UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM 10-Q~~ __________________________

xFORM ~~QUARTERLY~~10-Q ~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~FOR THE QUARTERLY PERIOD ENDED DECEMBER 26, 2010~~ __________________________

or QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨FOR ~~TRANSITION~~THE ~~REPORT~~QUARTERLY ~~PURSUANT~~PERIOD TOENDED ~~SECTION~~JULY 133, OR2011 ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~FOR~~or ~~THE TRANSITION PERIOD FROM to~~

~~Commission~~ TRANSITION ~~file~~REPORT ~~number:~~PURSUANT ~~001-33646~~ TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TCFOR ~~GLOBAL,~~THE ~~INC.~~TRANSITION PERIOD FROM to

~~(Exact~~Commission ~~Name~~file ofnumber: ~~Registrant~~001-33646 ~~as Specified in its Charter)~~

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

__________________________

~~3100~~TC ~~Airport Way South~~GLOBAL, ~~Seattle, Washington~~INC. ~~98134~~

(~~Address~~Exact Name of ~~principal~~Registrant ~~executive~~as ~~offices~~Specified in its Charter)

~~(206) 233-2070~~ __________________________

(Registrant’s telephone number, including area code)



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

~~Indicate~~3100 ~~by check~~Airport ~~mark~~Way ~~whether~~South, 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)Seattle, ~~and~~Washington ~~(2) has~~98134 ~~been subject to such filing requirements for the past 90 days. Yes x No ¨~~

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (~~§232.405~~Address of ~~this~~principal ~~chapter)~~executive ~~during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files~~offices)~~. Yes ¨ No ¨~~

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer, accelerated filer, non-accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (~~Check One~~206): 233-2070

~~Large~~(Registrant’s ~~accelerated~~telephone ~~filer~~number, ¨including ~~Accelerated~~area ~~filer~~code) ~~¨ Non-accelerated filer ¨ Smaller reporting company x~~

~~Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x~~ __________________________

Indicate by check mark whether the ~~number~~registrant of(1) has ~~shares~~filed ~~outstanding~~all ofreports ~~each~~required to be filed by Section 13 or 15(d) of the ~~issuer’s~~Securities ~~classes~~Exchange Act of ~~common~~1934 ~~stock~~during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), asand of(2) has been subject to such filing requirements for the ~~latest~~past ~~practicable~~90 ~~date~~days. Yes  No 

Common Stock, No Par Value		3,563,867
(Title of Each Class)		Number of Shares Outstanding at November 5, 2010

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  No 

~~Table~~Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of ~~Contents~~“large accelerated filer, accelerated filer, non-accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

TCLarge ~~GLOBAL,~~accelerated ~~INC.~~filer  Accelerated filer  Non-accelerated filer  Smaller reporting company 

~~FORM~~Indicate ~~10-Q~~by ~~FOR~~checkmark ~~THE~~whether ~~QUARTERLY~~the ~~PERIOD~~registrant ~~ENDED~~is ~~DECEMBER~~a ~~26,~~shell ~~2010~~company (as defined in Rule 12b-2 of the Exchange Act) Yes  No 

~~INDEX~~Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

			Page No.
Common Stock, No Par Value	3,565,664
		SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
(Title of Each Class)	Number of Shares Outstanding atAugust 10, 2011
PART I		FINANCIAL INFORMATION		4
Item 1		Financial Statements		4
		Condensed Consolidated Balance Sheets at December 26, 2010 and March 28, 2010		4
		Condensed Consolidated Statements of Operations for the Thirteen and Thirty-Nine Week Periods Ended December 26, 2010 and December 27, 2009		5
		Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Week Periods Ended December 26, 2010 and December 27, 2009		6
		Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Thirty-Nine Week Period Ended December 26, 2010		7
		Notes to Condensed Consolidated Financial Statements		8
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3		Quantitative and Qualitative Disclosures about Market Risk		26
Item 4T		Controls and Procedures		26
PART II		OTHER INFORMATION		26
Item 1		Legal Proceedings		26
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 6		Exhibits		27
		SIGNATURE		29

~~****~~Table of Contents

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

Reference in this report		Fiscal year ending (number of weeks)
Fiscal 2012		April 1, 2012 (52 weeks)
Fiscal 2011		April 3, 2011 (53 weeks)
Fiscal 2010		March 28, 2010 (52 weeks)
		Interim fiscal period
Third Quarter Fiscal 2011		13 week period ended December 26, 2010
Third Quarter Fiscal 2010		13 week period ended December 27, 2009
Nine Months Fiscal 2011		39 week period ended December 26, 2010
Nine Months Fiscal 2010		39 week period ended December 27, 2009

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 3, 2011

2INDEX



		Page No.
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
PART I	FINANCIAL INFORMATION	4
Item 1	Financial Statements	4
	Condensed Consolidated Balance Sheets at April 3, 2011 and July 3, 2011	4
	Condensed Consolidated Statements of Operations for the Thirteen Week Periods Ended June 27, 2010 and July 3, 2011	5
	Condensed Consolidated Statements of Cash Flows for the Thirteen Week Periods Ended June 27, 2010 and July 3, 2011	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4	Controls and Procedures	23
PART II	OTHER INFORMATION	23
Item 1	Legal Proceedings	23
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6	Exhibits	24
	SIGNATURE	25

~~SPECIAL~~**** ~~NOTE REGARDING FORWARD-LOOKING STATEMENTS~~

InWe ~~this~~end ~~report,~~our wefiscal ~~refer~~year on the Sunday closest to TCMarch 31. ~~Global~~As a result, ~~Inc.~~we record our revenue and ~~its~~expenses ~~consolidated~~on ~~subsidiaries~~a ~~and~~52- ~~joint~~or ~~ventures~~53-week ~~controlled~~annual byperiod, depending on the ~~company~~year. ~~as “we,”~~In ~~“us~~this report,” “we refer to our,” ~~“the~~fiscal ~~Company,”~~periods oras ~~“Tully’s.”~~follows:

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those sections. These statements reflect our current views with respect to our future financial condition, results of operations, objectives, strategies, plans, goals, targets or future performance and business for future periods, and generally may be identified by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “initiatives,” “models,” “hope,” “goal,” “foresee” or other words of similar import.



Reference in this report	Fiscal year ending (number of weeks)
Fiscal 2012	April 1, 2012 (52 weeks)
Fiscal 2011	April 3, 2011 (53 weeks)

	Interim fiscal period
First Quarter Fiscal 2012	13-week period ended July 3, 2011
First Quarter Fiscal 2011	13-week period ended June 27, 2010

These forward-looking statements involve known and unknown risks, uncertainties and other factors, including those identified below, that could cause events, including our actual results, to differ materially from those expressed or implied by any forward-looking statements. These factors, among others, could cause our financial performance to differ materially from our goals, targets, objectives, intentions and expectations. 2

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

•SPECIAL ~~our~~NOTE ~~ability~~REGARDING toFORWARD-LOOKING ~~successfully~~STATEMENTS ~~execute on our Fiscal 2011 operating plan;~~

•In ~~our~~this ~~ability~~report, we refer to ~~raise~~TC ~~additional~~Global, ~~capital~~Inc. orand toits ~~consummate~~consolidated asubsidiaries ~~strategic~~and ~~transaction~~joint toventures ~~fund~~controlled by the company as “we,” “us,” “our,” ~~business;~~“the Company,” or “Tully’s.”

•This report contains forward-looking statements within the ~~performance~~meaning of ~~existing~~Section 27A of the Securities Act of 1933, as amended, and ~~new~~Section 21E ~~stores~~of the Securities Exchange Act of 1934, ~~including~~as amended, and is subject to the safe harbor created by those sections. These statements reflect our ~~ability~~current views with respect to ~~achieve~~our ~~comparable~~future ~~store~~financial ~~sales~~condition, ~~growth~~results of operations, ~~increase~~objectives, ~~the~~strategies, ~~average~~plans, ~~unit~~goals, ~~volume~~targets ofor ~~new~~future ~~stores~~performance and business for future periods, and ~~increase~~generally ~~operating~~may ~~margins;~~be identified by use of phrases such as “believe,” “expect,” “will,” “seek,” “should,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “initiatives,” “models,” “hope,” “goal,” “foresee” or other words of similar import.

•These ~~the~~forward-looking ~~success~~statements ofinvolve known and unknown risks, uncertainties and other factors, including those identified below, that could cause events, including our ~~franchisees;~~actual results, to differ materially from those expressed or implied by any forward-looking statements. These factors, among others, could cause our financial performance to differ materially from our goals, targets, objectives, intentions and expectations.

•The ~~our~~following ~~continued~~factors, ~~right~~among toothers, ~~use~~could cause our ~~trade~~future ~~names~~results ~~and~~to ~~brands,~~differ ~~which~~materially ~~we license~~ from ~~Green~~historical ~~Mountain~~results ~~Coffee~~or ~~Roasters;~~those anticipated:

• our ability to ~~maintain~~successfully ~~and~~execute ~~enhance~~on our ~~brand~~Fiscal ~~image~~2012 ~~and~~operating ~~product quality~~plan; ~~and~~

• the performance of existing and new stores, including our ability to ~~compete~~achieve ~~successfully~~comparable ~~against~~store ~~current~~sales orgrowth, ~~future~~increase ~~competitors.~~the average unit volume of new stores, and increase operating margins;

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

~~We qualify~~• ~~all of~~ our ~~forward-looking~~ability ~~statements~~to byraise ~~these~~additional ~~cautionary~~capital ~~statements.~~or ~~Except~~ to ~~the~~consummate ~~extent~~a ~~required~~strategic bytransaction ~~the federal securities laws, we do not intend~~ to ~~update~~fund orour ~~revise~~business; ~~the forward-looking statements contained in this report.~~ and

3• our ability to compete successfully against current or future competitors.

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

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

~~ITEM 1. FINANCIAL STATEMENTS~~3

TCTable ~~GLOBAL,~~of ~~INC.~~ Contents

~~CONDENSED~~PART ~~CONSOLIDATED~~I. ~~BALANCE~~FINANCIAL ~~SHEETS~~INFORMATION

	December 26,2010			March 28,2010
	(unaudited)			(audited)
	(dollars in thousands, Except share data)
Assets
Current assets
Cash and cash equivalents	$	2,606		$	3,558
Escrow receivable		—			3,500
Income tax receivable		393			931
Accounts receivable, net of allowance for doubtful accounts of $979 and $704 at December 26, 2010 and March 28, 2010, respectively		1,484			585
Inventories		703			1,381
Prepaid expenses and other current assets		277			274
Total current assets		5,463			10,229
Property and equipment, net		2,591			2,184
Goodwill		45			45
Related party receivable, net of current portion		1,000			1,000
Other assets		281			263
Total assets	$	9,380		$	13,721
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	2,356		$	2,498
Accrued liabilities		1,945			2,061
Current portion of long-term debt		101			157
Deferred revenue		4,617			4,271
Current portion of deferred gain on sale of wholesale segment		169			169
Obligation to minority shareholder in TCAP		4,000			4,000
Total current liabilities		13,188			13,156
Deferred lease costs		274			249
Deferred revenue, net of current portion		710			715
Deferred gain on sale of wholesale segment, net of current portion		2,062			2,189
Total liabilities		16,234			16,309
Commitments and contingencies (Note 4)
Stockholders’ deficit
Series A Convertible Preferred stock, no par value; 31,000,000 shares authorized, 12,790,874 issued and outstanding at December 26, 2010 and March 28, 2010, respectively; stated value of $2.50 per share and a liquidation preference		28,473			28,473
Common stock, no par value; 120,000,000 shares authorized; 3,563,867 shares issued and outstanding at December 26, 2010 and March 28, 2010, respectively; stated value of $18.00 per share and a liquidation preference		19,706			19,706
Series B Convertible Preferred stock, no par value; 8,000,000 shares authorized; 3,590,349 issued and outstanding at December 26, 2010 and March 28, 2010, respectively; stated value of $2.50 per share and a liquidation preference		7,958			7,958
Additional paid-in capital		24,150			24,089
Accumulated other comprehensive loss		(72	)		(41	)
Accumulated deficit		(88,536	)		(84,371	)
Total stockholders’ deficit attributable to TC Global, Inc.		(8,321	)		(4,186	)
Non-controlling interest		1,467			1,598
Total stockholders’ deficit		(6,854	)		(2,588	)
Total liabilities and stockholders’ deficit	$	9,380		$	13,721

ITEM 1. FINANCIAL STATEMENTS

~~The~~TC ~~accompanying~~GLOBAL, ~~notes are an integral part of these consolidated financial statements~~INC.

4CONDENSED CONSOLIDATED BALANCE SHEETS



	April 3, 2011			July 3, 2011
	(audited)			(unaudited)
	(dollars in thousands, except share data)
Assets
Current assets
Cash and cash equivalents	$	2,809		$	2,697
Accounts receivable, net of allowance for doubtful accounts of $994 and $1,031 at April 3, 2011 and July 3, 2011, respectively	1,213			999
Inventories	628			617
Prepaid expenses and other current assets	272			321
Total current assets	4,922			4,634
Property and equipment, net	2,207			2,276
Related party receivable, net of current portion	1,000			1,000
Goodwill and other assets	344			360
Total assets	$	8,473		$	8,270
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable	$	2,542		$	2,666
Accrued liabilities	1,883			1,655
Current portion of long-term debt	54			81
Deferred revenue	4,540			4,758
Current portion of deferred gain on sale of wholesale segment	169			169
Obligation to minority shareholder in TCAPPLP	4,000			4,000
Total current liabilities	13,188			13,329
Deferred lease costs	362			362
Deferred revenue, net of current portion	831			819
Deferred gain on sale of wholesale segment, net of current portion	2,020			1,978
Total liabilities	16,401			16,488
Commitments and contingencies (Note 4)
Stockholders’ deficit
Series A Convertible Preferred stock, no par value; 31,000,000 shares authorized, 12,790,874 issued and outstanding at April 3, 2011 and July 3, 2011, respectively; stated value of $2.50 per share and a liquidation preference	28,473			28,473
Common stock, no par value; 120,000,000 shares authorized; 3,563,867 and 3,565,664 shares issued and outstanding at April 3, 2011 and July 3, 2011, respectively; stated value of $18.00 per share and a liquidation preference	19,706			19,706
Series B Convertible Preferred stock, no par value; 8,000,000 shares authorized; 3,590,349 issued and outstanding at April 3, 2011 and July 3, 2011, respectively; stated value of $2.50 per share and a liquidation preference	7,958			7,958
Additional paid-in capital	24,166			24,190
Accumulated other comprehensive loss	(93		)	(112		)
Accumulated deficit	(89,585		)	(89,854		)
Total stockholders’ deficit attributable to TC Global, Inc.	(9,375		)	(9,639		)
Non-controlling interest	1,447			1,421
Total stockholders’ deficit	(7,928		)	(8,218		)
Total liabilities and stockholders’ deficit	$	8,473		$	8,270

TCThe ~~GLOBAL,~~accompanying ~~INC~~notes are an integral part of these consolidated financial statements.

