##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the Quarterly Period Ended March 31, 2010

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: 33-96070-LA





THANKSGIVING COFFEE COMPANY, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 94-2823626                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               | 
|19100 South Harbor Drive, Fort Bragg, California               |  | 95437                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(707)
964-0118

(Registrants telephone number, including area code)





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 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. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈                                                |  | Accelerated Filer         |  |  ̈
|                        |  |                                                  | 
|Non-Accelerated Filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller Reporting Company |  | x

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

On May 14, 2010 the registrant had 1,236,744 shares of Class A common stock, no par value per share, outstanding.









---

##### Table of Contents

FORM 10-Q

TABLE OF CONTENTS



|           |  |                                                                                                                |  |   
|---------- |  | -------------------------------------------------------------------------------------------------------------- |  | --
|           |  | PART I  FINANCIAL INFORMATION                                                                                 |  |   
|           |  |                                                                                                               
|Item 1.    |  | Consolidated Financial Statements                                                                              |  | 3 
|           |  |                                                                                                               
|           |  | Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009.                            |  | 4 
|           |  |                                                                                                               
|           |  | Consolidated Statements of Operations for the three months ended March 31, 2010 and March 31, 2009 (unaudited) |  | 6 
|           |  |                                                                                                               
|           |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and March 31, 2009 (unaudited) |  | 7 
|           |  |                                                                                                               
|           |  | Notes to Consolidated Financial Statements                                                                     |  | 8 
|           |  |                                                                                                               
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 18
|           |  |                                                                                                               
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 21
|           |  |                                                                                                               
|Item 4.    |  | Controls and Procedures                                                                                        |  | 21
|           |  |                                                                                                               
|           |  | PART II  OTHER INFORMATION                                                                                    |  | 22
|           |  |                                                                                                               
|Item 1.    |  | Legal Proceedings                                                                                              |  | 22
|           |  |                                                                                                               
|Item 1A.   |  | Risk Factors                                                                                                   |  | 22
|           |  |                                                                                                               
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 22
|           |  |                                                                                                               
|Item 3.    |  | Defaults Upon Senior Securities                                                                                |  | 22
|           |  |                                                                                                               
|Item 4.    |  | Remove and Reserved                                                                                            |  | 22
|           |  |                                                                                                               
|Item 6.    |  | Exhibits                                                                                                       |  | 22
|           | 
|Signatures |  | 23                                                                                                            



2



---

##### Table of Contents

Financial Statements

and Notes to Financial Statements

Thanksgiving Coffee Company, Inc.

For the Three Months Ended March 31, 2010 and 2009

PART 1. Financial Information



|Item 1. | Financial Statements
|------- | --------------------

The consolidated
financial statements included herein have been prepared by Thanksgiving Coffee Company, Inc. (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations. In the opinion of management of
the Company, the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2010 and December 31, 2009, and its results of operations for the three month periods ended
March 31, 2010 and 2009 and its cash flows for the three month periods ended March 31, 2010 and 2009. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial
statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Companys annual report on Form 10-K.



3



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Balance Sheets



|                                       |  |                          |            |   |                            |   |            |  
|-------------------------------------- |  | ------------------------ | ---------- | - | -------------------------- | - | ---------- | -
|                                       |  | March 31,2010(Unaudited) |            |   | December 31,2009See Note 1 |  
|Assets                                 |  |                          |            |   |                            |   |            |  
|Current assets                         |  |                          |            |   |                            |   |            |  
|Cash                                   |  | $                        | 39,004     |   |                            | $ | 54,743     |  
|Accounts receivable, net of allowance  |  |                          | 213,542    |   |                            |   | 245,315    |  
|Inventories                            |  |                          | 287,022    |   |                            |   | 307,192    |  
|Prepaid expenses                       |  |                          | 16,687     |   |                            |   | 28,267     |  
|                                       |  |                          |            |   |                            |   |            |  
|Total current assets                   |  |                          | 556,255    |   |                            |   | 635,517    |  
|                                       |  |                         
|Property and equipment                 |  |                          |            |   |                            |   |            |  
|Property and equipment                 |  |                          | 2,666,517  |   |                            |   | 2,653,539  |  
|Accumulated depreciation               |  |                          | (2,336,722 | ) |                            |   | (2,310,811 | )
|                                       |  |                          |            |   |                            |   |            |  
|Total property and equipment           |  |                          | 329,795    |   |                            |   | 342,728    |  
|                                       |  |                         
|Other assets                           |  |                          |            |   |                            |   |            |  
|Deposits and other assets              |  |                          | 2,000      |   |                            |   | 12,569     |  
|Other intangibles, net of amortization |  |                          | 4,299      |   |                            |   | 5,505      |  
|                                       |  |                          |            |   |                            |   |            |  
|Total other assets                     |  |                          | 6,299      |   |                            |   | 18,074     |  
|                                       |  |                          |            |   |                            |   |            |  
|Total assets                           |  | $                        | 892,349    |   |                            | $ | 996,319    |  
|                                       |  |                          |            |   |                            |   |            |  

