##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K







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



| | For the fiscal year ended March 29, 2009
| | ----------------------------------------

OR



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



| | For the transition period from              to
| | ----------------------------------------------

Commission File Number 001-33646





TC GLOBAL, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Washington                                                     |  | 91-1557436                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3100 Airport Way South,

Seattle, Washington 98134

(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code: (206) 233-2070





Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value

Series A Convertible
Preferred Stock, no par value

(Title of each class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈     No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

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  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    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 a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large Accelerated Filer   ̈ |  | Accelerated Filer   ̈ |  | Non-Accelerated Filer  x |  | Smaller Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2 of the act).    Yes   ̈    No  x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrants most recently completed second fiscal quarter: Not Applicable (not traded on any market)

As of May 31, 2009 the number of shares of the registrants Common Stock outstanding was 3,577,704 (giving effect to the one-for-eight reverse split on June 28, 2007) and the number of shares of the
registrants Series A Convertible Preferred Stock outstanding was 12,790,874.

Documents incorporated by reference: None.









---

##### Table of Contents

TABLE OF CONTENTS



|                                           |  |                                                                                                              |  |         
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------ |  | --------
|Item No.                                   |  |                                                                                                              |  | Page No.
|A WARNING ABOUT FORWARD-LOOKING STATEMENTS |  | 1                                                                                                           
|                                          
|PART I                                    
|                                           |  |                                                                                                             
|ITEM 1.                                    |  | BUSINESS                                                                                                     |  | 2       
|ITEM 1A.                                   |  | RISK FACTORS                                                                                                 |  | 11      
|ITEM 1B.                                   |  | UNRESOLVED STAFF COMMENTS                                                                                    |  | 18      
|ITEM 2.                                    |  | PROPERTIES                                                                                                   |  | 18      
|ITEM 3.                                    |  | LEGAL PROCEEDINGS                                                                                            |  | 18      
|ITEM 4.                                    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                          |  | 19      
|                                          
|PART II                                   
|                                           |  |                                                                                                             
|ITEM 5.                                    |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES |  | 21      
|ITEM 6.                                    |  | SELECTED FINANCIAL DATA                                                                                      |  | 23      
|ITEM 7.                                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                        |  | 25      
|ITEM 7A.                                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  | 40      
|ITEM 8.                                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  | 41      
|ITEM 9.                                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                         |  | 83      
|ITEM 9A(T).                                |  | CONTROLS AND PROCEDURES                                                                                      |  | 83      
|ITEM 9B.                                   |  | OTHER INFORMATION                                                                                            |  | 84      
|                                          
|PART III                                  
|                                           |  |                                                                                                             
|ITEM 10.                                   |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  | 85      
|ITEM 11.                                   |  | EXECUTIVE COMPENSATION                                                                                       |  | 87      
|ITEM 12.                                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 98      
|ITEM 13.                                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                                     |  | 100     
|ITEM 14.                                   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  | 101     
|                                          
|PART IV                                   
|                                           |  |                                                                                                             
|ITEM 15.                                   |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |  | 102     
|                                           |  | SIGNATURES                                                                                                   |  | 103     





---

##### Table of Contents

A Warning About Forward-Looking Statements

In this report, we refer to TC Global, Inc. and its consolidated subsidiaries and joint ventures controlled by the Company as we,
us, our, the Company, Tullys Coffee, or Tullys.

This report
contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those
sections. These statements include descriptions of our future financial condition, results of operations, objectives, strategies, plans, goals, targets or future performance and business for future periods, and generally may be identified by use of
phrases such as believe, expect, will, seek, should, anticipate, estimate, intend, plan, target, initiatives,
models, hope, goal, foresee or other words of similar import. These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those described in the
Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations sections and other parts of this report that could cause events, including our actual results, to differ materially
from those anticipated in these forward-looking statements. These factors, among others, could cause our financial performance to differ materially from our goals, targets, objectives, intentions and expectations. These forward-looking statements
include, among other things, statements regarding our plans and expectations for new store openings, the cost of building new stores, the average unit volume of new stores, comparable store sales growth, increasing margins and growing our wholesale
and franchise businesses.

If one or more of the factors affecting our forward-looking statements proves incorrect, then our actual
results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this report. Consequently, you should not place undue reliance on our forward-looking information and
statements.

We qualify all of our forward-looking statements by these cautionary statements. Except to the extent required by the federal
securities laws, we do not intend to update or revise the forward-looking statements contained in this report.



1



---

##### Table of Contents

PART I.



|ITEM 1. | BUSINESS
|------- | --------

Recent DevelopmentSale of Business Names,
Trademarks, and Wholesale Business to Green Mountain Coffee Roasters

On March 27, 2009, we completed the sale of the assets
associated with Tullys business names, trademarks, and wholesale business to Green Mountain Coffee Roasters, Inc. a Delaware Corporation (GMCR), pursuant to the terms of the previously disclosed Asset Purchase Agreement dated
September 15, 2008, as amended by Amendment No. 1 thereto dated November 12, 2008 and Amendment No. 2 thereto dated February 6, 2009 by and among the TC Global, Inc., GMCR and Tullys Bellaccino, LLC. GMCR paid a total
purchase price of $40.3 million for the assets it acquired, collectively (the Green Mountain Transaction).

Therefore, the
Company classified the results of operations for the wholesale operations in discontinued operations, in accordance with the guidance provided in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS
144) . The discontinued operations represent only those pertaining to the Green Mountain Transaction, and do not include any results relating to those activities which are expected to continue under the license agreement due to this continuing
involvement.

In connection with the closing of the Green Mountain Transaction, we entered into a Supply Agreement, a License Agreement,
and a Noncompetition Agreement with GMCR, each as more fully described in our definitive proxy statement filed with the Securities and Exchange Commission on February 20, 2009, and the notes to the consolidated financial statements appearing
elsewhere in this report.

Also in connection with the Green Mountain Transaction, and as previously disclosed, we changed our Company name
to TC Global, Inc.

Our Business

Tullys Coffee is a specialty retailer in the fast-casual categories of specialty coffee, snacks and non-alcoholic beverages, within the broader quick-service restaurant industry. Tullys is famous for our gourmet coffees, wide
selection of barista beverages, delicious assortment of breakfast and lunch offerings and anytime snacks, desserts and specialty beverages, and our genuine community coffeehouse experience.

We end our fiscal year on the Sunday closest to March 31. As a result, we record our revenue and expenses on a 52 or 53 week period, depending on
the year. In this report, we refer to our fiscal periods as follows:



|                         |  |                                     
|------------------------ |  | ------------------------------------
|Reference in this report |  | Fiscal year ending (number of weeks)
|Fiscal 2010              |  | March 28, 2010 (52 weeks)           
|Fiscal 2009              |  | March 29, 2009 (52 weeks)           
|Fiscal 2008              |  | March 30, 2008 (52 weeks)           
|Fiscal 2007              |  | April 1, 2007 (52 weeks)            
|Fiscal 2006              |  | April 2, 2006 (52 weeks)            
|Fiscal 2005              |  | April 3, 2005 (53 weeks)            
|Fiscal 2004              |  | March 28, 2004 (52 weeks)           
|Fiscal 2003              |  | March 30, 2003 (52 weeks)           
|Fiscal 2002              |  | March 31, 2002 (52 weeks)           
|Fiscal 2001              |  | April 1, 2001 (52 weeks)            

Retail Operations. We operate and franchise Tullys Coffee branded retail stores, with
eighty company-operated stores and eighty-seven franchised stores in Washington, California, Arizona, Oregon, Idaho, Montana, Utah, Wyoming, and Colorado as of March 29, 2009. Established under our new joint venture Tullys Coffee



2



---

##### Table of Contents

Asia Pacific Partners, LP (Tullys Coffee Asia), we franchised two locations Singapore. We operate our stores in densely populated areas and
commuting corridors, with locations in urban and suburban retail districts, lifestyle centers, shopping centers and other high-traffic areas. We also operate or franchise smaller footprint stores in special venues such as within the premises of
manufacturing facilities, and kiosks and cafes located in grocery stores, hotels, hospitals, airports and university campuses. We manage our franchising and foreign business development activities through our specialty division.

Menu Offering.We are passionate about providing our customers with the best gourmet coffees. We believe our barista bars serve the best selection
of delicious hand-crafted beverages in the business. Our barista bars offer customers a broad selection of freshly prepared hot and cold beverages in various sizes, including our coffees, espressos, teas, Guayaki yerba mates, chais, Bellaccino
blended beverages, fruit-based beverages (such as smoothies), ice cream shakes and hot cocoa. We complement our barista bar beverages with a diverse selection of premium foods, snacks and bottled beverages.

Customer Appeal.Our genuine community coffeehouse concept and varied menu have broad customer appeal, and are relevant at multiple day-parts and
in diverse geographic markets and climates. Our beverage and food offerings are built around core product families, enabling us to easily and cost-effectively introduce new menu items. Our comfortable, inviting stores are a great place to relax,
take a break or gather with friends throughout the day.

Our History

Tullys Coffee, a Washington corporation, was founded in 1992. Between 1992 and 2001, we expanded to 114 company-operated stores. During this period, we financed our retail expansion by raising over $60 million
in equity securities and convertible debt, and licensing fees paid to us by foreign licensees of over $17 million. Between Fiscal 2001 and 2003, our financial performance was negatively impacted by the economic downturn that affected Seattle and San
Francisco. During the same period, the market for new equity issues deteriorated significantly. To manage through this period and these challenges, rather than to seek additional and potentially dilutive growth capital, we chose to reduce normal
operating expenses by closing certain under-performing stores and slowing our new store development plans to preserve capital. Between Fiscal 2002 and 2006, we streamlined aspects of our operations and emphasized less capital intensive business
opportunities such as wholesale and franchising. From Fiscal 2006 to Fiscal 2009, we undertook a strategic business review and began implementing initiatives to improve our financial position and create a foundation for future growth. These
initiatives include:



| |  |  | Completing strategic transaction with sale of our wholesale business and tradenames for $40.3 million;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Hiring several key executives to strengthen our management team and operations;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Introducing new products and improving merchandising strategies in our retail;
| | - |  | ------------------------------------------------------------------------------



| |  |  | Refurbishing most of our company-operated stores;
| | - |  | -------------------------------------------------



| |  |  | Implementing more efficient product purchasing and standardizing store operating procedures;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Implementing selective price changes;
| | - |  | -------------------------------------



| |  |  | Investing in personnel and infrastructure to support our U.S. franchising strategy;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Closing stores that fail to meet our performance requirements; and
| | - |  | ------------------------------------------------------------------



| |  |  | Fostering employee development and training, with an emphasis on customer service and operational efficiencies.
| | - |  | ---------------------------------------------------------------------------------------------------------------

Our Products

We are passionate about
providing our customers with the best gourmet coffees. All Tullys stores offer a fresh assortment of Tullys hand-craft roasted whole bean and ground varietal coffees and proprietary coffee



3



---

##### Table of Contents

blends. We believe that our barista bars offer the best selection of hand-crafted beverages in the business and set us apart from our competitors. Our
barista bar beverages include hot and cold beverages, highlighted by our coffees and espresso, teas, yerba mate, chai, Bellaccino blended beverages, fruitbased beverages (such as smoothies), ice cream shakes and hot cocoa. These drinks can be
customized with dairy or soy milk and our customers favorite flavors, including fresh Tullys espresso, Ghirardelli chocolate and premium flavor extracts. All barista bar beverages are made-to-order by our highly trained baristas.

We complement our great beverages with an array of premium foods, snacks, and bottled beveragesincluding pastries, muffins, cookies
and desserts that are baked fresh daily by our artisan bakery partners; fresh, pre-packaged, ready-to-go salads and sandwiches; healthy grab-and-go snacks such as nuts, trail mixes and dried fruits; chocolates and other confections; and juices,
soda, waters and our Bellaccino bottled beveragesthat make our stores a gathering place for refreshment and energy throughout the day.

We regularly introduce new products in our stores to attract new customers and to offer existing customers additional products during different day-parts. Our beverage and food offerings are built around core product families that enable us
to introduce new items that appeal to a broad range of customers, at different day-parts, to suit different geographic markets and climates.

Tullys Market Opportunity

Tullys is strategically positioned as a premier gourmet coffee brand in the specialty
retail coffeehouse segment. Consumers have shown a broadening appetite for drinks of all varieties, resulting in diversification and expansion of the U.S. beverage markets. With gourmet espresso and coffee drinks as its centerpiece, Tullys is
focused on benefiting from these growing markets by providing a wide array of beverage choices to its customers.

Consumption of specialty
coffee in U.S. retail stores increased steadily from 2003 to 2006, according to the Specialty Coffee Association of America (SCAA), as the percentage of U.S. adults purchasing specialty coffee daily grew from 12% to 16% during this period. The
demand from occasional adult consumers of specialty coffee expanded more rapidly over this comparable period, with an increase in market penetration from 54% to 63%, according to the SCAA. Additionally, we expect several major trends to drive
continued growth in the U.S. gourmet coffee market:



| |  |  | Consumers are opting for gourmet coffee.We believe there is an overall greater consumer awareness of specialty coffees superior quality and
taste. Consumers are becoming more educated, and understand and differentiate coffee by origin and bean type. Discerning consumers generally demand gourmet, Arabica coffee with a wide selection of specialty beverages such as lattes, mochas,
espressos and blended drinks.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Coffee consumption as a lifestyle.Consumers are pursuing coffee consumption as a regular facet of their everyday lifestyle. We believe there is a
growing appeal of the coffeehouse as a gathering place outside of work and home, providing an inviting atmosphere for people to congregate and socialize. A 2006 Deutsche Bank research study indicated 33% of non-coffee drinkers visited national chain
coffeehouses for the atmosphere and to socialize.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Demographics of coffee drinkers are widening.According to the National Coffee Association, the proportion of the U.S. adult population drinking
coffee on a daily basis rose to 56% in 2006, compared to 53% in 2005 and 49% in 2004. Young adults (18-24 years old) contributed to the increased penetration, with 31% of young adults consuming coffee daily in 2006, compared to 26% in 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4



---

##### Table of Contents

Specialty Non-Alcoholic Beverages

Sales of specialty beverages have shown strong acceptance and growth across a wide variety of categories. Although the categories below currently
represent a relatively small portion of our revenue base, we believe they represent a significant opportunity for Tullys retail business.



| |  |  | RTD Coffee & TeaAccording to Beverage Marketing Corporation, the ready-to-drink, or RTD, coffee and tea segments have grown rapidly in recent
years with consumption of RTD coffee increasing by 23.0% and 10.4% in 2005 and 2006, respectively. RTD tea increased by 9.0% and 26.2% during the same periods according to Beverage Marketing Corporation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Energy Drinks / Bottled WaterEnergy drinks and bottled water segments reached $1.1 billion and $6.3 billion in sales, respectively, in 2005, according
to Mintel research. These two categories have seen very strong growth, led by the relatively new energy drink market. According to Beverage Marketing Corporation, volume consumption of energy drinks increased 49.1% in 2006, following an 80.5%
increase in 2005. Bottled water consumption has benefited from the trend towards healthier products and this market segment now represents the second most consumed liquid refreshment behind carbonated soft drinks according to Beverage Marketing
Corporation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Competitive Strengths

Our goal is to make our gourmet coffees and genuine community coffeehouse experience the first choice for consumers in our markets. To achieve this objective, we intend to leverage the following strengths:

We sell world-class gourmet coffees.We are passionate about providing our customers with the best gourmet coffees.
Tullys recipes and roasting methods provide superior quality. Currently, we sell dozens of different proprietary coffee blends and three varietal coffees (which are single origin coffees from growers in Colombia, Guatemala and Sumatra). We
also offer super-premium special lot and estate coffees in our retail stores.

Our barista bars set us apart from our
competitors.We believe our barista bars offer the best selection of hand-crafted beverages in the business. In addition to our hot and cold coffee and espresso-based drinks, our hand-crafted barista bar beverages include teas, yerba mate,
chai, Bellaccino blended beverages, fruitbased beverages (such as smoothies), ice cream shakes and hot cocoa. Our customers can custom order their drinks using fresh Tullys espresso, Ghirardelli chocolate, premium flavor extracts, and
dairy and soy milk. We offer both everyday favorites like lattes, mochas and Americanos, and featured seasonal drinks such as pumpkin spice Bellaccinos and orange granache mochas. All barista bar beverages are made-to-order by our highly trained
baristas.

We address all day-parts with our barista beverages, foods, snacks, desserts and bottled beverages.
Our fresh, made-to-order hot and cold barista beverages and our broad selection of ready-to-go foods, snacks and bottled beverages appeal to our customers throughout the day. We offer fresh, pre-packaged salads and sandwiches; healthy grab-and-go
snacks such as nuts, trail mixes, and dried fruit; chocolates and other confections; and bottled beverages such as soda, waters, energy drinks, teas, and our Bellaccino bottled beverage. These offerings make our coffeehouses an attractive
destination during the day and into the evening. We feature best-in-class products, such as Ghirardelli chocolates, Dean & Deluca snacks, Guayaki yerba mates, and fresh baked goods, salads and sandwiches from local, artisan bakeries to
reinforce our gourmet brand image.

We keep Tullys exciting by regularly introducing new products in our
existing categories.Our merchandising strategy allows us to leverage beverages and food items within our product families to efficiently offer new products that keep existing customers enthusiastic and attract new customers to our
coffeehouses. This approach results in a shorter period from development to launch of new products. For example, in the autumn we introduced a family of pumpkin spice beverages in our barista bar product family at the same time we introduced a
special pumpkin spice cake and pastry in our food product family.



5



---

##### Table of Contents

We provide a genuine community coffeehouse experience for our customers.We
believe that the Tullys genuine community coffeehouse experience differentiates us from our competitors. The Tullys experience is about friendly, personalized service in an upscale and relaxing environment, where customers enjoy
comfortable seating, large community tables, soft music and free Wi-Fi Internet access while savoring Tullys products. We strive to develop a genuine personal relationship with our customers and their communities by supporting community
events, and local schools and charitable organizations, and by making our stores into neighborhood gathering places. Our pay it forward philosophy involves empowering our store managers to become part of their local communities by
providing complimentary coffee for community activities, helping non-profit organizations raise money, and publicizing community events. Each store manager is provided a budget to develop these community building relationships. At the corporate
level, we partner with charitable organizations and support their fundraising activities. For example, we help raise funds to support a number of childrens health organizations, breast cancer research, and university scholarship funds.
We believe our commitment to the community strengthens our relationship with our employees and our customers.

Our Growth Strategy

We have significant growth opportunities in our business, which we intend to pursue by implementing the following strategies. Implementation of these
strategies is dependent upon sufficient capital resources and the ability to secure a capital or debt raise. Further, growth will be limited in the event of a whole or partial disposition of the assets of any single segment.

Drive comparable store sales growth by executing on our fundamental retail strategies. We intend to drive comparable store
sales and average unit volume growth by executing on our fundamental retail strategies to increase store traffic and average transaction size.

Execute our franchising strategy to expand our geographic footprint. Our franchising strategy focuses on adding franchised stores in market areas and venues that complement our company-operated stores.
We have used franchising to extend our presence in special venues, such as grocery stores, airports, hotels and university campuses. We also are pursuing multi-unit area agreements with experienced, well-capitalized franchisees, to open Tullys
coffeehouses in markets not targeted for development directly by us. We have implemented this approach successfully in the Idaho market, where our area developer has opened 6 franchised stores (since the November 2005 inception of our franchising
arrangement).

Leverage international opportunities. Our international growth strategy emphasizes joint
ventures and licensing relationships with companies situated in promising foreign markets, and sales of coffee and other products to those partners. We believe the success of our former licensee, Tullys Coffee Japan (TCJ),
demonstrates the broader opportunity available to us in foreign markets.

Our Retail and Franchising Businesses

As of March 29, 2009, we had eighty Company-operated retail stores and eighty-seven franchised retail stores in Washington, California, Arizona,
Oregon, Idaho, Montana, Utah, Wyoming, and Colorado. Our stores are located in a variety of hightraffic urban and suburban neighborhoods, and in the Seattle and San Francisco central business districts. We also operate or franchise smaller
footprint stores in special venues, such as within the premises of manufacturing facilities, and kiosks and cafes that are located in grocery stores, hotels, hospitals and airports and on university campuses.

In connection with the closing of the Green Mountain Transaction, we entered into a Supply Agreement, a License Agreement, and a Noncompetition Agreement
with GMCR. Tullys secured a perpetual license to use the Tullys brand and other trade names, trademarks and service marks in connection with certain (i) retail operations worldwide (excluding Japan) and
(ii) wholesale operations outside of North America, utilizing an exclusive coffee supply arrangement. Tullys current shareholders and executive management team continue to



6



---

##### Table of Contents

own and operate the Companys domestic retail business (company owned, franchised and licensed retail store locations) and international retail and
wholesale businesses.

Menu and Products

Our beverage and food offerings are built around core product families that enable us to introduce new items that appeal to a broad range of customers, at different day-parts, to suit different geographic markets and climates. Our product
families are as follows:

Barista Bar BeveragesWe believe that our barista bars offer the best selection of
hand-crafted beverages in the business. These offerings include:



| |  |  | Drip CoffeesDaily selections of Tullys drip coffee, brewed fresh during the day, served by the cup or in to go decanters for group
events
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Espresso BeveragesLatte, cappuccino, mocha, and café Americano
| | - |  | ---------------------------------------------------------------



| |  |  | TeasBlack, green, and herbal teas, and chai, served hot or cold
| | - |  | ----------------------------------------------------------------



| |  |  | Smoothies and Fruit BeveragesFruit- and tea-based blended beverages, such as smoothies and blends
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | BellaccinoBellaccino blended beverages, made with our proprietary Bellaccino mix, ice and flavors like fresh Tullys espresso, Ghirardelli
chocolate, fruit, and Guayaki yerba mate
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ice Cream ShakesReal hand-made milk shakes featuring fresh espresso
| | - |  | --------------------------------------------------------------------



| |  |  | Yerba MateYerba mate-based lattes and blended beverages
| | - |  | --------------------------------------------------------

Baked Goods and FoodsOur selection of food offerings changes based on the time of day. We offer freshly baked pastries and
muffins during the morning, and pre-packaged sandwiches and salads from mid-morning through the remainder of the day. Cookies, cakes, ice cream and other desserts are featured during the afternoon and evening.

Grab-and-Go Snacks and ChocolateWe offer conveniently sized packages of nuts, trail mixes, dried berries, and
other snacks, and gourmet chocolates, from brands like Ghirardelli and Dean & Deluca, for snacking and impulse buys throughout the day.

Specialty BeveragesWe stock a range of specialty beverages in our cold cases, including our Bellaccino bottled beverages, juices, waters, soda and energy drinks.

Coffee and Tea for Home EnjoymentWe sell our freshly roasted gourmet coffees, including special limited edition
coffees, and a selection of leading gourmet teas, in each case for home consumption.

Brewing equipment and
accessoriesWe sell brewing equipment and accessories from leading manufacturers, including French presses, Keurig K-Cup brewing systems and Tullys K-Cups, espresso machines, mugs and coffee grinders.

Our Coffeehouses

Coffeehouse Design and
Appearance

Our coffeehouses are characterized by our warm color scheme, high quality finishes, easy-to-read menu board and enticing
product images. Our coffeehouses typically feature soft music and lighting; a childrens corner with kid-sized furniture, books and toys; comfortable sofas and chairs; and space dedicated to larger tables. Many of our coffeehouses
have a fireplace that adds to the warm and relaxed atmosphere. We seek to make each location comfortable and inviting for individuals and larger groups. We believe that our coffeehouse design reinforces our upscale brand image.



7



---

##### Table of Contents

In addition, most of our company-operated stores and some franchised stores, offer free Wi-Fi Internet to
our customers. Wi-Fi provides our customers a convenient way to check e-mail and surf the web while enjoying our beverages and food offerings in the comfort of a Tullys coffeehouse.

Franchising Development

Our franchising
strategy focuses on adding franchised stores in market areas and venues that complement our company-operated stores. We have used franchising to extend our presence through smaller footprint stores in special venues, such as within the premises of
manufacturing facilities, and kiosks and cafes that are located in grocery stores, hotels, hospitals and airports and on university campuses. In November 2005 we established an area developer for Idaho, who now operates six stores. In March 2008 we
established an area developer for Spokane, Washington. Franchising stores in the domestic market offers the potential for accelerated growth with minimal capital investment from Tullys. The franchisee is responsible for all of the capital
expenditures associated with the store, although we usually support the construction, training and start-up of new franchised stores to ensure consistency with company-operated stores.

Grocery CafesAlbertsons, Fred Meyer, Safeway, and Frys Food and Drug operate franchised Tullys cafes in select stores. We
believe that grocery cafes complement our retail business by introducing grocery store customers to our brand and great barista bar beverages.

Other Special VenuesWe have franchised stores in a variety of special venues, such as universities, airports, and hotels, that have high volume captive audiences and where the location is owned, licensed or managed by a third
party. These stores include quick grab-and-go kiosks, coffee bars and full service stores. Our franchisees currently operate stores in the Seattle/Tacoma and Burbank, California airports, Hilton and Red Lion hotels in Washington and California, and
at universities in California and Washington, among other locations.

Area DevelopersWe plan to focus on an area development
approach for our future franchising activities, although we will consider single store franchises in circumstances involving special venues. Under an area developer approach, the area developer agrees to develop a specified number of units in a
geographic territory and obtains certain rights to that territory. We will consider geographic, marketplace, branding, venue, strategic and financial factors when evaluating new area development opportunities.

Retail Marketing

We believe that our loyal
customers are our most important marketing assets. Our focus on providing our customers with a genuine community coffeehouse experience is designed to transform our customers into Tullys evangelists. These customers are our brand
advocates and, through word-of-mouth, promote our products and share the Tullys genuine community coffeehouse experience with their friends and colleagues.

We employ marketing strategies to increase brand awareness, encourage trial and repeat purchases by educating potential customers about our hand-craft roasted coffees and other beverage and food offerings, and promote
our genuine community coffeehouse experience. We employ a variety of marketing tools that are tailored to the specific needs of particular markets or coffeehouses, including:



| |  |  | Point-of-sale signage and our menu boards, which encourage existing customers to try new products and seasonal offerings;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Promotions and local store marketing, including coupons and special offer books, which allow us to alert our customers to new products and seasonal offerings;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Community initiatives and sponsorships, which generate favorable publicity and help create and sustain the relationship between our coffeehouses and the surrounding
neighborhoods;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



---

##### Table of Contents

We periodically supplement these marketing initiatives with selective print and radio advertising through
local radio, newspapers and other publications to attract new customers within a particular market and to promote special and seasonal product offerings.

We offer our customers the Tullys Coffee Card, a stored-value payment card that serves as a convenient way to purchase our products and as an easy gift item. It is available at all company-operated Tullys
stores and select franchised stores. In Fiscal 2008, we continued to expand the features of the Tullys Coffee Card to include a loyalty program that provides customer rewards for use of the card, and we enabled online purchase, registration
and reloading of cards for customers at www.mytullyscard.com. Business and nonprofit enterprises may purchase Tullys Coffee Cards in bulk and co-label them for use as incentives or rewards for customers, employees and supporters.

Employees

As of March 29, 2009, we employed
approximately 809 people, with approximately 693 employed in retail stores and regional retail operations. Approximately 48 work in our administrative, retail and franchisee support staff.

No later that September 27, 2009, as per the terms of the Green Mountain Transaction, we continue to operate for the benefit and financial
obligation of GMCR, the roasting and distribution facility until GMCR successfully transitions into a new facility. In association with the roasting and distribution facility we employ 68 employees. We expect to significantly reduce the amount of
staff needed for roasting and distribution after GMCR has successfully transitioned roasting operations to a new facility

We have a tiered
benefits program to provide increased levels of benefits as the length of employment and numbers of hours worked increases. Employees working between 17.5 and 24 hours are eligible for sick pay, a limited medical/dental program, and other benefits.
Employees who work at least 24 hours per week are eligible for vacation, holidays, medical and dental insurance and other benefits. Store managers, and district managers participate in incentive pay programs tied to various performance criteria.
Bonuses for store and district managers are based upon coffeehouse sales, profit and customer service standards. Because of our commitment to customer service, if a store or district managers score in customer service is below the required
minimum, no bonus is given regardless of the score in other areas. Most employees receive discounts on their purchases of beverages and merchandise in our stores. None of our employees are represented by a labor union and management anticipates this
will continue to be the case. Tullys believes that its current relations with employees are satisfactory.

We believe that training
and developing our coffeehouse employees and retail managers is essential to fulfilling our mission of creating the Tullys genuine community coffeehouse experience for our customers. Delivering superior, personalized customer service reflects
the soul of who we are as a company. We have specific in-store and classroom training requirements for all new retail store employees. Our Tullys University training program provides our more experienced employees with advanced
training in coffee history and our roasting techniques, beverage preparation, cash handling, cash register and paperwork procedures, sales techniques, and customer service. We also provide advanced training programs for our store and district
managers and train the trainers programs for our training staff.

To promote operational and cultural consistency with
company-operated stores, we require our franchisees to undergo similar training before opening their first coffeehouse and to provide ongoing classroom and in-store training to their coffeehouse employees. Employees at franchised locations generally
complete a certification process that is comparable to the program that we offer to our coffeehouse employees.



9



---

##### Table of Contents

Competition

With the exception of Starbucks, which leads the retail specialty coffee segment, the industry is highly fragmented and contains no other company with a strong national brand. In addition to Starbucks, on the retail level we compete with
regional coffeehouses, such as Coffee Bean & Tea Leaf and Peets Coffee & Tea, as well as numerous local coffee shops, convenience stores, restaurants, street vendors and, to a certain degree, quick service restaurants such as
McDonalds and Krispy Kreme. In addition, consumers may choose non-coffee food and beverages offered by these and other competitors as alternatives to our offerings.

We believe that our customers choose among coffeehouses based upon the quality and variety of the coffee and other products, store atmosphere and convenience, customer service and, to a lesser extent, price. We expect
the gourmet coffee market to become even more competitive, both within our primary geographic markets and in other regions of the United States, as regional companies expand and attempt to build brand awareness in new markets and as smaller
participants are consolidated into larger competitors. We believe that there is an opportunity for many companies to compete in the gourmet coffee segment, and that the preferences and needs of consumers, owners of retail store buildings, coffee
growers, coffee store employees, wholesale distributors and other constituents of the specialty coffee industry will support continued competition in this segment.



10



---

##### Table of Contents

|ITEM 1A. | RISK FACTORS
|-------- | ------------

This Annual Report on Form 10-K
contains forward-looking statements, which are based on current expectations and assumptions that are subject to risks and uncertainties. You should carefully consider the risks described below, as well as the other information contained in this
report, including our consolidated financial statements and the notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations. Any of the risks described below could materially and adversely
affect our business, prospects, financial condition and results of operations.

We have a history of losses and expect to incur losses in the
future.

We have experienced significant operating losses since inception, had negative cash flows from operations and had an
accumulated deficit as of March 29, 2009 of approximately $79.2 million.

We have incurred net losses in every year since inception
except for Fiscal 2006 and Fiscal 2009, when we reported net income as a result of a $17.0 and $28.7 million gain on the sale of intellectual property assets in Fiscal 2006 and Fiscal 2009, respectively. We expect to report a net loss for Fiscal
2010 and likely will incur losses in future periods. We will need to increase our net sales at a rate greater than our expenses to achieve profitability. For these reasons, we cannot predict whether we will become profitable in future periods.

We may need to raise additional capital to fund our business.

Our retail and specialty businesses have incurred significant operating expenses and losses. As we continue to operate our business, we expect these losses to continue. We may need to obtain additional financing,
complete another strategic transaction or sell significant assets to provide future capital to fund our business. We may not be able to obtain additional financing in amounts or on terms acceptable to us, if at all.

We require a significant amount of cash, which may not be available to us, to fund our capital and liquidity needs.

For most of the fiscal years since our founding, we have not generated sufficient cash to fully fund operations. We historically have financed this cash
shortfall through the issuance of debt and equity securities, through borrowings, assets sales and through cash provided under our international licensing relationships. We may need to obtain additional financing, complete another strategic
transaction or sell significant assets to provide future capital to fund our business. We may not be able to obtain additional financing in amounts or on terms acceptable to us, if at all.

The proceeds of the sale of our wholesale business to GMCR may be reduced if we are required to indemnify GMCR for damages resulting from our breach of the GMCR
Agreement.

The Green Mountain Transaction required we indemnify GMCR for damages resulting from our breach of the GMCR Agreement,
if any. In general, until March 27, 2010, in the event the Company breaches any of its representations, warranties or covenants, we would be required to indemnify and hold GMCR harmless from and against any and all damages it might incur that
are caused by the breach up to a maximum of $3.5 million. The survival period and our potential liability for breaches of certain of our representations, warranties or covenants are not subject to these limitations.

We are dependent on GMCR for supplies of coffee and related products.

GMCR will use commercially reasonable efforts to supply to us, and we will purchase, all of our requirements of whole bean and ground coffee and other coffee products for an initial term of five years. If GMCR is
unable to supply all of our requirements for coffee and related products or if the pricing under our



11



---

##### Table of Contents

supply agreement with GMCR is not competitive with market prices or if we are unable to maintain specified purchase volumes, our business would suffer.

Moreover, if the supply agreement were terminated, our coffee supplies would be disrupted and we would need to source our coffee from new
vendors, who may be unable or unwilling to match the quality and pricing under the supply agreement. Economic conditions and growth trends in the green coffee industry could materially and adversely affect our ability to obtain an adequate supply of
coffee to supply our license and franchise partners and retail customers.

GMCR acquired all of our intellectual property used in the wholesale
business, including all worldwide rights to the Tullys and Bellaccino names and brands. Our rights to use our names and brands after are subject to our license agreement with GMCR.

Our rights to use the Tullys names and brands in our retail and specialty businesses, including with respect to our franchise business and in
foreign markets, are subject to the terms and conditions set forth in the license agreement. We could lose our exclusive rights to operate retail stores using the Tullys brand and to engage in the wholesale sale of licensed products outside of
North America in certain circumstances. In addition, the license agreement may be terminated by GMCR in the event of any uncured breach by us of a material obligation under the license agreement, and in certain other circumstances. Termination of
the license agreement would have a material adverse effect on our business.

Our failure to compete successfully against current or future
competitors could have a material adverse effect on our business, including loss of customers, declining sales and loss of market share.

The gourmet coffee market is highly competitive. A number of our competitors, Starbucks in particular, have much greater financial and marketing resources, brand recognition and customer bases than us. In the retail specialty coffee
segment, we compete with industry leader Starbucks as well as regional coffeehouses, such as Coffee Bean & Tea Leaf and Peets Coffee & Tea, and local coffee shops, convenience stores, restaurants, street vendors and, to a
certain degree, quick service restaurants such as McDonalds and Krispy Kreme.

We expect the gourmet coffee market to become even more
competitive, both within our primary geographic markets and in other regions of the United States, as regional companies expand and attempt to build brand awareness in new markets and as smaller participants are consolidated into larger competitors.

New products may not be accepted in current or future markets. Failure to achieve market acceptance of new products will adversely affect our
revenues.

Our beverage and food offerings are built around core product families that enable us to introduce new items that we hope
will appeal to a broad range of customers, at different day-parts, to suit different geographic markets and climates. We believe that the introduction of these new products is important to the growth of our revenues for existing stores and future
markets. Acceptance of new products may vary in different geographic markets, and may be not be embraced by customers in our current or future markets. If our new products are not accepted, our operating results would be adversely affected.

If we lose key personnel upon whom we are dependent, we may not be able to manage our operations and meet our strategic objectives.

Many key responsibilities of our business have been assigned to a relatively small number of individuals. Our future success
depends to a considerable degree on the vision, skill, experience and effort of our senior management team. We do not maintain key-person insurance on any of these individuals. Any loss or interruption of the services of any of our key employees
could significantly reduce our ability to effectively manage our operations and implement our strategy.



12



---

##### Table of Contents

Additionally, our founder and chairman, Tom T. OKeefe, is involved in a number of community and
business endeavors unrelated to our business. If Mr. OKeefe focuses his time and attention on these other endeavors without also dedicating the necessary time and efforts to our business, or if Mr. OKeefe is unavailable to us
due to death, disability or any other reason, it could have a significant impact on our efforts to achieve our business goals.

We recently had
significant turnover to our senior management team, and resulting senior management must work together effectively for us to be successful.

In January 2008, we experienced turnover in our senior management team at the CEO, CFO and senior retail and marketing positions. If our new management team, including any additional senior executives who join us in the future, are unable
to work together effectively to implement our strategies, manage our operations and accomplish our business objectives, our ability to grow our business and successfully meet operational challenges could be significantly impaired.

If the Tullys brand is not protected, our business could suffer.

The Tullys brand may be harmed by factors that are outside of our control. For example, customers who purchase our whole bean or ground coffees may improperly store the coffees or prepare beverages from our
coffee incorrectly, in either case potentially affecting the quality of the coffee prepared from our products. If customers do not perceive our products to be of high quality, then the value of the Tullys brand may be diminished and our
ability to implement our business strategy may be adversely affected.

GMCR, the owner of the Tullys brand, may fail to act in a
manner consistent with our expectations and standards. We have no control over GMCRs use of the Tullys brand.

Our franchisees
or TCJ, the owner of our brand in Japan, may fail to operate Tullys coffeehouses in a manner consistent with our standards and requirements. We have no control over TCJs use of the Tullys brand within Japan. Although our franchise
agreements regulate franchisee behavior to some extent, enforcing remedies under franchise agreements typically requires litigation, and our image and reputation may suffer even if such litigation is successfully concluded. If any of our franchisees
acts in a manner inconsistent with our beliefs or preference, it could damage the value of the Tullys brand in that franchisees territory, and such damage could spread to other territories.

Our success also depends in part on our continued ability to use our licensed Tullys trademarks and trade dress in order to increase brand
awareness and further develop the Tullys brand in both domestic and foreign markets. If our efforts to protect our licensed intellectual property rights are not adequate, or if any third party misappropriates or infringes them, the value of
license may be harmed. We may become engaged in litigation to protect our rights, which could result in substantial costs to us as well as the diversion of managements attention.

Our franchisees, and the laws that govern the franchise relationship, could hinder our ability to grow.

We rely on our franchisees to develop territories in which we choose not to open company-operated stores. We rely on their local knowledge to successfully address the needs of their territories. If a franchisee is
unable to address these needs, we may be unable to sustain our presence in new regions.

Many of our franchise agreements grant exclusive
rights to certain territories that last for multiple years. These rights not only prevent other franchisees from operating in the franchised territory, but also could prevent us from opening company-operated stores in the territory. If a franchisee
is slow or fails to open new stores in its territory, we or another franchisee could be prevented or delayed from opening stores in that same territory. If such an event occurs, our ability to implement our business strategy may be adversely
affected.



13



---

##### Table of Contents

We are subject to federal regulation and state laws that govern the offer and sale of franchises and the
franchisor-franchisee relationship. The failure to obtain or retain required licenses or registration approvals to sell franchises could delay or preclude franchise sales and otherwise adversely affect our business, financial condition and results
of operations. Additionally, any franchise law violations may give existing and future franchisees a basis to bring claims against us, which could result in rescission of the franchise agreement, damages or other relief. Assertion of such claims
against us could adversely affect our business, financial condition, and results of operations.

Because of the material changes in
management of the company in early 2008, timing of annual audits, and franchise regulations have been delayed.

The current economic crisis could
adversely impact the Companys business and financial results and have a material adverse impact on our liquidity and capital resources.

As the recent global financial crisis has broadened and intensified, the economy has been affected. As a retailer that is dependent upon consumer discretionary spending, the Company will face an extremely challenging
Fiscal 2010 as customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit and sharply falling home prices. Additionally, many of the effects and consequences of the
global financial crisis and a broader global economic downturn are currently unknown; any one or all of them could potentially have a material adverse effect on the Companys liquidity and capital resources.

We occupy our company-owned stores under long-term leases, and we may be unable to renew leases at the end of the lease periods or obtain new leases on acceptable
terms.

All of our retail stores are located on leased premises or locations otherwise controlled by third parties. Many of our
current leases are non-cancelable and typically have terms of several years. Therefore, we could be required to continue lease payments for a store that we would otherwise wish to terminate. We also may not have the right or option to renew some of
our existing leases. We face intense competition from both restaurants and other specialty retailers for suitable sites for new stores, and if we are unable to renew an existing lease, we would be obligated either to find a new location or close the
coffeehouse. If we negotiate a new lease or lease extension at an existing location, the rent may increase substantially. In either case, our existing operations and operating results could be adversely affected. We intend to lease other premises in
connection with the planned expansion of our retail operations, and we believe leases that we enter into in the future likely will also be long-term and non-cancelable. Additionally, 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. These factors could adversely affect our ability to execute our growth strategy.

We have limited supplier choices for many of our products, and the inability of certain of these suppliers to meet our needs could disrupt our
operations.

We heavily rely on GMCR for coffee roasting, packaging and distribution. In some cases we either have limited or no
replacements readily available for certain of our significant products. Additionally, a significant interruption in GMCR operations of our facility due to a natural disaster, such as an earthquake, or other causes, such as an extended breakdown of
our production equipment, would significantly impair our ability to operate our business on a day-to-day basis and would adversely affect our operating results.

