##### 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 September 30, 2008

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: 33-960-70LA

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   ̈                      |  | Smaller Reporting Company  x
|                           |  |                      |  | (Do not check if a smaller reporting
company) |  |                             

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 November 14, 2008 the registrant had 1,236,744 shares of Class A common stock, no par value per share, and  shares of Class B
common stock, par value  per share, outstanding.









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##### Table of Contents

FORM 10-Q

TABLE OF CONTENTS



|           |  |                                                                                                                                          |  |   
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | --
|           |  | PART I  FINANCIAL INFORMATION                                                                                                           |  |   
|           |  |                                                                                                                                         
|Item 1.    |  | Consolidated Financial Statements                                                                                                        |  | 1 
|           |  |                                                                                                                                         
|           |  | Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007                                                   |  | 2 
|           |  |                                                                                                                                         
|           |  | Consolidated Statements of Operations for the three months and nine months ended September 30, 2008 and September 30, 2007
 (unauditied) |  | 4 
|           |  |                                                                                                                                         
|           |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and September 30, 2007
(unaudited)                    |  | 5 
|           |  |                                                                                                                                         
|           |  | Notes to Consolidated Financial Statements                                                                                               |  | 6 
|           |  |                                                                                                                                         
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                    |  | 16
|           |  |                                                                                                                                         
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                               |  | 20
|           |  |                                                                                                                                         
|Item 4.    |  | Controls and Procedures                                                                                                                  |  | 20
|           |  |                                                                                                                                         
|           |  | PART II  OTHER INFORMATION                                                                                                              |  |   
|           |  |                                                                                                                                         
|Item 1.    |  | Legal Proceedings                                                                                                                        |  | 21
|           |  |                                                                                                                                         
|Item 1A.   |  | Risk Factors                                                                                                                             |  | 21
|           |  |                                                                                                                                         
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                              |  | 21
|           |  |                                                                                                                                         
|Item 3.    |  | Defaults Upon Senior Securities                                                                                                          |  | 21
|           |  |                                                                                                                                         
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                      |  | 21
|           |  |                                                                                                                                         
|Item 5.    |  | Other Information                                                                                                                        |  | 21
|           |  |                                                                                                                                         
|Item 6.    |  | Exhibits                                                                                                                                 |  | 22
|           |  |                                                                                                                                         
|Signatures |  |                                                                                                                                          |  | 23



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##### Table of Contents

Financial Statements

and Notes to Financial Statements

Thanksgiving Coffee Company, Inc.

For the Nine Months Ended September 30, 2008 and 2007

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 September 30, 2008 and December 31, 2007, and its results of operations for the three month and nine month periods
ended September 30, 2008 and 2007 and its cash flows for the nine month periods ended September 30, 2008 and 2007. 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-KSB



1



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Balance Sheets



|                                       |  |                              |            |   |                              |   |            |  
|-------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------- | - | ---------- | -
|                                       |  | September 30,2008(Unaudited) |            |   | December 31,2007(See Note 1) |  
|Assets                                 |  |                              |            |   |                              |   |            |  
|Current assets                         |  |                              |            |   |                              |   |            |  
|Cash                                   |  | $                            | 13,772     |   |                              | $ | 104,035    |  
|Accounts receivable, net of allowance  |  |                              | 208,508    |   |                              |   | 210,040    |  
|Inventories                            |  |                              | 378,623    |   |                              |   | 361,795    |  
|Prepaid expenses                       |  |                              | 21,566     |   |                              |   | 28,373     |  
|                                       |  |                              |            |   |                              |   |            |  
|Total current assets                   |  |                              | 622,469    |   |                              |   | 704,243    |  
|Property and equipment                 |  |                              |            |   |                              |   |            |  
|Property and equipment                 |  |                              | 2,581,391  |   |                              |   | 2,529,930  |  
|Accumulated depreciation               |  |                              | (2,191,741 | ) |                              |   | (2,149,819 | )
|                                       |  |                              |            |   |                              |   |            |  
|Total property and equipment           |  |                              | 389,650    |   |                              |   | 380,111    |  
|Other assets                           |  |                              |            |   |                              |   |            |  
|Deposits and other assets              |  |                              | 15,826     |   |                              |   | 15,590     |  
|Goodwill                               |  |                              | 130,406    |   |                              |   | 130,406    |  
|Other intangibles, net of amortization |  |                              | 11,535     |   |                              |   | 15,957     |  
|                                       |  |                              |            |   |                              |   |            |  
|Total other assets                     |  |                              | 157,767    |   |                              |   | 161,953    |  
|                                       |  |                              |            |   |                              |   |            |  
|Total assets                           |  | $                            | 1,169,886  |   |                              | $ | 1,246,307  |  
|                                       |  |                              |            |   |                              |   |            |  