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~ 4

	Thirteen Week Periods Ended						Thirty-Nine Week Periods Ended
	December 26,2010(unaudited)			December 27,2009(unaudited)			December 26,2010(unaudited)			December 27,2009(unaudited)
	(dollars in thousands, except per share data)
Net sales
Retail store sales	$	9,127		$	8,970		$	26,758		$	26,720
Specialty sales of products		288			1,001			1,057			2,776
Total sales of products		9,415			9,971			27,815			29,496
Licenses, royalties, and fees		136			117			412			334
Recognition of deferred licensing revenue		11			10			31			30
Net sales		9,562			10,098			28,258			29,860
Cost of goods sold and operating expenses
Retail cost of goods sold		3,400			3,201			9,930			9,393
Retail occupancy expenses		906			1,099			2,954			3,318
Total retail cost of goods sold and related occupancy expenses		4,306			4,300			12,884			12,711
Specialty cost of goods sold		85			599			505			1,802
Cost of goods sold and related occupancy expenses		4,391			4,899			13,389			14,513
Store operating expenses		3,919			4,033			11,665			11,706
Other operating expenses		439			589			1,652			1,521
Marketing, general and administrative costs		1,578			1,569			5,054			4,474
Depreciation and amortization		223			284			705			935
Impairment of long lived assets		—			—			—			78
Store closure and lease termination costs		44			—			67			—
Total cost of goods sold and operating expenses		10,594			11,374			32,532			33,227
Operating loss		(1,032	)		(1,276	)		(4,274	)		(3,367	)
Other income (expense)
Interest expense		—			(3	)		(1	)		(9	)
Foreign exchange gain (loss)		25			(6	)		—			(6	)
Miscellaneous expense		(18	)		(12	)		2			(84	)
Total other income (expense)		7			(21	)		1			(99	)
Loss before income taxes		(1,025	)		(1,297	)		(4,273	)		(3,466	)
Income tax benefit (expense)		(1	)		(162	)		(23	)		(162	)
Net loss	$	(1,026	)	$	(1,459	)	$	(4,296	)	$	(3,628	)
Non-controlling interest	$	26		$	70		$	131		$	147
Net loss attributable to TC Global, Inc.	$	(1,000	)	$	(1,389	)	$	(4,165	)	$	(3,481	)
Loss per share - basic and diluted	$	(0.28	)	$	(0.39	)	$	(1.17	)	$	(0.99	)
Weighted average shares used in computing basic and diluted loss per share		3,564			3,561			3,564			3,528

Table of Contents

~~The~~TC ~~accompanying notes~~GLOBAL, ~~are an integral part of these condensed consolidated financial statements~~INC.

5CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



	Thirteen Week Periods Ended
	June 27, 2010			July 3, 2011
	(unaudited)			(unaudited)
	(dollars in thousands, except per share data)
Net sales
Retail store sales	$	8,858		$	9,109
Specialty sales of products	499			293
Total sales of products	9,357			9,402
Licenses, royalties, and fees	129			105
Recognition of deferred licensing revenue	10			52
Net sales	9,496			9,559
Cost of goods sold and operating expenses
Retail cost of goods sold	3,240			3,410
Retail occupancy expenses	1,047			1,054
Total retail cost of goods sold and related occupancy expenses	4,287			4,464
Specialty cost of goods sold	294			36
Cost of goods sold and related occupancy expenses	4,581			4,500
Store operating expenses	3,894			3,905
Other operating expenses	584			373
Marketing, general and administrative costs	1,852			1,045
Depreciation and amortization	237			184
Store closure and lease termination costs	8			—
Total cost of goods sold and operating expenses	11,156			10,007
Operating loss	(1,660		)	(448		)
Other income (expense)	6			64
Loss before income taxes	(1,654		)	(384		)
Income tax benefit (expense)	(26		)	89
Net loss	$	(1,680	)	$	(295	)
Non-controlling interest	$	52		$	26
Net loss attributable to TC Global, Inc.	$	(1,628	)	$	(269	)
Loss per share - basic and diluted	$	(0.46	)	$	(0.08	)
Weighted average shares used in computing basic and diluted loss per share	3,563			3,566

TCThe ~~GLOBAL,~~accompanying ~~INC~~notes are an integral part of these condensed consolidated financial statements.

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~ 5

	Thirty-Nine Week Periods Ended
	December 26,2010			December 27,2009
	(unaudited)			(unaudited)
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,296	)	$	(3,628	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		705			935
Store closure and lease termination costs		67			—
Impairment of long lived assets		—			78
Employee stock option compensation expense		61			112
Provision for doubtful accounts		(293	)		185
Gain on sale of fixed asset		(12	)		(15	)
Recognition of deferred gain on sale of wholesale segment		(127	)		(127	)
Recognition of deferred license revenues		14			(18	)
Changes in assets and liabilities:
Escrow receivable		3,500			(500	)
Accounts receivable		(69	)		5,223
Inventories		678			(74	)
Prepaid expenses and other assets		240			1,621
Accounts payable		(143	)		(3,166	)
Accrued liabilities		(181	)		(2,297	)
Deferred revenue		326			1,220
Deferred lease costs		25			(119	)
Net cash provided by (used in) operating activities		495			(570	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,139	)		(485	)
Proceeds from sale of property and equipment		39			18
Net cash used in investing activities		(1,100	)		(467	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases		(316	)		(409	)
Foreign currency translation adjustment		(31	)		12
Shareholder distribution		—			(5,993	)
Proceeds from exercise of warrants and stock options		—			27
Net cash used in financing activities		(347	)		(6,363	)
Net decrease in cash and cash equivalents		(952	)		(7,400	)
Cash and cash equivalents at beginning of period		3,558			11,994
Cash and cash equivalents at end of period	$	2,606		$	4,594
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest	$	4		$	9
Non-cash investing and financing activities:
Liability paid through issuance of stock		—		$	84
Insurance premiums financed through note payable	$	195		$	175

Table of Contents

~~The~~TC ~~accompanying notes~~GLOBAL, ~~are an integral part of these condensed consolidated financial statements~~INC.

6CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW



	Thirteen Week Periods Ended
	June 27, 2010			July 3, 2011
	(unaudited)			(unaudited)
	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,680	)	$	(295	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	237			184
Store closure and lease termination costs	8			—
Stock compensation expense	21			24
Provision for doubtful accounts	(66		)	37
Gain on sale of fixed assets	(15		)	(94		)
Recognition of deferred gain on sale of wholesale segment	(42		)	(42		)
Recognition of deferred license revenues	(29		)	(33		)
Changes in assets and liabilities:
Accounts receivable	(633		)	176
Inventories	539			11
Prepaid expenses and other assets	37			86
Accounts payable	217			124
Accrued liabilities	226			(228		)
Deferred revenue	(129		)	239
Deferred lease costs	45			—
Net cash provided by (used in) operating activities	(1,264		)	189
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted Cash (Escrow Receivable)	3,500			—
Purchases of property and equipment	(708		)	(234		)
Proceeds from sale of property and equipment	18			76
Net cash provided by (used in) investing activities	2,810			(158		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases	(104		)	(124		)
Foreign currency translation adjustment	1			(19		)
Net cash used in financing activities	(103		)	(143		)
Net increase (decrease) in cash and cash equivalents	1,443			(112		)
Cash and cash equivalents at beginning of period	3,558			2,809
Cash and cash equivalents at end of period	$	5,001		$	2,697
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest	$	2		$	1
Non-cash investing and financing activities:
Insurance premiums financed through note payable	$	253		$	151

TCThe ~~GLOBAL,~~accompanying ~~INC~~notes are an integral part of these condensed consolidated financial statements.

~~CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)~~ 6

~~FOR~~Table ~~THE~~of ~~THIRTY-NINE WEEK PERIOD ENDED DECEMBER 26, 2010 (UNAUDITED)~~ Contents

	Convertible Preferred Stock								Common Stock				AdditionalPaid inCapital		AccumulatedOther ComprehensiveLoss			AccumulatedDeficit			Total			Non-Controlling Interest
	Series AShares		Series AAmount		Series BShares		Series BAmount		Shares		Amount
Balance, March 28, 2010		12,790,874	$	28,473		3,590,349	$	7,958		3,563,867	$	19,706	$	24,089	$	(41	)	$	(84,371	)	$	(4,186	)	$	1,598
Stock Option Expense														61								61
Non Controlling Interest																									(131	)
Comprehensive Loss																(31	)					(31	)
Net Loss attributable to TC Global, Inc.																			(4,165	)		(4,165	)
Balance, December 26, 2010		12,790,874	$	28,473		3,590,349	$	7,958		3,563,867	$	19,706	$	24,150	$	(72	)	$	(88,536	)	$	(8,321	)	$	1,467

TC GLOBAL, INC.

~~The~~NOTES ~~accompanying~~TO ~~notes~~CONDENSED ~~are~~CONSOLIDATED anFINANCIAL ~~integral~~STATEMENTS ~~part of these condensed consolidated financial statements.~~

7(Unaudited)

~~Table~~1. Basis of ~~Contents~~Presentation

The condensed consolidated financial statements include the accounts of TC ~~GLOBAL~~Global, ~~INC~~Inc. and its consolidated subsidiaries and joint ventures controlled by the Company. In these condensed consolidated financial statements, references to “we,” “us,” “Tully’s” or the “Company” refer to TC Global, Inc.

~~NOTES~~The TOaccompanying ~~CONDENSED~~condensed ~~CONSOLIDATED~~consolidated ~~FINANCIAL~~financial ~~STATEMENTS~~statements are unaudited; however, they include all adjustments, consisting only of normal recurring adjustments that, in the opinion of management, are necessary to fairly present the financial information set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Results of operations for the thirteen week period ended June 27, 2010 (“First Quarter Fiscal 2011”) and the thirteen week period ended July 3, 2011 (“First Quarter Fiscal 2012”) are not necessarily indicative of future financial results.

Investors should read these interim financial statements in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included in our Annual Report on Form 10-K for our fiscal year ended April 3, 2011, filed with the SEC on July 6, 2011 (~~Unaudited~~the “Fiscal 2011 Form 10-K”). As discussed in Note 2 to the condensed consolidated financial statements, circumstances exist that raise substantial doubt about the Company's ability to continue as a going concern. The condensed consolidated financial statements as of and for the periods ended July 3, 2011 and June 27, 2010 and the consolidated financial statements as of April 3, 2011 have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

1.All ~~Basis~~amounts ofin ~~Presentation~~the preceding financial statements and in the following notes to the condensed consolidated financial statements are assumed to be denominated in US dollars, unless otherwise indicated.

~~The~~Recent ~~condensed~~Developments consolidated financial statements include the accounts of TC Global, Inc. and its consolidated subsidiaries and joint ventures controlled by the Company. In these condensed consolidated financial statements, references to “we,” “us,” “Tully’s” or the “Company” refer to TC Global, Inc.

~~The~~During ~~accompanying~~the ~~condensed~~First ~~consolidated~~Quarter ~~financial~~Fiscal ~~statements include all adjustments~~2012, ~~consisting~~the ~~only~~Company ofopened ~~normal~~one ~~recurring~~new ~~adjustments that,~~Company-operated instore. ~~the~~During ~~opinion~~this ~~of management~~period, ~~are necessary to fairly present~~ the ~~financial~~Company’s ~~information~~franchise ~~set forth therein. Certain information~~ and ~~note~~license ~~disclosures~~partners ~~normally~~added ~~included~~two innew ~~financial~~locations ~~statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules~~ and ~~regulations~~closed ofone ~~the~~existing ~~Securities and Exchange Commission (“SEC”)~~locations. ~~Results~~During ofFirst ~~operations for the thirteen and thirty-nine week periods ended December 26, 2010 (“Third~~ Quarter Fiscal ~~2011” and “Nine Months Fiscal 2011~~2012,” ~~respectively) and~~ the ~~thirteen~~Company’s ~~and~~licensees ~~thirty-nine~~in ~~week~~Asia ~~periods~~closed ~~ended~~one ~~December 27,~~store ~~2009~~in ~~(“Third~~South ~~Quarter Fiscal 2010” and “Nine Months Fiscal 2010,” respectively) are not necessarily indicative of future financial results~~Korea.

~~Investors~~Recent ~~should~~Accounting read these interim financial statements in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included in our Annual Report on Form 10-K for our fiscal year ended March 28, 2010, filed with the SEC on June 28, 2010 (the “Fiscal 2010 Form 10-K”). Pronouncements

~~All~~In ~~amounts~~June in 2011, the ~~preceding~~FASB ~~financial~~issued ~~statements~~guidance ~~and~~regarding inthe presentation of comprehensive income. The new standard requires the ~~following~~presentation ~~notes~~of tocomprehensive income, the ~~condensed~~components ~~consolidated~~of ~~financial~~net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are ~~assumed~~reclassified from other comprehensive income to benet ~~denominated~~income in USthe ~~dollars~~statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, ~~unless~~and ~~otherwise~~interim ~~indicated~~periods within fiscal years, beginning after December 15, 2011. The adoption of this guidance is not expected to have a material impact on our financial statements.

