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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 April 3, 2011

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.    x

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   |  |  ̈ |  | Smaller Reporting Company |  | x

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 April 3, 2011, the number of shares of the registrants Common Stock outstanding was 3,565,606 (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 and Series B Convertible Preferred Stock outstanding was 12,790,874 and 3,590,349, respectively.

Documents incorporated by reference: Parts of the registrants definitive proxy statement, filed for its 2011
annual meeting of shareholders, are incorporated by reference in Part III of this Form 10-K annual report: Items 10, 11, 12, 13 and 14.









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TABLE OF CONTENTS



|                                           |  |                                                                                                              |   |          |    | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------ | - | -------- | -- | 
|Item No.                                   |  |                                                                                                              |   | Page No. |   
|A WARNING ABOUT FORWARD-LOOKING STATEMENTS |  |                                                                                                              | 1 |         
|                                           |  |                                                                                                             
|PART I                                     |  |                                                                                                              |   |          | 2  | 
|                                           |  |                                                                                                             
|ITEM 1.                                    |  | BUSINESS                                                                                                     |   |          | 2  | 
|ITEM 1A.                                   |  | RISK FACTORS                                                                                                 |   |          | 7  | 
|ITEM 1B.                                   |  | UNRESOLVED STAFF COMMENTS                                                                                    |   |          | 13 | 
|ITEM 2.                                    |  | PROPERTIES                                                                                                   |   |          | 13 | 
|ITEM 3.                                    |  | LEGAL PROCEEDINGS                                                                                            |   |          | 13 | 
|ITEM 4.                                    |  | REMOVED AND RESERVED                                                                                         |   |          | 14 | 
|                                           |  |                                                                                                             
|PART II                                    |  |                                                                                                              |   |          |    | 
|                                           |  |                                                                                                             
|ITEM 5.                                    |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |   |          | 15 | 
|ITEM 6.                                    |  | SELECTED FINANCIAL DATA                                                                                      |   |          | 17 | 
|ITEM 7.                                    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                        |   |          | 19 | 
|ITEM 7A.                                   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |   |          |    | 
|ITEM 8.                                    |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |   |          | 30 | 
|ITEM 9.                                    |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE                         |   |          | 61 | 
|ITEM 9A.                                   |  | CONTROLS AND PROCEDURES                                                                                      |   |          | 61 | 
|ITEM 9B.                                   |  | OTHER INFORMATION                                                                                            |   |          | 61 | 
|                                           |  |                                                                                                             
|PART III                                   |  |                                                                                                              |   |          | 62 | 
|                                           |  |                                                                                                             
|ITEM 10.                                   |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |   |          | 62 | 
|ITEM 11.                                   |  | EXECUTIVE COMPENSATION                                                                                       |   |          | 62 | 
|ITEM 12.                                   |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS               |   |          | 62 | 
|ITEM 13.                                   |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE                                     |   |          | 62 | 
|ITEM 14.                                   |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |   |          | 62 | 
|                                           |  |                                                                                                             
|PART IV                                    |  |                                                                                                              |   |          | 63 | 
|                                           |  |                                                                                                             
|ITEM 15.                                   |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                   |   |          | 63 | 
|                                           |  | SIGNATURES                                                                                                   |   |          | 64 | 



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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 identified below, that could cause events, including our actual results, to differ
materially from those expressed or implied by any forward-looking statements. These factors, among others, could cause our financial performance to differ materially from our goals, targets, objectives, intentions and expectations.

The following factors, among others, could cause our future results to differ materially from historical results or those anticipated:



| |  |  | our ability to successfully execute on our Fiscal 2012 operating plan;
| | - |  | ----------------------------------------------------------------------



| |  |  | our ability to raise additional capital or to consummate a strategic transaction to fund our business;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the performance of existing and new stores, including our ability to achieve comparable store sales growth, increase the average unit volume of new
stores, and increase operating margins;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the success of our franchisees;
| | - |  | -------------------------------



| |  |  | our continued right to use our trade names and brands, which we license from Green Mountain Coffee Roasters;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | our ability to maintain and enhance our brand image and product quality; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | our ability to compete successfully against current or future competitors.
| | - |  | --------------------------------------------------------------------------

These and other risk factors discussed in Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K are among
important factors of which we are currently aware that could cause actual results, performance or achievements to differ materially from those expressed in our forward-looking statements. We operate in a continually changing business environment,
and new risk factors emerge from time to time. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We cannot assure you that projected results or events will be achieved
or will occur. 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.



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PART I.



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

TC Global, Inc.
is a specialty retailer licensing the Tullys Coffee business names and trademarks in the fast-casual categories of specialty coffee, snacks and non-alcoholic beverages, within the broader quick-service restaurant industry. Tullys is
known for 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 2011              |  | April 3, 2011 (53 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)            

Retail Operations. We operate and franchise Tullys Coffee branded retail stores, with 74
company-operated stores and 110 franchised stores in Washington, California, Arizona, Colorado, Idaho, Oregon, Montana, and Wyoming as of April 3, 2011. We also have four licensed locations in Singapore, which have been established under our
joint venture, Tullys Coffee Asia Pacific Partners, LP (TCAPPLP), as well as five licensed locations in South Korea opened by our master licensee in that region. 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. 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, chai teas, 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 community coffeehouse concept and varied menu have broad customer appeal, and are relevant during 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.

Tullys License.On March 27, 2009, we
completed the sale of the assets associated with our wholesale business and supply chain (including Tullys business names and trademarks) to Green Mountain Coffee Roasters, Inc. a Delaware corporation (GMCR), pursuant to the 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 TC Global, Inc., GMCR and Tullys Bellaccino,
LLC (the Green Mountain Transaction).

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 an exclusive 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.

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 over $17 million in licensing fees paid to us by
foreign licensees. 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 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. From Fiscal 2006 through Fiscal 2007, we undertook a strategic business review and began implementing initiatives to improve our financial position and create a foundation for future growth. In Fiscal 2008 and Fiscal 2009,
based on sustained losses and a continuing general economic downturn, we sold a large portion of our assets, in the sale of our wholesale division to GMCR, thereby reducing our core business to retail, franchised and licensed store locations. In
Fiscal 2010 and Fiscal 2011, we have taken measures to right size our business through various initiatives and cost-cutting measures. These initiatives include:



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



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



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| |  |  | Improving our average transaction size through suggestive selling and promotions;
| | - |  | ---------------------------------------------------------------------------------



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



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



| |  |  | Hiring and streamlining key executive positions to strengthen our management team and minimize operational overhead; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Investing in personnel and infrastructure to support our international operations.
| | - |  | ----------------------------------------------------------------------------------

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 whole bean and ground varietal coffees and proprietary coffee blends. Our barista bar beverages include hot
and cold beverages, highlighted by our coffees and espresso, teas, yerba mates, chai teas, 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 fresh daily (never frozen)
pastries, muffins, cookies and desserts that are baked by our artisan bakery vendors; 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, and waters 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 parts of the day. 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, during different day-parts, to suit different geographic markets and climates.

Our Competitive Strengths

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

We sell world-class coffees.We are passionate about providing our customers with the best gourmet coffees. Currently, we sell dozens of different proprietary coffee blends and varietal coffees, including single origin, coffees from growers in Colombia, Guatemala and
Sumatra. We also offer premium special lot (limited reserve) and estate coffees.

Our barista bars set us
apart from our competitors.We offer a premium 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 mates, chai
teas, 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 lattes and tea lattes, peppermint mochas and fruit Bellaccinos. All barista beverages are made-to-order by
our 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 fresh daily, never frozen, 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 and teas. 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 daily 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. We are constantly creating and innovating new beverages to provide a change of pace and excite the senses. For example, in the autumn we
introduced a family of pumpkin spice beverages in our barista bar product family at the same time that we introduced a special pumpkin spice cake and pastry in our food product family.



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We provide a community coffeehouse experience for our customers.We believe that the Tullys 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 crafting 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 intend to pursue growth opportunities by implementing the following strategies. Implementation of these strategies is
dependent upon sufficient capital resources and the ability to secure adequate financing. 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.

Expand our geographic footprint by leveraging 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.

Execute our licensing/franchising strategy. Our licensing/franchising strategy focuses on adding
licensed and franchised stores in market areas and venues that complement our company-operated stores. We have used these means to extend our presence in special venues, such as grocery stores, airports, hotels and university campuses.

Our Retail and Franchising Businesses

We operate and franchise Tullys Coffee branded retail stores, with 74 company-operated stores and 110 franchised stores in Washington, California, Arizona, Colorado, Idaho, Oregon, Montana, and
Wyoming as of April 3, 2011. 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.

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 throughout 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
| | - |  | --------------------------------------------------------

Daily Freshly 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.



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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 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.

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. Franchising stores in the domestic
market offers the potential for accelerated growth with minimal capital investment by 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, Frys Food and Drug and King Soopers 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 Hilton and Red Lion hotels in Washington and California, and at universities in California and Washington, among other locations.

To promote operational and cultural consistency with company-operated stores, we require our franchisees to undergo training before opening their first coffeehouse. We also evaluate our partners
store operations on a periodic basis to ensure brand consistency across the entire Tullys system.

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 establish loyal customers. 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, which is supplemented with extra value during select promotional periods during the year. It is available at all company-operated Tullys stores and select franchised stores. Our Tullys Coffee Card includes a
loyalty program that provides customer rewards for use of the card, and we enable 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.

Tullys actively
uses social and interactive media to communicate with customers. Through Facebook, Twitter, Text Club, Tell Tullys and other social media platforms, we are able to solicit feedback on our beverage offerings, engage customers with topical
pop culture banter, promote current marketing initiatives and receive feedback regarding retail store experiences.

Employees

As of April 3, 2011, we employed approximately 670 people, with approximately 633 employed in retail stores and
regional retail operations. Approximately 37 work in our administrative, retail and licensee/franchisee support staff. We have decreased our staff overall by nearly 8% since the end of Fiscal 2010; this includes a 33% decrease in corporate
administrative staff in the same time period. We have instituted these reductions to bring our general and administrative costs in line with the operations of the business, in an attempt to minimize the costs and optimize the efficiencies of running
our business.

We offer a competitive benefits program to employees who work at least 28 hours per week. Eligible employees
receive vacation, holidays, medical and dental insurance and other benefits. Store managers, and district managers participate in incentive pay programs tied to various performance criteria. 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 training program provides our more
experienced employees with advanced training in coffee history, 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.

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, 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 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.



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|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.

If we are
unsuccessful in executing our Fiscal 2012 business plan, we will need to raise additional capital to fund our business and continue as a going concern.

In their report dated July 1, 2011, our registered public accounting firm stated that our financial statements for the fiscal year ended April 3, 2011 were prepared assuming we would continue as
a going concern; however our recurring losses and limited working capital raise substantial doubt about our ability to continue as a going concern. As of April 3, 2011 we had cash and cash equivalents of $2.8 million, of which $540,000 was held
in TCAPPLP and limited in use, and a working capital deficit of $8.3 million. Our ability to continue as a going concern is in doubt as a result of our historical recurring losses from operations and is subject to our ability to restructure the
Company in a manner that will return it to profitability or raise additional capital from debt, equity or the sale of assets. If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then the
Company could be required to substantially reduce or discontinue its investments in store improvements, new customers and new products; reduce operating, marketing, general and administrative costs related to its continuing operations; or limit the
scope of its continuing operations. Due to various contractual obligations of the Company, including store operating leases, supply agreements and franchise agreements, the Company may not have the discretion to reduce operations in an orderly
manner to a more sustainable level. The potential sale of stores or other income-producing assets could adversely affect future operating results and cash flows.

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

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 million and a $28.7 million gain on the sale of
intellectual property assets, respectively. We expect to report a net loss for Fiscal 2012 and likely will incur losses in future periods.

We incurred a net loss of $5.4 million in Fiscal 2011. We continue to use significant amounts of our cash resources to fund our net losses, working capital and capital expenditure requirements. As of
April 3, 2011, we had cash and cash-equivalents of approximately $2.8 million, including $540,000 that was held in our Asian joint venture, called Tullys Coffee Asia Pacific Partners, LP (TCAPPLP) and limited in its use for
corporate spending, compared to approximately $7.1 million in cash, cash equivalents and escrow receivable as of March 28, 2010, of which $1.0 million was held in TCAPPLP and limited in its use for general corporate spending.

We will need to raise additional capital to fund our business if sales volumes do not meet our expectations of sustained increases during Fiscal
2012.

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. Based on our current projections, if sales volumes do not meet our expectations of sustained increases through Fiscal 2012 we may not have sufficient resources to cover our working capital
and capital expenditure requirements and, without additional sources of capital, there will be substantial doubt that the Company will be able to continue as a going concern.

In order to maintain an appropriate level of liquidity, the Company believes it will need to either effectively implement its operational plans and objectives or obtain additional capital in the next six
to nine months in order to fund its working capital requirements for the remainder for Fiscal 2012.



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Financing alternatives available to us would likely involve significant interest and other
costs or could be highly dilutive to our existing shareholders. There can be no assurance any debt or equity financing arrangement will be available to us when needed on acceptable terms, if at all. In addition, there can be no assurance that these
financing alternatives would provide us with sufficient funds to meet our long term capital requirements. If we are unable to secure additional financing or generate sufficient cash flow from operations to fund our working capital and capital
expenditure requirements, we could be required to sell stores or other significant assets to provide capital to fund our business. The sale of stores or other income-producing assets could adversely affect our future operating results and cash
flows.

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

For most of our history, we have not generated sufficient cash to fully fund operations. We historically have
financed this cash shortfall through borrowings, assets sales and through cash provided under our international licensing relationships. We 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.

If we are not able to successfully execute on our Fiscal 2012 operating plan, and if we are unable to obtain financing or consummate a strategic transaction, our financial condition and results of
operation will be materially adversely affected.

Our ability to execute on our Fiscal 2012 operating plan and to
manage our costs in light of persisting adverse economic conditions continues to be critical to the success and the performance of our business. During Fiscal 2010 and into Fiscal 2011, these economic conditions continued to negatively affect our
business. We continually monitor our results against our operating plan, while also working to reduce costs in every area possible, including additional cuts to our administrative staff as recently as April 26, 2011. Despite the continued
refinements and cost cutting measures implemented, we no longer have sufficient margin in our plan to absorb further declines against our expectations.

Because we do not believe that we are able to achieve additional material cost reductions, if our sales volumes decline during Fiscal 2012 we may be unable to generate enough cash flow from operations to
cover our working capital and capital expenditure requirements into Fiscal 2013.

GMCR acquired all of our intellectual property,
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 our license agreement with GMCR. 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.

If our brand image is
tarnished and our product quality diminished, our business may suffer.

The Tullys brand may be harmed by
factors that are outside of our control.

Our success depends on GMCRs ability to maintain brand image for our existing
products and effectively build up brand image for new products and brand extensions. There can be no assurance, however, that GMCR will maintain existing advertising and marketing campaigns or that such efforts will have a positive effect on the
Tullys brand. GMCRs failure to maintain product quality, or allegations of product contamination, even when false or unfounded, could tarnish the image of the Tullys brand and may cause consumers to choose other products.

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.



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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 the Tullys brand 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.

Finally, 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.

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 through March 27, 2014. If GMCR is unable to supply all of our requirements for coffee and related products, the pricing under our supply
agreement with GMCR is not competitive with market prices or 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.

Our supply agreement with GMCR may not allow us to obtain market rate coffee pricing in future periods and may hinder our
ability to obtain market level prices for any potential asset sales.

Because of our 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. An increase in the market price of coffee beans could significantly reduce
our operating income and we may be unable to adjust our retail prices to offset the increased coffee price. In addition, the Supply Agreement may decrease the value of our assets in a potential sale because it limits our ability to purchase coffee
beans from other roasters.

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 we do. 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. The loss of any of our key management employees could have a significant impact on our ability to effectively manage our
operations and implement our business strategy.



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Our current level of administrative staffing may be insufficient to support our ongoing operations.

Between March 28, 2010 and April 4, 2011, we have decreased our corporate administrative staff by 33%, as
well as implementing other cost saving initiatives. This level of staffing may require us to outsource certain tasks to third-party providers or reduce our ability to implement our business strategy. Our current level of administrative staff may not
be sufficient to support sustained growth or our operations.

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.

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.

Our current financial position and liquidity issues make it difficult to attract new and qualified franchisee
candidates.

We may not be able to attract new and qualified franchisees because of our current
financial position and liquidity issues, which could inhibit our ability to grow. Our business is heavily dependent on our ability to maintain and develop our brand, which depends, in part, on our ability to retain or expand our geographic
footprint. 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 geographical regions.

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

As a retailer that is dependent upon consumer discretionary spending, we will
continue to face achallenging operating environment in Fiscal 2012 if customers have less money for discretionary purchases as a result of continuing job losses, foreclosures, bankruptcies, reduced access to credit and a stagnant housing market. The
sustained economic downturn could potentially have a material adverse effect on our 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. 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.

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 are dependent on GMCR for coffee roasting, packaging and distribution. For certain of our other products, we either have limited or no replacements readily available. Additionally, a significant
interruption in supply from GMCR or our other key vendors would significantly impair our ability to operate our business on a day-to-day basis and would adversely affect our operating results.



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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 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. Because our retail stores are concentrated in the Seattle and San Francisco markets, an economic downturn in those regions could have a material adverse effect on our
business and operations.

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 claims 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.

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 NOLs.

Because the regulations governing NOLs 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 NOLs 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.

We have been unable to secure a partner to buy out one-half of our joint venture partners interest in TCAPPLP, and currently have
$4.0 million overdue as a TCAPLLP obligation. This obligation could have an adverse impact on our international operations.

In 2008 TCAP, our wholly-owned subsidiary, and Asia Food Culture Management Pte. Ltd. (AFCM), a Singapore company and the limited partner in TCAPPLP, established a joint venture to develop the
Tullys brand in Asia (excluding Japan), Australia and New Zealand through franchising and licensing activities, retail store operations, coffee roasting, wholesale distribution and other business activities. In 2009 TCAP agreed to purchase, or
cause a third party to purchase, one-half of AFCMs partnership interest in TCAPPLP. As of April 3, 2011, TCAP had not met its obligation. TCAP and AFCM continue to work on a settlement and to seek a buyer for AFCMs partnership
interest. If TCAP is unsuccessful in either finding a buyer for AFCMs interest or in its settlement negotiations, we could face adverse economic consequences surrounding our wholly owned subsidiary TCAP.



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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 Tullys since Fiscal 2009. 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.

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 defending 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.

Moreover, our costs could be negatively affected by an unpredictable
workers compensation environment. For example, many of our employees are located in California, which has experienced higher workers compensation costs and rates than other states. Increases in insurance premiums could impair our
profitability.