See accompanying notes to financial statements



4



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Balance Sheets



|                                                                                                 |  |                          |          |   |                            |   |          |  
|------------------------------------------------------------------------------------------------ |  | ------------------------ | -------- | - | -------------------------- | - | -------- | -
|                                                                                                 |  | March 31,2010(Unaudited) |          |   | December 31,2009See Note 1 |  
|Liabilities and shareholders equity                                                             |  |                          |          |   |                            |   |          |  
|Current liabilities                                                                              |  |                          |          |   |                            |   |          |  
|Accounts payable                                                                                 |  | $                        | 299,067  |   |                            | $ | 330,381  |  
|Notes payable - bank                                                                             |  |                          | 49,376   |   |                            |   | 50,568   |  
|Notes payable - other                                                                            |  |                          | 3,081    |   |                            |   | 3,611    |  
|Note payable - shareholders                                                                      |  |                          | 25,019   |   |                            |   | 31,019   |  
|Capital lease obligations                                                                        |  |                          | 17,244   |   |                            |   | 19,988   |  
|Accrued liabilities                                                                              |  |                          | 63,441   |   |                            |   | 42,249   |  
|                                                                                                 |  |                          |          |   |                            |   |          |  
|Total current liabilities                                                                        |  |                          | 457,228  |   |                            |   | 477,816  |  
|                                                                                                 |  |                         
|Long term debt                                                                                   |  |                          |          |   |                            |   |          |  
|Notes payable - Bank                                                                             |  |                          | 166,300  |   |                            |   | 175,266  |  
|Notes payable - Other                                                                            |  |                          |         |   |                            |   | 325      |  
|Capital lease obligations                                                                        |  |                          | 40,658   |   |                            |   | 44,486   |  
|                                                                                                 |  |                          |          |   |                            |   |          |  
|Total long term debt                                                                             |  |                          | 206,958  |   |                            |   | 220,077  |  
|                                                                                                 |  |                          |          |   |                            |   |          |  
|Total liabilities                                                                                |  |                          | 664,186  |   |                            |   | 697,893  |  
|                                                                                                 |  |                         
|Shareholders equity                                                                             |  |                          |          |   |                            |   |          |  
|Common stock, no par value, 1,960,000 shares authorized, 1,236,744 shares issued and outstanding |  |                          | 861,816  |   |                            |   | 861,816  |  
|Additional paid in capital                                                                       |  |                          | 24,600   |   |                            |   | 24,600   |  
|Accumulated deficit                                                                              |  |                          | (658,253 | ) |                            |   | (587,990 | )
|                                                                                                 |  |                          |          |   |                            |   |          |  
|Total shareholders equity                                                                       |  |                          | 228,163  |   |                            |   | 298,426  |  
|                                                                                                 |  |                          |          |   |                            |   |          |  
|Total liabilities and shareholders equity                                                       |  | $                        | 892,349  |   |                            | $ | 996,319  |  
|                                                                                                 |  |                          |          |   |                            |   |          |  

See accompanying notes to financial statements



5



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Statements of Operations

Unaudited



|                                             |  |                                     |           |   |      |   |           |  
|-------------------------------------------- |  | ----------------------------------- | --------- | - | ---- | - | --------- | -
|                                             |  | For the Three MonthsEnded
March 31, |          
|                                             |  | 2010                                |           |   | 2009 |  
|Income                                       |  |                                     |           |   |      |   |           |  
|Net sales                                    |  | $                                   | 1,003,088 |   |      | $ | 1,079,650 |  
|Cost of sales                                |  |                                     | 648,305   |   |      |   | 650,025   |  
|                                             |  |                                     |           |   |      |   |           |  
|Gross profit                                 |  |                                     | 354,783   |   |      |   | 429,625   |  
|                                             |  |                                    
|Operating expenses                           |  |                                     |           |   |      |   |           |  
|Selling, general and administrative expenses |  |                                     | 390,593   |   |      |   | 427,356   |  
|Depreciation and amortization                |  |                                     | 23,671    |   |      |   | 25,582    |  
|                                             |  |                                     |           |   |      |   |           |  
|Total operating expenses                     |  |                                     | 414,264   |   |      |   | 452,938   |  
|                                             |  |                                     |           |   |      |   |           |  
|Operating loss                               |  |                                     | (59,481   | ) |      |   | (23,313   | )
|                                             |  |                                    
|Other income (expense)                       |  |                                     |           |   |      |   |           |  
|Miscellaneous income (expense)               |  |                                     | (2,216    | ) |      |   | (2,334    | )
|Interest expense                             |  |                                     | (7,766    | ) |      |   | (9,354    | )
|                                             |  |                                     |           |   |      |   |           |  
|Total other income (expense)                 |  |                                     | (9,982    | ) |      |   | (11,688   | )
|                                             |  |                                     |           |   |      |   |           |  
|Loss before income taxes                     |  |                                     | (69,463   | ) |      |   | (35,001   | )
|Income tax expense                           |  |                                     | (800      | ) |      |   | (800      | )
|                                             |  |                                     |           |   |      |   |           |  
|Net loss                                     |  | $                                   | (70,263   | ) |      | $ | (35,801   | )
|                                             |  |                                     |           |   |      |   |           |  
|Loss per share (basic)                       |  | $                                   | (0.057    | ) |      | $ | (0.029    | )
|                                             |  |                                     |           |   |      |   |           |  
|Loss per share (dilutive)                    |  | $                                   | (0.057    | ) |      | $ | (0.029    | )
|                                             |  |                                     |           |   |      |   |           |  
|Weighted average number of shares            |  |                                     | 1,236,744 |   |      |   | 1,236,744 |  
|                                             |  |                                     |           |   |      |   |           |  

