlord, the
existing  lease  for  a store to another entity.  The Company remains liable for
rent  and  other  charges  under  the  lease,  which  expires December 31, 2008.
However,  the  assignee's  parent  company  has  guaranteed  the  payment by the
assignee  of  rent  and  other charges under the lease assignment up to $313,000
(equivalent  to  approximately  four  years  of  rent due under the lease).  The
Company  expects  that  the assignee will make all future rent payments required
under  the  lease.  See  Note  11.

REVENUE  RECOGNITION  -  Net  revenue is recorded upon purchases by customers at
retail  locations  or when merchandise is received by customers in the specialty
sales  channel.  Sales  returns  are  insignificant.  The Company establishes an
allowance  for  estimated  doubtful  accounts based on historical experience and
current  trends,  which  management  believes  are  appropriate.

     The  Company  records shipping revenue in net revenue. The Company recorded
shipping revenue of $1,522,000, $1,617,000, and $1,726,000 related to online and
mail  order  and  specialty  sales  in  2001,  2002,  and  2003,  respectively.


                                      F - 8
<PAGE>


     A  summary  of  the  allowance  for  doubtful  accounts  is  as follows (in
thousands):

<TABLE>
<CAPTION>

                                                                BALANCE AT    ADDITIONS                BALANCE
                                                                 BEGINNING   CHARGES TO   WRITEOFFS   AT END OF
                                                                 OF PERIOD     EXPENSE    AND OTHER     PERIOD
                                                                -----------  -----------  ----------  ----------
<S>                               <C>                           <C>          <C>          <C>         <C>
Allowance for doubtful accounts:
                                  Year ended December 30, 2001  $        69  $        30       ($41)  $       58
                                  Year ended December 29, 2002           58          162       (145)          75
                                  Year ended December 28, 2003           75           16        (37)          54
</TABLE>


     COST  OF  SALES  AND RELATED OCCUPANCY EXPENSES consist primarily of coffee
and  other  product  costs.  It  also  includes  plant  manufacturing (including
depreciation),  freight and distribution costs.  Occupancy expenses include rent
and  related  expenses  such  as  utilities.

     PREOPENING  COSTS  or  costs  associated  with the opening or remodeling of
stores,  such  as  payroll  and  rent,  are  expensed  as  incurred.

     HEDGING  ACTIVITIES  - The Company uses coffee futures and options to hedge
price  increases  in  price-to-be-  fixed  coffee  purchase  commitments  and
anticipated  coffee  purchases.  These  derivative instruments qualify for hedge
accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities.  See  Note  12.  The  Company  does  not  hold  or  issue derivative
instruments  for  trading  purposes.

     FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS  -  The  carrying value of cash and
equivalents,  receivables  and  accounts  payable  approximates  fair  value.
Investments are recorded at fair value.  The carrying value of debt approximates
the  estimated  fair value due to floating interest rates on the debt.  The fair
value  of  futures contracts is the amount at which they could be settled, based
on  estimates  obtained  from  dealers.  At December 29, 2002 the net unrealized
gain/(loss)  on  such contracts was $31,000.  At December 28, 2003 there were no
open  futures  contracts.  See  Note  12.

     ADVERTISING  COSTS  are  expensed  as  incurred.  Advertising  expense  was
$2,773,000,  $2,775,000  and  $3,136,000  in 2001, 2002, and 2003, respectively.

     DEFERRED  LEASE CREDITS - Certain of the Company's lease agreements provide
for  scheduled rent increases during the term of the lease.  Rent is expensed on
a  straight-line  basis  over  the  term  of  the  lease.

     INCOME  TAXES -Income taxes are accounted for using the asset and liability
method,  under which deferred tax assets and liabilities are determined based on
the  difference  between  the  financial  statements and tax bases of assets and
liabilities  using  enacted  tax  rates  currently  in  effect.

     STOCK-BASED  COMPENSATION  - The Company accounts for stock-based awards to
employees  using  the  intrinsic  value  method  in  accordance  with Accounting
Principle  Board,  (APB),  No.  25,  Accounting  for  Stock Issued to Employees.
Accordingly,  no  compensation  cost  has  been  recognized for the stock option
awards  granted at fair market value.  Through 2001, the Company granted options
at  85%  of  fair value and recorded compensation expense equal to the intrinsic
value over the vesting period.  The Company has recorded compensation expense of
$305,000  in  2001,  $290,000  in  2002,  and  $191,000  in  2003.  Statement of
Financial  Accounting  Standards,  (SFAS),  No.  123, Accounting for Stock-Based
Compensation,  requires  the  disclosure of pro forma net income and earning per
share  as  if  the  Company had adopted the fair value method.  Had compensation
cost  for the Company's stock option plans and employee stock purchase plan been
determined  based  on  the  fair  value  at  the  grant date consistent with the
provisions  of SFAS No. 123, the Company's net income would have been reduced to
the  pro  forma  amounts  indicated  below  (in  thousands):