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.



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We rely heavily on information technology in our operations, and any material failure, inadequacy,
interruption or security failure of that technology could harm our ability to effectively operate our business.

We
rely heavily on information technology systems across our operations, including for management of our supply chain, point-of-sale processing in our stores, gift cards, online business and various other processes and transactions. Our ability to
effectively manage our business and coordinate the production, distribution and sale of our products depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with
transitioning to upgraded or replacement systems, or a breach in security of these systems could cause delays in product sales and reduced efficiency of our operations, and significant capital investments could be required to remediate the problem.

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 April 3, 2011, we had approximately 5,000 owners of record of our common stock. Notwithstanding this large number of shareholders, as of April 3, 2011, Mr. Tom T. OKeefe,
our founder and chairman, beneficially owned approximately 14.7% of our common stock, and the estate of Mr. Keith McCaw beneficially owned approximately 4.9% of our common stock as well as 15.6% of the outstanding Series A Preferred stock. The
shareholdings 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 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.

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 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
April 3, 2011, Tullys operated 74 retail stores in the United States, all of which are located on property leased by, or otherwise provided to, us. Our retail stores vary in size, with an average of 1,700 feet per location. These retail
space leases provide for minimum annual payments, and (in certain cases) contingent rentals based upon gross sales, escalation clauses and/or options to renew. We lease approximately 17,800 feet of office, storage, and training space in Seattle,
Washington, to house our headquarters pursuant to a ten-year lease expiring May 2020 and subject to two five-year options to renew and early termination provisions at five years.



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

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. The plaintiff sought class action certification
on behalf of all hourly employees in Tullys California stores. Similar lawsuits alleging missed meal and rest periods have been filed in California against many other companies. We believe that Tullys complied with all laws
that require providing meal and rest periods for its employees, but agreed to settle this lawsuit through binding arbitration. This matter was settled in September 2010 in the amount of $375,000, all of which was disbursed to the class.



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On May 17, 2011, a lawsuit was filed against the Company in California state court by
JH Development, LLC, a franchise area developer, alleging that (i) at the time the Company entered into agreements with the plaintiff, the Company concealed its financial strength and the fact that it was contemplating a sale of its wholesale
division and rights to the Tullys trademark; (ii) the Company breached the franchise agreements with the plaintiff; (iii) the Company made false promises to the plaintiff; and (iv) the Company violated certain
provisions of the California Corporations Code governing the sale of franchises. The plaintiff is seeking damages, rescission, and attorneys fees and costs. We are investigating the claims, have retained California counsel, have
removed the case to federal court in the Central District of California, and intend to vigorously defend this litigation, but cannot predict the outcome or financial impact to the Company at this time. 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.

From time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether
meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources or management time.

Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently
available, is likely to have a material adverse effect on our business or financial position.



|ITEM 4. | REMOVED AND RESERVED
|------- | --------------------



14



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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 April 3, 2011 there were approximately 5,000 holders of record of Tullys common stock.

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 April 3, 2011)



|                                                            |  |                                                                                          |         |  |                                                                            |   |      |                                                                                                                                         |  |  |         | 
|----------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | ------- |  | -------------------------------------------------------------------------- | - | ---- | --------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------- | 
|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 Stock Option Plan                                      |  |                                                                                          | 11,368  |  |                                                                            | $ | 3.69 |                                                                                                                                         |  |  |        | 
|2004 Stock Option Plan                                      |  |                                                                                          | 220,119 |  |                                                                            | $ | 5.19 |                                                                                                                                         |  |  | 92,381  | 
|2010 Stock Option Plan                                      |  |                                                                                          |        |  |                                                                            | $ |     |                                                                                                                                         |  |  | 312,500 | 
|Equity compensation plans not approved by security holders* |  |                                                                                          | 85,001  |  |                                                                            | $ | 0.08 |                                                                                                                                         |  |  |        | 
|                                                            |  |                                                                                          |         |  |                                                                            |   |      |                                                                                                                                         |  |  |         | 
|Total                                                       |  |                                                                                          | 316,488 |  |                                                                            | $ | 5.84 |                                                                                                                                         |  |  | 404,881 | 
|                                                            |  |                                                                                          |         |  |                                                                            |   |      |                                                                                                                                         |  |  |         | 



|* | These options were granted by our founder and former 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 did not terminate outstanding options). As of April 3, 2011, options for 11,368 shares were outstanding under the 1994 Option Plan and options for 121,890
shares had been exercised under the 1994 Option Plan, and no shares had been issued under the Employee Stock Purchase Plan.

In December 2004, Tullys shareholders approved the 2004 Stock Option Plan. 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. As of April 3, 2011, options to purchase 220,119 common shares were outstanding under the 2004 Stock Option Plan, options for
136,717 shares had been exercised under the 2004 Stock Option Plan and no shares had been issued under the Employee Stock Option Plan.

In March 2010, Tullys shareholders approved the 2010 Stock Option Plan. The 2010 Stock Option Plan authorizes the issuance of up to 312,500 shares of common stock under the 2010 Stock Option Plan
and Tullys Employee Stock Purchase Plan. As of April 3, 2011, no options had been granted under the 2010 Stock Option Plan and no shares had been issued under the Employee 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



15



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##### Table of Contents

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

None.

Recent Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.



16



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##### 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 - 2011, and the selected Consolidated Balance Sheet Data as of March 28, 2010 and April 3, 2011, 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 2007 - 2008 and the selected
Consolidated Balance Sheet Data as of April 1, 2007, March 30, 2008 and March 29, 2009, 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                            |        
|                                                                                                  |  | Fiscal2007                                    |         |   | Fiscal2008 |   |         | Fiscal2009 |  |   | Fiscal2010 |    |  | Fiscal2011 (1) |       
|                                                                                                  |  | (dollars in thousands, except per share data) |        
|Results of Operations Data                                                                        |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Net Sales from continuing operations:                                                             |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Retail (1)                                                                                        |  | $                                             | 39,334  |   |            | $ | 42,897  |            |  | $ | 38,615     |    |  | $              | 35,426 |    |  | $ | 36,297 |  
|Specialty                                                                                         |  |                                               | 1,647   |   |            |   | (1,952  | )          |  |   | 430        |    |  |                | 4,144  |    |  |   | 1,971  |  
|                                                                                                  |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Total                                                                                             |  |                                               | 40,981  |   |            |   | 40,945  |            |  |   | 39,045     |    |  |                | 39,570 |    |  |   | 38,268 |  
|Operating loss from continuing operations                                                         |  |                                               | (10,241 | ) |            |   | (13,955 | )          |  |   | (8,106     | )  |  |                | (6,028 | )  |  |   | (5,242 | )
|Income (loss) from continuing operations attributable to TC Global, Inc.                          |  |                                               | (10,527 | ) |            |   | (16,311 | )          |  |   | 314        |    |  | ($             | 5,191  | )  |  |   | (5,214 | )
|Discontinued operations:                                                                          |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Net Sales from discontinued operations                                                            |  |                                               | 20,901  |   |            |   | 28,132  |            |  |   | 39,547     |    |  |                |       |    |  |   |       |  
|Income from discontinued operations                                                               |  |                                               | 773     |   |            |   | 2,402   |            |  |   | 22,541     |    |  |                |       |    |  |   |       |  
|Net income (loss) attributed to TC Global, Inc.                                                   |  | $                                             | (9,754  | ) |            | $ | (13,909 | )          |  | $ | 22,855     |    |  | $              | (5,191 | )  |  | $ | (5,214 | )
|Net Income (loss) per share from continuing operations:                                           |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Basic                                                                                             |  | $                                             | (4.61   | ) |            | $ | (5.59   | )          |  | $ | 0.10       |    |  | $              | (1.47  | )  |  | $ | (1.46  | )
|Diluted                                                                                           |  | $                                             | (4.61   | ) |            | $ | (5.59   | )          |  | $ | 0.05       |    |  | $              | (1.47  | )  |  | $ | (1.46  | )
|                                                                                                  |  |                                               |         |   |           
|Shares used in calculation of net income (loss) per share (thousands) from continuing operations: |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Basic                                                                                             |  |                                               | 2,283   |   |            |   | 2,917   |            |  |   | 3,265      |    |  |                | 3,537  |    |  |   | 3,564  |  
|Diluted                                                                                           |  |                                               | 2,283   |   |            |   | 2,917   |            |  |   | 6,478      |    |  |                | 3,537  |    |  |   | 3,564  |  
|                                                                                                  |  |                                               |         |   |           
|Consolidated Balance Sheet Data                                                                   |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Total assets from continuing operations                                                           |  | $                                             | 13,173  |   |            | $ | 13,708  |            |  | $ | 29,254     |    |  | $              | 13,721 |    |  | $ | 8,473  |  
|Total assets held for sale                                                                        |  | $                                             | 4,177   |   |            | $ | 5,210   |            |  |   |           |    |  |                |       |    |  |   |       |  
|Total assets                                                                                      |  | $                                             | 17,350  |   |            | $ | 18,918  |            |  | $ | 29,254     |    |  | $              | 13,721 |    |  | $ | 8,473  |  
|Long-term obligations (including current portion) from continuing operations (2)                  |  | $                                             | 5,206   |   |            | $ | 15,661  |            |  | $ | 4,418      |    |  | $              | 4,157  |    |  | $ | 4,054  |  
|Long-term obligations (including current portion) from liabilities held for sale                  |  | $                                             | 91      |   |            | $ | 66      |            |  |   |           |    |  |                |       |    |  |   |       |  
|Total Long-term obligations (including current portion) (2)                                       |  | $                                             | 5,297   |   |            | $ | 15,727  |            |  | $ | 4,418      |    |  | $              | 4,157  |    |  | $ | 4,054  |  
|Stockholders equity (deficit)                                                                    |  | $                                             | (4,109  | ) |            | $ | (19,424 | )          |  | $ | 8,552      |    |  | $              | (2,588 | )  |  | $ | (7,928 | )
|                                                                                                  |  |                                               |         |   |           
|Other Data (unaudited)                                                                            |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Comparable Store Sales Increase (Decrease) (1)                                                    |  |                                               | 3.9     | % |            |   | 5.0     | %          |  |   | (6.8       | )% |  |                | (2.8   | )% |  |   | 4.8    | %
|Retail Store Count at Period End:                                                                 |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Company-operated by Tullys                                                                       |  |                                               | 90      |   |            |   | 93      |            |  |   | 80         |    |  |                | 78     |    |  |   | 74     |  
|Franchisee-operated (U.S.)                                                                        |  |                                               | 38      |   |            |   | 58      |            |  |   | 87         |    |  |                | 107    |    |  |   | 110    |  
|                                                                                                  |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|Total retail store count                                                                          |  |                                               | 128     |   |            |   | 151     |            |  |   | 167        |    |  |                | 185    |    |  |   | 184    |  
|                                                                                                  |  |                                               |         |   |            |   |         |            |  |   |            |    |  |                |        |    |  |   |        |  
|International licensee stores (3)                                                                 |  |                                               |        |   |            |   |        |            |  |   | 2          |    |  |                | 4      |    |  |   | 9      |  





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Notes for Selected Financial Data



|(1) | Each fiscal year included 52 weeks, except for Fiscal 2011, which had 53 weeks. We estimate that the 53rdweek accounted for $675,000 in net sales in Fiscal 2011, amounting
to 43.8% of the increase, so that comparable sales in Fiscal 2011 without the impact of the 53rd week was 2.7%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                                                                                                    |  |                        |       |  |            |   |        |            |  |   |            |  |  |            |       |  |  |   |       | 
|--------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- |  | ---------- | - | ------ | ---------- |  | - | ---------- |  |  | ---------- | ----- |  |  | - | ----- | 
|                                                                                                    |  | Fiscal Years           |      
|                                                                                                    |  | Fiscal2007             |       |  | Fiscal2008 |   |        | Fiscal2009 |  |   | Fiscal2010 |  |  | Fiscal2011 |      
|                                                                                                    |  | (dollars in thousands) |      
|Credit facility, current portion of long-term debt and UCC obligation and capital lease obligations |  | $                      | 4,270 |  |            | $ | 12,935 |            |  | $ | 267        |  |  | $          | 157   |  |  | $ | 54    | 
|TCAPs obligation to Limited Partner                                                                |  |                        |      |  |            |   |       |            |  |   | 4,000      |  |  |            | 4,000 |  |  |   | 4,000 | 
|Long-term debt, net of current portion                                                              |  |                        | 19    |  |            |   | 10     |            |  |   |           |  |  |            |      |  |  |   |      | 
|Capital lease obligations, net of current portion                                                   |  |                        | 53    |  |            |   | 30     |            |  |   |           |  |  |            |      |  |  |   |      | 
|Long-term UCC note payable, net of current portion                                                  |  |                        |      |  |            |   | 2,310  |            |  |   |           |  |  |            |      |  |  |   |      | 
|Other liabilities                                                                                   |  |                        | 955   |  |            |   | 442    |            |  |   | 151        |  |  |            |      |  |  |   |      | 
|                                                                                                    |  |                        |       |  |            |   |        |            |  |   |            |  |  |            |       |  |  |   |       | 
|Long-term obligations (including current portion)                                                   |  | $                      | 5,297 |  |            | $ | 15,727 |            |  | $ | 4,418      |  |  | $          | 4,157 |  |  | $ | 4,054 | 
|                                                                                                    |  |                        |       |  |            |   |        |            |  |   |            |  |  |            |       |  |  |   |       | 



|(3) | As the result of the sale of all of our trademarks, store designs, processes and other intellectual property assets and rights for Tullys business in Japan
(the Japan rights) to Tullys Coffee Japan Co., Ltd. (TCJ) 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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

The following discussion and analysis of our financial condition and results of operations for Fiscal 2009, Fiscal 2010, and Fiscal
2011, should be read 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

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 over $17 million in licensing fees paid to us by foreign licensees. 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. From Fiscal 2006 through Fiscal 2007, we undertook a strategic business review and began implementing
initiatives to improve our financial position and create a foundation for future growth. In Fiscal 2008 and Fiscal 2009, based on sustained losses and a continuing general economic downturn, we sold a large portion of our assets, in the sale of our
wholesale division to GMCR, thereby reducing our core business to retail, franchised and licensed store locations. In Fiscal 2010 and Fiscal 2011, we have taken measures to right size our business through various initiatives and
cost-cutting measures, including the closure of underperforming company-owned locations which may continue in future periods as we evaluate our ongoing operations.

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, borrowings, asset sales, and cash provided under our international licensing relationships.

On March 27, 2009, we completed the sale of the assets associated with our wholesale business and supply chain (including Tullys business names and trademarks) to Green Mountain Coffee
Roasters, Inc. (GMCR), a Delaware corporation, pursuant to the 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 (the Green Mountain Transaction).

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. We also 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 business outside of North America, utilizing an
exclusive coffee supply arrangement. Our 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.

The Company has classified the results of operations for the wholesale business in
discontinued operations. 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 Green Mountain Transaction, we changed our corporate name to TC
Global, Inc.



19



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Trends in Our Business

Retail Division.

As of April 3, 2011, Tullys had 74
company-operated retail stores and 110 franchised stores in Washington, California, Arizona, Colorado, Idaho, Oregon, Montana, and Wyoming. 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.

We have recently undertaken a strategic review of our retail business. As a result, we are
implementing initiatives to improve our retail operations, retail distribution, 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. Since Fiscal 2009 we have closed fourteen
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 April 3, 2011 there were 110 U.S. franchisee-operated stores,
primarily in special venues such as grocery stores, airports, hotels and university campuses.

Additionally, our specialty
division oversees Tullys Coffee Asia, which seeks to develop the Tullys brand in Asia (excluding Japan) and Australia, foreign licensing, wholesale distribution and other business activities. As of April 3, 2011 we had franchised
four stores in Singapore and five stores in South Korea through our master licensees Kitchen Language PTE LTD (Kitchen Language) and DK Retail Co., Ltd., (DK Retail), respectively. Kitchen Language is obligated to develop 15
locations in Singapore, while DK Retail is obligated for 100 locations in South Korea.

Revenue Trends

Our quarterly sales from our retail and specialty operations are summarized as follows:



|            |  |                                  |        |  |               |   |        |              |  |   |                   |  |  |   |        | 
|----------- |  | -------------------------------- | ------ |  | ------------- | - | ------ | ------------ |  | - | ----------------- |  |  | - | ------ | 
|            |  | Fiscal Years                     |       
|            |  | FirstQuarter                     |        |  | SecondQuarter |   |        | ThirdQuarter |  |   | FourthQuarter (1) | 
|            |  | (unauditeddollars in thousands) |       
|Fiscal 2009 |  | $                                | 10,830 |  |               | $ | 10,107 |              |  | $ | 9,049             |  |  | $ | 9,059  | 
|Fiscal 2010 |  | $                                | 9,980  |  |               | $ | 9,782  |              |  | $ | 10,098            |  |  | $ | 9,710  | 
|Fiscal 2011 |  | $                                | 9,496  |  |               | $ | 9,200  |              |  | $ | 9,562             |  |  | $ | 10,010 | 



|(1) | Each fiscal quarter included 13 weeks, except for the Fourth Quarter of Fiscal 2011, which had 14 weeks. We estimate that the 14thweek accounted for $675 in net sales in the Fourth Quarter of Fiscal
2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our revenue levels are expected to increase during the third quarter due to holiday season sales on
recent trends in comparable stores sales.

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 our products. During Fiscal 2010 and Fiscal 2011, we experienced increasing
pricing associated with costs for dairy, raw coffee beans, paper and baked goods, as well as minimal increases in 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).

We continue to 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.



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##### Table of Contents

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 TCAPPLP 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 remain neutral as we initiate a limited number of retail programs in Fiscal 2012, comparable to the limited programs we implemented in Fiscal 2011.

Our general and administrative costs are less discretionary than our marketing costs. We have continued to scale back expenses related to
our administrative staff. During Fiscal 2010, at the beginning of Fiscal 2011 and into Fiscal 2012, we reduced our administrative staff. Over the past year, we have decreased our corporate administrative staff by 33%, as well as implementing other
cost savings initiatives.