~~Recent~~In ~~Developments~~May 2011, the FASB issued guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within fiscal years, beginning after December 15, 2011. The adoption of this guidance is not expected to have a material impact on our financial statements.

~~During~~Cash ~~the Nine Months Fiscal 2011, the Company opened six new Company-operated stores~~ and ~~closed~~Cash ~~eight~~Equivalents stores as it realigned its operations for additional efficiency and profitability. In addition, it launched its single-unit franchising program in Washington, California and Hawaii for individuals who are interested in operating a single franchise store. During this period, the Company’s franchise and license partners added eight new locations and closed two existing locations. During Fiscal 2011, the Company’s licensees in Asia have opened four stores in South Korea.

~~During~~Cash ~~the~~equivalents ~~First~~in ~~Quarter~~excess ~~Fiscal~~of ~~2011,~~current ~~the~~operating ~~Company~~requirements ~~entered~~are ~~into~~invested ain ~~distribution agreement with a third party distributor~~short-term, ~~under which the distributor warehouses and distributes merchandise and supplies for domestic Company~~interest-~~operated,~~bearing ~~licensed~~instruments ~~and~~with ~~franchised~~maturities ~~retail stores. Under the terms~~ of ~~the~~three ~~distribution~~months ~~agreement,~~or ~~the~~less ~~Company may be obligated to repurchase any unsold inventory held by the distributor~~ at the ~~end~~date of ~~the term, however such~~ purchase ~~commitments~~ orand ~~obligations~~ are ~~not~~stated ~~expected~~at tocost, bewhich ~~material~~approximates ormarket ~~result in any loss to the Company at this time~~value.

AsEscrow ~~of December 26, 2010, the Company had cash~~ and ~~cash~~Related ~~equivalents~~Party ofReceivable $2.6 million, of which approximately $478,000 was held in Tully’s Coffee Asia Pacific Partners, LP (“Tully’s Coffee Asia”) and not available for general corporate use. The Company had a working capital deficit of $3.7 million, exclusive of a $4.0 million obligation incurred by a TC Global, Inc. subsidiary to Asia Food Culture Management Pty. Ltd. (“AFCM”), a Singapore company and its limited partner in Tully’s Coffee Asia. This obligation is not expected to be satisfied by funds held by TC Global, Inc., as it relates to an agreement made by Tully’s Coffee Asia Pacific, Inc. (“TCAP”), a wholly-owned subsidiary of TC Global, Inc. and the general partner of Tully’s Coffee Asia, to purchase, or to cause a third party to purchase, one-half of AFCM’s partnership interest in Tully’s Coffee Asia, at a purchase price of $4.0 million on or before March 27, 2010. As of December 26, 2010, TCAP had not met its obligation. TCAP and AFCM continue to work on a settlement and to seek a buyer for AFCM’s partnership interest. If TCAP is unsuccessful in either finding a buyer for AFCM’s interest or in its settlement negotiations, it could have an adverse impact on TCAP’s financial position or results of operations, or cause renegotiation of the partnership agreement.

~~Historically~~In ~~the~~connection ~~Company has not required a significant net investment in working capital and has operated~~ with ~~current~~the ~~liabilities~~closing ~~in excess~~ of ~~its current assets. The Company’s inventory levels decreased during Fiscal 2011 as it entered into a distribution agreement that enabled it to outsource~~ the ~~inventory~~sale of ~~merchandise~~the ~~and~~assets ~~supplies~~associated towith ~~its~~Tully’s ~~Company-operated~~business names, ~~licensed~~trademarks, and ~~franchised~~ ~~stores.~~wholesale ~~Store~~business ~~inventories are also subject~~ to ~~short-term~~Green ~~fluctuations~~Mountain ~~based~~Coffee ~~upon~~Roasters, ~~the timing of merchandise receipts and seasonality~~Inc. ~~The~~(“GMCR”), ~~Company~~a ~~expects~~Delaware ~~that its investment in accounts receivable and inventories may increase~~Corporation, ~~primarily~~pursuant as to the ~~result~~terms of ~~general~~an ~~sales~~Asset ~~growth~~Purchase ~~in upcoming quarters.~~

8 7

Table of Contents

~~Cash~~Agreement ~~requirements~~(“Green ~~for~~Mountain ~~Fiscal~~transaction”), ~~2011~~dated September 15, ~~other~~2008, ~~than~~as ~~operating~~amended ~~expenses~~by Amendment No. 1 thereto dated November 12, 2008 and ~~the~~Amendment ~~commitments described~~No. 2 inthereto dated February 6, 2009 by and among the ~~condensed~~TC ~~consolidated~~Global, ~~financial~~Inc., ~~statements~~GMCR and ~~notes~~Tully’s ~~included~~Bellaccino, inLLC ~~this~~(the ~~Form~~“GMCR ~~10-Q~~Agreement”), ~~are~~$3.5 ~~expected~~million toof ~~consist~~the ~~primarily~~purchase ofprice ~~capital~~was ~~expenditures~~placed ~~related~~in toescrow ~~the~~for ~~opening~~one ofyear ~~new~~to ~~company~~satisfy Tully’s post-~~operated~~closing ~~stores~~indemnification ~~and~~obligations ~~equipment,~~to ~~general~~GMCR ~~working~~. ~~capital needs,~~The ~~and~~full ~~accounts~~amount ~~receivable~~of ~~related~~this escrow was released to ~~new~~Tully’s ~~specialty~~on ~~division~~March 29, ~~business~~2010.

~~Recent~~2. ~~Accounting~~Liquidity ~~Pronouncements~~

InAs ~~2007~~of July 3, ~~the~~2011 ~~Financial~~we ~~Accounting~~had ~~Standards~~cash ~~Board (“FASB”) issued authoritative guidance on accounting~~ and ~~reporting~~ ~~for~~cash ~~non-controlling~~equivalents ~~interests~~of ~~in subsidiaries~~$2.7 ~~The~~million, ~~guidance~~of ~~clarifies~~which ~~that~~$456,000 awas ~~non-controlling~~held ~~interest~~ in aour ~~subsidiary~~Asian ~~should~~joint beventure, ~~accounted~~Tully’s ~~for~~Coffee asAsia aPacific ~~component~~Partners, ofLP ~~equity~~(“TCAPPLP”) ~~separate~~and ~~from~~limited ~~the~~in ~~parent~~use, ~~company’s~~and ~~equity.~~a Itworking ~~also~~capital ~~requires~~deficit ~~the presentation~~ of ~~both~~$8.7 ~~net~~million, ~~earnings~~which ~~attributable~~includes toa ~~non-controlling~~$4.0 ~~interests~~million ~~and~~obligation ~~net~~of ~~earnings~~Tully’s ~~attributable~~Coffee toAsia ~~TC Global~~Pacific, Inc. on(“TCAP”), ~~the~~our ~~face~~wholly-owned ofsubsidiary, ~~the~~to ~~consolidated~~Asia ~~statement~~Food ofCulture ~~earnings~~Management Pte. WeLtd. ~~adopted~~(“AFCM”), ~~the~~a ~~new~~Singapore ~~guidance~~company ~~relating~~and tothe ~~non-controlling~~limited ~~interests effective~~partner ~~for~~in ~~the~~TCAPPLP; ~~fiscal~~such ~~year~~obligation ~~ended~~is ~~March 28,~~not ~~2010~~expected onto abe ~~prospective~~satisfied ~~basis,~~by ~~except~~funds ~~for~~held ~~the~~by ~~presentation~~TC ~~and disclosure requirements~~Global, ~~which were applied retrospectively~~Inc.

InThe ~~June~~Company ~~2009~~has realized improvements during its most recent periods in sales volumes as compared to previous periods and has made certain reductions in staffing and other expenses, ~~the~~including ~~FASB~~such ~~issued~~reductions ~~authoritative~~during ~~guidance~~First onQuarter Fiscal 2012. With the ~~consolidation~~exception of ~~variable~~the ~~interest~~third ~~entities~~and ~~(“VIE”)~~fourth quarters of Fiscal 2011 and First Quarter Fiscal 2012, ~~which~~the ~~was~~Company ~~effective~~has ~~for~~consistently ~~our~~incurred ~~first~~negative ~~fiscal~~cash ~~quarter~~flows offrom ~~2011~~operations. ~~The~~If ~~new~~sales ~~guidance requires~~volumes ado ~~qualitative~~not ~~approach~~meet expectations during Fiscal 2012 or if increased costs result from pending litigation or contingent obligations, the Company does not believe it will be able to ~~identify~~offset asuch ~~controlling~~negative ~~financial~~events ~~interest~~through inadditional overhead cost reductions. As a ~~VIE~~result, if operating results do not meet expectations, the Company may not have sufficient resources to cover its working capital and ~~requires~~capital ~~ongoing~~expenditure ~~assessment~~requirements and, without additional sources of ~~whether~~capital anmade ~~entity~~available isto the Company during Fiscal 2012, there will be substantial doubt that the Company will be able to continue as a ~~VIE~~going ~~and~~concern. ~~whether~~In order to maintain an ~~interest~~appropriate level of liquidity, the Company believes it will need to either effectively implement its operational plans and objectives or obtain additional capital in the next six to nine months in order to fund its working capital requirements for the remainder for Fiscal 2012 and is evaluating a ~~VIE~~variety ~~makes~~of alternatives, including the ~~holder~~reorganization of existing operations and/or the ~~primary~~sale ~~beneficiary~~of some of its stores or other selected assets. Certain financing alternatives could result in significant interest and other costs, be highly dilutive to existing shareholders or require the ~~VIE~~divestiture or sale of some or all of the Company’s assets. There can be no assurance that any debt or equity financing arrangement will be available to the Company on acceptable terms, if at all. In addition, there can be no assurance that these financing alternatives would provide the Company with sufficient funds to meet its current or long term capital requirements.

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

~~Cash~~3. ~~equivalents~~Credit inlines ~~excess~~and oflong ~~current operating requirements are invested in short-~~term, ~~interest-bearing~~debt ~~instruments with maturities of three months or less at the date of purchase and are stated at cost, which approximates market value.~~

~~Escrow~~Northrim ~~and~~Credit ~~Related~~Facility ~~Party Receivable~~

InCurrently, ~~connection~~Tully’s ~~with~~has ~~the~~an ~~closing~~available ofcredit ~~the~~facility ~~sale of the assets associated~~ with ~~Tully’s~~Northrim ~~business~~Bank ~~names,~~which ~~trademarks,~~allows ~~and~~the ~~wholesale~~Company ~~business~~ to ~~Green~~borrow ~~Mountain~~up ~~Coffee~~to ~~Roasters, Inc~~$1.5 ~~(“GMCR”)~~million, asubject ~~Delaware Corporation, pursuant~~ to the ~~terms~~amount of aneligible ~~Asset~~accounts ~~Purchase Agreement, dated September 15, 2008, as amended by Amendment No~~receivable. 1 ~~thereto~~As ~~dated~~of ~~November~~July 123, ~~2008 and Amendment No. 2 thereto dated February 6~~2011, ~~2009~~there bywere ~~and~~no ~~among~~outstanding ~~the~~borrowings TCunder Global, Inc., GMCR and Tully’s Bellaccino, LLC (the “GMCR Agreement”), $3.5 million of the purchase price was placed in escrow for one year to satisfy Tully’s post-closing indemnification obligations to GMCR . The full amount of this ~~escrow was released to Tully’s on March 29, 2010~~facility.

2.Tully’s ~~Liquidity~~Coffee Asia Pacific – Limited Partnership Loan

~~The~~On Company believes that its net cash flows projected for Fiscal 2011, and the cash and cash equivalents balance of approximately $2.6 million, of which approximately $478,000 was held in Tully’s Coffee Asia, at December 2631, ~~2010~~2008, ~~will~~pursuant ~~be sufficient~~ to ~~fund ongoing operations of Tully’s through at least~~ the ~~first~~Limited ~~quarter~~Partnership ofAgreement ~~Fiscal~~dated ~~2012.~~December 21, ~~The~~2007 ~~Company~~between ~~has~~TCAP ~~realized some improvements during its most recent periods in sales volumes as compared to previous periods~~ and ~~has made some reductions in staffing and other expenses in recent months. Despite improved revenues during the current quarter and reductions to staffing and other expenses~~AFCM, ~~and~~TCAP ~~with~~issued the exception of the Third Quarter Fiscal 2011, the Company continues to incur negative cash flows from operations. If sales volumes do not meet expectations of sustained increases during the fourth quarter of Fiscal 2011, the Company does not believe it will be able to offset such negative trends through additional overhead cost reductions. As a ~~result,~~promissory ~~the~~note ~~Company~~in ~~will not have sufficient resources to cover its working capital and capital expenditure requirements beyond this timeframe and, without additional sources of capital made available to~~ the ~~Company~~principal byamount ~~the First Quarter~~ of ~~Fiscal 2012~~$1, ~~there will be substantial doubt that the Company will be able to continue as a going concern. In order to maintain an appropriate level of liquidity~~120,000 (the ~~Company~~“GP ~~believes~~Loan”) ~~it will need additional capital in the next three~~ to six months in order to fund its working capital requirements for the remainder of Fiscal 2011 and in 2012 and is evaluating a variety of alternatives, including the sale of debt or equity securities, reorganization of existing operations, and/or sale of some of its stores or other selected assetsTCAPPLP. ~~Certain~~The ~~financing~~GP ~~alternatives~~Loan ~~could~~accrues ~~result in significant~~ interest ~~and~~at ~~other~~an ~~costs,~~annualized berate ~~highly dilutive to existing shareholders or require the divestiture or sale~~ of ~~some or all of the Company’s assets~~15%. There can be no assurance that any debt or equity financing arrangement will be available to the Company on acceptable terms, if at all. In addition, there can be no assurance that these financing alternatives would provide the Company with sufficient funds to meet its current or long term capital requirements.