See accompanying notes to financial statements



6



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Statements of Cash Flows

Unaudited



|                                                                           |  |                                     |         |   |      |   |         |  
|-------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                           |  | For the Three MonthsEnded March 31, |        
|                                                                           |  | 2010                                |         |   | 2009 |  
|Operating activities                                                       |  |                                     |         |   |      |   |         |  
|Net loss                                                                   |  | $                                   | (70,263 | ) |      | $ | (35,801 | )
|Adjustments to reconcile net loss to cash flows from operating activities: |  |                                     |         |   |      |   |         |  
|Depreciation and amortization                                              |  |                                     | 27,117  |   |      |   | 28,104  |  
|Allowance for bad debts                                                    |  |                                     | (2,419  | ) |      |   | (192    | )
|(Increase) decrease in:                                                    |  |                                     |         |   |      |   |         |  
|Accounts receivable                                                        |  |                                     | 34,193  |   |      |   | 24,858  |  
|Inventories                                                                |  |                                     | 20,170  |   |      |   | 21,379  |  
|Prepaid expenses                                                           |  |                                     | 11,580  |   |      |   | 8,109   |  
|Deposits and other assets                                                  |  |                                     | 10,569  |   |      |   | 3,053   |  
|Increase (decrease) in:                                                    |  |                                     |         |   |      |   |         |  
|Accounts payable                                                           |  |                                     | (31,315 | ) |      |   | (19,835 | )
|Accrued liabilities                                                        |  |                                     | 21,192  |   |      |   | 49,693  |  
|                                                                           |  |                                     |         |   |      |   |         |  
|Net cash provided by (used in) operating activities                        |  |                                     | 20,824  |   |      |   | 79,368  |  
|                                                                           |  |                                    
|Investing activities                                                       |  |                                     |         |   |      |   |         |  
|Purchases of property and equipment                                        |  |                                     | (12,978 | ) |      |   | (5,085  | )
|                                                                           |  |                                     |         |   |      |   |         |  
|Net cash (used in) investing activities                                    |  |                                     | (12,978 | ) |      |   | (5,085  | )
|                                                                           |  |                                    
|Financing activities                                                       |  |                                     |         |   |      |   |         |  
|Repayments of notes payable and capital leases                             |  |                                     | (23,585 | ) |      |   | (33,264 | )
|                                                                           |  |                                     |         |   |      |   |         |  
|Net cash (used in) financing activities                                    |  |                                     | (23,585 | ) |      |   | (33,264 | )
|                                                                           |  |                                    
|Decrease in cash                                                           |  |                                     | (15,739 | ) |      |   | 41,019  |  
|Cash at beginning of period                                                |  |                                     | 54,743  |   |      |   | 52,144  |  
|                                                                           |  |                                     |         |   |      |   |         |  
|Cash at end of period                                                      |  | $                                   | 39,004  |   |      | $ | 93,163  |  
|                                                                           |  |                                     |         |   |      |   |         |  

See accompanying notes to financial statements



7



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

March 31, 2009 and December 31, 2008

1. Basis of Presentation

The unaudited
condensed financial statements in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. We have continued to follow the accounting policies disclosed in the financial statements included in our 2009 Form 10-K filed with the Securities and Exchange Commission (SEC). It is suggested that these statements be read in
conjunction with the December 31, 2009 audited financial statements and the accompanying notes on Form 10-K, as filed with the SEC.

The
interim financial information in this Form 10-Q reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our results of operations for the interim periods. The results of operations for the three months
ended March 31, 2010 are not necessarily indicative of results to be expected for the full year.

Concentration of Risk

In the first quarter of fiscal 2010, one customer accounted for 20.3% of the Companys revenue. The account has purchased from the
Company since 1992. The account has serving locations and is a distributor of the Companys product. A loss of this account or any other large account, or a significant reduction in sales to any of the Companys principal customers, could
have an adverse impact on the Company.

Segment Reporting

ASC 280, Disclosures about Segments of an Enterprise and Related Information, changed the way public companies report information about
segments of their business in their financial statements. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. See
Note 12

Income Taxes

The
Company accounts for income taxes under the asset and liability method as prescribed by ASC 740, Accounting for Income Taxes. As such, deferred income tax assets and liabilities are recognized for the future tax consequences of the
differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basses. Deferred income 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.

A valuation allowance is established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.



8



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



2. Accounts Receivable

Accounts receivable consist of the following:



|                                      |  |           |         |   |            |   |         |  
|------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                      |  | 3/31/2010 |         |   | 12/31/2009 |  
|Accounts receivable                   |  | $         | 218,182 |   |            | $ | 252,374 |  
|Less: allowance for doubtful accounts |  |           | (4,640  | ) |            |   | (7,059  | )
|                                      |  |           |         |   |            |   |         |  
|Net accounts receivable               |  | $         | 213,542 |   |            | $ | 245,315 |  
|                                      |  |           |         |   |            |   |         |  

The Company utilizes a percentage method to establish the allowance for doubtful accounts. The estimated allowance ranges
from 1% to 10% of outstanding receivables based on factors pertaining to the credit risk of specific customers, historical trends and other information. Delinquent accounts are written off when it is determined that amounts are uncollectible. Bad
debt expense (recovery) for the three months ended March 31, 2010 and 2009 was $(2,480) and $81 respectively.

3. Inventories

Inventories consist of the following:



|                                                        |  |           |         |            |   |        
|------------------------------------------------------- |  | --------- | ------- | ---------- | - | -------
|                                                        |  | 3/31/2010 |         | 12/31/2009
|Coffee                                                  |  |           |         |            |   |        
|Unroasted                                               |  | $         | 110,225 |            | $ | 107,325
|Roasted                                                 |  |           | 57,579  |            |   | 71,159 
|Tea                                                     |  |           | 1,663   |            |   | 1,393  
|Packaging, supplies and other merchandise held for sale |  |           | 117,555 |            |   | 127,315
|                                                        |  |           |         |            |   |        
|Total inventories                                       |  | $         | 287,022 |            | $ | 307,192
|                                                        |  |           |         |            |   |        

4. Property and Equipment

Property and equipment consist of the following:



|                                      |  |           |            |   |            |   |            |  
|------------------------------------- |  | --------- | ---------- | - | ---------- | - | ---------- | -
|                                      |  | 3/31/2010 |            |   | 12/31/2009 |  
|Equipment                             |  | $         | 1,410,986  |   |            | $ | 1,334,579  |  
|Furniture and fixtures                |  |           | 190,991    |   |            |   | 210,016    |  
|Leasehold improvements                |  |           | 465,972    |   |            |   | 460,729    |  
|Transportation equipment              |  |           | 194,147    |   |            |   | 184,368    |  
|Marketing equipment                   |  |           | 159,913    |   |            |   | 166,162    |  
|Capitalized website development costs |  |           | 14,074     |   |            |   | 14,076     |  
|Property held under capital leases    |  |           | 230,434    |   |            |   | 283,609    |  
|                                      |  |           |            |   |            |   |            |  
|Total property and equipment          |  |           | 2,666,517  |   |            |   | 2,653,539  |  
|Accumulated depreciation              |  |           | (2,336,722 | ) |            |   | (2,310,811 | )
|                                      |  |           |            |   |            |   |            |  
|Property and equipment, net           |  | $         | 329,795    |   |            | $ | 342,728    |  
|                                      |  |           |            |   |            |   |            |  

Depreciation expense for the three months ended March 31, 2010 and 2009 was $25,911 and $26,898 respectively.