Retail Performance Measures

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



|                                             |  |              |     |   |            |  |     |            |  |  |     |  
|-------------------------------------------- |  | ------------ | --- | - | ---------- |  | --- | ---------- |  |  | --- | -
|                                             |  | Fiscal Years |    
|                                             |  | Fiscal2009   |     |   | Fiscal2010 |  |     | Fiscal2011 | 
|NUMBER OF STORES:                            |  |              |     |   |            |  |     |            |  |  |     |  
|Company-operated stores                      |  |              |     |   |            |  |     |            |  |  |     |  
|Stores at beginning of the period            |  |              | 93  |   |            |  | 80  |            |  |  | 78  |  
|New stores                                   |  |              |    |   |            |  | 1   |            |  |  | 6   |  
|Closed stores                                |  |              | (13 | ) |            |  | (3  | )          |  |  | (10 | )
|                                             |  |              |     |   |            |  |     |            |  |  |     |  
|End of the period                            |  |              | 80  |   |            |  | 78  |            |  |  | 74  |  
|                                             |  |              |     |   |            |  |     |            |  |  |     |  
|Franchisee-operated stores                   |  |              |     |   |            |  |     |            |  |  |     |  
|Stores at beginning of the period            |  |              | 58  |   |            |  | 87  |            |  |  | 107 |  
|New stores                                   |  |              | 33  |   |            |  | 23  |            |  |  | 11  |  
|Closed stores                                |  |              | (4  | ) |            |  | (3  | )          |  |  | (8  | )
|                                             |  |              |     |   |            |  |     |            |  |  |     |  
|End of the period                            |  |              | 87  |   |            |  | 107 |            |  |  | 110 |  
|                                             |  |              |     |   |            |  |     |            |  |  |     |  
|Total company-operated and franchised stores |  |              |     |   |            |  |     |            |  |  |     |  
|Stores at beginning of the period            |  |              | 151 |   |            |  | 167 |            |  |  | 185 |  
|New stores                                   |  |              | 33  |   |            |  | 24  |            |  |  | 17  |  
|Closed stores                                |  |              | (17 | ) |            |  | (6  | )          |  |  | (18 | )
|                                             |  |              |     |   |            |  |     |            |  |  |     |  
|End of the period                            |  |              | 167 |   |            |  | 185 |            |  |  | 184 |  
|                                             |  |              |     |   |            |  |     |            |  |  |     |  

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



|                                               |  |              |   |  |            |  |   |            |  |  |   | 
|---------------------------------------------- |  | ------------ | - |  | ---------- |  | - | ---------- |  |  | - | 
|                                               |  | Fiscal Years |  
|                                               |  | Fiscal2009   |   |  | Fiscal2010 |  |   | Fiscal2011 | 
|International franchise and licensee locations |  |              | 2 |  |            |  | 4 |            |  |  | 9 | 
|                                               |  |              |   |  |            |  |   |            |  |  |   | 

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



|               |  |              |      |    |               |  |      |              |  |  |                  |    |  |  |      |   
|-------------- |  | ------------ | ---- | -- | ------------- |  | ---- | ------------ |  |  | ---------------- | -- |  |  | ---- | --
|               |  | Fiscal Years |     
|               |  | FirstQuarter |      |    | SecondQuarter |  |      | ThirdQuarter |  |  | FourthQuarter(1) |   
|Fiscal 2009    |  |              | (0.4 | )% |               |  | (5.5 | )%           |  |  | (14.1            | )% |  |  | (7.9 | )%
|Fiscal 2010    |  |              | (8.4 | )% |               |  | (6.1 | )%           |  |  | 4.2              | %  |  |  | (0.2 | )%
|Fiscal 2011(1) |  |              | (0.8 | )% |               |  | 1.1  | %            |  |  | 3.5              | %  |  |  | 14.0 | % 



|(1) | Each fiscal quarter included 13 weeks, except for the Fourth Quarter of Fiscal 2011, which had 14 weeks. We estimate that the 14thweek accounted for $675 in net sales in the Fourth Quarter of Fiscal
2011, amounting to 60% of the increase, so that comparable sales in the Fourth Quarter Fiscal 2011 without the impact of the 14thweek was 5.6%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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 FASB ASC 360,
Accounting for the Impairment or Disposal of Long-Lived Assets(FASB ASC 360).



|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|------------------------------------------------- |  | ---------------------- | ------ |  | ---------- | - | ------ | ------------- |  | - | ------ | 
|                                                  |  | Fiscal Years           |       
|                                                  |  | Fiscal2009             |        |  | Fiscal2010 |   |        | Fiscal2011(1) | 
|                                                  |  | (dollars in thousands) |       
|Continuing Operations:                            |  |                        |        |  |            |   |        |               |  |   |        | 
|Net Sales                                         |  |                        |        |  |            |   |        |               |  |   |        | 
|Retail store sales (1)                            |  | $                      | 38,615 |  |            | $ | 35,426 |               |  | $ | 36,297 | 
|Specialty sales of products                       |  |                        | 47     |  |            |   | 3,620  |               |  |   | 1,342  | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|Total sales of products                           |  |                        | 38,662 |  |            |   | 39,046 |               |  |   | 37,639 | 
|Licenses, royalties, and fees                     |  |                        | 383    |  |            |   | 484    |               |  |   | 556    | 
|SpecialtyRecognition of deferred revenue         |  |                        |       |  |            |   | 40     |               |  |   | 73     | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|Total net sales                                   |  | $                      | 39,045 |  |            | $ | 39,570 |               |  | $ | 38,268 | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|                                                  |  |                        |       
|Cost of Goods Sold and Related Occupancy Expenses |  |                        |        |  |            |   |        |               |  |   |        | 
|Retail cost of goods sold                         |  | $                      | 13,969 |  |            | $ | 12,704 |               |  | $ | 13,377 | 
|Retail occupancy expenses                         |  |                        | 4,527  |  |            |   | 4,396  |               |  |   | 3,904  | 
|Specialty                                         |  |                        | 37     |  |            |   | 2,449  |               |  |   | 569    | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|Total                                             |  | $                      | 18,533 |  |            | $ | 19,549 |               |  | $ | 17,850 | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|                                                  |  |                        |       
|Operating Expenses                                |  |                        |        |  |            |   |        |               |  |   |        | 
|Store operating expenses                          |  | $                      | 17,546 |  |            | $ | 15,638 |               |  | $ | 15,700 | 
|Other operating expenses:                         |  |                        |        |  |            |   |        |               |  |   |        | 
|SpecialtyU.S. franchising expenses               |  |                        | 700    |  |            |   | 1,565  |               |  |   | 1,217  | 
|Specialtyinternational division expenses         |  |                        | 406    |  |            |   | 772    |               |  |   | 790    | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|Total other operating expenses                    |  | $                      | 1,106  |  |            | $ | 2,337  |               |  | $ | 2,007  | 
|                                                  |  |                        |        |  |            |   |        |               |  |   |        | 
|Marketing, general and administrative expenses    |  | $                      | 7,742  |  |            | $ | 6,515  |               |  | $ | 6,834  | 
|Discontinued Operations                           |  |                        |        |  |            |   |        |               |  |   |        | 
|Net sales                                         |  | $                      | 39,547 |  |            | $ |       |               |  | $ |       | 
|Cost of Goods Sold                                |  |                        | 27,920 |  |            |   |       |               |  |   |       | 



|(1) | Each fiscal year included 52 weeks, except for Fiscal 2011, which had 53 weeks. We estimate that the 53rdweek accounted for $675,000 in net sales in Fiscal 2011.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                                          |  |              |       |   |            |  |       |            |  |  |       |  
|----------------------------------------- |  | ------------ | ----- | - | ---------- |  | ----- | ---------- |  |  | ----- | -
|                                          |  | Fiscal Years |      
|                                          |  | Fiscal2009   |       |   | Fiscal2010 |  |       | Fiscal2011 | 
|Total Net Sales Metrics                   |  |              |       |   |            |  |       |            |  |  |       |  
|Amounts as Percent of Total Net Sales     |  |              |       |   |            |  |       |            |  |  |       |  
|Retail store sales                        |  |              | 98.9  | % |            |  | 89.6  | %          |  |  | 94.9  | %
|Specialtyinternational product sales     |  |              | 0.1   | % |            |  | 9.1   | %          |  |  | 3.5   | %
|                                          |  |              |       |   |            |  |       |            |  |  |       |  
|Total sales of products                   |  |              | 99.0  | % |            |  | 98.7  | %          |  |  | 98.4  | %
|SpecialtyLicenses, royalties and fees    |  |              | 1.0   | % |            |  | 1.2   | %          |  |  | 1.4   | %
|SpecialtyRecognition of deferred revenue |  |              |      | % |            |  | 0.1   | %          |  |  | 0.2   | %
|                                          |  |              |       |   |            |  |       |            |  |  |       |  
|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  | % |            |  | 35.9  | %          |  |  | 36.9  | %
|Retail occupancy expenses                 |  |              | 11.7  | % |            |  | 12.4  | %          |  |  | 10.8  | %
|Store operating expenses                  |  |              | 45.4  | % |            |  | 44.1  | %          |  |  | 43.3  | %



22



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##### Table of Contents

Fiscal 2011 Compared To Fiscal 2010

Net Sales

Our overall net sales decreased by $1.3 million, or 3.3%. This decrease was primarily the result of a $2.2 decrease in specialty net
sales, as a result of the Companys outsourcing of its warehousing and distribution of product to DPI, and the resulting decline in product sales to our franchisees and licensees from the specialty division.

The divisional breakout in total net sales decrease)was comprised as follows:



|                                                                         |  |                                |        |  
|------------------------------------------------------------------------ |  | ------------------------------ | ------ | -
|Total Company Fiscal 2011 Compared To Fiscal 2010 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Retail (1)                                                               |  | $                              | 871    |  
|Specialty                                                                |  |                                | (2,173 | )
|                                                                         |  |                                |        |  
|Total company                                                            |  | $                              | (1,302 | )
|                                                                         |  |                                |        |  



|(1) | Fiscal 2010 included 52 weeks, but Fiscal 2011 included 53 weeks. We estimate that the 53rdweek accounted for $675,000 in net sales in Fiscal 2011.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

Sales of products from company-operated retail stores increased $871,000 to $36.3 million, principally due to an increase in comparable
retail stores sales of 4.8%, or $1.5 million, in addition to a $1.3 million increase from the opening of new stores, all partially offset by a decrease of $2.0 million for store closures of negatively operating locations during Fiscal 2011.

The factors comprising the retail sales increase are summarized as follows:



|                                                                                                                       |  |                                |        |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -
|Retail division Components of net sales increase (decrease) Fiscal 2011 Compared To Fiscal
2010 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Comparable stores sales increase (1)                                                                                   |  | $                              | 1,547  |  
|Sales increase from new stores                                                                                         |  |                                | 1,317  |  
|Sales decrease from stores closed during Fiscal 2011                                                                   |  |                                | (1,993 | )
|                                                                                                                       |  |                                |        |  
|Total retail division                                                                                                  |  | $                              | 871    |  
|                                                                                                                       |  |                                |        |  



|(1) | Fiscal 2010 included 52 weeks, but Fiscal 2011 included 53 weeks. We estimate that the 53rdweek accounted for $675,000 in net sales in Fiscal 2011.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

Cost of Goods Sold and Operating Expenses

Cost of goods sold and related occupancy costs increased $181,000, or 1%, to $17.3 million for Fiscal 2011 as compared to Fiscal 2010. Retail cost of goods sold as a percent of retail store sales remained
steady at 36.2% in Fiscal 2011 as compared to 35.9% in Fiscal 2010 reflecting continued initiatives to decrease product costs and optimize product mix. Retail occupancy expenses as a percent of retail store sales decreased to 10.8% in Fiscal 2011
from 12.4% in Fiscal 2010, reflecting our closures of retail locations where occupancy costs as a percent of retail sales were too high.

Store operating expenses decreased to 43.3% as a percent of retail store sales in Fiscal 2011 and as compared to 44.1% in Fiscal 2010 as a result of continued initiatives to focus on costs associated with
programs to improve retail store service levels, including store staffing and improved training programs.

Other operating
expenses (expenses associated with all operations other than company-operated retail stores) decreased $330,000, or 14.1%, to $2.0 million during Fiscal 2011 from $2.3 million in Fiscal 2010. The decrease reflects our continued focus on minimizing
expenses while at the same time increasing U.S. and International franchise and license businesses.

Marketing, general and
administrative costs increased slightly by $319,000 or 4.9%, to $6.8 million during Fiscal 2011 from $6.5 million in Fiscal 2010. This increase was primarily due to an increase in legal costs during the year, and the payouts we made to settle two
cases against the Company. (See Note 17 of the Notes to the Consolidated Financial Statements for further details).

Depreciation and amortization expense decreased $276,000, or 23.2%, to $915,000 for Fiscal 2011 from $1.2 million for Fiscal 2010,
reflecting a lower level of depreciable assets as we reduce corporate office space and lower our depreciable store base, as well as the age of our existing asset base.

Other Income (Expense)

Miscellaneous expense decreased $13,000 or 11.3% to
$102,000 for Fiscal 2011 as compared to $115,000 for Fiscal 2010, primarily due to foreign exchange losses.



23



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##### Table of Contents

Noncontrolling Interest

A loss of $151,000 was attributable to Asia Food Culture Management Pte. Ltd. (AFCM), a Singapore company and the limited
partner in TCAPPLP, compared to a loss of $188,000 in Fiscal 2010, as the overall net loss attributable to TCAPPLP decreased in Fiscal 2011.

Income Taxes

In Fiscal 2011 we experienced a $66,000 income tax benefit
reflecting the California Empowerment Zone credits that were claimed in the March 28, 2010 California State Income Tax Return. In Fiscal 2010 we experienced a $764,000 income tax benefit reflecting the five year Alternative Minimum Tax, or AMT,
carryback changes enacted as part of the stimulus package for our fiscal years beginning Fiscal 2005.

At April 3, 2011,
we had federal and state net operating loss carryforwards of approximately $34.2 million and $12.5 million, respectively. The federal net operating loss carryforwards expire between 2027 and 2031 and the state net operating losses expire between
2012 and 2032. 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.

Net Income (Loss)

As a result of the factors described above, we had a net loss of $5.4 million for Fiscal 2011 as compared to net loss of $5.4 million for
Fiscal 2010.



24



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##### Table of Contents

Fiscal 2010 Compared To Fiscal 2009

Net Sales

Sales of products from company-operated retail stores decreased $3.2 million, to $35.4 million, principally due to the effects of closing
or selling company-owned retail locations and a decrease in comparable retail stores sales of 2.8%, or $1.0 million.

The
divisional breakout in total net sales increase was comprised as follows:



|                                                                         |  |                                |        |  
|------------------------------------------------------------------------ |  | ------------------------------ | ------ | -
|Total Company Fiscal 2010 Compared To Fiscal 2009 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Retail                                                                   |  | $                              | (3,189 | )
|Specialty                                                                |  |                                | 3,714  |  
|                                                                         |  |                                |        |  
|Total Company                                                            |  | $                              | 525    |  
|                                                                         |  |                                |        |  

The retail sales decrease represented an 8.3% decrease compared to Fiscal 2009. For Fiscal 2010
comparable retail store sales declined 2.8% as a result of the economic downturn that negatively impacted our business. The factors comprising the retail sales decrease are summarized as follows:



|                                                                                                                       |  |                                |        |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | -
|Retail division Components of net sales increase (decrease) Fiscal 2010 Compared To Fiscal
2009 (dollars in thousands) |  | Increase(Decrease) inNet Sales |       
|Comparable stores sales decrease                                                                                       |  | $                              | (1,014 | )
|Sales increase from new stores                                                                                         |  |                                | 226    |  
|Sales decrease from stores closed during Fiscal 2010 and Fiscal 2009                                                   |  |                                | (2,401 | )
|                                                                                                                       |  |                                |        |  
|Total retail division                                                                                                  |  | $                              | (3,189 | )
|                                                                                                                       |  |                                |        |  

Net sales for the specialty division increased by $3.7 million for Fiscal 2010 as compared to Fiscal
2009. The increase reflects the Companys significant ramp in business on product sales throughout the franchise units and international expansion. Further, in prior periods the Company allocated product sales to licensed and franchise stores
in the wholesale business. The Company did not reclassify these revenues out of discontinued operations as immaterial in previous periods.

Cost of Goods Sold and Operating Expenses

Cost of goods sold and related
occupancy costs decreased $1.4 million, or 7.5%, to $17.1 million for Fiscal 2010 as compared to Fiscal 2009. Retail cost of goods sold as a percent of retail store sales remained steady at 35.9% in Fiscal 2010 as compared to 36.2% in Fiscal 2009
reflecting continued initiatives on product costs, product mix, and discounts reflected in sales for the stored value card loyalty programs. Retail occupancy expenses as a percent of retail store sales increased from 11.7% in Fiscal 2009 to 12.4% in
Fiscal 2010, reflecting increased occupancy levels as a percent of sales with the decreased revenue levels as described above.

Store operating expenses decreased to 44.1% as a percent of retail store sales in Fiscal 2010 and as compared to 45.4% in Fiscal 2009 as
a result of continued initiatives to focus on 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) increased $1.1 million to $2.3 million during Fiscal 2010 from $1.1 million in Fiscal 2009. The
increase reflects our continued focus to increase U.S. and International franchise and license businesses.

Marketing, general
and administrative costs decreased significantly by $1.2 million, or 15.8%, to $6.5 million during Fiscal 2010 from $7.7 million in Fiscal 2009. This decrease was primarily due to a $566,000 reduction in labor related expenses coupled with the
$236,000 reduction in legal fees and $243,000 in occupancy expenses.

Depreciation and amortization expense decreased
$514,000, or 30.1%, to $1.2 million for Fiscal 2010 from $1.7 million for Fiscal 2009, reflecting a lower level of depreciable assets as we reduce corporate office space and lower our depreciable store base.



25



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##### Table of Contents

Other Income (Expense)

Interest expense decreased $3.2 million or 99.7% to $10,000 for Fiscal 2010 as compared to $3.3 million for Fiscal 2009, primarily due to
the repayment of outstanding indebtedness under the Benaroya Credit Facility and Northrim Credit Facility in the prior year.

Noncontrolling Interest

A gain of $188,000 was attributable to AFCM, the limited partner in Tullys Coffee Asia, for Fiscal 2010, compared to $214,000 as the net loss attributable to Tullys Coffee Asia decreased
slightly.

Income Taxes

In Fiscal 2010 we experienced a $764,000 income tax benefit reflecting the five year Alternative Minimum Tax, or AMT, carryback changes enacted as part of the stimulus package for our fiscal years
beginning Fiscal 2005. In Fiscal 2009 we experienced an income tax benefit of $11.5 million reflecting the estimated income tax and AMT consequences from the Green Mountain Transaction in Fiscal 2009.

At March 28, 2010, we had federal and state net operating loss carryforwards of approximately $30.5 million and $11.9 million,
respectively. The federal net operating loss carryforwards expire between 2027 and 2030 and the state net operating losses expire between 2011 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 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.

Net Income (Loss)

As a result of the factors described above, we had a net loss of $5.4 million for Fiscal 2010 as compared to net income of $22.6 million for Fiscal 2009.

