UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10Q-SB

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

           [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
                             SECURITIES ACT OF 1934

                        COMMISSION FILE NUMBER 000-28595

                              PEABODYS COFFEE, INC.
                 (Name of Small Business Issuer in its Charter)


            Nevada                                      87-0468654
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 Incorporation or organization)


660 Commerce Drive, Ste. B, Roseville, CA                      95678
(Address of Principal Executive Offices)                     (Zip Code)


                                 (916) 788-2630
                           (Issuer's Telephone Number)


Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filings requirements for the past 90
days. Yes [X ] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-QSB or any
amendment to the Form 10-QSB. [X]

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

The number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date, is 39,645,312 shares of common stock,
$0.001 par value.

Transitional Small Business Disclosure Format (Check one):  Yes [ ] No [X]


                                     Page 1
<PAGE>

                              PEABODYS COFFEE, INC.
                                TABLE OF CONTENTS



       DESCRIPTION                                                       PAGE

       PART I - FINANCIAL INFORMATION

       1. Financial Statements 3

       2. Management's Discussion and Analysis 6

       3. Controls and Procedures 16


       PART II

       1. Legal Proceedings 17

       2.  Unregistered Sales of Equity Securities and Use of Proceeds   17

       3. Defaults Upon Senior Securities 17

       4.  Submission of Matters to a Vote of Security Holders           17

       5. Other Information 17

       6. Exhibits 17


       SIGNATURES                                                        18


                                     Page 2
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      PEABODYS COFFEE, INC.
                          BALANCE SHEETS
                      JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                  2004            2003
                                                                  ----            ----
<S>                                                            <C>            <C>
ASSETS

Current Assets
        Cash                                                   $     2,100    $     7,270
        Accounts Receivable                                         52,379         52,180
        Inventories                                                 42,071         54,462
        Prepaid Expenses                                            36,868         25,722
                                                               -----------    -----------
           Total Current Assets                                    133,418        139,634

        Property and Equipment (Net)                               104,417        164,170
        Goodwill (Net)                                                  --             --
        Depositis and Other Assets                                  72,795         84,561

                                                               -----------    -----------
        Total Assets                                           $   310,630    $   388,365
                                                               ===========    ===========


LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
        Cash Overdraft                                         $    43,665    $        --
        Accounts Payable                                           250,870        390,557
        Accrued Expenses                                           282,129        305,372
        Short-Term Borrowings                                      310,872         60,000
        Current Portion of Long-Term Debt                           99,931         35,988
        Secured Convertible Debentures                             229,146        687,000
        Bridge Note Financing                                       35,000         35,000
        Current Portion of Deferred Revenue                         12,500         12,500
        Advances from Future Conversion of Warrants                271,460             --
                                                               -----------    -----------
           Total Current Liablilities                            1,535,573      1,526,417

Long-Term Liabilities
        Long-Term Debt (Net of Current Protion)                      8,255         45,776
        Deferred Revenues (Net of Current Portion)                       0         12,500

                                                               -----------    -----------
           Total Liabilities                                     1,543,828      1,584,693

Stockholders' Deficit
        Common Stock
           Authorized - 50,000,000 Shares
           Issued and outstanding, 39,645,312 and 22,980,616
              @ $.001 Par Value                                     39,645         23,006

        Additional Paid In Capital                               6,900,694      6,289,204
        Deferred Expenses                                          (27,499)       (49,999)
        Accumulated Deficit                                     (8,146,038)    (7,458,539)

                                                               -----------    -----------
           Total Stockholders' Deficit                          (1,233,198)    (1,196,328)

                                                               -----------    -----------
        Total Liabilities & Stockholders' Deficit              $   310,630    $   388,365
                                                               ===========    ===========
</TABLE>


                                     Page 3
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS - CONTINUED

                        PEABODYS COFFEE, INC.
                         STATEMENTS OF LOSS
                     FOR THE THREE MONTHS ENDED
                       JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                       2004        2003
                                                       ----        ----