9



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



5. Intangible Assets

Intangible assets subject to amortization consist of the following:



|                                       |  |           |         |   |            |   |         |  
|-------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                       |  | 3/31/2010 |         |   | 12/31/2009 |  
|Leasehold value                        |  | $         | 67,000  |   |            | $ | 67,000  |  
|Trademarks                             |  |           | 5,127   |   |            |   | 5,127   |  
|                                       |  |           |         |   |            |   |         |  
|Total intangible assets                |  |           | 72,127  |   |            |   | 72,127  |  
|Accumulated amortization               |  |           | (67,828 | ) |            |   | (66,622 | )
|                                       |  |           |         |   |            |   |         |  
|Other intangibles, net of amortization |  | $         | 4,299   |   |            | $ | 5,505   |  
|                                       |  |           |         |   |            |   |         |  

Amortization expense for the three months ended March 31, 2010 and 2009 was $1,206 for both years.

6. Deposits and Other Assets

Included
in Deposits and Other Assets are artwork that was developed for the labels for the tea program and long-term deposits.



10



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



7. Long Term Debt

Notes Payable



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |           |         |            |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ---------- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 3/31/2009 |         | 12/31/2009
|Note payable to Savings Bank of Mendocino, payable in monthly installments of $4,309 plus interest at 7.25% renewed December 1, 2009, final payment is due on December 1,
2014. The note payable is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee from the Companys majority
shareholders.                                                                                                                                 |  | $         | 204,176 |            | $ | 213,334
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          
|Line of credit to Savings Bank of Mendocino, payable in monthly installments of interest only at 2% over prime rate renewed March 16, 2010 with a minimum rate of 6.50% (6.500%
at March 31, 2010). The note payable for the line of credit is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal
guarantee from the Companys majority shareholders. The line is for a maximum of $25,000 and $11,500 has been used as of March 31, 2010. |  |           | 11,500  |            |   | 12,500 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          
|Note payable to majority shareholders, Paul and Joan Katzeff, uncollateralized, payable in monthly installments of $2,000 plus interest at 12%paid monthly, due on July 15, 2010
..                                                                                                                                                                                                                                                                                                                                                                                          |  |           | 5,100   |            |   | 11,100 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          
|Note payable to majority shareholders, Paul and Joan Katzeff, uncollateralized payable in monthly installments of interest only at 12%, with balance due on demand after
June 30, 1996.                                                                                                                                                                                                                                                                                                                                                                                      |  |           | 19,919  |            |   | 19,919 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |          
|Note payable to Chrysler Financing, payable in monthly installments of $329, including interest at 15.492%, collateralized by a vehicle, final payment due on January 24, 2011                                                                                                                                                                                                                                                                                                                                                                                               |  |           | 3,081   |            |   | 3,936  



11



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



Capital Lease Obligations



|                                                                                                                                                                                                |  |           |  |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ----------
|                                                                                                                                                                                                |  | 3/31/2010 |  | 12/31/2009
|Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $621, including interest at 14.32%, collateralized by equipment, final payment due on
September 8, 2014 |  | 24,639    |  | 25,599    
|                                                                                                                                                                                                |  |          
|Note payable to Marlin Leasing payable in monthly installments of $544, including interest at 17.172%, collateralized by equipment, final payment due on May 1,
2010.                           |  | 1,069     |  | 2,619     
|                                                                                                                                                                                                |  |          
|Note payable to Marlin Leasing payable in monthly installments of $428, including interest at 18.00%, collateralized by equipment, final payment due on October 1,
2010.                        |  | 1,651     |  | 2,830     
|                                                                                                                                                                                                |  |          
|Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $533, including interest at 22.24%, collateralized by equipment, final payment due on
January 10, 2010. |  |          |  | 524       



12



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



7. Long Term Debt (continued)

Capital Lease Obligations (continued)



|                                                                                                                                                                     |  |           |         |   |            |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | - | ---------- | - | -------- | -
|                                                                                                                                                                     |  | 3/31/2010 |         |   | 12/31/2009 |  
|Note payable to Bank of the West payable in monthly installments of $489, including interest at 12.69% collateralized by equipment, final payment due on May 1, 2013 |  | $         | 15,237  |   |            | $ | 16,201   |  
|                                                                                                                                                                     |  |          
|Note payable to BSB Leasing payable in monthly installments of $285, including interest at 15.89%, colateralized by equipment, final payment due on June 2, 2012     |  |           | 8,869   |   |            |   | 9,680    |  
|                                                                                                                                                                     |  |          
|Note payable to BSB Leasing payable in monthly installments of $390, including interest at 14.30%, collateralized by equipment, final payment due June 2, 2012       |  |           | 6,437   |   |            |   | 7,021    |  
|                                                                                                                                                                     |  |           |         |   |            |   |          |  
|                                                                                                                                                                     |  | $         | 301,678 |   |            | $ | 325,263  |  
|Less current portion                                                                                                                                                 |  |           | (94,720 | ) |            |   | (105,186 | )
|                                                                                                                                                                     |  |           |         |   |            |   |          |  
|Long term portion of notes payable                                                                                                                                   |  | $         | 206,958 |   |            | $ | 220,077  |  
|                                                                                                                                                                     |  |           |         |   |            |   |          |  

Interest paid for the three months ended March 31, 2010 and 2009 was $7,766 and $9,354, respectively.

As of March 31, 2010, maturities of notes payable and capital lease obligations for each of the next five years and in the aggregate were as
follows:



|                       |  |   |        
|---------------------- |  | - | -------
|Years Ending March 31, |  |  
|2011                   |  | $ | 94,720 
|2012                   |  |   | 77,564 
|2013                   |  |   | 79,541 
|2014                   |  |   | 49,853 
|                       |  |   |        
|                       |  | $ | 301,678
|                       |  |   |        

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



13



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



8. Income Taxes

Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The
Companys deferred tax assets consist of the benefit from net operating loss (NOL) carryforwards and temporary differences. The net operating loss carryforwards expire in various years through 2030. The Companys deferred tax assets are
offset by a valuation allowance due to the uncertainty of the realization of the net operation loss carryforwards. Net operating loss carryforwards may be further limited by a change in company ownership and other provisions of the tax laws.