IfAlso ~~sources~~on ofDecember 31, ~~capital~~2008, ~~are~~as ~~unavailable~~subsequently amended by Amendment No. 1 dated March 6, or2009, ~~are~~and ~~available~~Amendment ~~only~~No. 2 ondated March 17, 2009, TCAPPLP issued a ~~limited~~convertible ~~basis~~promissory ornote ~~under unacceptable~~to ~~terms,~~AFCM ~~then~~in the ~~Company~~principal ~~could~~amount beof ~~required~~$1,120,000 to(the ~~substantially~~“LP ~~reduce~~Loan”). orThe ~~discontinue~~LP ~~its~~Loan ~~investments~~bears ininterest ~~store~~of ~~improvements,~~an ~~new~~annualized ~~customers~~rate ~~and~~of ~~new~~0.44%. ~~products;~~The ~~reduce~~LP ~~operating,~~Loan ~~marketing,~~is ~~general~~due and ~~administrative~~payable ~~costs~~five ~~related~~business days after the date that TCAPPLP has made distributions to ~~its continuing~~AFCM ~~operations;~~in an amount equal to all principal and accrued interest on the LP Loan or ~~limit~~in the ~~scope~~event ofthe ~~its~~partners ~~continuing~~clear ~~operations.~~certain ~~Due~~security tointerests ~~various~~in ~~contractual~~partnership obligations. ofIn ~~the~~connection ~~Company~~with this loan, ~~including~~Tully’s ~~store~~has ~~operating~~granted ~~leases,~~AFCM ~~supply~~a ~~agreements~~preferential ~~and~~right ~~franchise~~to ~~agreements~~receive from TCAPPLP, ~~the~~prior ~~Company~~to ~~may~~any ~~not~~future ~~have~~distribution ~~the~~to ~~discretion~~TCAP, cash distributions equal to ~~reduce~~ ~~operations~~$500,000 inout anof ~~orderly~~TCAPPLP’s ~~manner~~profits toavailable afor ~~more~~distribution, ~~sustainable~~and ~~level.~~that, ~~The~~after ~~potential~~receipt ~~sale~~by AFCM of ~~stores~~the orfull ~~other~~preference ~~income-producing~~amount, ~~assets~~all ~~could~~subsequent ~~adversely~~cash ~~affect~~distributions ~~future~~of ~~operating~~profits ~~results~~shall be shared equally between TCAP and AFCM. Any subsequent cash ~~flows~~distributions to AFCM would first be applied to retire the LP Loan.

9 8

Table of Contents

3.Tully’s ~~Credit~~Coffee ~~lines~~Asia ~~and~~Pacific ~~long~~– ~~term~~Limited ~~debt~~Partnership Interest Obligation

~~Northrim~~On ~~Credit~~March 27, ~~Facility~~2009, TCAP agreed to purchase, or cause a third party to purchase, one-half of AFCM’s partnership interest in TCAPPLP, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of $4.0 million, by March 27, 2010. As of July 3, 2011, TCAP had not met its obligation. TCAP and AFCM continue to work on a settlement and to seek a buyer for AFCM’s partnership interest. If TCAP is unsuccessful in either finding a buyer for AFCM’s interest or in its settlement negotiations, it could have an adverse impact on TCAP’s financial position or results of operations, or cause renegotiation of the partnership agreement.

~~Currently,~~Other ~~Tully’s~~obligations ~~has~~under ~~an available~~ credit ~~facility~~lines ~~with~~and ~~Northrim~~long-term ~~Bank~~debt ~~which~~consist ~~allows~~of the ~~Company~~following: ~~to borrow up to $1.5 million, subject to the amount of eligible accounts receivable. As of December 26, 2010, there were no outstanding borrowings under this facility.~~

Tully’s Coffee Asia Pacific – Limited Partnership Loan



	April 3, 2011			July 3, 2011
	(dollars in thousands)
Note payable for purchase of insurance, payable in variable monthly installments of approximately $16,000 - $43,000, including interest at 4.31%, through September 2011, and collateralized by unearned or return insurance premiums, accrued dividends and loss payments	$	54		$	81
Note payable due to Limited Partner in TCAPPLP	4,000			4,000
	4,054			4,081
Less: Current portion	(4,054		)	(4,081		)
Long-term debt, net of current portion	—			—

On4. ~~December 31,~~Commitments ~~2008, pursuant to the Limited Partnership Agreement dated December 21, 2007 between TCAP,~~ and ~~AFCM,~~contingencies ~~TCAP issued a promissory note in the principal amount of $1,120,000 (the “GP Loan”) to Tully’s Coffee Asia. The GP Loan accrues interest at an annualized rate of 15%.~~

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

~~Tully’s~~The ~~Coffee~~Company ~~Asia~~leases ~~Pacific~~all –of ~~Limited~~its ~~Partnership Interest~~retail ~~Obligation~~and office space under operating leases, which have expiration dates through 2020. The leases provide for minimum annual payments, and (in certain cases) contingent rentals based upon gross sales, escalation clauses and/or options to renew. Rental expense is recorded on a straight-line basis over the respective terms of the leases.

OnIn ~~March 27,~~connection ~~2009,~~with ~~TCAP~~certain ~~agreed to purchase~~leases, orlessors ~~cause~~have agranted ~~third~~tenant ~~party~~improvement toallowances. ~~purchase~~These amounts, ~~one-half~~included ~~of AFCM’s partnership interest~~ in ~~Tully’s~~liabilities ~~Coffee~~under ~~Asia, equal to twenty-five percent (25%) of~~ the ~~total~~caption ~~partnership~~“deferred ~~interests~~lease ~~outstanding~~costs,” atare aamortized ~~purchase~~into ~~price~~income ~~of $4.0 million, by March 27, 2010. As of December 26, 2010, TCAP had not met its obligation. TCAP and AFCM continue to work~~ on a ~~settlement~~straight-line ~~and~~basis toover ~~seek~~the alife ~~buyer~~of ~~for~~the ~~AFCM’s~~related ~~partnership interest~~lease. IfAlso ~~TCAP~~recorded ~~is unsuccessful~~ in ~~either~~deferred ~~finding~~lease acosts ~~buyer~~is ~~for~~the ~~AFCM’s~~“stepped ~~interest~~rent” orexcess inof ~~its~~rental ~~settlement~~expense ~~negotiations,~~computed iton ~~could have~~a anstraight-line ~~adverse~~basis ~~impact~~over onthe ~~TCAP’s~~actual ~~financial~~rent ~~position~~payments orrequired ~~results~~by ofthe ~~operations,~~terms ~~or cause renegotiation~~ of ~~the~~these ~~partnership agreement~~leases.

~~Other~~Minimum ~~obligations~~future ~~under~~rental ~~credit~~payments ~~lines~~under ~~and long~~non-~~term~~cancellable ~~debt~~operating ~~consist~~leases as of ~~the~~July 3, ~~following~~2011 are summarized as follows:

	December 26,2010			March 28,2010
Fiscal year
(dollars in thousands)	~~(dollars in thousands)~~
Note payable for purchase of insurance, payable in variable monthly installments of approximately $16,000 - $43,000, including interest at 4.31%, through September 2011, and collateralized by unearned or return insurance premiums, accrued dividends and loss payments		101			157
Remainder of Fiscal 2012	3,325
Less: Current portion		(101	)		(157	)
2013	2,768
Long-term debt, net of current portion	$	—		$	—
2014	2,116
2015	1,559
2016	897
2017	499
Thereafter	1,139
Total	$	12,303

4The Company has subleased some of its leased premises to third parties under agreements with varying terms through 2013. ~~Commitments~~Expected ~~and~~future ~~contingencies~~sublease receipts under such sub-lease agreements are summarized as follows:

~~Lease commitments~~ 9

~~The~~Table ~~Company leases all~~ of its retail and office space under operating leases, which have expiration dates through 2020. The leases provide for minimum annual payments, and (in certain cases) contingent rentals based upon gross sales, escalation clauses and/or options to renew. Rental expense is recorded on a straight-line basis over the respective terms of the leases. Contents

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



Fiscal year
(dollars in thousands)
Remainder of Fiscal 2012	$	27
2013	15
Total	$	42

10Contingencies

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

~~Minimum~~We ~~future~~are ~~rental~~a ~~payments~~party ~~under~~to ~~non-cancellable~~various ~~operating~~other ~~leases~~legal asproceedings arising in the ordinary course of ~~December 26~~ our business, ~~2010~~but are ~~summarized~~not ascurrently ~~follows:~~a party to any other legal proceeding that we believe could have a material adverse effect on our financial position or results of operations.

Fiscal year
(dollars in thousands)
Remainder of Fiscal 2011	$	830
2012		2,945
2013		2,550
2014		1,942
2015		1,365
2016		748
2017		535
Thereafter		1,308
Total	$	12,223

Tully’s Coffee Asia Pacific – Limited Partnership Interest

~~The~~On ~~Company~~March 27, ~~has~~2009, ~~subleased~~TCAP ~~some~~agreed to purchase, or cause a third party to purchase, one-half of AFCM’s partnership interest in TCAPPLP, equal to twenty-five percent (25%) of the total partnership interests outstanding, at a purchase price of US $4.0 million by March 27, 2010. As of July 3, 2010, TCAP had not met its ~~leased~~obligation. ~~premises~~TCAP and AFCM continue to ~~third~~work ~~parties~~on ~~under~~a ~~agreements~~settlement ~~with~~and ~~varying~~to ~~terms through~~seek ~~2012~~a buyer for AFCM’s partnership interest. ~~Expected~~If ~~future~~TCAP ~~sublease~~is ~~receipts~~unsuccessful ~~under~~in ~~such~~either ~~sub-lease~~finding ~~agreements~~a ~~are~~buyer ~~summarized~~for asAFCM’s ~~follows:~~interest or in its settlement negotiations, the Company could face adverse economic consequences surrounding its wholly owned subsidiary TCAP.

Fiscal year
(dollars in thousands)
Remainder of Fiscal 2011	$	7
2012		26
Total	$	33

5. Stock options

~~Contingencies~~Company Stock Incentive Plan

~~The~~In ~~Company~~1994, isTully’s shareholders approved a ~~party~~Stock toIncentive ~~various~~Plan ~~legal~~(the ~~proceedings~~“1994 ~~arising~~Plan”). inIn August 1999, the ~~ordinary~~Company’s ~~course~~shareholders ofapproved ~~our~~an ~~business~~amended plan, ~~but~~which isestablished ~~not~~the ~~currently~~maximum anumber ~~party~~of toshares ~~any~~issuable ~~legal~~under ~~proceeding~~the ~~that~~1994 itPlan ~~believes~~and ~~could~~the ~~have~~Employee aStock ~~material~~Purchase ~~adverse effect~~Plan onat ~~its~~525,000; ~~financial~~and ~~position~~in orJune ~~results~~2003, the Company’s Board of ~~operations~~Directors further amended the 1994 Plan. By its terms, the 1994 Plan expired in October 2004 (this did not terminate outstanding options).

In December 2004, Tully’s ~~Coffee~~shareholders ~~Asia~~approved ~~Pacific~~the –2004 ~~Limited~~Stock ~~Partnership Interest~~Option Plan, which authorizes the issuance of up to 312,500 shares of common stock under the 2004 Stock Option Plan and Tully’s Employee Stock Purchase Plan.

OnIn March ~~27,~~ ~~2009~~2010, ~~TCAP~~Tully’s ~~agreed~~shareholders toapproved ~~purchase,~~the or2010 ~~cause~~Stock aOption ~~third~~Plan, ~~party~~which toauthorizes ~~purchase,~~the ~~one-half~~issuance of ~~AFCM’s partnership~~up ~~interest~~to ~~in Tully’s Coffee Asia~~312,500 ~~equal~~shares toof ~~twenty-five~~common ~~percent~~stock ~~(25%) of~~under the ~~total~~2010 ~~partnership~~Stock ~~interests~~Option ~~outstanding,~~Plan atand aTully’s ~~purchase~~Employee ~~price~~Stock ofPurchase ~~US $4~~Plan.0 ~~million by March 27, 2010.~~ As of December 26, 2010, ~~TCAP~~no options had ~~not~~been ~~met its~~granted ~~obligation.~~under ~~TCAP~~the ~~and~~2010 ~~AFCM~~Stock ~~continue~~Option ~~to work on a settlement and to seek a buyer for AFCM’s partnership interest~~Plan. IfThe ~~TCAP~~provisions isof ~~unsuccessful~~the in2010 ~~either~~Stock ~~finding~~Option aPlan, ~~buyer~~2004 ~~for~~Stock ~~AFCM’s~~Option ~~interest~~Plan or(and ~~in its settlement negotiations,~~ the ~~Company~~1994 ~~could face~~Plan ~~adverse~~prior ~~economic~~to ~~consequences surrounding~~ its ~~wholly~~expiration) ~~owned~~are ~~subsidiary~~summarized ~~TCAP.~~as follows:

5• The Company may issue incentive or nonqualified stock options to its employees and directors. Stock options are granted solely at the discretion of the Company’s Board of Directors and are issued at a price determined by its Board of Directors.

~~Company~~• ~~Stock~~The ~~Incentive~~term ~~Plan~~of each option granted is for such period as determined by the Board of Directors, but not more than ten years from date of grant.