<S>                                                   <C>         <C>
Sales                                                 301,708     545,093

Cost of Sales                                         134,476     232,301
                                                     --------    --------

             Gross Profit                             167,232     312,792

Operating Expenses
        Employee Compensation and Benefits            144,337     304,452
        General and Administrative Expenses            54,177      97,953
        Occupancy                                      27,080      66,333
        Director and Professional Fees                 47,114     121,876
        Depreciation and Amortization                   5,853      29,442
        Gain/Loss on Disposal of Assets                  (600)         --
        Other Operating Expenses                           --          --
                                                     --------    --------
             Total Operating Expenses                 277,961     620,056

             Operating Loss                          (110,729)   (307,264)

        Other Income                                       --     (81,373)
        Legal Expense - Former Director                    --          --
        Financing Costs - Secured Convertible Debt         --          --
        Interest and Other Expenses                   (15,219)   (270,534)

             Net Loss Before Extraordinary Items     (125,948)   (659,171)

        Extraordinary Item                                 --          --
        Forgiveness of Debt                            50,050          --

                                                     --------    --------
Net Loss                                              (75,898)   (659,171)
                                                     ========    ========

Earnings Per Share
        Basic (Weighted Average)
            Net Loss Before Extraordinary Items        (0.003)     (0.020)
            Extraordinary Items                         0.001       0.000
                                                     --------    --------
            Net Loss Before Extraordinary Items        (0.002)     (0.020)
</TABLE>


                                     Page 4
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS - CONTINUED

                              PEABODYS COFFEE, INC.
                             STATEMENTS OF CASH FLOW
                             JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                         2004          2003
                                                                         ----         ----
<S>                                                                   <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   NET INCOME                                                         $ (75,898)   $(659,171)

   ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH APPLIED
     TO OPERATING ACTIVITIES:
       Depreciation & Amortization                                        5,853       27,171
       Gain/Loss on Disposal of Assets                                       --       89,485
       Non-Cash Consulting Fees                                              --       13,332
       Financing Costs - Secured Convertible Debenture                       --      250,000
      Debt Forgiveness                                                  (50,050)          --
      Recognition of Deferred Revnue                                     (3,125)          --

   CHANGES IN OPERATING ASSETS AND LIABILITIES:
       Accounts Receivable                                               30,317      (35,213)
       Inventories                                                          709       20,205
       Prepaid Expenses                                                 (16,214)      22,732
       Deposits and Other Assets                                          8,314        7,905
       Cash Overdraft                                                    21,956      (24,654)
       Account Payable & Accrued Expenses                                 9,707       (5,828)
       Deferred Revenue                                                      --       25,000
       Deferred Expenses                                                  3,333           --
                                                                      ---------    ---------
     NET CASH PROVIDED BY OPERATING ACTIVITIES                          (65,098)    (269,036)

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from Sale of Assets                                              --          320
   Additions to Property and Equipment                                       --       (9,884)
   Additions to Trade Name Costs                                         (2,158)      (3,200)
   Changes in Valuation of Goodwill                                          --       36,839
                                                                      ---------    ---------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                           (2,158)      24,075

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from Issuance of Secured Convertible Debentures                  --      250,000
   Conversion of Secured Debentures to Common Stock                          --
   Repayments of Short-Term Borrowings                                   (4,721)      (9,000)
   Principal Reductions of Notes Payable                                 (3,024)        (635)
   Proceeds on Advances on Future Conversion of Warrants                 75,000           --
   Serivces for Common Stock                                              5,750
                                                                      ---------    ---------
     NET CASH PROVIDED BY FINANCING ACTIVITIES                           67,256      246,115

NET DECREASE IN CASH                                                          0        1,154
CASH AT MARCH 31ST                                                        2,100        6,116
                                                                      ---------    ---------
CASH AT JUNE 30TH                                                     $   2,100        7,270
                                                                      =========    =========