The Companys deferred tax assets, valuation allowance, and change in valuation allowance as of March 31, 2010 are as follows:



|               |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|-------------- |  | -------------------------------------------------- | ------- | ---------- | ---- | -------------- | - | ------------------ |  | - | --------------------------- | - |  | -------------- | ------- | - |  | - | -
|Period Ending  |  | Estimated NOLCarryforward LessTemporaryDifferences |         | NOLExpires |      | BenefitFromNOL |   | ValuationAllowance |  |   | Change inValuationAllowance |   |  | Net TaxBenefit
|March 31, 2010 |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|Federal        |  | $                                                  | 11,416  |            | 2017 |                | $ | 1,712              |  | $ | (1,712                      | ) |  | $              | (1,712  | ) |  | $ | 
|               |  |                                                    | 128,576 |            | 2018 |                |   | 19,286             |  |   | (19,286                     | ) |  |                | (19,286 | ) |  |   | 
|               |  |                                                    | 96,867  |            | 2023 |                |   | 14,530             |  |   | (14,530                     | ) |  |                | (14,530 | ) |  |   | 
|               |  |                                                    | 49,714  |            | 2024 |                |   | 7,457              |  |   | (7,457                      | ) |  |                | (7,457  | ) |  |   | 
|               |  |                                                    | 125,700 |            | 2026 |                |   | 18,855             |  |   | (18,855                     | ) |  |                | (18,855 | ) |  |   | 
|               |  |                                                    | 63,303  |            | 2028 |                |   | 9,495              |  |   | (9,495                      | ) |  |                | (9,495  | ) |  |   | 
|               |  |                                                    | 69,160  |            | 2030 |                |   | 10,374             |  |   | (10,374                     | ) |  |                | (10,374 | ) |  |   | 
|               |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|               |  | $                                                  | 544,736 |            |      |                | $ | 81,709             |  | $ | (81,709                     | ) |  | $              | (81,709 | ) |  | $ | 
|               |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|               |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   | 
|State          |  | $                                                  | 5,881   |            | 2018 |                | $ | 520                |  | $ | (520                        | ) |  | $              | (520    | ) |  | $ | 
|               |  |                                                    | 67,858  |            | 2029 |                |   | 5,999              |  |   | (5,999                      | ) |  |                | (5,999  | ) |  |   | 
|               |  |                                                    | 69,491  |            | 2030 |                |   | 6,143              |  |   | (6,143                      | ) |  |                | (6,143  | ) |  |   | 
|               |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|               |  | $                                                  | 143,230 |            |      |                | $ | 12,662             |  | $ | (12,662                     | ) |  | $              | (12,662 | ) |  | $ | 
|               |  |                                                    |         |            |      |                |   |                    |  |   |                             |   |  |                |         |   |  |   |  

Income taxes at the expected statutory rate are reconciled to the
Companys actual income taxes as follows:



|                                           |  |        |   
|------------------------------------------ |  | ------ | --
|                                           |  | 2010   |   
|Tax (benefit) at federal statutory rate    |  | (15.00 | )%
|State tax (benefit) net of federal benefit |  | (7.50  | ) 
|Non-taxable differences                    |  | 0.50   |   
|Temporary differences                      |  | (0.44  | ) 
|Valuation allowance                        |  | 23.59  |   
|                                           |  |        |   
|Tax provision - effective rate             |  | 1.15   |   
|                                           |  |        |   



14



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



9. Operating Leases

The Company leases some office equipment under noncancelable operating leases with terms ranging from three to five years.

As of March 31, 2010, minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:



|                       |  |   |       
|---------------------- |  | - | ------
|Years Ending March 31, |  |  
|2011                   |  |   | 10,909
|2012                   |  |   | 9,840 
|2013                   |  |   | 6,652 
|2014                   |  |   | 6,652 
|2015                   |  |   | 836   
|                       |  |   |       
|                       |  | $ | 34,889
|                       |  |   |       

Total operating lease payments for the three months ended
March 31, 2010 and 2009 was $2,727 and $1,657 respectively.

10. Long Term Leases

The Company leases its corporate headquarters, warehouse and waterfront facilities from Paul and Joan Katzeff (the Companys majority shareholders,
directors and officers). The lease is classified as an operating lease and provides for monthly rental payments of $8,600. The Company is responsible for all real estate taxes, insurance and maintenance costs related to the facilities. The ten-year
lease term ends May 31, 2015.

The Company also leases a bakery establishment in Mendocino, California under an operating lease expiring
September 30, 2011. The lease provides for monthly rental payments of approximately $4,600

As of March 31, 2010, minimum future
rental payments under noncancelable facilities operating leases for each of the next five years and in the aggregate are as follows:



|                       |  |   |        
|---------------------- |  | - | -------
|Years ending March 31, |  |  
|2011                   |  | $ | 160,380
|2012                   |  |   | 132,480
|2013                   |  |   | 103,200
|2014                   |  |   | 103,200
|2015                   |  |   | 43,000 
|Thereafter             |  |   |       
|                       |  |   |        
|                       |  | $ | 542,260
|                       |  |   |        



15



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



11. Related Party Transactions

As of March 31, 2010, the Company has an interest only note payable for $19,919, due on demand, to Paul and Joan Katzeff, (the Companys
majority shareholders, directors and officers). In addition, the Company has a note payable to Paul and Joan Katzeff with a principal balance of $5,100, as of March 31, 2010. The loan is uncollateralized, is due July 15, 2010, requires
monthly payments of $2,000 and bears interest at 12% per annum. The Company also leases properties from its majority shareholders.

The
summary of payments made to Paul and Joan Katzeff in connection with these related party transactions for the three months ended March 31, 2010, is as follows:



|                   |  |   |       
|------------------ |  | - | ------
|Interest payments  |  | $ | 852   
|Rent payments      |  | $ | 17,600
|Principal payments |  | $ | 6,000 

The Companys majority
shareholders also guarantee certain notes payable of the Company (See Note 7).