See accompanying notes to financial statements



2



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Balance Sheets



|                                                                                                |  |                              |           |   |                              |   |           |  
|----------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | - | ---------------------------- | - | --------- | -
|                                                                                                |  | September 30,2008(Unaudited) |           |   | December 31,2007(See Note 1) |  
|Liabilities and shareholders equity                                                            |  |                              |           |   |                              |   |           |  
|Current liabilities                                                                             |  |                              |           |   |                              |   |           |  
|Accounts payable                                                                                |  | $                            | 348,412   |   |                              | $ | 213,130   |  
|Notes payable - bank                                                                            |  |                              | 34,069    |   |                              |   | 32,182    |  
|Notes payable - other                                                                           |  |                              | 11,008    |   |                              |   | 10,292    |  
|Note Payable - shareholders                                                                     |  |                              | 50,467    |   |                              |   | 43,919    |  
|Capital lease obligations                                                                       |  |                              | 73,402    |   |                              |   | 48,398    |  
|Accrued liabilities                                                                             |  |                              | 54,637    |   |                              |   | 67,500    |  
|                                                                                                |  |                              |           |   |                              |   |           |  
|Total current liabilities                                                                       |  |                              | 571,995   |   |                              |   | 415,421   |  
|Long term debt                                                                                  |  |                              |           |   |                              |   |           |  
|Notes payable - bank                                                                            |  |                              | 222,134   |   |                              |   | 247,170   |  
|Notes payable - shareholder                                                                     |  |                              | 10,552    |   |                              |   | 35,100    |  
|Notes payable - other                                                                           |  |                              | 4,760     |   |                              |   | 13,108    |  
|Capital lease obligations                                                                       |  |                              | 22,370    |   |                              |   | 39,490    |  
|                                                                                                |  |                              |           |   |                              |   |           |  
|Total long term debt                                                                            |  |                              | 259,816   |   |                              |   | 334,868   |  
|                                                                                                |  |                              |           |   |                              |   |           |  
|Total liabilities                                                                               |  |                              | 831,811   |   |                              |   | 750,289   |  
|Commitments & Contingencies (Notes 1,5,7,8,9,10 & 11)                                           |  |                              |           |   |                              |   |           |  
|Shareholders equity                                                                            |  |                              |           |   |                              |   |           |  
|Common stock, no par value, 1,960,000 shares authorized, 1,236,744 shares issued and oustanding |  |                              | 861,816   |   |                              |   | 861,816   |  
|Additional paid in capital                                                                      |  |                              | 24,600    |   |                              |   | 24,600    |  
|Accumulated deficit                                                                             |  |                              | (548,341  | ) |                              |   | (390,398  | )
|                                                                                                |  |                              |           |   |                              |   |           |  
|Total shareholders equity                                                                      |  |                              | 338,075   |   |                              |   | 496,018   |  
|                                                                                                |  |                              |           |   |                              |   |           |  
|Total liabilities and shareholders equity                                                      |  | $                            | 1,169,886 |   |                              | $ | 1,246,307 |  
|                                                                                                |  |                              |           |   |                              |   |           |  



3



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Statements of Operations

Unaudited



|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|-------------------------------------------- |  | --------------------------------------- | --------- | - | -------------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                             |  | For the Three MonthsEnded September 30, |           |   | For the Nine MonthsEnded September 30, |  
|                                             |  | 2008                                    |           |   | 2007                                   |   |           | 2008 |  |   | 2007      |  
|Income                                       |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Net sales                                    |  | $                                       | 1,171,993 |   |                                        | $ | 1,175,290 |      |  | $ | 3,325,934 |   |  | $ | 3,429,811 |  
|Cost of sales                                |  |                                         | 713,981   |   |                                        |   | 686,962   |      |  |   | 2,067,269 |   |  |   | 1,983,316 |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Gross profit                                 |  |                                         | 458,012   |   |                                        |   | 488,328   |      |  |   | 1,258,665 |   |  |   | 1,446,495 |  
|Operating expenses                           |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Selling, general and administrative expenses |  |                                         | 412,886   |   |                                        |   | 397,987   |      |  |   | 1,313,687 |   |  |   | 1,282,072 |  
|Depreciation and amortization                |  |                                         | 26,664    |   |                                        |   | 32,859    |      |  |   | 77,791    |   |  |   | 94,610    |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Total operating expenses                     |  |                                         | 439,550   |   |                                        |   | 430,846   |      |  |   | 1,391,478 |   |  |   | 1,376,682 |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Operating profit/ (loss)                     |  |                                         | 18,462    |   |                                        |   | 57,482    |      |  |   | (132,813  | ) |  |   | 69,813    |  
|Other income (expense)                       |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Miscellaneous income/ (expense)              |  |                                         | 5,849     |   |                                        |   | 906       |      |  |   | 1,621     |   |  |   | 4,128     |  
|Gain/(loss) on sale of fixed assets          |  |                                         |          |   |                                        |   |          |      |  |   | 5,975     |   |  |   |          |  
|Interest expense                             |  |                                         | (10,792   | ) |                                        |   | (12,067   | )    |  |   | (31,927   | ) |  |   | (35,771   | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Total other income (expense)                 |  |                                         | (4,943    | ) |                                        |   | (11,161   | )    |  |   | (24,331   | ) |  |   | (31,643   | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Profit/ (loss) before income taxes           |  |                                         | 13,519    |   |                                        |   | 46,321    |      |  |   | (157,144  | ) |  |   | 38,170    |  
|Income tax expense                           |  |                                         |          |   |                                        |   |          |      |  |   | (800      | ) |  |   | (800      | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Net profit/ (loss)                           |  | $                                       | 13,519    |   |                                        | $ | 46,321    |      |  | $ | (157,944  | ) |  | $ | 37,370    |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Profit/ (loss) per share (basic)             |  | $                                       | 0.011     |   |                                        | $ | 0.037     |      |  | $ | (0.128    | ) |  | $ | 0.030     |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Profit/ (loss) per share (dilutive)          |  | $                                       | 0.011     |   |                                        | $ | 0.037     |      |  | $ | (0.128    | ) |  | $ | 0.030     |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Weighted average number of shares            |  |                                         | 1,236,744 |   |                                        |   | 1,236,744 |      |  |   | 1,236,744 |   |  |   | 1,236,744 |  

See accompanying notes to financial statements



4



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Thanksgiving Coffee Company, Inc.