OTHER SIGNIFICANT NON-CASH TRANSACTIONS
         Direct Payment to Note Holder from Convertible Debt Holder     125,000           --
         Sale of Warrants                                                98,540           --
         Conversion of Convertible Debt to Common Stock                   9,854       65,767
         Conversion of Accounts Payable to Property and Equipment         9,710           --
</TABLE>


                                     Page 5
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

The preparation of this section requires us to make estimates and assumptions
about our past, current and future activities, business practices, and financial
records. Actual results may differ from these estimates and assumptions.
Foreseeable risks and uncertainties are described elsewhere in this report and
in detail under "Risk Factors Affecting the Company".

SUMMARY

      For the quarter ended June 30, 2004, the Statements of Loss show a 44.7%
decrease in sales and a 46.4% decrease in gross profit over the prior year. We
incurred a net loss for the quarter ended June 30, 2004 of $75,898.

RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE
MONTHS ENDED JUNE 30, 2003

REVENUES

      Net revenues for the quarter ended June 30, 2004 decreased 44.7% to
$301,708 from $545,093 for the corresponding period in fiscal 2003. This
decrease was primarily due to lost revenue of approximately $274,800 resulting
from the sale or closure of six university kiosk locations, one hospital kiosk
locations and one retail store. Revenues for our packaged Black Rhino Coffee(TM)
products for the quarter ended June 30, 2004 increased 21.5% to $63,225 from
$52,024 for the corresponding period in fiscal 2003. During the quarter ended
June 30, 2004, we reduced inventory levels for all wholesale Black Rhino
Coffee(TM) customers in preparation for seasonal reductions in consumer
purchases. Black Rhino Coffee(TM) sales accounted for approximately 21.0% of our
total revenue for the quarter ended June 30, 2004. For the quarter ended June
30, 2004, kiosk and retail outlet revenue decreased 52.5% to $233,577 from
$492,065 for the same period in fiscal 2003. Kiosk and retail outlet revenue was
generated from four different clients, with the largest client representing
28.0% of total net revenue.

COSTS OF GOODS SOLD

      Cost of goods sold for the quarter ended June 30, 2004 decreased to
$134,476 from $232,301 for the same period in fiscal 2003. As a percentage of
net revenues, cost of goods sold increased to 44.6% for the quarter ended June
30, 2004 from 42.8% for the comparable period in fiscal 2003. The increase was
primarily due to a shift in the sales mix resulting from increased Black Rhino
Coffee(TM) revenues as percentage of total net revenues. For the quarter ended
June 30, 2004, net revenues for Black Rhino Coffee(TM) represented 21.0% of
total revenues as compared to 9.5% for the comparable period in fiscal 2003.
Cost of goods sold for our Black Rhino Coffee(TM) product line was 49.5% for the
quarter ended June 30, 2004.

OPERATING EXPENSES

      Employee compensation and benefits for the quarter ended June 30, 2004
decreased to $144,337 from $304,452 for the same period in fiscal 2003. As a
percentage of net revenues, employee compensation and benefits decreased to
47.8% for the quarter ended June 30, 2004 from 55.9% for the comparable period
in fiscal 2003. The decrease as a percentage of net revenues was primarily due
to the elimination of administrative and corporate level positions associated
with the restructuring of our central costs. Employee compensation for


                                     Page 6
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

administrative and corporate level employees for the quarter ended June 30, 2004
decreased to $30,581 from $58,074 for the same period in fiscal 2003. The
$27,493 decrease in administrative and corporate level employee compensation
represents 8.7% of net revenues for the quarter end June 30, 2004.

      General and administrative expenses for the quarter ended June 30, 2004
decreased to $54,177 from $97,953 for the same period in fiscal 2003. As a
percentage of net revenues, general and administrative expenses remained at
18.0% for the quarter ended June 30, 2004 and for the comparable period in
fiscal 2003.