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             |         |   | Fiscal2010 |   |        | Fiscal2011 | 
|                                                                            |  | (dollars in thousands) |        
|STATEMENTS OF CASH FLOWS DATA                                               |  |                        |         |   |            |   |        |            |  |   |        |  
|Cash provided by (used for):                                                |  |                        |         |   |            |   |        |            |  |   |        |  
|Net income (loss)                                                           |  | $                      | 22,641  |   |            | $ | (5,379 | )          |  | $ | (5,365 | )
|Gain on Green Mountain Transaction                                          |  |                        | (28,656 | ) |            |   | (169   | )          |  |   | (169   | )
|Adjustments for depreciation and other non-cash operating statement amounts |  |                        | 3,843   |   |            |   | 1,912  |            |  |   | 975    |  
|                                                                            |  |                        |         |   |            |   |        |            |  |   |        |  
|Net loss adjusted for non-cash operating statement amounts                  |  |                        | (2,172  | ) |            |   | (3,636 | )          |  |   | (4,559 | )
|Cash provided by (used) for other changes in assets and liabilities         |  |                        | (3,499  | ) |            |   | 1,772  |            |  |   | 1,885  |  
|                                                                            |  |                        |         |   |            |   |        |            |  |   |        |  
|Net cash provided by (used in) operating activities                         |  |                        | (5,671  | ) |            |   | (1,864 | )          |  |   | (2,674 | )
|Cash proceeds from Green Mountain Transaction                               |  |                        | 36,800  |   |            |   |       |            |  |   |       |  
|Escrow receivable established in connection with Green Mountain transaction |  |                        | (3,500  | ) |            |   |       |            |  |   | 3,500  |  
|Purchases of property and equipment                                         |  |                        | (976    | ) |            |   | (641   | )          |  |   | (1,283 | )
|Other investing activities                                                  |  |                        | 271     |   |            |   | (13    | )          |  |   | 134    |  
|Net borrowings (repayments) of Northrim Credit Facility and capital leases  |  |                        | (5,034  | ) |            |   | (470   | )          |  |   | (364   | )
|Proceeds from the Sale of Development rights                                |  |                        | 469     |   |            |   | 526    |            |  |   |       |  
|Repayment on UCC note payable                                               |  |                        | (4,120  | ) |            |   |       |            |  |   |       |  
|Proceeds from Benaroya Credit Facility                                      |  |                        | (7,482  | ) |            |   |       |            |  |   |       |  
|Foreign currency translation adjustment                                     |  |                        | (34     | ) |            |   | (7     | )          |  |   | (52    | )
|Shareholder distribution                                                    |  |                        |        |   |            |   | (5,994 | )          |  |   |       |  
|Cash in lieu of fractional stock on reverse split                           |  |                        |        |   |            |   |       |            |  |   |       |  
|Proceeds from warrant and stock option exercise                             |  |                        |        |   |            |   | 27     |            |  |   | (10    | )
|                                                                            |  |                        |         |   |            |   |        |            |  |   |        |  
|Net increase (decrease) in cash and cash equivalents                        |  | $                      | 10,723  |   |            | $ | (8,436 | )          |  | $ | (749   | )
|                                                                            |  |                        |         |   |            |   |        |            |  |   |        |  



26



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##### Table of Contents

Overall, our operating activities, investing activities, and financing activities used
$749,000 of cash during Fiscal 2011 as compared to a use of $8.4 million during Fiscal 2010. This decrease in the use of cash is primarily due to the use of nearly $6.0 million in cash for shareholder distribution in Fiscal 2010, along with the
receipt of $3.5 million in escrow receivable in Fiscal 2011.

Cash used by operating activities for Fiscal 2011 was $2.7
million, an increase of $810,000 compared to Fiscal 2010 when operating activities used cash of $1.9 million.

Investing
activities provided cash of $2.4 million in Fiscal 2011, which was primarily the result of $3.5 million released from escrow created as part of the Green Mountain Transaction, offset by $1.3 million spent on the purchase of property and equipment.

Financing activities used cash of $426,000 in Fiscal 2011, a decrease of 93.5% from Fiscal 2010, which is the result of the
$6.0 million shareholder distribution made during Fiscal 2010.

Contractual Commitments

We did not have any off-balance sheet arrangements as of April 3, 2011. The following table summarizes our principal financial
commitments (other than ordinary trade obligations such as accounts payable and accrued liabilities) as of April 3, 2011:



|                                   |  |                             |        |  |                  |   |       |           |  |   |           |  |  |                   |       |  |  |   |       | 
|---------------------------------- |  | --------------------------- | ------ |  | ---------------- | - | ----- | --------- |  | - | --------- |  |  | ----------------- | ----- |  |  | - | ----- | 
|                                   |  | Payments Due by Fiscal Year |       
|                                   |  | Total                       |        |  | Less than1 
year |   |       | 1-3 years |  |   | 3-5 years |  |  | More than5 
years |      
|                                   |  | (dollars in thousands)      |       
|TCAP obligation to Limited Partner |  | $                           | 4,000  |  |                  | $ | 4,000 |           |  |   |          |  |  |                   |      |  |  |   |      | 
|Other debt                         |  |                             | 54     |  |                  |   | 54    |           |  |   |          |  |  |                   |      |  |  |   |      | 
|Operating leases                   |  |                             | 12,112 |  |                  |   | 3,275 |           |  |   | 4,827     |  |  |                   | 2,409 |  |  |   | 1,601 | 
|                                   |  |                             |        |  |                  |   |       |           |  |   |           |  |  |                   |       |  |  |   |       | 
|                                   |  | $                           | 16,166 |  |                  | $ | 7,329 |           |  | $ | 4,827     |  |  | $                 | 2,409 |  |  | $ | 1,601 | 
|                                   |  |                             |        |  |                  |   |       |           |  |   |           |  |  |                   |       |  |  |   |       | 

Liquidity and Capital Resources

As of April 3, 2011 we had cash and cash equivalents of $2.8 million, of which $540,000 was held in TCAPPLP and limited in use, and a working capital deficit of $8.3 million, which also includes
TCAPs $4.0 million obligation to AFCM; such obligation is not expected to be satisfied by funds held by TC Global, Inc. See Note 12 of Notes to Consolidated Financial Statements

The Company has realized some improvements during its most recent periods in sales volumes as compared to previous periods and has made
certain reductions in staffing and other expenses. Despite improved revenues during the current quarter and reductions to staffing and other expenses, and with the exception of the Third Quarter Fiscal 2011 and Fourth Quarter Fiscal 2011, the
Company continues to incur negative cash flows from operations. If sales volumes do not meet expectations during Fiscal 2012 or if increased costs result from pending litigation or contingent obligations, the Company does not believe it will be able
to offset such negative trends through additional overhead cost reductions. As a result, if operating results do not meet expectations, the Company may not have sufficient resources to cover its working capital and capital expenditure requirements
and, without additional sources of capital made available to the Company during Fiscal 2012, there will be substantial doubt that the Company will be able to continue as a going concern. In order to maintain an appropriate level of liquidity, the
Company believes it will need to either effectively implement its operational plans and objectives or obtain additional capital in the next six to nine months in order to fund its working capital requirements for the remainder for Fiscal 2012 and is
evaluating a variety of alternatives, reorganization of existing operations and/or sale of some of its stores or other selected assets. Certain financing alternatives could result in significant interest and other costs, be highly dilutive to
existing shareholders or require the divestiture or sale of some or all of the Companys assets. There can be no assurance that any debt or equity financing arrangement will be available to the Company on acceptable terms, if at all. In
addition, there can be no assurance that these financing alternatives would provide the Company with sufficient funds to meet its current or long term capital requirements.

If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then the Company could be required to substantially reduce or discontinue its investments in
store improvements, new customers and new products; reduce operating, marketing, general and administrative costs related to its continuing operations; or limit the scope of its continuing operations. Due to various contractual obligations of the
Company, including store operating leases, supply agreements and franchise agreements, the Company may not have the discretion to reduce operations in an orderly manner to a more sustainable level. The potential sale of stores or other
income-producing assets could adversely affect future operating results and cash flows.



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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, and (3) 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.

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. We recognized non-cash impairment losses of $82,000 and $135,000 in the fourth quarters of Fiscal 2010 and Fiscal 2011, respectively, in accordance with the provisions of FASB ASC 360. This relates
to impairment of leasehold improvements and equipment.

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. No impairment was recorded
in Fiscal 2011 as expected closure asset sales are expected to exceed costs.

Share Based Payments

We grant stock options to purchase our common stock to certain employees under the 2004 Stock Option Plan and 2010 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.



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##### Table of Contents

Accounting Standards Codification (ASC) No. 718, Stock Compensation,
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 2007, the FASB issued established accounting and reporting standards for the noncontrolling interest (currently referred to as
non-controlling interest) in a subsidiary and for the deconsolidation of a subsidiary. The guidance 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. The guidance 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. The guidance, which was effective for the Company at the beginning of the fiscal year 2010, is 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 adoption had no impact on our condensed consolidated financial position, results of operations, cash flows or financial statement disclosures.

In June 2009, the FASB amended the consolidation guidance that applies to variable interest entities and the definition of a variable interest entity and requires enhanced disclosures to provide more
information about an enterprises involvement in a variable interest entity. This Statement also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. We adopted this new guidance
effective at the beginning of Fiscal 2011 with no impact to our consolidated financial statements.



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##### 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                                                                                     |  | 31        
|Consolidated Balance Sheets as of March 28, 2010 and April 3, 2011                                                                          |  | 32        
|Consolidated Statements of Operations for the years ended March 29, 2009, March 
28, 2010, and April 3, 2011                                |  | 33        
|Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended March 
29, 2009, March 28, 2010, and April 3, 2011 |  | 34-35     
|Consolidated Statements of Cash Flows for the years ended March 29, 2009, March 
28, 2010, and April 3, 2011                                |  | 36        
|Notes to Consolidated Financial Statements                                                                                                  |  | 38        



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

TC Global, Inc.

We have audited the accompanying consolidated balance sheets of TC Global, Inc.
(the Company) as of April 3, 2011 and March 28, 2010, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for the periods ended April 3, 2011, March 28,
2010, and March 29, 2009. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the auditing 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 consolidated 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses and has limited working capital to fund operations. These conditions raise substantial doubt about its
ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern. Managements plans concerning these matters are also discussed in Note 2 to the consolidated financial statements.

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 April 3, 2011 and March 28, 2010, and the consolidated results of its operations and its cash flows for the each of the periods ended April 3, 2011, March 28, 2010, and March 29, 2009 in conformity
with accounting principles generally accepted in the United States of America.

/s/ Moss Adams LLP

Seattle, Washington

July 5, 2011



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##### Table of Contents

TC GLOBAL, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                                                                                                                  |  | March 28,2010                            |         |   | April 3,2011 |  
|                                                                                                                                                                                                                                  |  | (dollars in thousands,except share data) |        
|Assets                                                                                                                                                                                                                            |  |                                          |         |   |              |   |         |  
|Current assets                                                                                                                                                                                                                    |  |                                          |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                         |  | $                                        | 3,558   |   |              | $ | 2,809   |  
|Escrow receivable                                                                                                                                                                                                                 |  |                                          | 3,500   |   |              |   |        |  
|Income tax receivable                                                                                                                                                                                                             |  |                                          | 931     |   |              |   | 343     |  
|Accounts receivable, net of allowance for doubtful accounts of $704 and $994 at March 28, 2010 and April 3, 2011,
respectively                                                                                                    |  |                                          | 585     |   |              |   | 870     |  
|Inventories                                                                                                                                                                                                                       |  |                                          | 1,381   |   |              |   | 628     |  
|Prepaid expenses and other current assets                                                                                                                                                                                         |  |                                          | 274     |   |              |   | 272     |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total current assets                                                                                                                                                                                                              |  |                                          | 10,229  |   |              |   | 4,922   |  
|Property and equipment, net                                                                                                                                                                                                       |  |                                          | 2,184   |   |              |   | 2,207   |  
|Goodwill                                                                                                                                                                                                                          |  |                                          | 45      |   |              |   | 45      |  
|Related party receivable, net of current portion                                                                                                                                                                                  |  |                                          | 1,000   |   |              |   | 1,000   |  
|Other assets                                                                                                                                                                                                                      |  |                                          | 263     |   |              |   | 299     |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total assets                                                                                                                                                                                                                      |  | $                                        | 13,721  |   |              | $ | 8,473   |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|                                                                                                                                                                                                                                  |  |                                         
|Liabilities and Stockholders Deficit                                                                                                                                                                                             |  |                                          |         |   |              |   |         |  
|Current liabilities                                                                                                                                                                                                               |  |                                          |         |   |              |   |         |  
|Accounts payable                                                                                                                                                                                                                  |  | $                                        | 2,498   |   |              | $ | 2,542   |  
|Accrued liabilities                                                                                                                                                                                                               |  |                                          | 2,061   |   |              |   | 1,883   |  
|Current portion of long-term debt                                                                                                                                                                                                 |  |                                          | 157     |   |              |   | 54      |  
|Deferred revenue                                                                                                                                                                                                                  |  |                                          | 4,271   |   |              |   | 4,540   |  
|Current portion of deferred gain on sale of wholesale segment                                                                                                                                                                     |  |                                          | 169     |   |              |   | 169     |  
|Note payable due to limited partner in TCAP                                                                                                                                                                                       |  |                                          | 4,000   |   |              |   | 4,000   |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total current liabilities                                                                                                                                                                                                         |  |                                          | 13,156  |   |              |   | 13,188  |  
|Deferred lease costs                                                                                                                                                                                                              |  |                                          | 249     |   |              |   | 362     |  
|Deferred revenue, net of current portion                                                                                                                                                                                          |  |                                          | 715     |   |              |   | 831     |  
|Deferred gain on sale of wholesale segment, net of current portion                                                                                                                                                                |  |                                          | 2,189   |   |              |   | 2,020   |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total liabilities                                                                                                                                                                                                                 |  |                                          | 16,309  |   |              |   | 16,401  |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Commitments and contingencies (Note 17)                                                                                                                                                                                           |  |                                          |         |   |              |   |         |  
|Stockholders equity (deficit)                                                                                                                                                                                                    |  |                                          |         |   |              |   |         |  
|Series A Convertible Preferred stock, no par value; 15,471,352 shares authorized, 12,790,874 issued and outstanding at
March 28, 2010 and April 3, 2011, stated value of $2.50 per share and a liquidation preference             |  |                                          | 28,473  |   |              |   | 28,473  |  
|Common stock, no par value; 120,000,000 shares authorized; 3,563,867 and 3,563,867 shares issued and outstanding at
March 28, 2010 and April 3, 2011, respectively, stated value of $18.00 per share and a liquidation preference |  |                                          | 19,706  |   |              |   | 19,706  |  
|Series B Convertible Preferred stock, no par value; 4,853,809 shares authorized, 3,590,349 issued and outstanding at
March 28, 2010 and April 3, 2011, stated value of $2.50 per share and a liquidation preference               |  |                                          | 7,958   |   |              |   | 7,958   |  
|Additional paid-in capital                                                                                                                                                                                                        |  |                                          | 24,089  |   |              |   | 24,166  |  
|Accumulated other comprehensive loss                                                                                                                                                                                              |  |                                          | (41     | ) |              |   | (93     | )
|Accumulated deficit                                                                                                                                                                                                               |  |                                          | (84,371 | ) |              |   | (89,585 | )
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total stockholders deficit attributable to TC Global, Inc.                                                                                                                                                                       |  |                                          | (4,186  | ) |              |   | (9,375  | )
|Non-controlling interest                                                                                                                                                                                                          |  |                                          | 1,598   |   |              |   | 1,447   |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total stockholders deficit                                                                                                                                                                                                       |  |                                          | (2,588  | ) |              |   | (7,928  | )
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                        |  | $                                        | 13,721  |   |              | $ | 8,473   |  
|                                                                                                                                                                                                                                  |  |                                          |         |   |              |   |         |  