In• ~~1994,~~Options ~~Tully’s~~are ~~shareholders~~nontransferable approved a Stock Incentive Plan (the “1994 Plan”). In August 1999, the Company’s shareholders approved an amended plan, which established the maximum number of shares issuable under the 1994 Plan and ~~the~~may ~~Employee~~generally ~~Stock~~be ~~Purchase~~exercised ~~Plan~~based aton ~~525,000;~~a ~~and~~vesting inschedule ~~June~~determined ~~2003,~~by the Company’s Board of Directors ~~further amended the 1994 Plan~~. ~~By its terms, the 1994 Plan expired in October 2004 (this did not terminate outstanding options).~~

In• ~~December~~The ~~2004,~~plan ~~Tully’s~~provides ~~shareholders~~for ~~approved~~acceleration ~~the~~of ~~2004~~outstanding ~~Stock~~options ~~Option~~under ~~Plan~~certain conditions, ~~which authorizes~~including ~~the~~but ~~issuance~~limited ofto upcertain tochanges ~~312,500~~in ~~shares~~control of ~~common stock under~~ the ~~2004 Stock Option Plan and Tully’s Employee Stock Purchase Plan~~Company.

InOther ~~March~~Equity ~~2010,~~Instruments Tully’s shareholders approved the 2010 Stock Option Plan, which authorizes the issuance of up to 312,500 shares of common stock under the 2010 Stock Option Plan and Tully’s Employee Stock Purchase Plan. As of December 26, 2010, no options had been granted under the 2010 Stock Option Plan. The provisions of the 2010 Stock Option Plan, 2004 Stock Option Plan (and the 1994 Plan prior to its expiration) are summarized as follows:

• The Company ~~may~~has ~~issue~~granted ~~incentive~~warrants orto ~~nonqualified~~purchase common stock. ~~options~~These towarrants ~~its~~have ~~employees~~up ~~and~~to ~~directors.~~one ~~Stock~~year ~~options~~vesting ~~are~~periods ~~granted~~and ~~solely~~generally athave ~~the~~ten ~~discretion~~year oflives. ~~the~~Issued, ~~Company’s~~outstanding ~~Board of Directors~~ and ~~are~~exercisable ~~issued~~warrants atas aof ~~price~~July 3, ~~determined~~2011 byare ~~its~~summarized ~~Board~~as offollows: ~~Directors.~~

~~• The term of each option granted is for such period as determined by the Board of Directors, but not more than ten years from date of grant.~~10

11Table of Contents



	Outstanding warrants	Number exercisable	Exercise Price
Issued to guarantors of debt	93,191	93,191	$	2.64
Issued with Series A Preferred Stock investment units	783	783	$	0.08
Totals	93,974	93, 974

•Stock Options ~~are nontransferable and may generally be exercised based on a vesting schedule determined by the Company’s Board of Directors.~~

• The ~~plan~~Company ~~provides~~issues ~~for~~new ~~acceleration~~shares of ~~outstanding~~common stock upon the exercise of stock options granted under ~~certain~~the ~~conditions~~1994 Plan, ~~including~~the ~~but~~2004 ~~limited~~Stock toOption ~~certain~~Plan ~~changes~~and inthe ~~control~~2010 ofStock Option Plan, although it is no longer granting options from the ~~Company~~1994 Plan.

~~Other~~Determining ~~Equity~~Fair ~~Instruments~~Value of Stock Awards Using Black Scholes

~~The~~Valuation ~~Company has granted warrants to purchase common stock. These warrants have up to one year vesting periods~~ and ~~generally~~Amortization ~~have ten year lives~~Method. ~~Issued, outstanding and exercisable warrants as of December 26, 2010 are summarized as follows:~~

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

The Company estimates the fair value of stock option awards granted using the Black-Scholes option valuation model. The fair value of each option grant is estimated on the date of grant. The Company amortizes the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

~~Stock~~Expected ~~Options~~Life.

The ~~Company~~expected ~~issues~~life ~~new shares~~ of ~~common~~awards ~~stock~~granted ~~upon~~represents the ~~exercise~~period of ~~stock~~time ~~options~~that ~~granted~~they ~~under~~are expected to be outstanding. The Company determines the ~~1994~~expected ~~Plan~~life based primarily on historical experience with similar awards, giving consideration to the ~~2004~~contractual ~~Stock~~terms, ~~Option~~vesting ~~Plan and~~schedules, ~~the~~expected ~~2010~~exercises ~~Stock~~and ~~Option~~post-vesting ~~Plan~~forfeitures.

~~Determining~~Expected ~~Fair~~Volatility. ~~Value of Stock Awards Using Black Scholes~~

~~Valuation~~The ~~and~~Company ~~Amortization~~estimates ~~Method~~the volatility of its common stock at the date of grant based on the historical volatility of its common stock. The volatility factor used in the Black-Scholes option valuation model is based on its historical stock prices over the most recent period commensurate with the estimated expected life of the award.

~~The Company estimates the fair value of stock option awards granted using the Black~~Risk-~~Scholes~~Free ~~option~~Interest ~~valuation model~~Rate. The fair value of each option grant is estimated on the date of grant. The Company amortizes the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods.

~~Expected~~The ~~Life~~risk-free interest rate used in the Black-Scholes option valuation model is the implied risk-free interest rate with an equivalent remaining term equal to the expected life of the award.

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

~~Expected~~The ~~Volatility~~Company uses an expected dividend yield of zero in the Black-Scholes option valuation model, consistent with historical experience on the date of grant.

The ~~Company~~fair ~~estimates~~value ~~the~~of ~~volatility~~each ofoption ~~its~~grant ~~common~~is ~~stock~~estimated aton the date of grant ~~based~~using on the ~~historical volatility of its common stock. The volatility factor used in the~~ Black-Scholes option ~~valuation~~pricing model. A issummary ~~based~~of onthe ~~its~~weighted ~~historical~~average ~~stock~~assumptions ~~prices~~and ~~over~~resulting ~~the~~weighted ~~most~~average ~~recent~~fair ~~period~~value ~~commensurate~~results ~~with~~for ~~the~~options ~~estimated~~granted ~~expected~~during ~~life~~the ofperiods ~~the~~presented ~~award.~~is as follows:

Risk-Free Interest Rate.



	Thirteen Week Periods Ended
	June 27, 2010			July 3, 2011
Weighted average risk free interest rate	17.2		%	—
Expected dividend yield	—		%	—
Expected lives	5 years			—
Weighted average expected volatility	113		%	—
Weighted average fair value at date of grant	$	1.32		—

~~The~~No ~~risk-free~~assumptions ~~interest~~are ~~rate~~presented ~~used~~for in the ~~Black-Scholes~~First ~~option~~Quarter ~~valuation~~Fiscal ~~model~~2012 isbecause ~~the~~no ~~implied~~options ~~risk-free~~were ~~interest~~granted ~~rate~~during ~~with~~this ~~an equivalent remaining term equal to the expected life of the award~~period.

Expected ~~Dividend Yield~~Forfeitures.

The Company primarily uses anhistorical ~~expected~~data ~~dividend~~to ~~yield~~estimate ~~of zero in the Black~~pre-~~Scholes~~vesting option ~~valuation~~forfeitures. ~~model,~~It ~~consistent~~records ~~with~~stock-based ~~historical~~compensation ~~experience on the date of grant.~~

~~Expected Forfeitures.~~ 11

~~The~~Table ~~Company~~of primarily uses historical data to estimate pre-vesting option forfeitures. It records stock-based compensation only for those awards that are expected to vest. For Fiscal 2011 the Company estimates its pre-vesting option forfeiture rate at 18%. Contents

12only for those awards that are expected to vest. For Fiscal 2012 the Company estimates its pre-vesting option forfeiture rate at 18%.

~~Table~~Stock-based ~~of Contents~~Compensation

Stock-based ~~Compensation~~compensation expense related to stock-based awards was $21,000 and $24,000, respectively, for First Quarter Fiscal 2011 and First Quarter Fiscal 2012, respectively. Stock-based compensation expense is included in marketing, general and administrative costs in our Condensed Consolidated Statements of Operations. This is a non-cash expense.

~~Stock-based~~As ~~compensation~~of ~~expense related to stock-based awards was $21~~July 3,~~000~~ ~~and $32,000, respectively, for Third Quarter Fiscal~~ 2011 ~~and Third Quarter Fiscal 2010~~, ~~respectively,~~the ~~and~~Company ~~$61,000~~had ~~and~~approximately $~~112~~141,000 ~~for~~of ~~the~~total ~~Nine~~unrecognized ~~Months~~compensation ~~Fiscal~~cost ~~2011~~related ~~and~~to ~~Nine Months Fiscal 2010~~69,000 ~~respectively.~~non-vested ~~Stock~~stock-based ~~compensation~~awards ~~expense~~granted isunder ~~included~~all inequity ~~marketing,~~compensation ~~general~~plans. ~~and~~The ~~administrative~~Company ~~costs~~expects into ~~our~~recognize ~~Condensed Consolidated~~this ~~Statements~~cost ofover ~~Operations.~~a ~~This~~period isof aapproximately ~~non-cash~~five ~~expense~~years.

AsStock ofAward ~~December 26,~~Activity 2010, the Company had approximately $193,000 of total unrecognized compensation cost related to 69,000 non-vested stock-based awards granted under all equity compensation plans. The Company expects to recognize this cost over a period of approximately five years.

As of July 3, 2011 options for 308,990 shares were outstanding under the 1994 Plan, the 2004 Stock ~~Award~~Option ~~Activity~~Plan, and the 2010 Stock Option Plan, of which 283,990 were fully vested.

AsThe offollowing ~~December 26,~~table ~~2010~~summarizes ~~options~~activity ~~for 409,242 shares were outstanding~~ under ~~the~~our ~~1994~~stock ~~Plan,~~option ~~the~~plans: ~~2004 Stock Option Plan, and the 2010 Stock Option Plan of which 369,573 were fully vested.~~

The following table summarizes activity under our stock option plans:



	Number of shares		Weighted- average exercise price per share		Weighted- average remaining contractual term
Outstanding at April 3, 2011	316,488		$	5.02	8.6 years
Granted	—		—
Exercised	—		—
Forfeited	(7,498	)	$	10.73
Outstanding at July 3, 2011	308,990		$	4.25	8.4 years
Exercisable or convertible at the end of the period	283,990		$	5.70	8.6 years

	Numberof shares			Weighted-averageexerciseprice pershare		Weighted-averageremainingcontractualterm
Outstanding at March 28, 2010		326,396		$	7.81		8.4 years
Granted		97,353		$	1.64
Exercised		—			—
Forfeited		(2,289	)	$	8.84
Outstanding at June 27, 2010		421,460		$	6.38
Granted		—			—
Exercised		—			—
Forfeited		(1,706	)	$	4.15
Outstanding at September 26, 2010		419,754		$	6.39
Granted		—			—
Exercised		—			—
Forfeited		(10,512	)	$	9.29
Outstanding at December 26, 2010		409,242		$	6.31		7.6 years
Exercisable or convertible at the end of the period		369,573		$	5.70		7.6 years

The aggregate intrinsic value of options outstanding at July 3, 2011 was $20,000. Intrinsic value represents the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the actuarially-determined fair market value of the Company’s stock of $0.31 per share as of June 30, 2010 and the exercise price, multiplied by the number of shares of common stock underlying the stock options) that would have been received by the option holders had all option holders exercised their options on July 3, 2011.

~~The~~No ~~aggregate intrinsic value of~~ options ~~outstanding~~were atexercised ~~December 26, 2010 was $20,000. Intrinsic value represents the total pretax intrinsic value for all “~~in~~-the-money”~~ ~~options~~First ~~(i.e.,~~Quarter ~~the~~Fiscal ~~difference~~2011 ~~between~~or ~~the~~First ~~actuarially-determined~~Quarter ~~fair~~Fiscal ~~market value of the Company’s stock of $0~~2012.31 per share as of June 30, 2010 and the exercise price, multiplied by the number of shares of common stock underlying the stock options) that would have been received by the option holders had all option holders exercised their options on December 26, 2010.

~~No options were granted or exercised to date in Fiscal 2011~~6. ~~The~~Stockholders’ ~~total~~Equity ~~intrinsic value of options exercised during the first nine months of Fiscal 2010 was $296,000.~~

6.Preferred ~~Stockholders’~~stock ~~Equity~~

Each outstanding share of the Company’s Series A Preferred Stock is convertible at any time by the holder thereof into shares of common stock at the then-effective conversion price. In addition, each outstanding share of Series A Preferred Stock is automatically convertible into shares of common stock if Tully’s completes an underwritten public offering of its shares of common stock with gross proceeds to the Company in excess of $15 million (“Qualified Offering”). The Series A Preferred Stock contains an anti-dilution protection right that provides for a weighted average adjustment of the conversion price in the event the Company issues shares of capital stock at an effective price less than the Series A Preferred conversion price then in effect, subject to certain limitations and exclusions. At December 26, 2010, each eight shares of the Company’s outstanding Series A Convertible Preferred were convertible into approximately 1.12 shares of common stock (giving effect to the one-for-eight reverse split of its common stock).

~~Each~~Voting ~~outstanding~~rights ~~share~~ of the ~~Company’s~~ Series A ~~Preferred Stock is convertible at any time by the holder thereof into shares of common stock at the then-effective conversion price. In addition, each outstanding share of Series~~ A Preferred Stock isare ~~automatically~~subject ~~convertible~~to ~~into~~adjustment ~~shares~~for ~~of common stock if Tully’s completes an underwritten public offering of its shares of common stock with gross proceeds to~~ the ~~Company in excess of $15 million (“Qualified Offering”). The Series A Preferred Stock contains an~~ anti-dilution ~~protection~~ ~~right that provides for a weighted average~~ adjustment of the conversion price in the event the Company issues shares of capital stock at an effective price less than the Series A Preferred conversion price then in effect, subject to certain limitations and exclusions. ~~At December 26, 2010, each eight shares of the Company’s outstanding~~ Series A ~~Convertible~~ Preferred ~~were~~shareholders ~~convertible~~may ~~into~~exercise ~~approximately~~cumulative ~~1.12~~voting ~~shares~~rights ofwith ~~common~~respect ~~stock (giving effect~~ to the ~~one-for-eight reverse~~election ~~split~~ of ~~its common stock)~~Directors.