12. Information on Business Segments

As noted in Note 1 in the Notes to the Financial Statements, the Company operates in two different business segments: the specialty coffee
business and the retail bakery business. The specialty coffee business, although primarily based in California, sells to grocery stores, serving locations and other retail outlets throughout the United States and some international business. The
bakery sells exclusively on the north coast of California in Mendocino and Fort Bragg.

Selected financial data by business segment



|                              |  |           |           |   |           |   |           |  
|----------------------------- |  | --------- | --------- | - | --------- | - | --------- | -
|                              |  | 3/31/2010 |           |   | 3/31/2009 |  
|Net Sales                     |  |           |           |   |           |   |           |  
|Specialty Coffee              |  | $         | 905,114   |   |           | $ | 964,655   |  
|Bakery                        |  |           | 109,904   |   |           |   | 125,808   |  
|                              |  |           |           |   |           |   |           |  
|Total                         |  | $         | 1,015,018 |   |           | $ | 1,090,463 |  
|                              |  |           |           |   |           |   |           |  
|                              |  |          
|Intersegment Sales            |  |           |           |   |           |   |           |  
|Specialty Coffee              |  |           | 11,930    |   |           |   | 10,813    |  
|                              |  |           |           |   |           |   |           |  
|Total Sales                   |  | $         | 1,003,088 |   |           | $ | 1,079,650 |  
|                              |  |           |           |   |           |   |           |  
|                              |  |          
|Operating Income/(Loss)       |  |           |           |   |           |   |           |  
|Specialty Coffee              |  | $         | (21,708   | ) |           | $ | 11,656    |  
|Bakery                        |  |           | (37,773   | ) |           |   | (34,969   | )
|                              |  |           |           |   |           |   |           |  
|Total                         |  | $         | (59,481   | ) |           | $ | (23,313   | )
|                              |  |           |           |   |           |   |           |  
|                              |  |          
|Depreciation and Amortization |  |           |           |   |           |   |           |  
|Specialty Coffee              |  | $         | 17,552    |   |           | $ | 19,346    |  
|Bakery                        |  |           | 6,119     |   |           |   | 6,236     |  
|                              |  |           |           |   |           |   |           |  
|Total                         |  | $         | 23,671    |   |           | $ | 25,582    |  
|                              |  |           |           |   |           |   |           |  



16



---

##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

March 31, 2009 and December 31, 2008



12. Information on Business Segments (continued)



|                 |  |           |         |            |   |        
|---------------- |  | --------- | ------- | ---------- | - | -------
|                 |  | 3/31/2010 |         | 03/31/2009
|Interest Expense |  |           |         |            |   |        
|Specialty Coffee |  | $         | 7,071   |            | $ | 8,513  
|Bakery           |  |           | 695     |            |   | 841    
|                 |  |           |         |            |   |        
|Total            |  | $         | 7,766   |            | $ | 9,354  
|                 |  |           |         |            |   |        
|                 |  |          
|                 |  | 3/31/2010 |         | 12/31/2009
|Assets           |  |           |         |            |   |        
|Specialty Coffee |  | $         | 798,518 |            | $ | 890,709
|Bakery           |  |           | 93,831  |            |   | 105,610
|                 |  |           |         |            |   |        
|Total            |  | $         | 892,349 |            | $ | 996,319
|                 |  |           |         |            |   |        
|                 |  |          
|Fixed Assets     |  |           |         |            |   |        
|Specialty Coffee |  | $         | 262,049 |            | $ | 274,988
|Bakery           |  |           | 67,746  |            |   | 67,740 
|                 |  |           |         |            |   |        
|Total            |  | $         | 329,795 |            | $ | 342,728
|                 |  |           |         |            |   |        



17



---

##### Table of Contents

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934. In some cases, forward-looking statements may be identified by words such as believe, anticipate, expect, intend,
plan, will, may, and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.
These statements relate to, among other things, possible expansions into new and existing markets and trends in the operations of Thanksgiving Coffee Company, Inc. (the Company). Any forward-looking statements should be considered in
light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. These various risks and uncertainties include, but are not limited to: changes in general economic
conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products and in the availability and costs of green beans, continuing competition within the Companys businesses, variances from
budgeted sales mix and growth rate, consumer acceptance of the Companys products, inability to secure adequate capital to fund its operating expenses and working capital requirements, inability to hire, train and retain qualified personnel,
concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully implement the Companys sales goals, natural disasters, civil unrest in countries which produce coffee and tea,
weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this Quarterly Report on Form 10-Q. The Companys forward-looking statements
should also be considered in light of its reviewed financial statements, related notes and the other financial information appearing elsewhere in this report and in its other filings with the Securities and Exchange Commission. As a result of these
risks and uncertainties, the Companys actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company assumes no obligation to update any forward-looking statements.

SUMMARY

Sales of the Company have
eroded over the last five years primarily due to declines in the direct distribution sales method of the Companys business (i.e., delivery by company truck). Increased competition, customer attrition and customers roasting green beans for
their own use have all had a negative impact on the Companys sales. The Company has tried a number of strategies that have not proven effective in abating these declines. The Company has changed its method of distribution to rely less on
direct distribution (with only two routes) and instead uses independent distributors or shipping direct (via UPS or other common carrier). The effect of these changes on the Companys sales has been limited but has reduced distribution
expenses. Because of the limited impact of these changes, as well as the increase in cost of sales and other factors noted herein, there can be no assurances that the Company will be profitable in any future period, and, as a consequence, the
Company is considering various strategic alternatives.

The Company pays substantially more for its green beans than the market price, because
of quality, organic nature of many of its lines and the fact that it uses fair-traded coffees. Green bean costs have continued to rise and have placed pressure on margins. If green bean costs do not decline or continue to rise, whether as a
consequence of inclement weather in a major producing area or any other event that affects green bean pricing, and the Company cannot offset costs by raising prices, it would have a negative impact on the Company and its margins.