                                      F - 9
<PAGE>


<TABLE>
<CAPTION>

                                                         2001      2002      2003
                                                        -------  --------  --------
<S>                                                     <C>      <C>       <C>
Net income - as reported . . . . . . . . . . . . . . .  $1,155   $ 4,657   $ 5,178
Stock-based employee compensation included in
     reported net income, net of tax effects . . . . .     183       174       115
Stock-based compensation expense determined
     under fair value based method, net of tax effects    (511)   (2,295)   (3,286)
                                                        -------  --------  --------
Net income - pro forma . . . . . . . . . . . . . . . .  $  827   $ 2,536   $ 2,007
                                                        =======  ========  ========

Basic net income per share - as reported . . . . . . .  $ 0.15   $  0.43   $  0.41
Basic net income per share - pro forma . . . . . . . .  $ 0.10   $  0.23   $  0.16

Diluted net income per share - as reported . . . . . .  $ 0.14   $  0.40   $  0.39
Diluted net income per share - pro forma . . . . . . .  $ 0.10   $  0.22   $  0.15
</TABLE>


     The Company uses the Black-Scholes option-pricing model for determining the
fair  value  of  options, which requires the input of certain estimates that may
affect  what  is  deemed  fair  value.  The  existing  model may not necessarily
provide a reliable single measure of the value of its stock options.  Management
will  continue to evaluate alternative methodologies that may more appropriately
reflect  pro  forma  compensation  expense.

     Additional  disclosure  requirements  of  SFAS  No.  123,  Accounting  for
Stock-Based  Compensation,  are  set  forth  in  Note  10.

     The fair value of each option grant and ESPP award is estimated on the date
of  grant  using  the  Black-Scholes  option-pricing  model  with  the following
assumptions:

<TABLE>
<CAPTION>

                          2001   2002   2003
                          -----  -----  -----
<S>                       <C>    <C>    <C>
Expected dividend rate .     0%     0%     0%

Expected volatility
     Options . . . . . .  77.6%  68.1%  58.0%
     ESPP awards . . . .  77.6%  68.1%  58.0%

Risk-free interest rate
     Options . . . . . .  4.88%  3.79%  1.94%
     ESPP awards . . . .  4.24%  1.87%  1.12%

Expected lives (years)
     Options . . . . . .     5      5      3
     ESPP awards . . . .   0.5    0.5    0.5
</TABLE>


     NET INCOME PER SHARE - Basic net income per share is computed as net income
divided  by  the  weighted  average  number of common shares outstanding for the
period.  Diluted net income per share reflects the potential dilution that could
occur  from  common  shares  issued  through  stock  options,  warrants  and the
conversion  of  preferred  stock.  Anti-dilutive  shares of 110,750, 630,621 and
142,747  have  been excluded from diluted weighted average shares outstanding in
2001,  2002  and  2003,  respectively.

     The  following  table  summarizes  the  differences  between basic weighted
average  shares outstanding and diluted weighted average shares outstanding used
to  compute  diluted  net  income  per  share  (in  thousands):


                                     F - 10
<PAGE>


<TABLE>
<CAPTION>

                                             2001    2002    2003
                                             -----  ------  ------
<S>                                          <C>    <C>     <C>
Basic weighted average shares outstanding .  7,941  10,919  12,589
Incremental shares from assumed exercise of
     stock options and warrants . . . . . .    271     708     647
                                             -----  ------  ------
Diluted weighted average shares outstanding  8,212  11,627  13,236
                                             =====  ======  ======
</TABLE>


     The number of incremental shares from the assumed exercise of stock options
and  warrants  was  calculated  applying  the  treasury  stock  method.

RECENTLY  ISSUED  ACCOUNTING STANDARDS - During April 2003, the FASB issued SFAS
No.  149,  Amendment  of  Statement  133  on  Derivative Instruments and Hedging
Activities.  SFAS  No.  149  amends  and  clarifies  accounting  for  derivative
instruments,  including  certain  derivative  instruments  embedded  in  other
contracts,  and  for  hedging  activities  under Statement 133.  SFAS No. 149 is
effective  for  contracts  entered  into or modified after June 30, 2003 and for
hedging  relationships  designated  after June 30, 2003.  The guidance should be
applied  prospectively.  The adoption of SFAS No. 149 did not have a significant
impact  on  our  operating  results  or  financial  position.

     During  May  2003,  the  FASB  issued  SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.  SFAS
No.  150  clarifies  the  accounting  for  certain  financial  instruments  with
characteristics  of  both  liabilities  and  equity  and  requires  that  those
instruments  be  classified  as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity.  SFAS
No.  150  is  effective for financial instruments entered into or modified after
May  31,  2003  and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003.  The adoption of SFAS No. 150 did not have
a  significant  impact  on  our  operating  results  or  financial  position.