Statements of Cash Flows

Unaudited



|                                                                           |  |                                  |          |   |      |   |          |  
|-------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                           |  | For the Nine MonthsSeptember 30, |         
|                                                                           |  | 2008                             |          |   | 2007 |  
|Operating activities                                                       |  |                                  |          |   |      |   |          |  
|Net Income/(loss)                                                          |  | $                                | (157,943 | ) |      | $ | 37,370   |  
|Adjustments to reconcile net loss to cash flows from operating activities: |  |                                  |          |   |      |   |          |  
|Depreciation and amortization                                              |  |                                  | 85,832   |   |      |   | 105,300  |  
|Allowance for bad debts                                                    |  |                                  | (487     | ) |      |   | 2,847    |  
|(Increase) decrease in:                                                    |  |                                  |          |   |      |   |          |  
|Accounts receivable                                                        |  |                                  | 2,018    |   |      |   | 31,764   |  
|Inventories                                                                |  |                                  | (16,828  | ) |      |   | 43,714   |  
|Prepaid expenses                                                           |  |                                  | 6,808    |   |      |   | 2,579    |  
|Deposits and other assets                                                  |  |                                  | (236     | ) |      |   | 2,654    |  
|Increase (decrease) in:                                                    |  |                                  |          |   |      |   |          |  
|Accounts payable                                                           |  |                                  | 135,282  |   |      |   | (117,393 | )
|Accrued liabilities                                                        |  |                                  | (12,863  | ) |      |   | (30,989  | )
|                                                                           |  |                                  |          |   |      |   |          |  
|Net cash provided by operating activities                                  |  |                                  | 41,583   |   |      |   | 77,846   |  
|Investing activities                                                       |  |                                  |          |   |      |   |          |  
|Purchases of property and equipment                                        |  |                                  | (91,527  | ) |      |   | (19,652  | )
|Proceeds from sale of equipment/disposal                                   |  |                                  | 5,975    |   |      |   |         |  
|                                                                           |  |                                  |          |   |      |   |          |  
|Net cash (used in) investing activities                                    |  |                                  | (85,552  | ) |      |   | (19,652  | )
|Financing activities                                                       |  |                                  |          |   |      |   |          |  
|Proceeds from notes payable and capital leases                             |  |                                  | 43,860   |   |      |   |         |  
|Repayments of notes payable and capital leases                             |  |                                  | (90,154  | ) |      |   | (80,221  | )
|                                                                           |  |                                  |          |   |      |   |          |  
|Net cash (used in) financing activities                                    |  |                                  | (46,294  | ) |      |   | (80,221  | )
|Decrease in cash                                                           |  |                                  | (90,263  | ) |      |   | (22,027  | )
|Cash at beginning of period                                                |  |                                  | 104,035  |   |      |   | 76,974   |  
|                                                                           |  |                                  |          |   |      |   |          |  
|Cash at end of period                                                      |  | $                                | 13,772   |   |      | $ | 54,947   |  
|                                                                           |  |                                  |          |   |      |   |          |  
|Supplemental Disclosure of Cash Flow Information                           |  |                                  |          |   |      |   |          |  
|Cash paid for:                                                             |  |                                  |          |   |      |   |          |  
|Interest                                                                   |  | $                                | 31,927   |   |      | $ | 35,771   |  
|Income taxes                                                               |  | $                                | 800      |   |      | $ | 800      |  
|Supplemental Non-Cash Transactions                                         |  |                                  |          |   |      |   |          |  
|Exchange accounts payable for a note Payable from related party            |  | $                                |         |   |      | $ | 73,100   |  

See accompanying notes to financial statements



5



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements

September 30, 2008 and 2007



|1. | Basis of Presentation
|-- | ---------------------

The 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 2007 Form 10-KSB filed with the Securities and Exchange Commission (SEC). It is suggested that these statements be read in conjunction with the December 31, 2007 audited
financial statements and the accompanying notes on Form 10-KSB, as filed with the Securities and Exchange Commission.

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 nine months ended September 30, 2008 are
not necessarily indicative of results to be expected for the full year.

Segment Reporting

SFAS No. 131, 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 Statement of Financial Accounting Standards (FASB) No. 109, 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.



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|2. | Accounts Receivable
|-- | -------------------

Accounts receivable consist of the following:



|                                      |  |           |         |   |            |   |         |  
|------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                      |  | 9/30/2008 |         |   | 12/31/2007 |  
|Accounts receivable                   |  | $         | 214,583 |   |            | $ | 216,602 |  
|Less: allowance for doubtful accounts |  |           | (6,075  | ) |            |   | (6,562  | )
|                                      |  |           |         |   |            |   |         |  
|Net accounts receivable               |  | $         | 208,508 |   |            | $ | 210,040 |  
|                                      |  |           |         |   |            |   |         |  

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 nine months ended September 30, 2008 and 2007 was $2,012 and $2,123 respectively.



|3. | Inventories
|-- | -----------

Inventories consist of the following:



|                                                        |  |           |         |            |   |        
|------------------------------------------------------- |  | --------- | ------- | ---------- | - | -------
|                                                        |  | 9/30/2008 |         | 12/31/2007
|Coffee                                                  |  |           |         |            |   |        
|Unroasted                                               |  | $         | 133,766 |            | $ | 109,560
|Roasted                                                 |  |           | 76,374  |            |   | 82,516 
|Tea                                                     |  |           | 3,238   |            |   | 5,822  
|Packaging, supplies and other merchandise held for sale |  |           | 165,245 |            |   | 163,897
|                                                        |  |           |         |            |   |        
|Total inventories                                       |  | $         | 378,623 |            | $ | 361,795
|                                                        |  |           |         |            |   |        



|4. | Property and Equipment
|-- | ----------------------

Property and equipment consist of the
following:



|                                      |  |           |            |   |            |   |            |  
|------------------------------------- |  | --------- | ---------- | - | ---------- | - | ---------- | -
|                                      |  | 9/30/2008 |            |   | 12/31/2007 |  
|Equipment                             |  | $         | 1,293,041  |   |            | $ | 1,300,627  |  
|Furniture and fixtures                |  |           | 216,655    |   |            |   | 207,361    |  
|Leasehold improvements                |  |           | 459,861    |   |            |   | 429,934    |  
|Transportation equipment              |  |           | 174,512    |   |            |   | 174,512    |  
|Marketing equipment                   |  |           | 166,162    |   |            |   | 166,162    |  
|Capitalized website development costs |  |           | 14,076     |   |            |   | 14,076     |  
|Property held under capital leases    |  |           | 257,084    |   |            |   | 237,258    |  
|                                      |  |           |            |   |            |   |            |  
|Total property and equipment          |  |           | 2,581,391  |   |            |   | 2,529,930  |  
|Accumulated depreciation              |  |           | (2,191,741 | ) |            |   | (2,149,819 | )
|                                      |  |           |            |   |            |   |            |  
|Property and equipment, net           |  | $         | 389,650    |   |            | $ | 380,111    |  
|                                      |  |           |            |   |            |   |            |  

Depreciation expense for the nine months ended September 30, 2008 and 2007 was $81,410 and $100,937
respectively.



7



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|5. | Goodwill and Other Intangible Assets
|-- | ------------------------------------

As part of the adoption of
Statement of Financial Accounting Standards (FASB) No. 142, Goodwill and Other Tangible Assetsas of January 1, 2002, the Company no longer amortizes goodwill. At December 31, 2007 the Company performed a test of impairment on
goodwill that resulted in no write down at that time.

Intangible assets subject to amortization consist of the following:



|                                       |  |           |         |   |            |   |         |  
|-------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                       |  | 9/30/2008 |         |   | 12/31/2007 |  
|Leasehold value                        |  | $         | 67,000  |   |            | $ | 67,000  |  
|Trademarks                             |  |           | 5,127   |   |            |   | 5,127   |  
|                                       |  |           |         |   |            |   |         |  
|Total intangible assets                |  |           | 72,127  |   |            |   | 72,127  |  
|Accumulated amortization               |  |           | (60,592 | ) |            |   | (56,170 | )
|                                       |  |           |         |   |            |   |         |  
|Other intangibles, net of amortization |  | $         | 11,535  |   |            | $ | 15,957  |  
|                                       |  |           |         |   |            |   |         |  

Amortization expense for the nine months ended September 30, 2008 and 2007 was $4,422 and $4,362
respectively.



|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.



8



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|7. | Long Term Debt
|-- | --------------

Notes Payable



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |           |         |            |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ---------- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | 9/30/2008 |         | 12/31/2007
|Note payable to Savings Bank of Mendocino, payable in monthly installments of $4,307 plus interest at 2% over prime rate beginning
January 1, 2005 (7.00% at September 30, 2008), final payment is due on December 1, 2009. 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.                                                                |  | $         | 255,203 |            | $ | 278,352
|Line of credit to Savings Bank of Mendocino, payable in monthly installments of interest only at 2% over prime rate beginning January 9,
2008 (7.00% at September 30, 2008). 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 intangible and contract rights along
with a personal guarantee from the Companys majority shareholders. The line is for a maximum of $25,000 and $1,000 has been used as of September 30, 2008. |  |           | 1,000   |            |   | 1,000  
|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, 2009.                                                                                                                                                                                                                                                                                                                                                                      |  |           | 41,100  |            |   | 59,100 
|Note payable to majority shareholders, Paul and Joan Katzeff, 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 Mercedes-Benz, payable in monthly installments of $691, including interest at 6.99%, collateralized by a vehicle, final
payment due on September 24, 2009.                                                                                                                                                                                                                                                                                                                                                                              |  |           | 7,992   |            |   | 13,630 
|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.                                                                                                                                                                                                                                                                                                                                                                         |  |           | 7,776   |            |   | 9,770  



9



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

Capital Lease Obligations



|                                                                                                                                                                                             |  |           |  |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ----------
|                                                                                                                                                                                             |  | 9/30/2008 |  | 12/31/2007
|Note payable to G.E. Capital, payable in monthly installments of $1,355, including interest at 16.78%, collateralized by equipment, final
payment due on March 1, 2009.                      |  | 7,744     |  | 18,214    
|Note payable to Avaya Financial Services, payable in monthly installments of $824, including interest at 5.855%, collateralized by equipment,
final payment due on August 1, 2009.           |  | 8,807     |  | 15,670    
|Note payable to Axis Capital, payable in monthly installments of $709, including interest at 15.473%, collateralized by store fixtures, final
payment due September 14, 2009.                |  | 7,230     |  | 12,432    
|Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $462, including interest at 14.237%, collateralized by
equipment, final payment due on May 22, 2009. |  | 3,505     |  | 7,073     
|Note payable to Marlin Leasing payable in monthly installments of $544, including interest at 17.172%, collateralized by equipment, final
payment due on March 1, 2010.                      |  | 9,516     |  | 13,043    
|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.                     |  | 8,025     |  | 10,650    



10



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|7. | Long Term Debt (continued)
|-- | --------------------------

Capital Lease Obligations



|                                                                                                                                                                                                |  |           |          |   |            |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | -------- | - | ---------- | - | -------- | -
|                                                                                                                                                                                                |  | 9/30/2008 |          |   | 12/31/2007 |  
|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. |  | $         | 7,424    |   |            | $ | 10,806   |  
|Note payable to Bank of the West payable in monthly installmets of $489, including interest at 12.687%, collateralized by equipment, final
payment due on May 1, 2013.                          |  |           | 20,586   |   |            |   |         |  
|Note payable to BSB Leasing Payable in monthly installments of $285.12, including interest at 15.891%, collateralized by equipment, final
payment due on June 2, 2012.                          |  |           | 9,630    |   |            |   |         |  
|Note payable to BSB leasing payable in monthly installments of $390.21, including interest at 14.304%, collateralized by equipment, final
payment due June 2, 2012                              |  |           | 13,305   |   |            |   |         |  
|                                                                                                                                                                                                |  |           |          |   |            |   |          |  
|                                                                                                                                                                                                |  |           | 428,762  |   |            |   | 469,659  |  
|Less current portion                                                                                                                                                                            |  |           | (168,946 | ) |            |   | (134,791 | )
|                                                                                                                                                                                                |  |           |          |   |            |   |          |  

Interest paid for the nine months ended September 30, 2008 and 2007 was $31,927 and $35,771, respectively.