In addition, we use local bakeries to supply our stores with bakery items. These bakeries typically have limited capital resources to fund growth, and therefore may be unable to meet our needs as we grow. Small
bakeries are generally more sensitive to increases in prices for raw ingredients for their products as compared to larger, commercial operations. Furthermore, as we enter new markets, we may be unable to find quality, local



14



---

##### Table of Contents

bakeries that meet our needs. If this occurs we may not be able to offer bakery products in coffeehouses in that area, or we could be forced to purchase
bakery products at higher costs or of lower quality elsewhere, either of which could adversely affect our operating results.

Our business is
dependent on a healthy economic climate in our principal geographic markets.

Our product offerings are discretionary items in our
customers budgets. Adverse economic trends may cause consumers to reduce their discretionary spending, which could have an adverse impact on our revenues. We are particularly susceptible to economic downturns in our principal geographic
markets. Given our geographic concentration in the Seattle and San Francisco markets, an economic downturn in those regions could have a material adverse effect on our business and operations throughout the region, as could other regional economic
disruptions.

We face the risk of adverse publicity and litigation, actual or threatened, in connection with our products and operations.

We may from time to time be subject to complaints or actual or threatened litigation from consumers alleging illness, injury or other food
quality, health or operational concerns. Adverse publicity resulting from these allegations may materially adversely affect us, regardless of whether the allegations are valid or whether we are liable. In particular, instances of food-borne illness
whether or not traced to our stores or products, could reduce demand for our menu offerings, hurt our brand image or lead to litigation and liability. If any of our customers become ill from consuming our products, the affected stores may be forced
to close or a product recall may be required. In addition, employee claims against us based on, among other things, discrimination, harassment or wrongful termination may divert financial and management resources that would otherwise be used to
benefit our future performance. There is also a risk of litigation from our franchisees with regard to the terms of our franchise arrangements. We have been subject to a variety of claims from time to time, and future claims could materially
adversely affect our business, prospects, financial condition, operating results or cash flows.

We are subject to numerous and changing government
regulations. Changes in, or failure to comply with, these regulations could negatively affect our sales, increase our costs, result in fines or other penalties against us or harm our growth strategy.

Each retail location is subject to licensing and reporting requirements by a number of governmental authorities. These governmental authorities include
federal, state and local health, environmental, labor relations, sanitation, building, zoning, fire, safety and other authorities that have jurisdiction over the development and operation of our retail locations. Our activities are also subject to
the Americans with Disabilities Act and related regulations, which prohibit discrimination on the basis of disability in public accommodations and employment. Changes in any of these laws or regulations could have a material adverse effect on our
business, financial condition and results of operations. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of facilities for an indeterminate period of time, or third party
litigation, any of which could have a material adverse effect on us and our results of operations.

We have incurred and will continue to incur
substantial costs to comply with the requirements of the Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act of 2002 (the Act)
introduced new requirements regarding corporate governance and financial reporting. Among the many requirements of the Act is for management to annually assess and report on the effectiveness of our internal control over financial reporting under
Section 404(a) and for our registered public accountant to attest to this report under Section 404(b). The SEC has modified the effective date and adoption requirements of Section 404(a) and Section 404(b) implementation for
non-accelerated filers



15



---

##### Table of Contents

multiple times, such that we were first required to issue our management report on internal control over financial reporting in this annual report on
Form 10-K for the fiscal year ending March 30, 2008. We are currently required to have our auditor attest to managements assessment beginning for our fiscal year ending March 28, 2010.

Our ability to use our net operating loss carryforwards may be subject to limitation.

An ownership change, which may occur if there is a transfer of ownership exceeding 50% of our outstanding shares of common stock in any three-year period,
may lead to a limitation on the usability of, or a potential loss of some or all of, our net operating loss carryforwards or NOLs.

Because the regulations governing NOLs are highly complex and may be changed from time to time, and because our attempts to prevent an ownership change from occurring may not be successful, the NOLs could be limited or lost. To
the extent the NOLs become unavailable to us; our future taxable income and that of any consolidated affiliate will be subject to federal income taxation, thus reducing funds otherwise available for corporate purposes.

Risks Relating to Our Industry

Fluctuations in the
availability and cost of the products used by our stores may affect our results of operations.

Our future success depends to a
large extent upon the availability of high-quality green Arabica coffee beans at reasonable prices. The cost of our coffee beans is subject to a range of factors, many of which are beyond our control. Coffee prices generally increased for the 2009
season. There has been increasing demand for Arabica coffee beans that could put additional upward pressure on prices or limit the quantities available to us. Natural events, civil unrest and labor issues or shipping disruptions could interrupt the
supply of these premium beans or affect the cost. Green coffee bean prices have been affected in the past, and could be affected in the future, by the actions of organizations that have attempted to influence commodity prices of green coffee beans.

In addition, increases in the cost of other raw materials (such as paper and dairy), natural resources (such as energy and gasoline) or
the price we pay for our baked goods, could result in an increase in the costs of the products served in our stores. Our ability to raise prices in response to rising costs of coffee beans or other raw ingredients may be limited, and our
profitability could be adversely affected if the costs of our inputs were to rise substantially. Moreover, passing price increases on to our customers could result in losses in sales volume or margins in the future. Rapid, sharp decreases in the
cost of our raw ingredients could also force us to lower sales prices before we have realized cost reductions in our inventory. Such cost fluctuations could adversely affect our gross margins, or force us to increase the retail and wholesale prices
for our products.

Increasing labor costs could adversely affect our results of operations and cash flows.

Many of our employees are hourly employees whose wages may be affected by increases in the federal, state or municipal living wage rates.
Numerous proposals have been made on federal, state and local levels to increase minimum wage levels. An increase in the minimum wage may create pressure to increase the pay scale for our employees, which would increase our labor costs and those of
our franchisees.

We face significant competition in recruiting qualified employees and managers for our retail stores. A shortage in the
labor pool, an increase in the costs of employee benefits or other general inflationary pressures could also increase labor costs. In addition, changes in labor laws or reclassifications of our employees from management to hourly employees could
affect our labor cost. An increase in labor costs could have a material adverse effect on our results of operations and cash flows if we are unable to recover these increases by raising the prices we charge our customers.



16



---

##### Table of Contents

Many companies in our industry face various lawsuits filed by hourly, nonexempt employees alleging
various violations of wage and hour employment laws, including without limitation, overtime pay, missed meal and rest periods, and tip sharing. We are currently facing a lawsuit in California filed by a former store employee alleging that
Tullys failed to provide adequate meal and rest periods for its employees. The plaintiff is seeking class action certification on behalf of all hourly employees in Tullys California stores. The details of this particular lawsuit are more
fully described in Legal Proceedings.

The products we serve contain certain ingredients, the health effects of which are not fully
understood.

Our gourmet coffees and many of our other beverages contain caffeine and other ingredients, the health effects 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. Harmful effects of caffeine consumed by pregnant women are also the subject of several research studies.

We
also serve products that contain ingredients other than caffeine, such as sugars, fats, and carbohydrates. Public interest groups have focused attention on the marketing of high-fat and high-sodium foods to children in a stated effort to combat
childhood obesity.

An unfavorable report or public opinion on the health effects of the ingredients used in our products, particularly
caffeine, could significantly reduce the demand for our products, which could harm our business and reduce our sales and profitability.

Consumer
preferences related to coffee, dairy and bakery products could adversely affect our revenues or our costs.

Because our business is
predominantly dependent on a single product, gourmet coffee, we are vulnerable to changes in consumer preferences and economic conditions that could harm our financial results. Consumer preferences can change rapidly and without warning, moving from
one trend to another among many product or retail concepts. Shifts in consumer preferences away from the gourmet coffee segment would have a material adverse effect on our results of operations. Our continued success will depend in part on our
ability to anticipate, identify and respond quickly to changing consumer preferences and economic conditions.

Risks Related to Our Capital Stock

There is no trading market for our stock, and no assurance such a market will develop in the future.

There is no public market for our common stock or our preferred stock. Consequently, the liquidity of an investment in our capital stock is limited. We
cannot offer any assurance that an active trading market for our common stock will develop or how liquid that market may become.

Our two largest
shareholders have significant influence over matters subject to shareholder vote and may support corporate actions that conflict with other shareholders interests.

As of March 29, 2009, we had approximately 5,000 owners of record of our common stock. Notwithstanding this large number of shareholders, as of
May 31, 2009, Mr. Tom T. OKeefe, our founder and chairman, beneficially owned approximately 14.5% of our common stock, and the estate of Mr. Keith McCaw beneficially owned approximately 5.0% of our common stock. The
ownership position of Mr. OKeefe and the estate of Mr. McCaw gives each of these shareholders individually, and on a combined basis if acting in unison, the ability to significantly influence or control the election of our directors
and other matters brought before the shareholders for a vote, including any potential sale of Tullys. The voting power held by Mr. OKeefe and by the estate of Mr. McCaw could prevent or significantly delay another company from
acquiring or merging with us, even if the acquisition or merger was in the best interests of our shareholders.



17



---

##### Table of Contents

Payment of liquidation preferences to holders of our Series A Preferred Stock could result in little or no proceeds
remaining available for other shareholders.

Our articles of incorporation provide that our Series A Preferred stock is senior to
the shares of common stock for a stated dollar amount of liquidation preferences, and the Series B Preferred stock is junior to a stated dollar amount of liquidation preference of both the Series A Preferred stock and the shares of common stock. If
we were acquired or sold all or a substantial portion of our assets at a time when our preferred stock is outstanding, the amounts remaining for distribution to shareholders might be less than the aggregate liquidation preferences of the more senior
shareholders, and no amounts might be available for distribution to the more junior shareholders.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not Applicable.



|ITEM 2. | PROPERTIES
|------- | ----------

As of March 29, 2009, Tullys
operated eighty retail stores in the United States, all of which are located on property leased by or otherwise provided to us. We lease approximately 80,000 feet of office and warehouse space in Seattle, Washington, to house our headquarters,
distribution facilities pursuant to a ten-year lease expiring May 2010 and subject to two five-year options to renew. We expect to reduce the amount of leased space of approximately 80,000 feet to 15,000 at our current facility in May 2010.

No later that September 27, 2009, as per the terms of the Green Mountain Transaction, we continue to operate for the benefit and
financial obligation of GMCR, the roasting and distribution facility until GMCR successfully transitions into a new facility.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

In April 2001, Tullys
granted UCC Ueshima Coffee Company, Ltd. (UCC) a license to establish and operate Tullys specialty coffee stores, including a license to use Tullys business names, trademarks and intellectual property rights for purposes of
establishing and operating Tullys stores, and to sell Tullys coffee at wholesale, in 25 Asian territories (excluding Japan which is served by Tullys Coffee Japan).

Since the license agreement was executed in April 2001, UCC had opened one Tullys store, which it closed in 2004. UCC had not established nor
operated any other Tullys stores nor engaged in wholesale sales of Tullys products within its territory. Tullys attempted to find a mutually satisfactory resolution to this problem with UCC, but these efforts were not successful.
In June 2006, Tullys notified UCC that it had breached the license agreement, and on November 7, 2006, UCC filed a lawsuit in the United States District Court for the Western District of Washington. The suit alleged that Tullys had
breached the license agreement by, among other things, terminating the license agreement for UCCs non-performance and sought a declaration that UCC was not in breach of the license agreement, that Tullys was in breach, and that UCC was
entitled to enforce its alleged security interest as to certain of Tullys assets that were subject to the license agreement (namely, the Asian trademarks and the right to use Tullys intellectual properties in the territories).

On January 7, 2008, Tullys and UCC entered into a settlement agreement to settle that lawsuit. Under the settlement agreement,
the parties agreed to a mutual release of claims and to the dismissal of the lawsuit with prejudice. UCC also assigned all of its rights and interest under the 2001 license agreement to Tullys. The settlement agreement was finalized and became
effective on January 7, 2008. In consideration for the settlement, Tullys agreed to pay $6.0 million to UCC, consisting of $2.0 million paid to UCC on January 8, 2008, and a $4.0 million promissory note issued by Tullys Coffee
Asia Pacific, Inc. (TCAP), a wholly owned subsidiary



18



---

##### Table of Contents

of Tullys, to UCC. The promissory note was paid in full on March 27, 2009 as a result of the Green Mountain Transaction.

In December 2007, a lawsuit was filed against Tullys in California state court by a former store employee alleging that Tullys failed to
provide meal and rest periods for its employees. We anticipate that the plaintiff will seek class action certification on behalf of all hourly employees in Tullys California stores. The plaintiff is seeking damages, restitution,
injunctive relief, and attorneys fees and costs. Similar lawsuits alleging missed meal and rest periods have been filed in California against many other companies. We are investigating the claims and intend to vigorously defend this
litigation, but cannot predict the financial impact to us of the litigation at this time. We believe that Tullys has complied with all laws that require providing meal and rest periods for its employees. We have accrued $400,000 as of
March 29, 2009 to defend this litigation.

We are a party to various other legal proceedings arising in the ordinary course of our
business, but are not currently a party to any other legal proceeding that we believe could have a material adverse effect on our financial position or results of operations.



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

On March 16, 2009 we convened a special meeting of our shareholders to consider and vote on several proposals, as more fully disclosed in our definitive proxy statement filed with the Securities and Exchange Commission on
February 20, 2009. The meeting was adjourned because a quorum was not present. We reconvened the special meeting of our shareholders on March 20, 2009.

At the special meeting, shareholders were asked to approve:

1. the sale of the assets associated with our wholesale business and
supply chain pursuant to an Asset Purchase Agreement, dated as of September 15, 2008, as amended, between Tullys, its wholly-owned subsidiary Tullys Bellaccino, LLC, and Green Mountain Coffee Roasters, Inc., a Delaware corporation;

2. an amendment to our amended and restated articles of incorporation, to clarify that completion of the asset sale would not cause a
liquidating distribution to our shareholders;

3. an amendment to our amended and restated articles of incorporation to enable the board to
determine the amount of any future cash distribution to our shareholders without considering amounts that would be needed, if we were dissolved at the time of the distribution, to satisfy any liquidation rights that are superior to the rights of
those shareholders receiving the distribution; and

4. any proposal to adjourn the special meeting to a later date to solicit additional
proxies in favor of the approval of any or all of the foregoing proposals, if there are insufficient votes for such approval at the time of the special meeting.



19



---

##### Table of Contents

|                                         |  |                      |  |                          |   |  |           |  |            |   |  |                   |  |                       |   |  |           |  |                       |  
|---------------------------------------- |  | -------------------- |  | ------------------------ | - |  | --------- |  | ---------- | - |  | ----------------- |  | --------------------- | - |  | --------- |  | --------------------- | -
|                                         |  | CombinedandConverted |  | % ofCombinedandConverted |   |  | Common    |  | % ofCommon |   |  | Series APreferred |  | % ofSeries APreferred |   |  | Series B  |  | % ofSeries BPreferred |  
|Proposal 1Approve Sale of Assets        | 
|VoteFor                                 |  | 3,602,568            |  | 65.0                     | % |  | 2,120,227 |  | 64.5       | % |  | 8,560,080         |  | 66.9                  | % |  | 2,181,124 |  | 60.9                  | %
|VoteAgainst                             |  | 84,639               |  | 1.5                      | % |  | 37,587    |  | 1.1        | % |  | 213,452           |  | 1.7                   | % |  | 135,100   |  | 3.8                   | %
|VoteWithhold                            |  | 33,580               |  | 0.6                      | % |  | 17,949    |  | 0.5        | % |  | 100,000           |  | 0.8                   | % |  | 12,000    |  | 0.3                   | %
|                                        
|Proposal 2Approve Articles Amendment #1 | 
|VoteFor                                 |  | 3,571,500            |  | 64.4                     | % |  | 2,098,066 |  | 63.8       | % |  | 8,489,080         |  | 66.4                  | % |  | 2,190,124 |  | 61.1                  | %
|VoteAgainst                             |  | 109,880              |  | 2.0                      | % |  | 55,503    |  | 1.7        | % |  | 273,252           |  | 2.1                   | % |  | 126,100   |  | 3.5                   | %
|VoteWithhold                            |  | 39,408               |  | 0.7                      | % |  | 22,194    |  | 0.7        | % |  | 111,200           |  | 0.9                   | % |  | 12,000    |  | 0.3                   | %
|                                        
|Proposal 3Approve Articles Amendment #2 | 
|VoteFor                                 |  | 3,276,637            |  | 59.1                     | % |  | 2,089,040 |  | 63.5       | % |  | 6,484,136         |  | 50.7                  | % |  | 2,170,124 |  | 60.5                  | %
|VoteAgainst                             |  | 426,596              |  | 7.7                      | % |  | 71,000    |  | 2.2        | % |  | 2,378,196         |  | 18.6                  | % |  | 156,100   |  | 4.4                   | %
|VoteWithhold                            |  | 17,555               |  | 0.3                      | % |  | 15,723    |  | 0.5        | % |  | 11,200            |  | 0.1                   | % |  | 2,000     |  | 0.1                   | %



20



---

##### Table of Contents

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Market Information, Holders and Dividends

Currently
there is no public market for Tullys common stock. As of March 29, 2009 there were approximately 5,000 holders of record of Tullys common stock.

Subsequent to the balance sheet date, a special distribution was paid on May 20, 2009, to shareholders of record on the close of business on April 30, 2009. We presently do not have a plan to pay further
distributions or dividends to shareholders . We intend to retain and use earnings, if any, to finance the growth of our business for an indefinite period. Any determination to pay cash dividends will be at the discretion of the board of directors
and will be dependent upon our financial condition, results of operations, capital requirements, restrictions under our borrowing agreements, and such other factors as the board of directors deems relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

(As of March 29, 2009)



|                                                            |  |                                                                                          |  |                                                                           |       |                                                                                                                                        |        
|----------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                               |  | Number of securities to beissued upon exercise ofoutstanding options,warrants and
rights |  | Weighted average exerciseprice of outstanding options,warrants and
rights |       | Number of securitiesremaining available forfuture issuance under equitycompensation
plans(excluding securities reflectedin column (a))
|                                                            |  | (a)                                                                                      |  | (b)                                                                       |       | (c)                                                                                                                                   
|Equity compensation plans approved by security holders      |  |                                                                                          |  |                                                                           |       |                                                                                                                                        |        
|1994 Option Plan                                            |  | 147,455                                                                                  |  | $                                                                         | 4.65  |                                                                                                                                        |       
|2004 Option Plan                                            |  | 195,170                                                                                  |  | $                                                                         | 10.97 |                                                                                                                                        | 117,330
|Equity compensation plans not approved by security holders* |  | 206,350                                                                                  |  | $                                                                         | 0.08  |                                                                                                                                        |       
|                                                            |  |                                                                                          |  |                                                                           |       |                                                                                                                                        |        
|Total                                                       |  | 548,975                                                                                  |  | $                                                                         | 5.22  |                                                                                                                                        | 117,330
|                                                            |  |                                                                                          |  |                                                                           |       |                                                                                                                                        |        



|* | These options were granted by our chairman to employees and third parties and may be exercised to purchase shares of Tullys Common Stock owned by our chairman. We refer to
these options as being granted under the Founders Stock Option Plan. We do not expect any additional options to be granted under the Founders Stock Option Plan.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 1994, Tullys shareholders approved the 1994 Stock Option Plan, pursuant to which we issued incentive or nonqualified stock options to our
employees and directors. In August 1999 our shareholders approved an amended plan (the 1994 Option Plan), which established the maximum number of shares issuable under the 1994 Option Plan and the Employee Stock Purchase Plan at 525,000
shares. The 1994 Option Plan expired on October 19, 2004 (this will not terminate outstanding options). As of March 29, 2009, options for 147,455 shares were outstanding under the 1994 Option Plan and options for 161,889 shares had been
exercised under the 1994 Option Plan, and no shares had been issued under the Employee Stock Purchase Plan.

On September 23, 2004,
the board of directors approved the adoption of the 2004 Stock Option Plan, effective as of November 1, 2004 and subject to shareholder approval. The 2004 Stock Option Plan authorizes the issuance of up to 312,500 shares of common stock under
the 2004 Stock Option Plan and Tullys Employee



21



---

##### Table of Contents

Stock Purchase Plan. The Tullys shareholders approved the 2004 Stock Option Plan in December 2004. As of March 29, 2009, options to purchase
195,170 common shares were outstanding under the 2004 Stock Option Plan.

Stock options are granted solely at the discretion of our board
of directors and are issued at a price determined by our board of directors. The term of each option granted is for such period as determined by our board of directors, but not more than ten years from date of grant. Options are nontransferable and
may generally be exercised based on a vesting schedule determined by our board of directors. Options may be either incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or nonqualified stock options. Our
shareholders also previously approved the Employee Stock Purchase Plan, under which employees would be permitted to purchase common stock from the Company. No offerings have been made to employees under the Employee Stock Purchase Plan.

Recent Sales of Unregistered Securities

Tullys issued and sold securities in the transactions described below during Fiscal 2009.

Stock Issued upon Exercise of
Warrants In Fiscal 2009, we issued 1,914 shares of common stock to one warrant holders for aggregate consideration of $0 due to a net exercise. The offer and sale of these securities was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended, as an offer and sale not involving a public offering.

Conversion of Series A Preferred SharesIn Fiscal 2009, 9 holders of our Series A preferred shares converted 139,500 of their Series A preferred shares into an aggregate of 19,717 shares of common stock. The offer and sale of
these securities were made in reliance on the exemption provided by Section 3(a) (9) under the Securities Act, as amended.

Conversion of Series B Preferred SharesIn Fiscal 2009, 4 holders of our Series B preferred shares converted 29,000 of their Series B preferred shares into an aggregate of 2,875 shares of common stock. The offer and sale of
these securities were made in reliance on the exemption provided by Section 3(a) (9) under the Securities Act, as amended.

Stock Issued upon Settlement of a ClaimIn October 2009 we issued 11,720 shares of our common stock, with an agreed value of $12.00 per share, to 64 members of a settlement class that filed an employment related lawsuit against
us in February 2004. The offer and sale of these securities was made in reliance on the exemption from registration provided by Section 3(a) (10) of the Securities Act of 1933, as amended.



22



---

##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following table sets
forth selected historical consolidated financial data for our company. The selected financial information set forth below under the captions Results of Operations Data for Fiscal 2009, Fiscal 2008, and Fiscal 2007, and the selected
consolidated balance sheet data as of March 29, 2009 and March 30, 2008, have been derived from our audited consolidated financial statements included elsewhere in this report. The selected historical consolidated financial information set
forth below under the captions Results of Operations Data for Fiscal 2006 and Fiscal 2005 and the selected consolidated balance sheet data as of April 1, 2007, April 2, 2006, and April 3, 2005 have been derived from our
audited financial statements that are not included in this report.

The data presented below should be read in conjunction with, and is
qualified in its entirety by reference to, Managements Discussion and Analysis of Financial Condition and Results of Operations and our historical consolidated financial statements and the notes thereto appearing elsewhere in this
report.



|                                                                                                  |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------ | -- | ---------- | - | ------- | ---------- |  | - | ---------- | - |  | -------------- | ------ | -- |  | - | ------- | --
|                                                                                                  |  | FISCAL YEARS ENDED                            |       
|                                                                                                  |  | Fiscal2009                                    |        |    | Fiscal2008 |   |         | Fiscal2007 |  |   | Fiscal2006 |   |  | Fiscal2005 (1) |       
|                                                                                                  |  | (dollars in thousands, except per share data) |       
|Results of Operations Data                                                                        |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Net Sales from continuing operations:                                                             |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Retail                                                                                            |  | $                                             | 38,615 |    |            | $ | 42,897  |            |  | $ | 39,334     |   |  | $              | 38,194 |    |  | $ | 40,102  |   
|Specialty                                                                                         |  |                                               | 430    |    |            |   | (1,952  | )          |  |   | 1,647      |   |  |                | 6,864  |    |  |   | 4,362   |   
|Total                                                                                             |  |                                               | 39,045 |    |            |   | 40,945  |            |  |   | 40,981     |   |  |                | 45,058 |    |  |   | 44,464  |   
|Operating loss from continuing operations                                                         |  |                                               | (8,106 | )  |            |   | (13,955 | )          |  |   | (10,241    | ) |  |                | (1,936 | )  |  |   | (4,592  | ) 
|Income (loss) from continuing operations                                                          |  |                                               | 314    |    |            |   | (16,311 | )          |  |   | (10,527    | ) |  |                | 14,772 |    |  |   | (5,540  | ) 
|Discontinued operations:                                                                          |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Net Sales from discontinued operations                                                            |  |                                               | 39,547 |    |            |   | 28,132  |            |  |   | 20,901     |   |  |                | 13,187 |    |  |   | 9,516   |   
|Income from discontinued operations                                                               |  |                                               | 22,541 |    |            |   | 2,402   |            |  |   | 773        |   |  |                | 651    |    |  |   | 915     |   
|Net income (loss)                                                                                 |  | $                                             | 22,855 |    |            | $ | (13,909 | )          |  | $ | (9,754     | ) |  | $              | 15,423 |    |  | $ | (4,625  | ) 
|Net Income (loss) per share from continuing operations:                                           |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Basic                                                                                             |  | $                                             | 0.10   |    |            | $ | (5.59   | )          |  | $ | (4.61      | ) |  | $              | 6.68   |    |  | $ | (2.64   | ) 
|Diluted                                                                                           |  | $                                             | 0.05   |    |            | $ | (5.59   | )          |  | $ | (4.61      | ) |  | $              | 2.30   |    |  | $ | (2.64   | ) 
|                                                                                                  |  |                                               |        |    |           
|Shares used in calculation of net income (loss) per share (thousands) from continuing operations: |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Basic                                                                                             |  |                                               | 3,265  |    |            |   | 2,917   |            |  |   | 2,283      |   |  |                | 2,212  |    |  |   | 2,095   |   
|Diluted                                                                                           |  |                                               | 6,478  |    |            |   | 2,917   |            |  |   | 2,283      |   |  |                | 6,434  |    |  |   | 2,095   |   
|                                                                                                  |  |                                               |        |    |           
|Balance Sheet Data                                                                                |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Total assets from continuing operations                                                           |  | $                                             | 29,254 |    |            | $ | 13,708  |            |  | $ | 13,173     |   |  | $              | 16,577 |    |  | $ | 13,977  |   
|Total assets held for sale                                                                        |  |                                               | 0      |    |            | $ | 5,210   |            |  | $ | 4,177      |   |  | $              | 4,950  |    |  | $ | 3,953   |   
|Total assets                                                                                      |  | $                                             | 29,254 |    |            | $ | 18,918  |            |  | $ | 17,350     |   |  | $              | 21,527 |    |  | $ | 17,930  |   
|Long-term obligations (including current portion) from continuing operations (2)                  |  | $                                             | 4,418  |    |            | $ | 15,661  |            |  | $ | 5,206      |   |  | $              | 3,310  |    |  | $ | 6,842   |   
|Long-term obligations (including current portion) from liabilities held for sale                  |  |                                               |       |    |            | $ | 66      |            |  | $ | 91         |   |  | $              | 92     |    |  | $ | 41      |   
|Total Long-term obligations (including current portion) (2)                                       |  | $                                             | 4,418  |    |            | $ | 15,727  |            |  | $ | 5,297      |   |  | $              | 3,402  |    |  | $ | 6,883   |   
|Stockholders equity (deficit)                                                                    |  | $                                             | 6,766  |    |            | $ | (19,424 | )          |  | $ | (4,109     | ) |  | $              | 5,127  |    |  | $ | (10,689 | ) 
|                                                                                                  |  |                                               |        |    |           
|Other Data (unaudited)                                                                            |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Comparable Store Sales Increase (Decrease)                                                        |  |                                               | (6.8   | )% |            |   | 5.0     | %          |  |   | 3.9        | % |  |                | (1.9   | )% |  |   | (2.0    | )%
|Retail Store Count at Period End:                                                                 |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Company-operated by Tullys                                                                       |  |                                               | 80     |    |            |   | 93      |            |  |   | 90         |   |  |                | 88     |    |  |   | 92      |   
|Franchisee-operated (U.S.)                                                                        |  |                                               | 87     |    |            |   | 58      |            |  |   | 38         |   |  |                | 23     |    |  |   | 5       |   
|                                                                                                  |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|Total retail store count                                                                          |  |                                               | 167    |    |            |   | 151     |            |  |   | 128        |   |  |                | 111    |    |  |   | 97      |   
|                                                                                                  |  |                                               |        |    |            |   |         |            |  |   |            |   |  |                |        |    |  |   |         |   
|International licensee stores(3)                                                                  |  |                                               | 2      |    |            |   |        |            |  |   |           |   |  |                |       |    |  |   | 245     |   



23



---

##### Table of Contents



Notes for Selected Financial Data



|(1) | Each fiscal year included 52 weeks, except for Fiscal 2005 which had 53 weeks. The 53rd week accounted for $955,000 in net sales in Fiscal 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Long-term obligations (including current portion) at the end of each period shown are summarized as follows:
|--- | ------------------------------------------------------------------------------------------------------------



|                                                                                                    |  |                        |       |            |   |            |  |            |       |            |   |       |  |   |      
|--------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---------- | - | ---------- |  | ---------- | ----- | ---------- | - | ----- |  | - | -----
|                                                                                                    |  | Fiscal Years          
|                                                                                                    |  | Fiscal2009             |       | Fiscal2008 |   | Fiscal2007 |  | Fiscal2006 |       | Fiscal2005
|                                                                                                    |  | (dollars in thousands)
|Credit facility, current portion of long-term debt and UCC obligation and capital lease obligations |  | $                      | 4,267 |            | $ | 12,935     |  | $          | 4,270 |            | $ | 2,209 |  | $ | 2,078
|Long-term debt, net of current portion                                                              |  |                        |      |            |   | 10         |  |            | 19    |            |   | 28    |  |   | 600  
|Capital lease obligations, net of current portion                                                   |  |                        |      |            |   | 30         |  |            | 53    |            |   | 72    |  |   | 112  
|Long-term UCC note payable, net of current portion                                                  |  |                        |      |            |   | 2,310      |  |            |      |            |   |      |  |   |     
|Other liabilities                                                                                   |  |                        | 151   |            |   | 442        |  |            | 955   |            |   | 1,093 |  |   | 1,093
|Convertible promissory note, net of discount                                                        |  |                        |      |            |   |           |  |            |      |            |   |      |  |   | 3,000
|                                                                                                    |  |                        |       |            |   |            |  |            |       |            |   |       |  |   |      
|Long-term obligations (including current portion)                                                   |  | $                      | 4,418 |            | $ | 15,727     |  | $          | 5,297 |            | $ | 3,402 |  | $ | 6,883
|                                                                                                    |  |                        |       |            |   |            |  |            |       |            |   |       |  |   |      



|(3) | As the result of the Japan Rights Sale, the Tullys stores operated and franchised by TCJ in Japan are excluded from our franchised and licensed store counts after
August 31, 2005. Tullys and TCJ have agreed to cooperate in the development of the Tullys brand for the mutual benefit of the two companies.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

You should read the following discussion and analysis of our financial condition and results of operations for Fiscal 2009, Fiscal 2008, and Fiscal
2007, together with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under Risk Factors and elsewhere in this report.

Business Overview

We are a specialty gourmet coffee
retailer. We generate revenues through two operating divisions:



| |  |  | Retail. Our retail division operates Tullys Coffee retail stores in the United States and generates revenues through the sales of products in these
stores.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Specialty. Our specialty division oversees the franchising of Tullys Coffee retail stores and manages our international joint venture, foreign
licensing, and business development activities. We generate revenues through licensing fees from U.S. and foreign franchisees and sales of products to foreign customers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For most of the fiscal years since our founding, we have not generated sufficient cash to fully fund operations. We historically have financed this cash
shortfall through the issuance of debt and equity securities, through borrowings, asset sales, and through cash provided under our international licensing relationships.

On March 27, 2009, we completed the sale of the assets associated with Tullys business names, trademarks, and wholesale business to Green Mountain Coffee Roasters, Inc. a Delaware Corporation
(GMCR), pursuant to the terms of the previously disclosed Asset Purchase Agreement dated September 15, 2008, as amended by Amendment No. 1 thereto dated November 12, 2008 and Amendment No. 2 thereto dated
February 6, 2009 by and among the TC Global, Inc., GMCR and Tullys Bellaccino, LLC. GMCR paid a total purchase price of $40.3 million for the assets it acquired. The purchase price is subject to an inventory adjustment to be calculated
within 120 days of March 27, 2009 (the Green Mountain Transaction).

Therefore, the Company classified the results of
operations for the wholesale operations in discontinued operations, in accordance with the guidance provided in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS 144) 9. The discontinued
operations represent only those pertaining to the Green Mountain Transaction, and do not include any results relating to those activities which are expected to continue under the license agreement due to this continuing involvement.

In connection with the closing of the Green Mountain Transaction, we entered into a Supply Agreement, a License Agreement, and a Noncompetition Agreement
with GMCR. Tullys secured a perpetual license to use the Tullys brand and other trade names, trademarks and service marks in connection with certain (i) retail operations worldwide (excluding Japan) and
(ii) wholesale operations outside of North America, utilizing an exclusive coffee supply arrangement. Tullys current shareholders and executive management team continue to own and operate the Companys domestic retail business
(company owned, franchised and licensed retail store locations) and international retail and wholesale businesses.

In connection with the
Green Mountain Transaction, and as previously disclosed, we changed our Company name to TC Global, Inc.



25



---

##### Table of Contents

We believe we have significant growth opportunities in our ongoing operations, which we intend to pursue
by implementing the following strategies:

Drive comparable store sales growth by executing on our fundamental retail strategies.

We intend to drive comparable store sales and average unit volume growth by executing on our fundamental retail strategies to
increase store traffic and average transaction size.

Execute our franchising strategy to expand our geographic footprint.

Our franchising strategy focuses on adding franchised stores in market areas and venues that complement our company-operated stores. We
have used franchising to extend our presence in special venues, such as grocery stores, airports, hotels, and university campuses. We also are pursuing multi-unit area agreements with experienced, well-capitalized franchisees, to open
Tullys-branded coffeehouses in markets not targeted for development directly by us. We have implemented this approach successfully in the Idaho market, where our area developer has opened six franchised stores (since the November 2005
inception of our franchising arrangement). We hope to achieve similar success in Spokane, Washington, Southern California, and in the Portland, Oregon metropolitan area, with our new area developers.

Leverage international opportunities.

Our international growth strategy emphasizes joint ventures and licensing relationships with companies situated in promising foreign markets, and sales of coffee and other products to those partners. We believe the success of our former
licensee, Tullys Coffee Japan, demonstrates the broader opportunity available to us in foreign markets.

Our Company History

Since our founding in 1992, our objective has been to make our gourmet coffees and genuine community coffeehouse experience the first choice for consumers
in our markets. To achieve this goal, we have made significant investments in marketing and building our brand and have concentrated on opening company-operated retail stores and developing our wholesale and specialty business. We have filed reports
under the Securities Exchange Act of 1934 since 1999.

Between 1992 and 2001, we expanded to 114 company-operated stores. During this
period, we financed our retail expansion by raising over $60 million in equity securities and convertible debt, and licensing fees paid to us by foreign licensees of over $17 million, Between Fiscal 2001 and 2003, our financial performance was
negatively impacted by the economic downturn that affected Seattle and San Francisco. During the same period, the market for new equity issues deteriorated significantly. To manage through this period and these challenges, rather than to seek
additional and potentially dilutive growth capital, we chose to reduce normal operating expenses by closing certain under-performing stores and slowing our new store development plans to preserve capital. Between Fiscal 2002 and 2006, we streamlined
aspects of our operations and emphasized less capital intensive business opportunities such as wholesale and franchising. From Fiscal 2006 to Fiscal 2009, we undertook a strategic business review and began implementing initiatives to improve our
financial position and create a foundation for future growth which included the sale of our wholesale business and tradenames for $40.3 million.

Trends
in Our Business

Retail Division.

Tullys has eighty company-operated retail stores and eighty-seven franchised stores in Washington, California, Arizona, Oregon, Idaho, Montana, Utah, Wyoming, and Colorado as of March 29, 2009. Our stores are located in a variety
of urban and suburban neighborhoods, and in the Seattle and San Francisco central business districts. We also operate or franchise smaller footprint stores in special venues, such as within the premises of manufacturing facilities, and kiosks and
cafes that are located in grocery stores, hotels, hospitals and airports and on university campuses.



26



---

##### Table of Contents

We have recently undertaken a strategic review of our retail business. As a result, we are implementing
initiatives to improve our retail operations, store facilities and merchandising strategies. The ongoing goal of our retail division initiatives is to increase retail store average unit volume, increase comparable store sales and improve new store
unit economics. We are simultaneously targeting operational improvements to enhance our retail margins and profitability. All of these initiatives are designed to collectively improve our sales and profitability.

Further, we continue to review of our retail locations and leasing arrangements. Throughout Fiscal 2009 we closed thirteen locations. Some of these store
closures were a result of natural closures on lease arrangements, store refranchising, and lease terminations.

Specialty Division.

Our specialty division oversees the franchising of Tullys Coffee retail stores. Franchising complements our company-operated
retail business by making Tullys genuine community coffeehouse experience more widely available and convenient for customers. Franchising also extends the Tullys brand and promotes consumer familiarity with Tullys products. At
March 29, 2009 there were eighty-seven U.S. franchisee-operated stores, primarily in special venues such as grocery stores, airports, hotels and university campuses.

Additionally, our specialty division oversees our new joint venture which seeks to develop the Tullys brand in Asia (excluding Japan), Australia, foreign licensing, wholesale distribution and other business
activities. As of March 29, 2009 we have franchised two outlets in Singapore.

Revenue Trends

We produce revenues from our retail and specialty operations. Our quarterly sales are summarized as follows:



|            |  |                                  |        |               |   |              |  |               |        |  |   |      
|----------- |  | -------------------------------- | ------ | ------------- | - | ------------ |  | ------------- | ------ |  | - | -----
|            |  | Fiscal Years                    
|            |  | FirstQuarter                     |        | SecondQuarter |   | ThirdQuarter |  | FourthQuarter
|            |  | (unauditeddollars in thousands)
|Fiscal 2008 |  | $                                | 10,575 |               | $ | 10,898       |  | $             | 11,119 |  | $ | 8,353
|Fiscal 2009 |  |                                  | 10,830 |               |   | 10,107       |  |               | 9,049  |  |   | 9,059

Our quarterly U.S. net sales increases as compared to the same quarter in the previous fiscal year
are summarized as follows:



|            |  |              |   |  |               |    |  |              |    |  |               |   
|----------- |  | ------------ | - |  | ------------- | -- |  | ------------ | -- |  | ------------- | --
|            |  | Fiscal Years |  
|            |  | FirstQuarter |   |  | SecondQuarter |    |  | ThirdQuarter |    |  | FourthQuarter |   
|Fiscal 2008 |  | 9.9          | % |  | 10.3          | %  |  | 11.0         | %  |  | 6.4           | % 
|Fiscal 2009 |  | 2.4          | % |  | (7.3          | )% |  | (18.6        | )% |  | (14.0         | )%

Operating Cost Trends

Retail Cost Trends.We experience both variable and fixed cost trends in our retail division cost structure. Cost of products (cost of goods sold), labor cost, occupancy costs other than rent, supplies, and other operating expenses
typically increase or decrease according to broader pricing trends for those products. During Fiscal 2009, we experienced cost increases associated with higher costs for dairy, paper and baked goods, as well as higher energy-related costs. In some
cases, store-level retail operating expenses may increase or decrease depending on the sales volume at a particular location. Generally, our leases provide for periodic rent increases (which are generally leveled for financial reporting purposes by
straight-line rent accounting).



27



---

##### Table of Contents

We undertake certain retail business initiatives with the objective of reducing costs as a percentage of sales through
increased efficiencies and operating leverage. However, initiatives intended to produce a future benefit may cause a short-term increase in costs, both in absolute dollars and as a percentage of sales. We analyze retail division operating costs as a
percentage of store sales.

In connection with the Green Mountain Transaction we entered into a five year supply agreement. We determined that the Supply
Agreement is at market rates, and thus we expect expense trends to following market Arabic coffee rates.

Specialty Cost Trends.Most of our
specialty division costs consist of labor, travel and legal expenses. Labor and travel costs have increased to support our growing U.S. franchise store base as well as the development of stores associated with the Tullys Coffee Asia joint
venture. We also incur legal and compliance costs in connection with our franchising operations. U.S. franchising costs continue to decrease as a percentage of franchise royalty and license revenues as we leverage our investment in franchising
infrastructure and labor, travel and legal expenses while realizing the leverage from a larger franchised store base.

Marketing, General and
Administrative Cost Trends.Most of our marketing expenditures are discretionary in nature and depend on the type, intensity and frequency of the marketing programs we employ. Examples of marketing expenses include point-of-sale materials,
community initiatives, sponsorships and advertising. We expect marketing expenses to decrease as we initiate a limited number of retail programs.

Our
general and administrative costs are less discretionary than our marketing costs. We have determined that we can scale back our development and support spending and maintain a steady level of support to our operations and scale back expenses for our
administrative staff in connection with the Green Mountain Transaction. During Fiscal 2009, we continued to reduce our administrative staff by several positions and implemented other cost savings initiatives.