13In the event of any liquidation or winding up of Tully’s, each share of Series A Preferred Stock is entitled to receive, prior and in preference to all other payments to the holders of Series B Preferred Stock and the shares of common stock, an amount equal to $2.50, plus any and all declared but unpaid dividends with respect to such share of Series A Preferred Stock (the “Series A Liquidation Preference”). Assuming distribution of the full Series A Liquidation Preference, common stock liquidation preference (described below), and the Series B Liquidation Preference (described below), and subject to the rights of any additional preferred

~~Table of Contents~~12

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

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

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

Each outstanding share of Series B Preferred Stock is convertible at any time by the holder thereof into shares of common stock at the then-effective conversion price. In addition, each outstanding share of Series B Preferred Stock is automatically convertible into shares of common stock at the then-effective conversion price when and if the Company makes a Qualified Offering. The conversion price for the Series B Preferred shares is subject to an anti-dilution adjustment, but no adjustment has been required. Giving effect to the one-for-eight reverse split of the Company’s common stock, each eight Series B Preferred shares could be converted at the option of the shareholder into one share of common stock as of December 26, 2010. Each eight shares of Series B Preferred Stock also are entitled to cast one vote on all matters submitted to a vote of the shareholders of Tully’s (giving effect to the one-for-eight reverse split of its common stock).

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

Common stock

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

7. Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by senior management. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in Note 1. The Company does not allocate its assets among its business units for purposes of making business decisions, and therefore does not present asset information by operating segment. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) exclude the effects of financing costs, income taxes, and non-cash depreciation and amortization. EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States (“GAAP”), and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. EBITDA is used as a measurement of operating efficiency and overall financial performance of operating segments and the Company believes it to be a helpful measure for those evaluating companies in the retail industry. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

14The tables below present information by operating segment:

~~Table of Contents~~13

~~operating~~Table ~~income, net income or any other measure determined in accordance with GAAP. EBITDA is used as a measurement~~ of operating efficiency and overall financial performance of operating segments and the Company believes it to be a helpful measure for those evaluating companies in the retail industry. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Contents

The tables below present information by operating segment:



	Thirteen Week Periods Ended
	June 27, 2010			July 3, 2011
	(unaudited)			(unaudited)
	(dollars in thousands)
Net sales
Retail division	$	8,858		$	9,109
Specialty division	638			450
	$	9,496		$	9,559
Earnings before interest, taxes, depreciation and amortization (“EBITDA”)
Retail division	$	669		$	740
Specialty division	(240		)	41
Corporate and other expenses	(1,864		)	(1,045		)
Loss before interest, taxes, depreciation and amortization	(1,435		)	(264		)
Depreciation and amortization	(237		)	(184		)
Interest income, interest expense, and loan guarantee fees	(34		)	64
Non-controlling interest	52			26
Income taxes	26			89
Net loss attributable to TC Global, Inc.	$	(1,628	)	$	(269	)
Depreciation and amortization
Retail division	$	199		$	156
Specialty division	3			3
Corporate and other expenses	35			25
Total depreciation and amortization	$	237		$	184

	Thirteen Week Periods Ended						Thirty-nine Week Periods Ended
	December 26,2010			December 27,2009			December 26,2010			December 27,2009
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
	(dollars in thousands)						(dollars in thousands)
Net sales
Retail division	$	9,127		$	8,970		$	26,758		$	26,720
Specialty division		435			1,128			1,500			3,140
	$	9,562		$	10,098		$	28,258		$	29,860
Earnings before interest, taxes, depreciation and amortization (“EBITDA”)
Retail division	$	858		$	637		$	2,142		$	2,225
Specialty division		(89	)		(60	)		(657	)		(183	)
Corporate and other expenses		(1,578	)		(1,569	)		(5,054	)		(4,474	)
Loss before interest, taxes, depreciation and amortization		(809	)		(992	)		(3,569	)		(2,432	)
Depreciation and amortization		(223	)		(284	)		(705	)		(935	)
Interest income, interest expense, and loan guarantee fees		7			(21	)		1			(99	)
Minority interest		26			70			131			147
Income taxes		(1	)		(162	)		(23	)		(162	)
Net loss	$	(1,000	)	$	(1,389	)	$	(4,165	)	$	(3,481	)
Depreciation and amortization
Retail division	$	182		$	227		$	592		$	771
Specialty division		3			2			9			2
Corporate and other expenses		38			55			104			162
Total depreciation and amortization	$	223		$	284		$	705		$	935

8. Loss Per Common Share

8Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. ~~Loss~~Diluted ~~Per~~loss ~~Common~~per ~~Share~~share is computed by dividing net loss by the sum of the weighted average number of common shares and the effect of dilutive common share equivalents, if any.

~~Basic~~Tully’s ~~loss~~has ~~per~~granted ~~share~~options isand ~~computed~~warrants byto ~~dividing~~purchase ~~net~~common ~~loss~~stock, byand ~~the~~issued ~~weighted-average~~preferred ~~number~~stock ofthat ~~common~~is ~~shares~~convertible ~~outstanding~~into ~~during~~common ~~the~~stock ~~period.~~(collectively, ~~Diluted~~the ~~loss~~“common ~~per~~ share isequivalent ~~computed~~instruments”). byUnder ~~dividing~~some ~~net~~circumstances, ~~loss by~~ the ~~sum~~common ~~of the~~share ~~weighted~~equivalent ~~average~~instruments ~~number~~may ofhave ~~common~~a ~~shares~~dilutive ~~and~~effect on the ~~effect~~calculation of ~~dilutive~~earnings ~~common~~or ~~share~~loss ~~equivalents,~~per ~~if any~~share.

Tully’s has granted options and warrants to purchase common stock, and issued preferred stock that is convertible into common stock (collectively, the “common share equivalent instruments”). Under some circumstances, the common share equivalent instruments may have a dilutive effect on the calculation of earnings or loss per share. 14

15Table of Contents

~~Table~~ITEM 2. MANAGEMENT’S ofDISCUSSION ~~Contents~~AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~ITEM~~The 2following discussion and analysis provides information that TC Global, Inc. ~~MANAGEMENT~~believes is relevant to an assessment and understanding of our results of operations and financial condition for the thirteen week periods ended July 3, 2011 (“First Quarter Fiscal 2012”). The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes appearing elsewhere in this report, as well as “Management’Ss ~~DISCUSSION~~Discussion ~~AND~~and ~~ANALYSIS~~Analysis OFof ~~FINANCIAL~~Financial ~~CONDITION~~Condition ~~AND~~and ~~RESULTS~~Results OFof ~~OPERATIONS~~Operations” and the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended April 3, 2011, filed with the SEC on July 6, 2011 (the “Fiscal 2011 Form 10-K”). This discussion and analysis contains “forward-looking statements” that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to the factors referenced at “Special Note Regarding Forward-Looking Statements” and described in “Risk Factors” section of our Fiscal 2011 Form 10-K.

~~The~~Business ~~following~~Overview discussion and analysis provides information that TC Global, Inc. believes is relevant to an assessment and understanding of our results of operations and financial condition for the thirteen and thirty-nine week periods ended December 26, 2010 (“Third Quarter Fiscal 2011” and “Nine Months Fiscal 2011). The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes appearing elsewhere in this report, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended March 28, 2010, filed with the SEC on June 28, 2010 (the “Fiscal 2010 Form 10-K”). This discussion and analysis contains “forward-looking statements” that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to the factors referenced at “Special Note Regarding Forward-Looking Statements” and described in “Risk Factors” section of our Fiscal 2010 Form 10-K.

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

We• ~~are~~Retail. aOur ~~specialty~~retail ~~gourmet~~division ~~coffee~~operates ~~retailer.~~Tully’s WeCoffee ~~generate~~ retail stores in the United States and generates revenues through ~~two~~the ~~operating~~sales ~~divisions:~~of products in these stores.

• ~~Retail~~Specialty. Our ~~retail~~specialty division ~~operates~~oversees the domestic licensing and franchising of Tully’s Coffee retail stores inand ~~the~~manages ~~United~~our ~~States~~international joint venture, foreign licensing, and ~~generates~~business development activities. We generate revenues through ~~the~~licensing fees from U.S. and foreign franchisees and sales of products into ~~these~~foreign ~~stores~~customers.

•We ~~Specialty.~~have ~~Our~~realized ~~specialty~~some ~~division~~improvements ~~oversees~~in ~~the~~sales ~~domestic~~volumes ~~licensing~~in recent periods as compared to previous periods, and ~~franchising~~have ofmade ~~Tully’s~~some ~~Coffee~~reductions ~~retail~~in ~~stores~~staffing and ~~manages~~other ~~our~~expenses ~~international~~in ~~joint~~recent ~~venture,~~months ~~foreign~~to ~~licensing,~~bring ~~and~~operating ~~business~~expenses ~~development~~more ~~activities.~~in Weline ~~generate~~with operating revenues. Despite ~~through~~these ~~licensing~~revenue ~~fees~~improvements ~~from~~and ~~U.S.~~expense reductions, with the exception of the Third and ~~foreign~~Fourth ~~franchisees~~Quarters of Fiscal 2011 and First Quarter Fiscal 2012, the Company has consistently incurred negative cash flows from operations. If sales volumes decline significantly or we do not meet expectations of ~~products~~sustained increases during Fiscal 2012, we do not believe that we will be able to ~~foreign~~offset ~~customers~~such negative trends through additional overhead cost reductions.

WeFor ~~have~~most ~~realized~~of ~~some~~our ~~improvements~~operating ~~in sales volumes in recent months as compared to previous periods~~history, ~~and~~we have ~~made~~generated ~~some~~insufficient ~~reductions~~cash ~~in staffing and other expenses in recent months~~ to ~~bring~~fully ~~operating~~fund ~~expenses~~operations. ~~more~~We inhave ~~line~~historically ~~with~~financed ~~operating~~this ~~revenues. Despite~~cash ~~improved~~shortfall ~~revenues~~through ~~during~~ the ~~current~~issuance ~~quarter~~of ~~and~~debt ~~reductions to staffing~~ and ~~other~~equity ~~expenses~~securities, ~~and with the exception of Third Quarter Fiscal 2011~~borrowings, weasset ~~continue to incur negative cash flows from operations. If~~ sales ~~volumes decline significantly or do not meet expectations of sustained increases during the fourth quarter of Fiscal 2011~~, weand docash ~~not~~provided ~~believe~~under ~~that~~our weinternational ~~will~~licensing ~~be able to offset such negative trends through additional overhead cost reductions~~relationships.

~~For~~On ~~most~~March 27, 2009, we completed the sale of the assets associated with our ~~operating~~wholesale ~~history,~~business weand ~~have generated~~supply ~~insufficient~~chain ~~cash~~(including Tully’s business names and trademarks) to ~~fully~~Green ~~fund~~Mountain ~~operations.~~Coffee WeRoasters, ~~have~~Inc. ~~historically~~a ~~financed~~Delaware ~~this~~corporation ~~cash~~(“GMCR”), ~~shortfall~~pursuant ~~through~~to the ~~issuance~~Asset ofPurchase ~~debt~~Agreement dated September 15, 2008, as amended by Amendment No. 1 thereto dated November 12, 2008, and ~~equity~~Amendment ~~securities~~No. 2 thereto dated February 6, ~~borrowings~~2009, ~~asset~~by ~~sales~~and among TC Global, Inc., GMCR and ~~cash~~Tully’s ~~provided~~Bellaccino, ~~under~~LLC ~~our~~(the ~~international~~“Green ~~licensing~~Mountain ~~relationships~~Transaction”).

OnIn ~~March 27,~~connection ~~2009,~~with ~~we completed~~ the ~~sale~~closing of the ~~assets~~Green ~~associated~~Mountain ~~with~~Transaction, ~~our~~we ~~wholesale~~entered ~~business~~into ~~and~~a ~~supply~~Supply ~~chain (including~~Agreement, ~~Tully’s~~a ~~business~~License ~~names~~Agreement, and ~~trademarks)~~a toNoncompetition ~~Green~~Agreement ~~Mountain~~with ~~Coffee~~GMCR. ~~Roasters,~~We ~~Inc.~~also secured a ~~Delaware~~perpetual ~~corporation~~license (to use the “~~GMCR~~Tully’s”) brand and other trade names, ~~pursuant~~trademarks toand ~~the~~service ~~Asset~~marks ~~Purchase~~in ~~Agreement~~connection ~~dated~~with ~~September~~certain (i) ~~15,~~retail ~~2008,~~operations asworldwide ~~amended~~(excluding byJapan) ~~Amendment~~and ~~No.~~(ii) ~~1 thereto~~wholesale ~~dated~~business ~~November 12,~~outside ~~2008~~of North America, ~~and~~utilizing ~~Amendment~~an ~~No. 2~~exclusive ~~thereto~~coffee ~~dated~~supply ~~February 6,~~arrangement. ~~2009,~~Our bycurrent shareholders and ~~among~~executive TCmanagement ~~Global,~~team ~~Inc.,~~continue ~~GMCR~~to own and ~~Tully~~operate the Company’s ~~Bellaccino,~~domestic ~~LLC~~retail business (~~the~~Company-operated, ~~“Green~~franchised ~~Mountain~~and ~~Transaction”~~licensed retail store locations) and international retail and wholesale businesses.

In connection with the ~~closing of the~~ Green Mountain Transaction, we ~~entered~~changed ~~into~~our acorporate ~~Supply~~name ~~Agreement, a License Agreement, and a Noncompetition Agreement with GMCR. We also secured a perpetual license~~ to ~~use the~~ “~~Tully’s”~~TC ~~brand and other trade names~~Global, trademarks and service marks in connection with certain (i) retail operations worldwide (excluding Japan) and (ii) wholesale business outside of North America, utilizing an exclusive coffee supply arrangementInc.” Our current shareholders and executive management team continue to own and operate the Company’s domestic retail business (Company-operated, franchised and licensed retail store locations) and international retail and wholesale businesses.