18



---

##### Table of Contents

The Company has a revolving line of credit for $25,000 of which $11,500 is currently outstanding and a term
debt facility of $204,176 with the Savings Bank of Mendocino. The term debt is a five-year note renewed December 1, 2009 and is due December 1, 2014. The line of credit was renewed on March 13, 2010 and is renewed annually. If the
credit line should not be renewed, the stability of the Companys business would be in question. See Liquidity and Capital Resources.

Results of Operations

Three
months ended March 31, 2010 versus March 31, 2009



|                              |  |                     |         |    |                |       |   
|----------------------------- |  | ------------------- | ------- | -- | -------------- | ----- | --
|Consolidated                  |  | Increase (Decrease) |         |    | Percent Change |      
|Net Sales                     |  | $                   | (76,562 | )  |                | (7.1  | )%
|Cost of Sales                 |  |                     | (1,720  | )  |                | (0.3  | )%
|Gross Margin %                |  |                     | (4.4    | )% |                | (11.1 | )%
|Selling, G&A Expense          |  |                     | (36,763 | )  |                | (8.6  | )%
|Depreciation And Amortization |  |                     | (1,911  | )  |                | (7.5  | )%
|Interest Expense              |  |                     | (1,588  | )  |                | (17.0 | )%
|Net Income (Loss)             |  |                     | (34,462 | )  |                |      | % 

Consolidated net sales for the
three months ended March 31, 2010 were $1,003,088, down 7.1%, or over $76,000 when compared with net sales of $1,079,650 for the same period in fiscal 2009.

Distribution revenues (e.g., revenues generated on the Companys own truck distribution) were down $35,000 or 9% for the three months ended
March 31, 2010, when compared with distribution sales for the same period in 2009. The decline appears to be a result of slower volume at existing customers as no customers have been lost. It is also a result of lower sales to a grocery chain
in California that eliminates the Companys products when they remodel existing stores.

National revenues (e.g., revenues not derived by
mail order and direct truck distribution) were up $5,000, or 1% for the three months ended March 31, 2010 when compared to national sales for the same period in 2009.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) decreased $30,000,
or 25% for the three months ended March 31, 2010 when compared to mail order sales for the same period in 2009. The decrease was attributable to a decline in the Cornucopia program through the elimination of some partners and a slowdown in the
Companys online store volume.

Sales of the Companys bakery were down $16,000 for the three months ended March 31, 2010 when
compared to bakery sales for the same period in 2009. Lower customer counts and a lower cash register ring per customer resulted in the lower sales volume.

Consolidated cost of sales for the three months ended March 31, 2010 were $648,305, down .3%, or over $1,700 when compared with the cost of sales of
$650,025 for the same period in 2009.

Consolidated gross margin percentage (gross profit as a percentage of net sales) for the three months
ended March 31, 2010 was 35.4%, down 4.4 percentage points when compared with gross margin of 39.8% for the same period in 2009. Higher costs of payroll, utilities and an $.08 per pound increase in green bean costs in the three months ended
2010 resulted in reduced gross margins.

Consolidated selling, general and administrative expenses were $390,593 for the three months ended
March 31, 2010, a decrease of 8.6% or over $36,000 when compared with the selling, general and administrative expenses of $427,356 for the same period in 2009. The decrease was a result of a $10,000 reduction in payroll expense, a $10,000
reduction in insurance costs and a $16,000 reduction in other operating expenses.

Consolidated depreciation and amortization expenses for the
three months ended March 31, 2010 were $23,671, a 7.5% decrease, or nearly $2,000, when compared to depreciation expense of $25,582 for the same period in 2009.

Consolidated interest expense for the three months ended March 31, 2010 was $7,766, a 17% decrease or over $1,500 compared with interest expense of
$9,354 for the same period in 2009. Total debt is $301,678 at March 31, 2010 versus $325,653 at December 31, 2009.

As a result of
the foregoing factors, the Company had a consolidated net loss of $70,263 for the three months ended March 31, 2010, compared to a loss of $35,801 for the same period in 2009. Because of the declines in sales and increases in the cost of green
beans, there can be no assurances that the Company will be profitable in future periods



19



---

##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, the Company had working capital of $99,027 versus working capital of $157,701 as of December 31, 2009. The decrease in
working capital is due primarily to the decrease in cash, accounts receivable, inventory and prepaid expenses of $80,000 offset by a $30,000 reduction in debt.

Net cash provided by operating activities was $20,824 for the three months ended March 31, 2010 compared to net cash provided by operating
activities of $79,368 during the same period in 2009. The decrease in net cash provided by operating activities in the three months of 2010 was the result of a loss of over $70,000 versus a loss of $35,000 for the first three months of 2009, a
$10,000 additional reduction in accounts payable in 2010 versus 2009 and smaller increase in accrued liabilities of $28,000 in 2010 versus 2009.

Cash used in investing activities was $12,978 for the three months ended March 31, 2010 compared to $5,085 used in the same period in 2009. Capital
additions for the first three months of 2010 were $5,000 to upgrade phone and internet access with a T-1 line and $7,000 for a new online store.

Net cash used in financing activities for the three months ended March 31, 2010 was $23,585 compared to net cash used in financing activities of
$33,264 during the same period in 2009. The cash used by financing activities was a result of paying existing debt.

Because of the decline in
cash provided by operating activities, cash at March 31, 2010 dropped by over $15,000 from the cash balance at January 1, 2010 and was over $54,000 lower than cash at March 31, 2009.

In December 2009, the Company extended a term note with the Savings Bank of Mendocino. This note is for five years and is due on December 1, 2014
with an interest rate of 7.25%. The note is collateralized by the Companys accounts receivable, inventory, equipment, instruments, general intangibles and contract rights. This note is personally guaranteed by the Companys majority
shareholders. As of March 31, 2010, the balance on the note is $204,176 (See Note 7 of Notes to the Financial Statements).