Retail Performance Measures

Our U.S. retail stores
are summarized as follows:



|                                             |  |              |   |  |            |   |  |            |  
|-------------------------------------------- |  | ------------ | - |  | ---------- | - |  | ---------- | -
|                                             |  | Fiscal Years |  
|                                             |  | Fiscal2009   |   |  | Fiscal2008 |   |  | Fiscal2007 |  
|NUMBER OF STORES:                            |  |              |   |  |            |   |  |            |  
|Company-operated stores                      |  |              |   |  |            |   |  |            |  
|Stores at beginning of the period            |  | 93           |   |  | 90         |   |  | 88         |  
|New stores                                   |  |             |   |  | 5          |   |  | 6          |  
|Closed stores                                |  | (13          | ) |  | (2         | ) |  | (4         | )
|                                             |  |              |   |  |            |   |  |            |  
|End of the period                            |  | 80           |   |  | 93         |   |  | 90         |  
|                                             |  |              |   |  |            |   |  |            |  
|Franchisee-operated stores                   |  |              |   |  |            |   |  |            |  
|Stores at beginning of the period            |  | 58           |   |  | 38         |   |  | 23         |  
|New stores                                   |  | 33           |   |  | 21         |   |  | 15         |  
|Closed stores                                |  | (4           | ) |  | (1         | ) |  |           |  
|                                             |  |              |   |  |            |   |  |            |  
|End of the period                            |  | 87           |   |  | 58         |   |  | 38         |  
|                                             |  |              |   |  |            |   |  |            |  
|Total company-operated and franchised stores |  |              |   |  |            |   |  |            |  
|Stores at beginning of the period            |  | 151          |   |  | 128        |   |  | 111        |  
|New stores                                   |  | 33           |   |  | 26         |   |  | 21         |  
|Closed stores                                |  | (17          | ) |  | (3         | ) |  | (4         | )
|                                             |  |              |   |  |            |   |  |            |  
|End of the period                            |  | 167          |   |  | 151        |   |  | 128        |  
|                                             |  |              |   |  |            |   |  |            |  



28



---

##### Table of Contents

International franchised and licensed stores at the end of each respective fiscal year are set forth in
the table below:



|                                      |  |              |  |            |  |           
|------------------------------------- |  | ------------ |  | ---------- |  | ----------
|                                      |  | Fiscal Years
|                                      |  | Fiscal2009   |  | Fiscal2008 |  | Fiscal2007
|International franchise and licensees |  | 2            |  |           |  |          
|                                      |  |              |  |            |  |           

Our quarterly comparable store sales increases (decreases) over prior years comparable
quarter are summarized as follows:



|            |  |              |    |  |               |    |  |              |    |  |               |   
|----------- |  | ------------ | -- |  | ------------- | -- |  | ------------ | -- |  | ------------- | --
|            |  | Fiscal Years |   
|            |  | FirstQuarter |    |  | SecondQuarter |    |  | ThirdQuarter |    |  | FourthQuarter |   
|Fiscal 2007 |  | (2.5         | )% |  | 4.1           | %  |  | 7.0          | %  |  | 7.1           | % 
|Fiscal 2008 |  | 9.5          | %  |  | 7.6           | %  |  | 8.8          | %  |  | 2.1           | % 
|Fiscal 2009 |  | (0.4         | )% |  | (5.5          | )% |  | (14.1        | )% |  | (7.9          | )%

Results of Operations

As a result of the Green Mountain Transaction, the results of operations for the wholesale operations are reported in discontinued operations, in accordance with the guidance provided in SFAS No. 144.



|                                                  |  |                        |        |            |   |        |            |  |   |       
|------------------------------------------------- |  | ---------------------- | ------ | ---------- | - | ------ | ---------- |  | - | ------
|                                                  |  | Fiscal Years          
|                                                  |  | Fiscal2009             |        | Fiscal2008 |   |        | Fiscal2007
|                                                  |  | (dollars in thousands)
|Continuing Operations:                            |  |                        |        |            |   |        |            |  |   |       
|Net Sales                                         |  |                        |        |            |   |        |            |  |   |       
|Retail store sales                                |  | $                      | 38,615 |            | $ | 42,897 |            |  | $ | 39,334
|Specialty sales of products                       |  |                        | 47     |            |   | 203    |            |  |   | 6     
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Total sales of products                           |  |                        | 38,662 |            |   | 43,100 |            |  |   | 39,340
|Licenses, royalties, and fees                     |  |                        | 383    |            |   | 234    |            |  |   | 201   
|SpecialtyRecognition of deferred revenue         |  |                        |       |            |   | (2,389 | )          |  |   | 1,440 
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Total net sales                                   |  | $                      | 39,045 |            | $ | 40,945 |            |  | $ | 40,981
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Cost of Goods Sold and Related Occupancy Expenses |  |                        |        |            |   |        |            |  |   |       
|Retail cost of goods sold                         |  | $                      | 13,969 |            | $ | 15,697 |            |  | $ | 14,293
|Retail occupancy expenses                         |  |                        | 4,527  |            |   | 5,323  |            |  |   | 5,217 
|Specialty                                         |  |                        | 37     |            |   | 214    |            |  |   | 5     
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Total                                             |  | $                      | 18,533 |            | $ | 21,234 |            |  | $ | 19,515
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Operating Expenses                                |  |                        |        |            |   |        |            |  |   |       
|Store operating expenses                          |  | $                      | 17,546 |            | $ | 19,474 |            |  | $ | 17,911
|Other operating expenses:                         |  |                        |        |            |   |        |            |  |   |       
|SpecialtyU.S. franchising expenses               |  |                        | 700    |            |   | 506    |            |  |   | 419   
|Specialtyinternational division expenses         |  |                        | 406    |            |   | 1,046  |            |  |   | 932   
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Total other operating expenses                    |  | $                      | 1,106  |            | $ | 1,552  |            |  | $ | 1,351 
|                                                  |  |                        |        |            |   |        |            |  |   |       
|Marketing, general and administrative expenses    |  | $                      | 7,742  |            | $ | 10,435 |            |  | $ | 9,641 
|Discontinued Operations                           |  |                        |        |            |   |        |            |  |   |       
|Net sales                                         |  | $                      | 39,547 |            | $ | 28,132 |            |  | $ | 20,901
|Cost of Goods Sold                                |  |                        | 27,920 |            |   | 19,858 |            |  |   | 14,516



29



---

##### Table of Contents

For additional information about our operating divisions, see Note 21 of the Notes to the Consolidated
Financial Statements.



|                                          |  |              |   |  |            |    |  |            |  
|----------------------------------------- |  | ------------ | - |  | ---------- | -- |  | ---------- | -
|                                          |  | Fiscal Years |  
|                                          |  | Fiscal2009   |   |  | Fiscal2008 |    |  | Fiscal2007 |  
|Total Net Sales Metrics                   |  |              |   |  |            |    |  |            |  
|Amounts as Percent of Total Net Sales     |  |              |   |  |            |    |  |            |  
|Retail store sales                        |  | 98.9         | % |  | 104.8      | %  |  | 96.0       | %
|Specialtyinternational product sales     |  | 0.1          | % |  | 0.5        | %  |  | 0.0        | %
|                                          |  |              |   |  |            |    |  |            |  
|Total sales of products                   |  | 99.0         | % |  | 105.3      | %  |  | 96.0       | %
|SpecialtyLicenses, royalties and fees    |  | 1.0          | % |  | 0.6        | %  |  | 0.5        | %
|SpecialtyRecognition of deferred revenue |  |             | % |  | (5.9       | )% |  | 3.5        | %
|                                          |  |              |   |  |            |    |  |            |  
|Total net sales                           |  | 100.0        | % |  | 100.0      | %  |  | 100.0      | %
|                                          |  |              |   |  |            |    |  |            |  
|Retail Metrics                            |  |              |   |  |            |    |  |            |  
|Amounts as Percent of retail store sales  |  |              |   |  |            |    |  |            |  
|Retail cost of goods sold                 |  | 36.2         | % |  | 36.6       | %  |  | 36.3       | %
|Retail occupancy expenses                 |  | 11.7         | % |  | 12.4       | %  |  | 13.3       | %
|Store operating expenses                  |  | 45.4         | % |  | 45.4       | %  |  | 45.5       | %

Fiscal 2009 Compared To Fiscal 2008

Net Sales

Sales of products from
company-operated retail stores decreased $4,282,000, to $38,615,000, due to the effect, $2,888,000 of closing or selling a total of thirteen company-owned retail locations and a decrease in comparable retail stores sales of 6.8% or 2,511,000.

The divisional increase in net sales was comprised as follows:



|                                                                         |  |                                |        |  
|------------------------------------------------------------------------ |  | ------------------------------ | ------ | -
|Total company Fiscal 2009 Compared
To Fiscal 2008 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Retail                                                                   |  | $                              | (4,282 | )
|Specialty                                                                |  |                                | 2,382  |  
|Total company                                                            |  | $                              | (1,900 | )

The retail sales decrease represented a 10.0% decrease compared to Fiscal 2008. For Fiscal 2009
comparable retail store sales declined 6.8% as a result of the economic downturn that negatively impacted our business 14.1% and 7.9% in the quarters ended December 30, 2008 and March 29, 2009, respectively. The factors comprising the
retail sales decrease are summarized as follows:



|                                                                                                            |  |                                |        |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -
|Retail division Components of net
sales increase Fiscal 2009 Compared To Fiscal 2008 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Comparable stores sales decrease                                                                            |  | $                              | (2,511 | )
|Sales increase from new stores                                                                              |  |                                | 1,122  |  
|Sales decrease from stores closed during Fiscal 2009 and Fiscal 2008                                        |  |                                | (2,888 | )
|Other                                                                                                       |  |                                | (5     | )
|Total retail division                                                                                       |  | $                              | (4,282 | )



30



---

##### Table of Contents

Net sales for the specialty division increased by $2,382,000 for Fiscal 2009 as compared to Fiscal 2008,
reflecting the ($2,389,000) net effect from the reversal of previously recognized deferred revenue in relation to the repossession of the licensing right with our UCC settlement in the fourth quarter of Fiscal 2008.

Cost of Goods Sold and Operating Expenses

Cost of goods sold and related occupancy costs decreased $2,701,000, or 12.7%, to $18,533,000 for Fiscal 2009 as compared to Fiscal 2008. Retail cost of goods sold remained steady at 36.2% in Fiscal 2009 as compared to 36.6% in Fiscal 2008
reflecting continued initiatives on product costs, product mix, and discounts reflected in sales for the stored value card loyalty programs. Retail occupancy cost of goods sold decreased from 12.4% in Fiscal 2008 to 11.7% in Fiscal 2009, reflecting
the closing of stores with higher occupancy costs, and opening of stores with lower relative occupancy costs.

Store operating expenses
remained consistent at 45.4% as a percent of retail store sales in both Fiscal 2009 and 2008 as a result of continued initiatives to focus on start-up costs at new stores, and costs associated with programs to improve retail store service levels,
including store staffing and new training programs.

Other operating expenses (expenses associated with all operations other than
company-operated retail stores) decreased $446,000 to $1,106,000 during Fiscal 2009 from $1,552,000 in Fiscal 2008. The decrease reflects $799,000 of legal fees and costs related to the UCC litigation in Fiscal 2008, offset by increased expenses of
$194,000 in FY 2009 related to our U.S. franchise and license business.

Marketing, general and administrative costs decreased
significantly by $1,260,000 or 14.0%, to $7,742,000 during Fiscal 2009 from $9,002,000 in Fiscal 2008. This decrease was primarily due to a $884,000 reduction in labor related expenses coupled with the reduction in IPO offering costs of $1,432,000
in Fiscal 2008. Additionally costs associated with the business improvement initiatives in Fiscal 2008 were cut back, including but not limited to recruiting and job fair activities which decreased $145,000.

Depreciation and amortization expense decreased $481,000, or 27.9%, to $1,705,000 for Fiscal 2009 from $2,186,000 for Fiscal 2008, reflecting a lower
level of depreciable assets in the current period as a result of the sale of asset in connection with the Green Mountain Transaction.

Other Income (Expense)

Interest expense increased $1,118,000 or 52.3% to $3,254,000 for Fiscal 2009 as compared to
$2,136,000 for Fiscal 2008, reflecting a higher average balance on our credit line and Benaroya Credit Facility.

Minority Interest

A gain of $214,000 was attributable to our Limited Partner, AFCM, for Fiscal 2009, no such transaction occurred in Fiscal 2008.

Income Taxes

We experienced an
income tax benefit of $11,474,000 Fiscal 2009, as compared to an expense of $2,000 during Fiscal 2008 reflecting the estimated income tax and Alternative Minimum Tax, or AMT, consequences from the Green Mountain Transaction in Fiscal 2009.

At March 29, 2009, we had federal and state net operating loss carryforwards of approximately $20,800,000 and $9,500,000,
respectively. The federal net operating loss carryforwards expire between 2021 and 2029 and the state net operating losses expire between 2009 and 2030. Our net operating loss carryforwards are one of our deferred income tax assets; however, the
ultimate realization of these deferred income tax assets is dependent



31



---

##### Table of Contents

upon generation of future taxable income. Due to the uncertainty of future taxable income, deferred tax assets resulting from these net operating losses have
been fully reserved. In accordance with SFAS 109, Accounting for Income Taxes, we will assess the continuing need for a valuation allowance that results from uncertainty regarding our ability to realize the benefits of our deferred tax
assets.

Discontinued Operations

Wholesale net sales, which was included in discontinued operations, increased $11,415,000, or 40.6%, to $39,547,000 for Fiscal 2009 from $28,132,000 for Fiscal 2008. The increase reflects sales increase in the grocery channel (due primarily
to growth in the number of grocery retailers selling Tullys coffee, increased sales to current grocery retailers, and sales of our new Bellaccino bottled beverages) and sales of our new K-Cup products.

Wholesale cost of goods sold remained consistent at 70.6% as a percent of wholesale sales in both Fiscal 2009 and Fiscal 2008 reflecting margins
initiatives implemented in throughout the roasting facility in Fiscal 2009.

During Fiscal 2009, Tullys recognized a gain of
$28,656,000 on the Green Mountain Transaction, which did not occur in Fiscal 2008.

Income from discontinued operations increased
$20,139,000 to $22,541,000 for Fiscal 2009, as compared to $2,402,000 for Fiscal 2008. This increase related to our ability to reduce our labor and operating expenses while increasing our net sales by 40.6%, and the related income tax expense of
$12,407,000 reflecting the estimated income tax and Alternative Minimum Tax, or AMT, consequences from the Green Mountain Transaction in Fiscal 2009

Net Income (Loss)

As a result of the factors described above, we had net income of $28,855,000 for Fiscal 2009 as compared
to a net loss of $13,909,000 for Fiscal 2008, an improvement of $42,599,000.

Fiscal 2008 Compared To Fiscal 2007

Net Sales

Total net sales
decreased $36,000 to $40,945,000 for Fiscal 2008, as compared to $40,981,000 for Fiscal 2007. Sales of products increased $3,760,000 or 9.6% to $43,100,000 for Fiscal 2008, as compared to $39,340,000 for Fiscal 2007. Licenses, royalties and fees
increased $33,000 or 16.4% to $234,000 as compared to $201,000 for Fiscal 2007.

The divisional increase in net sales was comprised as
follows:



|                                                                                                |  |                                |        |  
|----------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -
|Total company Fiscal 2008 Compared
To Fiscal 2007 (dollars in thousands)                        |  | Increase(Decrease) inNet Sales |       
|Retail                                                                                          |  | $                              | 3,563  |  
|Specialty (as a result of Fiscal 2006 $4,405 from accelerated recognition of deferred revenues) |  |                                | (3,599 | )
|Total company                                                                                   |  | $                              | (36    | )



32



---

##### Table of Contents

The retail sales increase represented a 9.1% increase compared to Fiscal 2007. For Fiscal 2008 comparable
retail store sales grew 5.0%. The factors comprising the retail sales increase are summarized as follows:



|                                                                                                            |  |                                |        |  
|----------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -
|Retail division Components of net
sales increase Fiscal 2008 Compared To Fiscal 2007 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Comparable stores sales increase                                                                            |  | $                              | 1,824  |  
|Sales increase from new stores                                                                              |  |                                | 2,820  |  
|Sales decrease from stores closed during Fiscal 2008 and Fiscal 2007                                        |  |                                | (1,081 | )
|Total retail division                                                                                       |  | $                              | 3,563  |  

Net sales for the specialty division decreased by $3,599,000 to $(1,952,000) for Fiscal 2008 as
compared to Fiscal 2007, reflecting the ($3,469,000) net effect from the reversal of previously recognized deferred revenue in relation to the repossession of the licensing right with our UCC settlement in the fourth quarter of Fiscal 2008 as
described in Note 12 of the Notes to the Consolidated Financial Statements.

Cost of Goods Sold and Operating Expenses

Cost of goods sold and related occupancy costs increased $1,724,000, or 8.8%, to $21,234,000 for Fiscal 2008 as compared to Fiscal 2007. Retail cost of
goods sold increased from 36.3% in Fiscal 2007 to 36.6% in Fiscal 2008, reflecting increased costs for products sold and product mix. Retail occupancy cost of goods sold decreased from 13.3% in Fiscal 2007 to 12.4% in Fiscal 2008, reflecting the
closing of stores with higher occupancy costs in Fiscal 2008 and opening of stores with lower relative occupancy costs.

Store operating
expenses increased $1,563,000, or 8.7%, to $19,474,000 in Fiscal 2008 from $17,911,000 in Fiscal 2007 as the result of general cost increases and the costs associated with programs to improve retail store service levels, including increases in store
staffing and staff compensation. As a percentage of retail sales, store operating expenses decreased to 45.4% for Fiscal 2008 compared to 45.5% for Fiscal 2007.

Other operating expenses (expenses associated with all operations other than company-operated retail stores) increased $201,000 or 14.9% to $1,552,000 during Fiscal 2008 from $1,351,000 in Fiscal 2007. The increase
reflects $69,000 of additional costs associated with the opening and development of U.S. franchised stores.

Marketing, general and
administrative costs decreased $639,000 or 6.6%, to $9,002,000 during Fiscal 2008 from $9,641,000 in Fiscal 2007. This decrease was primarily due to a $107,000 reduction in stock option expense as well as a $139,000 decrease in marketing costs in
Fiscal 2008.

Depreciation and amortization expense decreased $450,000, or 17.1%, to $2,186,000 for Fiscal 2008 from $2,636,000 for Fiscal
2007, reflecting a lower level of depreciable assets in the current period.

We recognized $1,433,000 of costs relating to our proposed and
terminated underwritten stock offering for Fiscal 2008. We incurred no such expenses in the corresponding period of Fiscal 2007.

Other
Income (Expense)

Interest expense increased $1,793,000 or 522.7% to $2,136,000 for Fiscal 2008 as compared to $343,000 for Fiscal 2007,
primarily as the result of interest expense associated with the Benaroya Note (see Note 11 of the Notes to the Consolidated Financial Statements). Loan Guaranty expense increased to $222,000 for Fiscal 2008 as compared to no such expenses in Fiscal
2007, reflecting the fees paid to a guarantor of the Benaroya Note.



33



---

##### Table of Contents

Income Taxes

Income taxes decreased $15,000 from $17,000 for Fiscal 2007 to $2,000 for Fiscal 2008, reflecting a reduction in payments to local and state authorities.

At March 30, 2008, we had federal and state net operating loss carryforwards of approximately $52.0 million and $15.8 million, respectively. The
federal net operating loss carryforwards expire between 2021 and 2028 and the state net operating losses expire between 2009 and 2028. Our net operating loss carryforwards are one of our deferred income tax assets; however, the ultimate realization
of these deferred income tax assets is dependent upon generation of future taxable income. Due to the uncertainty of future taxable income, deferred tax assets resulting from these net operating losses have been fully reserved. In accordance with
SFAS 109, Accounting for Income Taxes, we will assess the continuing need for a valuation allowance that results from uncertainty regarding our ability to realize the benefits of our deferred tax assets.

Discontinued Operations

Wholesale net sales, which
was included in discontinued operations, increased $7,231,000, or 34.6%, to $28,132,000 for 2008 from $20,901,000 for Fiscal 2007. The increase reflects a $4,430,000 sales increase in the office coffee service channel (reflecting the addition of new
customers and increased sales of our K-Cup products). This increase also reflects a $2,407,000 sales increase in the grocery channel and franchise customer channel (reflecting the additional sales of product to our franchisee locations).

Wholesale cost of goods sold increased from 69.6% of wholesale sales in Fiscal 2007 to 70.6 % in Fiscal 2008 due to a higher percentage of
wholesale sales coming from K-Cups (which have a lower margin than most wholesale products) and higher product costs.

Income from
discontinued operations increased $1,629,000 to $2,402,000 for Fiscal 2008, as compared to $773,000 for Fiscal 2007. This increase is primarily related to our ability to reduce our labor and operating expenses while increasing our net sales by
34.6%.

Net Loss

As a result of the
factors described above, we had a net loss of $13,909,000 for Fiscal 2008 as compared to the net loss of $9,754,000 for Fiscal 2007, an increased net loss of $4,155,000 or 42.6%.



34



---

##### Table of Contents

Liquidity and Financial Condition

Sources and Uses of Cash in our Business

The following table sets forth, for the periods indicated
selected statements of cash flows data:



|                                                                            |  |                        |         |   |            |   |         |            |  |   |        |  
|--------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---------- | - | ------- | ---------- |  | - | ------ | -
|                                                                            |  | Fiscal Years           |        
|                                                                            |  | Fiscal2009             |         |   | Fiscal2008 |   |         | Fiscal2007 | 
|                                                                            |  | (dollars in thousands) |        
|STATEMENTS OF CASH FLOWS DATA                                               |  |                        |         |   |            |   |         |            |  |   |        |  
|Cash provided by (used for):                                                |  |                        |         |   |            |   |         |            |  |   |        |  
|Net income (loss)                                                           |  | $                      | 22,855  |   |            | $ | (13,909 | )          |  | $ | (9,754 | )
|Gain on Green Mountain Transaction                                          |  |                        | (28,656 | ) |            |   |        |            |  |   |       |  
|Franchise revenue repossession and refund provision                         |  |                        |        |   |            |   | 5,295   |            |  |   |       |  
|Adjustments for depreciation and other non-cash operating statement amounts |  |                        | 3,629   |   |            |   | 971     |            |  |   | 2,526  |  
|                                                                            |  |                        |         |   |            |   |         |            |  |   |        |  
|Net loss adjusted for non-cash operating statement amounts                  |  |                        | (2,172  | ) |            |   | (7,643  | )          |  |   | (7,228 | )
|Cash provided by (used) for other changes in assets and liabilities         |  |                        | (6,999  | ) |            |   | 1,138   |            |  |   | 3,321  |  
|                                                                            |  |                        |         |   |            |   |         |            |  |   |        |  
|Net cash used in operating activities                                       |  |                        | (9,171  | ) |            |   | (6,505  | )          |  |   | (3,907 | )
|Cash proceeds from Green Mountain Transaction                               |  |                        | 36,800  |   |            |   |        |            |  |   |       |  
|Purchases of property and equipment                                         |  |                        | (976    | ) |            |   | (2,309  | )          |  |   | (1,763 | )
|Other investing activities                                                  |  |                        | 271     |   |            |   | 6       |            |  |   | (32    | )
|Minority interest in joint venture                                          |  |                        |        |   |            |   | 3,000   |            |  |   |       |  
|Net borrowings (repayments) of Northrim Credit Facility and capital leases  |  |                        | (5,034  | ) |            |   | 42      |            |  |   | 1,624  |  
|Proceeds form the Sale of Development rights in Singapore                   |  |                        | 69      |   |            |   |         |            |  |   |        |  
|Proceeds from the Sale of Development right is Southern California          |  |                        | 400     |   |            |   |         |            |  |   |        |  
|Repayment on UCC note payable                                               |  |                        | (4,120  | ) |            |   | (2,000  | )          |  |   |       |  
|Proceeds from Benaroya Credit Facility                                      |  |                        | (7,482  | ) |            |   | 7,482   |            |  |   |       |  
|Foreign currency translation adjustment                                     |  |                        | (34     | ) |            |   |        |            |  |   |       |  
|Cash in lieu of fractional stock on reverse split                           |  |                        |        |   |            |   | (12     | )          |  |   |        |  
|Proceeds from warrant and stock option exercise                             |  |                        |        |   |            |   | 137     |            |  |   | 127    |  
|                                                                            |  |                        |         |   |            |   |         |            |  |   |        |  
|Net increase (decrease) in cash and cash equivalents                        |  | $                      | 10,723  |   |            | $ | (159    | )          |  | $ | (3,951 | )
|                                                                            |  |                        |         |   |            |   |         |            |  |   |        |  

Overall, our operating activities, investing activities, and financing activities provided
$10,723,000 of cash during Fiscal 2009 as compared to $159,000 of cash used during Fiscal 2008 and $3,951,000 cash used in Fiscal 2007.

In
Fiscal 2009, we completed the sale of the assets associated with Tullys business names, trademarks, and wholesale business to GMCR. We received $36,800,000 million in cash proceeds in this transaction. We used these proceeds to improve our
liquidity without shareholder dilution, repay our debt, provide for a shareholder distribution paid May 20, 2009, and for the development of our domestic retail and franchise and license businesses as well as our international retail,
wholesale, and franchise businesses.

Cash used in operating activities for Fiscal 2009 was $9,205,000, a change of $2,700,000 compared to
Fiscal 2008 when operating activities used cash of $6,505,000. This related primarily to a cash usage of $3,626,000 in accounts payable primarily due to the payment of our wholesale vendors as conditioned under the GMCR Agreement, and the
restriction of $3,500,000 placed in escrow for one year to satisfy Tullys post-closing indemnification obligations to GMCR under the GMCR Agreement

Investing activities provided cash of $36,564,000 in Fiscal 2009, as a result of the sale of the assets associated with Tullys business names, trademarks, and wholesale business to GMCR for cash of $36,800,000.



35



---

##### Table of Contents

Financing activities used cash of $16,636,000 in Fiscal 2009, which included $4,652,000 to pay down our
Northrim Credit Facility, $7,482,000 to pay down the Benaroya Credit Facility, and $4,000,000 to pay down UCC as conditioned under the GMCR Agreement.

Contractual Commitments

We did not have any off-balance sheet arrangements as of March 29,
2009. The following table summarizes our principal financial commitments (other than ordinary trade obligations such as accounts payable and accrued liabilities) as of March 29, 2009:



|                                           |  |                             |        |                 |   |           |  |           |       |                  |   |     |  |   |    
|------------------------------------------ |  | --------------------------- | ------ | --------------- | - | --------- |  | --------- | ----- | ---------------- | - | --- |  | - | ---
|                                           |  | Payments Due by Fiscal Year
|                                           |  | Total                       |        | Less than1 year |   | 1-3 years |  | 3-5 years |       | More than5 years
|                                           |  | (dollars in thousands)     
|Obligation to minority shareholder in TCAP |  | $                           | 4,000  |                 | $ | 4,000     |  |           |      |                  |   |    |  |   |   
|Other debt                                 |  |                             | 267    |                 |   | 267       |  |           |      |                  |   |    |  |   |   
|Store operating leases                     |  |                             | 9,612  |                 |   | 3,713     |  |           | 4,754 |                  |   | 783 |  |   | 362
|                                           |  |                             |        |                 |   |           |  |           |       |                  |   |     |  |   |    
|                                           |  | $                           | 13,879 |                 | $ | 7,980     |  | $         | 4,754 |                  | $ | 783 |  | $ | 362
|                                           |  |                             |        |                 |   |           |  |           |       |                  |   |     |  |   |    

Liquidity and Capital Resources

On March 27 2009, we completed the sale of the assets associated with Tullys business names, trademarks, and wholesale business to GMCR. We
received $40,300,000 million, less $3,500,000 held in Escrow, in cash proceeds in this transaction. We used these proceeds to improve our liquidity without shareholder dilution, repay our debt, provide for a shareholder distribution of $5,988,000
paid May 20, 2009, and for the development of our domestic retail and franchise and license businesses as well as our international retail, wholesale, and franchise businesses.

As of March 29, 2009 we had cash and cash equivalents of $11,994,000, and a working capital of $7,352,000. Historically we have not required a
significant net investment in working capital and operated with current liabilities in excess of our current assets. Our inventory levels are expected to increase during autumn due to holiday season merchandise. Inventories are also subject to
short-term fluctuations based upon the timing of coffee receipts. Tullys expects that its investment in accounts receivable and inventories will increase, primarily as the result of anticipated sales growth in the Specialty division.

Cash requirements for Fiscal 2010, other than normal operating expenses and the commitments described in the condensed consolidated
financial statements and notes and in the Form 10-K, are expected to consist primarily of capital expenditures related to the opening of new company-operated stores and equipment and accounts receivable related to new Specialty division business. We
expect our investment in property and equipment during the remainder of Fiscal 2010 will be between $250,000 and $750,000.

During Fiscal
2010, we expect that the majority of the new Tullys stores will be franchised and licensed stores, rather than company-operated stores. Franchised and licensed stores do not require capital investment in property and equipment by Tullys,
but we do incur selling and support costs for such new stores related to store opening, training, and quality control. We expect to open between two and four new company-operated stores in the remainder of Fiscal 2010. Typically, a new
company-operated store will require capital investment of approximately $100,000 to $400,000, but this varies depending on the specific location.

We believe that the operating cash flows, financing cash flows, and investing cash flows projected for Fiscal 2010, and the cash and cash equivalents of $15,494,000 at March 29, 2009, and our credit facility will be sufficient to fund
ongoing operations of Tullys through Fiscal 2010. We expect our business improvement initiatives and other actions will improve our operating income and cash flow results. However, the timing and



36



---

##### Table of Contents

extent of success for these strategies cannot be predicted with any level of certainty. In order to maintain an appropriate level of liquidity, we expect to
seek additional sources of business funding (such as debt or equity financings) during Fiscal 2011 as a result of meeting such obligations as our obligation to purchase an additional 25% ownership share in our Asian Joint venture for $4,000,000 on
or before March 29, 2010. If the pricing or terms for any new financing do not meet our expectations, we may be required to choose between completion of the financing on such unfavorable terms or not completing the financing.

If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then we could be required to substantially
reduce operating, marketing, general and administrative costs related to our continuing operations, or reduce or discontinue our investments in store improvements, new customers and new products. We could be required to sell stores or other assets
and could be unable to take advantage of business opportunities or respond to competitive pressures. The sale of stores or other income-producing assets could adversely affect our future operating results and cash flows.

Seasonality

Our business is subject
to moderate seasonal fluctuations. Greater portions of Tullys net sales are generally realized during the third quarter of Tullys fiscal year, which includes the December holiday season. Seasonal patterns are generally applicable to both
of our operating divisions. In addition, quarterly results are affected by the timing of the opening of new stores (by Tullys and our franchisees) or the closure of stores not meeting our expectations. Because of these factors, results for any
quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. The sale of the wholesale business may have an unexpected impact on the historical seasonality trends of our business.

Application of Critical Accounting Policies

We have
identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout
Managements Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies,
see Note 1 of the Notes to the Consolidated Financial Statements. Note that our preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure
of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. We believe the following critical accounting policies affect our more significant judgments and estimates used in our consolidated financial
statements, and should be read in conjunction with the Consolidated Financial Statements. Our critical accounting policies relate particularly to (1) revenue recognition, (2) evaluation of long-lived assets for impairment,
(3) recognition and measurement of lease termination reserves and (4) share based payments.

Revenue recognition

Sales are generally recognized at the time of the sale at retail store locations. Customer payments received on the issuance and
replenishment of our Tullys coffee cards (stored value payment cards) are deferred and recognized as revenues when the cards are redeemed, net of the estimated amounts of customer incentives and discounts associated with the cards.
Managements judgment is involved in determining the applicable timing for recognition of these incentives and discounts in revenues. Sales of product for specialty divisions are recognized upon shipment of the products.



37



---

##### Table of Contents

Revenues from advance license fees and similar agreements are recognized on the straight-line basis over
the expected life of the agreements. Managements judgment is involved in determining the applicable amortization periods for these advance license fees. Royalty revenues for specialty licensees are recognized in accordance with the license
agreements based upon sales at specific licensee store locations. Initial franchise fees for new stores franchised by Tullys are recognized when Tullys has completed the services required to earn these fees and make them non-refundable,
which is generally upon opening of a store. Royalty revenues from franchisee operated stores are recognized according to the relevant franchise agreements.

Evaluation of long-lived assets for impairment and assets held for sale

We periodically review the
carrying value of our long-lived assets for continued appropriateness. This review is based upon our projections of anticipated future cash flows. We record impairment losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those items. Our cash flow estimates are based on historical results adjusted to reflect our
best estimate of future market and operating conditions. While we believe that our estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect our evaluations. The net carrying value of
assets not recoverable are reduced to their fair value. Our estimates of fair value represent our best estimate, based primarily on discounted cash flows.

Assets and liabilities to be disposed of by sale are, among other factors, classified as Held for Sale at which point management has committed to a plan for the disposition, the sale is probable and
expected to occur within 12 months and the assets are in sellable condition.

Recognition and measurement of lease termination reserves

Periodically, we will determine that certain leases will be terminated and the store or other operation will be closed. At the time
when agreements are reached, we accrue for the net future minimum lease payments of the related lease agreements. Amounts accrued as net future minimum losses include the discounted estimated future rental payments and lease termination fees, and
estimated sub-lease recoveries.

Share Based Payments

We grant stock options to purchase our common stock to certain employees under the 2004 Stock Option Plan. Additionally, we have outstanding options that were granted under an earlier stock option plan. The
determination of fair value of stock option awards on the date of grant using the Black-Scholes model is affected by our stock price and subjective assumptions. These assumptions include, but are not limited to, the expected term of stock options
and expected stock price volatility over the term of the awards. Our stock options have characteristics significantly different from those of traded options, and changes in the assumptions can materially affect the fair value estimates.

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. When actual forfeitures vary from our estimates, we recognize the difference in compensation expense
in the period the actual forfeitures occur or when options vest.

New Accounting Standards

In December 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements(SFAS 157). SFAS 157 defines fair value, establishes a market-based framework or hierarchy



38



---

##### Table of Contents

for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement
requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however, the application of this statement may change current practice. The requirements of SFAS 157
are effective for our fiscal year beginning March 31, 2008. The adoption of SFAS 157 had no impact on our condensed consolidated financial position, results of operations, cash flows or financial statement disclosures. See also discussion
of the interpretation of this pronouncement below.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations
(FAS 141R). FAS 141R retains the fundamental requirements in FAS 141 that the acquisition method of accounting (which FAS 141 called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. FAS 141R also establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree; (b) improves the completeness of the information reported about a business combination by changing the requirements for recognizing assets acquired and liabilities assumed arising from
contingencies; (c) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (d) determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. FAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008 (for acquisitions closed on or after January 1, 2009 for the Company). Early application is not permitted. We have not yet determined the impact, if any, FAS 141R will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of
Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (currently referred to as minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, SFAS 160 establishes a single method of accounting for changes in a parents ownership interest in a subsidiary that do not result in deconsolidation by requiring that ownership transactions not
resulting in deconsolidation be accounted for as equity with no gain or loss recognition in the income statement. SFAS 160 also requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated, which is the date the
parent ceases to have a controlling financial interest in the subsidiary. SFAS 160, which is effective for the Company at the beginning of the fiscal year 2010, is to be applied prospectively upon adoption except for the presentation and disclosure
provisions, which require retrospective application for all periods presented. The presentation provisions require that (1) the noncontrolling interest be reclassified to equity, (2) consolidated net income be adjusted to include the net
income attributed to the noncontrolling interest and (3) consolidated comprehensive income be adjusted to include the comprehensive income attributed to the noncontrolling interest. The Company is evaluating the impact the adoption of SFAS 160
will have on its consolidated financial statements and related disclosures.

In February 2008, the FASB issued Staff Position
(FSP) No. FAS 157-b, Fair Value Measurements. This FSP delays the effective date of SFAS 157 until January 1, 2009 for all nonfinancial assets and liabilities, except those recognized or disclosed at fair value
in the financial statements on a recurring basis. Nonfinancial assets and liabilities include, among other things: intangible assets acquired through business combinations; long-lived assets when assessing potential impairment; and liabilities
associated with restructuring activities. The adoption of SFAS 157-b had no impact on our condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including
Partial Cash Settlements). This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB 14, Accounting for Convertible Debt and
Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and



39



---

##### Table of Contents

equity components in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest is recognized in subsequent periods. This
FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not expect the adoption of FSP No APB 14-1 to have a material effect on its
consolidated financial position or results of operations.

In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active.This FSP clarifies the application of FASB Statement No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of SFAS 157-3 had no impact on our condensed consolidated financial position, results of operations, cash
flows or financial statement disclosures.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

The supply and price of coffees are subject to significant volatility and can be affected by multiple factors in green coffee 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 bean supplies worldwide. Because we purchase the majority of our coffee under a Supply Agreement with GMCR we are limited to offsetting the cost exposure of the main commodity used in our business, as we are unable to
enter into fixed-price purchase commitments with other roasters. We estimate that a ten percent increase in coffee bean pricing could reduce operating income by $250,000 to $350,000 annually if we were unable to adjust our retail prices.

We currently have no foreign currency exchange rate exposure related to our purchasing of coffee beans because all transactions are denominated in
U.S. dollars.



40



---

##### Table of Contents

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

The
following consolidated financial statements, and related notes thereto, of TC Global, Inc., and the Report of Independent Registered Public Accounting Firm, are filed as a part of this Annual Report on Form 10-K.