     In  January  2003  the  FASB  issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation  of  Variable  Interest  Entities  and was subsequently revised in
December 2003.  FIN 46 clarifies the application of Accounting Research Bulletin
No.  51,  explains  how  to  identify  variable  interest  entities,  and how an
enterprise  should  assess  its  interest  in  an  entity  to  decide whether to
consolidate  such  entity.  Further,  FIN  46  requires  existing unconsolidated
entities  to  be  consolidated by their primary beneficiaries if the entities do
not  effectively  disperse risks among parties involved.  The revision of FIN 46
further defines and narrows the scope of the variable interest entity as well as
defers  the  effective  date  of the guidance to the first quarter of 2004.  The
adoption  of  FIN  46  is  not  expected  to  have  an  impact on our results of
operations  or  financial  position.

3.     INVENTORIES
     The  Company's  inventories  consist  of the following at year end 2002 and
2003  (in  thousands):


<TABLE>
<CAPTION>

                 2002     2003
                -------  -------
<S>             <C>      <C>
Raw materials.  $ 7,130  $ 6,144
Finished goods    3,877    4,576
                -------  -------

Total. . . . .  $11,007  $10,720
                =======  =======
</TABLE>


                                     F - 11
<PAGE>


4.     PROPERTY,  PLANT  AND  EQUIPMENT
     Property,  plant  and  equipment consists of the following at year end 2002
and  2003  (in  thousands):


<TABLE>
<CAPTION>

                                      2002       2003
                                    ---------  ---------
<S>                                 <C>        <C>
Leasehold improvements . . . . . .  $ 23,518   $ 27,868
Furniture, fixtures, and equipment    26,050     30,931
Plant equipment. . . . . . . . . .     6,550      8,384
Construction in progress . . . . .     3,216      1,862
                                    ---------  ---------

Total. . . . . . . . . . . . . . .    59,334     69,045
Less accumulated depreciation. . .   (31,405)   (36,723)
                                    ---------  ---------

Total. . . . . . . . . . . . . . .  $ 27,929   $ 32,322
                                    =========  =========
</TABLE>


     Depreciation  expense  was  $5,455,000  in  2001,  $5,005,000  in  2002 and
$5,564,000  in  2003,  respectively.  Construction  in  progress  includes
manufacturing plant equipment, new store fixtures and other capital projects not
yet  placed  in  service.

5.     INVESTMENTS
     At  December  29,  2002  and December 28, 2003, the Company maintained long
term  investments  classified  as  available  for  sale  of  $28,102,000  and
$16,572,000.  The  long term investments are comprised of United States Treasury
Notes and Bonds, and Federal Agency notes and bonds, maturing within five years.
Gross  unrealized  holding  gains were $360,000 and $29,000 and gross unrealized
holding  losses  were  $0 and $4,000 for the period ended December 29, 2002, and
December  28,  2003,  respectively.  Gross unrealized holding losses at December
28,  2003  are  due to fluctuations in interest rates and are only considered as
temporary  impairments.  There  are  no  securities  with unrealized losses aged
greater  than  twelve  months.

     During  2002  and  2003,  the company sold securities for net proceeds from
investments  of  $229,383,000 and $97,915,000, and realized gains of $27,000 and
$294,000, respectively. Realized gains and losses are determined on the specific
identification  method. For the periods ended December 29, 2002 and December 28,
2003, the Company had net unrealized gains of $227,000 (net of $133,000 tax) and
$16,000  (net  of  $10,000  tax)  respectively,  included  in  accumulated other
comprehensive  income  (loss).

6.     BORROWINGS
     The  Company  maintains  a  credit  facility  with General Electric Capital
Corporation.  The  facility  expires  in  September  2005  and  provides  for  a
revolving  line of credit up to $15,000,000 and the issuance of up to $3,000,000
in  letters of credit.  Total availability under the revolving line of credit is
determined  by  subtracting  our  funded  debt  from  our  trailing twelve month
earnings  before  interest,  taxes,  depreciation and amortization, or (EBITDA),
multiplied  by  3.75 for the period before September 1, 2001, 3.5 for the period
after September 1, 2001 and before September 1, 2002, and 2.5 thereafter.  As of
December  28,  2003,  there  was  no  outstanding  balance  and  $14,942,000 was
available  under  the  Company's  line  of  credit.

     Borrowings under the credit facility are secured by a lien on substantially
all of the Company's assets.  The credit facility contains covenants restricting
the  Company's  ability  to  make  capital  expenditures,  incur  additional
indebtedness  and  lease  obligations,  open  retail  stores,  make  restricted
payments,  merge  into or with other companies and sell all or substantially all
of  its  assets  and  requiring  the  Company  to  meet certain financial tests.