~~In connection~~We ~~with~~intend ~~the~~to ~~Green~~pursue ~~Mountain~~growth ~~Transaction,~~by weexecuting ~~changed~~the ~~our~~following ~~corporate~~strategies: ~~name to “TC Global, Inc.”~~

1. Drive comparable store sales growth and profitability by executing on our fundamental retail strategies. We intend to ~~pursue~~ drive comparable store sales and average unit volume growth by ~~implementing~~executing ~~the~~on ~~following~~our fundamental retail strategies: to increase store traffic and average transaction size.

12. Expand ~~Drive~~our ~~comparable~~geographic ~~store~~footprint ~~sales~~by leveraging international opportunities. Our international growth bystrategy ~~executing~~emphasizes onjoint ventures and licensing relationships with companies situated in promising foreign markets, and sales of coffee and other products to those partners. We believe the success of our ~~fundamental~~ ~~retail~~former ~~strategies~~licensee, Tully’s Coffee Japan (“TCJ”), demonstrates the broader opportunity available to us in foreign markets.

We3. More ~~intend~~effectively tocontrol ~~drive~~operating ~~comparable~~expenses ~~store~~and ~~sales~~enhance process controls. We are "right-sizing" the business and ~~average~~establishing ~~unit~~not ~~volume growth~~only byaccountability, ~~executing~~but onalso ~~our~~responsibility ~~fundamental~~for ~~retail~~sound ~~strategies~~spending todecisions, ~~increase~~down ~~store~~to ~~traffic~~the ~~and~~lowest ~~average~~level ~~transaction~~employees ~~size.~~in

~~2. Execute our franchising strategy to expand our geographic footprint.~~ 15

~~Our~~Table ~~franchising~~of strategy focuses on adding franchised stores in market areas and venues that complement our company-operated stores. We have used franchising to extend our presence in special venues, such as grocery stores, airports, hotels, and university campuses. We also are pursuing multi-unit area agreements with experienced, well-capitalized franchisees, to open Tully’s-branded coffeehouses in markets not targeted for development directly by us. Contents

3the organization. We ~~Leverage~~are ~~international~~focusing ~~opportunities~~on making decisions to spend in light of return on investment or overall profitability of the business decision. We are also putting into place further process controls and policies to reinforce accountabilities and engage the highest levels of the organization in tactical and strategic activities.

~~Our~~4. Execute ~~international~~our ~~growth~~licensing/franchising strategy. ~~emphasizes~~Our ~~joint~~licensing/franchising ~~ventures~~strategy ~~and~~focuses ~~licensing~~on ~~relationships~~adding ~~with~~licensed ~~companies~~and ~~situated~~franchised stores in ~~promising~~ ~~foreign~~market ~~markets,~~areas and ~~sales~~venues ofthat ~~coffee~~complement ~~and~~our ~~other~~company-operated ~~products~~stores. We have used these means to ~~those~~extend ~~partners~~our presence in special venues, such as grocery stores, airports, hotels and university campuses.

16Trends in Our Business

~~Table~~Retail ofDivision. ~~Contents~~

~~Trends~~As of July 3, 2011, Tully’s had 75 company-operated retail stores and 111 franchised stores in Washington, California, Arizona, Colorado, Idaho, Oregon, Montana and Wyoming. Our ~~Business~~stores are located in a variety of urban and suburban neighborhoods, and in the Seattle and San Francisco central business districts. We also operate or franchise smaller footprint stores in special venues, such as within the premises of corporate facilities, and kiosks and cafes that are located in grocery stores, hotels, hospitals and on university campuses. These facilities are operated under contracts with varying terms. While not our core business, addition and/or loss of any of these locations could have an impact on our results of operations.

~~Retail~~We ~~Division~~continue to critically review our retail business, and we are continuing to implement initiatives to improve our retail operations, retail distribution, store facilities and merchandising strategies. The ongoing goal of our retail division initiatives is to increase retail store average unit volume, increase comparable store sales and improve new store unit economics. We are simultaneously targeting operational improvements to enhance our retail margins and achieve profitability. All of these initiatives are designed to collectively improve our sales and achieve profitability.

~~As of December 26~~Further, ~~2010,~~we ~~Tully’s~~continue ~~had~~to ~~76 company-operated~~review our retail ~~stores~~locations and ~~112~~leasing ~~franchised~~arrangements ~~stores~~ in ~~Washington,~~order ~~California,~~to ~~Arizona,~~enhance ~~Colorado,~~operating ~~Idaho,~~efficiencies ~~Oregon,~~during ~~Montana~~the ~~and~~current ~~Wyoming~~economic conditions. ~~Our~~During ~~stores~~the ~~are~~quarterly ~~located~~period inended aJuly ~~variety~~3, ~~of urban and suburban neighborhoods~~2011, ~~and~~we inopened ~~the~~one ~~Seattle~~new ~~and~~store ~~San~~within ~~Francisco central~~a ~~business~~corporate ~~districts~~campus. New Westores ~~also~~generally ~~operate~~require orseveral ~~franchise~~months ~~smaller~~to ~~footprint~~reach ~~stores~~their infull ~~special~~sales ~~venues,~~potential ~~such~~so ~~as within~~ the ~~premises~~impact of ~~corporate~~new ~~facilities,~~store ~~and~~openings ~~kiosks~~may ~~and~~not ~~cafes~~be ~~that~~reflected ~~are located~~ in ~~grocery~~operating ~~stores,~~results ~~hotels,~~in ~~hospitals~~the ~~and~~very onnear ~~university campuses~~future. ~~These facilities are operated under contracts with varying terms. While not our core business, addition and/or loss of any of these locations could have an impact on our results of operations.~~

WeOver ~~continue~~the tocourse ~~critically~~of ~~review~~the ~~our~~last ~~retail~~several ~~business~~years, ~~and~~the wecost ~~are~~of ~~continuing~~coffee, toa ~~implement~~key ~~initiatives~~ingredient toin ~~improve~~most of our ~~retail operations~~beverages, ~~retail~~ ~~distribution,~~has ~~store~~increased ~~facilities~~dramatically. Raw ~~and~~coffee ~~merchandising~~prices ~~strategies~~have increased more than 50% in the past year alone. ~~The~~Since ~~ongoing~~the ~~goal~~sale of our ~~retail~~wholesale ~~division~~and ~~initiatives~~supply ischain operations to ~~increase~~GMCR ~~retail~~in ~~store~~2009, ~~average~~we ~~unit~~have ~~volume,~~purchased ~~increase~~our ~~comparable~~coffee ~~store~~from ~~sales~~GMCR ~~and~~under ~~improve~~the ~~new~~Supply ~~store~~Agreement ~~unit~~negotiated ~~economics~~as part of that sale. The Wemarket ~~are simultaneously~~price ~~targeting~~of ~~operational~~dairy ~~improvements~~products also continues to ~~enhance~~steadily ~~our~~increase. ~~retail~~While we have taken steps to increase prices for some products and in certain markets to attempt to maintain margins and ~~achieve~~operating ~~profitability.~~profit ~~All~~levels, market conditions have prevented us from recovering all of ~~these~~the ~~initiatives~~increased ~~are~~costs ~~designed~~which tohas ~~collectively~~significantly ~~improve~~impacted the profitability of our retail operations. Cost of goods sold as a percentage of retail sales ~~and~~in ~~achieve~~First ~~profitability~~Quarter Fiscal 2012 was 37.4% as compared to 36.6% in the same period of Fiscal 2011.

~~Further,~~Specialty ~~we continue to review our retail locations and leasing arrangements in order to enhance operating efficiencies during the current economic conditions~~Division. During the nine months ended December 26, 2010 we opened six new stores in attractive locations and closed eight underperforming stores in Washington and California in order to enhance long term profitability. New stores generally require several months to reach their full sales potential so the impact of these new store openings may not be reflected in operating results in the very near future.

~~Over~~Our ~~the~~specialty ~~course~~division ofoversees the ~~last~~licensing ~~several~~and ~~years,~~franchising ~~the cost~~ of ~~coffee,~~Tully’s aCoffee ~~key~~retail ~~ingredient~~stores. inFranchising ~~most~~complements of our ~~beverages,~~company-operated ~~has~~retail ~~increased~~business ~~dramatically.~~by ~~Raw coffee~~making ~~prices~~Tully’s ~~have~~genuine ~~increased~~community ~~85%~~coffeehouse inexperience ~~the~~more ~~past~~widely ~~year~~available ~~alone. Since the sale of our wholesale~~ and ~~supply~~convenient ~~chain~~for ~~operations~~customers. toFranchising ~~GMCR~~also inextends ~~2009, we have purchased our coffee from GMCR under~~ the ~~Supply~~Tully’s ~~Agreement~~brand ~~negotiated~~and aspromotes ~~part~~consumer offamiliarity ~~that~~with ~~sale.~~Tully’s ~~While we have taken steps to increase prices for some~~ products. ~~and~~At inJuly ~~certain~~3, ~~markets~~2011 tothere ~~attempt~~were to111 ~~maintain~~U.S. ~~margins~~licensed and ~~operating~~franchisee-operated ~~profit levels~~stores, ~~market~~primarily ~~conditions have prevented us from recovering all of the increased costs which has significantly impacted the profitability of our retail operations. Cost of goods sold as a percentage of sales~~ in ~~the~~special ~~third~~venues ~~fiscal~~such ~~quarter was 37.3%~~ as ~~compared~~grocery tostores, ~~35.7%~~airports, inhotels ~~the same period last year~~ and ~~was~~university 37campuses.1% ~~for the first nine months of Fiscal 2011, as compared to 35.2% in the first nine months of Fiscal 2010.~~

~~Specialty~~Additionally, ~~Division~~our specialty division oversees TCAPLLP, which seeks to develop the Tully’s brand in Asia (excluding Japan), Australia and New Zealand, foreign licensing, wholesale distribution and other business activities. As of July 3, 2011 there are four stores in Singapore through our master licensee Kitchen Language PTE LTD, which is obligated to develop 15 locations, and three stores in South Korea through our master licensee DK Retail Co., Ltd., (“DK Retail”) a South Korean corporation, which is obligated to develop 100 locations over the next five years. We also have a new licensee in the Philippines who had not yet opened any locations as of July 3, 2011, but is obligated to develop 50 locations in the Philippines over the next five years.

~~Our~~Revenue ~~specialty~~Trends division oversees the licensing and franchising of Tully’s Coffee retail stores. Franchising complements our company-operated retail business by making Tully’s genuine community coffeehouse experience more widely available and convenient for customers. Franchising also extends the Tully’s brand and promotes consumer familiarity with Tully’s products. At December 26, 2010 there were 112 U.S. licensed and franchisee-operated stores, primarily in special venues such as grocery stores, airports, hotels and university campuses.

~~Additionally,~~Our ~~our~~quarterly ~~specialty~~sales ~~division~~from oversees Tully’s Coffee Asia, which seeks to develop the Tully’s brand in Asia (excluding Japan), Australia and New Zealand, foreign licensing, wholesale distribution and other business activities. As of December 26, 2010 we franchised four stores in Singapore through our ~~master~~retail ~~licensee Kitchen Language PTE LTD, which is obligated to develop 15 locations,~~ and ~~for~~specialty ~~stores~~operations inare ~~South~~summarized ~~Korea~~as ~~through~~follows: ~~our master licensee DK Retail Co., Ltd., (“DK Retail”) a South Korean corporation, which is obligated to develop 100 locations over the next five years.~~

On November 23, 2009, Tully’s Coffee International, PTE LTD, (“Tully’s Coffee International”), a wholly owned subsidiary of Tully’s Coffee Asia, the joint venture formed by Tully’s Coffee Asia Pacific, Inc. (“TCAP”), a wholly-owned subsidiary of TC Global, Inc., and Asia Food Culture Management Pty, Ltd (“AFCM”), a Singapore company, entered into a Master License Agreement with DK Retail, to develop the Tully’s brand in South Korea. Under the terms of the Master License Agreement, DK Retail will pay Tully’s Coffee International an initial commitment fee, and an additional per store fee. The Master License Agreement has a renewable five year term, subject to payment of an extension fee. As of December 26, 2010, DK Retail had opened four stores in South Korea. 16

17Table of Contents



	First Quarter	Second Quarter	Third Quarter	Fourth Quarter⁽¹⁾
	(unaudited–dollars in thousands)
Fiscal 2011⁽¹⁾	9,496	9,200	9,562	10,010
Fiscal 2012	9,559	—	—	—

~~Revenue~~(1) ~~Trends~~Each fiscal quarter included 13 weeks, except for the Fourth Quarter of Fiscal 2011, which had 14 weeks. We estimate that the 14th week accounted for $675,000 in net sales in the Fourth Quarter of Fiscal 2011.

~~Our~~Operating ~~quarterly~~Cost ~~sales~~Trends ~~from our retail and specialty operations are summarized as follows:~~

	FirstQuarter		SecondQuarter		ThirdQuarter		FourthQuarter
	(unaudited–dollars in thousands)
Fiscal 2010		9,980		9,782		10,098		9,710
Fiscal 2011		9,496		9,200		9,562		—

Retail Cost Trends. We experience both variable and fixed cost trends in our retail division cost structure. Cost of products (cost of goods sold), labor costs, occupancy costs other than rent, supplies, and other operating expenses typically increase or decrease according to broader pricing trends for those products. During the first, second and third quarters of Fiscal 2011 we experienced a mixture of increased costs associated with some of the products we sell and negotiated lower costs for other products and components. In addition, we have increased prices for some of our coffee-based beverages in our stores to offset these cost increases. In some cases, store-level retail operating expenses may increase or decrease depending on the sales volume at a particular location. Generally, our leases provide for periodic rent increases (which are generally leveled for financial reporting purposes by “straight-line rent” accounting). We continue to undertake certain retail business initiatives with the objective of reducing costs as a percentage of sales through increased efficiencies and operating leverage. However, initiatives intended to produce a future benefit may cause a short-term increase in costs, both in absolute dollars and as a percentage of sales. We analyze retail division operating costs as a percentage of store sales and manage the stores to that metric.