Index to Consolidated Financial Statements



|                                                                                                                                            |  |           
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                                                            |  | PageNumber
|Report of Independent Registered Public Accounting Firm                                                                                     |  | 42        
|Consolidated Balance Sheets as of March 29, 2009 and March 30, 2008                                                                         |  | 43        
|Consolidated Statements of Operations for the years ended March 29, 2009, March 30, 2008, and April 
1, 2007                                |  | 44        
|Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended March 
29, 2009, March 30, 2008, and April 1, 2007 |  | 45        
|Consolidated Statements of Cash Flows for the years ended March 29, 2009, March 30, 2008, and April 
1, 2007                                |  | 48        
|Notes to Consolidated Financial Statements                                                                                                  |  | 50        



41



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

TC Global, Inc. (formerly
Tullys Coffee Corporation)

We have audited the accompanying consolidated balance sheets of TC Global, Inc. as of March 29, 2009 and
March 30, 2008 and the related consolidated statements of operations, stockholders equity (deficit) and cash flows for each of the periods ended March 29, 2009, March 30, 2008 and April 1, 2007. These consolidated 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of
TC Global, Inc. as of March 29, 2009 and March 30, 2008, and the consolidated results of its operations and its cash flows for each of the periods ended March 29, 2009, March 30, 2008 and April 1, 2007, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Moss Adams LLP

Seattle, Washington

June 29, 2009



42



---

##### Table of Contents

TC GLOBAL, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ------------- | - | -------- | -
|                                                                                                                                                                                                                                                                     |  | March 29,2009                            |         |   | March 30,2008 |  
|                                                                                                                                                                                                                                                                     |  | (dollars in thousands,except share data) |        
|Assets                                                                                                                                                                                                                                                               |  |                                          |         |   |               |   |          |  
|Current assets                                                                                                                                                                                                                                                       |  |                                          |         |   |               |   |          |  
|Cash and cash equivalents                                                                                                                                                                                                                                            |  | $                                        | 11,994  |   |               | $ | 1,271    |  
|Escrow Receivable                                                                                                                                                                                                                                                    |  |                                          | 3,500   |   |               |   |         |  
|Accounts receivable, net of allowance for doubtful accounts of $578 and $321 at 2009 and 2008, respectively                                                                                                                                                          |  |                                          | 6,617   |   |               |   | 5,372    |  
|Inventories                                                                                                                                                                                                                                                          |  |                                          | 1,112   |   |               |   | 1,317    |  
|Prepaid expenses and other current assets                                                                                                                                                                                                                            |  |                                          | 538     |   |               |   | 603      |  
|Related party receivable                                                                                                                                                                                                                                             |  |                                          | 1,162   |   |               |   |         |  
|Assets held for sale                                                                                                                                                                                                                                                 |  |                                          |        |   |               |   | 5,210    |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Total current assets                                                                                                                                                                                                                                                 |  |                                          | 24,923  |   |               |   | 13,773   |  
|Property and equipment, net                                                                                                                                                                                                                                          |  |                                          | 2,783   |   |               |   | 4,615    |  
|Goodwill                                                                                                                                                                                                                                                             |  |                                          | 332     |   |               |   | 332      |  
|Related party receivable, net of current portion                                                                                                                                                                                                                     |  |                                          | 1,000   |   |               |   |         |  
|Other assets                                                                                                                                                                                                                                                         |  |                                          | 216     |   |               |   | 198      |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Total assets                                                                                                                                                                                                                                                         |  | $                                        | 29,254  |   |               | $ | 18,918   |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|                                                                                                                                                                                                                                                                     |  |                                         
|Liabilities and Stockholders Equity (Deficit)                                                                                                                                                                                                                       |  |                                          |         |   |               |   |          |  
|Current liabilities                                                                                                                                                                                                                                                  |  |                                          |         |   |               |   |          |  
|Accounts payable                                                                                                                                                                                                                                                     |  | $                                        | 4,973   |   |               | $ | 8,599    |  
|Accrued liabilities                                                                                                                                                                                                                                                  |  |                                          | 4,613   |   |               |   | 4,404    |  
|Credit line and current portion of long-term debt                                                                                                                                                                                                                    |  |                                          | 266     |   |               |   | 11,876   |  
|Current portion of UCC note payable                                                                                                                                                                                                                                  |  |                                          |        |   |               |   | 1,027    |  
|Current portion of capital lease obligations                                                                                                                                                                                                                         |  |                                          | 1       |   |               |   | 5        |  
|Deferred revenue                                                                                                                                                                                                                                                     |  |                                          | 3,369   |   |               |   | 2,803    |  
|Liabilities held for sale                                                                                                                                                                                                                                            |  |                                          |        |   |               |   | 66       |  
|Current portion of deferred gain on sale of wholesale segment                                                                                                                                                                                                        |  |                                          | 169     |   |               |   |         |  
|Current portion of obligation to minority shareholder in TCAP                                                                                                                                                                                                        |  |                                          | 4,000   |   |               |   |         |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Total current liabilities                                                                                                                                                                                                                                            |  |                                          | 17,391  |   |               |   | 28,780   |  
|UCC note payable, net of current portion                                                                                                                                                                                                                             |  |                                          |        |   |               |   | 2,310    |  
|Capital lease obligation, net of current portion                                                                                                                                                                                                                     |  |                                          |        |   |               |   | 1        |  
|Other liabilities                                                                                                                                                                                                                                                    |  |                                          | 151     |   |               |   | 442      |  
|Deferred lease costs                                                                                                                                                                                                                                                 |  |                                          | 416     |   |               |   | 809      |  
|Deferred revenue, net of current portion                                                                                                                                                                                                                             |  |                                          | 386     |   |               |   |         |  
|Deferred gain on Sale of Wholesale Segment, net of current portion                                                                                                                                                                                                   |  |                                          | 2,358   |   |               |   |         |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Total liabilities                                                                                                                                                                                                                                                    |  |                                          | 20,702  |   |               |   | 32,342   |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Minority interest in joint venture                                                                                                                                                                                                                                   |  |                                          | 1,786   |   |               |   | 6,000    |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Commitments and contingencies (Note 17)                                                                                                                                                                                                                              |  |                                          |         |   |               |   |          |  
|Stockholders equity (deficit)                                                                                                                                                                                                                                       |  |                                          |         |   |               |   |          |  
|Series A Convertible Preferred stock, no par value; 31,000,000 shares authorized, 12,790,874 and 12,930,374 issued and outstanding at 2009 and
2008, respectively; stated value of $2.50 per share and a liquidation preference of $31,977 (2009) and $32,326 (2008) |  |                                          | 28,473  |   |               |   | 28,783   |  
|Common stock, no par value; 120,000,000 shares authorized at 2009 and 2008; 3,288,772 and 3,251,891 shares issued and outstanding at 2009 and
2008, respectively, with a liquidation preference of $59,189 (2009) and $58,534 (2008)                                 |  |                                          | 19,594  |   |               |   | 19,100   |  
|Series B Convertible Preferred stock, no par value; 8,000,000 shares authorized, 3,584,349 and 3,613,349 issued and outstanding at 2009 and
2008, respectively, stated value of $2.50 per share and a liquidation preference of $8,961 (2009) and $9,033 (2008)      |  |                                          | 7,958   |   |               |   | 8,009    |  
|Additional paid-in capital                                                                                                                                                                                                                                           |  |                                          | 29,955  |   |               |   | 29,719   |  
|Subscription receivable                                                                                                                                                                                                                                              |  |                                          |        |   |               |   | (3,000   | )
|Accumulated other comprehensive income (loss)                                                                                                                                                                                                                        |  |                                          | (34     | ) |               |   |         |  
|Accumulated deficit                                                                                                                                                                                                                                                  |  |                                          | (79,180 | ) |               |   | (102,035 | )
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Total stockholders equity (deficit)                                                                                                                                                                                                                                 |  |                                          | 6,766   |   |               |   | (19,424  | )
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                           |  | $                                        | 29,254  |   |               | $ | 18,918   |  
|                                                                                                                                                                                                                                                                     |  |                                          |         |   |               |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



43



---

##### Table of Contents

TC GLOBAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|---------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ------------- | - | ------- | ------------ |  | - | ------- | -
|                                                                                                     |  | Years ended                                  |        
|                                                                                                     |  | March 29,2009                                |         |   | March 30,2008 |   |         | April 1,2007 | 
|                                                                                                     |  | (dollars in thousands, exceptper share data) |        
|Net sales                                                                                            |  |                                              |         |   |               |   |         |              |  |   |         |  
|Retail store sales                                                                                   |  | $                                            | 38,615  |   |               | $ | 42,897  |              |  | $ | 39,334  |  
|Specialty sales of products                                                                          |  |                                              | 47      |   |               |   | 203     |              |  |   | 6       |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Total sales of products                                                                              |  |                                              | 38,662  |   |               |   | 43,100  |              |  |   | 39,340  |  
|Licenses, royalties, and fees                                                                        |  |                                              | 383     |   |               |   | 234     |              |  |   | 201     |  
|Recognition of deferred license revenue                                                              |  |                                              |        |   |               |   | (2,389  | )            |  |   | 1,440   |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Net sales                                                                                            |  |                                              | 39,045  |   |               |   | 40,945  |              |  |   | 40,981  |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Cost of goods sold and operating expenses                                                            |  |                                              |         |   |               |   |         |              |  |   |         |  
|Retail cost of goods sold                                                                            |  |                                              | 13,969  |   |               |   | 15,697  |              |  |   | 14,293  |  
|Retail occupancy expenses                                                                            |  |                                              | 4,527   |   |               |   | 5,323   |              |  |   | 5,217   |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Total retail cost of goods sold and related occupancy expenses                                       |  |                                              | 18,496  |   |               |   | 21,020  |              |  |   | 19,510  |  
|Specialty cost of goods sold                                                                         |  |                                              | 37      |   |               |   | 214     |              |  |   | 5       |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Cost of goods sold and related occupancy expenses                                                    |  |                                              | 18,533  |   |               |   | 21,234  |              |  |   | 19,515  |  
|Store operating expenses                                                                             |  |                                              | 17,546  |   |               |   | 19,474  |              |  |   | 17,911  |  
|Other operating expenses                                                                             |  |                                              | 1,106   |   |               |   | 1,552   |              |  |   | 1,351   |  
|Marketing, general and administrative costs                                                          |  |                                              | 7,742   |   |               |   | 9,002   |              |  |   | 9,641   |  
|Depreciation and amortization                                                                        |  |                                              | 1,705   |   |               |   | 2,186   |              |  |   | 2,636   |  
|Settlement of litigation                                                                             |  |                                              |        |   |               |   |        |              |  |   | 72      |  
|Impairment of long-lived assets                                                                      |  |                                              | 237     |   |               |   |        |              |  |   |        |  
|Recognition of deferred offering costs                                                               |  |                                              |        |   |               |   | 1,433   |              |  |   |        |  
|Store closure and lease termination costs                                                            |  |                                              | 282     |   |               |   | 19      |              |  |   | 96      |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Total cost of goods sold and operating expenses                                                      |  |                                              | 47,151  |   |               |   | 54,900  |              |  |   | 51,222  |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Operating loss                                                                                       |  |                                              | (8,106  | ) |               |   | (13,955 | )            |  |   | (10,241 | )
|Other income (expense)                                                                               |  |                                              |         |   |               |   |         |              |  |   |         |  
|Interest expense                                                                                     |  |                                              | (3,254  | ) |               |   | (2,136  | )            |  |   | (343    | )
|Interest income                                                                                      |  |                                              | 43      |   |               |   |        |              |  |   | 56      |  
|Miscellaneous income                                                                                 |  |                                              | 74      |   |               |   | 4       |              |  |   | 18      |  
|Loan guarantee fee expense                                                                           |  |                                              | (131    | ) |               |   | (222    | )            |  |   |        |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Total other income (expense)                                                                         |  |                                              | (3,268  | ) |               |   | (2,354  | )            |  |   | (269    | )
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Income (loss) from continuing operations before income taxes                                         |  |                                              | (11,374 | ) |               |   | (16,309 | )            |  |   | (10,510 | )
|Income tax benefit (expense)                                                                         |  |                                              | 11,474  |   |               |   | 2       |              |  |   | 17      |  
|Minority Interest                                                                                    |  |                                              | 214     |   |               |   |        |              |  |   |        |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Net income (loss) from continuing operations                                                         |  | $                                            | 314     |   |               | $ | (16,311 | )            |  | $ | (10,527 | )
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Discontinued operations (Note 3)                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Income from discontinued operations                                                                  |  | $                                            | 34,948  |   |               | $ | 2,402   |              |  | $ | 773     |  
|Income tax benefit (expense)                                                                         |  |                                              | (12,407 | ) |               |   |        |              |  |   |        |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Income from discontinued operations                                                                  |  | $                                            | 22,541  |   |               | $ | 2,402   |              |  | $ | 773     |  
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Net income (loss)                                                                                    |  | $                                            | 22,855  |   |               | $ | (13,909 | )            |  | $ | (9,754  | )
|                                                                                                     |  |                                              |         |   |               |   |         |              |  |   |         |  
|Continuing operationsbasic and diluted                                                              |  |                                              |         |   |               |   |         |              |  |   |         |  
|Continuing operationsbasic                                                                          |  | $                                            | 0.10    |   |               | $ | (5.59   | )            |  | $ | (4.61   | )
|Continuing operations diluted                                                                       |  | $                                            | 0.05    |   |               | $ | (5.59   | )            |  | $ | (4.61   | )
|Discontinued operationsbasic and diluted                                                            |  |                                              |         |   |               |   |         |              |  |   |         |  
|Discontinued operationsbasic                                                                        |  | $                                            | 6.90    |   |               | $ | 0.82    |              |  | $ | 0.34    |  
|Discontinued operationsdiluted                                                                      |  | $                                            | 3.48    |   |               | $ | 0.82    |              |  | $ | 0.34    |  
|Earnings (loss) per sharebasic and diluted                                                          |  |                                              |         |   |               |   |         |              |  |   |         |  
|Earnings (loss) per sharebasic                                                                      |  | $                                            | 7.00    |   |               | $ | (4.77   | )            |  | $ | (4.27   | )
|Earnings (loss) per sharediluted                                                                    |  | $                                            | 3.53    |   |               | $ | (4.77   | )            |  | $ | (4.27   | )
|Weighted average shares used in computing basic and diluted earnings (loss) per share (in thousands) |  |                                              |         |   |               |   |         |              |  |   |         |  
|Earnings (loss) per sharebasic                                                                      |  |                                              | 3,265   |   |               |   | 2,917   |              |  |   | 2,283   |  
|Earnings (loss) per sharediluted                                                                    |  |                                              | 6,478   |   |               |   | 2,917   |              |  |   | 2,283   |  

The accompanying notes are an integral part of these consolidated financial statements.



44



---

##### Table of Contents

TC Global, Inc.

Consolidated Statements of Changes in Stockholders Equity (Deficit)

Years Ended March 29, 2009, March 30, 2008, and April 1, 2007



|                                                         |  |                                               |  |                |        |                          |           |                    |   |        |       |           |  |   |       |  |   |        |  |   |         |   |  |   |        |  
|-------------------------------------------------------- |  | --------------------------------------------- |  | -------------- | ------ | ------------------------ | --------- | ------------------ | - | ------ | ----- | --------- |  | - | ----- |  | - | ------ |  | - | ------- | - |  | - | ------ | -
|                                                         |  | Convertible Preferred Stock                   |  | Common Stock   |        | Additionalpaid-incapital |           | Accumulateddeficit |   |        | Total |          
|                                                         |  | Series AShares                                |  | Series AAmount |        | Series BShares           |           | Series BAmount     |   | Shares |       | Amount    |  |   |      
|                                                         |  |                                               |  |                |        |                          |           |                    |  
|                                                         |  | (dollars in thousands, except per share data) | 
|Balance, April 2, 2006                                   |  | 15,559,152                                    |  | $              | 34,639 |                          | 4,920,709 |                    | $ | 10,911 |       | 2,220,992 |  | $ | 9,610 |  | $ | 28,339 |  | $ | (78,372 | ) |  | $ | 5,127  |  
|Exercise of common stock warrants                        |  |                                               |  |                |        |                          |           |                    |   |        |       | 103,070   |  |   | 119   |  |   |        |  |   |         |   |  |   | 119    |  
|Exercise of stock options                                |  |                                               |  |                |        |                          |           |                    |   |        |       | 75,508    |  |   | 9     |  |   |        |  |   |         |   |  |   | 9      |  
|Issuance of common stock under terms of legal settlement |  |                                               |  |                |        |                          |           |                    |   |        |       | 7,000     |  |   | 84    |  |   |        |  |   |         |   |  |   | 84     |  
|Stock option expense                                     |  |                                               |  |                |        |                          |           |                    |   |        |       |           |  |   |       |  |   | 306    |  |   |         |   |  |   | 306    |  
|Net loss                                                 |  |                                               |  |                |        |                          |           |                    |   |        |       |           |  |   |       |  |   |        |  |   | (9,754  | ) |  |   | (9,754 | )
|                                                         |  |                                               |  |                |        |                          |           |                    |   |        |       |           |  |   |       |  |   |        |  |   |         |   |  |   |        |  
|Balance, April 1, 2007                                   |  | 15,559,152                                    |  | $              | 34,639 |                          | 4,920,709 |                    | $ | 10,911 |       | 2,406,570 |  | $ | 9,822 |  | $ | 28,645 |  | $ | (88,126 | ) |  | $ | (4,109 | )

The accompanying notes are an integral part of these consolidated financial statements.



45



---

##### Table of Contents

TC Global, Inc.

Consolidated Statements of Changes in Stockholders Equity (Deficit)

Years Ended
March 29, 2009 March 30, 2008, and April 1, 2007

(continued)



|                                                         |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   |        |  |   |        |   |  |   |          |   |  |   |         |   |  |   |      
|-------------------------------------------------------- |  | --------------------------------------------- | - |  | -------------- | ------ | - | ------------------------ | ---------- | ---------------------- | -------------- | - | ------------------ | ------ |  | --------- |  | - | ---------------- | - |  | - | ------ |  | - | ------ | - |  | - | -------- | - |  | - | ------- | - |  | - | -----
|                                                         |  | Convertible Preferred Stock                   |   |  | Common Stock   |        |   | Additionalpaid-incapital |            | Subscriptionreceivable |                |   | Accumulateddeficit |        |  | Total     |  |   | MinorityInterest
|                                                         |  | Series AShares                                |   |  | Series AAmount |        |   | Series BShares           |            |                        | Series BAmount |   |                    | Shares |  | Amount    |  |   |                  |   |  |  
|                                                         |  |                                               |   |  |                |        |   |                          |            |                        |               
|                                                         |  | (dollars in thousands, except per share data)
|Balance, April 1, 2007                                   |  | 15,559,152                                    |   |  | $              | 34,639 |   |                          | 4,920,709  |                        |                | $ | 10,911             |        |  | 2,406,570 |  | $ | 9,822            |   |  | $ | 28,645 |  | $ |       |   |  | $ | (88,126  | ) |  | $ | (4,109  | ) |  |   |      
|Exercise of common stock warrants                        |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  | 258,278   |  |   | 394              |   |  |   |        |  |   |        |   |  |   |          |   |  |   | 394     |   |  |   |      
|Series A Preferred stock converted to common stock       |  | (2,628,778                                    | ) |  |                | (5,856 | ) |                          |            |                        |                |   |                    |        |  | 371,491   |  |   | 5,856            |   |  |   |        |  |   |        |   |  |   |          |   |  |   |        |   |  |   |      
|Series B Preferred stock converted to common stock       |  |                                               |   |  |                |        |   |                          | (1,307,360 | )                      |                |   | (2,902             | )      |  | 163,416   |  |   | 2,902            |   |  |   |        |  |   |        |   |  |   |          |   |  |   |        |   |  |   |      
|Exercise of stock options                                |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  | 40,082    |  |   | 6                |   |  |   |        |  |   |        |   |  |   |          |   |  |   | 6       |   |  |   |      
|Issuance of common stock warrants for loan fees          |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   | 635    |  |   |        |   |  |   |          |   |  |   | 635     |   |  |   |      
|Issuance of common stock warrants for loan guarantee     |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   | 185    |  |   |        |   |  |   |          |   |  |   | 185     |   |  |   |      
|Issuance of common stock under terms of legal settlement |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  | 11,719    |  |   | 132              |   |  |   |        |  |   |        |   |  |   |          |   |  |   | 132     |   |  |   |      
|Cash in lieu of fractional stock on reverse split        |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  | 335       |  |   | (12              | ) |  |   |        |  |   |        |   |  |   |          |   |  |   | (12     | ) |  |   |      
|Stock option expense                                     |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   | 199    |  |   |        |   |  |   |          |   |  |   | 199     |   |  |   |      
|Accrued expense paid through grant of stock options      |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   | 55     |  |   |        |   |  |   |          |   |  |   | 55      |   |  |   |      
|Minority interest in joint venture                       |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   |        |  |   |        |   |  |   |          |   |  |   |         |   |  |   | 6,000
|Subscription receivable                                  |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   |        |  |   | (3,000 | ) |  |   |          |   |  |   | (3,000  | ) |  |   |      
|Net loss                                                 |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   |        |  |   |        |   |  |   | (13,909  | ) |  |   | (13,909 | ) |  |   |      
|                                                         |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   |        |  |   |        |   |  |   |          |   |  |   |         |   |  |   |      
|Balance, March 30, 2008                                  |  | 12,930,374                                    |   |  | $              | 28,783 |   |                          | 3,613,349  |                        |                | $ | 8,009              |        |  | 3,251,891 |  | $ | 19,100           |   |  | $ | 29,719 |  | $ | (3,000 | ) |  | $ | (102,035 | ) |  | $ | (19,424 | ) |  | $ | 6,000
|                                                         |  |                                               |   |  |                |        |   |                          |            |                        |                |   |                    |        |  |           |  |   |                  |   |  |   |        |  |   |        |   |  |   |          |   |  |   |         |   |  |   |      

The accompanying notes are an integral part of these consolidated financial statements.



46



---

##### Table of Contents

TC Global, Inc.

Consolidated Statements of Changes in Stockholders Equity (Deficit)

Years Ended
March 29, 2009 March 30, 2008, and April 1, 2007

(continued)



|                                                         |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |         |   |  |   |        |  
|-------------------------------------------------------- |  | --------------------------------------------- | - |  | -------------- | ------ | ------------------------ | -------------- | ---------------------- | - | -------------- | --------------------------------- | ----- | ------ | ------------------ | --------- |  | ----- | ------ |  | ---------------- | ------ |  | - | ------ | - |  | --- | - |  | - | -------- | - |  | - | ------- | - |  | - | ------ | -
|                                                         |  | Convertible Preferred Stock                   |   |  | Common Stock   |        | Additionalpaid-incapital |                | Subscriptionreceivable |   |                | AccumulatedOtherComprehensiveLoss |       |        | Accumulateddeficit |           |  | Total |        |  | MinorityInterest |       
|                                                         |  | Series AShares                                |   |  | Series AAmount |        |                          | Series BShares |                        |   | Series BAmount |                                   |       | Shares |                    | Amount    |  |       |        |  |                  |       
|                                                         |  | (dollars in thousands, except per share data) |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                   
|Balance, March 30, 2008                                  |  | 12,930,374                                    |   |  | $              | 28,783 |                          |                | 3,613,349              |   |                | $                                 | 8,009 |        |                    | 3,251,891 |  | $     | 19,100 |  | $                | 29,719 |  | $ | (3,000 | ) |  |     |   |  | $ | (102,035 | ) |  | $ | (19,424 | ) |  | $ | 6,000  |  
|Exercise of common stock warrants                        |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    | 1,914     |  |       |       |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |        |   |  |   |        |  
|Series A Preferred stock converted to common stock       |  | (139,500                                      | ) |  |                | (310   | )                        |                |                        |   |                |                                   |       |        |                    | 19,717    |  |       | 310    |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |        |   |  |   |        |  
|Series B Preferred stock converted to common stock       |  |                                               |   |  |                |        |                          |                | (29,000                | ) |                |                                   | (51   | )      |                    | 2,875     |  |       | 51     |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |        |   |  |   |        |  
|Exercise of stock options                                |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    | 655       |  |       |       |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |        |   |  |   |        |  
|Issuance of common stock under terms of legal settlement |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    | 11,720    |  |       | 133    |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   | 133     |   |  |   |        |  
|Stock option expense                                     |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  | 201    |  |   |        |   |  |     |   |  |   |          |   |  |   | 201     |   |  |   |        |  
|Accrued expense paid through grant of stock options      |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  | 35     |  |   |        |   |  |     |   |  |   |          |   |  |   | 35      |   |  |   |        |  
|Subscription receivable                                  |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   | 3,000  |   |  |     |   |  |   |          |   |  |   | 3,000   |   |  |   |        |  
|Minority Interest                                        |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |         |   |  |   | (214   | )
|Obligation to minority shareholder in TCAP               |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |         |   |  |   | (4,000 | )
|Comprehensive income                                     |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   | 22,855   |   |  |   | 22,855  |   |  |   |        |  
|Foreign currency translation adjustment                  |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  | (34 | ) |  |   |          |   |  |   | (34     | ) |  |   |        |  
|                                                         |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |         |   |  |   |        |  
|Total comprehensive income                               |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   | 22,821  |   |  |   |        |  
|                                                         |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |         |   |  |   |        |  
|Balance, March 29, 2009                                  |  | 12,790,874                                    |   |  | $              | 28,473 |                          |                | 3,584,349              |   |                | $                                 | 7,958 |        |                    | 3,288,772 |  | $     | 19,594 |  | $                | 29,955 |  | $ |       |   |  | (34 | ) |  | $ | (79,180  | ) |  | $ | 6,766   |   |  | $ | 1,786  |  
|                                                         |  |                                               |   |  |                |        |                          |                |                        |   |                |                                   |       |        |                    |           |  |       |        |  |                  |        |  |   |        |   |  |     |   |  |   |          |   |  |   |         |   |  |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.



47



---

##### Table of Contents

TC Global, Inc.

Consolidated Statements of Cash Flows



|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|----------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------- | ------------ |  | - | ------ | -
|                                                                                    |  | Years ended            |        
|                                                                                    |  | March 29,2009          |         |   | March 30,2008 |   |         | April 1,2007 | 
|                                                                                    |  | (dollars in thousands) |        
|Cash flows from operating activities                                                |  |                        |         |   |               |   |         |              |  |   |        |  
|Net income (loss)                                                                   |  | $                      | 22,855  |   |               | $ | (13,909 | )            |  | $ | (9,754 | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities |  |                        |         |   |               |   |         |              |  |   |        |  
|Depreciation and amortization                                                       |  |                        | 1,705   |   |               |   | 2,764   |              |  |   | 3,340  |  
|Impairment of long-lived assets                                                     |  |                        | 237     |   |               |   |        |              |  |   |       |  
|Store closure costs charged to operations                                           |  |                        | 282     |   |               |   | 19      |              |  |   | 96     |  
|(Gain) loss on sale of property and equipment                                       |  |                        | (72     | ) |               |   | (3      | )            |  |   |       |  
|Gain on Sale of Wholesale Segment                                                   |  |                        | (28,656 | ) |               |   |        |              |  |   |       |  
|Stock option expense                                                                |  |                        | 201     |   |               |   | 199     |              |  |   | 362    |  
|Provision for doubtful accounts                                                     |  |                        | 287     |   |               |   | 121     |              |  |   | 180    |  
|Loan guarantee fee expense                                                          |  |                        | 131     |   |               |   | 222     |              |  |   |       |  
|Non-cash interest expense                                                           |  |                        | 1,101   |   |               |   | 529     |              |  |   |       |  
|Reversal of deferred license revenue                                                |  |                        |        |   |               |   | (1,800  | )            |  |   |       |  
|Minority Interest                                                                   |  |                        | (214    | ) |               |   |        |              |  |   |       |  
|Franchise revenue repossession and refund provision                                 |  |                        |        |   |               |   | 5,295   |              |  |   |       |  
|Recognition of deferred revenue                                                     |  |                        | (29     | ) |               |   | (1,080  | )            |  |   | (1,452 | )
|Changes in assets and liabilities                                                   |  |                        |         |   |               |   |         |              |  |   |        |  
|Accounts receivable                                                                 |  |                        | 1,257   |   |               |   | (1,523  | )            |  |   | (1,844 | )
|Restricted Cash (Escrow Receivable)                                                 |  |                        | (3,500  | ) |               |   |        |              |  |   |       |  
|Inventories                                                                         |  |                        | 325     |   |               |   | (887    | )            |  |   | 117    |  
|Prepaid expenses and other current assets                                           |  |                        | (1,550  | ) |               |   | 556     |              |  |   | 533    |  
|Accounts payable                                                                    |  |                        | (3,626  | ) |               |   | 2,642   |              |  |   | 2,559  |  
|Accrued liabilities                                                                 |  |                        | (195    | ) |               |   | 165     |              |  |   | 1,016  |  
|Deferred revenue                                                                    |  |                        | 683     |   |               |   | 504     |              |  |   | 1,257  |  
|Deferred lease costs                                                                |  |                        | (393    | ) |               |   | (319    | )            |  |   | (292   | )
|Deferred licensing revenue cash received                                            |  |                        |        |   |               |   |        |              |  |   | (25    | )
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|Net cash used in operating activities                                               |  |                        | (9,171  | ) |               |   | (6,505  | )            |  |   | (3,907 | )
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|Cash flows from investing activities                                                |  |                        |         |   |               |   |         |              |  |   |        |  
|Net proceeds from Sale of Wholesale Segment                                         |  |                        | 36,800  |   |               |   |        |              |  |   |       |  
|Proceeds from sale of fixed assets                                                  |  |                        | 256     |   |               |   |        |              |  |   |       |  
|Proceeds from sale of development rights in Southern California                     |  |                        | 400     |   |               |   |        |              |  |   |       |  
|Proceeds from sale of development rights in Singapore                               |  |                        | 69      |   |               |   |        |              |  |   |       |  
|Purchases of property and equipment                                                 |  |                        | (976    | ) |               |   | (2,309  | )            |  |   | (1,763 | )
|Other                                                                               |  |                        | 15      |   |               |   | 6       |              |  |   | (32    | )
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|Net cash (used in) provided by investing activities                                 |  |                        | 36,564  |   |               |   | (2,303  | )            |  |   | (1,795 | )
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|Cash flows from financing activities                                                |  |                        |         |   |               |   |         |              |  |   |        |  
|Net borrowings (repayments) under Northrim credit facility                          |  |                        | (4,652  | ) |               |   | 596     |              |  |   | 2,152  |  
|Payments on long-term debt (including convertible note) and capital leases          |  |                        | (382    | ) |               |   | (554    | )            |  |   | (528   | )
|Proceeds (repayments) under Benaroya credit facility                                |  |                        | (7,482  | ) |               |   | 7,482   |              |  |   |       |  
|Repayment on UCC note payable                                                       |  |                        | (4,120  | ) |               |   | (2,000  | )            |  |   |       |  
|Minority interest contribution to joint venture                                     |  |                        |        |   |               |   | 3,000   |              |  |   |       |  
|Cash in lieu of fractional stock on reverse split                                   |  |                        |        |   |               |   | (12     | )            |  |   |       |  
|Foreign currency translation adjustment                                             |  |                        | (34     | ) |               |   |        |              |  |   |       |  
|Proceeds from exercise of stock options and warrants                                |  |                        |        |   |               |   | 137     |              |  |   | 127    |  
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|Net cash (used in) provided by financing activities                                 |  |                        | (16,670 | ) |               |   | 8,649   |              |  |   | 1,751  |  
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|Net increase (decrease) in cash and cash equivalents                                |  |                        | 10,723  |   |               |   | (159    | )            |  |   | (3,951 | )
|Cash and cash equivalents                                                           |  |                        |         |   |               |   |         |              |  |   |        |  
|Beginning of period                                                                 |  |                        | 1,271   |   |               |   | 1,430   |              |  |   | 5,381  |  
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  
|End of period                                                                       |  | $                      | 11,994  |   |               | $ | 1,271   |              |  | $ | 1,430  |  
|                                                                                    |  |                        |         |   |               |   |         |              |  |   |        |  



48



---

##### Table of Contents

TC Global, Inc.

Consolidated Statements of Cash Flows

(continued)



|                                                                                                  |  |                        |       |               |   |              |  |   |    
|------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------- | - | ------------ |  | - | ---
|                                                                                                  |  | Years ended           
|                                                                                                  |  | March 292009           |       | March 30,2008 |   | April 1,2007
|                                                                                                  |  | (dollars in thousands)
|Supplemental disclosure of cash flow information and non-cash investing and financing activities: |  |                        |       |               |   |              |  |   |    
|Cash paid during the period for interest                                                          |  | $                      | 3,254 |               | $ | 2,136        |  | $ | 296
|Non-cash activity                                                                                 |  |                        |       |               |   |              |  |   |    
|Issuance of note payable to UCC for franchise repossession                                        |  |                        |      |               | $ | 6,000        |  |   |    
|Accrued expense paid through grant of stock options                                               |  |                        | 35    |               |   | 55           |  |   |   
|Warrant issued for loan commitment fee                                                            |  |                        |      |               |   | 635          |  |   |   
|Discount recorded for note proceeds                                                               |  |                        |      |               |   | 582          |  |   |   
|Discount recorded for UCC note                                                                    |  |                        |      |               |   | 690          |  |   |   
|Warrants issued for loan guarantee                                                                |  |                        |      |               |   | 185          |  |   |   
|Insurance premiums financed through note payable                                                  |  |                        | 545   |               |   | 341          |  |   | 544
|Purchases of property and equipment through capital leases                                        |  |                        |      |               |   |             |  |   | 27 
|Liability paid through issuance of stock                                                          |  |                        | 132   |               |   | 132          |  |   | 84 





The accompanying notes are an integral part of these consolidated financial statements.



49



---

##### Table of Contents

TC GLOBAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and significant accounting
policies

The Company and nature of operations

TC Global, Inc (formerly Tullys Coffee Corporation) formed in 1992, is a specialty retailer in the fast-casual categories of specialty coffee, snacks and non-alcoholic beverages, within the broader
quick-service restaurant industry. Tullys is famous for our gourmet coffees, wide selection of barista beverages, delicious assortment of breakfast and lunch offerings and anytime snacks, desserts and specialty beverages, and our genuine
community coffeehouse experience. In these consolidated financial statements, references to we, us, Tullys or the Company refer to TC Global, Inc. Tullys-branded retail stores are operated
by our Retail division and are also operated by other parties under license or franchise. Tullys stores sell our high quality, premium roasted whole bean coffees, and serve a wide selection of hot and cold beverages that feature our coffees
and our premium softened ice cream. Tullys stores also sell baked goods and pastries and other complementary snack and food items and coffee-related accessories, supplies, and equipment.

Our Specialty division is responsible for our U.S. franchising activities and for our international business activities (see Note 13). For purposes of
these consolidated financial statements, the terms franchise and license are used interchangeably.

On
March 27, 2009, we completed the sale of the assets associated with Tullys business names, trademarks, and wholesale business to Green Mountain Coffee Roasters, Inc. a Delaware Corporation (GMCR), pursuant to the terms of the
previously disclosed Asset Purchase Agreement dated September 15, 2008, as amended by Amendment No. 1 thereto dated November 12, 2008 and Amendment No. 2 thereto dated February 6, 2009 by and among the TC Global, Inc., GMCR
and Tullys Bellaccino, LLC. GMCR paid a total purchase price of $40.3 million for the assets it acquired.

Therefore, the Company
classified the results of operations for the wholesale operations in discontinued operations, in accordance with the guidance provided in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS
144). The discontinued operations and assets held for sale represent only those pertaining to the Green Mountain Transaction, and do not include any results relating to those activities which are expected to continue under the license
agreement due to this continuing involvement. Prior year financial statements for 2008 and 2007 have been retroactively adjusted in conformity with generally accepted accounting principles to present the operations of our Wholesale Division as a
discontinued operation.

Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The consolidated
financial statements reflect the financial position and operating results of Tullys, including wholly owned subsidiaries and joint ventures controlled by the Company. Intercompany transactions and balances have been eliminated.

Fiscal periods

We end our fiscal year on the
Sunday closest to March 31. As a result, we record our revenue and expenses on a 52 or 53 week period, depending on the year. The fiscal year ending March 29, 2009 (Fiscal 2009) included 52 weeks, the fiscal year ended
March 30, 2008 (Fiscal 2008) included 52 weeks, the fiscal year ended April 1, 2007 (Fiscal 2007) included 52 weeks, and the fiscal year ended April 2, 2006 (Fiscal 2006)



50



---

##### Table of Contents

included 52 weeks, while our fiscal year ended April 3, 2005 (Fiscal 2005) included 53 weeks. The fiscal year ended March 28, 2004
(Fiscal 2004) included 52 weeks.

Reverse stock split

On June 28, 2007, our articles of incorporation were amended to effect a one-for-eight reverse stock split of our common stock, as described in Note
19. All common share information (including information related to options and warrants to purchase common stock) and all per share information related to our common stock in the consolidated financial statements have been restated to
reflect the one-for-eight reverse split.

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 amount
of assets and liabilities and disclosure 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.

Cash and Cash Equivalents

Cash
equivalents in excess of current operating requirements are invested in short-term, interest-bearing instruments with maturities of three months or less at the date of purchase and are stated at cost, which approximates market value.

Accounts Receivable

Tullys provides
products to approved customers on an open account basis. We generally do not require collateral on trade receivables. Tullys reviews a customers credit history before extending credit and establishes an allowance for doubtful accounts
based on the risk of specific customers. Historically, credit related losses on trade receivables have not been significant.

Escrow and Related
Party Receivable

In connection with the closing of the Green Mountain Transaction $3,500,000 of the purchase price was placed in
escrow for one year to satisfy Tullys post-closing indemnification obligations to GMCR under the GMCR Agreement.

Tullys
granted Asia Food Culture Management Pte. Ltd. (Limited Partner) a $1,000,000 loan to be paid through future distributions of the partnership. Further, $1,162,000 is receivable from AFCM in full satisfaction of the Companys
LP Loan paid to AFCM directly and was subsequently paid by AFCM to the partnership after the balance sheet date on April 22, 2009.

Inventories

Inventories are stated at the lower of cost (on the first-in, first-out basis) or market. Our sourcing and merchandising process is
centralized, but each store generally orders its individual requirements from our distribution facility and our authorized vendors.

Property and
equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation of property and
equipment includes amortization of assets under capital leases and is provided on the straight-line



51



---

##### Table of Contents

method over the estimated economic lives. Machinery and equipment are depreciated over 5 to 7 years. Leasehold improvements are depreciated over the shorter
of their estimated economic lives (generally ten years) or the applicable lease term as defined under generally accepted accounting principles. Software is depreciated over 3 years. The cost of property held under capital lease is equal to the lower
of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. Expenditures for additions and improvements are capitalized and expenditures for repairs and maintenance are charged to
expense as incurred. The cost and accumulated depreciation of assets sold or retired are removed from the accounts, and the related gains and losses are included in the results of operations. Certain properties and equipment have been reduced due to
impairment charges.

Assets held for sale and impairment of long-lived assets

Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If impairment has occurred, an
impairment loss must be recognized.

As part of our review, assets are grouped and evaluated at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other groups of assets. Tullys has identified this lowest level to be principally individual stores. We consider historical performance and future estimated results in
our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future, cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted
future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is measured by discounting expected future cash flows.

Assets to be disposed of by sale are evaluated in accordance with SFAS 144. Assets and liabilities to be disposed of by sale are, among other factors,
classified as Held for Sale at which point management has committed to a plan for the disposition, the sale is probable and expected to occur within 12 months and the assets are in sellable condition.

Lease termination costs

Periodically,
Tullys will determine that certain leases will be terminated and the location will be closed. At such determination, we accrue for the net future minimum lease payments of the related lease agreements. Amounts accrued as net future minimum
losses include the discounted estimated future rental payments, lease termination fees, and sub-lease recoveries.

Foreign Currency Translation

The Company has determined that the functional currency of its foreign subsidiary is the subsidiarys local currency. The
assets and liabilities of this subsidiary are translated at the applicable exchange rate as of the balance sheet date and revenue and expenses are translated at an average rate over the period. Currency translation adjustments are recorded as a
component of accumulated other comprehensive income (loss). Gains and losses on inter-company transactions are recorded in operating expenses and have not been material for the periods presented.

Segment reporting

We present segment
information in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), which established reporting and disclosure standards for an
enterprises operating segments. Operating segments are defined as



52



---

##### Table of Contents

components of an enterprise for which separate financial information is available and regularly reviewed by our senior management.

Our Retail division operates Tullys Coffee retail stores in the United States and generates revenues through the sales of products in these stores.
We complement our Retail divisions operations with additional channels for distribution of our licensed products, which we manage as separate business segments, our Specialty division, which sells Tullys coffee and related products
and supplies to our foreign licensees and manages the relationships with these licensees.

Revenue recognition

Sales are generally recognized at the time of the sale at retail store locations. Customer payments received on the issuance and replenishment of our
Tullys coffee cards (stored value payment cards) are deferred and recognized as revenues when the cards are redeemed, net of the estimated amounts of customer incentives and discounts associated with the cards. Managements judgment is
involved in determining the applicable timing for recognition of these incentives and discounts in revenues. Sales of product for specialty divisions are recognized upon shipment of the products.

Revenues from advance license fees and similar agreements are recognized on the straight-line basis over the expected life of the agreements.
Managements judgment is involved in determining the applicable amortization periods for these advance license fees. Royalty revenues for specialty licensees are recognized in accordance with the license agreements based upon sales at specific
licensee store locations. Initial franchise fees for new stores franchised by Tullys are recognized when Tullys has completed the services required to earn these fees and make them non-refundable, which is generally upon opening of a
store. Royalty revenues from franchisee operated stores are recognized according to the relevant franchise agreements.

Concentrations of credit risk

We sell to various individuals and organizations while extending credit to customers and are therefore subject to credit risk.
Tullys maintains its cash and investment balances with what we believe to be high credit quality financial institutions.

Store pre-opening
costs

Costs incurred in connection with start-up and promotion of new store openings are expensed when incurred.

Advertising costs

Costs incurred for
advertising and marketing are expensed in the periods to which the promotions are applicable and totaled $943,000, $1,518,000, and $2,406,000 during Fiscal 2009, Fiscal 2008, and Fiscal 2007, respectively. Local store advertising and marketing
costs are reported in store operating expenses, while general advertising and marketing costs for the Company and our Retail and Specialty divisions are reported in marketing, general and administrative costs.

Rent expense

Tullys operates in leased
buildings. Certain lease agreements provide for scheduled rent increases during the lease terms or for rental payments commencing on a date other than the date of initial occupancy. Such stepped rent expense is recorded on a
straight-line basis over the respective terms of the leases. Certain leases require contingent rent based on gross sales and such rent expense is recognized as incurred. Certain leases have



53



---

##### Table of Contents

rent holiday (free rent) periods, and Tullys recognizes these rental credits on a straight-line basis over the respective lease terms.

Litigation costs

From time to
time, the Company may become involved in litigation or similar claims. Such matters are evaluated, and, if it is determined that a loss is probable and estimable, the estimated amount is recorded, including the estimated costs of defending the
matter (if applicable). Potential gains associated with such litigation are recognized if and when they are realized by us.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.

Tullys has recorded a valuation allowance against net deferred tax assets
as we could not conclude that it was more likely than not that the tax benefits from temporary differences and net operating loss carryforwards would be realized. In subsequent periods, we may reduce the valuation allowance, provided that the
possibility of utilization of the deferred tax assets is more likely than not.

On April 2, 2007, we adopted the provisions of
Interpretation No. 48, Accounting for Uncertainty in Income Taxeswhich defines the threshold for recognizing the benefits of tax return positions in the financial statements as more-likely-than-not to be sustained by the
taxing authority. Interpretation No. 48 applies to all tax positions accounted for under SFAS No. 109, Accounting for Income Taxes. There was no adjustment required to be made to our opening retained earnings balance upon
adoption of Interpretation No. 48. We have elected to treat interest and penalties accrued on unrecognized tax benefits as a component of income tax expense within our financial statements. See Note 10 for additional detail on the
Companys tax positions.

Fair value of financial instruments

The carrying amount of cash and cash equivalents and other current assets and liabilities, such as accounts receivable and accounts payable as presented
in the consolidated financial statements, approximates fair value based on the short-term nature of these instruments. Historically, the carrying amount of our credit facilities approximated fair value because the interest rates are subject to
change with, or approximate, market interest rates.

Stock-based compensation

Stock-based compensation recognized in our consolidated financial statements for Fiscal 2007 include compensation cost for stock-based awards granted
prior to, but not fully vested as of, April 2, 2006, and stock-based awards granted subsequent to April 2, 2006. Our stock-based awards consist primarily of stock options granted to employees and directors.

The compensation cost for awards granted prior to April 3, 2006 is based on the grant-date fair value of the stock-based award estimated in
accordance with the pro forma provisions of SFAS 123, while awards granted after April 2, 2006 follow the provisions of SFAS 123R. Compensation cost for awards granted prior to April 2, 2006 is recognized on a straight-line basis over
the requisite service period for each separately remaining



54



---

##### Table of Contents

vesting portion of the award, while compensation cost for awards granted after April 2, 2006 is recognized on a straight-line basis over the requisite
service period for the entire award.