                                     F - 12
<PAGE>


     Long term borrowings consist of the following at year end 2002 and 2003 (in
thousands):

<TABLE>
<CAPTION>

                                                                     2002    2003
                                                                    ------  ------
<S>                                                                 <C>     <C>
Industrial development revenue bond, interest at a weekly floating
rate of 1.65% at December 29, 2002.. . . . . . . . . . . . . . . .    860

Capital lease obligations. . . . . . . . . . . . . . . . . . . . .     32       3
                                                                    ------  ------

          Total. . . . . . . . . . . . . . . . . . . . . . . . . .    892       3
Less current portion . . . . . . . . . . . . . . . . . . . . . . .   (468)     (3)
                                                                    ------  ------

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 424   $   -
                                                                    ======  ======
</TABLE>


7.     INCOME  TAXES
The  income  tax  provision  (benefit) consists of the following (in thousands):

<TABLE>
<CAPTION>

                    2001    2002    2003
                    -----  ------  -------
<S>        <C>      <C>    <C>     <C>
Current:
           Federal  $ 467  $1,470  $2,864
           State        9     377     735
                    -----  ------  -------
           Total      476   1,847   3,599
                    -----  ------  -------

Deferred:
           Federal    133     827     (48)
           State      140      61     (70)
                    -----  ------  -------
           Total      273     888    (118)
                    -----  ------  -------

           Total    $ 749  $2,735  $3,481
                    =====  ======  =======
</TABLE>


     The  difference between the effective income tax rate and the United States
federal  income  tax  rate  is  summarized  as  follows:

<TABLE>
<CAPTION>

                                           2001   2002   2003
                                           -----  -----  -----
<S>                                        <C>    <C>    <C>
Statutory Federal rate. . . . . . . . . .  34.0%  34.0%  34.0%
State income taxes less federal benefit .   5.8    5.8    5.8
Change in valuation allowance . . . . . .   3.7   (3.0)   0.6
Other . . . . . . . . . . . . . . . . . .   0.8    1.4    0.8
California net operating loss limitation.  (2.1)   0.0    0.0
California Manufacturer Investment Credit  (2.9)  (1.2)  (1.0)
                                           -----  -----  -----

Total . . . . . . . . . . . . . . . . . .  39.3%  37.0%  40.2%
                                           =====  =====  =====
</TABLE>


                                     F - 13
<PAGE>


     Deferred tax assets (liabilities) consist of the following at year end 2002
and  2003  (in  thousands):


<TABLE>
<CAPTION>

                                             2002      2003
                                           --------  --------
<S>                                        <C>       <C>
Net operating loss carryforwards. . . . .  $   165   $   165
Charitable contribution carryforwards . .      269       287
Credit carryforwards. . . . . . . . . . .      382       629
Scheduled rent. . . . . . . . . . . . . .      311       351
Accrued reserves. . . . . . . . . . . . .      436     1,027
Accrued compensation. . . . . . . . . . .      319       742
State taxes . . . . . . . . . . . . . . .       68        20
                                           --------  --------
           Gross deferred tax assets. . .    1,950     3,221
                                           --------  --------
Property and equipment. . . . . . . . . .   (1,207)   (2,408)
Other . . . . . . . . . . . . . . . . . .     (214)      (34)
                                           --------  --------
           Gross deferred tax liabilities   (1,421)   (2,442)
                                           --------  --------
Valuation allowance . . . . . . . . . . .     (249)     (225)
                                           --------  --------
           Net deferred tax assets. . . .  $   280   $   554
                                           ========  ========
</TABLE>


     The Company has state net operating loss carryforwards of $1,867,000, which
expire  between  2006  and  2007.

     The  utilization  of our net operating loss and credit carryforwards may be
subject  to  a  substantial  annual  limitation  due  to  any future "changes in
ownership,"  as  defined  by provisions of the Internal Revenue Code of 1986, as
amended,  and  similar  state  provisions.  Should  we be subject to this annual
limitation,  this  may result in the expiration of net operating loss and credit
carryforwards  before  utilization.

     A valuation allowance is provided when it is more likely than not that some
portion  or  all  of  the  deferred  tax  assets  will  not  be  realized.

8.     EMPLOYEE  BENEFIT  PLAN
     The  Company's  401(k)  plan covers substantially all employees.  Employees
may contribute up to 60% of their annual salary up to a maximum of $12,000.  The
Company  matches  50%  of  amounts  contributed  by  its employees.  The Company
contribution  was  $413,000,  $438,000,  and  $261,000  in  2001, 2002, and 2003
respectively.  The  plan  does  not  offer  investments  in  Company  stock.

9.     SHAREHOLDERS'  EQUITY
     In  April  2002,  the  Company  issued  3,137,500 shares of common stock at
$14.00  per  share  of  its  common  stock in a public offering and received net
proceeds  of  $41,030,000.

     During  2001,  the  Company  issued  2,682,623 shares of stock at $8.00 per
share  in  an  initial  public  offering  of  its  common stock and received net
proceeds  of  $17,790,000. Upon the closing of the initial public offering, each
of  the  outstanding  shares  of preferred stock converted into shares of common
stock  at  a  conversion  rate  of  one  to  two.