The Company
also has a $25,000 line of credit with the Savings Bank of Mendocino. The credit line is interest only payments renewable annually at 2% over the prime rate with a minimum rate of 6.5 % and was renewed in March of 2010. The rate was 6.50% at
March 31, 2010 with an outstanding balance on the line of $11,500. The credit line is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract
rights. The line of credit is personally guaranteed by the Companys majority shareholders. (See Note 7 of Notes to Financial Statements)

The Company has an interest-only note for $19,919 and a principal and interest note for $5,100 at March 31, 2010, payable to the majority
shareholders, directors and officers, Joan and Paul Katzeff. The interest-only note is at 12%, with balance due on demand after June 30, 1996 and is uncollateralized. The principal and interest note is at 12% payable in monthly installments of
$2,000 plus interest with the balance due on July 15, 2010 and is uncollateralized. (See Note 7 and Note 11 of Notes to Financial Statements)

At March 31, 2010, the Company had total borrowings of $301,678 including $215,676 owing to the Savings Bank of Mendocino. This compares to total
borrowings of $325,263 as of December 31, 2009, including $225,834 outstanding to the Savings Bank of Mendocino.

For long-term debt, see
Note 7 of the Notes to Financial Statements. For operating leases, see Note 9 of the Notes to Financial Statements. For real estate leases, see Note 10 and Note 11 of the Notes to Financial Statements.



|                        |  |                        |         |                   |   |           |  |           |         |               |   |         |  |   |       
|----------------------- |  | ---------------------- | ------- | ----------------- | - | --------- |  | --------- | ------- | ------------- | - | ------- |  | - | ------
|                        |  | Payments Due By Period
|Contractual Obligations |  | Total                  |         | Less thanOne year |   | 1-3 years |  | 4-5 years |         | After 5 years
|Debt                    |  | $                      | 301,678 |                   | $ | 94,720    |  | $         | 157,105 |               | $ | 49,853  |  | $ |      
|                        |  |                        |         |                   |  
|Operating Leases        |  |                        | 34,889  |                   |   | 10,909    |  |           | 16,492  |               |   | 7,488   |  |   |      
|                        |  |                        |         |                   |  
|Real Estate Leases      |  |                        | 542,260 |                   |   | 160,380   |  |           | 235,680 |               |   | 103,200 |  |   | 43,000
|                        |  |                        |         |                   |  
|Total Cash Obligations  |  | $                      | 878,827 |                   | $ | 266,009   |  | $         | 409,277 |               | $ | 160,541 |  | $ | 43,000



20



---

##### Table of Contents

The Company is dependent on successfully executing its business plan to achieve profitable operations,
obtaining additional sources of borrowings (including normal trade credit) and securing favorable financing arrangements (including lease financing) to finance its working capital needs. There can be no assurance that the Company will be successful
in this regard. If the Company is not able to meet its credit obligations the stability of the Companys business would be in question.

RELATED PARTY TRANSACTIONS

From time to
time, the Company enters into various transactions with its majority shareholders, Paul and Joan Katzeff. See note 11  Related Party Transactions in the Notes to the Financial Statements.

SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE

The Companys business is seasonal in nature. The seasonal availability of green bean coffee in the first two quarters of the year and increased
sales in the last quarter historically creates a high use of cash and a build up in inventories in the first two quarters, with a corresponding decrease in inventory and increase in cash in the last quarter. Because of the seasonality of the
Companys business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past seasonal patterns are not necessarily indicative of future results.

INDEMNIFICATION MATTERS

The
Companys Bylaws provide that the Company may indemnify its directors, officers, employees and other agents to the fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company
to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such
liability insurance for its directors and certain officers and employees.

At present, there is no pending litigation or proceeding involving
any director, officer, employee or agent of the Company where indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or proceeding that might result in a claim for such indemnification.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys stock is generally illiquid and there have been few trades in recent years. There have been three trades in the Companys Common
Stock since 1999. In June 2004, 750 shares were traded at $4.50 per share. In December 2005, 400 shares were traded at $2.00 per share.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer, the
President and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures as of March 31, 2010. Based on that evaluation, the Companys management, including the Chief Executive Officer, the
President and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective. There have been no changes in the Companys internal controls over financial reporting identified in connection with the
evaluation discussed above that occurred during the first quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



21



---

##### Table of Contents

Part II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

-None-

ITEM 1A. RISK Factors

We have concerns regarding the current economic situation. The United States and the global economy is experiencing severe instability in the commercial
and investment banking systems which is likely to continue to have far-reaching effects on the economic activity in the country for and indeterminable period. The long-term impact on the United States economy and the Companys operating
activities and ability to raise capital cannot be predicted at this time, but may be substantial.

Our coffee roasting facility is subject to
state and local air-quality and emissions regulations. If we encounter difficulties in obtaining any necessary licenses or complying with these laws and regulations our ability to produce any of our roasted products would be severely limited. We
believe that we are in compliance in all material respects with all such laws and regulations and we have obtained all material licenses that are required for the operation of our business. We are not aware of any environmental regulations that have
or that we believe will have a material adverse effect on our operations.

ITEM 2. UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS

- None 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

- None 

ITEM 4. Remove and Reserved

- None -

ITEM 5. OTHER INFORMATION

- None 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | a. | Exhibits
| | -- | --------

31.1 Certification
pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(President)

31.3 Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Chief Financial Officer)

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

32.2 Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President).

32.3
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).



| | b. | No reports filed on Form 8-K
| | -- | ----------------------------



22



---

##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on it behalf by the
undersigned, thereunto duly authorized.

THANKSGIVING COFFEE COMPANY, INC.



|                 |  |                         |  |             
|---------------- |  | ----------------------- |  | ------------
|Name             |  | Title                   |  | Date        
|                 |  |                        
|/s/ Paul Katzeff |  | Chief Executive Officer |  | May 14, 2010
|Paul Katzeff     |  |                         |  |             
|                 |  |                        
|/s/ Joan Katzeff |  | President               |  | May 14, 2010
|Joan Katzeff     |  |                         |  |             
|                 |  |                        
|/s/ Sam Kraynek  |  | Chief Financial Officer |  | May 14, 2010
|Sam Kraynek      |  |                         |  |             



23