For all of these stock-based awards, we have used the Black-Scholes option pricing model for the
valuation for stock option awards on the date of grant. These computations are affected by the estimated fair value of our stock at the grant date as well as assumptions regarding a number of subjective variables. These variables include, but are
not limited to, the expected life of the award, our expected stock price volatility over the term of the award and actual and projected exercise behaviors. Although the fair value of stock option awards is determined in accordance with SFAS 123R,
the Black-Scholes option pricing model requires the input of subjective assumptions, and other reasonable assumptions could provide differing results.

Earnings (loss) per share

Basic earnings (loss) per share is calculated as net income (loss) applicable to the
common shareholders divided by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is based on the weighted-average number of shares of common stock and common stock equivalents
outstanding during the period, including options, warrants, convertible preferred stock and convertible debt computed using the treasury stock method. The computation of net income (loss) per share is summarized in Note 22.

Reclassifications

Reclassifications of prior
year balances have been made to conform to the current year classifications and have no impact on net income (loss) or financial position. In September of 2008, the Company entered into an agreement to sell its wholesale division. (See Note 3
Discontinued OperationsSale of Wholesale Segment) For purposes of comparability, the results of these operations have been reclassified from continuing operations to discontinued operations for all years presented in the accompanying
consolidated statements of operations.

Consolidation of Asian Joint Venture

During Fiscal 2008, the Company became the 50% general partner of Tullys Coffee Asia Pacific Partners, LP (Tullys Coffee Asia), a
limited liability limited partnership. The new joint venture seeks to develop the Tullys brand in Asia (excluding Japan), Australia and New Zealand (the Licensed Territories) through franchising and licensing activities, retail
store operations, coffee roasting, wholesale distribution and other business activities. Tullys partner in this venture, Asia Food Culture Management Pte. Ltd. (Limited Partner) (AFCM), is a newly established
enterprise managed by the founder and former chief executive officer of TCJ. The Limited Partners have very limited rights with respect to the management and control of Tullys Coffee Asia. The Company, as the General Partner, therefore has
control of the partnership and full voting rights. On March 27, 2009, the Tullys and the Limited Partner agreed that Tullys negotiated the right and obligation to purchase, or cause a third party to purchase, one-half (1/2) of
the Limited Partners partnership interest, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of US$4,000,000, within twelve (12) months of the closing of the Asset Purchase
Agreement between GMCR, and us. Tullys has classified this obligation as a current liability and offset the Limited Partners minority interest equally.

New accounting standards

In December 2006, the Financial Accounting Standards Board (FASB) issued
SFAS No. 157, Fair Value Measurements(SFAS 157). SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however, the application of this
statement may change current practice. The requirements of SFAS 157 are effective for our fiscal year beginning



55



---

##### Table of Contents

March 31, 2008. The adoption of SFAS 157 had no impact on our condensed consolidated financial position, results of operations, cash flows or
financial statement disclosures. See also discussion of the interpretation of this pronouncement below.

In December 2007, the FASB issued
SFAS No. 141R, Business Combinations (FAS 141R). FAS 141R retains the fundamental requirements in FAS 141 that the acquisition method of accounting (which FAS 141 called the purchase method) be
used for all business combinations and for an acquirer to be identified for each business combination. FAS 141R also establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; (b) improves the completeness of the information reported about a business combination by changing the requirements for recognizing assets
acquired and liabilities assumed arising from contingencies; (c) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (d) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008 (for acquisitions closed on or after January 1, 2009 for the Company). Early application is not permitted. We have not yet determined the impact, if any, FAS 141R will have on
our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (currently referred to as minority
interest) in a subsidiary and for the deconsolidation of a subsidiary. Specifically, SFAS 160 establishes a single method of accounting for changes in a parents ownership interest in a subsidiary that do not result in deconsolidation by
requiring that ownership transactions not resulting in deconsolidation be accounted for as equity with no gain or loss recognition in the income statement. SFAS 160 also requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated, which is the date the parent ceases to have a controlling financial interest in the subsidiary. SFAS 160, which is effective for the Company at the beginning of the fiscal year 2010, is to be applied prospectively upon adoption
except for the presentation and disclosure provisions, which require retrospective application for all periods presented. The presentation provisions require that (1) the noncontrolling interest be reclassified to equity, (2) consolidated
net income be adjusted to include the net income attributed to the noncontrolling interest and (3) consolidated comprehensive income be adjusted to include the comprehensive income attributed to the noncontrolling interest. The Company is
evaluating the impact the adoption of SFAS 160 will have on its consolidated financial statements and related disclosures.

In February
2008, the FASB issued Staff Position (FSP) No. FAS 157-b, Fair Value Measurements. This FSP delays the effective date of SFAS 157 until January 1, 2009 for all nonfinancial assets and liabilities, except those
recognized or disclosed at fair value in the financial statements on a recurring basis. Nonfinancial assets and liabilities include, among other things: intangible assets acquired through business combinations; long-lived assets when assessing
potential impairment; and liabilities associated with restructuring activities. The adoption of SFAS 157-b had no impact on our condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlements). This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB 14, Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entitys nonconvertible
debt borrowing rate when interest is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company does not
expect the



56



---

##### Table of Contents

adoption of FSP No APB 14-1 to have a material effect on its consolidated financial position or results of operations.

In October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.This FSP clarifies the application of FASB Statement No. 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when
the market for that financial asset is not active. The adoption of SFAS 157-3 had no impact on our condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

2. Liquidity

On March 27 2009, we completed the
sale of the assets associated with Tullys business names, trademarks, and wholesale business to GMCR. We received $40,300,000 million, less $3,500,000 held in Escrow, in cash proceeds in this transaction. We used these proceeds to improve our
liquidity without shareholder dilution, repay our debt, provide for a shareholder distribution paid May 20, 2009, and for the development of our domestic retail and franchise and license businesses as well as our international retail,
wholesale, and franchise businesses.

As of March 29, 2009 we had cash and cash equivalents of $11,994,000, and a working capital of
$7,352,000. Historically we have not required a significant net investment in working capital and operated with current liabilities in excess of our current assets. Our inventory levels are expected to increase during autumn due to holiday season
merchandise. Inventories are also subject to short-term fluctuations based upon the timing of coffee receipts. Tullys expects that its investment in accounts receivable and inventories will increase, primarily as the result of anticipated
sales growth in the Specialty division.

Cash requirements for Fiscal 2010, other than normal operating expenses and the commitments
described in the condensed consolidated financial statements and notes and in the Form 10-K, are expected to consist primarily of capital expenditures related to the opening of new company-operated stores and equipment and accounts receivable
related to new Specialty division business. We expect our investment in property and equipment during the remainder of Fiscal 2010 will be between $250,000 and $750,000.

During Fiscal 2010, we expect that the majority of the new Tullys stores will be franchised and licensed stores, rather than company-operated stores. Franchised and licensed stores do not require capital
investment in property and equipment by Tullys, but we do incur selling and support costs for such new stores related to store opening, training, and quality control. We expect to open between two and four new company-operated stores in the
remainder of Fiscal 2010. Typically, a new company-operated store will require capital investment of approximately $100,000 to $400,000, but this varies depending on the specific location.

We believe that the operating cash flows, financing cash flows, and investing cash flows projected for Fiscal 2010, and the cash and cash equivalents of
$15,494,000 at March 29, 2009, and our credit facility will be sufficient to fund ongoing operations of Tullys through Fiscal 2010. We expect our business improvement initiatives and other actions will improve our operating income and
cash flow results. However, the timing and extent of success for these strategies cannot be predicted with any level of certainty. In order to maintain an appropriate level of liquidity, we expect to seek additional sources of business funding (such
as debt or equity financings) during Fiscal 2011 as a result of meeting such obligations as our obligation to purchase an additional 25% ownership share in our Asian Joint venture for $4,000,000 on or before March 27, 2010. If the pricing or
terms for any new financing do not meet our expectations, we may be required to choose between completion of the financing on such unfavorable terms or not completing the financing.

If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then we could be required to substantially
reduce operating, marketing, general and administrative costs related to our continuing operations, or reduce or discontinue our investments in store improvements, new customers and



57



---

##### Table of Contents

new products. We could be required to sell stores or other assets and could be unable to take advantage of business opportunities pressures. The sale of
stores or other income-producing assets could adversely affect our future operating results and cash flows.

3. Discontinued OperationsSale of
Wholesale Segment

On March 27, 2009, we completed the sale of the assets associated with Tullys business names, trademarks,
and wholesale business to GMCR, pursuant to the terms of the previously disclosed Asset Purchase Agreement dated September 15, 2008, as amended by Amendment No. 1 thereto dated November 12, 2008 and Amendment No. 2 thereto dated
February 6, 2009 by and among the TC Global, Inc., GMCR and Tullys Bellaccino, LLC. GMCR paid a total purchase price of $40.3 million ($3,500,000 of the purchase price was placed in escrow for one year to satisfy Tullys post-closing
indemnification obligations to GMCR ) for the assets it acquired. The purchase price is subject to an inventory adjustment to be calculated within 120 days of March 27, 2009 (collectively the Green Mountain Transaction). The Company
does not expect an inventory purchase price adjustment.

Therefore, the Company classified the results of operations for the wholesale
operations in discontinued operations, in accordance with the guidance provided in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS 144). The discontinued operations and assets held for sale
represent only those pertaining to the Green Mountain Transaction, and do not include any results relating to those activities which are expected to continue under the license agreement due to this continuing involvement.

Upon closing the Green Mountain Transaction, Tullys received $36,800,000, the remaining $3,500,000 of the purchase price was placed in escrow for
one year to satisfy Tullys post-closing indemnification obligations to GMCR under the GMCR Agreement. Tullys recognized a gain of $28,656,000 on the sale, as follows (dollars in thousands):



|                                                                                    |  |   |        |  
|----------------------------------------------------------------------------------- |  | - | ------ | -
|Cash sales price for the Green Mountain Transaction                                 |  | $ | 40,300 |  
|Deferred Gain:                                                                      |  |   |        |  
|License Agreement (1)                                                               |  |   | (2,523 | )
|Supply Agreement (2)                                                                |  |   | (4     | )
|Sale of PP&E related to the Green Mountain Transaction                              |  |   | (2,862 | )
|Sale of Inventory related to the Green Mountain Transaction                         |  |   | (2,413 | )
|Write-off of assets and intangible assets not sold and related to wholesale segment |  |   | (123   | )
|Lesstransaction costs                                                              |  |   | (3,719 | )
|                                                                                    |  |   |        |  
|Gain on Sale of Wholesale Segment                                                   |  | $ | 28,656 |  
|                                                                                    |  |   |        |  



|(1) | Utilizing a valuation method that included the income approach and relief from royalty rate method , the company has valued the use of the trademarks in the License Agreement at
$2,523,000 and will amortize the deferred gain of the perpetual license over a 15 year period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Since there are no direct revenue streams related to the Supply Agreement and the Agreement is at market rates, we determined that a market participant would pay no more than the
costs required to replace or recreate the Supply Agreement. Therefore, the Company valued the Supply Agreement at $4,400 and will amortize the deferred gain over a 5 year period.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operation of Roasting Facility

No later that September 27, 2009, as per the terms of the Green Mountain Transaction, we continue to operate for the benefit and financial obligation of GMCR, the roasting and distribution facility until GMCR successfully transitions
into a new facility.



58



---

##### Table of Contents

Supply Agreement

Under the terms of the Supply Agreement, (i) GMCR will use commercially reasonable efforts to supply us with all of our requirements of Products and
Other Coffee Products during the term of the Supply Agreement; and (ii) we will agree to purchase all of our requirements of Products and Other Coffee Products from GMCR during the term of the Supply Agreement. As used in the Supply Agreement:



| |  |  | Products means certain 5-lb. bulk, Retail Coffee Bags and fractional pack coffee for use at Licensed Retail Stores (as defined in the License
Agreement);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Retail Coffee Bags mean whole bean and ground coffee specifically packaged for retail sale. We expect that the Supply Agreement will support our product
sourcing needs for our ongoing retail and specialty businesses; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other Coffee Products means grocery bagged coffees, K-Cup portion packs, and certain fractional pack coffees.
| | - |  | ---------------------------------------------------------------------------------------------------------------

Pricing for a specified annual volume of Products will be established on a cost plus basis, with the plus premium reflecting a
negotiated, commercially reasonable margin over GMCRs cost of goods. Because GMCRs pricing to us under the Supply Agreement will be tied to its own costs, we expect that the cost plus pricing for the Products will be
competitive with market prices generally. If Tullys requires a higher aggregate volume of Products in a given contract year and GMCR does not elect to continue the cost plus pricing for one or more Products after the specified
volume is exceeded, the Products will be priced at GMCRs best list price offered to like customers, provided that we will have the option to use a secondary vendor to supply such Products.

In addition, subject to the limitations set forth in the Supply Agreement, we may use a secondary vendor to supply a specific product (except K-Cup
portion packs) if GMCR:



| |  |  | is unable to fill a purchase order for any such Product or Other Coffee Product within 30 days after the delivery date set forth in such order;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | discontinues producing any such Product or Other Coffee Product;
| | - |  | ----------------------------------------------------------------



| |  |  | elects not to produce a new Product or Other Coffee Product requested by us;
| | - |  | ----------------------------------------------------------------------------



| |  |  | elects not to supply us with any seasonal, promotional or special event related coffee product requested by us; or
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | changes the cost-plus pricing for certain Products without our prior written approval.
| | - |  | --------------------------------------------------------------------------------------

The initial term of the Supply Agreement runs for five years (expiring March 27, 2014) and may be renewed thereafter for separate additional terms
of one year each unless either party provides written notice of non-renewal to the other party at least 120 days in advance of the end of the initial five year term or additional term, as the case may be.

We must provide forecasting to GMCR on our estimated quarterly volume requirements. If our actual purchases under the Supply Agreement vary by more than
25% from our estimates, then we would be subject to a penalty fee.

The Supply Agreement contains certain restrictions on transferability,
including that we may not assign the agreement without the prior written consent of GMCR, which may not be unreasonably withheld. Pursuant to the terms of the Supply Agreement, it is reasonable for GMCR to withhold its consent to a proposed
assignment of the agreement by Tullys to a third party if the proposed assignee does not meet GMCRs standards as to general creditworthiness or the proposed assignee is a direct competitor of GMCR in the coffee business. In addition, it



59



---

##### Table of Contents

will be a condition of GMCRs obligation to consent to any such proposed assignment that the proposed assignee agrees to assume our obligations under
the Company Noncompetition Agreement (as described below).

In evaluating the Supply Agreement, we made certain estimates of the mix of
products that were to be purchased as well as the distribution and competitor prices we would be getting on the products supplied from GMCR.

License Agreement

Under the License Agreement, for a payment by us of one dollar annually, GMCR has granted to us an
exclusive, worldwide (excluding Japan), perpetual, fully paid-up license to use the Tullys business names and trademarks set forth in the License Agreement (the Licensed Marks) in connection with:

(a) the retail sale of certain 5-lb. bulk, Retail Coffee Bags and fractional pack coffee for use at Licensed Retail Stores (as defined below), together
with certain other coffee products we may be permitted to offer for retail sale (the Licensed Products), solely at or from Licensed Retail Stores;

(b) the operation of Licensed Retail Stores where Licensed Products are used and/or sold;

(c) the making,
having made and selling of merchandising items (such as hats, t-shirts and mugs) under and/or bearing the Licensed Marks, but for resale solely in Licensed Retail Stores or at other stores or outlets wholly- owned by Tullys, and only in a
manner that is incidental to, and for the purpose of promoting or supporting, the operation of Licensed Retail Stores under the rights granted in the License Agreement; and to support the aforementioned licensed activities with promotional and
advertising material under the Licensed Marks solely for the purpose of, and confined to, the support of exercise of the rights granted in the License Agreement;

(d) the use of the Licensed Marks outside of North America (except Japan) in connection with the wholesale sale of Licensed Products;

(e) the use of the Licensed Marks outside of North America (except Japan) to make, have made and sell merchandising items only in a manner that is incidental to, and for the purpose of promoting or supporting, the
wholesale operations of Tullys;

(f) the use of the Licensed Marks as solely provided for in our existing license agreement with
Tullys Coffee Asia Pacific Partners, L.P.; and

(g) the use of the Licensed Marks in connection with the operation of websites for
the purpose of (i) providing information to consumers regarding the Licensed Products, merchandising items and/or Licensed Retail Stores, and for supporting any marketing efforts of Tullys and (ii) the wholesale sale outside of North
America of Licensed Products, Other Coffee Products, and merchandising items.

Tullys may sublicense, either directly, as part of a
franchise arrangement or otherwise, any or all of the rights granted to it under the License Agreement, in whole or in part, provided that: (i) all sublicenses are in writing and name GMCR as an express third party beneficiary; (ii) we
provide a copy of all sublicense agreements to GMCR; (iii) all sublicenses obligate the sublicensees to maintain quality and otherwise comply with the applicable provisions of the License Agreement; and (iv) we remain jointly and severally
liable for the conduct of sublicensees.

As used in the License Agreement, Licensed Retail Stores means all physical retail
locations operating under certain Licensed Marks under the License Agreement by us or our sublicensees at which brewed coffee is the primary product sold to the end-use consumer for on-and off-premises consumption. The term Licensed Retail Store
includes both standalone locations and physical retail locations within larger environments with their



60



---

##### Table of Contents

own separate menus and facilities (e.g., counter space, cash register or order pick-up), such as coffee Kiosks, store-in-store locations (such as
a coffee bar located within a supermarket), locations sharing space with food service establishments, and locations within other large-scale facilities (e.g., airports, hospitals, manufacturing facilities and educational institutions).

The License Agreement also contains the following provisions which may affect the exclusivity of the license granted to us:

(a) Our exclusive license rights to operate retail stores in North America will revert to non-exclusive rights in North America if Tullys fails to
maintain at least 20 Benchmark Stores in North America. As used in the License Agreement, a Benchmark Store means a standalone Licensed Retail Store open for business in the ordinary and commercially reasonable course for such store.

(b) Commencing five years after the effective date of the License Agreement, GMCR may provide written notice to us of its desire to open
its own Benchmark Store in a specific country outside of North America where, at that time, no Benchmark Store exists (Retail Notice). The Company or its sublicensee shall have one year (and up to an additional six months in the case of
a force majeure event), after receipt of the Retail Notice, to open such Benchmark Store or to make substantial progress toward opening such Benchmark Store. If we fail to do so, GMCR shall have the right for two years (including up to an additional
six months in the case of a force majeure event) to open its own Benchmark Store or to make substantial progress toward opening its own Benchmark Store, during which time our license rights set forth in the License Agreement in the country set forth
in the Retail Notice shall revert to non-exclusive rights. Provided GMCR makes substantial progress toward opening its own Benchmark Store or upon GMCR opening its own Benchmark Store, our license rights set forth in the License Agreement in the
country set forth in the Retail Notice shall permanently revert to non-exclusive rights. If GMCR fails to do so, our license rights in such country shall revert to being exclusive and GMCRs right to exploit that particular Retail Notice shall
terminate. GMCR may provide up to three Retail Notices per year to us after the fifth anniversary of the effective date of the License Agreement.

(c) Commencing two years after the effective date of the License Agreement, GMCR may provide written notice to us of its desire to engage in the wholesale sale of Licensed Products to a specific country outside of North America where, at
that time, no wholesale sale of any Licensed Products to wholesale customers exists (Wholesale Notice). The Company or its sublicensee shall have one year (and up to an additional six months in the case of a force majeure event) after
receipt of the Wholesale Notice to engage in active wholesale operations of the Licensed Products to such country or to make substantial progress toward engaging in active wholesale operations of any of the Licensed Products to such country. If we
fail to do so, GMCR shall have the right for two years to engage in active wholesale operations of the Licensed Products to such country or to make substantial progress toward engaging in active wholesale operations of the Licensed Products to such
country, during which time our license rights set forth in the License Agreement in the country set forth in the Wholesale Notice shall revert to non-exclusive rights. Provided GMCR does so engage in active wholesale operations of the Licensed
Products, our license rights set forth in the License Agreement in the country set forth in the Wholesale Notice shall permanently revert to non-exclusive rights. If GMCR fails to do so, our license rights in such country shall revert to being
exclusive and GMCRs right to exploit that particular Wholesale Notice shall terminate. GMCR may provide up to three Wholesale Notices per year after the second anniversary of the effective date of the License Agreement.

The License Agreement has a perpetual term but is terminable by either party upon written notice to the other party in the event of any breach by the
other party of a material obligation under the License Agreement, which the receiving party fails to cure within 30 days after receiving such notice, or in the event the other party (i) discontinues its business operations; (ii) makes an
assignment for the benefit of its creditors or an admission of its inability to pay its obligations as they become due; or (iii) files or has filed against it a petition in bankruptcy or any similar proceeding or files any pleading seeking any
reorganization, liquidation or dissolution under any law, or admits or fails to contest the material allegations of any such pleading filed against it, or is



61



---

##### Table of Contents

adjudicated as bankrupt or insolvent, or a receiver is appointed for a substantial part of such partys assets, or the claims of creditors of such party
are abated or subject to a moratorium under any law.

The License Agreement also contains customary terms such as requirements for
Tullys and its sublicensees to maintain the quality of the Licensed Products.

,Noncompetition Agreements

The Company and Tom T. OKeefe, our founder and chairman, have entered into separate noncompetition agreements with GMCR. We
refer to these agreements collectively as the Noncompetition Agreements and individually as the Company Noncompetition Agreement and the OKeefe Noncompetition Agreement.

Under the terms of the Company Noncompetition Agreement, we have agreed that, for a period of nine years after the closing of the Green Mountain
Transaction, we will not directly or indirectly operate in the coffee business in the United States, Canada, Mexico, and the Caribbean (the Excluded Territory); provided, however, that we may continue to operate and expand
licensed retail stores in the Excluded Territory.

Similarly, under the terms of the OKeefe Noncompetition Agreement,
Mr. OKeefe has agreed that, for a period of five years after the closing of the Green Mountain Transaction, he will not directly or indirectly operate in the coffee business in the Excluded Territory; provided that he is not
prohibited from (i) participating in the operation of our licensed retail stores in the Excluded Territory or (ii) serving as an officer, director or employee of the Company.

As used in the Noncompetition Agreements, the term coffee business means the business of roasting, packaging, brewing, selling, distributing
or otherwise providing whole bean and ground coffees, hot or cold coffee beverages or related products, including coffee brewers, in the United States, Canada, Mexico and the Caribbean. As used in the Noncompetition Agreements, licensed retail
stores mean a physical retail location operating under the licensed marks under the License Agreement (as defined below) by Tullys or its sublicensees at which brewed coffee is the primary product sold to the end-use consumer
for on- and off-premises consumption. Licensed retail stores include both standalone locations and physical retail locations within larger environments with their own separate menus and facilities (e.g., counter space, cash register or order
pick-up), such as coffee kiosks, store-in-store locations (such as a coffee bar located within a supermarket), locations sharing space with food service establishments, and locations within other large-scale facilities (e.g., airports,
hospitals, manufacturing facilities, and educational institutions); provided nothing within such larger environments constitutes a licensed retail store except the specific areas where coffee is ordered, brewed, sold and consumed.

Accordingly, under the Noncompetition Agreements, Mr. OKeefe and the Company are prohibited in engaging in all aspects of the
coffee business unless it involves the operation of a licensed retail store. This distinction means that we may continue to operate and expand our existing retail store locations as well as our licensed and franchise store business because each of
these are included within the definition of licensed retail stores. We cannot continue to operate and expand our general United States, Canada, Mexico and the Caribbean wholesale coffee segment because that business is not included as a
licensed retail store.

In addition to the non-competition covenants described above, both Tullys and
Mr. OKeefe have agreed that, for a period of two years after the closing of the Green Mountain Transaction, neither Tullys nor Mr. OKeefe will solicit for employment any of our current employees who accept employment with
GMCR in connection with the Green Mountain Transaction. As partial consideration for our agreement to enter into the Company Noncompetition Agreement, GMCR paid us $300,000 at closing. Mr. OKeefe agreed to enter into the OKeefe
Noncompetition Agreement to induce GMCR to enter into the Asset Purchase Agreement, and he did not receive any cash consideration under the OKeefe Noncompetition Agreement.



62



---

##### Table of Contents

Discontinued Operations

The table below summarizes the major categories of assets and liabilities held for sale at March 30, 2008:



|                                                        |  |               |      
|------------------------------------------------------- |  | ------------- | -----
|                                                        |  | March 30,2008
|Assets Held for Sale                                    |  |               |      
|Inventory                                               |  | $             | 2,612
|Prepaid expenses and other current assets               |  |               | 134  
|Property and equipment and other intangible assets, net |  |               | 2,294
|Goodwill                                                |  |               | 124  
|Other Assets                                            |  |               | 46   
|                                                        |  |               |      
|Total Assets Held for Sale                              |  | $             | 5,210
|                                                        |  |               |      
|Liabilities Held for Sale                               |  |               |      
|Long-term debt                                          |  | $             | 19   
|Capital lease obligations                               |  |               | 47   
|                                                        |  |               |      
|Total Liabilities Held for Sale                         |  | $             | 66   
|                                                        |  |               |      

The operating results of discontinued operations for the wholesale segment included in the
accompanying consolidated statements of operations are as follows:



|                                              |  |                        |         |   |               |   |              |  |   |       
|--------------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------------ |  | - | ------
|                                              |  | March 29,2009          |         |   | March 30,2008 |   | April 1,2007
|                                              |  | (dollars in thousands)
|Net Sales                                     |  | $                      | 39,547  |   |               | $ | 28,132       |  | $ | 20,901
|Operating Income from Discontinued Operations |  |                        | 6,292   |   |               |   | 2,402        |  |   | 773   
|Gain on Sale of Wholesale Segment             |  |                        | 28,656  |   |               |   |             |  |   |      
|Income taxes                                  |  |                        | (12,407 | ) |               |   |             |  |   |      
|                                              |  |                        |         |   |               |   |              |  |   |       
|Income from discontinued operations           |  | $                      | 22,541  |   |               | $ | 2,402        |  | $ | 773   
|                                              |  |                        |         |   |               |   |              |  |   |       

Direct and indirect costs associated with the sale, may be incurred in FY 2010 and will be
recorded during the period incurred as expenses.

4. Accounts receivable and allowance for doubtful accounts

Accounts receivable represent amounts billed to customers. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in
the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence. Accounts receivable determined to be uncollectible are charged against the allowance for
doubtful accounts and recoveries are credited to the allowance for doubtful accounts.

The allowance for doubtful accounts is summarized as
follows:



|                                        |  |                        |     |   |               |   |     |  
|--------------------------------------- |  | ---------------------- | --- | - | ------------- | - | --- | -
|                                        |  | Years ended            |    
|                                        |  | March 29,2009          |     |   | March 30,2008 |  
|                                        |  | (dollars in thousands) |    
|Balance, beginning of the year          |  | $                      | 321 |   |               | $ | 295 |  
|Additions charged to costs and expenses |  |                        | 287 |   |               |   | 121 |  
|Write-offs and other deductions         |  |                        | (30 | ) |               |   | (95 | )
|                                        |  |                        |     |   |               |   |     |  
|Balance, end of the year                |  | $                      | 578 |   |               | $ | 321 |  
|                                        |  |                        |     |   |               |   |     |  



63



---

##### Table of Contents

5. Inventories

Inventories consist of the following:



|                             |  |                        |       |               |   |      
|---------------------------- |  | ---------------------- | ----- | ------------- | - | -----
|                             |  | March 29,2009          |       | March 30,2008
|                             |  | (dollars in thousands)
|Coffee                       |  |                        |       |               |   |      
|Roasted                      |  |                        | 186   |               |   | 711  
|Other goods held for sale    |  |                        | 478   |               |   | 68   
|Packaging and other supplies |  |                        | 448   |               |   | 538  
|                             |  |                        |       |               |   |      
|Total                        |  | $                      | 1,112 |               | $ | 1,317
|                             |  |                        |       |               |   |      

6. Related Party Receivable and Other Assets

Other assets consist of the following:



|                                                                |  |                        |       |               |   |    
|--------------------------------------------------------------- |  | ---------------------- | ----- | ------------- | - | ---
|                                                                |  | March 29,2009          |       | March 30,2008
|                                                                |  | (dollars in thousands)
|Receivable from Limited Partner in TCAP Joint Venture           |  | $                      | 1,162 |               |   |   
|Long-term receivable from Limited Partner in TCAP Joint Venture |  |                        | 1,000 |               |   |   
|                                                                |  |                        |       |               |   |    
|Total receivable from Limited Partner in TCAP joint venture     |  | $                      | 2,162 |               |   |   
|                                                                |  |                        |       |               |   |    
|Security deposits                                               |  | $                      | 216   |               | $ | 198

Tullys granted the Limited Partner a $1,000,000 loan to be paid through future distributions
of the partnership. Further, $1,162,000 is receivable from AFCM in full satisfaction or the of the Companys LP Loan paid to AFCM directly on March 27, 2009 and was subsequently paid by AFCM to the partnership after the balance sheet date
on April 22, 2009.

7. Property and equipment

Property and equipment consist of the following:



|                                                |  |                        |         |   |               |   |         |  
|----------------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------- | -
|                                                |  | March 29,2009          |         |   | March 30,2008 |  
|                                                |  | (dollars in thousands) |        
|Machinery and equipment                         |  | $                      | 7,854   |   |               | $ | 8,593   |  
|Leasehold improvements                          |  |                        | 12,021  |   |               |   | 14,519  |  
|Furniture and fixtures                          |  |                        | 2,732   |   |               |   | 3,995   |  
|Software                                        |  |                        | 271     |   |               |   | 296     |  
|                                                |  |                        |         |   |               |   |         |  
|                                                |  |                        | 22,878  |   |               |   | 27,403  |  
|Less: Accumulated depreciation and amortization |  |                        | (20,095 | ) |               |   | (22,788 | )
|                                                |  |                        |         |   |               |   |         |  
|Total                                           |  | $                      | 2,783   |   |               | $ | 4,615   |  
|                                                |  |                        |         |   |               |   |         |  

8. Goodwill and intangible assets

As of March 29, 2009 and March 30, 2008 goodwill was $332,000. Under SFAS 142, goodwill is to be periodically reevaluated and the carrying
amount for goodwill is required to be reduced if impairment is identified. Tullys has determined that this analysis will be performed annually during the fourth quarter of each fiscal year. The analysis was performed and no impairment was
identified for Fiscal 2009, Fiscal 2008, and Fiscal 2007.



64



---

##### Table of Contents

9. Impairment of long-lived assets

Tullys recognized non-cash impairment losses of $237,000 in the fourth quarter of Fiscal 2009, in accordance with the provisions of SFAS 144. This relates to impairment of leasehold improvements and equipment.
No impairment was identified in the review for Fiscal 2008 or Fiscal 2007. These reviews were performed in connection with the development and implementation of our annual business plans.

10. Income taxes

Our net operating loss
carryforwards have offset this gain for federal income tax purposes, but a portion of the gain is taxable for state income taxes and for federal alternative minimum tax (AMT) purposes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The significant components of deferred tax assets and liabilities are as follows:



|                                           |  |               |         |   |               |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | ------------- | - | ------- | -
|                                           |  | March 29,2009 |         |   | March 30,2008 |  
|Deferred tax assets                        |  |               |         |   |               |   |         |  
|Net operating loss carryforwards           |  | $             | 7,101   |   |               | $ | 17,964  |  
|Stock options                              |  |               | 83      |   |               |   | 1,640   |  
|Deferred revenue                           |  |               | 1,052   |   |               |   |        |  
|Property and equipment                     |  |               | 1,206   |   |               |   | 3,660   |  
|Store closures and lease termination costs |  |               | 42      |   |               |   | 36      |  
|Deferred lease costs                       |  |               | 148     |   |               |   | 291     |  
|Tax credit                                 |  |               | 803     |   |               |   | 317     |  
|Allowance for doubtful accounts            |  |               | 205     |   |               |   | 116     |  
|Accrued vacation and other liabilities     |  |               | 677     |   |               |   | 675     |  
|Investment in joint venture                |  |               | 3,161   |   |               |   | 1,079   |  
|Other                                      |  |               | 139     |   |               |   | 265     |  
|                                           |  |               |         |   |               |   |         |  
|Total deferred tax assets                  |  | $             | 14,617  |   |               | $ | 26,043  |  
|                                           |  |               |         |   |               |   |         |  
|Deferred tax liabilities                   |  |               |         |   |               |   |         |  
|Debt discount                              |  |               |        |   |               |   | (248    | )
|Less: Valuation allowance                  |  | $             | (14,617 | ) |               | $ | (25,795 | )
|                                           |  |               |         |   |               |   |         |  
|Net deferred tax asset                     |  |               |        |   |               |   |        |  
|                                           |  |               |         |   |               |   |         |  

At March 29, 2009, we had federal and state net operating loss carryforwards of approximately
$20,800,000 and $9,500,000, respectively. The federal net operating loss carryfowards expire between 2021 and 2029 and the state net operating losses expire between 2009 and 2030.

Our ability to use our net operating losses to offset future income could be subject to restrictions enacted in the United States Internal Revenue Code
of 1986, as amended. These restrictions limit future use of net operating losses and credit carryforwards if certain stock ownership changes occur.



65



---

##### Table of Contents

The provision for income taxes is summarized as follows (dollars in thousands):



|                   |  |               |     |               |   |              |  |   |     |  
|------------------ |  | ------------- | --- | ------------- | - | ------------ |  | - | --- | -
|                   |  | Years ended   |    
|                   |  | March 29,2009 |     | March 30,2008 |   | April 1,2007 | 
|Current taxes      |  |               |     |               |   |              |  |   |     |  
|Federal            |  | $             | 493 |               | $ |             |  | $ | 42  |  
|State              |  |               | 395 |               |   | 2            |  |   | (25 | )
|                   |  |               |     |               |   |              |  |   |     |  
|Total current      |  |               | 888 |               |   | 2            |  |   | 17  |  
|                   |  |               |     |               |   |              |  |   |     |  
|Deferred taxes     |  |               |    |               |   |             |  |   |    |  
|                   |  |               |     |               |   |              |  |   |     |  
|Income tax expense |  | $             | 888 |               | $ | 2            |  | $ | 17  |  
|                   |  |               |     |               |   |              |  |   |     |  

A reconciliation of the statutory federal income tax rate to Tullys effective tax rate is as
follows:



|                                           |  |               |    |  |               |    |  |              |   
|------------------------------------------ |  | ------------- | -- |  | ------------- | -- |  | ------------ | --
|                                           |  | Years ended   |   
|                                           |  | March 29,2009 |    |  | March 30,2008 |    |  | April 1,2007 |   
|Tax expense (benefit)                      |  |               |    |  |               |    |  |              |   
|Federal statutory rate                     |  | 34.0          | %  |  | (34.0         | %) |  | (34.0        | %)
|State income taxes, net of federal benefit |  | 1.5           | %  |  | (1.9          | %) |  | (2.7         | %)
|Rate change                                |  | 0.5           | %  |  | 3.7           | %  |  | 0.0          | % 
|Stock compensation                         |  | 6.7           | %  |  | (2.3          | %) |  | 0.0          | % 
|Other                                      |  | 7.9           | %  |  | 3.5           | %  |  | 1.1          | % 
|Valuation allowance                        |  | (46.9         | %) |  | 31.0          | %  |  | 35.8         | % 
|                                           |  |               |    |  |               |    |  |              |   
|Effective income tax rate                  |  | 3.7           | %  |  | 0.0           | %  |  | 0.2          | % 
|                                           |  |               |    |  |               |    |  |              |   

In June, 2006, the FASB issues FASB Interpretation No. 48 Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement 109 (FIN 48). FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies for the accounting for income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition.

The Company adopted the provisions of FIN 48 on April 2, 2007. As of the date of adoption, the Company had
no unrecognized tax benefits and therefore no adjustment to retained earnings as a cumulative effect adjustment to shareholders equity. The Company had no interest or penalties related to the unrecognized tax benefits as of the date of
adoptions. The Company will recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Company is subject to U.S. Federal and state income taxes. The Company is no longer subject to U.S. federal or state income tax examinations before Fiscal 2005 and fiscal 2004, respectively. However, to the extent allowed by law, the
tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss amount.

The Company is not currently under Internal Revenue Service (IRS) or state examination.



66



---

##### Table of Contents

11. Accrued liabilities

Accrued liabilities consist of the following:



|                                                  |  |                        |       |               |   |      
|------------------------------------------------- |  | ---------------------- | ----- | ------------- | - | -----
|                                                  |  | March 29,2009          |       | March 30,2008
|                                                  |  | (dollars in thousands)
|Employee wages and taxes                          |  | $                      | 1,398 |               | $ | 1,304
|Professional fees and services                    |  |                        | 696   |               |   | 455  
|Accrued lease termination and store closure costs |  |                        | 117   |               |   | 99   
|Accrued real estate and property taxes            |  |                        | 140   |               |   | 236  
|Accrued discounts and allowances                  |  |                        | 616   |               |   | 859  
|Accrued interest                                  |  |                        | 42    |               |   | 768  
|Federal and State taxes payable                   |  |                        | 1,164 |               |   | 392  
|Other                                             |  |                        | 440   |               |   | 291  
|                                                  |  |                        |       |               |   |      
|Total                                             |  | $                      | 4,613 |               | $ | 4,404
|                                                  |  |                        |       |               |   |      

12. Credit lines and long term debt

Benaroya Credit Facility

On
April 26, 2007, we borrowed $4,000,000 from Benaroya Capital (less an initial loan fee of $100,000) and issued the promissory note (the Benaroya Note) to evidence that indebtedness. In connection with the loan, we granted warrants
to purchase 12,411 shares of common stock at an exercise price of $2.64 per share to Benaroya Capital, which were recorded at their estimated aggregate fair value of $109,000 when granted. On July 12, 2007, the Benaroya Note amount was amended
to establish a credit facility (the Benaroya credit facility) with allowable borrowings of up to $10 million, to reduce the interest rate from 15% to 13.5% per annum (effective July 12, 2007) and to extend its maturity date.
Interest accrued on the outstanding principal balance of the Benaroya Note, calculated on a daily basis and payable on the maturity date. Overdue amounts bear interest at a rate equal to eighteen percent (18%) per annum. Loan fees of $482,000
were added to the principal balance in connection with the July amendment of the Benaroya credit facility and warrants to purchase 59,780 shares of common stock at an exercise price of $2.64 per share were issued to Benaroya Capital, which were
recorded at their estimated aggregate fair value of $526,000 when granted. The Benaroya Capital warrants became exercisable on April 26, 2008, and will expire during 2012.

Our chairman guaranteed our obligations under the Benaroya credit facility, and another shareholder had guaranteed up to $3,000,000 under the Benaroya
credit facility. Our chairman was not compensated for his guaranty. We agreed to compensate the second guarantor through the cash payment of a $167,000 commitment fee and a grant of warrants to purchase 21,000 shares of our common stock at an
exercise price of $2.64 per share, which were recorded at their estimated aggregate fair value of $185,000 when granted (these warrants became exercisable on July 12, 2008).

The Benaroya Note was due on August 31, 2008. The Company and Benaroya Capital entered into the Forbearance Agreement on September 11, 2008.

As a condition under the terms of the Green Mountain Transaction, on March 27, 2009, the Benaroya credit facility $9,566,000 was
repaid in full satisfaction of the credit facility and accrued interest. Concurrently with the repayment of the Benaroya credit facility, the guaranty agreements between Tullys and the Guarantors were terminated and Benaroya Capital and the
Guarantors released their conditional security interest in Tullys assets.

Northrim Credit Facility

On June 22, 2005, Tullys entered into the Northrim Facility. Under this credit facility, Tullys was allowed to borrow up to $6,500,000,
subject to the amount of eligible accounts receivable and inventories. Borrowings



67



---

##### Table of Contents

under this facility accrued interest at the prime rate plus 7.0% with a floor of 12.0% and a ceiling of 14.0% during the contract term and were secured by
our inventories and through the assignment (with recourse) of our accounts receivable.

As a condition under the terms of the Green
Mountain Transaction, on March 27, 2009, the Northrim Facility $5,777,000 was repaid in full satisfaction of the credit facility and accrued interest . Concurrently with the repayment of the Northrim Facility, Northrim Funding released their
conditional security interest in Tullys assets.

UCC Settlement Promissory Note

In April 2001, Tullys granted UCC Ueshima Coffee Company, Ltd. (UCC) a license to establish and operate Tullys specialty coffee
stores, including a license to use Tullys business names, trademarks and intellectual property rights for purposes of establishing and operating Tullys stores, and to sell Tullys coffee at wholesale, in 25 Asian territories
(excluding Japan which is served by Tullys Coffee Japan).

Since the license agreement was executed in April 2001, UCC had opened one
Tullys store, which it closed in 2004. UCC had not established nor operated any other Tullys stores nor engaged in wholesale sales of Tullys products within its territory. Tullys attempted to find a mutually satisfactory
resolution to this problem with UCC, but these efforts were not successful. In June 2006, Tullys notified UCC that it had breached the license agreement, and on November 7, 2006, UCC filed a lawsuit in the United States District Court for
the Western District of Washington. The suit alleged that Tullys had breached the license agreement by, among other things, terminating the license agreement for UCCs non-performance and sought a declaration that UCC was not in breach of
the license agreement, that Tullys was in breach, and that UCC was entitled to enforce its alleged security interest as to certain of Tullys assets that were subject to the license agreement (namely, the Asian trademarks and the right to
use Tullys intellectual properties in the territories).