      Occupancy costs for the quarter ended June 30, 2004 decreased to $27,080
from $97,953 for the same period in fiscal 2003. As a percentage of net
revenues, occupancy costs for the quarter ended June 30, 2004 were 9.0% from
12.2% for the comparable period in fiscal 2003. The decrease in occupancy costs
as a percentage of net revenues is primarily due to the relocation of our
corporate office.

      Director and professional fees for the quarter ended June 30, 2004
decreased to $47,114 from $121,876 for the same period in fiscal 2003. As a
percentage of net revenues, director and professional fees decreased to 15.6%
for the quarter ended June 30, 2004 from 22.4% for the comparable period in
fiscal 2003. The decrease was primarily due to the expiration of various
consulting contracts associated with obtaining growth financing and penetrating
new markets with our packaged consumer brand of Black Rhino Coffee(TM).

      Operating losses for the quarter ended June 30, 2004 decreased to $110,729
from $307,264 for the same period in fiscal 2003. As a percentage of net
revenues, operating losses decreased to 36.7% for the quarter ended June 30,
2004 from 71.5% for the comparable period in fiscal 2003. The decreased
operating loss is primarily due to reductions in operating expenses associated
with the disposal of retail kiosks and increased profitability resulting from
packaged Black Rhino Coffee(TM) sales.


NET LOSS

      Net loss for the quarter ended June 30, 2004 decreased to $75,898 from
$659,171 for the same period in fiscal 2003. As a percentage of net revenues,
net losses decreased to 25.2% for the quarter ended June 30, 2004 from 120.9%
for the comparable period in fiscal 2003. Net loss reflects debt forgiveness
income of $50,050 for the quarter ended June 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

      As the accompanying financial statements show, for the quarter ended June
30, 2004, we had a net operating loss of $110,729, and an overall net loss of
$75,898. At June 30, 2004, we had a working capital deficit of $1,402,155, and a
shareholders' deficit of $1,233,198.

      Because of our operating losses and financial situation, the Independent
Auditor's Report of the accompanying financial statements expresses a "going
concern" opinion. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. Our ability to continue as a going concern is dependent upon
several factors. These factors include our ability to: generate sufficient cash
flows to meet our obligations on a timely basis; obtain acceptance of payment
terms for certain payables to key vendors; obtain additional financing or
refinancing as may be required; aggressively control costs, and; achieve
profitability and positive cash flows.



                                     Page 7
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

      We plan to address these challenges by building on the launch of our
organic Black Rhino Coffee(TM) brand into the U.S. mass retail sector. Since
introduction in May 2002 at the FMI supermarket convention, the brand has
penetrated the shelves of approximately 800 supermarkets. The benefit of this
channel of trade is that a small number of orders can significantly increase our
revenues and earnings. We also believe that our transition from reliance on
full-service units to an asset-light company concentrating more on brand
ownership and management will reduce the capital needs for future large tangible
asset acquisitions.

      Our operating activities decreased cash by $65,098 for the quarter ended
June 30, 2004. Net loss of $75,898 was the primary reason for the decrease.

      We had net cash provided from financing activities for the quarter ended
June 30, 2004 totaling $67,256. During the quarter we received $75,000 for
advances on future conversion of warrants and made payment against principal on
notes and short term borrowings of $7,745.



RISK FACTORS AFFECTING THE COMPANY

WE HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE, REQUIRING US TO SEEK ADDITIONAL
SOURCES OF CAPITAL WHICH MAY NOT BE AVAILABLE, REQUIRING US TO CURTAIL OR CEASE
OPERATIONS.