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



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TC GLOBAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | - | ------------- | - | ------ | ---------------- |  | - | ------ | -
|                                                                                                     |  | Years ended                                  |        
|                                                                                                     |  | March 29,2009                                |         |   | March 28,2010 |   |        | April 3,2011 (1) | 
|                                                                                                     |  | (dollars in thousands, exceptper share data) |        
|Net sales                                                                                            |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Retail store sales (1)                                                                               |  | $                                            | 38,615  |   |               | $ | 35,426 |                  |  | $ | 36,297 |  
|Specialty sales of products                                                                          |  |                                              | 47      |   |               |   | 3,620  |                  |  |   | 1,342  |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Total sales of products                                                                              |  |                                              | 38,662  |   |               |   | 39,046 |                  |  |   | 37,639 |  
|Licenses, royalties, and fees                                                                        |  |                                              | 383     |   |               |   | 484    |                  |  |   | 556    |  
|Recognition of deferred license revenue                                                              |  |                                              |        |   |               |   | 40     |                  |  |   | 73     |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Net sales                                                                                            |  |                                              | 39,045  |   |               |   | 39,570 |                  |  |   | 38,268 |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Cost of goods sold and operating expenses                                                            |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Retail cost of goods sold                                                                            |  |                                              | 13,969  |   |               |   | 12,704 |                  |  |   | 13,377 |  
|Retail occupancy expenses                                                                            |  |                                              | 4,527   |   |               |   | 4,396  |                  |  |   | 3,904  |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Total retail cost of goods sold and related occupancy expenses                                       |  |                                              | 18,496  |   |               |   | 17,100 |                  |  |   | 17,281 |  
|Specialty cost of goods sold                                                                         |  |                                              | 37      |   |               |   | 2,449  |                  |  |   | 569    |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Cost of goods sold and related occupancy expenses                                                    |  |                                              | 18,533  |   |               |   | 19,549 |                  |  |   | 17,850 |  
|Store operating expenses                                                                             |  |                                              | 17,546  |   |               |   | 15,638 |                  |  |   | 15,700 |  
|Other operating expenses                                                                             |  |                                              | 1,106   |   |               |   | 2,337  |                  |  |   | 2,007  |  
|Marketing, general and administrative costs                                                          |  |                                              | 7,742   |   |               |   | 6,515  |                  |  |   | 6,834  |  
|Depreciation and amortization                                                                        |  |                                              | 1,705   |   |               |   | 1,191  |                  |  |   | 915    |  
|Impairment of goodwill and long-lived assets                                                         |  |                                              | 237     |   |               |   | 368    |                  |  |   | 135    |  
|Store closure and lease termination costs                                                            |  |                                              | 282     |   |               |   |       |                  |  |   | 69     |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Total cost of goods sold and operating expenses                                                      |  |                                              | 47,151  |   |               |   | 45,598 |                  |  |   | 43,510 |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Operating loss                                                                                       |  |                                              | (8,106  | ) |               |   | (6,028 | )                |  |   | (5,242 | )
|Other income (expense)                                                                               |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Interest expense                                                                                     |  |                                              | (3,254  | ) |               |   | (10    | )                |  |   | (4     | )
|Interest income                                                                                      |  |                                              | 43      |   |               |   | 5      |                  |  |   | 5      |  
|Miscellaneous income (expense)                                                                       |  |                                              | 74      |   |               |   | (110   | )                |  |   | (103   | )
|Loan guarantee fee expense                                                                           |  |                                              | (131    | ) |               |   |       |                  |  |   |       |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Total other income (expense)                                                                         |  |                                              | (3,268  | ) |               |   | (115   | )                |  |   | (102   | )
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Income (loss) from continuing operations before income taxes                                         |  |                                              | (11,374 | ) |               |   | (6,143 | )                |  |   | (5,344 | )
|Income tax benefit (expense)                                                                         |  |                                              | 11,474  |   |               |   | 764    |                  |  |   | (21    | )
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Net income (loss) from continuing operations                                                         |  | $                                            | 100     |   |               | $ | (5,379 | )                |  | $ | (5,365 | )
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Non-controlling interest                                                                             |  |                                              | 214     |   |               |   | 188    |                  |  |   | 151    |  
|Net income (loss) from continuing operations attributable to TC Global, Inc.                         |  | $                                            | 314     |   |               | $ | (5,191 | )                |  | $ | (5,214 | )
|                                                                                                     |  |                                              |        
|Discontinued operations (Note 3)                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Income from discontinued operations                                                                  |  | $                                            | 34,948  |   |               | $ |       |                  |  | $ |       |  
|Income tax expense                                                                                   |  |                                              | (12,407 | ) |               |   |       |                  |  |   |       |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Income from discontinued operations                                                                  |  | $                                            | 22,541  |   |               | $ |       |                  |  | $ |       |  
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Net income (loss) attributable to TC Global, Inc.                                                    |  | $                                            | 22,855  |   |               | $ | (5,191 | )                |  | $ | (5,214 | )
|                                                                                                     |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Continuing operationsbasic and diluted                                                              |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Continuing operationsbasic                                                                          |  | $                                            | 0.10    |   |               | $ | (1.47  | )                |  | $ | (1.46  | )
|Continuing operations diluted                                                                       |  | $                                            | 0.05    |   |               | $ | (1.47  | )                |  | $ | (1.46  | )
|Discontinued operationsbasic and diluted                                                            |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Discontinued operationsbasic                                                                        |  | $                                            | 6.90    |   |               | $ |       |                  |  | $ |       |  
|Discontinued operationsdiluted                                                                      |  | $                                            | 3.48    |   |               | $ |       |                  |  | $ |       |  
|Earnings (loss) per sharebasic and diluted                                                          |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Earnings (loss) per sharebasic                                                                      |  | $                                            | 7.00    |   |               | $ | (1.47  | )                |  | $ | (1.46  | )
|Earnings (loss) per sharediluted                                                                    |  | $                                            | 3.53    |   |               | $ | (1.47  | )                |  | $ | (1.46  | )
|Weighted average shares used in computing basic and diluted earnings (loss) per share (in thousands) |  |                                              |         |   |               |   |        |                  |  |   |        |  
|Earnings (loss) per sharebasic                                                                      |  |                                              | 3,265   |   |               |   | 3,537  |                  |  |   | 3,564  |  
|Earnings (loss) per sharediluted                                                                    |  |                                              | 6,478   |   |               |   | 3,537  |                  |  |   | 3,564  |  



|(1) | Each fiscal year included 52 weeks, except for Fiscal 2011, which had 53 weeks. We estimate that the 53rdweek accounted for $675,000 in net sales in Fiscal 2011.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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TC Global, Inc.

Consolidated Statements of Changes in Stockholders Equity (Deficit)

Years Ended March 29, 2009, March 28, 2010 and April 3, 2011



|                                                         |  |                             |            |   |                |   |        |                          |  |  |                        |   |  |                                   |       |   |                    |  |           |       |  |   |                         |  |  |   |        |  |  |   |        |   |  |  |     |   |  |   |          |   |  |   |         |   |  |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ---------- | - | -------------- | - | ------ | ------------------------ |  |  | ---------------------- | - |  | --------------------------------- | ----- | - | ------------------ |  | --------- | ----- |  | - | ----------------------- |  |  | - | ------ |  |  | - | ------ | - |  |  | --- | - |  | - | -------- | - |  | - | ------- | - |  | - | ------ | -
|                                                         |  | Convertible Preferred Stock |            |   | Common Stock   |   |        | Additionalpaid-incapital |  |  | Subscriptionreceivable |   |  | AccumulatedOtherComprehensiveLoss |       |   | Accumulateddeficit |  |           | Total |  |   | Non-controllinginterest | 
|                                                         |  | Series AShares              |            |   | Series AAmount |   |        | Series BShares           |  |  | Series BAmount         |   |  | Shares                            |       |   | Amount             |  |           |       |  |   |                         | 
|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   |   |  |   |        |  
|                                                         |  |                             |            |   |                |   |        |                          |  |  |                        |  
|Obligation to minority shareholder in TCAP               |  |                             |            |   |                |   |        |                          |  |  |                        |   |  |                                   |       |   |                    |  |           |       |  |   |                         |  |  |   |        |  |  |   |        |   |  |  |     |   |  |   |          |   |  |   |        |   |  |   | (4,000 | )
|Net Income                                               |  |                             |            |   |                |   |        |                          |  |  |                        |   |  |                                   |       |   |                    |  |           |       |  |   |                         |  |  |   |        |  |  |   |        |   |  |  |     |   |  |   | 22,855   |   |  |   | 22,855  |   |  |   | (214   | )
|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.



34



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TC Global, Inc.

Consolidated Statements of Changes in Stockholders Equity (Deficit)

Years Ended March 29, 2009, March 28, 2010 and April 3, 2011

(continued)



|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  
|------------------------------------------- |  | --------------------------------------------- | ---------- |  | -------------- | - | ------ | ------------------------ |  |  | --------------------------------- |  |  | ------------------ | ----- |  | ------ |  | --------- | ----------------------- |  | - | ------ | - |  | - | ------ | - |  | - | --- | - |  | - | ------- | - |  | - | ------ | - |  | - | ----- | -
|                                            |  | Convertible Preferred Stock                   |            |  | Common Stock   |   |        | Additionalpaid-incapital |  |  | AccumulatedOtherComprehensiveLoss |  |  | Accumulateddeficit |       |  | Total  |  |           | Non-controllinginterest | 
|                                            |  | Series AShares                                |            |  | Series AAmount |   |        | Series BShares           |  |  | Series BAmount                    |  |  | Shares             |       |  | Amount |  |           |                         |  |   |       
|                                            |  | (dollars in thousands, except per share data) |           
|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 |  
|Exercise of common stock warrants           |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  | 205,332   |                         |  |   | 32     |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   | 32     |   |  |   |       |  
|Exercise of stock options                   |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  | 51,851    |                         |  |   | 3      |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   | 3      |   |  |   |       |  
|Net stock option exercise                   |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  | 10,880    |                         |  |   | (8     | ) |  |   |        |   |  |   |     |   |  |   |         |   |  |   | (8     | ) |  |   |       |  
|Adjustments to Preferred B Shares           |  |                                               |            |  |                |   |        |                          |  |  | 6,000                             |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  
|Stock option expense                        |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   | 128    |   |  |   |     |   |  |   |         |   |  |   | 128    |   |  |   |       |  
|Shareholder distribution                    |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   | (5,994 | ) |  |   |     |   |  |   |         |   |  |   | (5,994 | ) |  |   |       |  
|Liability settled through issuance of stock |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  | 7,032     |                         |  |   | 85     |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   | 85     |   |  |   |       |  
|Net loss                                    |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   | (5,191  | ) |  |   | (5,191 | ) |  |   | (188  | )
|Foreign currency translation adjustment     |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   | (7  | ) |  |   |         |   |  |   | (7     | ) |  |   |       |  
|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  
|Balance, March 28, 2010                     |  |                                               | 12,790,874 |  |                | $ | 28,473 |                          |  |  | 3,590,349                         |  |  | $                  | 7,958 |  |        |  | 3,563,867 |                         |  | $ | 19,706 |   |  | $ | 24,089 |   |  | $ | (41 | ) |  | $ | (84,371 | ) |  | $ | (4,186 | ) |  | $ | 1,598 |  
|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  
|Stock option expense                        |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   | 77     |   |  |   |     |   |  |   |         |   |  |   | 77     |   |  |   |       |  
|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                  
|Net loss                                    |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   | (5,214  | ) |  |   | (5,214 | ) |  |   | (151  | )
|Foreign currency translation adjustment     |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   | (52 | ) |  |   |         |   |  |   | (52    | ) |  |   |       |  
|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  
|Total comprehensive income                  |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   | (5,261 | ) |  |   |       |  
|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  
|Balance, April 3, 2011                      |  |                                               | 12,790,874 |  |                | $ | 28,473 |                          |  |  | 3,590,349                         |  |  | $                  | 7,958 |  |        |  | 3,563,867 |                         |  | $ | 19,706 |   |  | $ | 24,166 |   |  | $ | (93 | ) |  | $ | (89,585 | ) |  | $ | (9,185 | ) |  | $ | 1,447 |  
|                                            |  |                                               |            |  |                |   |        |                          |  |  |                                   |  |  |                    |       |  |        |  |           |                         |  |   |        |   |  |   |        |   |  |   |     |   |  |   |         |   |  |   |        |   |  |   |       |  

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



35



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##### Table of Contents

TC Global, Inc.

Consolidated Statements of Cash Flows



|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|----------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------ | ------------ |  | - | ------ | -
|                                                                                    |  | Years ended            |        
|                                                                                    |  | March 29,2009          |         |   | March 28,2010 |   |        | April 3,2011 | 
|                                                                                    |  | (dollars in thousands) |        
|Cash flows from operating activities                                                |  |                        |         |   |               |   |        |              |  |   |        |  
|Net income (loss)                                                                   |  | $                      | 22,641  |   |               | $ | (5,379 | )            |  | $ | (5,365 | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities |  |                        |         |   |               |   |        |              |  |   |        |  
|Depreciation and amortization                                                       |  |                        | 1,705   |   |               |   | 1,191  |              |  |   | 915    |  
|Impairment of goodwill and long-lived assets                                        |  |                        | 237     |   |               |   | 368    |              |  |   | 135    |  
|Store closure costs charged to operations                                           |  |                        | 282     |   |               |   |       |              |  |   | 69     |  
|(Gain) loss on sale of property and equipment                                       |  |                        | (72     | ) |               |   | (23    | )            |  |   | 75     |  
|Gain on sale of wholesale segment                                                   |  |                        | (28,656 | ) |               |   |       |              |  |   |       |  
|Stock option expense                                                                |  |                        | 201     |   |               |   | 128    |              |  |   | 77     |  
|Provision for doubtful accounts                                                     |  |                        | 287     |   |               |   | 316    |              |  |   | (344   | )
|Loan guarantee fee expense                                                          |  |                        | 131     |   |               |   |       |              |  |   |       |  
|Non-cash interest expense                                                           |  |                        | 1,101   |   |               |   |       |              |  |   |       |  
|Recognition of deferred gain on sale of wholesale segment                           |  |                        |        |   |               |   | (169   | )            |  |   | (169   | )
|Recognition of deferred revenue                                                     |  |                        | (29     | ) |               |   | (91    | )            |  |   | 182    |  
|Changes in assets and liabilities:                                                  |  |                        |         |   |               |   |        |              |  |   |        |  
|Accounts receivable                                                                 |  |                        | 1,257   |   |               |   | 4,785  |              |  |   | 646    |  
|Inventories                                                                         |  |                        | 325     |   |               |   | (268   | )            |  |   | 753    |  
|Prepaid expenses and other current assets                                           |  |                        | (1,550  | ) |               |   | 1,743  |              |  |   | 227    |  
|Accounts payable                                                                    |  |                        | (3,626  | ) |               |   | (2,475 | )            |  |   | 44     |  
|Accrued liabilities                                                                 |  |                        | (195    | ) |               |   | (2,619 | )            |  |   | (245   | )
|Deferred revenue                                                                    |  |                        | 683     |   |               |   | 796    |              |  |   | 204    |  
|Deferred lease costs                                                                |  |                        | (393    | ) |               |   | (167   | )            |  |   | 112    |  
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|Net cash (used in) provided by operating activities                                 |  |                        | (5,671  | ) |               |   | (1,864 | )            |  |   | (2,684 | )
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|                                                                                    |  |                        |        
|Cash flows from investing activities                                                |  |                        |         |   |               |   |        |              |  |   |        |  
|Net proceeds from sale of wholesale segment                                         |  |                        | 36,800  |   |               |   |       |              |  |   |       |  
|Restricted Cash (Escrow Receivable)                                                 |  |                        | (3,500  | ) |               |   |       |              |  |   | 3,500  |  
|Proceeds from sale of fixed assets                                                  |  |                        | 256     |   |               |   | 25     |              |  |   | 134    |  
|Proceeds from sale of development rights                                            |  |                        | 469     |   |               |   | 526    |              |  |   |        |  
|Purchases of property and equipment                                                 |  |                        | (976    | ) |               |   | (641   | )            |  |   | (1,283 | )
|Other                                                                               |  |                        | 15      |   |               |   | (38    | )            |  |   |       |  
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|Net cash (used in) provided by investing activities                                 |  |                        | 33,064  |   |               |   | (128   | )            |  |   | 2,351  |  
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|                                                                                    |  |                        |        
|Cash flows from financing activities                                                |  |                        |         |   |               |   |        |              |  |   |        |  
|Net borrowings (repayments) under Northrim credit facility                          |  |                        | (4,652  | ) |               |   |       |              |  |   |       |  
|Payments on long-term debt (including convertible note) and capital leases          |  |                        | (382    | ) |               |   | (470   | )            |  |   | (364   | )
|Proceeds (repayments) under Benaroya credit facility                                |  |                        | (7,482  | ) |               |   |       |              |  |   |       |  
|Repayment on UCC note payable                                                       |  |                        | (4,120  | ) |               |   |       |              |  |   |       |  
|Foreign currency translation adjustment                                             |  |                        | (34     | ) |               |   | (7     | )            |  |   | (52    | )
|Shareholder distribution                                                            |  |                        |        |   |               |   | (5,994 | )            |  |   |       |  
|Proceeds from exercise of stock options and warrants                                |  |                        |        |   |               |   | 27     |              |  |   |       |  
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|Net cash (used in) provided by financing activities                                 |  |                        | (16,670 | ) |               |   | (6,444 | )            |  |   | (416   | )
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|                                                                                    |  |                        |        
|Net increase (decrease) in cash and cash equivalents                                |  |                        | 10,723  |   |               |   | (8,436 | )            |  |   | (749   | )
|Cash and cash equivalents:                                                          |  |                        |         |   |               |   |        |              |  |   |        |  
|Beginning of period                                                                 |  |                        | 1,271   |   |               |   | 11,994 |              |  |   | 3,558  |  
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  
|End of period                                                                       |  | $                      | 11,994  |   |               | $ | 3,558  |              |  | $ | 2,809  |  
|                                                                                    |  |                        |         |   |               |   |        |              |  |   |        |  



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TC Global, Inc.

Consolidated Statements of Cash Flows

(continued)



|                                                                                                  |  |                        |       |  |               |   |     |              |  |   |     | 
|------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- |  | ------------- | - | --- | ------------ |  | - | --- | 
|                                                                                                  |  | Years ended            |      
|                                                                                                  |  | March 29,2009          |       |  | March 28,2010 |   |     | April 3,2011 | 
|                                                                                                  |  | (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 |  |               | $ | 10  |              |  | $ | 4   | 
|Non-cash activity                                                                                 |  |                        |       |  |               |   |     |              |  |   |     | 
|Accrued expense paid through grant of stock options                                               |  |                        | 35    |  |               |   | 128 |              |  |   |    | 
|Insurance premiums financed through note payable                                                  |  |                        | 545   |  |               |   | 360 |              |  |   | 195 | 
|Liability settled through issuance of stock                                                       |  |                        | 132   |  |               |   | 85  |              |  |   |    | 

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



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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) was formed in 1992 and is a specialty retailer licensing the Tullys Coffee business names and trademarks in the fast-casual
categories of specialty coffee, snacks and non-alcoholic beverages, within the broader quick-service restaurant industry. Tullys is known for its gourmet coffees, a wide selection of barista beverages, an assortment of breakfast and lunch
offerings and anytime snacks, desserts and specialty beverages, and a genuine community coffeehouse experience. Tullys specialty division oversees the franchising of Tullys Coffee retail stores. Franchising complements the
company-operated retail business by making Tullys genuine community coffeehouse experience more widely available and convenient for customers. Additionally, our specialty division, through our wholly owned subsidiary Tullys Coffee Asia
Pacific, Inc. (TCAP) oversees our Asian joint venture, called Tullys Coffee Asia Pacific Partners, LP (TCAPPLP), which seeks to develop the Tullys brand in Asia (excluding Japan) and Australia, foreign licensing,
wholesale distribution and other business activities.

In these consolidated financial statements, references to
Tullys or the Company, we, us and our refer to TC Global, Inc. Tullys-branded retail stores are operated by its Retail division and are also operated by other parties under
license or franchise. Tullys stores sell the Companys high quality, premium roasted whole bean coffees, and serve a wide selection of hot and cold beverages that feature its coffees. Tullys stores also sell baked goods and pastries
and other complementary snack and food items and coffee-related equipment, supplies and accessories.

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

The Company ends its fiscal year on the Sunday closest to March 31. As a result, we record revenue and expenses on a 52- or 53-week
period, depending on the year. In this report, the Company refers to its fiscal periods as follows:



|                         |  |                                     
|------------------------ |  | ------------------------------------
|Reference in this report |  | Fiscal year ending (number of weeks)
|Fiscal 2011              |  | April 3, 2011 (53 weeks)            
|Fiscal 2010              |  | March 28, 2010 (52 weeks)           
|Fiscal 2009              |  | March 29, 2009 (52 weeks)           

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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 and franchisees 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. In Fiscal Years 2010 and 2011, we significantly increased our allowance for doubtful accounts, consistent with our history of collections within our Specialty division.