                                     F - 14
<PAGE>


10.     STOCK  OPTION  AND  EMPLOYEE  PURCHASE  PLANS
     In  1997,  the  Company  adopted  a  successor equity incentive plan to the
Company's  existing stock option plans, which provides a means by which selected
employees,  directors, and consultants of the Company may benefit from increased
stock  value  through  the granting of incentive and nonstatutory stock options.
The  Company has reserved 1,280,000 shares of common stock for issuance pursuant
to the plan.  The purchase price of the common stock issuable under this plan is
determined  by  the  Board of Directors, however may not be less than 85% of the
fair  market  value  of  common  stock at the grant date.  The term of a granted
stock option is 10 years from the grant date.  Stock options generally vest over
three  to  four  years.

     Effective  in  2001,  the Company adopted a new stock option plan for which
the  Company has reserved 1,500,000 shares of common stock for issuance pursuant
to the plan.  As of each annual meeting of the Company's shareholders, beginning
in  2002,  and  continuing  through  and  including  the  annual  meeting of the
Company's  shareholders  in  2010, the number of shares of common stock reserved
for  issuance  under the 2000 plan will be increased automatically by the lesser
of  (i)  five  percent  (5%)  of  the  total  number  of  shares of common stock
outstanding  on such date, (ii) five hundred thousand (500,000) shares, or (iii)
a  number  of  shares  determined  by the Board prior to such date, which number
shall  be  less than (i) and (ii) above.  The purchase price of the common stock
issuable  under  this  plan is determined by the Board of Directors, however may
not be less than 85% of the fair market value of common stock at the grant date.
The  term  of  a  granted  stock  option is 10 years from the grant date.  Stock
options  vest  according  to  a  pre-determined vest schedule set at grant date.

     Also  effective  in  2001,  the  Company  also  adopted a 2000 Non-Employee
Director  Plan  that  provides  for  the  automatic  grant of nonstatutory stock
options  to  purchase  shares of common stock to non-employee directors which is
administered  by  the  Board  of  Directors.  The  aggregate number of shares of
common  stock that may be issued pursuant under the plan is 330,000.  As of each
annual  meeting of the Company's shareholders, beginning in 2002, and continuing
through  and including the annual meeting of the Company's shareholders in 2020,
the  number  of shares of common stock reserved for issuance under the 2000 plan
will  be  increased  automatically  by  the  lesser of (i) three quarters of one
percent  (0.75%)  of  the  total number of shares of common stock outstanding on
such  date,  (ii)  sixty  thousand  (60,000) shares, or (iii) a number of shares
determined  by the Board prior to such date, which number shall be less than (i)
and (ii) above.  The exercise price of options granted will be equal to the fair
market  value  of  the common stock on the date of grant and have a term no more
than ten years from the date granted.  Option grants vest over a period of three
years  from  the  date  of  grant.  In 2001, 2002, and 2003, the Company granted
non-employee  director  options to purchase an aggregate of 120,000, 110,000 and
60,000  shares  of  common  stock,  respectively.

     As  of  December  28,  2003, there were no shares available for grant under
1997  stock option plan, 139,738 shares available for grant under the 2000 stock
option  plan, and 160,000 shares available for grant under the 2000 Non-Employee
Director  stock  option  plan.  Changes  in  stock  options  were  as  follows:


                                     F - 15
<PAGE>


<TABLE>
<CAPTION>

                                                WEIGHTED-AVERAGE
                                    OPTIONS      EXERCISE PRICE
                                  OUTSTANDING       PER SHARE
                                  ------------  -----------------
<S>                               <C>           <C>
Outstanding at December 31, 2000    1,588,208   $            5.96
Granted. . . . . . . . . . . . .      729,326                7.69
Canceled . . . . . . . . . . . .      (52,601)               6.96
Exercised. . . . . . . . . . . .      (94,081)               5.39
                                  ------------

Outstanding at December 30, 2001    2,170,852                6.54
Granted. . . . . . . . . . . . .    1,344,719               14.97
Canceled . . . . . . . . . . . .      (48,637)               9.81
Exercised. . . . . . . . . . . .     (541,162)               6.03
                                  ------------

Outstanding at December 29, 2002    2,925,772               10.47
Granted. . . . . . . . . . . . .      869,085               14.79
Canceled . . . . . . . . . . . .      (98,460)              13.16
Exercised. . . . . . . . . . . .     (798,363)               6.70
                                  ------------

Outstanding at December 28, 2003    2,898,034   $           12.75
                                  ============
</TABLE>


     At  December 30, 2001, December 29, 2002, and December 28, 2003, 1,392,087,
1,428,323,  and  1,240,306  options,  respectively,  were  exercisable  with  a
weighted-average  exercise  price  of  $5.93,  $7.05,  and $10.12, respectively.