On January 7, 2008, Tullys and UCC entered into a Settlement
Agreement to settle that lawsuit. Under the Settlement Agreement, the parties agreed to a mutual release of claims and to the dismissal of the lawsuit with prejudice. UCC also assigned all of its rights and interest under the 2001 license agreement
to Tullys. The Settlement Agreement was finalized and effective January 7, 2008.

In consideration for the settlement,
Tullys agreed to pay $6.0 million to UCC, consisting of $2.0 million paid to UCC on January 8, 2008, and a $4.0 million promissory note issued by TCAP, a wholly owned subsidiary of Tullys, to UCC. The promissory note accrued
interest at 3.0% per year and is due in annual principal installments of $1,000,000 commencing on December 28, 2008. Tullys had issued a limited guaranty for TCAPs obligations under the note, which was generally secured by the
assets of Tullys and TCAP related to the Licensed Territories, including Tullys stock in TCAP, TCAPs interest in the Tullys Coffee Asia joint venture, Tullys trademarks for the Licensed Territories and Tullys
interest as licensor of Tullys Coffee Asia, but was non-recourse as to Tullys other assets.

As a condition under the terms of
the Green Mountain Transaction, on March 27, 2009, the promissory note with UCC was repaid in full. Concurrently with the repayment of the promissory note, UCC released their conditional security interest in Tullys assets.

Tullys Coffee Asia Pacific  Limited Partnership Loan

On December 31, 2008, pursuant to the Limited Partnership Agreement dated December 21, 2007 between Tullys Coffee Asia Pacific, Inc.
(TCAP), a wholly-owned subsidiary of Tullys Coffee Corporation (Tullys), and Asia Food Culture Management Pte. Ltd. (Limited Partner), TCAP issued a promissory note in the principal amount of
$1,120,000 (the GP Loan) to Tullys Coffee Asia Pacific Partners, L.P. (the Partnership). The GP Loan accrued interest at an annualized rate of 15%.



68



---

##### Table of Contents

Also on December 31, 2008 as subsequently amended by Amendment No. 1 dated March 6, 2009,
and amendment No. 2 on March 17, 2009, the Partnership issued a convertible promissory note to the Limited Partner in the principal amount of $1,120,000 (the LP Loan). The LP Loan is secured by the net cash from
operations of the Partnership that are available for distribution to the Limited Partner pursuant to the Partnership Agreement in proportion to the Limited Partners percentage of Partnership Interest (as defined in the Partnership Agreement).
The LP Loan will bear interest of an annualized rate of 0.44%. The LP Loan is due and payable five business days after the date that the Partnership has made distributions to the Limited Partner in an amount equal to all principal and accrued
interest on the LP Loan.

Additionally, Tullys has granted the Limited Partner a preferential right to receive from the partnership,
prior to any future distribution to Tullys, cash distributions equal to US$500,000 out of partnership profits available for distribution, and that, after receipt by the Limited Partner of the full preference amount all subsequent cash
distributions of partnership profits shall be shared equally between the General Partner and the Limited partner. Any subsequent cash distributions to the Limited Partner would first be applied to retire the LP Loan.

Obligations under credit lines and long-term debt consist of the following:



|                                                                                                                                                                                                                                                                   |  |                        |      |   |               |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ---- | - | ------------- | - | ------- | -
|                                                                                                                                                                                                                                                                   |  | March 29,2009          |      |   | March 30,2008 |  
|                                                                                                                                                                                                                                                                   |  | (dollars in thousands) |     
|Borrowings under the Northrim Facility                                                                                                                                                                                                                             |  | $                      |     |   |               | $ | 4,650   |  
|Borrowings under the Benaroya credit facility, net of unaccreted discount of $0 and $411,000, respectively                                                                                                                                                         |  |                        |     |   |               |   | 7,071   |  
|Note payable for the settlement of the UCC litigation, net of unaccreted discount of $690,000 on March 30, 2008                                                                                                                                                    |  |                        |     |   |               |   | 3,337   |  
|Note payable for purchase of insurance, payable in variable monthly installments of approximately $16,000$43,000 including interest at
5.90%, through September 2009 collateralized by unearned or return insurance premiums, accrued dividends and loss payments |  |                        | 257  |   |               |   | 155     |  
|Vehicle purchase note payable in monthly installments of approximately $833 including interest at 3.98%, through March 2010, secured by the
related vehicles                                                                                                       |  |                        | 10   |   |               |   | 19      |  
|                                                                                                                                                                                                                                                                   |  |                        |      |   |               |   |         |  
|                                                                                                                                                                                                                                                                   |  |                        | 267  |   |               |   | 15,232  |  
|Less: Current portion                                                                                                                                                                                                                                              |  |                        | (267 | ) |               |   | (12,912 | )
|                                                                                                                                                                                                                                                                   |  |                        |      |   |               |   |         |  
|Long-term debt, net of current portion                                                                                                                                                                                                                             |  | $                      |     |   |               | $ | 2,320   |  
|                                                                                                                                                                                                                                                                   |  |                        |      |   |               |   |         |  

13. International licenses and deferred revenue

UCC Ueshima Coffee Company, Ltd.

In connection
with the Settlement Agreement with UCC, Tullys recorded $799,000 during Fiscal 2007 and $736,000 in Fiscal 2008 for the costs of its defense and for prosecution of its counterclaims.

At the April 2001 commencement of the UCC license term, UCC paid a license fee of $12.0 million to Tullys. The license agreement provided that this
fee was fully earned upon payment. Tullys initially recorded the $12.0 million license fee as deferred revenue, and has recognized it as revenue on a periodic basis during the zero royalty period, during which it was expected that Tullys
would have substantial performance obligations associated with supporting the opening and operation of Tullys stores by UCC. As a result, deferred licensing revenues (included in liabilities) at December 30, 2007 included $1.8 million
associated with the UCC license agreement.



69



---

##### Table of Contents

In the fourth quarter of Fiscal 2008, Tullys determined that the termination of the license
agreement under the Settlement Agreement and the resulting $6.0 million note payable represented a repossession under Statement of Financial Accounting Standards No. 45, Accounting for Franchise Fee Revenue. In accordance
with SFAS 45, Tullys reversed $3.5 million in previously recognized license revenue and $1.8 million in deferred license fee revenue.

Deferred licensing revenue recognized under the agreements with Tullys Coffee Japan and the license agreement with UCC is summarized as follows (dollars in thousands):



|                                                                                                                |  |               |   |               |   |        |              |  |   |      
|--------------------------------------------------------------------------------------------------------------- |  | ------------- | - | ------------- | - | ------ | ------------ |  | - | -----
|                                                                                                                |  | Years ended  
|                                                                                                                |  | March 29,2009 |   | March 30,2008 |   |        | April 1,2007
|Recognition of deferred license revenue under international agreements                                          |  |               |   |               |   |        |              |  |   |      
|Periodic recognition of deferred license revenue under agreements with Tullys Coffee Japan                     |  | $             |  |               | $ |       |              |  | $ |     
|Revenue recognized upon termination of license and supply agreements under agreements with Tullys Coffee Japan |  |               |  |               |   |       |              |  |   |     
|                                                                                                                |  |               |   |               |   |        |              |  |   |      
|Total deferred license revenue recognized under agreements with Tullys Coffee Japan                            |  |               |  |               |   |       |              |  |   |     
|                                                                                                                |  |               |   |               |   |        |              |  |   |      
|Periodic recognition of deferred license revenue under UCC license agreement                                    |  |               |  |               |   | 1,080  |              |  |   | 1,440
|                                                                                                                |  |               |   |               |   |        |              |  |   |      
|Reversal of previously recognized deferred license revenue under UCC license agreement                          |  |               |  |               |   | (3,469 | )            |  |   |     
|                                                                                                                |  |               |   |               |   |        |              |  |   |      
|Total deferred license revenue recognized under agreements with Tullys Coffee Japan and UCC                    |  | $             |  |               | $ | (2,389 | )            |  | $ | 1,440
|                                                                                                                |  |               |   |               |   |        |              |  |   |      

Deferred revenue is summarized as follows:



|                                                             |  |                                 |        |  
|------------------------------------------------------------ |  | ------------------------------- | ------ | -
|                                                             |  | Fiscal year endedMarch 29, 2009 |       
|                                                             |  | (dollars in thousands)          |       
|Deferred licensing revenue from Area Development Agreements: |  |                                 |        |  
|Singapore Area Development Rights                            |  | $                               | 63     |  
|Southern California Area Development Rights                  |  |                                 | 377    |  
|Deferred revenue from stored value cards                     |  |                                 | 3,315  |  
|                                                             |  |                                 |        |  
|                                                             |  |                                 | 3,755  |  
|Current portion Deferred revenue                             |  | $                               | (3,369 | )
|                                                             |  |                                 |        |  
|Long term portion of Deferred revenue                        |  |                                 | 386    |  
|                                                             |  |                                 |        |  

14. Investment in Joint Venture

On January 7, 2008, TCAP, a wholly owned subsidiary of Tullys, and AFCM, a Singapore company, entered into a limited partnership agreement that
established a new joint venture called Tullys Coffee Asia Pacific Partners, LP (Tullys Coffee Asia). The new joint venture will seek to develop the Tullys brand in Asia (excluding Japan), Australia and New Zealand (the
Licensed Territories) through franchising and licensing activities, retail store operations, coffee roasting, wholesale distribution and other business activities. Tullys partner in this venture, AFCM, is a newly established
enterprise managed by the founder and former chief executive officer of TCJ.



70



---

##### Table of Contents

In connection with the formation of Tullys Coffee Asia, TCAP assigned its rights (under an
October 12, 2007 exclusive license agreement between Tullys and TCAP) to use Tullys business names, trademarks and intellectual property rights in the Licensed Territories to Tullys Coffee Asia. AFCM agreed to contribute $6.0
million to the venture, of which $2.5 million was paid to Tullys Coffee Asia on January 7, 2008, $500,000 paid on January 31, 2008, and the $3.0 million balance was paid on March 31, 2008. Of the capital contributed by AFCM,
$3.0 million was distributed by the joint venture to TCAP, and the remaining $3.0 million will be used by the joint venture for development of its business. The $3.0 million capital distribution from the joint venture to TCAP includes
(1) $500,000 cash distributed to Tullys on January 8, 2008, (2) $2,000,000 paid to UCC on January 8, 2008, and (3) $500,000 paid to TCAP on January 31, 2008. The joint venture ownership percentages are 50% TCAP
(general partner) and 50% AFCM (limited partner). Under its license agreement with Tullys, the joint venture is obligated to pay Tullys a royalty equal to one percent of the applicable revenue base from operations in the Licensed
Territories, commencing on April 1, 2008. Revenues associated with TCAP will be reported under our Specialty segment.

On
March 27, 2009, the Tullys and the Limited Partner agreed that Tullys negotiated the right and obligation to purchase, or cause a third party to purchase, one-half (1/2) of the Limited Partners partnership interest, equal
to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of US$4,000,000, within twelve (12) months of the closing of the Asset Purchase Agreement between GMCR, and us (the Purchase
Transaction). Tullys has classified this obligation as a current liability and offset the Limited Partners minority interest equally.

Investments in entities over which the Company has control are consolidated in the Consolidated Balance Sheets and Consolidated Statements of Operations. The Companys investment in Tullys Coffee Asia is
carried at $10,000,000 which relates to the initial contribution of $9,000,000, reduced by the capital withdrawal by Tullys of $3,000,000, and increased by the March 27, 2010 obligation to purchase an additional 25% partnership interest.

15. Related-party transactions

Our chairman guaranteed our obligations under the Benaroya credit facility, which was fully repaid on March 27, 2009, and another shareholder guaranteed up to $3,000,000 under the Benaroya credit facility. Our chairman was not
compensated for his guaranty.

In February 2006, an affiliate of Northrim acquired a 24% ownership interest in Pacific Wealth Advisors, LLC
(PWA), a newly formed company which is the successor by merger to Pacific Portfolio Consulting (Pacific Portfolio). PWA is a wealth management and investment advisory services holding company. A member of the Tullys
Board of Directors is the president of PWA and Pacific Portfolio and has an ownership interest of more than 10% in PWA. During Fiscal 2009, Tullys paid approximately $594,000 to Northrim for interest on the amounts borrowed, All outstanding
debt to Northrim was which was fully repaid on March 27, 2009. Also, Pacific Portfolio provided investment advisory consulting services for the Tullys employee 401(k) savings plan (see Note 20) and received fees of approximately $6,300
for this service in Fiscal 2009, $6,700 for this service in Fiscal 2008 and $8,200 in Fiscal 2007.

Carl Pennington, Sr. was appointed as a
board member, effective as of January 15, 2008 and as Tullys President, effective as of January 15, 2008. Before joining Tullys, Mr. Pennington founded Pinnacle Management, a management company, and PinnPointe
Consulting Group, a consulting company advising retail and wholesale companies. Mr. Pennington is a shareholder of Pinnacle Management, which manages Impact Sales, Inc., a grocery broker, and Pinnacle Coffee, a franchisee of six Tullys
franchised stores as of March 30, 2008. Mr. Pennington serves as a board member of Impact Sales, the grocery broker for Tullys. Impact Sales received $816,000 in fiscal year 2009 from Tullys as brokerage commission on grocery
sales and $275,000 in fees relating to terminating their brokerage agreement as conditioned under the terms of the Green Mountain



71



---

##### Table of Contents

Transaction. He receives no compensation from Impact Sales. Mr. Pennington has no ownership interest in Pinnacle Coffee. Mr. Penningtons base
salary as Tullys president is $290,000 per year.

On March 27, 2009, the Tullys and the Limited Partner agreed that
Tullys negotiated the right and obligation to purchase, or cause a third party to purchase, one-half (1/2) of the Limited Partners partnership interest, equal to twenty-five percent (25%) of the total partnership interests
outstanding, at a purchase price of US$4,000,000, within twelve (12) months of the closing of the Asset Purchase Agreement between GMCR, and us. Tullys has classified this obligation as a current liability and offset the Limited
Partners minority interest equally.

Tullys granted the Limited Partner a $1,000,000 loan to be paid through future
distributions of the partnership. Further, $1,162,000 is receivable from AFCM in full satisfaction or the of the Companys LP Loan paid to AFCM directly on March 27, 2009 and was subsequently paid by AFCM to the partnership after the
balance sheet date on April 22, 2009.

16. Store closure and lease termination costs

We periodically close stores that do not meet our performance criteria and stores for which extension of the lease term was not practicable. During Fiscal
2009 we closed thirteen locations at a cost of approximately $282,000, of which five were sold and franchised in Southern California. During Fiscal 2008, we closed two stores at a cost of approximately $19,000. During Fiscal 2007, we closed four
stores at a cost of approximately $96,000.

17. Commitments and contingencies

Lease commitments

We lease all of our retail, roasting plant and office space under operating
leases, which expire through 2016. The leases provide for minimum annual payments, and (in certain cases) contingent rentals based upon gross sales, escalation clauses and/or options to renew. Rental expense is recorded on a straight-line basis over
the respective terms of the leases. Rental expense under these operating leases was approximately $4,870,000, $5,300,000, and $5,100,000, for Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively. Contingent rental expense was approximately
$309,000, $344,000, and $274,000, Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively and is recognized as incurred.

In connection with
certain leases, lessors have granted tenant improvement allowances to Tullys. These amounts, included in liabilities under the caption deferred lease costs, are amortized into income on a straight-line basis over the life of the
related lease. Also recorded in deferred lease costs is the stepped rent excess of rental expense computed on a straight-line basis over the actual rent payments required by the terms of our leases.

Minimum future rental payments under noncancellable operating leases as of March 29, 2009 are summarized as follows:



|                       |  |   |      
|---------------------- |  | - | -----
|Fiscal year            |  |  
|(dollars in thousands) |  |  
|2009                   |  | $ | 3,713
|2010                   |  |   | 2,315
|2011                   |  |   | 1,405
|2012                   |  |   | 1,034
|2013                   |  |   | 480  
|Thereafter             |  |   | 665  
|                       |  |   |      
|Total                  |  | $ | 9,612
|                       |  |   |      



72



---

##### Table of Contents

We have subleased some of our leased premises to third parties under subleases with varying terms through
2014. Expected future sublease receipts under such sub-lease agreements are summarized as follows:



|                       |  |   |    
|---------------------- |  | - | ---
|Fiscal year            |  |  
|(dollars in thousands) |  |  
|2010                   |  | $ | 220
|2011                   |  |   | 55 
|2012                   |  |   | 42 
|2013                   |  |   |   
|2014                   |  |   |   
|                       |  |   |    
|Total                  |  | $ | 317
|                       |  |   |    

Tullys has funded the acquisition of equipment through capital leases. These leases
typically have terms ranging from three to five years and generally have bargain purchase options. Minimum future rental payments under capital leases as of March 29, 2009 are summarized as follows:



|                                                                 |  |   |  
|---------------------------------------------------------------- |  | - | -
|Fiscal year                                                      |  |  
|(dollars in thousands)                                           |  |  
|2009                                                             |  | $ | 1
|2010                                                             |  |   | 
|2011                                                             |  |   | 
|2012                                                             |  |   | 
|2013                                                             |  |   | 
|                                                                 |  |   |  
|Total minimum lease payment                                      |  |   | 1
|Less: Amount representing future interest                        |  |   | *
|                                                                 |  |   |  
|Present value of net minimum lease payments under capital leases |  | $ | 1
|                                                                 |  |   |  



|* | Represents amount less than $1,000
|- | ----------------------------------

Employment Agreements and
Compensatory Arrangements

Pursuant to the employment letters for members of Tullys senior management team, Tullys has
agreed to pay severance compensation to certain executives in the event their employment by Tullys is terminated for reasons other than certain excluded circumstances. The amount of severance to be paid would depend upon the rate of salary at
the time of termination and other factors. As of March 29, 2009, the aggregate contingent obligation for severance to these individuals was approximately $199,000. Also, pursuant to the employment letters for members of Tullys senior
management team, Tullys has agreed to pay severance compensation to these executives in the event that there was a change in control. The amount of severance to be paid would depend upon the rate of salary at the time of termination and other
factors. As of March 29, 2009, the aggregate contingent obligation for severance to these individuals for the change in control provision was approximately $397,000.

Contingencies

In February 2004 a lawsuit was filed against Tullys in Superior Court of
California, Los Angeles County (the Court) by two former store managers on behalf of themselves and on behalf of other former and current store managers in the state of California. The suit alleged that Tullys improperly classified
such managers as exempt under Californias wage and hour laws and sought damages, restitution, reclassification and attorneys fees and costs. On April 21, 2005, the parties entered into a memorandum of understanding regarding the
settlement of this matter, which was subsequently reflected by the parties in a Joint Stipulation of Settlement and



73



---

##### Table of Contents

Release (the Settlement Agreement). On September 14, 2006, the Court granted final approval of the Settlement Agreement and dismissed the
suit with prejudice.

In Fiscal 2005, Tullys incurred a one-time charge of approximately $1.6 million for the settlement and
associated costs. In connection with the final approval of the settlement, Tullys incurred additional expenses of $72,000 in Fiscal 2007. Under the settlement, Tullys agreed to make cash payments totaling approximately $800,000 to the
settlement class over a three year period starting in October 2006 and to issue 37,500 shares of its common stock, with an agreed value of $450,000, to the settlement class during that period. In October 2006, Tullys issued 7,000 shares of
common stock and paid $164,000 to the settlement class. In October 2007 and October 2008, Tullys issued 11,719 shares of common stock and paid $266,000 to the settlement class in both periods. Under the settlement, Tullys is required to
issue stock and pay cash settlement payments in future periods as follows (in addition, cash settlement payments after the initial payment will include interest at 6.75% per year):



|             |  |                                   |  |                                      |    
|------------ |  | --------------------------------- |  | ------------------------------------ | ---
|             |  | Shares ofcommon stockto be issued |  | Cashsettlementpayments(in thousands)
|October 2009 |  | 7,031                             |  | $                                    | 159
|             |  |                                   |  |                                      |    

On January 7, 2008, Tullys and UCC entered into a settlement agreement to settle a
lawsuit, see Note 13. Under the settlement agreement, the parties agreed to a mutual release of claims and to the dismissal of the lawsuit with prejudice. UCC also assigned all of its rights and interest under the 2001 license agreement to
Tullys. The settlement agreement was finalized and became effective on January 7, 2008. In consideration for the settlement, Tullys agreed to pay $6.0 million to UCC, consisting of $2.0 million paid to UCC on January 8, 2008,
and a $4.0 million promissory note issued by Tullys Coffee Asia Pacific, Inc. (TCAP), a wholly owned subsidiary of Tullys, to UCC. The promissory note was paid in full on March 27, 2009 as a result of the Green Mountain
Transaction.

In December 2007, a lawsuit was filed against Tullys in California state court by a former store employee alleging that
Tullys failed to provide meal and rest periods for its employees. We anticipate that the plaintiff will seek class action certification on behalf of all hourly employees in Tullys California stores. The plaintiff is seeking
damages, restitution, injunctive relief, and attorneys fees and costs. Similar lawsuits alleging missed meal and rest periods have been filed in California against many other companies. We are investigating the claims and intend to
vigorously defend this litigation, but cannot predict the financial impact to us of the litigation at this time. We believe that Tullys has complied with all laws that require providing meal and rest periods for its employees. We have
accrued $400,000 as of March 29, 2009 to defend this litigation.

We are a party to various other legal proceedings arising in the
ordinary course of our business, but are not currently a party to any other legal proceeding that we believe could have a material adverse effect on our financial position or results of operations.

18. Stock options

Company Stock Incentive Plan

In 1994, Tullys shareholders approved a Stock Incentive Plan (the 1994 Plan). In August 1999 our shareholders approved an
amended plan, which established the maximum number of shares issuable under the 1994 Plan and the Employee Stock Purchase Plan at 525,000, and in June 2003, our Board of Directors further amended the 1994 Plan. By its terms, the 1994 Plan expired in
October 2004 (this did not terminate outstanding options).



74



---

##### Table of Contents

In December 2004, the Tullys shareholders approved the 2004 Stock Option Plan, effective as of
November 1, 2004. The 2004 Stock Option Plan authorizes the issuance of up to 312,500 shares of common stock under the 2004 Stock Option Plan and Tullys Employee Stock Purchase Plan.

The provisions of the 2004 Stock Option Plan (and the 1994 Plan prior to its expiration) are summarized as follows. We may issue incentive or
nonqualified stock options to our employees and directors. Stock options are granted solely at the discretion of our Board of Directors and are issued at a price determined by our Board of Directors. The term of each option granted is for such
period as determined by our Board of Directors, but not more than ten years from date of grant. Options are nontransferable and may generally be exercised based on a vesting schedule determined by our Board of Directors. The plan provides for
acceleration of outstanding options under certain conditions, including certain changes in control of Tullys.

Founders Stock Option Plan

In addition to options granted under the 1994 Plan, our chairman and founder has granted options to purchase shares of his stock to
employees and third parties (the Founders Plan). No options have been granted by the Chairman under the Founders Plan since Fiscal 2002. These options have vesting periods ranging from immediate vesting to five year vesting
and have a twenty-five year life. In October 2005, the chairman and founder contributed his holdings of Tullys common stock to TTOK, LLC, a limited liability company owned by the chairman, and the Founders Plan stock option obligations
were assigned to TTOK, LLC.

Other Equity Instruments

Tullys has granted warrants to purchase common stock. These warrants have up to one year vesting periods and generally have ten year lives. Issued, outstanding and exercisable warrants as of March 29, 2009
are summarized as follows:



|                                                              |  |                     |  |                   |  |                |           
|------------------------------------------------------------- |  | ------------------- |  | ----------------- |  | -------------- | ----------
|                                                              |  | Outstandingwarrants |  | Numberexercisable |  | ExercisePrices
|Issued with Series A Preferred Stock investment units         |  | 614,809             |  | 614,809           |  | $              | 2.64      
|Issued to guarantors of debt                                  |  | 184,922             |  | 184,922           |  | $              | 0.40      
|Issued to holder of convertible note in lieu of cash interest |  | 120,000             |  | 120,000           |  | $              | 0.08      
|Other                                                         |  | 13,359              |  | 13,359            |  | $              | 0.08-$2.64
|                                                              |  |                     |  |                   |  |                |           
|Totals                                                        |  | 933,090             |  | 933,090           |  |                |           
|                                                              |  |                     |  |                   |  |                |           

Stock Options

We issue new shares of common stock upon the exercise of stock options granted under the 1994 Plan and the 2004 Stock Option Plan. The exercise of options granted under the Founders Plan results in a transfer of
shares to the exercising optionee from the shares owned by TTOK, LLC, and does not affect the total outstanding shares of stock or provide cash proceeds to Tullys.

Determining Fair Value Under SFAS 123R

Valuation and Amortization Method.

We estimated the fair value of stock option awards granted using the Black-Scholes option valuation model. We amortize the fair value of all awards on
a straight-line basis over the requisite service periods, which are generally the vesting periods.



75



---

##### Table of Contents

Expected Life.

The expected life of awards granted represents the period of time that they are expected to be outstanding. We determined the expected life based primarily on historical experience with similar awards, giving
consideration to the contractual terms, vesting schedules, expected exercises and post-vesting forfeitures.

Expected Volatility.

We estimated the volatility of our common stock at the date of grant based on the historical volatility of our common stock. The volatility
factor we use in the Black-Scholes option valuation model is based on our historical stock prices over the most recent period commensurate with the estimated expected life of the award.

Risk-Free Interest Rate.

We based
our risk-free interest rate used in the Black-Scholes option valuation model on the implied risk-free interest rate with an equivalent remaining term equal to the expected life of the award.

Expected Dividend Yield.

We use an
expected dividend yield of zero in the Black-Scholes option valuation model, consistent with historical experience on the date of grant.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. A summary of the weighted average assumptions and resulting weighted average fair value results for options granted during
the periods presented is as follows:



|                                             |  |               |         |   |               |   |         |              |  |   |         |  
|-------------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | ------------ |  | - | ------- | -
|                                             |  | Years ended   |        
|                                             |  | March 29,2009 |         |   | March 30,2008 |   |         | April 1,2007 | 
|Weighted average risk free interest rate     |  |               | 1.91    | % |               |   | 3.22    | %            |  |   | 4.76    | %
|Expected dividend yield                      |  |               | 0       | % |               |   | 0       | %            |  |   | 0       | %
|Expected lives                               |  |               | 3 years |   |               |   | 5 years |              |  |   | 3 years |  
|Weighted average expected volatility         |  |               | 80      | % |               |   | 80      | %            |  |   | 94      | %
|Weighted average fair value at date of grant |  | $             | 5.93    |   |               | $ | 7.26    |              |  | $ | 7.15    |  

Expected Forfeitures.

We primarily use historical data to estimate pre-vesting option forfeitures. We record stock-based compensation only for those awards that are expected to
vest. For Fiscal 2009 we estimated our pre-vesting option forfeiture rate at 22%.

Stock-based Compensation Under SFAS 123(R)

Stock-based compensation expense related to stock-based awards under SFAS 123(R) for Fiscal 2009, Fiscal 2008 and Fiscal 2007 totaled $201,000, $199,000
and $362,000, respectively, which is included in marketing, general and administrative costs in our Consolidated Statements of Operations.

As of March 29, 2009, we had approximately $362,000 of total unrecognized compensation cost related to the 70,411 non-vested stock-based awards granted under all equity compensation plans. We expect to recognize this cost over a period
of approximately three years.



76



---

##### Table of Contents

Stock Award Activity

As of March 29, 2009 options for 342,625 shares were outstanding under the 1994 Plan and the 2004 Stock Option Plan, of which 272,184 were fully vested.

The following table summarizes activity under our stock option plans:



|                                                    |  |                 |   |  |                                         |  |                                                  |  |                        
|--------------------------------------------------- |  | --------------- | - |  | --------------------------------------- |  | ------------------------------------------------ |  | -----------------------
|Exercise price per share                            |  | Numberof Shares |   |  | Weighted-averageexercise price PerShare |  | Weighted-averageremainingcontractuallife (years) |  | Aggregateintrinsicvalue
|Outstanding at April 2, 2006                        |  | 688,417         |   |  | 4.05                                    |  |                                                  |  |                        
|Granted                                             |  | 203,750         |   |  | 11.53                                   |  |                                                  |  |                        
|Exercised                                           |  | (75,493         | ) |  | .12                                     |  |                                                  |  |                        
|Forfeited                                           |  | (47,970         | ) |  | 13.15                                   |  |                                                  |  |                        
|Outstanding at April 1, 2007                        |  | 768,704         |   |  | 5.85                                    |  |                                                  |  |                        
|Granted                                             |  | 70,730          |   |  | 11.36                                   |  |                                                  |  |                        
|Exercised                                           |  | (44,304         | ) |  | .14                                     |  |                                                  |  |                        
|Forfeited                                           |  | (135,406        | ) |  | 11.54                                   |  |                                                  |  |                        
|Outstanding at March 30, 2008                       |  | 659,724         |   |  | 5.64                                    |  |                                                  |  |                        
|Granted                                             |  | 6,500           |   |  | 11.28                                   |  |                                                  |  |                        
|Exercised                                           |  | (655            | ) |  | .08                                     |  |                                                  |  |                        
|Forfeited                                           |  | (116,594        | ) |  | 8.11                                    |  |                                                  |  |                        
|                                                    |  |                 |   |  |                                         |  |                                                  |  |                        
|Outstanding at March 29, 2009                       |  | 548,975         |   |  | 5.29                                    |  | 8.55                                             |  | 3,159,341              
|                                                    |  |                 |   |  |                                         |  |                                                  |  |                        
|Exercisable or convertible at the end of the period |  | 478,534         |   |  | 4.33                                    |  | 8.43                                             |  | 3,159,341              
|                                                    |  |                 |   |  |                                         |  |                                                  |  |                        

The aggregate intrinsic value of options outstanding at March 29, 2009 is calculated as the
difference between the market price of the underlying common stock and the exercise price of the options for the 282,084 exercisable options that had exercise prices that were lower than the $1.64 fair market value, as determined by our Board of
Directors, of our common stock at March 29, 2009.

The total intrinsic value of options exercised during the Fiscal 2009, Fiscal 2008,
and Fiscal 2007 using the March 29, 2009 $1.64 fair market value was $3,000, $494,000, and $842,000 respectively.

19. Stockholders
equity

March 26, 2009 Articles Amendment

As previously disclosed, our shareholders approved amendments to our Amended and Restated Articles of Incorporation in connection with the Green Mountain Transaction (the Articles Amendments). On
March 26, 2009, we filed the Articles Amendments with the Washington Secretary of State.

The Articles Amendments amended our amended
and restated articles of incorporation to:

(i) clarify that completion of the Green Mountain Transaction would not cause a liquidating
distribution to our shareholders; and

(ii) enable the board to determine the amount of any future cash distribution to our shareholders
without considering amounts that would be needed, if we were dissolved at the time of the distribution, to satisfy any liquidation rights that are superior to the rights of those shareholders receiving the distribution.



77



---

##### Table of Contents

Reverse Stock Split

On June 27, 2007, our shareholders approved an amendment to our articles of incorporation to give effect to a one-for-eight reverse split of our outstanding common stock and approved an amendment to our articles
of incorporation to eliminate the requirement for a minimum price per share as a condition for the automatic conversion of our Series A Preferred stock. On June 28, 2007, these amendments to our articles of incorporation became effective.
Except where specifically indicated, all common share information (including information related to options and warrants to purchase common stock) and all per share information related to our common stock in this report has been restated
to reflect the one-for-eight reverse split.

Under our articles of incorporation, the voting privileges and conversion ratios for our
outstanding shares of Series A Preferred Stock and our Series B Preferred Stock are automatically adjusted to give proportionate effect to this reverse split.

Pursuant to provisions in our stock option and warrant agreements, the number of common shares available for purchase under these agreements, and the exercise prices, are automatically adjusted to give proportionate
effect to this reverse split.

Preferred stock

Each outstanding share of our Series A Preferred Stock is convertible at any time by the holder thereof into shares of common stock at the then-effective conversion price. In addition, each outstanding share of Series
A Preferred Stock is automatically convertible into shares of common stock if Tullys completes an underwritten public offering of Tullys shares of common stock with gross proceeds to Tullys in excess of $15 million
(Qualified Offering). The Series A Preferred Stock contains an anti-dilution protection right that provides for a weighted average adjustment of the conversion price in the event we issue shares of capital stock at an effective price
less than the Series A Preferred conversion price then in effect, subject to certain limitations and exclusions. At March 29, 2009, each eight shares of our outstanding Series A Convertible Preferred share could be converted at the option of
the shareholder into approximately 1.13 shares of common stock (giving effect to the one-for-eight reverse split of our common stock).

Voting rights of the Series A Preferred Stock are subject to adjustment for the anti-dilution adjustment; as well as Series A Preferred shareholders may exercise cumulative voting rights with respect to the election of Directors.

In the event of any liquidation or winding up of Tullys, each share of Series A Preferred Stock is entitled to receive, prior and in
preference to all other payments to the holders of Series B Preferred Stock and the shares of common stock, an amount equal to $2.50, plus any and all declared but unpaid dividends with respect to such share of Series A Preferred Stock (the
Series A Liquidation Preference). Assuming distribution of the full Series A Liquidation Preference, common stock liquidation preference (described below), and the Series B Liquidation Preference (described below), and subject to the
rights of any additional preferred stock that may in the future be designated and issued by Tullys, our remaining assets available for distribution to shareholders would be distributed pro rata among the holders of the Series A Preferred
Stock, Series B Preferred Stock and shares of common stock, treating the shares of Series A Preferred Stock and Series B Preferred Stock on an as-converted basis.

Certain holders of Series A Preferred Stock have certain rights to require us to register the shares of common stock issued upon conversion of the Series A Preferred Stock. These rights generally allow persons holding
the underlying shares of common stock to require Tullys to use its best efforts to register the shares for resale under the Securities Act of 1933, as amended, and under such state securities laws as may be necessary. These rights include the
right to demand that we file a registration statement for the underlying shares of common stock at the shareholders option no more than one time following an initial public offering, if any, and thereafter, unlimited rights once Tullys
is eligible to use Form S-3.



78



---

##### Table of Contents

Each outstanding share of Series B Preferred Stock is convertible at any time by the holder thereof into
shares of common stock at the then-effective conversion price. In addition, each outstanding share of Series B Preferred Stock is automatically convertible into shares of common stock at the then-effective conversion price when and if we make a
Qualified Offering. The conversion price for the Series B Preferred shares is subject to an anti-dilution adjustment, but no adjustment has been required. Giving effect to the one-for-eight reverse split of our common stock, each eight Series B
Preferred shares could be converted at the option of the shareholder into one share of common stock as of March 29, 2009. Each eight shares of Series B Preferred Stock also are entitled to cast one vote on all matters submitted to a vote of the
shareholders of Tullys (giving effect to the one-for-eight reverse split of our common stock).

In the event of any liquidation or
winding up of Tullys, each share of Series B Preferred Stock is entitled to receive, after full satisfaction of the Series A Liquidation Preference and the common stock liquidation preference (described below), and prior and in preference to
all other payments to the holders of shares of common stock, an amount equal to $2.50, plus any and all declared but unpaid dividends with respect to such share of Series B Preferred Stock (the Series B Liquidation Preference). Assuming
distribution of the full Series A Liquidation Preference, common stock liquidation preference and the Series B Liquidation Preference, and subject to the rights of any additional series or classes of preferred stock that may in the future be
designated and issued by Tullys, the remaining assets of Tullys available for distribution to shareholders would be distributed pro rata among the holders of the Series A Preferred Stock, Series B Preferred Stock and shares of common
stock, treating the shares of Series A Preferred Stock and Series B Preferred Stock on an as-converted basis.

Common stock and Warrants

In the event of any liquidation or winding up of Tullys, after distribution of the full Series A Liquidation Preference, each common
share is entitled to receive an amount per share equal to $18.00 (giving effect to the one-for-eight reverse split of our common stock), plus any and all declared but unpaid dividends with respect to such share of shares of common stock (the
common stock liquidation preference). Assuming distribution of the full Series A Liquidation Preference, common stock liquidation preference and the Series B Liquidation Preference (described above), and subject to the rights of any
additional preferred stock that may in the future be designated and issued by us, our remaining assets available for distribution to shareholders would be distributed pro rata among the holders of the Series A Preferred Stock, Series B Preferred
Stock and shares of common stock, treating the shares of Series A Preferred Stock and Series B Preferred Stock on an as-converted basis.

20. Stock
purchase plan

In Fiscal 2000, our stockholders approved the Employee Stock Purchase Plan (the Purchase Plan). The Purchase
Plan qualifies under Section 423 of the Internal Revenue Code. Tullys has authorized up to 312,500 shares of common stock to be offered under the Purchase Plan and 2004 Stock Option Plan combined. No offerings have yet occurred under the
Purchase Plan.

21. Employee 401(k) savings plan

During Fiscal 2000, we adopted a 401(k) savings plan for employees. Eligible employees may contribute up to 20% of their salaries to the plan. Eligible employees are employees over the age of 18 who have been employed
by Tullys for six months. There is no mandatory match from Tullys. Most plan administrative costs are paid by the 401(k) savings plan.

22. Segment Reporting

We present segment information in accordance with Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), which established



79



---

##### Table of Contents

reporting and disclosure standards for an enterprises operating segments. Operating segments are defined as components of an enterprise for which
separate financial information is available and regularly reviewed by our senior management.

The accounting policies of the operating
segments are the same as those described in the summary of significant accounting policies in Note 1. We do not allocate our assets among our business units for purposes of making business decisions, and therefore do not present asset information by
operating segment. Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP financial measurement we use to measure the operating performance of our operating segments. EBITDA excludes the effects of
financing costs, income taxes, and non-cash depreciation and amortization.

The Wholesale Segment is included in discounted operations and
therefore not included in the table below.

The tables below present information by operating segment:



|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|-------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------- | - | ------- | ------------ |  | - | ------- | -
|                                                               |  | Years Ended            |       
|                                                               |  | March 29,2009          |        |   | March 30,2008 |   |         | April 1,2007 | 
|                                                               |  | (dollars in thousands) |       
|Net sales                                                      |  |                        |        |   |               |   |         |              |  |   |         |  
|Retail division                                                |  | $                      | 38,615 |   |               | $ | 42,897  |              |  | $ | 39,334  |  
|Specialty division(1)                                          |  |                        | 430    |   |               |   | (1,952  | )            |  |   | 1,647   |  
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|Net sales                                                      |  | $                      | 39,045 |   |               | $ | 40,945  |              |  | $ | 40,981  |  
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|Earnings before interest, taxes, depreciation and amortization |  |                        |        |   |               |   |         |              |  |   |         |  
|Retail division(2)                                             |  | $                      | 2,055  |   |               | $ | 2,384   |              |  | $ | 1,817   |  
|Specialty division(1)                                          |  |                        | (714   | ) |               |   | (3,718  | )            |  |   | 290     |  
|Corporate and other expenses(3)                                |  |                        | (7,742 | ) |               |   | (10,431 | )            |  |   | (9,694  | )
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|Earnings before interest, taxes, depreciation and amortization |  |                        | (6,401 | ) |               |   | (11,765 | )            |  |   | (7,587  | )
|Depreciation and amortization                                  |  |                        | (1,705 | ) |               |   | (2,186  | )            |  |   | (2,636  | )
|Income taxes                                                   |  |                        | 11,474 |   |               |   | (2      | )            |  |   | (17     | )
|Minority Interest                                              |  |                        | 214    |   |               |   |        |              |  |   |        |  
|Interest income, interest expense, and loan guarantee fees     |  |                        | (3,268 | ) |               |   | (2,358  | )            |  |   | (287    | )
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|Net income (loss)                                              |  | $                      | 314    |   |               | $ | (16,311 | )            |  | $ | (10,527 | )
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|Depreciation and amortization                                  |  |                        |        |   |               |   |         |              |  |   |         |  
|Retail division                                                |  | $                      | 1,377  |   |               | $ | 1,880   |              |  | $ | 2,363   |  
|Specialty division                                             |  |                        | 1      |   |               |   | **      |              |  |   | **      |  
|Corporate and other expenses                                   |  |                        | 327    |   |               |   | 306     |              |  |   | 273     |  
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  
|Total depreciation and amortization                            |  | $                      | 1,705  |   |               | $ | 2,186   |              |  | $ | 2,636   |  
|                                                               |  |                        |        |   |               |   |         |              |  |   |         |  



|** | Not materialless than $1,000
|-- | -----------------------------

|(1) | Specialty division net sales and operating income for Fiscal 2008 include a $3,469,000 net reversal of deferred revenue previously recognized as a result of the repossession of a
franchise under the UCC settlement described in Note 13
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Retail division operating results include adjustments for impairment of long-lived assets of $237,000 (Fiscal 2009) and for amounts required to close stores and terminate store
leases totaling $282,000 (Fiscal 2009), $19,000 (Fiscal 2008), and $96,000 (Fiscal 2007).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Corporate and other expenses include a charge of approximately $72,000 for Fiscal 2007, for the settlement and associated costs related to a lawsuit (see Note 23).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



80



---

##### Table of Contents

22. Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net
income (loss) adjusted to eliminate the interest on convertible debt (if assumed to be converted), by the sum of the weighted average number of common shares and the effect of dilutive common share equivalents.