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Escrow and Related Party Receivable

On March 27, 2009, we completed the sale of the assets associated with our wholesale business and supply chain (including
Tullys business names and trademarks) to Green Mountain Coffee Roasters, Inc. (GMCR) pursuant to the 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 Green Mountain Coffee Roasters, Inc., Tullys Coffee Corporation, and Tullys Bellaccino, LLC (the Green Mountain Transaction). The total purchase
price included an indemnification claim escrow holdback equal to $3.5 million (the Escrow). The Escrow was subject to a twelve-month holdback. On March 29, 2010, the full $3.5 million was released from the Escrow and paid to the
Company.

In December 2008, TCAP granted Asia Food Culture Management Pte. Ltd. (AFCM), a Singapore company and
the limited partner in TCAPPLP, a $1.0 million loan to be paid through future distributions of the partnership.

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 partner, DPI Specialty Foods (DPI), and other authorized vendors and/or distributors. We entered into a distribution
agreement with DPI effective May 2010, whereby we outsourced all warehousing and distribution processes for the Company. By entering into this agreement, we were able to significantly decrease our inventories, because instead of holding all
inventory for sale ourselves, we now order from DPI as we need product.

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 calculated on the straight-line method over the estimated economic lives of related assets. 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 GAAP. 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

Accounting for the impairment or disposal of long-lived assets 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 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 that such 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
intercompany transactions are recorded in operating expenses and have not been material for the periods presented.



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Segment reporting

We present segment information in accordance with guidance which established 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.

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 recognized at the time of 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 related
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 franchisees 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,
$822,000 and $563,000 during Fiscal 2009, Fiscal 2010, and Fiscal 2011, 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 terms of the related leases. Certain leases require contingent rent based on gross
sales and such rent expense is recognized as incurred. Certain leases have rent holiday (free rent) periods, and Tullys recognizes these rental credits on a straight-line basis over the respective lease terms.

Asset Retirement Obligations

The Company is required to recognize a liability for the fair value of required asset retirement obligations (ARO), if such liability is expected, when the obligations are incurred. The
Companys potential AROs are primarily associated with lease arrangements and leasehold improvements arising in the Company owned locations which, in some instances at the end of a lease, the Company is contractually obligated to remove all
assets in order to comply with the lease agreement if they cannot successfully find a replacement tenant, sell the improvements or enter into alternative agreements with the landlords. The future obligation are to be estimated based on a number of
assumptions requiring managements judgment, including net store closing costs, cost inflation rates and discount rates, and is to be accreted to its projected future value over time. The capitalized asset is to be depreciated using the
convention for depreciation of leasehold improvement assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in the
consolidated statements of earnings. As of March 28, 2010 and April 3, 2011, management has determined that the potential obligation is not significant due to the nature of the lease arrangements and related leasehold improvements and the
historical costs related to store closures and /or lease terminations.



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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.

In April 2007, the FASB issued accounting and reporting standards Accounting for Uncertainty in Income Taxeswhich
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. The guidance applies to all tax positions accounted for under FASB
ASC 740, Accounting for Income Taxes. There was no adjustment required to be made to our opening retained earnings balance upon adoption of the guidance. 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

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 FASB ASC 718, while awards granted after April 2, 2006 follow the provisions of FASB ASC 718. 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 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 FASB ASC 718, 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.

Consolidation of Asian Joint
Venture

During Fiscal 2008, TCAP became the general partner of TCAPPLP, a limited partnership. This partnership 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,



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AFCM, is managed by the founder and former chief executive officer of Tullys Coffee Japan (TCJ). AFCM has limited rights with respect to the management and control of TCAPPLP.
TCAP, as the general partner of TCAPPLP, has control of the partnership and full voting rights.

On March 27, 2009, TCAP
agreed to purchase, or cause a third party to purchase, one-half of AFCMs partnership interest in TCAPPLP, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of US$4.0 million, by
March 27, 2010. As of April 3, 2011, TCAP had not met this obligation. TCAP has classified this obligation as a current liability and has offset AFCMs non-controlling interest equally.

TCAP and the Limited Partner continue to work on a settlement and buyer for the obligation. If TCAP is unsuccessful in either finding a
buyer for AFCMs interest or in its settlement negotiations, it could have an adverse impact on TCAPs financial position or results of operations, or cause renegotiation of the partnership agreement. This obligation is not currently
guaranteed by TC Global, Inc. and there are currently no intentions of repayment aside from those funds available in TCAP or successfully finding a third party buyer for the 25% interest.

Subsequent Events

Subsequent events are events or transactions that
occur after the effective date of the balance sheet but before the consolidated financial statements are issued. The Company recognizes in the consolidated financial statements the effects of all subsequent events that provide additional evidence
about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the consolidated financial statements. The Companys consolidated financial statements do not recognize subsequent
events that provide evidence about conditions that did not exist at the date of the exhibits but arose after that date and before consolidated financial statements are available to be issued. The Company has evaluated subsequent events through
July 5, 2011, which is the date the consolidated financial statements are available to be issued.

New accounting standards

In December 2007, the FASB issued established accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The guidance 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. The guidance 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. The guidance, which was effective for the Company at the beginning of the fiscal year 2010, is 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 adoption of this standard has
affected the presentation of noncontrolling interest on consolidated balance sheets, statement of stockholders equity (deficit), and statements of operations as noncontrolling interest is presented as a component of equity and net income (loss) is
adjusted to include noncontrolling interest.

In June 2009, the FASB amended the consolidation guidance that applies to
variable interest entities and the definition of a variable interest entity and requires enhanced disclosures to provide more information about an enterprises involvement in a variable interest entity. This Statement also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a variable interest entity. We adopted this new guidance effective at the beginning of Fiscal 2011 with no impact on our consolidated financial statements.

2. Liquidity

The
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of April 3, 2011 we had cash and cash
equivalents of $2.8 million, of which $540,000 was held in TCAPPLP and limited in use, and a working capital deficit of $8.3 million, which also includes TCAPs $4.0 million obligation to AFCM; such obligation is not expected to be satisfied by
funds held by TC Global, Inc. See Note 12 of Notes to Consolidated Financial Statements

The Company has realized
some improvements during its most recent periods in sales volumes as compared to previous periods and has made certain reductions in staffing and other expenses. Despite improved revenues during the current quarter and reductions to staffing and
other expenses, and with the exception of the Third Quarter Fiscal 2011 and Fourth Quarter Fiscal 2011, the Company continues to incur negative cash flows from operations. If sales volumes do not meet expectations during Fiscal 2012 or if increased
costs result from pending litigation or contingent obligations, the Company does not believe it will be able to offset such negative trends through additional overhead cost reductions. As a result, if operating results do not meet expectations, the
Company may not have sufficient resources to cover its working capital and capital expenditure requirements and, without additional sources of capital made available to the Company during Fiscal 2012, there will be substantial doubt that the Company
will be able to continue as a



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going concern. In order to maintain an appropriate level of liquidity, the Company believes it will need to either effectively implement its operational plans and objectives or obtain additional
capital in the next six to nine months in order to fund its working capital requirements for the remainder for Fiscal 2012 and is evaluating a variety of alternatives, reorganization of existing operations and/or sale of some of its stores or other
selected assets. Certain financing alternatives could result in significant interest and other costs, be highly dilutive to existing shareholders or require the divestiture or sale of some or all of the Companys assets. There can be no
assurance that any debt or equity financing arrangement will be available to the Company on acceptable terms, if at all. In addition, there can be no assurance that these financing alternatives would provide the Company with sufficient funds to meet
its current or long term capital requirements.

If sources of capital are unavailable, or are available only on a limited
basis or under unacceptable terms, then the Company could be required to substantially reduce or discontinue its investments in store improvements, new customers and new products; reduce operating, marketing, general and administrative costs related
to its continuing operations; or limit the scope of its continuing operations. Due to various contractual obligations of the Company, including store operating leases, supply agreements and franchise agreements, the Company may not have the
discretion to reduce operations in an orderly manner to a more sustainable level. The potential sale of stores or other income-producing assets could adversely affect 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 our wholesale business and supply chain (including Tullys business names and trademarks) to GMCR, pursuant to the 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 TC Global, Inc., GMCR and Tullys Bellaccino,
LLC. GMCR paid a total purchase price of $40.3 million under the agreement.

Therefore, the Company classified the results of
operations for the wholesale operations in discontinued operations, in accordance with the guidance provided in FASB ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets(FASB ASC 360). 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; he remaining $3,500,000 of the
purchase price was placed in escrow and received March 29, 2009. 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 it 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

Under the terms of the GMCR Agreement, we continued to operate our roasting and distribution facility for the benefit and at the financial obligation of GMCR through November 2009, when GMCR transitioned
roasting and packaging into a new facility.



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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 is 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 is tied to its own costs, we believe that cost plus pricing for the Products is
competitive with market prices, based on our own analysis of the commodity market for green coffee beans. 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 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 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



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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 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.



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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 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, its founder, 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.

4. Income tax receivable, 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.



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The allowance for doubtful accounts is summarized as follows:



|                                        |  |                        |      |   |              |   |     |  
|--------------------------------------- |  | ---------------------- | ---- | - | ------------ | - | --- | -
|                                        |  | Years ended            |     
|                                        |  | March 28,2010          |      |   | April 3,2011 |  
|                                        |  | (dollars in thousands) |     
|Balance, beginning of the year          |  | $                      | 578  |   |              | $ | 704 |  
|Additions charged to costs and expenses |  |                        | 316  |   |              |   | 344 |  
|Write-offs and other deductions         |  |                        | (190 | ) |              |   | (54 | )
|                                        |  |                        |      |   |              |   |     |  
|Balance, end of the year                |  | $                      | 704  |   |              | $ | 994 |  
|                                        |  |                        |      |   |              |   |     |  

In Fiscal 2010 we recorded a $764,000 income tax benefit reflecting the five year Alternative Minimum
Tax, or AMT, carryback changes enacted as part of the stimulus package for our fiscal years beginning Fiscal 2005. As a result of this benefit the company recorded a $931,000 income tax receivable. During Fiscal 2011, $588,000 of this amount was
collected; the remainder was outstanding as of April 3, 2011, but was collected subsequent to that date.

5. Inventories

Inventories consist of the following:



|                             |  |                        |       |  |              |   |     | 
|---------------------------- |  | ---------------------- | ----- |  | ------------ | - | --- | 
|                             |  | March 28,2010          |       |  | April 3,2011 |  
|                             |  | (dollars in thousands) |      
|Roasted coffee               |  | $                      | 320   |  |              | $ | 94  | 
|Other goods held for sale    |  |                        | 457   |  |              |   | 249 | 
|Packaging and other supplies |  |                        | 604   |  |              |   | 285 | 
|                             |  |                        |       |  |              |   |     | 
|Total                        |  | $                      | 1,381 |  |              | $ | 628 | 
|                             |  |                        |       |  |              |   |     | 

In May 2010 we entered into a three year, renewable distribution agreement with DPI Specialty Foods
(DPI), under which DPI will warehouse and distribute merchandise and supplies for domestic Company-operated, licensed and franchised retail stores. Under the terms of the agreement, DPI bears all inventory risk, though we may be
obligated to repurchase any unsold inventory held by the distributor at the end of the term; however, such purchase commitments or obligations are not expected to be material or result in any loss to the Company at this time. This distribution
agreement has allowed us to significantly decrease our investment in inventory and all related holding costs.

6. Related Party Receivable
and Other Assets

Other assets consist of the following:



|                                                                |  |                        |       |  |              |   |       | 
|--------------------------------------------------------------- |  | ---------------------- | ----- |  | ------------ | - | ----- | 
|                                                                |  | March 28,2010          |       |  | April 3,2011 |  
|                                                                |  | (dollars in thousands) |      
|Long-term receivable from Limited Partner in TCAP Joint Venture |  |                        | 1,000 |  |              |   | 1,000 | 
|Security deposits and other assets                              |  | $                      | 263   |  |              | $ | 299   | 

In December 2008, TCAP granted AFCM a $1.0 million loan to be repaid through future distributions of
TCAPPLP. See Notes 12 and 15 of these Notes to Consolidated Financial Statements.

7. Property and equipment

Property and equipment consist of the following:



|                                                |  |                        |         |   |              |   |         |  
|----------------------------------------------- |  | ---------------------- | ------- | - | ------------ | - | ------- | -
|                                                |  | March 28,2010          |         |   | April 3,2011 |  
|                                                |  | (dollars in thousands) |        
|Machinery and equipment                         |  | $                      | 8,020   |   |              | $ | 8,147   |  
|Leasehold improvements                          |  |                        | 11,814  |   |              |   | 11,654  |  
|Furniture and fixtures                          |  |                        | 2,886   |   |              |   | 3,074   |  
|Software                                        |  |                        | 281     |   |              |   | 293     |  
|                                                |  |                        |         |   |              |   |         |  
|Gross Property and equipment                    |  |                        | 23,001  |   |              |   | 23,168  |  
|Less: Accumulated depreciation and amortization |  |                        | (20,817 | ) |              |   | (20,961 | )
|                                                |  |                        |         |   |              |   |         |  
|Net Property and equipment                      |  | $                      | 2,184   |   |              | $ | 2,207   |  



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8. Goodwill

As of both March 28, 2010 and April 3, 2011 goodwill was $45,000, and other intangible assets were $77,000 and $71,000, respectively. Under FASB ASC 350, 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 using a discounted cash flow approach with the reporting unit at the retail store level. An impairment charge of $287,000 was recorded in Fiscal 2010, which was calculated using level 3 inputs, as defined under ASC 820, Fair Value
Measurements. No such impairment occurred for either Fiscal 2009 or Fiscal 2011.

9. Impairment of long-lived assets

Tullys recognized non-cash impairment losses of $82,000 and $135,000 in the fourth quarters of Fiscal 2010 and Fiscal 2011,
respectively, in accordance with the provisions of FASB ASC 360. This relates to impairment of leasehold improvements and equipment. The impairment analysis was performed first testing for recoverability, then measuring for impairment, consistent
with the provisions of ASC 360. The impairment charges were calculated using a discounted cash flow approach which is considered level 3 inputs as defined under ASC 820. These reviews were performed in connection with the development and
implementation of our annual business plans.

10. Income taxes

Our benefit primarily relates to California Empowerment Zone credits that were claimed on the March 28, 2010 tax return.

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 28,2010 |         |   | April 3,2011 |  
|Deferred tax assets                        |  |               |         |   |              |   |         |  
|Net operating loss carryforwards           |  | $             | 10,421  |   |              | $ | 11,820  |  
|Stock options                              |  |               | 111     |   |              |   | 41      |  
|Deferred revenue                           |  |               | 836     |   |              |   | 886     |  
|Property and equipment                     |  |               | 2,240   |   |              |   | 2,338   |  
|Store closures and lease termination costs |  |               | 4       |   |              |   |        |  
|Deferred lease costs                       |  |               | 88      |   |              |   | 127     |  
|Tax credit                                 |  |               | 48      |   |              |   | 50      |  
|Allowance for doubtful accounts            |  |               | 249     |   |              |   | 349     |  
|Accrued vacation and other liabilities     |  |               | 175     |   |              |   | 135     |  
|Investment in joint venture                |  |               | 2,291   |   |              |   | 2,303   |  
|Other                                      |  |               | 38      |   |              |   | 67      |  
|                                           |  |               |         |   |              |   |         |  
|Total deferred tax assets                  |  | $             | 16,501  |   |              | $ | 18,116  |  
|                                           |  |               |         |   |              |   |         |  
|Deferred tax liabilities                   |  |               |         |   |              |   |         |  
|Prepaid expenses and other                 |  |               | (269    | ) |              |   | (149    | )
|Less: Valuation allowance                  |  | $             | (16,232 | ) |              | $ | (17,967 | )
|                                           |  |               |         |   |              |   |         |  
|Net deferred tax asset                     |  |               |        |   |              |   |        |  
|                                           |  |               |         |   |              |   |         |  



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At April 3, 2011, we had federal and state net operating loss carryforwards of
approximately $34.2 million and $12.5 million, respectively. The federal net operating loss carryforwards expire between 2027 and 2031 and the state net operating losses expire between 2012 and 2032.

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.

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



|                   |  |               |     |  |               |   |      |              |  |   |    | 
|------------------ |  | ------------- | --- |  | ------------- | - | ---- | ------------ |  | - | -- | 
|                   |  | Years ended   |    
|                   |  | March 29,2009 |     |  | March 28,2010 |   |      | April 3,2011 | 
|Current taxes      |  |               |     |  |               |   |      |              |  |   |    | 
|Federal            |  | $             | 493 |  |               | $ | (754 | )            |  | $ |   | 
|State              |  |               | 395 |  |               |   | (4   | )            |  |   | 21 | 
|                   |  |               |     |  |               |   |      |              |  |   |    | 
|Total current      |  |               | 888 |  |               |   | (758 | )            |  |   | 21 | 
|                   |  |               |     |  |               |   |      |              |  |   |    | 
|Deferred taxes     |  |               |    |  |               |   |     |              |  |   |   | 
|                   |  |               |     |  |               |   |      |              |  |   |    | 
|Income tax expense |  | $             | 888 |  |               | $ | (758 | )            |  | $ | 21 | 
|                   |  |               |     |  |               |   |      |              |  |   |    | 

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



|                                           |  |               |       |    |               |  |       |              |  |  |       |   
|------------------------------------------ |  | ------------- | ----- | -- | ------------- |  | ----- | ------------ |  |  | ----- | --
|                                           |  | Years ended   |      
|                                           |  | March 29,2009 |       |    | March 28,2010 |  |       | April 3,2011 | 
|Tax expense (benefit)                      |  |               |       |    |               |  |       |              |  |  |       |   
|Federal statutory rate                     |  |               | 34.0  | %  |               |  | 34.0  | %            |  |  | 34.0  | % 
|State income taxes, net of federal benefit |  |               | 1.5   | %  |               |  | 1.3   | %            |  |  | (0.6  | %)
|Rate change                                |  |               | 0.5   | %  |               |  | (0.1  | %)           |  |  | (1.1  | %)
|Stock compensation                         |  |               | 6.7   | %  |               |  | (0.2  | %)           |  |  | (1.8  | %)
|Other                                      |  |               | 7.9   | %  |               |  | 4.3   | %            |  |  | 1.4   | % 
|Valuation allowance                        |  |               | (46.9 | %) |               |  | (26.5 | %)           |  |  | (32.2 | %)
|                                           |  |               |       |    |               |  |       |              |  |  |       |   
|Effective income tax rate                  |  |               | 3.7   | %  |               |  | 12.8  | %            |  |  | (0.3  | %)
|                                           |  |               |       |    |               |  |       |              |  |  |       |   

As of March 28, 2010 and April 3, 2011, the Company had no unrecognized tax benefits or
associated interest and penalties. The Company will recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Company is subject to federal and state income taxes. The Company is no longer subject to federal or state income tax examinations before Fiscal 2008 and Fiscal 2007, respectively. 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 balance.