As of September 30, 2008, maturities of notes payable and capital lease obligations for each of the next five years and in the aggregate were as
follows:



|                           |  |   |        
|-------------------------- |  | - | -------
|Years Ending September 30, |  |   |        
|2009                       |  | $ | 168,946
|2010                       |  |   | 236,552
|2011                       |  |   | 11,818 
|2012                       |  |   | 9,077  
|Thereafter                 |  |   | 2,369  
|                           |  |   |        
|                           |  | $ | 428,762
|                           |  |   |        

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



11



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|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 2028. 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 September 30, 2008 are as follows:



|                   |  |                                                    |         |            |      |                 |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|------------------ |  | -------------------------------------------------- | ------- | ---------- | ---- | --------------- | - | ------------------ |  | - | --------------------------- | - |  | -------------- | ------- | - |  | - | -
|Period Ending      |  | Estimated NOLCarryforward lessTemporaryDifferences |         | NOLExpires |      | BenefitFrom NOL |   | ValuationAllowance |  |   | Change inValuationAllowance |   |  | Net TaxBenefit
|September 30, 2008 |  |                                                    |         |            |      |                 |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|Federal            |  | $                                                  | 103,694 |            | 2017 |                 | $ | 15,554             |  | $ | (15,554                     | ) |  | $              | (15,554 | ) |  | $ | 
|                   |  |                                                    | 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  | ) |  |   | 
|                   |  |                                                    | 18,755  |            | 2025 |                 |   | 2,813              |  |   | (2,813                      | ) |  |                | (2,813  | ) |  |   | 
|                   |  |                                                    | 135,234 |            | 2026 |                 |   | 20,285             |  |   | (20,285                     | ) |  |                | (20,285 | ) |  |   | 
|                   |  |                                                    | 129,288 |            | 2028 |                 |   | 19,393             |  |   | (19,393                     | ) |  |                | (19,393 | ) |  |   | 
|                   |  |                                                    |         |            |      |                 |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|                   |  | $                                                  | 662,128 |            |      |                 | $ | 99,318             |  | $ | (99,318                     | ) |  | $              | (99,318 | ) |  | $ | 
|                   |  |                                                    |         |            |      |                 |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|State              |  | $                                                  | 99,944  |            | 2016 |                 | $ | 8,835              |  | $ | (8,835                      | ) |  | $              | (8,835  | ) |  | $ | 
|                   |  |                                                    | 132,579 |            | 2018 |                 |   | 11,720             |  |   | (11,720                     | ) |  |                | (11,720 | ) |  |   | 
|                   |  |                                                    |         |            |      |                 |   |                    |  |   |                             |   |  |                |         |   |  |   |  
|                   |  | $                                                  | 232,523 |            |      |                 | $ | 20,555             |  | $ | (20,555                     | ) |  | $              | (20,555 | ) |  | $ | 
|                   |  |                                                    |         |            |      |                 |   |                    |  |   |                             |   |  |                |         |   |  |   |  

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



|                                           |  |        |   
|------------------------------------------ |  | ------ | --
|                                           |  | 2008   |   
|Tax (benefit) at federal statutory rate    |  | (15.00 | )%
|State tax (benefit) net of federal benefit |  | (7.50  | ) 
|Non-taxable differences                    |  | 3.03   |   
|Temporary differences                      |  | 0.80   |   
|Valuation allowance                        |  | 19.18  |   
|                                           |  |        |   
|Tax provision (benefit) - effective rate   |  | 0.51   | % 
|                                           |  |        |   

Income taxes paid for the nine months ended respectively September 30, 2008 and the year ended
December 31, 2007 were $800 and $800.



12



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|9. | Operating Leases
|-- | ----------------

The Company leases its delivery fleet, other
vehicles and some office equipment under noncancelable operating leases with terms ranging from three to five years.

As of September 30, 2008,
minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:



|                           |  |   |      
|-------------------------- |  | - | -----
|Years Ending September 30, |  |   |      
|2009                       |  |   | 7,519
|2010                       |  |   | 1,979
|Thereafter                 |  |   |     
|                           |  |   |      
|                           |  | $ | 9,498
|                           |  |   |      

Total operating lease payments for the nine months ended September 30, 2008 and 2007 was $25,164 and $34,141,
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). 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. Rental expense under the lease for the nine months ended September 30, 2008 and 2007 was $77,400 in both years.

The Company also leases a bakery establishment in Mendocino, California and warehouse premises in Santa Rosa, California under operating leases expiring
September 30, 2011 and January 31, 2007, respectively. The Company terminated the lease for the Santa Rosa facility when it expired in January of 2007. Rental expense under these operating leases for the nine months ended
September 30, 2008 and 2007 was $37,980 and $37,128, respectively.