     The  following  table summarizes stock option information at year end 2003:

<TABLE>
<CAPTION>

                           OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                           -------------------                         -----------------------------
    RANGE OF      NUMBER OF       WEIGHTED-AVERAGE               WEIGHTED-AVERAGE   NUMBER OF  WEIGHTED-AVERAGE
EXERCISE PRICES    OPTIONS   REMAINING CONTRACTUAL LIFE           EXERCISE PRICE     OPTIONS    EXERCISE PRICE
<C>               <C>        <C>                         <S>     <C>                <C>        <C>
$  3.85 to $8.12    753,082                        6.19   years  $            6.89    669,604  $            6.85
$ 8.87 to $14.90    734,665                        8.62                      12.33    230,506              10.76
$15.49 to $15.49    796,950                        8.42                      15.49    198,949              15.49
$16.00 to $18.00    613,337                        9.14                      16.90    141,247              17.00
                  ---------  --------------------------                             ---------  -----------------
$ 3.85 to $18.00  2,898,034                        8.04          $           12.75  1,240,306  $           10.12
                  =========  ==========================                             =========  =================
</TABLE>


     During  2001,  the  Company  adopted  a  2000  Employee Stock Purchase Plan
("ESPP"),  where eligible employees can choose to have up to 15% of their annual
base  earnings  withheld  to  purchase the Company's common stock.  The purchase
price  of  stock  is 85% of the lower of the beginning of the offering period or
end  of the offering period market price.  The Company authorized 200,000 shares
of  common  stock available for issuance under the plan, which will be increased
as  of  each  annual meeting of the Company's shareholders, beginning 2002 until
2020,  by the lesser of 200,000 shares or 1.5% of the number of shares of common
stock  outstanding  on  that  date.  However,  the  Board  of  Directors has the
authority to designate a smaller number of shares by which the authorized number
of shares of common stock will be increased on that date.  During 2001, 2002 and
2003, employees purchased 36,789, 82,865 and 81,821 shares, respectively, of the
Company's  common  stock under the plan at a weighted-average per share price of
$6.80,  $6.86  and  $8.89,  respectively.  At  December 28, 2003, 364,722 shares
remain  available  for  future  issuance.


                                     F - 16
<PAGE>


     The  weighted  average fair value of the stock options granted during 2001,
2002  and  2003 was $6.56, $9.42, and $6.85, respectively.  The weighted average
fair  value  of each 2001, 2002 and 2003 ESPP award was $3.91, $3.84, and $4.33,
respectively,  per  share.

     See  Note  2 for the pro forma effect of accounting for stock options using
the  fair  value  method.

11.     COMMITMENTS  AND  CONTINGENCIES
     LEASES  -  The  Company  leases  its Emeryville, California coffee roasting
plant,  distribution  center,  administrative offices, and warehouse, its retail
stores  and  certain  equipment  under  operating  leases  that expire from 2004
through  2012.  Certain leases contain renewal options for an additional five to
fifteen  years,  and  also  provide  for  contingent rents to be paid equal to a
stipulated  percentage of sales.  The lease agreements also provide for periodic
adjustments  to  the  minimum  lease payments based on changes in cost of living
indices  or  other  scheduled  increases.

     Future  minimum  lease  payments  required  under  non-cancelable operating
leases  subsequent  to  December 28, 2003 are as follows (amounts in thousands):

<TABLE>
<CAPTION>

                              OPERATING
                                LEASES
                              ----------
<S>                           <C>
Years:
  2004 . . . . . . . . . . .  $    6,272
  2005 . . . . . . . . . . .       6,126
  2006 . . . . . . . . . . .       5,024
  2007 . . . . . . . . . . .       3,956
  2008 . . . . . . . . . . .       2,689
  Thereafter . . . . . . . .       4,293
                              ----------

Total minimum lease payments  $   28,360
                              ==========
</TABLE>


     Rent expense was $4,738,000, $5,077,000, and $5,979,000 for 2001, 2002, and
2003  respectively,  including  contingent  rents  of  $146,000,  $139,000,  and
$149,000.

     As  of December 28, 2003, the Company is a guarantor on a lease assigned to
a  third  party that has $458,000 of remaining lease payments. The Company has a
security  deposit  of  $6,000  and a guarantee from the sublessee's parent for a
maximum  amount  of  $313,000.  See  Note  2.

     PURCHASE  COMMITMENTS  -  As  of  December  28,  2003,  the  Company  had
approximately  $16,152,000  of outstanding coffee purchase commitments from 2004
to  2006  with  fixed  prices.

     EMPLOYMENT AGREEMENTS - The Company has agreements with certain officers to
provide  severance  benefits  in  the event their employment is terminated under
certain  defined  circumstances.