The Company is not currently under Internal Revenue Service (IRS) examination, but is currently being examined by the State
of Washington, the State of California and the State of Arizona for compliance with sales, use and excise tax laws in those jurisdictions.

11. Accrued liabilities

Accrued liabilities consist of the following:



|                                       |  |                        |       |  |              |   |       | 
|-------------------------------------- |  | ---------------------- | ----- |  | ------------ | - | ----- | 
|                                       |  | March 28,2010          |       |  | April 3,2011 |  
|                                       |  | (dollars in thousands) |      
|Employee wages and taxes               |  | $                      | 1,073 |  |              | $ | 929   | 
|Professional fees and services         |  |                        | 390   |  |              |   | 8     | 
|Accrued real estate and property taxes |  |                        | 188   |  |              |   | 87    | 
|Federal and state taxes payable        |  |                        | 240   |  |              |   | 690   | 
|Other                                  |  |                        | 170   |  |              |   | 169   | 
|                                       |  |                        |       |  |              |   |       | 
|Total                                  |  | $                      | 2,061 |  |              | $ | 1,883 | 
|                                       |  |                        |       |  |              |   |       | 



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12. Credit lines and long term debt

Benaroya Credit Facility

On March 27, 2009, outstanding indebtedness under a Benaroya credit facility of $9.6 million was repaid in full satisfaction of outstanding principal and accrued interest. Concurrent with the
repayment of the Benaroya credit facility, 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 a credit facility with Northrim Funding (the Northrim Facility). Under this credit facility, Tullys was allowed to borrow up to $6.5
million, subject to the amount of eligible accounts receivable and inventories. Borrowings under this facility accrued interest at the prime rate plus 7.0% with a floor of 12.0% and a ceiling of 14.0% and were secured by our inventories and through
the assignment (with recourse) of our accounts receivable.

On March 27, 2009, outstanding indebtedness under the
Northrim Facility of $5.8 million was repaid in full satisfaction of outstanding principal and accrued interest. Concurrent with the repayment of the Northrim Facility, Northrim Funding released its conditional security interest in Tullys
assets.

The Company currently has an available credit facility with Northrim Bank which allows the Company to borrow up to
$1.5 million, subject to the amount of eligible accounts receivable. As of April 3, 2011, there were no outstanding borrowings under this facility.

UCC Settlement Promissory Note

In January 2008, as consideration
for the settlement of a lawsuit related to a license agreement with UCC Ueshima Coffee Company, Ltd. (UCC), 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 the Company, to UCC. On March 27, 2009, the promissory note with UCC was repaid in full. Concurrent with the repayment of the promissory note, UCC released its 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 TCAP,
and AFCM, TCAP issued a promissory note in the principal amount of $1,120,000 (the GP Loan) to Tullys Coffee Asia. The GP Loan accrued interest at an annualized rate of 15%.

Also on December 31, 2008 as subsequently amended by Amendment No. 1 dated March 6, 2009, and amendment No. 2 on
March 17, 2009, Tullys Coffee Asia issued a convertible promissory note to AFCM in the principal amount of $1,120,000 (the LP Loan). The LP Loan bears interest of an annualized rate of 0.44%. The LP Loan is due and
payable five business days after the date that Tullys Coffee Asia has made distributions to AFCM in an amount equal to all principal and accrued interest on the LP Loan or in the event the partners clear certain security interests in
partnership obligations. In connection, Tullys has granted AFCM a preferential right to receive from Tullys Coffee Asia, prior to any future distribution to Tullys, cash distributions equal to US$500,000 out of Tullys Coffee
Asia profits available for distribution, and that, after receipt by AFCM of the full preference amount all subsequent cash distributions of profits shall be shared equally between TCAP and AFCM. Any subsequent cash distributions to AFCM would first
be applied to retire the LP Loan.

Tullys Coffee Asia Pacific  Limited Partnership Interest Obligation

On March 27, 2009, TCAP agreed to purchase, or cause a third party to purchase, one-half of AFCMs
partnership interest in Tullys Coffee Asia, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of US$4.0 million, by March 27, 2010. As of April 3, 2011, TCAP had not met its
obligation. TCAP and AFCM continue to work on a settlement and to seek a buyer for AFCMs partnership interest. If TCAP is unsuccessful in either finding a buyer for AFCMs interest or in its settlement negotiations, TCAP could face
adverse economic.



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##### Table of Contents

Other Obligations

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



|                                                                                                                                                                                                                                                              |  |                        |        |   |              |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------ | - | ------ | -
|                                                                                                                                                                                                                                                              |  | March 28,2010          |        |   | April 3,2011 |  
|                                                                                                                                                                                                                                                              |  | (dollars in thousands) |       
|Note payable for purchase of insurance, payable in variable monthly installments of approximately $6,000 - $12,000 including
interest of 2.9%, through June 2011 collateralized by unearned or return insurance premiums, accrued dividends and loss payments |  |                        | 157    |   |              |   | 54     |  
|Note payable due to Limited Partner in TCAPPLP                                                                                                                                                                                                                |  |                        | 4,000  |   |              |   | 4,000  |  
|                                                                                                                                                                                                                                                              |  |                        |        |   |              |   |        |  
|                                                                                                                                                                                                                                                              |  |                        | 4,157  |   |              |   | 4,054  |  
|Less: Current portion                                                                                                                                                                                                                                         |  |                        | (4,157 | ) |              |   | (4,054 | )
|                                                                                                                                                                                                                                                              |  |                        |        |   |              |   |        |  
|Long-term debt, net of current portion                                                                                                                                                                                                                        |  | $                      |       |   |              | $ |       |  

We had a credit facility with Northrim available to us at April 3, 2011, but had no borrowings
outstanding under the facility at that date.

13. International licenses and deferred revenue

Deferred licensing revenue recognized under international and domestic license agreements and store value cards is summarized as follows
(dollars in thousands):



|                                                          |  |                |       |   |               |   |       |  
|--------------------------------------------------------- |  | -------------- | ----- | - | ------------- | - | ----- | -
|                                                          |  | March 28,
2010 |       |   | April 3, 2011 |  
|Deferred licensing revenue:                               |  |                |       |   |               |   |       |  
|Additions to deferred licensing revenue in the period     |  | $              | 426   |   |               | $ | 255   |  
|Less: Deferred licensing revenue recognized in net sales  |  |                | (40   | ) |               |   | (73   | )
|                                                          |  |                |       |   |               |   |       |  
|Net increase in deferred licensing revenue for the period |  |                | 386   |   |               |   | 182   |  
|Deferred license revenue                                  |  |                |       |   |               |   |       |  
|Beginning of period                                       |  |                | 488   |   |               |   | 874   |  
|                                                          |  |                |       |   |               |   |       |  
|End of period                                             |  |                | 874   |   |               |   | 1,056 |  
|Less: Non-current portion                                 |  |                | (715  | ) |               |   | (831  | )
|                                                          |  |                |       |   |               |   |       |  
|Current portion of deferred licensing revenue             |  |                | 159   |   |               |   | 225   |  
|Deferred revenue from stored value cards                  |  |                | 4,112 |   |               |   | 4,315 |  
|                                                          |  |                |       |   |               |   |       |  
|Current portion deferred revenue                          |  | $              | 4,271 |   |               | $ | 4,540 |  
|                                                          |  |                |       |   |               |   |       |  

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 (TCAPPLP). The 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, AFCM, is managed by the founder and former chief executive officer of TCJ.

In connection with the formation of TCAPPLP, 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 TCAPPLP. AFCM agreed to contribute $6.0 million to the venture, of which $2.5 million was paid to TCAPPLP 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 TCAPPLP to TCAP, and the remaining $3.0 million is for
use by TCAPPLP for development of its business. The $3.0 million capital distribution from TCAPPLP to TCAP includes (1) $500,000 cash distributed to Tullys on January 8, 2008, (2) $2.0 million paid to UCC on January 8,
2008, and (3) $500,000 paid to TCAP on January 31, 2008. Each of the partners, TCAP (general partner) and AFCM (limited partner), owns 50% of the partnership interests of TCAPPLP. Under



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its license agreement with Tullys, TCAPPLP 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, TCAP agreed to purchase, or cause a third party to purchase, one-half of AFCMs partnership interest in TCAPPLP, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of
US$4.0 million, by March 27, 2010. As of April 3, 2011, TCAP had not met its obligation. TCAP and AFCM continue to work on a settlement and to seek a buyer for AFCMs partnership interest. If TCAP is unsuccessful in either finding a
buyer for AFCMs interest or in its settlement negotiations, it could face adverse economic consequences.

15. Related-party
transactions

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 former director of the Company
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
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,
$5,059 for this service in Fiscal 2010 and $0 for this service in Fiscal 2011.

On December 31, 2008 as subsequently
amended by Amendment No. 1 dated March 6, 2009, and amendment No. 2 on March 17, 2009, TCAPPLP issued a convertible promissory note to AFCM in the principal amount of $1,120,000 (the LP Loan). The LP Loan bears
interest of an annualized rate of 0.44%. The LP Loan is due and payable five business days after the date that TCAPPLP has made distributions to AFCM in an amount equal to all principal and accrued interest on the LP Loan or in the event the
partners clear certain security interests in partnership obligations. In connection, Tullys has granted AFCM a preferential right to receive from TCAPPLP, prior to any future distribution to Tullys, cash distributions equal to US$500,000
out of TCAPPLP profits available for distribution, and that, after receipt by AFCM of the full preference amount all subsequent cash distributions of profits shall be shared equally between TCAP and AFCM. Any subsequent cash distributions to AFCM
would first be applied to retire the LP Loan.

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 is not
practicable. In 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 2010 we did not incur any store closure expenses in relation to our closure of
three stores, and in Fiscal 2011 we incurred $69,000 for the closure of ten stores.

17. Commitments and contingencies

Lease commitments

We lease all of our retail and office space under operating leases, which expire through 2021. 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. Total rental expense under these
operating leases was approximately $4.9 million, $4.4 million and $4.2 million for Fiscal 2009, Fiscal 2010, and Fiscal 2011, respectively. Of total rental expense, contingent rental expense was approximately $309,000, $335,000, and $241,000 in
Fiscal 2009, Fiscal 2010, and Fiscal 2011, 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 rental payments required by the terms of our leases.

Minimum future rental payments under noncancellable operating leases as of April 3, 2011 are summarized as follows:



|                       |  |   |        | 
|---------------------- |  | - | ------ | 
|Fiscal year            |  |   |       
|(dollars in thousands) |  |   |       
|2012                   |  |   | 3,275  | 
|2013                   |  |   | 2,733  | 
|2014                   |  |   | 2,094  | 
|2015                   |  |   | 1,536  | 
|2016                   |  |   | 873    | 
|Thereafter             |  |   | 1,601  | 
|                       |  |   |        | 
|Total                  |  | $ | 12,112 | 
|                       |  |   |        | 



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We have subleased some of our leased premises to third parties under subleases with varying
terms through 2012. Remaining expected future sublease receipts under such sub-lease agreements are $26,000 in Fiscal 2012.

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 April 3, 2011, the aggregate contingent obligation for severance to these individuals was approximately $125,000.

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 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. In October 2009 Tullys issued 7,032 shares of common
stock and paid $159,000 as final payment to the class.

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 interests 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 TCAP, a wholly owned subsidiary of Tullys, to UCC. The promissory note was paid in full on March 27, 2009.

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. The plaintiff sought class action certification on behalf of all hourly employees in Tullys California stores. Similar lawsuits alleging missed meal and rest
periods have been filed in California against many other companies. We believe that Tullys complied with all laws that require providing meal and rest periods for its employees, but agreed to settle this lawsuit through binding
arbitration. This matter was settled in September 2010 in the amount of $375,000, all of which was disbursed to the class.

On
May 17, 2011, a lawsuit was filed against the Company in California state court by JH Development, LLC, a franchise area developer, alleging that (i) at the time the Company entered into agreements with the plaintiff, the Company concealed
its financial strength and the fact that it was contemplating a sale of its wholesale division and rights to the Tullys trademark; (ii) the Company breached the franchise agreements with the plaintiff; (iii) the Company
made false promises to the plaintiff; and (iv) the Company violated certain provisions of the California Corporations Code governing the sale of franchises. The plaintiff is seeking damages, rescission, and attorneys fees and
costs. We are investigating the claims, have retained California counsel, have removed the case to federal court in the Central District of California, and intend to vigorously defend this litigation, but cannot predict the outcome or financial
impact to the Company at this time. 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.



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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).

In December 2004, Tullys shareholders approved the 2004 Stock Option Plan. 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.

On March 2010, Tullys shareholders approved the 2010 Stock Option Plan.
The 2010 Stock Option Plan authorizes the issuance of up to 312,500 shares of common stock under the 2010 Stock Option Plan and Tullys Employee Stock Purchase Plan. As of March 28, 2010, no options had been granted under the 2010 Stock
Option Plan. The provisions of the 2010 Stock Option Plan, 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 founder and former chairman 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 founder 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 founder contributed his holdings of Tullys common stock to TTOK, LLC, a limited liability company owned by the founder, and the Founders Plan stock option obligations were assigned
to TTOK, LLC. 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.

Other Equity Instruments

Tullys has issued 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
April 3, 2011 are summarized as follows:



|                                                      |  |                     |        |  |                   |  |        |                |  |   |      | 
|----------------------------------------------------- |  | ------------------- | ------ |  | ----------------- |  | ------ | -------------- |  | - | ---- | 
|                                                      |  | Outstandingwarrants |        |  | Numberexercisable |  |        | ExercisePrices | 
|Issued with Series A Preferred Stock investment units |  |                     | 783    |  |                   |  | 783    |                |  | $ | 0.08 | 
|Issued to guarantors of debt                          |  |                     | 93,191 |  |                   |  | 93,191 |                |  | $ | 2.64 | 
|                                                      |  |                     |        |  |                   |  |        |                |  |   |      | 
|Totals                                                |  |                     | 93,974 |  |                   |  | 93,974 |                |  |   |      | 
|                                                      |  |                     |        |  |                   |  |        |                |  |   |      | 

Stock Options

We issue new shares of common stock upon the exercise of stock options granted under the 1994 Plan, 2004 and 2010 Stock Option Plan. During Fiscal 2011, 97,353 options were issued from the 2004 Stock
Option Plan.

Determining Fair Value Under FASB ASC 718

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.

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.



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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 28,2010 |   |         | April 3,2011 | 
|Weighted average risk free interest rate     |  |               | 1.91    | % |               |   | 0.53    | %            |  |   | 1.72    | %
|Expected dividend yield                      |  |               | 0       | % |               |   | 0       | %            |  |   | 0       | %
|Expected lives                               |  |               | 3 years |   |               |   | 3 years |              |  |   | 5 years |  
|Weighted average expected volatility         |  |               | 80      | % |               |   | 191     | %            |  |   | 113     | %
|Weighted average fair value at date of grant |  | $             | 5.93    |   |               | $ | 1.27    |              |  | $ | 1.64    |  

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 2011 we estimated our
pre-vesting option forfeiture rate at 18%.

Stock-based Compensation Under ASC 718

Stock-based compensation expense related to stock-based awards under FASB ASC 718 for Fiscal 2009, Fiscal 2010 and Fiscal 2011 totaled
$201,000, $128,000 and $77,000, respectively, which is included in Marketing, general and administrative costs in our Consolidated Statements of Operations.

As of April 3, 2011, we had approximately $165,000 of total unrecognized compensation cost related to the 166,353 non-vested stock-based awards granted under all equity compensation plans. We expect
to recognize this cost over a period of approximately three years.

Stock Award Activity

As of April 3, 2011 options for 316,488 shares were outstanding under all stock options plans, of which 289,319 were fully vested.

The following table summarizes activity under our stock option plans:



|                              |  |                 |          |   |                                        |   |       |                                                  |  |  |                         |  |  |  |  | 
|----------------------------- |  | --------------- | -------- | - | -------------------------------------- | - | ----- | ------------------------------------------------ |  |  | ----------------------- |  |  |  |  | 
|Exercise price per share      |  | Numberof Shares |          |   | Weighted-averageexerciseprice pershare |   |       | Weighted-averageremainingcontractuallife (years) |  |  | Aggregateintrinsicvalue | 
|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  |                                                  |  |  |                         |  |  |  |  | 
|Granted                       |  |                 | 6,500    |   |                                        | $ | 11.28 |                                                  |  |  |                         |  |  |  |  | 
|Exercised                     |  |                 | (189,805 | ) |                                        | $ | .08   |                                                  |  |  |                         |  |  |  |  | 
|Forfeited                     |  |                 | (39,274  | ) |                                        | $ | 10.15 |                                                  |  |  |                         |  |  |  |  | 
|                              |  |                 |          |   |                                        |   |       |                                                  |  |  |                         |  |  |  |  | 



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|                                                    |  |                 |          |   |                                        |   |       |                                                  |  |  |                         |  |  |   |        | 
|--------------------------------------------------- |  | --------------- | -------- | - | -------------------------------------- | - | ----- | ------------------------------------------------ |  |  | ----------------------- |  |  | - | ------ | 
|Exercise price per share                            |  | Numberof Shares |          |   | Weighted-averageexerciseprice pershare |   |       | Weighted-averageremainingcontractuallife (years) |  |  | Aggregateintrinsicvalue | 
|Outstanding at March 28, 2010                       |  |                 | 326,396  |   |                                        | $ | 7.81  |                                                  |  |  |                         |  |  |   |        | 
|Granted                                             |  |                 | 97,353   |   |                                        | $ | 1.64  |                                                  |  |  |                         |  |  |   |        | 
|Exercised                                           |  |                 | (62      | ) |                                        | $ | .08   |                                                  |  |  |                         |  |  |   |        | 
|Forfeited                                           |  |                 | (107,199 | ) |                                        | $ | 10.46 |                                                  |  |  |                         |  |  |   |        | 
|                                                    |  |                 |          |   |                                        |   |       |                                                  |  |  |                         |  |  |   |        | 
|Outstanding at April 3, 2011                        |  |                 | 316,488  |   |                                        | $ | 5.02  |                                                  |  |  |                         |  |  |   |        | 
|                                                    |  |                 |          |   |                                        |   |       |                                                  |  |  |                         |  |  |   |        | 
|Exercisable or convertible at the end of the period |  |                 | 289,319  |   |                                        | $ | 4.37  |                                                  |  |  | 8.6 years               |  |  | $ | 20,000 | 
|                                                    |  |                 |          |   |                                        |   |       |                                                  |  |  |                         |  |  |   |        | 

The aggregate intrinsic value of options outstanding at April 3, 2011 is calculated as the
difference between the market price of the underlying common stock and the exercise price of the options for the 86,369 exercisable options that had exercise prices that were lower than the $0.31 fair market value, as determined by our Board of
Directors, of our common stock at April 3, 2011.