13



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|10. | Long Term Leases (continued)
|--- | ----------------------------

As of September 30, 2008,
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 September 30, |  |   |        
|2009                       |  | $ | 157,020
|2010                       |  |   | 159,690
|2011                       |  |   | 147,120
|2012                       |  |   | 103,200
|2013                       |  |   | 103,200
|Thereafter                 |  |   | 146,200
|                           |  |   |        
|                           |  | $ | 816,430
|                           |  |   |        



|11. | Related Party Transactions
|--- | --------------------------

As of September 30, 2008, the
Company has an interest only note payable, 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
$41,100, as of September 30, 2008. The loan is uncollateralized, is due July 15, 2009, 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 nine months ended September 30,
2008, is as follows:



|                   |  |   |       
|------------------ |  | - | ------
|Interest payments  |  | $ | 5,725 
|Rent payments      |  | $ | 73,100
|Principal payments |  | $ | 16,000

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.



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



|12. | Information on Business Segments (continued)
|--- | --------------------------------------------

Selected financial
data by business segment



|                        |  |            |           |   |            |   |           |  
|----------------------- |  | ---------- | --------- | - | ---------- | - | --------- | -
|                        |  | 9/30/2008  |           |   | 9/30/2007  |  
|Net Sales               |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | 2,900,135 |   |            | $ | 3,002,156 |  
|Bakery                  |  |            | 463,231   |   |            |   | 466,281   |  
|                        |  |            |           |   |            |   |           |  
|Total                   |  | $          | 3,363,366 |   |            | $ | 3,468,437 |  
|                        |  |            |           |   |            |   |           |  
|Intersegment Sales      |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | 37,432    |   |            | $ | 38,626    |  
|                        |  |            |           |   |            |   |           |  
|Total Sales             |  | $          | 3,325,934 |   |            | $ | 3,429,811 |  
|                        |  |            |           |   |            |   |           |  
|Operating Income/(Loss) |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | (74,081   | ) |            | $ | 101,320   |  
|Bakery                  |  |            | (58,732   | ) |            |   | (31,507   | )
|                        |  |            |           |   |            |   |           |  
|Total                   |  | $          | (132,813  | ) |            | $ | 69,813    |  
|                        |  |            |           |   |            |   |           |  
|Depreciation and        |  |            |           |   |            |   |           |  
|Amortization            |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | 62,943    |   |            | $ | 81,522    |  
|Bakery                  |  |            | 14,848    |   |            |   | 13,088    |  
|                        |  |            |           |   |            |   |           |  
|Total                   |  | $          | 77,791    |   |            | $ | 94,610    |  
|                        |  |            |           |   |            |   |           |  
|Interest Expense        |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | 31,615    |   |            | $ | 35,771    |  
|Bakery                  |  |            | 312       |   |            |   | 0         |  
|                        |  |            |           |   |            |   |           |  
|Total                   |  | $          | 31,927    |   |            | $ | 35,771    |  
|                        |  |            |           |   |            |   |           |  
|                        |  |           
|                        |  | 9/30//2008 |           |   | 12/31/2007 |  
|Assets                  |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | 905,982   |   |            | $ | 1,016,917 |  
|Bakery                  |  |            | 263,904   |   |            |   | 229,389   |  
|                        |  |            |           |   |            |   |           |  
|Total                   |  | $          | 1,169,886 |   |            | $ | 1,246,306 |  
|                        |  |            |           |   |            |   |           |  
|Fixed Assets            |  |            |           |   |            |   |           |  
|Specialty Coffee        |  | $          | 297,454   |   |            | $ | 320,067   |  
|Bakery                  |  |            | 92,196    |   |            |   | 60,044    |  
|                        |  |            |           |   |            |   |           |  
|Total                   |  | $          | 389,650   |   |            | $ | 380,111   |  
|                        |  |            |           |   |            |   |           |  



15



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##### 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.

The Company has a revolving line of credit for $25,000 of which $1,000 is currently outstanding and a term debt facility of $255,203 with the Savings Bank of Mendocino.
The term debt is a five-year note due December 1, 2009 and the line of credit 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 September 30, 2008 versus September 30, 2007



|                              |  |                     |         |    |                |       |   
|----------------------------- |  | ------------------- | ------- | -- | -------------- | ----- | --
|Consolidated                  |  | Increase (Decrease) |         |    | Percent Change |      
|Net Sales                     |  | $                   | (3,297  | )  |                | (.3   | )%
|Cost of Sales                 |  |                     | 27,019  |    |                | 3.9   | % 
|Gross Margin %                |  |                     | (2.4    | )% |                | (5.8  | )%
|Selling, G&A Expense          |  |                     | 14,899  |    |                | 3.7   | % 
|Depreciation And Amortization |  |                     | (6,195  | )  |                | (18.9 | )%
|Interest Expense              |  |                     | (1,275  | )  |                | (10.6 | )%
|Net Income (Loss)             |  |                     | (32,802 | )  |                | (70.9 | )%



16



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##### Table of Contents

Consolidated net sales for the three months ended September 30, 2008 were $1,171,993, down .3%, or more than $3,000
when compared with net sales of $1,175,290 for the same period in fiscal 2007.

Distribution revenues (e.g., revenues generated on the Companys own
truck distribution) were flat for the three months ended September 30, 2008, when compared with distribution sales for the same period in 2007.

National revenues (e.g., revenues not derived by mail order and direct truck distribution) were down $16,000, or 3% for the three months ended September 30, 2008 when compared to national sales for the same period in 2007. The decrease
is attributed to a drop in sales by an outside distributor to a northern California grocery chain. The chain deletes the Companys products when their stores are remodeled.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) increased $3,000, or 2% for the three months ended September 30, 2008 when
compared to mail order sales for the same period in 2007. The increase was attributable to an article in O magazine featuring the Companys Mirembe products.

Sales of the Companys bakery increased by $10,000, or 6% for the three months ended September 30, 2008 when compared to bakery sales for the same period in 2007.