     LEGAL  PROCEEDINGS  -  On February 25, 2003 and March 7, 2003, two lawsuits
were  filed  against the Company entitled Brian Taraz, et al vs. Peet's Coffee &
Tea, Inc., and Tracy Coffee, et al. vs. Peet's Coffee & Tea, Inc. Each was filed
in Superior Court of the State of California, County of Orange, and sought class
action certification. These suits were filed by one former and one current store
manager  alleging  misclassification  of employment position and sought damages,
restitution,  reclassification  and attorneys' fees and costs. On March 4, 2003,
the Superior Court granted preliminary approval of a settlement of the suits and
conditional certification of the class for settlement purposes. During 2003, the
Company recorded a charge of $2.7 million for the estimated payment of claims to
eligible class members, attorneys' fees and costs, costs to a third-party claims
administrator,  as  well as applicable employer payroll taxes, which is included
in  "General  and  administrative  expenses"  on  the


                                     F - 17
<PAGE>


accompanying consolidated statements of operations. The settlement is subject to
the court's final approval, the Company's right to terminate if more than 10% of
the  settlement  class  opts  out of the settlement and the plaintiffs' right to
terminate  if  claims  by class members in the aggregate exceed more than 10% of
the  number  of  work  weeks  specified  in  the  settlement  agreement.

     In  addition  to  the  lawsuits  described  above, we may from time to time
become involved in certain legal proceedings in the ordinary course of business.
Currently,  the  Company  is  not  party  to  any  other  legal proceedings that
management  believes  would  have  a  material  adverse  effect on the financial
position  or  results  of  operations  of  the  Company.

12.     HEDGING  ACTIVITIES
     The  Company  is  exposed to price risk related to price-to-be-fixed coffee
purchase  commitments and anticipated coffee purchases.  The Company uses coffee
futures  and  options  to manage price increases and designates these derivative
instruments  as  cash-flow  hedges  of  its  price-to-be-fixed  coffee  purchase
commitments  and  anticipated  coffee  purchases.  The  Company does not hold or
issue  derivative  instruments  for  trading  purposes.

     On  January  1, 2001, the Company adopted Statement of Financial Accounting
Standards  ("SFAS")  No.  133, Accounting for Derivative Instruments and Hedging
Activities.  SFAS  No.  133,  as  amended,  establishes accounting and reporting
standards  for  derivative instruments, including certain derivative instruments
embedded  in  other  contracts,  and  for  hedging  activities. All derivatives,
whether  designated in hedging relationships or not, are required to be recorded
on  the  balance  sheet  at  fair  value.  If  the derivative is designated in a
fair-value hedge, the changes in the fair value of the derivative and the hedged
item  will  be  recognized  in  earnings.  If  the derivative is designated in a
cash-flow  hedge,  the  effective  portions  of changes in the fair value of the
derivative will be recorded in other comprehensive income and will be recognized
in  earnings  when  the  hedged  item  affects earnings. Ineffective portions of
changes  in  the  fair  value  of cash-flow hedges are recognized immediately in
earnings.

     The  adoption of SFAS No. 133 on January 1, 2001 resulted in a liability of
$1,304,000 representing the fair value of the open futures at January 1, 2001, a
deferred  tax  asset  of  $519,000  and  accumulated other comprehensive loss of
$785,000  net  of  tax.

     During  2001,  2002 and 2003, the effective portion of the cash-flow hedges
amounted  to a loss of $295,000 (net of $195,000 tax), a gain of $66,000 (net of
$38,000 of tax) and a loss of $20,000 (net of $12,000 of tax), respectively, and
was  recorded  in other comprehensive income (loss).  The ineffective portion of
the  hedges of $27,000 and $15,000 was recorded as cost of sales during 2002 and
2003,  respectively.  Accumulated  other  comprehensive income (loss) related to
hedging activities, net of tax, was $38,000 and ($3,000) as of December 29, 2002
and December 28, 2003, respectively, all of which is expected to be reclassified
into cost of sales over the next twelve months as the related inventory is sold.
For  the  years  ended  December  29,  2002  and December 28, 2003, $379,000 and
($21,000)  of coffee futures gains/(losses) included in other comprehensive loss
were  reclassified  into cost of goods sold.  As of December 28, 2003 there were
no  open  futures contracts.  The fair value of the open futures contracts as of
December  29,  2002  was  a  net  asset  $31,000.


                                     F - 18
<PAGE>


13.     SEGMENT  INFORMATION

     The  Company  operates  in  two  reportable segments:  retail and specialty
sales.  Retail  store  operations  consist  of  sales  of  whole  bean  coffee,
beverages,  tea  and  related  products  through Company-operated retail stores.
Specialty  sales  consist of whole bean coffee sales through online, mail order,
grocery,  wholesale  and  office  coffee accounts.  Management evaluates segment
performance  primarily  based  on  revenue  and  segment  operating income.  The
following  table  presents  certain  financial  information  for  each  segment.
Segment  income before taxes excludes unallocated marketing expenses and general
and  administrative expenses.  Unallocated assets include cash, coffee inventory
in the warehouse, corporate headquarter assets and intangibles and other assets.