The total intrinsic value of options exercised during Fiscal 2009,
Fiscal 2010 and Fiscal 2011 using the April 3, 2011 $0.31 fair market value was <$1,000, $44,000, and <$1,000 respectively.

19. Stockholders equity

Shareholder Distribution

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

Calculated on an as-converted to common stock basis, all classes of our outstanding stock (including our preferred stock)
received $1.03 per share.

The special distribution totaled $6.0 million and was paid on May 20, 2009, to shareholders of
record on the close of business on April 30, 2009. We have recorded the shareholder distribution as a reduction to additional paid-in capital.

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.

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 28, 2010, each eight shares of our outstanding Series
A Convertible Preferred were convertible into approximately 1.12 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.



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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.

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 28, 2010. 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 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. 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.

21. Segment Reporting

We present segment information in accordance with FASB ASC 280, 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 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.



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

The tables below present information by operating segment:



|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|-------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------- | - | ------ | ------------ |  | - | ------ | -
|                                                               |  | Years Ended            |       
|                                                               |  | March 29,2009          |        |   | March 28,2010 |   |        | April 3,2011 | 
|                                                               |  | (dollars in thousands) |       
|Net sales                                                      |  |                        |        |   |               |   |        |              |  |   |        |  
|Retail division (1)                                            |  | $                      | 38,615 |   |               | $ | 35,426 |              |  | $ | 36,297 |  
|Specialty division                                             |  |                        | 430    |   |               |   | 4,144  |              |  |   | 1,971  |  
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|Net sales                                                      |  | $                      | 39,045 |   |               | $ | 39,570 |              |  | $ | 38,268 |  
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|Earnings before interest, taxes, depreciation and amortization |  |                        |        |   |               |   |        |              |  |   |        |  
|Retail division(2)                                             |  | $                      | 2,055  |   |               | $ | 2,686  |              |  | $ | 3,112  |  
|Specialty division                                             |  |                        | (714   | ) |               |   | (1,101 | )            |  |   | (605   | )
|Corporate and other expenses                                   |  |                        | (7,742 | ) |               |   | (6,422 | )            |  |   | (6,834 | )
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|Earnings before interest, taxes, depreciation and amortization |  |                        | (6,401 | ) |               |   | (4,837 | )            |  |   | (4,327 | )
|Depreciation and amortization                                  |  |                        | (1,705 | ) |               |   | (1,191 | )            |  |   | (915   | )
|Income taxes                                                   |  |                        | 11,474 |   |               |   | 764    |              |  |   | (21    | )
|Non-controlling interest                                       |  |                        | 214    |   |               |   | 188    |              |  |   | 151    |  
|Interest income, interest expense, and loan guarantee fees     |  |                        | (3,268 | ) |               |   | (115   | )            |  |   | (102   | )
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|Net income (loss) attributable to TC Global, Inc.              |  | $                      | 314    |   |               | $ | (5,191 | )            |  | $ | (5,214 | )
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|Depreciation and amortization                                  |  |                        |        |   |               |   |        |              |  |   |        |  
|Retail division                                                |  | $                      | 1,377  |   |               | $ | 971    |              |  | $ | 766    |  
|Specialty division                                             |  |                        | 1      |   |               |   | 10     |              |  |   | 13     |  
|Corporate and other expenses                                   |  |                        | 327    |   |               |   | 210    |              |  |   | 136    |  
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  
|Total depreciation and amortization                            |  | $                      | 1,705  |   |               | $ | 1,191  |              |  | $ | 915    |  
|                                                               |  |                        |        |   |               |   |        |              |  |   |        |  



|(1) | Each fiscal year included 52 weeks, except for Fiscal 2011, which had 53 weeks. We estimate that the 53rd week accounted for $675,000 in net sales in Fiscal 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Retail division operating results include adjustments for impairment of long-lived assets of $237,000, $161,000 and $135,000 for Fiscal 2009, Fiscal 2010 and Fiscal
2011, respectively. It also includes amounts required to close stores and terminate store leases totaling $282,000 in Fiscal 2009, $0 in Fiscal 2010 and $69,000 in Fiscal 2011.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 issued 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 2010 and Fiscal 2011 because the effect of these instruments on the calculation would have been antidilutive.



58



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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 28,2010 |   |        | April 3,2011 | 
|                                                                                              |  | (dollars and shares in thousands,
except per share data) |       
|Computation of basic earnings (loss) per share                                                |  |                                                          |        |  |               |   |        |              |  |   |        |  
|Income (loss) from continuing operations attributable to TC Global, Inc.                      |  | $                                                        | 314    |  |               | $ | (5,191 | )            |  | $ | (5,214 | )
|Income from discontinued operations                                                           |  | $                                                        | 22,541 |  |               | $ |       |              |  | $ |       |  
|                                                                                              |  |                                                          |        |  |               |   |        |              |  |   |        |  
|Net income (loss) for basic earnings (loss) per share attributable to TC Global, Inc.         |  | $                                                        | 22,855 |  |               | $ | (5,191 | )            |  | $ | (5,214 | )
|                                                                                              |  |                                                          |        |  |               |   |        |              |  |   |        |  
|Weighted average shares used in computing basic earnings (loss) per share                     |  |                                                          | 3,265  |  |               |   | 3,537  |              |  |   | 3,564  |  
|Basic earnings (loss) per share from continuing operations                                    |  | $                                                        | 0.10   |  |               | $ | (1.47  | )            |  | $ | (1.46  | )
|Basic earnings (loss) per share from discontinued operations                                  |  | $                                                        | 6.90   |  |               | $ |       |              |  | $ |       |  
|Basic earnings (loss) per share attributable to TC Global, Inc.                               |  | $                                                        | 7.00   |  |               | $ | (1.47  | )            |  | $ | (1.46  | )
|Computation of diluted earnings (loss) per share                                              |  |                                                          |        |  |               |   |        |              |  |   |        |  
|Income (loss) from continuing operations attributable to TC Global, Inc.                      |  | $                                                        | 314    |  |               | $ | (5,191 | )            |  | $ | (5,214 | )
|Income from discontinued operations                                                           |  | $                                                        | 22,541 |  |               | $ |       |              |  | $ |       |  
|                                                                                              |  |                                                          |        |  |               |   |        |              |  |   |        |  
|Net income (loss) for diluted earnings (loss) per share attributable to TC Global, Inc.       |  | $                                                        | 22,855 |  |               | $ | (5,191 | )            |  | $ | (5,214 | )
|                                                                                              |  |                                                          |        |  |               |   |        |              |  |   |        |  
|Weighted average shares used in computing diluted earnings (loss) per share                   |  |                                                          | 6,478  |  |               |   | 3,537  |              |  |   | 3,564  |  
|Diluted earnings (loss) per share from continuing operations attributable to TC Global, Inc.  |  | $                                                        | 0.05   |  |               | $ | (1.47  | )            |  | $ | (1.46  | )
|Diluted earnings (loss) per share from discontinued operations                                |  | $                                                        | 3.48   |  |               | $ |       |              |  | $ |       |  
|Diluted earnings (loss) per share attributable to TC Global, Inc.                             |  | $                                                        | 3.53   |  |               | $ | (1.47  | )            |  | $ | (1.46  | )
|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  |  |               |   | 3,537  |              |  |   | 3,564  |  
|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 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  |  |               |   | 3,537  |              |  |   | 3,564  |  
|                                                                                              |  |                                                          |        |  |               |   |        |              |  |   |        |  

23. Subsequent Events

On May 17, 2011, a lawsuit was filed against the Company in California state court by JH Development, LLC, a franchise area developer, alleging that (i) at the time the Company entered into
agreements with the plaintiff, the Company concealed its financial strength and the fact that it was contemplating a sale of its wholesale division and rights to the Tullys trademark; (ii) the Company breached the franchise
agreements with the plaintiff; (iii) the Company made false promises to the plaintiff; and (iv) the Company violated certain provisions of the California Corporations Code governing the sale of franchises. The plaintiff is seeking
damages, rescission, and attorneys fees and costs. We are investigating the claims, have retained California counsel, have removed the case to federal court in the Central District of California, and intend to vigorously defend this
litigation, but cannot predict the outcome or financial impact to the Company at this time.



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24. Selected Quarterly Financial Data (Unaudited)

Summarized quarterly financial information for Fiscal 2011, Fiscal 2010 and Fiscal 2009 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 2011                                                                  |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |        |  
|Net sales from continuing operations (1)                                     |  | $                                             | 9,496  |   |         | $ | 9,200  |         |  | $ | 9,562   |   |  | $     | 10,010 |   |  | $ | 38,268 |  
|Gross profit from continuing operations                                      |  |                                               | 4,915  |   |         |   | 4,783  |         |  |   | 5,172   |   |  |       | 5,548  |   |  |   | 20,418 |  
|Net loss from continuing operations attributable to TC Global, Inc.          |  |                                               | (1,628 | ) |         |   | (1,537 | )       |  |   | (1,000  | ) |  |       | (1,049 | ) |  |   | (5,214 | )
|Basic and diluted loss per share                                             |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |        |  
|Net loss per basic share                                                     |  | $                                             | (0.46  | ) |         | $ | (0.43  | )       |  | $ | (0.28   | ) |  | $     | (0.29  | ) |  | $ | (1.46  | )
|Net loss per diluted share                                                   |  | $                                             | (0.46  | ) |         | $ | (0.43  | )       |  | $ | (0.28   | ) |  | $     | (0.29  | ) |  | $ | (1.46  | )
|                                                                             |  |                                               |        |   |        
|Fiscal 2010                                                                  |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |        |  
|Net sales from continuing operations                                         |  | $                                             | 9,980  |   |         | $ | 9,782  |         |  | $ | 10,098  |   |  | $     | 9,710  |   |  | $ | 39,570 |  
|Gross profit from continuing operations                                      |  |                                               | 5,144  |   |         |   | 5,004  |         |  |   | 5,199   |   |  |       | 4,674  |   |  |   | 20,021 |  
|Net loss from continuing operations attributable to TC Global, Inc.          |  |                                               | (867   | ) |         |   | (1,231 | )       |  |   | (1,389  | ) |  |       | (1,704 | ) |  |   | (5,191 | )
|Basic and diluted loss per share                                             |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |        |  
|Net loss per basic share                                                     |  | $                                             | (0.25  | ) |         | $ | (0.35  | )       |  | $ | (0.39   | ) |  | $     | (0.48  | ) |  | $ | (1.47  | )
|Net loss per diluted share                                                   |  | $                                             | (0.25  | ) |         | $ | (0.35  | )       |  | $ | (0.39   | ) |  | $     | (0.48  | ) |  | $ | (1.47  | )
|                                                                             |  |                                               |        |   |        
|Fiscal 2009                                                                  |  |                                               |        |   |         |   |        |         |  |   |         |   |  |       |        |   |  |   |        |  
|Net sales from continuing operations                                         |  | $                                             | 10,882 |   |         | $ | 10,107 |         |  | $ | 9,099   |   |  | $     | 8,957  |   |  | $ | 39,045 |  
|Gross profit from continuing operations                                      |  |                                               | 5,638  |   |         |   | 5,174  |         |  |   | 4,643   |   |  |       | 5,057  |   |  |   | 20,512 |  
|Net income (loss) from continuing operations attributable to TC Global, Inc. |  |                                               | (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   |  



|(1) | Each fiscal quarter included 13 weeks, except for the Fourth Quarter of Fiscal 2011, which had 14 weeks. We estimate that the 14thweek accounted for $685 in net sales in the Fourth Quarter of Fiscal
2011
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

An evaluation was performed, under the supervision and with the participation of management, including the Chief Executive Officer (CEO)
and the Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the 1934 Act)). Based on that
evaluation, management, including the CEO and CFO, has concluded that, as of April 3, 2011, our disclosure controls and procedures were ineffective due to limited technical resources and lack of segregation of duties with regard to financial
accounting and reporting disclosures. Management continues to assess and remediate internal controls over financial reporting as part of their reorganization and right sizing plan and will continue to do so during Fiscal 2012.

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 April 3, 2011. 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 April 3, 2011, our internal control over financial
reporting was ineffective due to limited technical resources and role transitions within the Companys accounting and finance department which also resulted in lack of segregation of duties as it relates to duties associated with the financial
close and reporting controls. Management continues to assess and remediate internal controls over financial reporting as part of their reorganization and right sizing plan and will continue to do so during Fiscal 2012.

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 the final ruling of the Securities and Exchange Commission that permit the Company to provide only managements
report in this annual report.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of fiscal year 2011 there have been changes in personnel, including the CEO and CFO, which have resulted in
changes in roles and responsibilities associated with internal controls over financial reporting which has resulted in lack of segregation of duties and reduced the resources and expertise related to financial statement preparation and reporting.
Management continues to assess and revise internal controls over financial reporting as part of their reorganization and right sizing plan. There have been no other changes in the Companys internal control over financial reporting
that occurred during the fourth quarter of fiscal year 2011 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.

There has been no change in our internal control over financial reporting during the fiscal year ended April 3, 2011, that has
materially affected, or is reasonably likely to effect, our internal control over financial reporting. All filings for Fiscal 2011 have been accomplished within prescribed and acceptable time frames.



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

None.



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PART III



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

The information required by this item is contained in part under the captions Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in our proxy
statement related to the 2011 Annual Meeting of Shareholders and is incorporated herein by reference.



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

The information required by this item is contained in part under the headings Election of DirectorsDirector Compensation
and Compensation Discussion and Analysis in our proxy statement related to the 2011 Annual Meeting of Shareholders is incorporated herein by reference.



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

The information required by this item is contained in part under the captions Ownership of Securities and Equity
Compensation Plans, in each case in our proxy statement related to the 2011 Annual Meeting of Shareholders, and is incorporated herein by reference.



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

The information required by this item is contained in part under the captions Certain Relationships and Related Transactions and Election of DirectorsBoard of Directors Meetings
and Committees, in each case in our proxy statement related to the 2011 Annual Meeting of Shareholders, and is incorporated herein by reference.



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

The information required by this item is contained in part under the captions Ratification of Selection of Independent Registered Public Accounting FirmIndependent Auditors Services and
Fees and Audit Committee Pre-Approval Policy in our proxy statement related to the 2011 Annual Meeting of Shareholders and is incorporated herein by reference.



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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 28, 2010 and April 3, 2011;

Consolidated Statements of Operations for the years ended March 29, 2009, March 28, 2010 and April 3, 2011;

Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended March 29, 2009, March 28, 2010 and
April 3, 2011;

Consolidated Statements of Cash Flows for the years ended March 29, 2009, March 28, 2010 and
April 3, 2011;

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 a double asterisk.



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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 July 5, 2011.



TC GLOBAL, INC.BY:

/S/    CATHERINE M. CAMPBELLChief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on July 5, 2011 on behalf of the Registrant and in the capacities indicated:



|                               |  |                                                                     
|------------------------------ |  | --------------------------------------------------------------------
|Signature                      |  | Title                                                               
|                               | 
|/S/    CARL W. PENNINGTON,
SR. |  | Chairman of the Board                                               
|Carl W. Pennington, Sr.        |  |                                                                     
|                               | 
|/S/    SCOTT M. PEARSON        |  | President (principal executive officer) and Chief Executive Officer 
|Scott M. Pearson               |  |                                                                     
|                               | 
|/S/    SCOTT I.
ANDERSON       |  | Director                                                            
|Scott I. Anderson              |  |                                                                     
|                               | 
|/S/    JOHN M. FLUKE           |  | Director                                                            
|John M. Fluke                  |  |                                                                     
|                               | 
|/S/    GREGORY A.
HUBERT       |  | Director                                                            
|Gregory A. Hubert              |  |                                                                     
|                               | 
|/S/    JANET L.
HENDRICKSON    |  | Director                                                            
|Janet L. Hendrickson           |  |                                                                     
|                               | 
|/S/    RONALD G.
NEUBAUER      |  | Director                                                            
|Ronald G. Neubauer             |  |                                                                     
|                               | 
|/S/    CATHERINE M.
CAMPBELL   |  | Chief Financial Officer (principal accounting and financial officer)
|Catherine M. Campbell          |  |                                                                     



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##### 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(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)                                                                                                                  



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|        |  |                                                                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|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    |  | Tullys 2010 Stock Option Plan (Filed with the Registrants Registration Statement on Form S-8, as filed with the SEC on June 3, 2010, and incorporated herein by
reference)                                                                                                
|        | 
|10.5    |  | 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)                                                  
|        | 
|10.6    |  | 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)                                                      
|        | 
|10.7    |  | 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)                                                       
|        | 
|10.8(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)                                    
|        | 
|10.8(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)          
|        | 
|10.8(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)              
|        | 
|10.8(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)           
|        | 
|10.8(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)         
|        | 
|10.8(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)           



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|         |  |                                                                                                                                                                                                                                                                                                             
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|10.8(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)                              
|         | 
|10.8(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)                            
|         | 
|10.8(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)                           
|         | 
|10.8(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)                            
|         | 
|10.8(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)                          
|         | 
|10.9     |  | 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)          
|         | 
|10.10    |  | 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)  
|         | 
|10.11    |  | 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)
|         | 
|10.12    |  | Supply Agreement between Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation dated March 27, 2009 (Filed with the Registrants Current Report on Form
8-K, dated March 29, 2009, as filed with the SEC on June 29, 2009, and incorporated herein by reference)                              
|         | 
|10.13    |  | License Agreement between Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation dated March 27, 2009 (Filed with the Registrants Current Report on Form
8-K, dated March 29, 2009, as filed with the SEC on June 29, 2009, and incorporated herein by reference)                             
|         | 
|10.14    |  | Non-Competition Agreement Green Mountain Coffee Roasters, Inc. and Tullys Coffee Corporation dated March 27, 2009 (Filed with the Registrants Current Report on Form
8-K, dated March 29, 2009, as filed with the SEC on June 29, 2009, and incorporated herein by reference)                             
|         | 
|10.16    |  | 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)                                                         
|         | 
|10.17(a) |  | 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)                                      
|         | 
|10.17(b) |  | 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)                            
|         | 
|10.17(c) |  | 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)                                               
|         | 
|10.18    |  | 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)                                                         
|         | 
|10.19*   |  | Employment Agreement between TC Global, Inc. and Scott M. Pearson, regarding Mr. Pearsons employment as President and Chief Executive Officer of TC Global,
Inc.**                                                                                                                                         



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##### Table of Contents

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



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