      We incurred net losses of $75,898 for the quarter ended June 30, 2004 and
$659,171 for the quarter ended June 30, 2003. We cannot assure you that we can
achieve or sustain profitability on a quarterly or annual basis in the future.
If revenues grow more slowly than we anticipate, or if operating expenses exceed
our expectations or cannot be adjusted accordingly, we will continue to incur
losses. We will continue to incur losses until we are able to establish
significant sales of Black Rhino Coffee(TM). Our possible success is dependent
upon the successful development and marketing of our products, as to which there
is no assurance. Any future success that we might enjoy will depend upon many
factors, including factors out of our control or which cannot be predicted at
this time. These factors may include changes in or increased levels of
competition, including the entry of additional competitors and increased success
by existing competitors, changes in general economic conditions, increases in
operating costs, including costs of supplies, personnel and equipment, reduced
margins caused by competitive pressures and other factors. These conditions may
have a materially adverse effect upon us or may force us to reduce or curtail
operations. In addition, we will require additional funds to sustain and expand
our sales and marketing activities, particularly if a well-financed competitor
emerges. We anticipate that we will require approximately $500,000 to fund our
continued operations for the next twelve months, depending on revenue from
operations. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all. The inability to obtain
sufficient funds from operations or external sources would require us to curtail
or cease operations.


IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED AND IF WE DO OBTAIN ADDITIONAL FINANCING OUR THEN EXISTING SHAREHOLDERS
MAY SUFFER SUBSTANTIAL DILUTION.

      Additional capital will be required to effectively support the operations
and to otherwise implement our overall business strategy, including rapid growth
in establishing the Black Rhino Coffee brand. However, there can be no assurance
that financing will be available when needed on terms that are acceptable to us.


                                     Page 8
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

The inability to obtain additional capital will restrict our ability to grow and
may reduce our ability to continue to conduct business operations. If we are
unable to obtain additional financing, we will likely be required to curtail our
marketing and development plans and possibly cease our operations. Any
additional equity financing may involve substantial dilution to our then
existing shareholders.


OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE
FINANCING.

      In their report dated July 6, 2004, our independent auditors stated that
our financial statements for the year ended March 31, 2004 were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised as a result of a loss for the year ended March
31, 2004 in the amount of $1,270,772 and stockholders deficit of $1,269,027 as
of March 31, 2004. We continue to experience net operating losses. Our ability
to continue as a going concern is subject to our ability to generate a profit
and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans and grants from various financial institutions where possible.
Our continued net operating losses and stockholders' deficit increases the
difficulty in meeting such goals and there can be no assurances that such
methods will prove successful.


WE MAY BE REQUIRED TO PAY OUTSTANDING SECURED PROMISSORY NOTES WHICH ARE
CURRENTLY IN DEFAULT. IF WE ARE REQUIRED TO REPAY THE OUTSTANDING DEBT OUR
WORKING CAPITAL MAY BE DEPLETED OR WE MAY BE REQUIRED TO RAISE ADDITIONAL FUNDS
TO REPAY SUCH DEBT. OUR FAILURE TO REPAY THE SECURED PROMISSORY NOTES COULD
RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE OF SUBSTANTIAL
ASSETS.

      In an earlier private placement, we offered and sold units, with each unit
consisting of a secured promissory note ("Secured Note") and warrants to
purchase common stock. We are now obligated to make quarterly payments on the
interest outstanding and to repay such Secured Notes. As of March 31, 2004, we
were in default on the principal balance of the Secured Notes in the amount of
$35,000 and approximately $45,336 in arrears on such interest payments relating
to the Secured Notes. Under the terms of the Security Agreement relating to the
Secured Notes, a noteholder has the right to:

      o     declare all principal and interest immediately due and owing;
      o     exercise its rights and remedies under the California Commercial
            Code as a secured creditor having a security interest in the
            collateral, which includes, but is not limited to, equipment,
            inventory, accounts, trademarks and tradenames and other
            intellectual property rights (the "Collateral"), and, in particular,
            sell any part of the Collateral; and
      o     exercise any other rights or remedies of a secured party under
            California law.