Consolidated cost of sales for the three months ended September 30, 2008 were $713,981, up 3.9%, or over $27,000 when compared with the cost of sales of $686,962
for the same period in 2007. This increase was a result of an increase in green bean costs of over $34,000 with green bean prices increasing to $2.30 for the three months ended September 30, 2008 versus $2.07 for the same period in 2007. This
increase was offset by a slight decline in wages and packaging costs.

Consolidated gross margin percentage (gross profit as a percentage of net sales) for
the three months ended September 30, 2008 was 39.1%, down 5.8 % when compared with gross margin of 41.5% for the same period in 2007. The decrease in gross margin was a result of higher green bean costs.

Consolidated selling, general and administrative expenses were $412,886 for the three months ended September 30, 2008, an increase of 3.7% or nearly $15,000 when
compared with the selling, general and administrative expenses of $397,987 for the same period in 2007. The increase was a result of an increase in wages as the CEO and President resumed their authorized wages that were reduced last year.

Consolidated depreciation and amortization expenses for the three months ended September 30, 2008 were $26,664, an 18.9% decrease, or over $6,000,
when compared to depreciation expense of $32,859 for the same period in 2007. The decline was a result of only minor capital expenditures made during 2007.

Consolidated interest expense for the three months ended September 30, 2008 was $10,792, a decrease of over $1,000, or 10.6% compared with interest expense of $12,067 for the same period in 2007. Total debt is $428,762 at
September 30, 2008 versus $469,659 at December 31, 2007.

As a result of the foregoing factors, the Company had a consolidated net profit of
$13,519 for the three months ended September 30, 2008, compared to a profit of $46,321 for the same period in 2007. Because of the sales declines and the increases in the cost of green beans and other operating expenses, there can be no
assurances that the Company will be profitable in future periods.



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Nine Months ended September 30, 2008 versus September 30, 2007:



|                              |  |                     |          |    |                |       |   
|----------------------------- |  | ------------------- | -------- | -- | -------------- | ----- | --
|Consolidated                  |  | Increase/(Decrease) |          |    | Percent Change |      
|Sales                         |  | $                   | (103,877 | )  |                | (3    | )%
|Cost of Sales                 |  |                     | 83,953   |    |                | 4.2   | % 
|Gross Margin                  |  |                     | (4.4     | )% |                | (10.4 | )%
|Selling G & A Expense         |  |                     | 31,615   |    |                | 2.5   | % 
|Depreciation and Amortization |  |                     | (16,819  | )  |                | (17.8 | )%
|Interest Expense              |  |                     | (3,844   | )  |                | (10.7 | )%
|Net Income/(Loss)             |  |                     | (195,314 | )  |                |      |   

Consolidated net sales for the nine months ended September 30, 2008 were $3,325,934 a decrease of over
$103,000 or 3%, when compared to sales of $3,429,811 for the same period in 2007.

Distribution revenues (e.g., revenues generated on the Companys
own truck distribution) were down $42,000 or 3.1%, for the nine months ended September 30, 2008 when compared to the same period in 2007. Sales have dropped because of a fire at a major customer in the central valley of California (that began
purchasing again in August of 2008) and a drop in volume when the Company implemented a price increase. However, there has been no loss of customers in this revenue segment.

National Revenues (e.g., revenues not derived by mail order and direct truck distribution) were down $28,000, or 2.3%, for the nine months ended September 30, 2008 when compared to sales for the same period in
2007. Increases with the distributor in southern California were offset by declines in a national account that would not accept a price increase and loss of business from a major northern California grocery chain that eliminates the Companys
product when it remodels its stores.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media
or the Internet) were down $30,000 or 8.7%, for the nine months ended September 30, 2008 when compared to sales for the same period in 2007. Most of the decline was attributable to the Cornucopia program through elimination of some partners and
the lack of marketing by the other partners to their constituency.

Sales of the Companys bakery were down $3,000 or .7%, for the nine months ended
September 30, 2008 when compared to the same period in 2007 because of closing the bakery in February 2008 for a period of a week for repairs to the facility.

Consolidated cost of sales for the nine months ended September 30, 2008 were $2,067,269 an increase of nearly $84,000 or 4.2% when compared with the cost of sales of $1,983,316 for the same period in 2007. The increase was attributed
to the increase in green beans. The cost per pound of green beans increased to $2.25 for the nine months ended 2008 compared to $2.03, or $98,000 for the same period in 2007.

Consolidated gross margin (gross profit as a percentage of net sales) for the nine months ended September 30, 2008 was 37.8%, down 10.4% when compared with gross margin of 42.2% for the same period in 2007. The
drop in gross margin is attributed to the higher bean costs as indicated above.

Consolidated selling, general and administrative expenses were $1,313,687
for the nine months ended September 30, 2008, an increase of nearly $32,000 or 2.5%, when compared to selling, general and administrative expenses of $1,282,072 for the same period in 2007. The increases were attributed to a $34,000 increase in
wages to the CEO and President resuming their authorized wages which were reduced last year.

Consolidated depreciation and amortization expenses for the
nine months ended September 30, 2008 were $77,791 a decline of nearly $17,000 or 17.8%, when compared to depreciation and amortization expenses of $94,610 for the same period in 2007. The decrease is a result of few expenditures being placed in
service during 2007.

Consolidated interest expense for the nine months ended September 30, 2008 was $31,927 a decrease of 3,844 or 10.7%, when
compared to interest expense of $35,771 for the same period in 2007. Total debt at September 30, 2008 was $428,762 versus $469,659 at December 31, 2007.