Tullys has granted options and warrants to purchase common stock, and issued preferred stock and debt convertible into common stock (collectively,
the common share equivalent instruments). Under some circumstances, the common share equivalent instruments may have a dilutive effect on the calculation of earnings or loss per share. All of the common share equivalent instruments were
excluded from the computation of diluted loss per share for Fiscal 2007 and Fiscal 2008 because the effect of these instruments on the calculation would have been antidilutive.

The computations of earnings (loss) per share, and of the weighted average shares used for basic earnings (loss) per share and diluted earnings (loss)
per share are summarized as follows:



|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ------ | ------------- | - | ------- | ------------ |  | - | ------- | -
|                                                                                              |  | Years Ended                                             |       
|                                                                                              |  | March 29,2009                                           |        | March 30,2008 |   |         | April 1,2007 | 
|                                                                                              |  | (dollars and shares in thousands,except per share data) |       
|Computation of basic earnings (loss) per share                                                |  |                                                         |        |               |   |         |              |  |   |         |  
|Income (loss) from continuing operations                                                      |  | $                                                       | 314    |               | $ | (16,311 | )            |  | $ | (10,527 | )
|Income from discontinued operations                                                           |  | $                                                       | 22,541 |               | $ | 2,402   |              |  | $ | 773     |  
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Net income (loss) for basic earnings (loss) per share                                         |  | $                                                       | 22,855 |               | $ | (13,909 | )            |  | $ | (9,754  | )
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Weighted average shares used in computing basic earnings (loss) per share                     |  |                                                         | 3,265  |               |   | 2,917   |              |  |   | 2,283   |  
|Basic earnings (loss) per share from continuing operations                                    |  | $                                                       | 0.10   |               | $ | (5.59   | )            |  | $ | (4.61   | )
|Basic earnings (loss) per share from discontinued operations                                  |  | $                                                       | 6.90   |               | $ | 0.82    |              |  | $ | 0.34    |  
|Basic earnings (loss) per share                                                               |  | $                                                       | 7.00   |               | $ | (4.77   | )            |  | $ | (4.27   | )
|Computation of diluted earnings (loss) per share                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Income (loss) from continuing operations                                                      |  | $                                                       | 314    |               | $ | (16,311 | )            |  | $ | (10,527 | )
|Income from discontinued operations                                                           |  | $                                                       | 22,541 |               | $ | 2,402   |              |  | $ | 773     |  
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Net income (loss) for diluted earnings (loss) per share                                       |  | $                                                       | 22,855 |               | $ | (13,909 | )            |  | $ | (9,754  | )
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Weighted average shares used in computing diluted earnings (loss) per share                   |  |                                                         | 6,478  |               |   | 2,917   |              |  |   | 2,283   |  
|Diluted earnings (loss) per share from continuing operations                                  |  | $                                                       | 0.05   |               | $ | (5.59   | )            |  | $ | (4.61   | )
|Diluted earnings (loss) per share from discontinued operations                                |  | $                                                       | 3.48   |               | $ | 0.82    |              |  | $ | 0.34    |  
|Diluted earnings (loss) per share                                                             |  | $                                                       | 3.53   |               | $ | (4.77   | )            |  | $ | (4.27   | )
|Weighted average shares used in computing earnings (loss) per share                           |  |                                                         |        |               |   |         |              |  |   |         |  
|Weighted average common shares outstanding, used in computing basic earnings (loss) per share |  |                                                         | 3,265  |               |   | 2,917   |              |  |   | 2,283   |  
|Common share equivalent instruments for computing diluted earnings (loss) per share           |  |                                                         |        |               |   |         |              |  |   |         |  
|Dilutive effect of Series A Convertible Preferred stock                                       |  |                                                         | 1,808  |               |   |        |              |  |   |        |  
|Dilutive effect of Series B Convertible Preferred stock                                       |  |                                                         | 448    |               |   |        |              |  |   |        |  
|Dilutive effect of convertible promissory note                                                |  |                                                         |       |               |   |        |              |  |   |        |  
|Dilutive effect of stock options (treasury stock method)                                      |  |                                                         | 75     |               |   |        |              |  |   |        |  
|Dilutive effect of warrants (treasury stock method)                                           |  |                                                         | 882    |               |   |        |              |  |   |        |  
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Total common share equivalent instruments for computing diluted earnings (loss) per share     |  |                                                         |       |               |   |        |              |  |   |        |  
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  
|Weighted average shares used in computing diluted earnings (loss) per share                   |  |                                                         | 6,478  |               |   | 2,917   |              |  |   | 2,283   |  
|                                                                                              |  |                                                         |        |               |   |         |              |  |   |         |  



81



---

##### Table of Contents

24. Subsequent Events

Subsequent to the balance sheet date, On May 5, 2009, our Board of Directors declared a special cash distribution of:



| |  |  | $1.03 per share of Common Stock calculated on a post split basis;
| | - |  | -----------------------------------------------------------------



| |  |  | $0.14560 per share of Series A Preferred Stock (calculated on an unconverted basis); and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | $0.12875 per share of Series B Preferred Stock (calculated on an unconverted basis).
| | - |  | ------------------------------------------------------------------------------------

If the special cash distribution on our preferred stock shown above were calculated on an as-converted to common stock basis, all classes of
our outstanding stock would receive $1.03 per share.

The special distribution totaled $5,988,000 and was paid on May 20, 2009, to
shareholders of record on the close of business on April 30, 2009.

25. Selected Quarterly Financial Data (Unaudited)

Summarized quarterly financial information for Fiscal 2009, Fiscal 2008 and Fiscal 2007 is as follows. Our sales are moderately seasonal.



|                                               |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |         |  
|---------------------------------------------- |  | --------------------------------------------- | ------ | - | ------- | - | ------ | ------- |  | - | ------- | - |  | ----- | ------ | - |  | - | ------- | -
|                                               |  | 1st Qtr                                       |        |   | 2nd Qtr |   |        | 3rd Qtr |  |   | 4th Qtr |   |  | Total |       
|                                               |  | (dollars in thousands, except per share data) |       
|Fiscal 2009                                    |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |         |  
|Net Sales from continuing operations           |  | $                                             | 10,882 |   |         | $ | 10,107 |         |  | $ | 9,099   |   |  | $     | 8,957  |   |  | $ | 39,045  |  
|Gross Profit from continue operations          |  |                                               | 5,638  |   |         |   | 5,174  |         |  |   | 4,643   |   |  |       | 5,057  |   |  |   | 20,512  |  
|Net Income (Loss) from continue operations     |  |                                               | (2,620 | ) |         |   | (2,224 | )       |  |   | (2,312  | ) |  |       | 7,470  |   |  |   | 314     |  
|Net Income (Loss) from discontinued operations |  |                                               | 1,052  |   |         |   | 1,423  |         |  |   | 1,712   |   |  |       | 18,354 |   |  |   | 22,541  |  
|Basic and Diluted Income (Loss) per Share      |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |         |  
|Net Income (Loss)per basic share               |  | $                                             | (0.48  | ) |         | $ | (0.24  | )       |  | $ | (0.19   | ) |  | $     | 7.91   |   |  | $ | 7.00    |  
|Net Income (Loss)per diluted share             |  | $                                             | (0.64  | ) |         | $ | (0.24  | )       |  | $ | (0.19   | ) |  | $     | 4.60   |   |  | $ | 3.53    |  
|                                               |  |                                               |        |   |        
|Fiscal 2008                                    |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |         |  
|Net Sales from continuing operations           |  | $                                             | 11,094 |   |         | $ | 11,302 |         |  | $ | 11,479  |   |  | $     | 7,070  |   |  | $ | 40,945  |  
|Gross Profit from continue operations          |  |                                               | 5,703  |   |         |   | 5,791  |         |  |   | 6,200   |   |  |       | 2,017  |   |  |   | 19,711  |  
|Net Income (Loss) from continue operations     |  |                                               | (2,762 | ) |         |   | (4,031 | )       |  |   | (3,502  | ) |  |       | (6,016 | ) |  | $ | (16,311 | )
|Net Income (Loss) from discontinued operations |  |                                               | 1,568  |   |         |   | 749    |         |  |   | 1,079   |   |  |       | (944   | ) |  | $ | 2,402   |  
|Basic and Diluted Loss per Share               |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |         |  
|Net Loss per basic share                       |  | $                                             | (0.86  | ) |         | $ | (1.20  | )       |  | $ | (0.77   | ) |  | $     | (1.94  | ) |  | $ | (4.77   | )
|Net Loss per diluted share                     |  | $                                             | (0.86  | ) |         | $ | (1.20  | )       |  | $ | (0.77   | ) |  | $     | (1.94  | ) |  | $ | (4.77   | )



82



---

##### Table of Contents

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

None.



|ITEM 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------

We maintain a set of
disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act) is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms in a manner that allows timely decisions regarding required disclosures. We carried out, under the
supervision and with the participation of management, including our President and principal executive officer (President) and our Chief Financial Officer and Vice President and principal financial officer (CFO), an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 29, 2009. Based on their evaluation as of March 29, 2009, our President and
CFO concluded that the current disclosure controls and procedures are not effective due to the untimely filings and our inability to meet required filing timelines, including required amendments to such filings.

Management is committed to improving its internal controls and will continue to work to put effective controls in place to file complete regulatory
filing requirements in a timely manner.

Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was
designed to provide reasonable assurance to the Companys management and board of directors regarding the preparation and fair presentation of published financial statements. Internal control over financial reporting is defined in
Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 and includes those policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a material effect on the financial statements. All internal controls, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statements preparation and presentation.

Our management assessed the
effectiveness of the Companys internal control over financial reporting as of March 29, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control  Integrated Framework. Based on this assessment we concluded that, as of March 29, 2009, our internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual
report.



83



---

##### Table of Contents

Changes in Internal Control Over Financial Reporting

There have been no significant changes in our internal control over financial reporting that occurred during our fourth quarter ended March 29, 2009,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



84



---

##### Table of Contents

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|-------- | -------------------------------------------------------

The following table sets forth certain information regarding our executive officers and directors as of the date of this report:



|                           |  |     |  |                                                    |  |              
|-------------------------- |  | --- |  | -------------------------------------------------- |  | -------------
|Name                       |  | Age |  | Position with Tullys                              |  | DirectorSince
|Tom T. OKeefe(1*) (2)     |  | 55  |  | Chairman of the Board                              |  | 1992         
|Carl W. Pennington, Sr.    |  | 71  |  | President and Director                             |  | 2008         
|Andrew M. Wynne            |  | 34  |  | Chief Financial Officer                            |  |              
|Ronald P. Gai              |  | 52  |  | Vice President of Wholesale Sales                  |  |              
|John J. Rader              |  | 59  |  | Vice President and General Manager of Supply Chain |  |              
|John M. Fluke(1)(2)(3)(4*) |  | 66  |  | Director                                           |  | 2005         
|Lawrence L. Hood(1)(2*)(4) |  | 50  |  | Director                                           |  | 1994         
|Gregory A. Hubert(1)(3*)   |  | 58  |  | Director                                           |  | 2004         



|(1) | Member of the Executive Committee
|--- | ---------------------------------

|(2) | Member of the Governance and Nominating Committee
|--- | -------------------------------------------------

|(3) | Member of the Compensation Committee
|--- | ------------------------------------

|(4) | Member of the Audit Committee
|--- | -----------------------------

|* | Designates committee chair
|- | --------------------------

Tom T.
OKeefeChairman of the Board and Founder. Tom T. OKeefe founded Tullys in 1992 and has served as a director and chairman of the Board of Directors since that date. Mr. OKeefe served as chief executive officer of
Tullys from 1992 until April 2001. Mr. OKeefe is also president and chief executive officer of OKeefe Development Corporation, a real estate development and investment firm he founded in 1986 after spending nine years as a
broker with Coldwell Banker Commercial Real Estate Services, now known as CB Richard Ellis. Mr. OKeefe and his wife Cathy have been actively involved in community organizations for over 25 years and their charitable efforts focus
largely on the health, education and welfare of the children in our community. The OKeefes were cofounders of the Patrons of Cystic Fibrosis and of the Juvenile Diabetes Foundation of Seattle guilds. The OKeefes have chaired
many fund-raisers for these and other similar entities that encompass grass roots campaigns to multi-million dollar earning galas. OKeefe is presently serving as a board member to the Seattle Preparatory Academy, Virginia Mason Hospital,
Juvenile Diabetes Guild of Seattle and is a Trustee of The Museum of Flight. OKeefe formerly served as a board member or trustee for the Villa Academy, Pacific Northwest Ballet, Leukemia and Lymphoma Society, Cystic Fibrosis Foundation,
Childrens Hospital and the Bellevue Boys and Girls Club.

Carl W. Pennington, Sr.President and Director.
Mr. Pennington was appointed President (principal executive officer) on January 15, 2008. Mr. Pennington was appointed to the Board of Directors in January 2008. From June, 2005 until January 15, 2008, Mr. Pennington founded
Pinnacle Management, a management company. From March 2001 to June 2007, Mr. Pennington was the founder and CEO of PinnPointe Consulting Group, a consulting company advising retail and wholesale companies. Mr. Pennington brings extensive
retail and wholesale expertise to Tullys, having previously served as Executive Vice President of Sales, Marketing and Merchandising at Albertsons, the nations second largest retail food chain, from 1995 to 2001. He directed and
had responsibility for leading the operations, sales, marketing, and merchandising functions of the Company. Mr. Pennington also held various other positions including division vice president and district manager with Albertsons from 1967
to 1995. Mr. Pennington graduated from Fullerton State College and the Graduate School of Business at Stanford University.

Andrew
M. WynneVice President and Chief Financial Officer.Mr. Wynne was promoted to Vice President and Chief Financial Officer on January 28, 2008. Mr. Wynne, CPA, served as our controller from



85



---

##### Table of Contents

June 16, 2006 until January 27, 2008. From September 22, 2005 until June 16, 2006 he was our finance director. From December 3, 2004
until September 22, 2005 Mr. Wynne served as Corporate Assistant Controller for Fisher Broadcasting, Inc., a Seattle-based communications company that owns or manages television stations and radio stations. From August 26, 2002 until
December 3, 2004, Mr. Wynne was our assistant controller. Mr. Wynne began his career at KPMG and holds a B.A. in Business Administration from Gonzaga University.

Ronald P. GaiVice President, Wholesale Sales.Mr. Gai joined Tullys as National Grocery Director in May 2002 and was promoted to
vice president of wholesale sales in April 2003. From 1975 to 2002, Mr. Gai served in various capacities with Gais Bakeries and Specialty Foods, operators of regional bakeries in the Pacific Northwest, and related entities, ultimately
serving as director of trade development.

John J. RaderVice President and General Manager of Supply Chain. Mr. Rader
joined Tullys in January of 2008, and brings 35 years of experience in food manufacturing and distribution. Mr. Rader was a consultant to various companies throughout 2007, engaged in matters of supply chain and operational logistics.
From September 11, 2006 to December 30, 2006 he served as chief operating office of Elegant Gournal. From July 5, 2004 through June 29, 2006, he was president and CEO of SoCal Bakeries in Santa Ana, California. From
September 9, 2002 through March 17, 2004, Mr. Rader was the Vice President of Operations for Gold Medal Bakery in Fall River, Massachusetts. Mr. Rader received holds a B.S. in Bakery Science and Management from Kansas State
University, and a M.S. in Management from Rensselaer Polytechnic Institute.

John M. FlukeDirector.Mr. Fluke is
chairman of Fluke Capital Management, L.P., which he founded in 1976, and was Chairman and CEO of the John Fluke Manufacturing Co. until 1990. Mr. Fluke serves on the boards of PACCAR Inc. (audit committee financial expert and compensation
committee chair) and CellCyte Genetics Corporation (lead independent director), and previously served on the boards of Cell Therapeutics, Primus International, and American Seafoods Group. Mr. Fluke is currently a trustee of the Museum of
Flight, the Washington Policy Center and the Greater Seattle Chamber of Commerce (formerly serving as its chairman). He chairs the board of Junior Achievement of Washington and serves on three advisory boards for the University of Washington. He is
also a past president of the Seattle Council of Boy Scouts of America and past chairman of the Washington State China Relations Council. Mr. Fluke has served as a director since March 2005.

Lawrence L. HoodDirector.Mr. Hood is CEO and president of Pacific Wealth Advisors (founded in January 2006) and founder (1993), CEO
and president of Pacific Portfolio Consulting, L.P., (which is now a wholly owned subsidiary of Pacific Wealth Advisors). Prior to 1993, Mr. Hood was a principal in charge of the investment division of Kibble & Prentice, Inc.
Mr. Hood serves as a director for Elliot Cove Capital Management and Pacific Wealth Advisors. Mr. Hood has served as a director of Tullys since February 1994.

Gregory A. HubertDirector. Mr. Hubert is president of Restaurant Development Company of America. Mr. Hubert has been
owner-operator of Red Robin franchised restaurants since 1989 (currently four locations) and operates two franchised Johnny Carinos Italian Restaurants. From 1978 to 1988, Mr. Hubert was employed by Red Robin International, an operator
and franchisor of upscale hamburger restaurants, and ultimately served as its president. From 1973 to 1978, Mr. Hubert was a CPA with Price Waterhouse. Mr. Hubert serves as president of Gonzaga University Board of Regents and as trustee of
Seattle Preparatory High School. Mr. Hubert was elected as a director at the 2004 Annual Meeting.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that Tullys directors,
executive officers and greater-than-10% stockholders file reports with the Securities and Exchange Commission reporting their initial beneficial ownership of Tullys equity securities and any subsequent changes to their respective security
holdings. They also must provide Tullys with copies of these reports. To the Companys knowledge, based solely on the review of the copies of such reports furnished to the Company and written representations



86



---

##### Table of Contents

that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners
were complied with for the fiscal year ended March 29, 2009.

Code of Ethics

Since 2001, Tullys has had a code of business conduct. In June 2004 our Board of Directors adopted a new Code of Business Conduct (replacing the
previous code), applicable to all employees including our principal executive officer, principal financial officer, controller and other finance leaders, which is a code of ethics as defined by applicable rules of the Securities and
Exchange Commission.

If Tullys makes any amendments to this code other than technical, administrative, or other non-substantive
amendments, or grants any waivers, including implicit waivers, from a provision of this code to our principal executive officer, principal financial officer, controller or other finance leaders, we will disclose the nature of the amendment or
waiver, its effective date and to whom it applies in a report on Form 8-K filed with the Securities and Exchange Commission.

Financial Expert

In May 2005, the Board of Directors appointed Mr. Hood to serve on the Audit Committee, and determined that he met the
qualifications (determined by the Securities and Exchange Commission) to serve as an audit committee financial expert.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

COMPENSATION DISCUSSION AND ANALYSIS

The primary goals of the Compensation Committee of our board of directors with respect to executive compensation are to attract, retain
and motivate the most talented and dedicated executives possible, to tie annual and long-term cash and stock incentives to achievement of specified performance objectives, and to align executives incentives with stockholder value creation. To
achieve these goals, the Compensation Committee intends to implement and maintain compensation plans that tie a substantial portion of executives overall compensation to key strategic goals such as increasing store count as well as other
financial and operational performance, as measured by metrics such as net sales, comparable store sales, average unit volume, EBITDA and Adjusted EBITDA. The Compensation Committee evaluates individual executive performance with a goal of setting
compensation at levels the committee believes are comparable with executives in other companies of similar size and stage of development operating in the retail food and beverage industry while taking into account our relative performance and our
own strategic goals.

There are several elements of our executive compensation package. A significant portion of our overall compensation
to officers is tied to company performance. The Compensation Committee believes that a portion of the total cash compensation for executive officers should be based on our success in meeting our short-term performance objectives and contributions by
the executive officers that enable us to meet our long-term objectives, and has structured the executive compensation program to reflect this philosophy. This approach creates a direct incentive for executive officers to achieve desired short-term
corporate goals that also further our long-term objectives, and places a portion of each executive officers annual compensation at risk. Stock option awards are designed to retain executive officers and to motivate them to optimize shareholder
value by aligning the financial interests of executive officers with those of shareholders. We make stock option grants in an effort to encourage an ownership culture among our employees and to provide longer term performance and retention rewards.



87



---

##### Table of Contents

Elements of Compensation

Executive compensation consists of following elements:

Base Salary. Base salaries for
our executives are established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for similar positions. Generally, we believe that executive base salaries should be targeted
near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable companies, in line with our compensation philosophy. Base salaries are reviewed generally once per year, and adjusted from time
to time to realign salaries with market levels after taking into account individual responsibilities, contractual requirements, performance and experience, as well as the Companys financial condition. During Fiscal 2004 and Fiscal 2005, when
our operations continued to be negatively impacted from earlier years, we generally did not raise the base salaries of our executive officers. During Fiscal 2006 we devoted our capital resources to an expansion plan. Because we did not realize the
benefits of this plan during that year, we again chose generally not to increase our executive officers base salaries. No base salary adjustments were made for our executives in Fiscal 2007. In the fourth quarter of Fiscal 2007, the
Compensation Committee reviewed these factors for each executive officer and, effective for Fiscal 2008, increased the base salaries of certain executive officers as necessary to competitively compensate and retain them. As of March 29, 2009,
the Compensation Committee has no plans to change the base salaries of executive officers for Fiscal 2010.

Incentive and
Discretionary Bonus Plans. The Senior Management Incentive Plan is designed to (i) attract and retain outstanding executive officers capable of leading the Company to fulfillment of its business objectives, and (ii) establish
an appropriate link between executive compensation and achievement of the Companys strategic and financial performance goals, including the enhancement of shareholder value. The Senior Management Incentive Plan is intended to provide rewards
to participants who, because of the extent of their responsibilities, can make significant contributions to the success of the Company by their ability, loyalty and exceptional services.

Participants in the Senior Management Incentive Plan will be eligible to receive cash and equity incentive bonuses upon the achievement of objectives of
the Company, as determined by the Compensation Committee. These objectives will vary depending on the individual participant, but generally relate to strategic factors such as retail sales growth and to financial factors such as improving the
Companys results of operations and EBITDA growth. The particular performance criteria will be pre-determined for the given year.

The
Compensation Committee may award a discretionary bonus to executive officers to reward outstanding personal achievement during the year. The actual amount of discretionary bonus is determined following a review of each executives individual
performance and contribution to our strategic goals; this review is conducted during the first quarter of the subsequent fiscal year. The Compensation Committee has not fixed a maximum payout for any officers annual discretionary bonus. No
discretionary bonuses were paid to our executive officers for Fiscal 2007 or Fiscal 2008.

On April 15, 2009 the Compensation
Committee awarded to Carl Pennington and Andy Wynne $50,000 in recognition for outstanding achievement and contributions to attaining the Companys strategic goals during the 13 week period ended March 30, 2008, and Fiscal 2009.
Additionally the Compensation Committee awarded to Carl Pennington and Tom OKeefe $50,000, and Andy Wynne, $30,000 for the successful closing of the sale of the Companys wholesale division to GMCR. Lastly, the Compensation Committee
awarded retention bonuses to both Carl Pennington and Andy Wynne in the amount of $50,000 to be paid on April 30, 2010, in the event both continue their employment with the Company.

Stock Options. The Compensation Committee believes that periodic grants of stock options are a key component of our executive
compensation program. Stock options are awarded by the Board of Directors to executive officers based on the executives responsibilities, and his or her actual historical contributions and anticipated future contributions to the attainment of
our strategic goals.



88



---

##### Table of Contents

Our stock option plan authorizes us to grant options to purchase shares of common stock to our employees,
directors and consultants. Our Compensation Committee is the administrator of the stock option plan. Stock option grants are sometimes made at the commencement of employment or following a significant change in job responsibilities. The Compensation
Committee reviews and approves stock option awards to executive officers based upon a review of competitive compensation data, its assessment of individual performance, a review of each executives existing long-term incentives, and retention
considerations. Periodic stock option grants are made at the discretion of the Compensation Committee to eligible employees and, in appropriate circumstances, the Compensation Committee considers the recommendations of our president, our vice
president and chief financial officer, and our chairman. Periodic grants are made generally once per year for eligible employees. In Fiscal 2008, one named executive officer was awarded stock options in the amounts indicated in the section entitled
Grants of Plan-Based Awards. Stock options granted by us have an exercise price not less than the fair market value of our common stock on the date of grant, typically vest 33.33% per annum based upon continued employment over a
three-year period, and generally expire ten years after the date of grant. Incentive stock options also include certain other terms necessary for compliance with the Internal Revenue Code of 1986, as amended (the Code).

Given the absence of a trading market for our common stock, our board of directors, the members of which we believe had extensive business and finance
experience, was required to estimate the fair value of our common stock at the time of each option grant. Our board of directors has considered objective and subjective factors in determining the value of our common stock at each option grant date,
including the following factors: (1) contemporaneous valuation analysis using the income and market approaches; (2) the fact that the option grants involved illiquid securities; (3) contemporaneous, arms-length sales of common
stock by us; and (4) the likelihood of achieving a liquidity event, such as an underwritten public offering or sale of the Company, given prevailing market conditions. In addition to the factors identified above, our board engaged outside
valuation advisors to assist in its estimate of the fair value of our common stock as of March 29, 2009.

Other
Compensation. Consistent with our compensation philosophy, we intend to continue to maintain our current benefits and perquisites for our executive officers; however, the Compensation Committee in its discretion may revise, amend or add
to the officers benefits and perquisites, which currently consist of a car allowance, if it deems it advisable. We believe these executive officer benefits and perquisites are currently lower than median competitive levels for comparable
companies. We currently have no plans to change either the employment agreements (except as required by law or as required to clarify the benefits to which our executive officers are entitled as set forth herein) or levels of benefits and
perquisites provided thereunder.

Compensation Committees Processes and Procedures for Consideration and Determination of Executive Compensation

The Compensation Committee oversees all of our executive compensation policies and decisions, including the administration and
interpretation of our benefit plans, including the 2004 Stock Option Plan. The Compensation Committee also reviews and approves executive officer compensation, including, as applicable, salary, bonus and incentive compensation levels, equity
compensation, severance arrangements, change-in-control agreements, special or supplemental benefits and other forms of executive officer compensation. The Committee periodically reviews regional and industry-wide compensation practices and trends
to assess the adequacy and competitiveness of our compensation programs. The Committees membership is determined annually by the full board and includes only independent directors. The Committee meets as often as it deems appropriate, but not
less frequently than annually.

The board has delegated authority to the Compensation Committee to review and make recommendations with
respect to compensation matters, but has retained the authority to approve and take final action on all executive compensation awards.



89



---

##### Table of Contents

Role of Executive Officers in Compensation Process

The Compensation Committee also solicits appropriate input from our chairman, our principal executive officer, and our principal financial officer
regarding base salary and equity grants for our other executive officers and regarding the administration of our benefit plans.

External Advisors

The Compensation Committee has the authority to engage the services of outside advisors and purchase
independent salary surveys to assist the Committee in fulfilling its duties. It did so in April 2009.

Employee Benefit Plans

Our employees, including our executive officers, are entitled to various employee benefits. These benefits include the following: medical and dental care
plans; flexible spending accounts for healthcare; life, accidental death and dismemberment and disability insurance; employee assistance programs (confidential counseling); benefit advocacy counseling; a 401(k) plan; and paid time off.

401(k) Plan

During the fiscal year ended
April 2, 2000, we adopted a 401(k) savings plan for employees. Eligible employees may contribute up to 20% of their salaries to the plan. Eligible employees are employees over the age of 18 who have been employed by Tullys for six months.
There is no mandatory match from Tullys and no match was made for Fiscal 2009. Most plan administrative costs are paid by the 401(k) savings plan.

We do not have a policy requiring recovery of bonus payments or other compensation in the event that our performance measures or financial statements are restated or adjusted. For a description of the employment
agreements executed by our executive officers and potential payments to them upon termination or a change in control of our company, see Employment Agreements and Employment Letters; and Potential Payments Upon Termination or Change of
Control.

Section 162(m) Treatment Regarding Performance-Based Equity Awards

Section 162(m) of the Code limits the deductibility of certain compensation paid to the chief executive officer and certain other highly compensated
executive officers to the extent the compensation for any such individual exceeds one million dollars for the tax year. Compensation that qualifies as performance-based compensation is, however, exempt from the deductibility limitation.
For compensation to qualify for the performance-based exemption, among other things, the performance goals must be determined by a compensation committee, which must be comprised solely of outside directors as defined for purposes of
Section 162(m) of the Code, the material terms under which the compensation is to be paid must be disclosed to and approved by shareholders in a separate vote prior to payment, and the compensation must be paid solely on account of the
attainment of pre-established, objective performance goals, as determined by a compensation committee. Our Compensation Committee intends to preserve the deductibility of compensation payable to our executives, although deductibility will be only
one among a number of factors considered in determining appropriate levels or modes of compensation.

Section 409A of the Code

Section 409A of the Code imposes certain restrictions on amounts deferred under non-qualified deferred compensation plans and
imposes a 20% excise tax on amounts that are subject to, but do not comply with, Section 409A. Section 409A includes a broad definition of non-qualified deferred compensation plans, which may extend to awards granted under the 2004 Stock
Option Plan. The Internal Revenue Service, or IRS, has only



90



---

##### Table of Contents

recently finalized regulations describing the effect of Section 409A on the types of awards that were or may be issued pursuant to our stock option
plan. Our failure to administer our stock option plan in accordance with Section 409A and the regulations promulgated thereunder could subject us to penalties and interest for failing to make required withholdings in connection with option
grants that do not comply with Section 409A.

Compensation Committee Interlocks and Insider Participation

During Fiscal 2008, management compensation issues generally were reviewed and approved by the Compensation Committee, which was composed of
Mr. Evanger who is a non employee director. During Fiscal 2008, no executive officer of Tullys served on the board of directors or compensation committee of another entity that had an executive officer serve on Tullys board or its
compensation committee. Mr. Evanger served as interim President and CEO of Tullys from July 2001 to May 2002.

Summary Compensation
Table

The following table sets forth information regarding compensation awarded or paid to, or earned by, the two individuals who
served as our principal executive officer during portions of Fiscal 2009, the two individuals who served as our chief financial officer, our chairman, our three executive officers with total compensation greater than $100,000 in Fiscal 2009
(collectively, the Named Executive Officers).



91



---

##### Table of Contents

SUMMARY COMPENSATION TABLE FOR FISCAL 2009



|                                                                        |  |          |  |            |                |          |   |                    |  |                          |              |           |   |            |  |   |               
|----------------------------------------------------------------------- |  | -------- |  | ---------- | -------------- | -------- | - | ------------------ |  | ------------------------ | ------------ | --------- | - | ---------- |  | - | --------------
|Name and principal position                                             |  | Year     |  | Salary ($) |                | Bonus($) |   | OptionAwards($)(8) |  | All OtherCompensation($) |              | Total ($)
|Carl W. Pennington, Sr. President(1)                                    |  | 20092008 |  | $          | 290,00060,417  |          | $ | 100,000           |  | $                        | 91,12818,776 |           | $ | 7,2001,500 |  | $ | 488,32880,693 
|                                                                        |  |          |  |            |                |         
|Andrew M. Wynne Chief Financial Officer(2)                              |  | 20092008 |  |            | 160,000111,673 |          |   | 80,000            |  |                          | 14,48214,482 |           |   | 7,2001,500 |  |   | 261,682127,655
|                                                                        |  |          |  |            |                |         
|Tom T. OKeefe Founder and Chairman of the Board(3)                     |  | 20092008 |  |            | 200,000129,071 |          |   | 50,000            |  |                          |            |           |   | 9,0009,000 |  |   | 259,000138,071
|                                                                        |  |          |  |            |                |         
|Ronald P. Gai Vice President of Wholesale Sales(4)                      |  | 20092008 |  |            | 135,000135,000 |          |   |                   |  |                          | 15,20520,084 |           |   | 7,2007,200 |  |   | 157,405162,284
|                                                                        |  |          |  |            |                |         
|Mark E. DaCosta Vice President of Wholesale Operations and Logistics(5) |  | 20092008 |  |            | 135,000135,000 |          |   |                   |  |                          | 21,53128,583 |           |   | 7,2007,200 |  |   | 163,731170,783
|                                                                        |  |          |  |            |                |         
|John K. Buller Chief Executive Officer and President(6)                 |  | 2008     |  |            | 187,692        |          |   |                   |  |                          | 128,369      |           |   | 6,500      |  |   | 322,561       
|                                                                        |  |          |  |            |                |         
|Kristopher S. Galvin Chief Financial Officer(7)                         |  | 2008     |  |            | 171,730        |          |   |                   |  |                          | 40,289       |           |   | 6,000      |  |   | 218,019       



|(1) | Mr. Pennington was appointed President and principal executive officer on January 15, 2008. Mr. Penningtons base salary for Fiscal 2009 is $290,000 paid to
Pinnacle Management Inc. A car allowance of $7,200 appears in the All Other Compensation column.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Wynne was appointed Chief Financial Officer on January 28, 2008. Mr. Wynnes base salary for Fiscal 2008 was increased in October 2009 to $185,000. A car
allowance of $7,200 appears in the All Other Compensation column.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. OKeefes base salary as $200,000 as of January 1, 2008. A car allowance of $9,000 appears in the All Other Compensation column.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Gais base salary for Fiscal 2009 is $135,000. A car allowance of $7,200 appears in the All Other Compensation column.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(5) | Mr. DaCostas base salary for Fiscal 2009 is $135,000. A car allowance of $7,200 appears in the All Other Compensation column.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(6) | Mr. Buller served as our Chief Executive Officer from September 14, 2006 to February 8, 2008. Mr. Bullers option expense excludes forfeitures of $148,176
due to his termination. A car allowance of $6,500 appears in the All Other Compensation column.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Mr. Galvin served as our Chief Financial Officer from February 25, 2002 to January 25, 2008. Mr. Galvins option expense excludes forfeitures of $44,127 due
to his termination. A car allowance of $7,200 appears in the All Other Compensation column.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | These amounts were calculated utilizing the provisions of SFAS No. 123R, Share-Based Payments, excluding the effects of estimated forfeitures. See Note 17 of the
Notes to the Consolidated Financial Statements regarding the assumptions underlying valuation of equity awards.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements
and Employment Letters; Potential Payments Upon Termination or Change-in-Control

Carl W. Pennington, Sr. On March 10,
2008, we entered into a service agreement with Pinnacle Management, Inc. and Mr. Pennington, regarding Mr. Penningtons service as President of Tullys effective January 15, 2008. Pinnacle Management is a corporation through
which Mr. Penningtons provides personal services.



92



---

##### Table of Contents

Under the terms of the agreement, Tullys will pay Pinnacle Management a fee of $24,166.66 per month
(the Monthly Fee), or $290,000 annually, in consideration for Mr. Penningtons service to Tullys. In addition, Tullys will grant Mr. Pennington an option to purchase 62,500 shares of Tullys common stock,
which option will vest and become exercisable in five equal increments of 12,500 shares, beginning on the first anniversary of the grant date. The exercise price per share for the option is the fair market value of Tullys common stock as of
the grant date, as determined by the Board of Directors. Tullys will pay Pinnacle Management an additional $600 per month for Mr. Penningtons monthly vehicle costs and reimburse Mr. Pennington for actual out of pocket expenses
reasonably related to carrying on his duties and responsibilities as Tullys President. Mr. Pennington will not be eligible for medical, dental, and certain other employee benefits that Tullys provides to its employees.

The agreement provides further that, in the event of change in control, Pinnacle Management will be entitled to receive a termination fee
equal to the greater of (a) $145,000 or (b) the aggregate Monthly Fee for the remaining term of the Agreement. In addition, Mr. Penningtons options will vest and become fully exercisable upon a change in control. The agreement
defines change in control to mean (x) a sale of substantially all of the assets of Tullys to a third party other than as part of a transfer of said assets to an entity directly or indirectly controlled by existing Tullys
shareholders holding a majority of the outstanding shares of the common voting stock of Tullys, or (y) a sale of more than fifty percent (50%) of the outstanding voting stock of Tullys to one or more third parties in a single
transaction or series of transactions.

The service agreement has a term of one year, renewing annually based on mutual agreement between
Tullys and Mr. Pennington.

Andrew M. Wynne.Mr. Wynne has served as Vice President and Chief Financial Officer
since January 2008 at the base salary of $135,000, with a monthly car allowance of $600. In October, 2008, Mr. Wynnes base salary was increased to $185,000. Mr. Wynne also is entitled to all benefits offered generally to our
employees.

In the event of change in control, Mr. Wynne will be entitled to his current base salary for an additional
nine months following the event. The agreement defines change in control to mean (x) a sale of substantially all of the assets of Tullys to a third party other than as part of a transfer of said assets to an entity directly or
indirectly controlled by existing Tullys shareholders holding a majority of the outstanding shares of the common voting stock of Tullys, or (y) a sale of more than fifty percent (50%) of the outstanding voting stock of
Tullys to one or more third parties in a single transaction or series of transactions.

Tom T. OKeefe.Mr. OKeefe is our founder and has served as chairman of the board since 1992. Although Mr. OKeefe does not serve in a full-time paid position with us, his duties as chairman require a substantially greater participation by
Mr. OKeefe than for other members of the board of directors. Mr. OKeefe does not participate in the compensation plan for non-employee directors, but instead receives compensation as a salaried employee of the Company. On
June 25, 2009, the Board approved a director compensation policy applicable for Fiscal 2010. The policy provides that non-employee directors will receive a quarterly cash payment of $5,000 plus a per-meeting cash fee of $1,000 per Board meeting
and $500 per meeting of the Audit, Compensation, Executive, and Governance and Nominating committees. In addition to his board compensation, Mr. OKeefe receives a $5,000 quarterly cash payment for serving as our chairman.
Mr. OKeefe also receives an automobile allowance of $750 per month and is entitled to all benefits offered generally to our employees. There is no written employment agreement or severance agreement between Mr. OKeefe and us.

We do not have formal employment agreements with any of our other executive officers; however, certain elements of these executives
compensation and other arrangements are set forth in employment letters provided to each of them. These employment letters are described below.

Ronald P. Gai. Tullys promoted Mr. Gai to Vice President of Wholesale Division in April 2003 at the base salary of $90,000, with a monthly car allowance of $600. In March, 2009, Mr. Gai became Vice President of



93



---

##### Table of Contents

Specialty Division. Mr. Gais base salary for Fiscal 2010 is $135,000. In the event of change in control, Mr. Gai will be entitled
to his current base salary for an additional three months following the event.

Mark E. DaCosta. Tullys engaged
Mr. DaCosta as Vice President of Wholesale Operations in May 2005 at the base salary of $100,000, with a monthly car allowance of $600. Mr. DaCostas base salary for Fiscal 2009 was $135,000. In the event of change in
control, Mr. DaCosta was entitled to his current base salary for an additional three months following the event. On March 27, 2009, in connection with the sale of the Wholesale division to GMCR, Mr. Dacosta received $33,750 in
severance.

John J. Rader. Tullys engaged Mr. Rader as Vice President and General Manager of Supply Chain in January 2008
at the base salary of $135,000, with a monthly car allowance of $600. On March 27, 2009, in connection with the sale of the Wholesale division to GMCR, Mr. Rader received $33,750 in severance and is anticipated to end employment with the
Company at the Facility Change Date as identified in the GMCR Agreement.

Under our stock option plan, vesting and exercise of employee
stock options, including those of the executive officers, accelerate in the event of certain change of control events. Also, pursuant to the employment letters for members of Tullys senior management team, Tullys has agreed to pay
severance compensation to these executives in the event that there is a change in control. The amount of severance to be paid would depend upon the rate of salary at the time of termination and other factors. As of March 29, 2009, the
contingent obligation for severance to these individuals for the change in control provision was as follows: Mr. Pennington $224,055; Mr. Wynne $138,750; and Mr. Gai $33,750.

Accordingly, in the event that a termination of the employment of the foregoing named executive officers had occurred as of March 27, 2009, the last
business day of Fiscal 2009, we would not have been obligated to make any contractual severance payments to any of those officers, except that if we had terminated certain officers. Pursuant to the employment letters for members of Tullys
senior management team, Tullys has agreed to pay severance compensation to these executives in the event their employment by Tullys is terminated for reasons other than certain excluded circumstances. The amount of severance to be paid
would depend upon the rate of salary at the time of termination and other factors. As of March 29, 2009, the contingent obligation for severance to these individuals was as follows: Mr. Pennington $72,500; Mr. Wynne $92,500; and
Mr. Gai $33,750.

In the event that a change of control transaction described in our 1994 and our 2004 stock option plans had occurred
as of March 29, 2009, holders of unvested options, including the Named Executive Officers, would have had the right to exercise the full number of shares covered by those options. The value of that right for the Named Executive Officers as of
March 29, 2009 would have been as follows: Mr. Pennington $750,000 and Mr. Wynne $47,000.

Grants of Plan-Based Awards

The Compensation Committee recommended, and our board approved, awards under our 2004 stock option plan to one of our Named
Executive Officers in Fiscal 2008. Our Compensation Committee has not established guidelines for the grant of plan-based awards for Fiscal 2010. There were no awards granted during Fiscal 2009.