<TABLE>
<CAPTION>

                                                 RETAIL   SPECIALTY    UNALLOCATED    TOTAL
                                                 -------  ----------  -------------  --------
<S>                                              <C>      <C>         <C>            <C>
2001
  Net revenue . . . . . . . . . . . . . . . . .  $75,055  $   19,345                 $ 94,400
  Cost of sales and related occupancy expenses.   35,615       9,742                   45,357
  Operating expenses. . . . . . . . . . . . . .   26,670       3,947                   30,617
  Depreciation and amortization . . . . . . . .    3,659         750  $        629      5,038
  Segment operating income (loss) . . . . . . .    9,111       4,906       (11,684)     2,333
  Interest expense, net                                                        429        429
  Income before income taxes                                                            1,904
  Total assets. . . . . . . . . . . . . . . . .   17,676       3,886        19,847     41,409
  Capital expenditures. . . . . . . . . . . . .    1,882       1,321         3,308      6,511

2002
  Net revenue . . . . . . . . . . . . . . . . .  $78,300  $   25,773                 $104,073
  Cost of sales and related occupancy expenses.   35,778      12,368                   48,146
  Operating expenses. . . . . . . . . . . . . .   27,523       5,698                   33,221
  Depreciation and amortization . . . . . . . .    3,193         878  $        497      4,568
  Segment operating income (loss) . . . . . . .   11,806       6,829       (11,783)     6,852
  Interest income, net                                                         540        540
  Income before income taxes                                                            7,392
  Total assets. . . . . . . . . . . . . . . . .   20,753       4,330        70,062     95,145
  Capital expenditures. . . . . . . . . . . . .    4,930       1,332         3,090      9,352

2003
  Net revenue . . . . . . . . . . . . . . . . .  $85,765  $   34,051                 $119,816
  Cost of sales and related occupancy expenses.   38,856      16,105                   54,961
  Operating expenses. . . . . . . . . . . . . .   30,478       8,273                   38,751
  Depreciation and amortization . . . . . . . .    3,377         971  $        542      4,890
  Segment operating income (loss) . . . . . . .   13,054       8,702       (14,260)     7,496
  Interest income, net                                                       1,163      1,163
  Income before income taxes                                                            8,659
  Total assets. . . . . . . . . . . . . . . . .   22,489       7,321        80,645    110,455
  Capital expenditures. . . . . . . . . . . . .    6,312       1,812         1,839      9,963

</TABLE>


                                     F - 19
<PAGE>

Net  revenue  from  external  customers  for  the two major product lines are as
follows:

<TABLE>
<CAPTION>

                                                      2001      2002      2003
                                                     -------  --------  --------
<S>                                           <C>    <C>      <C>       <C>
Whole bean coffee, tea, and related products         $55,944  $ 62,583  $ 71,991
Beverages and pastries                                38,456    41,490    47,825
                                                     -------  --------  --------
                                              Total  $94,400  $104,073  $119,816
                                                     =======  ========  ========
</TABLE>


14.     RELATED  PARTY  TRANSACTIONS
     A  member  of  the  Board of Directors is the former Chairman and a current
shareholder of Jesse.Hansen&Co, a strategic and financial advisor to the Company
pursuant  to  an  engagement  letter  dated  as  of  December  9,  1996  between
Jesse.Hansen&Co  and  the Company.  The Company paid Jesse.Hansen&Co $60,000 and
$30,000  in  2001  and  2002, respectively for advisory services.  This advisory
relationship  was  terminated  in  June  2002.

15.     QUARTERLY  FINANCIAL  INFORMATION  (UNAUDITED)

<TABLE>
<CAPTION>

                                                       QUARTER ENDED
                                          ------------------------------------------------
                                    MARCH 30,     JUNE 29,    SEPTEMBER 28,   DECEMBER 28,
                                       2003         2003          2003*           2003
<S>                               <C>             <C>        <C>              <C>
Net revenue. . . . . . . . . . .  $       27,398  $  29,080  $       28,833   $      34,505
Income (loss) from operations. .           1,854      2,298            (947)          4,291
Net income (loss). . . . . . . .           1,282      1,539            (323)          2,680
Basic income (loss) per share. .  $         0.10  $    0.12  $        (0.03)  $        0.21
Diluted income (loss) per share.  $         0.10  $    0.12  $        (0.03)  $        0.20

                                                      QUARTER ENDED
                                  ---------------------------------------------------------
                                  MARCH 31,       JUNE 30,   SEPTEMBER 29,    DECEMBER 29,
                                            2002       2002            2002            2002

Net revenue. . . . . . . . . . .  $       24,456  $  24,889  $       25,366   $      29,362
Income from operations . . . . .             805      1,024           1,809           3,215
Net income . . . . . . . . . . .             488        718           1,279           2,172
Basic income per share . . . . .  $         0.06  $    0.06  $         0.11   $        0.18
Diluted income per share . . . .  $         0.05  $    0.06  $         0.10   $        0.17
</TABLE>


*  The  third  quarter  includes  the  effect of a pre-tax charge for litigation
settlement  and severance  of  $3.4  million  or  $0.16  per  share.


                                     F - 20
<PAGE>