      As of the date hereof, we have not received any notice of default relating
to the Secured Notes. It is our understanding that the noteholders lien has
lapsed due to the noteholders failure to file a continuation with the California
Secretary of State. Due to the noteholders failure to file a continuation, the
California Secretary of State has purged the lien from our records.


                                     Page 9
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION


A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE AND
IF WE ARE UNABLE TO MAINTAIN OUR CURRENT CUSTOMER BASE OR ATTRACT A NEW CUSTOMER
BASE WE WILL BE REQUIRED TO CURTAIL OR CEASE OPERATIONS.

      Our four largest clients represent 59.4% of our gross revenue for the
quarter ended June 30, 2004. The four largest clients represented 47.4% of the
gross revenue for the year ended June 30, 2003. We would likely experience a
material decline in revenues if we were to lose any of our major clients.

HIGH QUALITY CERTIFIED ORGANIC COFFEE IS LIMITED IN AVAILABILITY AND TRADED ON A
NEGOTIATED BASIS. IF WE ARE UNABLE TO OBTAIN AN ADEQUATE SUPPLY OF CERTIFIED
ORGANIC COFFEE, THEN OUR PROFITS MAY BE NEGATIVELY IMPACTED.

      The supply and price of coffee are subject to significant volatility.
Although most coffee trades in the commodity market, coffee of the quality
sought by our company tends 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. We acknowledge that high quality certified organic coffee
is limited in availability. We depend upon our relationship with our roaster,
with coffee brokers and importers and with exporters for our supply of certified
organic green coffee. We believe, based on relationships established with our
suppliers in the past, that the risk of non-delivery is low. However, an
increase in the prices of specialty coffees could have an adverse effect on our
profitability.


THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO MANAGE ANY SUBSTANTIAL
EXPANSION OF OUR BUSINESS, AND A FAILURE TO DO SO COULD HAVE A MATERIALLY
ADVERSE EFFECT ON OUR OPERATING RESULTS.

      Our success will require significant expansion of our business. Any such
expansion could place a significant strain on our resources and would require us
to hire additional personnel to implement additional operating and financial
controls and improve coordination between marketing, administration and finance
functions. We would be required to install additional reporting and management
information systems for sales monitoring, inventory control and financial
reporting. There can be no assurance that we would be able to manage any
substantial expansion of our business, and a failure to do so could have a
materially adverse effect on our operating results.


IF WE ARE UNABLE TO RETAIN THE SERVICES OF MR. TKACHUK OR IF WE ARE UNABLE TO
SUCCESSFULLY RECRUIT QUALIFIED MANAGERIAL AND SALES PERSONNEL HAVING EXPERIENCE
IN BUSINESS, WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS.

      Our success depends to a significant extent upon the continued service of
Mr. Todd Tkachuk, our President, Chief Financial Officer and Secretary. Loss of
the services of Mr. Tkachuk could have a material adverse effect on our growth,
revenues, and prospective business. We do not maintain key-man insurance on the
life of Mr. Tkachuk. In addition, in order to successfully implement and manage
our business plan, we will be dependent upon, among other things, successfully
recruiting qualified managerial and sales personnel having experience in
business. Competition for qualified individuals is intense. There can be no
assurance that we will be able to find, attract and retain existing employees or
that we will be able to find, attract and retain qualified personnel on
acceptable terms.


                                    Page 10
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

WE HAVE RECENTLY COMMENCED SALES TO SUPERMARKETS, SPECIALTY FOOD STORES AND
OTHER MASS RETAIL VENUES AND IF WE ARE NOT SUCCESSFUL IN ESTABLISHING OUR
COMPANY WITHIN THE MASS RETAIL MARKET OUR REVENUE MAY BE SEVERELY IMPACTED.

      Our company's strategic goal is to establish our packaged consumer Black
Rhino Coffee(TM) brand in domestic mass retail markets. We recently shipped
orders of Black Rhino Coffee(TM) to major national food distributors in Kansas,
South Carolina, Pennsylvania and Virginia. If we are not successful in entering
the mass retail market our revenue may be severely impacted.

RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:

THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES, AND
WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY
DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

      As of August 20, 2004, we had 39,645,313 shares of common stock issued and
outstanding and convertible debentures outstanding that may be converted into an
estimated 42,719,361 shares of common stock at current market prices, and
outstanding warrants and options to purchase 9,519,836 shares of common stock,
including, 2,291,460 shares of common stock issued pursuant to the Securities
Purchase Agreement dated December 5, 2003. In addition, pursuant to the Plan and
Agreement of Reorganization and merger we assumed the rights and obligations or
convertible promissory noted that are convertible into 75,604 shares. In
addition, the number of shares of common stock issuable upon conversion of the
outstanding convertible debentures may increase if the market price of our stock
declines. All of the shares, including all of the shares issuable upon
conversion of the debentures and upon exercise of our warrants, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock.

THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.

      Our obligation to issue shares upon conversion of our convertible
debentures is essentially limitless. The following is an example of the amount
of shares of our common stock that are issuable, upon conversion of our
convertible debentures (excluding accrued interest), based on market prices 25%,
50% and 75% below the market price, as of August 20, 2004 of $0.05.



                                                  Number               % of
% Below      Price Per       With Discount      of Shares          Outstanding
Market          Share          at 20%           Issuable              Stock
------          -----          ------           --------              -----

25%            $.0375          $.03              81,728,740           67.34%
50%            $.025           $.02             123,738,840           75.73%
75%            $.0125          $.01             249,769,140           86.30%


      As illustrated, the number of shares of common stock issuable upon
conversion of our convertible debentures will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.


                                    Page 11
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.

      The convertible debentures are convertible into shares of our common stock
at a 20% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the selling stockholder converts and sells material amounts of common stock
could encourage short sales by investors. This could place further downward
pressure on the price of the common stock. The selling stockholder could sell
common stock into the market in anticipation of covering the short sale by
converting their securities, which could cause the further downward pressure on
the stock price. In addition, not only the sale of shares issued upon conversion
or exercise of debentures, warrants and options, but also the mere perception
that these sales could occur, may adversely affect the market price of the
common stock.

THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE DEBENTURES AND
EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO
OUR EXISTING STOCKHOLDERS.

      The issuance of shares upon conversion of the convertible debentures and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the selling stockholders
may not convert their convertible debentures and/or exercise their warrants if
such conversion or exercise would cause them to own more than 4.9% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.

IF WE FAIL TO OBTAIN STOCKHOLDER APPROVAL TO INCREASE OUR AUTHORIZED SHARES OF
COMMON STOCK, WE MAY BE REQUIRED TO REPAY THE CONVERTIBLE DEBENTURE AS WELL AS
VARIOUS PENALTIES.

We presently do not have an adequate amount of authorized and unissued shares of
common stock to issue in connection with the financing entered into with La
Jolla Cover Investors, Inc. In the near future we intend to hold a meeting for
the purpose of obtaining stockholder approval to increase our authorized shares
of common stock of which we can provide no assurance that we will be able to
obtain. In the event that we are unable to obtain an increase in our authorized
common stock, we will be required to repay the debenture and we will be subject
to prepayment penalties.

IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING CONVERTIBLE
DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE,
OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.

In December 2003, we entered into a Securities Purchase Agreement for the sale
of an aggregate of $250,000 principal amount of convertible debentures. The
convertible debentures are due and payable, with 7 3/4% interest, two years from
the date of issuance, unless sooner converted into shares of our common stock.
In addition, any event of default could require the early repayment of the


                                    Page 12
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

convertible debentures at a price equal to 125% of the amount due under the
debentures. We anticipate that the full amount of the convertible debentures,
together with accrued interest, will be converted into shares of our common
stock, in accordance with the terms of the convertible debentures. If we are
required to repay the convertible debentures, we would be required to use our
limited working capital and raise additional funds. If we were unable to repay
the debentures when required, the debenture holders could commence legal action
against us and foreclose on all of our assets to recover the amounts due. Any
such action would require us to curtail or cease operations.

IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.

      Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.


OUR DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN APPROXIMATELY 9.7% OF OUR
STOCK; THEIR INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES OF STOCK
HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE; STOCKHOLDERS MAY
BE UNABLE TO EXERCISE CONTROL.

      As of June 30, 2004, our executive officers, directors and affiliated
persons beneficially owned approximately 9.7% of our common stock. As a result,
our executive officers, directors and affiliated persons will have significant
influence to:


      o     elect or defeat the election of our directors;
      o     amend or prevent amendment of our articles of incorporation or
            bylaws;
      o     effect or prevent a merger, sale of assets or other corporate
            transaction; and
      o     control the outcome of any other matter submitted to the
            stockholders for vote.

      As a result of their ownership and positions, our directors and executive
officers collectively are able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.


ITEM 3.  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.


                                    Page 13
<PAGE>

                                     PART I
                             FINANCIAL INFORMATION

      Our Chief Executive Officer and Principal Financial Officer, after
evaluating the effectiveness of our "disclosure controls and procedures" (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2004 ("the
Evaluation Date"), have concluded that as of the Evaluation Date, our disclosure
controls and procedures (as required by paragraph (b) of the Securities and
Exchange Act of 1934 Rules 13a-15 or 15d-15) were adequate and designed to
ensure that material information relating to us would be made known to them by
others within those entities.

(b) Changes in internal controls over financial reporting.

There were no significant changes in our internal controls over financial
reporting in connection with the evaluation required by paragraph (d) of the
Securities Exchange Act of 1934 Rules 13a-15 or 15d-15 that occurred during the
quarter ended June 30, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over the financial reporting.
















                                    Page 14
<PAGE>

                              PEABODYS COFFEE, INC.
                                     PART II
                                OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS

For the quarter ended June 30, 2004, the Company is not aware of any legal or
governmental proceeding to which it became a party.

ITEM 2   CHANGE IN SECURITIES
None.


ITEM 3   DEFAULTS UPON SENIOR SECURITIES

In the three months ended on June 30, 2004, there have not been any material
defaults upon senior securities.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In the three months ended on June 30, 2004, there have been no submissions of
matters to a vote of security holders.

ITEM 5   OTHER INFORMATION

None.

ITEM 6   EXHIBITS


      31.1  Certification of the Chief Executive Officer and Principal Financial
            Officer of Peabodys Coffee, Inc. pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

      32.1  Certification of the Chief Executive Officer and Principal Financial
            Officer of Peabodys Coffee, Inc. pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.


                                    Page 15
<PAGE>

                              PEABODYS COFFEE, INC.


SIGNATURES


      In accordance with Section 13 of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                                   PEABODYS COFFEE, INC.,
                                                   A Nevada Corporation



                                                   By:  /s/ Todd Tkachuk
                                                        -----------------------
                                                        Todd Tkachuk, President

                                                   Date: August 23, 2004


      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


<TABLE>
<CAPTION>
Signature             Title                                             Date
<S>                   <C>                                               <C>

/s/ Todd N. Tkachuk   President, Chief Financial Officer and Director   August 23, 2004
--------------------  (Principal Executive Officer and Principal
Todd N. Tkachuk       Financial Officer


/s/ Roman Kujath      Director                                          August 23, 2004
--------------------
Roman Kujath


/s/ Barry Gibbons     Director                                          August 23, 2004
--------------------
Barry Gibbons


/s/ David Lyman       Director                                          August 23, 2004
--------------------
David Lyman


/s/ Richard Azevedo   Director                                          August 23, 2004
--------------------
Richard Azevedo
</TABLE>


                                    Page 16