94



---

##### Table of Contents

Outstanding Equity Awards At Fiscal Year-End

We had no outstanding stock awards at fiscal year end. The following table summarizes the outstanding equity award holdings held by our Named Executive
Officers:

OUTSTANDING EQUITY AWARDS AT FISCAL 2009 YEAR-END



|                                                                     |             |                                                                                                |               |                                                       |                                                  |  |                                                                                                                       |  |                                                                                                                                                                                                                                         
|-------------------------------------------------------------------- | ----------- | ---------------------------------------------------------------------------------------------- | ------------- | ----------------------------------------------------- | ------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                     |             | OPTION AWARDS                                                                                 
|Name                                                                 |             | Number ofSecuritiesUnderlyingUnexercisedOptions(#)                                             |               | Number ofSecuritiesUnderlyingUnexercisedOptions(1)(#) |                                                  |  | OptionExercisePrice($)(a)                                                                                             |  | OptionExpirationDate                                                                                                                                                                                                                    
|                                                                     | Exercisable |                                                                                                | Unexercisable |                                                       |                                                  | 
|Carl K. Pennington, Sr. President                                    |             | 12,500                                                                                         |               | 50,000                                                | (b)                                              |  | 12.00                                                                                                                 |  | 1/15/2018                                                                                                                                                                                                                               
|                                                                     |             |                                                                                                |               |                                                      
|Andrew M. Wynne Chief Financial Officer                              |             | 2,083                                                                                          |               | 4,167                                                 | (c)                                              |  | 11.28                                                                                                                 |  | 2/22/2017                                                                                                                                                                                                                               
|                                                                     |             |                                                                                                |               |                                                      
|Tom T. OKeefe Founder and Chairman of the Board                     |             | 12562 11,961 437 17,979 62 62 1,449 62
1,620 62 1,14462 62 724 62 62 906 62 724 62 62 62 62 62 |               |                              | ** * * * * * * * * * * * * * * * * * * * * * * * |  | 0.080.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.080.080.080.080.080.080.08 |  | 11/29/20094/3/2010 4/3/2010 4/2/2011 4/2/2011 4/4/2011 4/25/2011 4/27/2011 5/31/2011 6/1/2011 6/28/2011 6/29/20117/12/20117/26/20117/27/20118/2/20118/20/20118/31/2011 9/26/20119/28/201110/12/201110/18/201112/5/20111/24/20123/21/2012
|                                                                     |             |                                                                                                |               |                                                      
|Ronald Gai Vice President of Wholesale Sales                         |             | 6,2503,125 2,500 4,166                                                                         |               |   2,084                                            | ** * (c)                                         |  | 0.082.48 12.00 11.28                                                                                                  |  | 2/20/201310/23/2013 5/16/2015 2/22/2017                                                                                                                                                                                                 
|                                                                     |             |                                                                                                |               |                                                      
|Mark E. DaCosta Vice President of Wholesale Operations and Logistics |             | 2,5002,500 5,000                                                                               |               |  2,500                                              | ** (c)                                           |  | 12.0012.00 11.28                                                                                                      |  | 8/15/20158/15/2015 2/22/2017                                                                                                                                                                                                            
|                                                                     |             |                                                                                                |               |                                                      
|John J. Rader Vice President and General Manager of Supply Chain     |             |                                                                                               |               |                                                      | *                                                |  |                                                                                                                      |  |                                                                                                                                                                                                                                        



95



---

##### Table of Contents

|                                                                          |             |                                                    |               |                                                       |            |  |                                 |  |                                                            
|------------------------------------------------------------------------- | ----------- | -------------------------------------------------- | ------------- | ----------------------------------------------------- | ---------- |  | ------------------------------- |  | -----------------------------------------------------------
|                                                                          |             | OPTION AWARDS                                     
|Name                                                                      |             | Number ofSecuritiesUnderlyingUnexercisedOptions(#) |               | Number ofSecuritiesUnderlyingUnexercisedOptions(1)(#) |            |  | OptionExercisePrice($)(a)       |  | OptionExpirationDate                                       
|                                                                          | Exercisable |                                                    | Unexercisable |                                                       |            | 
|                                                                          |             |                                                    |               |                                                      
|John K. Buller Chief Executive Officer and President                      |             | 911,250 25,500 480                                 |               |                                                   | ** * *     |  | 2.4012.00 12.00 12.00           |  | 10/11/20156/30/2016 9/1/2016 5/14/2017                     
|                                                                          |             |                                                    |               |                                                      
|Kristopher S. Galvin Chief Financial Officer and Executive Vice President |             | 4,1666,250 9,375 8,333 6,250 1,666                 |               |                                                 | ** * * * * |  | 0.0820.00 14.24 2.48 2.48 12.00 |  | 6/10/20126/10/2012 6/10/2012 5/12/2013 10/23/2013 5/16/2015



|(a) | Amounts represent the exercise price of the stock option awards which is equal to the fair market value of our common stock on the grant date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The underlying options vest ratably over a three year period beginning on the grant date of 1/15/08.
|--- | ----------------------------------------------------------------------------------------------------

|(c) | The underlying options vest ratably over a three year period beginning on the grant date of 2/22/07.
|--- | ----------------------------------------------------------------------------------------------------

|* | The underlying options related to this grant are fully vested.
|- | --------------------------------------------------------------

Option Exercises and Stock Vested

Our Named Executive Officers did not exercise any stock options in Fiscal 2008. We
have no outstanding restricted stock, stock appreciation rights or similar instruments and accordingly no vesting of such awards during Fiscal 2008.

Pension Benefits

None of our Named Executive Officers participate in or have account balances in qualified or
non-qualified defined benefit plans sponsored by us.

Nonqualified Deferred Compensation

None of our Named Executive Officers participate in or have account balances in non-qualified defined contribution plans or other deferred compensation
plans maintained by us. The Compensation Committee, which will be comprised solely of outside directors as defined for purposes of Section 162(m) of the Internal Revenue Code, may elect to provide our officers and other employees
with non-qualified defined contribution or deferred compensation benefits if the Compensation Committee determines that doing so is in our best interests.

Director Compensation

The Governance and Nominating Committee of the board of directors, which is comprised of our
president and two independent directors, is responsible for evaluating compensation levels and compensation programs for our board of directors and for making recommendations to the board of directors regarding appropriate compensation awards for
directors. The board of directors compensation program is designed to attract, retain and motivate experienced non-employee (outside) directors, to optimize long-term shareholder value and reward members of the board of directors based on the extent
of their participation on the board of directors and its committees. Generally, the Governance and Nominating Committee makes an annual recommendation regarding



96



---

##### Table of Contents

the structure of the non-employee director compensation program, considering the factors described above and considering information regarding director
compensation programs for other comparable companies.

On June 25, 2009, the Board approved a director compensation policy applicable
for Fiscal 2010. The policy provides that non-employee directors will receive a quarterly cash payment of $5,000 plus a per-meeting cash fee of $1,000 per Board meeting and $500 per meeting of the Audit, Compensation, Executive, and Governance and
Nominating committees, paid after completion of the fiscal year. For Fiscal 2010, non-employee directors also will receive an annual grant of nonqualified options to purchase shares of common stock, with an exercise price equal to the fair market
value of the stock at the date of grant and a term of ten years.

Compensation amounts are generally subject to prorating for directors
whose terms commence or expire during the fiscal year. Further, after the completion of the fiscal year, the Governance and Nominating Committee will consult with the Board and management to assess whether any directors may have provided services to
the Company that may not adequately be considered in the compensation determined by the formulae set forth above, and if so, additional cash compensation or stock options may be awarded if approved by the Board.

Our Chairman of the Board will receive a quarterly cash payment of $10,000 plus a per-meeting cash fee of $1,000 per Board meeting and $500 per committee
meeting.

Directors will be reimbursed for reasonable expenses incurred in attending Board and committee meetings

DIRECTOR COMPENSATION FOR FISCAL 2009 (paid in Fiscal 2010):



|                    |  |                              |        |                       |   |          |  |   |       
|------------------- |  | ---------------------------- | ------ | --------------------- | - | -------- |  | - | ------
|Name                |  | FeesEarned orPaid in Cash($) |        | OptionAwards(1)(2)($) |   | Total($)
|Marc W. Evanger (3) |  | $                            | 18,000 |                       | $ | 2,221    |  | $ | 20,221
|John M. Fluke       |  | $                            | 23,000 |                       | $ | 2,221    |  | $ | 25,221
|Lawrence L. Hood    |  | $                            | 23,500 |                       | $ | 2,221    |  | $ | 25,721
|Gregory A. Hubert   |  | $                            | 21,000 |                       | $ | 1,586    |  | $ | 22,586



|(1) | The amounts in this column were calculated with respect to the 2009 fiscal year utilizing the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R,
Share-Based Payments, excluding the effects of estimated forfeitures. See Note 18 of the Notes to the Consolidated Financial Statements regarding assumptions underlying valuation of equity awards. The full grant date fair value of the
Fiscal 2009 awards to each director is as follows:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  |  |                         |  |                       |      
|----------------- |  | ----------------------- |  | --------------------- | -----
|Name              |  | Option SharesGranted(#) |  | Option AwardsValue($)
|Marc W. Evanger   |  | 1,750                   |  | $                     | 2,221
|John M. Fluke     |  | 1,750                   |  | $                     | 2,221
|Lawrence L. Hood  |  | 1,750                   |  | $                     | 2,221
|Gregory A. Hubert |  | 1,250                   |  | $                     | 1,586



|(2) | The aggregate numbers of option awards outstanding for each director in the table set forth above as of May 31, 2009 were as follows:
|--- | -------------------------------------------------------------------------------------------------------------------------------------



|                  |  |                                 
|----------------- |  | --------------------------------
|Name              |  | Aggregate OptionsOutstanding (#)
|John M. Fluke     |  | 5,010                           
|Lawrence L. Hood  |  | 8,000                           
|Gregory A. Hubert |  | 4,137                           



|(3) | Mr. Evanger resigned as a director effective on October 18, 2008.
|--- | -----------------------------------------------------------------



97



---

##### Table of Contents

Indemnification of Officers and Directors

Our articles of incorporation and bylaws allow us to indemnify our officers and directors to the fullest extent permitted by the Washington Business
Corporation Act, or WBCA. It also contains provisions that provide for the indemnification of directors of the Company for third party actions and actions by or in the right of the Company that mirror applicable provisions of the WBCA.

In addition, our articles of incorporation state that we may purchase and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such persons status as such, and related expenses, whether or not the corporation would
have the power to indemnify such person against such liability under the WBCA. We also have and intend to maintain director and officer liability insurance, if available on reasonable terms.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the
foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Report of Compensation Committee on Executive Compensation

The
Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis section of this Form 10-K with the Companys management and, based on such review and discussions, the Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

Compensation
Committee

Gregory A. Hubert, Chair



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The following table shows information regarding the beneficial ownership of shares of our common stock, Series A preferred stock and Series B preferred
stock as of May 31, 2009 and shows the number of and percentage owned by:



| |  |  | each person who is known by us to own beneficially more than 5% of our common stock, Series A preferred stock and Series B preferred stock;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each member of our board of directors;
| | - |  | --------------------------------------



| |  |  | each of our named executive officers; and
| | - |  | -----------------------------------------



| |  |  | all members of our board of directors and our executive officers as a group.
| | - |  | ----------------------------------------------------------------------------



98



---

##### Table of Contents

Unless otherwise indicated in the footnotes to this table and subject to community property laws where
applicable, we believe that each shareholder named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned thereby, and such shareholders address is c/o TC Global, Inc., 3100 Airport
Way S., Seattle, WA 98134.



|                                                        |  |                        |      |  |                          |   |  |                          |  |                 |   |  |                        |  |                
|------------------------------------------------------- |  | ---------------------- | ---- |  | ------------------------ | - |  | ------------------------ |  | --------------- | - |  | ---------------------- |  | ---------------
|                                                        |  | Common Stock           |      |  | Series A Preferred Stock |   |  | Series B Preferred Stock
|                                                        |  | BeneficialOwnership(1) |      |  | PercentOf Total          |   |  | BeneficialOwnership(1)   |  | PercentOf Total |   |  | BeneficialOwnership(1) |  | PercentOf Total
|Tom T. OKeefe                                          |  | 524,662                | (2)  |  | 14.5                     | % |  |                         |  |                |   |  |                       |  |               
|Estate of Keith McCaw                                   |  | 282,984                | (3)  |  | 5.0                      | % |  | 2,000,000                |  | 15.6            | % |  |                       |  |               
|Lawrence L. Hood                                        |  | 21,406                 | (4)  |  | *                        |   |  | 10,000                   |  | *               |   |  | 40,000                 |  | *              
|Ronald P. Gai                                           |  | 16,011                 | (5)  |  | *                        |   |  |                         |  |                |   |  |                       |  |               
|Carl W. Pennington, Sr.                                 |  | 12,500                 | (6)  |  | *                        |   |  |                         |  |                |   |  |                       |  |               
|Mark E. DaCosta                                         |  | 10,000                 | (7)  |  | *                        |   |  |                         |  |                |   |  |                       |  |               
|Gregory A. Hubert                                       |  | 8,766                  | (8)  |  | *                        |   |  |                         |  |                |   |  |                       |  |               
|John M. Fluke.                                          |  | 8,691                  | (9)  |  | *                        |   |  | 15,000                   |  | *               |   |  |                       |  |               
|Andrew M. Wynne                                         |  | 4,166                  | (10) |  | *                        |   |  |                         |  |                |   |  |                       |  |               
|John J. Rader                                           |  |                       |      |  |                         |   |  |                         |  |                |   |  |                       |  |               
|                                                        |  |                        |      |  |                          |   |  |                          |  |                 |   |  |                        |  |                
|Executive officers and directors as a group (9 persons) |  | 606,202                |      |  | 17.0                     | % |  | 35,000                   |  | *               |   |  | 40,000                 |  | *              



|* | Less than 1%.
|- | -------------

|(1) | Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission and generally requires that the shareholder have voting or
investment power with respect to the securities in question. Shares of common stock issuable upon exercise of options and warrants that are exercisable within 60 days of May 31, 2009, are deemed to be beneficially owned by the holder of such
securities but are not outstanding for the purpose of computing the percentage ownership of any other shareholder. As of May 31, 2009, we had 3,557,704 shares of common stock, 12,790,874 shares of Series A preferred stock, and 3,584,349
shares of Series B preferred stock issued and outstanding.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 424,816 shares of common stock owned by TTOK, LLC, a limited liability company owned by Mr. OKeefe and his wife (Mr. OKeefe contributed his personal
shareholdings to TTOK, LLC, in October 2005). Also includes 72,678 owned by Mr. OKeefe, 17,812 shares of common stock held by the OKeefe Childrens Trust, and 9,356 shares of common stock held by the Tullys Foundation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 125,068 shares of common stock issuable upon exercise of options and warrants and 32,500 shares of common stock issuable upon conversion of 2,000,000 shares of
Series A preferred stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 8,000 shares of common stock issuable upon exercise of options. Also includes 163 shares of common stock issuable upon the conversion of 10,000 Series A preferred
stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 9,761 shares of common stock issuable upon exercise of options.
|--- | ------------------------------------------------------------------------

|(6) | Includes 12,500 shares of common stock issuable upon exercise of options.
|--- | -------------------------------------------------------------------------

|(7) | Includes 10,000 shares of common stock issuable upon exercise of options.
|--- | -------------------------------------------------------------------------

|(8) | Includes 4,137 shares of common stock issuable upon exercise of options.
|--- | ------------------------------------------------------------------------

|(9) | Includes 5,010 shares of common stock issuable upon exercise of options and warrants and 244 shares of common stock issuable upon conversion of 15,000 shares of Series A
preferred stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 4,166 shares of common stock issuable upon exercise of options.
|---- | ------------------------------------------------------------------------

Information regarding securities authorized for issuance under our equity compensation plans is set forth in Part II, Item 5.



99



---

##### Table of Contents

|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|-------- | ------------------------------------------------------------------------

Our board of directors recognizes that transactions or other arrangements between us and any of our directors, executive officers or principal shareholders may present potential or actual conflicts of interest.
Accordingly, as a general matter, it is our boards preference to avoid such transactions and other arrangements. Nevertheless, our board recognizes that there are circumstances where such transactions or other arrangements may be in, or not
inconsistent with, our best interests. Any transaction, arrangement or relationship in which we will be a participant and the amount involved exceeds $120,000, and in which any related person (directors, executive officers, shareholders owning at
least 5% of any class of our voting securities, and the immediate family members or any person sharing the household of any such director, executive officer or shareholder) had or will have a direct or indirect material interest, we will submit to
our board of directors for review, consideration and approval. We further expect that the policy will provide for periodic monitoring of pending and ongoing transactions. In approving or rejecting the proposed transaction, our board will consider
the relevant facts and circumstances relating to the proposed transaction, arrangement or relationship, including:



| |  |  | the related persons relationship to us and interest in the transaction,
| | - |  | ------------------------------------------------------------------------



| |  |  | the material facts of the proposed transaction, including the proposed aggregate value of the transaction,
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | the benefits to us,
| | - |  | -------------------



| |  |  | the availability of other sources for comparable services or products (if applicable), and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | an assessment of whether the proposed transaction is on terms that are comparable to the terms available to an unrelated third party or to our employees generally.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our board of directors will approve only those transactions that, in light of known circumstances, are in, or are not
inconsistent with, our best interests and are consistent with applicable legal requirements.

The following is a summary of transactions
since the beginning of Fiscal 2009 to which we have been a party, in which the amount involved exceeded, or will exceed, $120,000 and in which any related person had or will have a direct or indirect material interest, other than compensation
arrangements (including employment and change-in-control arrangements) which are described under the section of this report captioned Compensation Discussion and Analysis. All of the transactions described below were entered into prior
to the adoption of a formal written policy regarding related party transactions.

Our chairman guaranteed our obligations under the Benaroya
credit facility, which was fully repaid on March 27, 2009, and another shareholder guaranteed up to $3,000,000 under the Benaroya credit facility. Our chairman was not compensated for his guaranty.

In February 2006, an affiliate of Northrim acquired a 24% ownership interest in Pacific Wealth Advisors, LLC (PWA), a newly formed company
which is the successor by merger to Pacific Portfolio Consulting (Pacific Portfolio). PWA is a wealth management and investment advisory services holding company. A member of the Tullys Board of Directors is the president of PWA
and Pacific Portfolio and has an ownership interest of more than 10% in PWA. During Fiscal 2009, Tullys paid approximately $594,000 to Northrim for interest on the amounts borrowed, All outstanding debt to Northrim was which was fully repaid
on March 27, 2009. Also, Pacific Portfolio provided investment advisory consulting services for the Tullys employee 401(k) savings plan (see Note 21) and received fees of approximately $6,300 for this service in Fiscal 2009, $6,700 for
this service in Fiscal 2008 and $8,200 in Fiscal 2007.

Carl Pennington, Sr. was appointed as a board member, effective as of
January 15, 2008 and as Tullys President, effective as of January 15, 2008. Before joining Tullys, Mr. Pennington founded Pinnacle Management, a management company, and PinnPointe Consulting Group, a consulting
company advising retail



100



---

##### Table of Contents

and wholesale companies. Mr. Pennington is a shareholder of Pinnacle Management, which manages Impact Sales, Inc., a grocery broker, and Pinnacle
Coffee, a franchisee of six Tullys franchised stores as of March 29, 2009. Mr. Pennington serves as a board member of Impact Sales, the grocery broker for Tullys. Impact Sales received $816,000 in fiscal year 2009 from
Tullys as brokerage commission on grocery sales and $275,000 in fees relating to terminating their brokerage agreement as conditioned under the terms of the Green Mountain Transaction. He receives no compensation from Impact Sales.
Mr. Pennington has no ownership interest in Pinnacle Coffee. Mr. Penningtons base salary as Tullys president is $290,000 per year.

On March 27, 2009, the Tullys and the Limited Partner agreed that Tullys negotiated the right and obligation to purchase, or cause a third party to purchase, one-half (1/2) of the Limited
Partners partnership interest, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of US$4,000,000, within twelve (12) months of the closing of the Asset Purchase Agreement between
GMCR, and us. Tullys has classified this obligation as a current liability and offset the Limited Partners minority interest equally.

Tullys granted the Limited Partner a $1,000,000 loan to be paid through future distributions of the partnership. Further, $1,162,000 is receivable from AFCM in full satisfaction or the of the Companys LP Loan paid to AFCM
directly on March 27, 2009 and was subsequently paid by AFCM to the partnership after the balance sheet date on April 22, 2009.

The Board has determined that each of Messrs. Fluke, Hood and Hubert is an independent director as such term is defined under the Marketplace Rules of The NASDAQ Stock Market, Inc.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Fees Paid to Moss Adams
LLP

The following table shows the fees billed to us by Moss Adams LLP in Fiscal 2009 and Fiscal 2008:



|                      |  |            |         |            |   |        
|--------------------- |  | ---------- | ------- | ---------- | - | -------
|                      |  | Fiscal2009 |         | Fiscal2008
|Audit Fees(1)         |  | $          | 253,062 |            | $ | 412,500
|Audit-Related Fees(2) |  |            |        |            |   | 29,100 
|All Other Fees(3)     |  |            | 39,763  |            |   | 15,100 
|                      |  |            |         |            |   |        
|Total Fees            |  | $          | 292,825 |            | $ | 456,700
|                      |  |            |         |            |   |        



|(1) | Audit services consisted of the examination of our consolidated financial statements, quarterly reviews of interim financial statements and consultation in connection with the
evaluation of a possible business integration opportunity and the attempted initial public offering.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit-related fees relate primarily to consultation in connection with the UCC settlement and other various matters.
|--- | --------------------------------------------------------------------------------------------------------------------

|(3) | Tax services of Moss Adams were for state, federal, and international tax compliance and tax advice services.
|--- | -------------------------------------------------------------------------------------------------------------

Audit Committee Preapproval Policy

The Audit
Committee does not have a written preapproval policy. However, as a matter of practice, prior to engaging our independent registered public accounting firm for any services, we obtain the prior approval of the Audit Committee. All of the audit,
audit-related, tax and other fees were approved by the Audit Committee.



101



---

##### Table of Contents

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



| | (a) | The following documents are filed as part of this Annual Report on Form 10-K.
| | --- | -----------------------------------------------------------------------------



| | 1. | Financial StatementsThe following financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K:
| | -- | ---------------------------------------------------------------------------------------------------------------------------

Consolidated Balance Sheets as of March 29, 2009 and March 30, 2008;

Consolidated Statements of Operations for the years ended March 29, 2009, March 30, 2008, and April 1, 2007;

Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended March 29, 2009, March 30, 2008, and April 1,
2007;

Consolidated Statements of Cash Flows for the years ended March 29, 2009, March 30, 2008, and April 1, 2007;

Notes to Consolidated Financial Statements; and

Report of Independent Registered Public Accounting Firm



| | 2. | Financial Statement SchedulesAll schedules have been omitted, as they are either not required or not applicable or because the information required to be presented is
included in the Consolidated Financial Statements and related notes.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Exhibits
| | -- | --------

The Exhibits listed in the Exhibit
Index, which appears immediately following the signature page and is incorporated herein by reference, are filed or incorporated by reference as part of this Annual Report on Form 10-K. Each management contract or compensatory plan or agreement
listed on the Exhibit Index is identified by an asterisk.



102



---

##### Table of Contents

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, in Seattle, Washington on June 29, 2009.



TC GLOBAL, INC.BY:

/S/    ANDREW M. WYNNEVice President and Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on June 29, 2009 on behalf of the Registrant and in the capacities indicated:



|                                                       |  |                                                                                        
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------
|Signature                                              |  | Title                                                                                  
|                                                       | 
|/S/    CARL W. PENNINGTON,
SR. Carl W. Pennington, Sr. |  | Director, President (principal executive officer)                                      
|                                                       | 
|/S/  TOM T.
OKEEFE Tom T. OKeefe                     |  | Chairman of the Board and Director                                                     
|                                                       | 
|/S/    JOHN M.
FLUKE John M. Fluke                     |  | Director                                                                               
|                                                       | 
|/S/    LARRY
HOOD Larry Hood                           |  | Director                                                                               
|                                                       | 
|/S/    GREGORY A.
HUBERT Gregory A. Hubert             |  | Director                                                                               
|                                                       | 
|/S/    ANDREW M.
WYNNE Andrew M. Wynne                 |  | Vice President and Chief Financial Officer (principal accounting and financial officer)



103



---

##### Table of Contents

EXHIBIT INDEX



|       |  |                                                                                                                                                                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on October 26, 1999 (Filed with the Registrants Annual Report on Form 10-K for the year
ended April 1, 2001 as filed with the SEC on October 19, 2001, and incorporated herein by reference)                                                                                                     
|       | 
|3.1(a) |  | Articles of Amendment of the Restated Articles of Incorporation containing the Statement of Rights and Preferences of Series B Preferred Stock filed with the Washington Secretary of State on
June 27, 2000 (Filed with the Registrants Annual Report on Form 10-K for the year ended April 1, 2001, as filed with the Commission on October 19, 2001, and incorporated herein by reference)
|       | 
|3.1(b) |  | Articles of Correction to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on August 8, 2000 (Filed with the Registrants Annual Report on Form
10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)                                                                               
|       | 
|3.1(c) |  | Articles of Correction to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on August 8, 2000 (Filed with the Registrants Annual Report Form 10-K
for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)                                                                                  
|       | 
|3.1(d) |  | Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on December 16, 2004 (Filed with the Registrants Annual Report on Form
10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)                                                                             
|       | 
|3.1(e) |  | Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on December 16, 2004 (Filed with the Registrants Current Report on Form
8-K, dated March 26, 2009, as filed with the SEC on March 27, 2009, and incorporated herein by reference)                                                                                       
|       | 
|3.1(f) |  | Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on June 27, 2007 (Filed with the Registrants Annual Report on Form 10-K
for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)                                                                                 
|       | 
|3.2    |  | Amended and Restated Bylaws adopted on July 18, 2007 (Filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 1, 2007, as filed with the SEC on July 26, 2007,
and incorporated herein by reference)                                                                                                                                                             
|       | 
|4.1    |  | Description of capital stock contained in the Amended and Restated Articles of Incorporation (see Exhibit 3.1)                                                                                                                                                                                                                                                                                
|       | 
|4.2    |  | Description of rights of security holders contained in the Bylaws (see Exhibit 3.2)                                                                                                                                                                                                                                                                                                           
|       | 
|4.2(a) |  | Form of Common Stock Purchase Warrants issued in Series A Preferred Stock financing (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with
the SEC on September 18, 2008, and incorporated herein by reference)                                                                                                                             
|       | 
|4.2(b) |  | Common Stock Purchase Warrant, dated December 14, 2000, issued to KWM Investments LLC (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed
with the SEC on September 18, 2008, and incorporated herein by reference)                                                                                                                           
|       | 
|4.2(c) |  | Form of Common Stock Purchase Warrants issued to Guarantors of Kent Central, LLC Promissory Note (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008,
as filed with the SEC on September 18, 2008, and incorporated herein by reference)                                                                                                                
|       | 
|4.2(d) |  | Common Stock Purchase Warrant dated April 26, 2007, issued to Benaroya Capital Company, L.L.C. (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as
filed with the SEC on September 18, 2008, and incorporated herein by reference)                                                                                                                  
|       | 
|4.2(e) |  | Stock Purchase Warrant dated July 12, 2007, issued to Benaroya Capital Company, L.L.C. (Filed with the Registrants Annual Report on Form 10-K for the year ended April 1, 2007, as filed
with the SEC on July 13, 2007, and incorporated herein by reference)                                                                                                                                



104



---

##### Table of Contents

|        |  |                                                                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2(f)  |  | Form of Stock Purchase Warrant issued July 12, 2007 to Guarantor of Benaroya Capital credit facility (Filed with the Registrants Annual Report on Form 10-K for the year ended
April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
|        | 
|4.3     |  | Form of Registration Rights Agreement with Series A Preferred Shareholders (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC
on September 18, 2008, and incorporated herein by reference)                    
|        | 
|4.4     |  | Registration Rights Agreement, dated December 14, 2000 between Tullys and KWM Investments LLC (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30,
2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)
|        | 
|10.1    |  | Tullys 1999 Employee Stock Purchase Plan (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and
incorporated herein by reference)                                                     
|        | 
|10.2    |  | Tullys Second Amended and Restated 1994 Stock Option Plan (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September
18, 2008, and incorporated herein by reference)                                    
|        | 
|10.3    |  | Tullys 2004 Stock Option Plan (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated
herein by reference)                                                                
|        | 
|10.4    |  | Form of Non-Qualified Stock Option Agreement (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and
incorporated herein by reference)                                                  
|        | 
|10.5    |  | Form of Incentive Stock Option Agreement (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and
incorporated herein by reference)                                                      
|        | 
|10.6    |  | Form of Founders Plan Option Agreement (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and
incorporated herein by reference)                                                       
|        | 
|10.7(a) |  | Lease Agreement between Tullys and Kent Central, LLC, as amended (Filed with the Registrants Annual Report on Form 10-K for the year ended April 2, 2000, as filed with the SEC on
July 3, 2000, and incorporated herein by reference)                                    
|        | 
|10.7(b) |  | First Lease Amendment between Tullys and Kent Central, LLC, dated December 17, 1999 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed
with the SEC on September 18, 2008, and incorporated herein by reference)          
|        | 
|10.7(c) |  | Second Lease Amendment between Tullys and Kent Central, LLC, dated June 6, 2000 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed
with the SEC on September 18, 2008, and incorporated herein by reference)              
|        | 
|10.7(d) |  | Third Lease Amendment between Tullys and Kent Central, LLC, dated November 7, 2000 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed
with the SEC on September 18, 2008, and incorporated herein by reference)           
|        | 
|10.7(e) |  | Fourth Lease Amendment between Tullys and Kent Central, LLC, dated February 21, 2001 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as
filed with the SEC on September 18, 2008, and incorporated herein by reference)         
|        | 
|10.7(f) |  | Fifth Lease Amendment between Kent Central, LLC and Tullys, dated November 1, 2002 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed
with the SEC on September 18, 2008, and incorporated herein by reference)           



105



---

##### Table of Contents

|         |  |                                                                                                                                                                                                                                                                                                                  
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7(g)  |  | Sixth Amendment to Lease Agreement between Tullys and Rainier Commons, LLC, dated June 26, 2003 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30,
2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                                   
|         | 
|10.7(h)  |  | Seventh Amendment to Lease Agreement between Tullys and Rainier Commons, LLC, dated July 23, 2004 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30,
2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                                 
|         | 
|10.7(i)  |  | Eighth Amendment to Lease Agreement between Tullys and Rainier Commons, LLC, dated October 7, 2004 (Filed with the Registrants Annual Report on Form 10-K for the year ended
March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                                
|         | 
|10.7(j)  |  | Ninth Amendment to Lease Agreement between Tullys and Rainier Commons, LLC, dated October 7, 2004 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30,
2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                                 
|         | 
|10.7(k)  |  | Tenth Amendment to Lease Agreement between Tullys and Rainier Commons, LLC, dated December 16, 2005 (Filed with the Registrants Annual Report on Form 10-K for the year ended March
30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                               
|         | 
|10.8     |  | Tullys Coffee Exclusive License Agreement, dated April 11, 2001 between Tullys and UCC Ueshima Coffee Company, LTD (Filed with the Registrants Annual Report on Form 10-K for
the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)               
|         | 
|10.9     |  | Tullys Coffee Corporation Employment Summary dated June 21, 2002 for Kristopher S. Galvin (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as
filed with the SEC on September 18, 2008, and incorporated herein by reference)                                         
|         | 
|10.10    |  | Letter of Employment for John D. Dresel (Filed with the Registrants Current Report on Form 8-K, dated September 30, 2004, as filed with the Commission on October 5, 2004, and incorporated
herein by reference)                                                                                                
|         | 
|10.11(a) |  | Contract of Sale & Security Agreement between Tullys Coffee Corporation and Northrim Funding Services dated November 9, 2006 (Filed with the Registrants Quarterly Report on Form
10-Q for the quarter ended October 1, 2006, as filed with the SEC on November 15, 2006, and incorporated herein by reference)
|         | 
|10.11(b) |  | Amendment #1 to Northrim Funding Services Contract of Sale & Security Agreement, dated June 25, 2007 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30,
2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                               
|         | 
|10.12(a) |  | Inventory Security Agreement between Tullys Coffee Corporation and Northrim Funding Services dated November 9, 2006 (Filed with the Registrants Quarterly Report on Form 10-Q for the
quarter ended October 1, 2006, as filed with the SEC on November 15, 2006, and incorporated herein by reference)         
|         | 
|10.13(b) |  | Amendment #2 to Inventory Security Agreement between Tullys Coffee Corporation and Northrim Funding Services, dated June 25, 2007 (Filed with the Registrants Annual Report on Form
10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)       
|         | 
|10.13(c) |  | Amendment # 3 to Northrim Funding Services Contract of Sale & Security Agreement, dated October 20, 2008 (Filed with the Registrants Current Report on Form 8-K dated October 18, 2008,
as filed with the SEC on October 23, 2008, and incorporated herein by reference)                                        
|         | 
|10.13(d) |  | Amendment # 4 to Northrim Funding Services Contract of Sale & Security Agreement, dated December 22, 2008 (Filed with the Registrants Current Report on Form 8-K, dated December 22,
2008, as filed with the SEC on December 24, 2008, and incorporated herein by reference)                                    



106



---

##### Table of Contents

|         |  |                                                                                                                                                                                                                                                                                                             
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14    |  | Employment Agreement for John K. Buller dated September 1, 2006. (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on
September 18, 2008, and incorporated herein by reference)                                                              
|         | 
|10.15    |  | Employment Summary, dated April 15, 2003, as amended September 16, 2005 for Ronald Gai (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed
with the SEC on September 18, 2008, and incorporated herein by reference)                                        
|         | 
|10.16    |  | Offer Letter for Robert Martin, dated December 1, 2004 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18,
2008, and incorporated herein by reference)                                                                        
|         | 
|10.17    |  | Offer Letter for Mark E. DaCosta, dated May 25, 2005 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on
September 18, 2008, and incorporated herein by reference)                                                                          
|         | 
|10.18    |  | 15% Senior Subordinated Secured Promissory Note in favor of Benaroya Capital Company, L.L.C. dated April 26, 2007 (Filed with the Registrants Annual Report on Form 10-K for the year ended
March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)             
|         | 
|10.19    |  | Amendment to Secured Promissory Note and Security Agreement, dated as of July 12, 2007, in favor of Benaroya Capital Company, L.L.C. (Filed with the Registrants Annual Report on Form 10-K
for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
|         | 
|10.20(a) |  | Guaranty Agreement between Tom T. OKeefe and Benaroya Capital Company, L.L.C., dated April 25, 2007 (Filed with the Registrants Annual Report on Form 10-K for the year ended March
30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                          
|         | 
|10.20(b) |  | Amendment to Guaranty Agreement between Tom T. OKeefe and Benaroya Capital Company, L.L.C., dated as of July 12, 2007 (Filed with the Registrants Annual Report on Form 10-K for the
year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)              
|         | 
|10.20(c) |  | Form of Guaranty Agreement dated July 12, 2007 between Guarantor and Benaroya Capital (Filed with the Registrants Annual Report on Form 10-K for the year ended April 1, 2007, as filed with
the SEC on July 13, 2007, and incorporated herein by reference)                                               
|         | 
|10.21    |  | Form of Security Agreement in favor of Benaroya Capital Company, L.L.C., dated April 26, 2007 (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as
filed with the SEC on September 18, 2008, and incorporated herein by reference)                                 
|         | 
|10.22    |  | Agreement between Tullys Coffee Corporation and Guarantor Re Benaroya Capital Financing, dated April 25, 2007 (Filed with the Registrants Annual Report on Form 10-K for the year
ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                
|         | 
|10.23    |  | Agreement between Tullys Coffee Corporation and Guarantor re Benaroya Capital Financing, dated July 12, 2007 (Filed with the Registrants Annual Report on Form 10-K for the year ended
March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)                 
|         | 
|10.24    |  | Services Agreement between Tullys Coffee Corporation, Pinnacle Management, Inc., and Carl Pennington, Sr., regarding Mr. Penningtons services as President of Tullys (Filed with
the Registrants Current Report on Form 8-K filed with the SEC on March 11, 2008 and incorporated herein by reference)  
|         | 
|10.25    |  | Tullys Coffee Exclusive License Agreement between Tullys Coffee Corporation and its wholly-owned subsidiary Tullys Coffee Asia Partners, Inc. dated October 12, 2007 (Filed with
the Registrants Current Report on Form 8-K filed with the SEC on January 11, 2008 and incorporated herein by reference)



107



---

##### Table of Contents

|          |  |                                                                                                                                                                                                                                                                                                                                           
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26     |  | Settlement Agreement between Tullys Coffee Corporation and UCC Ueshima Coffee Co. Ltd. dated December 28, 2007 (Filed with the Registrants Current Report on Form 8-K filed with the
SEC on January 11, 2008 and incorporated herein by reference)                                                                                      
|          | 
|10.27     |  | Non-Recourse Guaranty by Tullys Coffee Corporation to and for the benefit of UCC Ueshima Coffee Co. Ltd. dated December 28, 2007 (Filed with the Registrants Current Report on Form
8-K filed with the SEC on January 11, 2008 and incorporated herein by reference)                                                                    
|          | 
|10.28     |  | Security Agreement by Tullys Coffee Corporation and Tullys Coffee Asia Pacific, Inc. in favor of UCC Ueshima Co. Ltd. dated December 28, 2007 (Filed with the Registrants
Current Report on Form 8-K filed with the SEC on January 11, 2008 and incorporated herein by reference)                                                      
|          | 
|10.29     |  | Amendment to License by Tullys Coffee Corporation, Tullys Coffee Asia Pacific, Inc., and UCC Ueshima Co. Ltd. dated January 14, 2008 (Filed with the Registrants Current Report
on Form 8-K filed with the SEC on January 11, 2008 and incorporated herein by reference)                                                               
|          | 
|10.30     |  | Asset Purchase Agreement by and among Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation and Tullys Bellaccino, LLC dated as of September 15, 2008 (Filed with
the Registrants Current Report on Form 8-K, dated September 15, 2008, as filed with the SEC on September 16, 2008, and incorporated herein by reference)
|          | 
|10.30(a)* |  | Amendment #1 dated November 12, 2008 to Asset Purchase Agreement by and among Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation and Tullys Bellaccino, LLC dated as
of September 15, 2008                                                                                                                              
|          | 
|10.30(b)* |  | Amendment #2 dated February 6, 2009 to Asset Purchase Agreement by and among Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation and Tullys Bellaccino, LLC dated as of
September 15, 2008                                                                                                                               
|          | 
|10.31*    |  | Supply Agreement between Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation dated March 27, 2009                                                                                                                                                                                                                         
|          | 
|10.32*    |  | License Agreement between Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation dated March 27, 2009                                                                                                                                                                                                                        
|          | 
|10.33*    |  | Non-Competition Agreement Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation dated March 27, 2009                                                                                                                                                                                                                        
|          | 
|10.34*    |  | Non-Competition Agreement between Tom T. OKeefe and Green Mountain Coffee Roasters, Inc. dated March 27, 2009                                                                                                                                                                                                                            
|          | 
|10.35     |  | Promissory Note made by Tullys Coffee Asia Pacific, Inc. dated December 30, 2008 (Filed with the Registrants Current Report on Form 8-K, dated December 31, 2008, as filed with the
SEC on January 7, 2009, and incorporated herein by reference)                                                                                       
|          | 
|10.36     |  | Convertible Promissory Note made by Tullys Coffee Asia Pacific Partners, LP dated December 30, 2008 (Filed with the Registrants Current Report on Form 8-K, dated December 31, 2008,
as filed with the SEC on January 7, 2009, and incorporated herein by reference)                                                                    
|          | 
|10.36(a)  |  | Amendment No. 1 to Convertible Promissory Note made by Tullys Coffee Asia Pacific Partners, LP dated March 6, 2009 (Filed with the Registrants Current Report on Form 8-K, dated March
4, 2009, as filed with the SEC on March 11, 2009, and incorporated herein by reference)                                                          
|          | 
|10.36(b)  |  | Amendment No. 2 to Convertible Promissory Note made by Tullys Coffee Asia Pacific Partners, LP (Filed with the Registrants Current Report on Form 8-K, dated March 17, 2009, as filed
with the SEC on March 20, 2009, and incorporated herein by reference)                                                                             
|          | 
|10.37     |  | Partnership Resolution, Tullys Coffee Asia Pacific Partners, LP, dated March 27, 2009 (Filed with the Registrants Current Report on Form 8-K, dated March 27, 2009, as filed with the
SEC on April 7, 2009, and incorporated herein by reference)                                                                                       



108



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38 |  | Voting Agreement and Irrevocable Proxy by and between Green Mountain Coffee Roasters, Inc., a Delaware corporation and Tom T. OKeefe (Filed with the Registrants Current Report on
Form 8-K, dated September 15, 2008, as filed with the SEC on September 16, 2008, and incorporated herein by reference)
|      | 
|14.1  |  | Tullys Coffee Corporation Code of Business Conduct (Filed with the Registrants Annual Report on Form 10-K for the year ended March 28, 2004, as filed with the SEC on June 28, 2004,
and incorporated herein by reference)                                                                               
|      | 
|21.1  |  | Subsidiaries of the Company (Filed with the Registrants Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein
by reference)                                                                                                  
|      | 
|23.1* |  | Consent of Registered Independent Public Accounting Firm                                                                                                                                                                                                                                                   
|      | 
|31.1* |  | Certification of principal executive officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                          
|      | 
|31.2* |  | Certification of principal financial officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                          
|      | 
|32.1* |  | Certification of principal executive officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                      
|      | 
|32.2* |  | Certification of principal financial officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                      



|* | Filed herewith
|- | --------------



109