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As a result of the forgoing items, the Company had a consolidated net loss of $157,944 for the nine months ended
September 30, 2008 compared to a profit of $37,370 for the same period in 2007. Because of the sales decline and the increases in the cost of green beans and other operating expenses, there can be no assurances that the Company will be
profitable in any future periods

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2008, the Company had working capital of $50,474 versus working capital of $288,822 as of December 31, 2007. The decrease in working capital is due primarily to the increase in accounts
payable of over $156,000 and a drop in cash of over $90,000.

Net cash provided by operating activities was $41,583 for the nine months ended
September 30, 2008 compared to net cash provided by operating activities for the nine months ended September 30, 2007 of $77,846. The decrease in net cash provided by operating activities in the nine months of 2008 was principally the
result of the increased loss of nearly $158,000 versus a profit last year of over $37,000 offset by the increase in accounts payable of over $135,000.

Cash used in investing activities was $85,552 for the nine months ended September 30, 2008 compared to $19,652 used in the same period in 2007. Capital additions for the first nine months of 2008 were $12,000 for a new floor, $10,000
for a new freezer and cooler display case and $13,500 for a vented hood for the cook surface at the Bakery, and $36,000 for brewing and grinding equipment, $8,000 for new computers and office equipment, $5,000 for improvement for the electrical
service in the plant and $6,000 for production equipment at the Coffee Company. In addition, the Company received an insurance settlement of $5,975 over the net book value for Company equipment destroyed in a fire at a customer location.

Net cash used in financing activities for the nine months ended September 30, 2008 was $46,294 compared to net cash used in financing activities of $80,221
during the same period in 2007. The decrease in net cash used by financing activities was a result of paying debt offset in 2008 by incurring additional debt for capital equipment.

Because of the operating loss and capital acquisitions and repayment of debt, cash at June 30, 2008 declined over $90,000 to $13,772 from the cash balance at January 1, 2008 and was over $41,000 lower than
cash at September 30, 2007.

In November 2004, the Company secured a term note with the Savings Bank of Mendocino. This note is amortized over ten
years and is payable in five years with a balloon payment on December 1, 2009 at 2% over prime rate. The rate was 7% at September 30, 2008. 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 September 30, 2008 the balance on the note is $255,203 (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. Prime rate was 7% at September 30, 2008 with an outstanding balance on the line of $1,000. 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 $41,100 at September 30, 2008, 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, 2009
and is uncollateralized. (See Note 7 and Note 11 of Notes to Financial Statements)

At September 30, 2008, the Company had total borrowings of
$428,762 including $256,203 owing to the Savings Bank of Mendocino. This compares to total borrowings of $469,659 as of December 31, 2007, including $279,352 outstanding to the Savings Bank of Mendocino.

For long-term debt, see Note 7 and Note 11 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
|Long Term Debt          |  | $                      | 428,762   |                   | $ | 168,946   |  | $         | 236,552 |               | $ | 20,895  |  | $ | 2,369  
|                        |  |                        |           |                   |   |           |  |           |         |               |   |         |  |   |        
|Operating Leases        |  |                        | 9,498     |                   |   | 7,519     |  |           | 1,979   |               |   |        |  |   |       
|                        |  |                        |           |                   |   |           |  |           |         |               |   |         |  |   |        
|Real Estate Leases      |  |                        | 816,430   |                   |   | 157,020   |  |           | 306,810 |               |   | 206,400 |  |   | 146,200
|                        |  |                        |           |                   |   |           |  |           |         |               |   |         |  |   |        
|Total Cash Obligations  |  | $                      | 1,254,690 |                   | $ | 333,485   |  | $         | 545,341 |               | $ | 227,295 |  | $ | 148,569
|                        |  |                        |           |                   |   |           |  |           |         |               |   |         |  |   |        



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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
September 30, 2008. 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 Disclosure controls over financial reporting during the third quarter of 2008 that have materially affected or are reasonably likely to affect the Companys internal controls over financial
reporting.



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##### Table of Contents

Part II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

-None-



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

-None-



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

-None-



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

-None-



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

At the
Companys annual meeting held in Fort Bragg, California at 10:00 A.M. on Monday, September 22, 2008, the Company submitted for a vote of security holders the election of three directors and ratification of the Companys independent
public accountants Schumacher & Associates, Inc. Below is a summary of the results:

Proposal No.1: Election of three directors



|                 |  |            |  |                  |  |        
|---------------- |  | ---------- |  | ---------------- |  | -------
|Name             |  | Shares for |  | Against/Withheld |  | Abstain
|Paul Katzeff     |  | 980,250    |  | 0                |  | 0      
|Joan Katzeff     |  | 980,250    |  | 0                |  | 0      
|Nicholas Hoskyns |  | 979,950    |  | 0                |  | 300    

Proposal No. 2: Ratification of Schumacher & Associates, Inc. Certified Public Accountants as
independent public accounts for the Company



|                              |  |            |  |                  |  |        
|----------------------------- |  | ---------- |  | ---------------- |  | -------
|Name                          |  | Shares for |  | Against/Withheld |  | Abstain
|Schumacher & Associates, Inc. |  | 980,250    |  | 0                |  | 0      



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

-None-



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##### Table of Contents

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



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SIGNATURES

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

THANKSGIVING COFFEE COMPANY, INC.



|                              |  |                         |  |                  
|----------------------------- |  | ----------------------- |  | -----------------
|Name                          |  | Title                   |  | Date             
|                              |  |                        
|/s/ Paul Katzeff Paul Katzeff |  | Chief Executive Officer |  | November 14, 2008
|                              |  |                        
|/s/ Joan Katzeff Joan Katzeff |  | President               |  | November 14, 2008
|                              |  |                        
|/s/ Sam Kraynek Sam Kraynek   |  | Chief Financial Officer |  | November 14, 2008



23