~~Operating~~During the First Quarter Fiscal 2011 we entered into a distribution agreement that enabled us to outsource the inventory warehousing and distribution of products to our Company–operated, licensed, and franchised stores. We believe that this will provide substantial operating efficiencies over time. It also means that, beginning in the First Quarter Fiscal 2011 we no longer recognized Specialty Sales of Product or Specialty Cost ~~Trends~~ of Goods Sold for the sale of these products to our franchised or licensed stores. This has had the effect of decreasing net sales and cost of sales as compared to prior periods; however, we expect an overall increase in operating income and net income as a result of the efficiencies gained from this distribution arrangement.

~~Retail~~Over ~~Cost~~the ~~Trends.~~course Weof ~~experience~~the ~~both~~last ~~variable~~several ~~and~~years ~~fixed~~the cost ~~trends in our retail division cost structure. Cost~~ of ~~products (cost of goods sold)~~coffee, ~~labor~~a ~~costs,~~key ~~occupancy~~ingredient ~~costs~~in ~~other~~most ~~than~~of ~~rent,~~our ~~supplies~~beverages, ~~and~~has ~~other~~increased ~~operating~~dramatically. Raw ~~expenses~~coffee ~~typically~~prices ~~increase~~have orincreased ~~decrease~~more ~~according~~than to50% ~~broader~~in ~~pricing~~the ~~trends~~past ~~for~~year ~~those products~~alone. ~~During~~Since the ~~first,~~sale ~~second and third quarters~~ of ~~Fiscal~~our ~~2011~~wholesale ~~we experienced a mixture of increased costs associated with some of the products we sell~~ and ~~negotiated~~supply ~~lower~~chain ~~costs~~operations ~~for~~to ~~other~~GMCR ~~products~~in ~~and components. In addition~~2009, we have ~~increased~~purchased ~~prices for some of~~ our coffee~~-based~~ ~~beverages~~from inGMCR ~~our stores~~under tothe ~~offset~~Supply ~~these~~Agreement ~~cost~~whereby ~~increases.~~costs Inare ~~some cases, store~~pre-~~level~~determined ~~retail~~on ~~operating~~a ~~expenses~~cost–plus ~~may~~basis. The ~~increase~~market orprice ~~decrease~~of ~~depending~~dairy onproducts ~~the~~also ~~sales~~continues ~~volume~~to atsteadily ~~a particular location~~increase. While ~~Generally,~~we ~~our~~have ~~leases~~taken ~~provide~~steps ~~for~~to ~~periodic~~increase ~~rent~~prices ~~increases (which are generally leveled~~ for ~~financial~~some ~~reporting~~products ~~purposes~~and byin ~~“straight-line~~certain ~~rent”~~markets ~~accounting).~~to Weattempt ~~continue~~ to ~~undertake~~maintain ~~certain~~margins ~~retail~~and ~~business~~operating ~~initiatives~~profit ~~with~~levels, ~~the~~market ~~objective~~conditions ofhave ~~reducing~~prevented ~~costs~~us asfrom arecovering ~~percentage~~all of ~~sales~~the ~~through~~ increased ~~efficiencies~~ ~~and~~costs ~~operating~~which ~~leverage.~~has ~~However,~~significantly ~~initiatives~~impacted ~~intended~~the toprofitability ~~produce~~of aour ~~future~~retail ~~benefit~~operations. ~~may~~Since ~~cause~~the aprices ~~short-term~~paid ~~increase~~to inGMCR ~~costs,~~are ~~both~~ in ~~absolute~~large ~~dollars~~part ~~and~~determined asby amarket ~~percentage~~rates, ofwe ~~sales.~~expect Weexpense ~~analyze~~trends ~~retail~~to ~~division~~follow ~~operating~~market ~~costs~~rates asfor ~~a percentage~~Arabica ~~of store sales and manage the stores to that metric~~coffee.

~~During~~Specialty ~~the~~Cost ~~First~~Trends. ~~Quarter~~Most ~~Fiscal~~of ~~2011~~our wespecialty ~~entered~~division ~~into~~costs ~~a distribution~~consist ~~agreement that enabled us to outsource the inventory and distribution~~ of ~~products to our Company–operated~~labor, ~~licensed,~~travel and ~~franchised~~legal ~~stores~~expenses. WeLabor ~~believe~~and ~~that~~travel ~~this~~costs ~~will~~have ~~provide~~increased ~~substantial~~to ~~operating~~support ~~efficiencies~~our ~~over time~~U.S. Itfranchise ~~also means~~store ~~that,~~base ~~beginning~~as inwell as the ~~First~~development ~~Quarter Fiscal 2011 we will no longer be recognizing Specialty Sales~~ of ~~Product~~stores orassociated ~~Specialty~~with ~~Cost of Goods Sold for~~ the ~~sale~~Tully’s ofCoffee ~~these~~Asia ~~products~~joint ~~to our franchised stores~~venture. ~~This~~We ~~will~~also ~~have~~incur ~~the~~legal ~~effect of decreasing net sales~~ and ~~cost~~compliance ofcosts ~~sales as compared to prior periods; however, we expect an overall increase~~ in ~~operating~~connection ~~income~~with ~~and~~our ~~net~~franchising ~~income on these sales as a result of the efficiencies of the new program~~operations.

~~Over~~Marketing, ~~the~~General ~~course~~and ofAdministrative ~~the~~Cost ~~last~~Trends. ~~several~~Most ~~years the cost~~ of ~~coffee, a key ingredient in most of~~ our ~~beverages,~~marketing ~~has~~expenditures ~~increased~~are ~~dramatically.~~discretionary ~~Raw coffee prices have increased 85%~~ in ~~the~~nature ~~past~~and ~~year~~depend ~~alone.~~on ~~Since~~ the ~~sale~~type, ofintensity ~~our wholesale~~ and ~~supply~~frequency ~~chain~~of ~~operations~~the tomarketing ~~GMCR~~programs ~~in 2009,~~ we ~~have~~employ. ~~purchased~~Examples ~~our~~of ~~coffee~~marketing ~~from~~expenses ~~GMCR~~include ~~under the Supply Agreement whereby costs are pre~~point-~~determined~~of-sale ~~on a cost–plus basis. While we have taken steps to increase prices for some products~~ and inpromotion ~~certain~~materials, ~~markets~~community ~~to attempt to maintain margins and operating profit levels~~initiatives, ~~market~~use ~~conditions have prevented us from recovering all~~ of ~~the~~social ~~increased costs which has significantly impacted the profitability of our retail operations. Since the prices paid to GMCR are in large part determined by market rates~~media, wesponsorships ~~expect~~and ~~expense trends to follow market rates for Arabica coffee~~advertising.

~~Specialty~~Our ~~Cost~~general ~~Trends.~~and ~~Most~~administrative ofcosts ~~our~~are ~~specialty~~less ~~division~~discretionary than our marketing costs. ~~consist~~During the second and third quarters of ~~labor~~Fiscal 2011, ~~travel~~ and ~~legal~~again ~~expenses.~~during ~~Labor~~First ~~and~~Quarter ~~travel~~Fiscal ~~costs have~~2012, ~~increased~~we toeliminated ~~support~~various ~~our~~overhead ~~U.S.~~staff ~~franchise~~positions ~~store~~and ~~base~~cut asother ~~well~~administrative asexpenses ~~the~~in ~~development~~an ofeffort ~~stores~~to ~~associated~~further ~~with~~reduce costs. Since the ~~Tully’s~~beginning ~~Coffee~~of ~~Asia~~Fiscal ~~joint~~2011, ~~venture.~~we Wehave ~~also~~decreased ~~incur~~staff ~~legal~~size ~~and~~in ~~compliance~~our ~~costs~~corporate inoffices ~~connection~~by ~~with~~20.5 ~~our~~full-time ~~franchising~~equivalent ~~operations~~personnel, or 37%.

Marketing, General and Administrative Cost Trends. Most of our marketing expenditures are discretionary in nature and depend on the type, intensity and frequency of the marketing programs we employ. Examples of marketing expenses include point-of-sale materials, community initiatives, sponsorships and advertising. 17

~~Our~~Table ~~general and administrative costs are less discretionary than our marketing costs. During the second and third quarters~~ of ~~Fiscal 2011 we eliminated some overhead staff positions and cut other administrative expenses in an effort to further reduce costs.~~ Contents

18Retail Performance Measures

~~Table~~Our ofU.S. ~~Contents~~retail stores are summarized as follows:

Retail Performance Measures



	Thirteen Week Periods Ended
	June 27, 2010		July 3, 2011
NUMBER OF STORES:
Company-operated stores
Stores at beginning of the period	78		74
New stores	4		1
Closed stores	(3	)	—
End of the period	79		75
Franchisee-operated stores
Stores at beginning of the period	107		110
New stores	1		2
Closed stores	—		(1	)
End of the period	108		111
Total company-operated and franchised stores by location
Arizona	19		20
California	28		26
Oregon	5		5
Washington	100		99
Montana	5		5
Idaho	11		11
Utah	1		—
Wyoming	2		2
Colorado	16		18
End of the period	187		186

~~Our~~International ~~U.S.~~franchised ~~retail~~and licensed stores at the end of each respective fiscal period are ~~summarized~~set asforth ~~follows~~in the table below:

	Thirty-nine Week Periods Ended
	Thirteen Week Periods Ended
	December 26,2010			December 27,2009
	June 27, 2010		July 3, 2011
NUMBER OF STORES:
International franchise and licensees	7		7
Company-operated stores
Stores at beginning of the period		78			80
New stores		6			1
Closed stores		(8	)		(2	)
End of the period		76			79
Franchisee-operated stores
Stores at beginning of the period		106			87
New stores		8			21
Closed stores		(2	)		(4	)
End of the period		112			104
Total company-operated and franchised stores by location
Arizona		20			19
California		27			25
Oregon		5			5
Washington		101			98
Montana		5			5
Idaho		11			13
Utah		—			1
Wyoming		2			2
Colorado		17			15
End of the period		188			183

~~International~~Our ~~franchised~~quarterly ~~and~~comparable ~~licensed~~store ~~stores~~sales atincreases ~~the~~(decreases) ~~end~~over ofprior ~~each~~year’s ~~respective~~comparable ~~fiscal~~quarter ~~period~~ are ~~set~~summarized ~~forth~~as ~~in the table below~~follows:

	Thirty-nine Week Periods Ended
	Fiscal Years
	December 26,2010			December 27,2009
	FirstQuarter		SecondQuarter			ThirdQuarter		FourthQuarter (1)
International franchise and licensees		8			4
Fiscal 2011 (1)	(0.8	)%	1.1	%		3.5	%	14	%
Fiscal 2012	4.8	%	—			—		—

~~Our~~(1) ~~quarterly~~Each ~~comparable~~fiscal ~~store~~quarter included 13 weeks, except for the Fourth Quarter of Fiscal 2011, which had 14 weeks. We estimate that the 14th week accounted for $675,000 in net sales ~~increases~~in ~~(decreases)~~the ~~over~~Fourth ~~prior~~Quarter ~~year’s~~of Fiscal 2011, amounting to 60% of the increase, so that comparable ~~quarter~~sales ~~are summarized~~in asthe ~~follows:~~Fourth Quarter Fiscal 2011 without the impact of the 14th week was 5.6%.

	Fiscal Years
	FirstQuarter			SecondQuarter			ThirdQuarter			FourthQuarter
Fiscal 2010		(8.4	)%		(6.1	)%		4.2	%		(0.2	)%
Fiscal 2011		(0.8	)%		1.1	%		3.5	%		—

19Table of Contents

~~Table~~Results of ~~Contents~~Operations

Results of Operations



	Thirteen Week Periods Ended
	June 27, 2010		July 3, 2011
	(unaudited)		(unaudited)
Total Net Sales Metrics
Amounts as Percent of Total Net Sales
Retail store sales	93.3	%	95.3	%
Specialty - product sales	5.2	%	3.1	%
Total sales of products	98.5	%	98.4	%
Specialty - Licenses, royalties and fees	1.4	%	1.1	%
Specialty - Recognition of deferred revenue	0.1	%	0.5	%
Total net sales	100.0	%	100.0	%
Retail Metrics
Amounts as Percent of Retail Store Sales
Retail cost of goods sold	36.6	%	37.4	%
Retail occupancy expenses	11.8	%	11.6	%
Store operating expenses	44.0	%	42.9	%
Marketing, General and Administrative Expenses as Percent of Total Net Sales	19.5	%	10.9	%

	Thirteen Week Periods Ended						Thirty-nine Week Periods Ended
	December 26,2010(unaudited)			December 27,2009(unaudited)			December 26,2010(unaudited)			December 27,2009(unaudited)
Total Net Sales Metrics
Amounts as Percent of Total Net Sales
Retail store sales		95.5	%		88.8	%		94.7	%		89.5	%
Specialty - product sales		3.0	%		9.9	%		3.7	%		9.3	%
Total sales of products		98.5	%		98.7	%		98.4	%		98.8	%
Specialty - Licenses, royalties and fees		1.4	%		1.2	%		1.5	%		1.1	%
Specialty - Recognition of deferred revenue		0.1	%		0.1	%		0.1	%		0.1	%
Total net sales		100.0	%		100.0	%		100.0	%		100.0	%
Retail Metrics
Amounts as Percent of Retail Store Sales
Retail cost of goods sold		37.3	%		35.7	%		37.1	%		35.2	%
Retail occupancy expenses		9.9	%		12.3	%		11.0	%		12.4	%
Store operating expenses		42.9	%		45.0	%		43.6	%		43.8	%
Marketing, General and Administrative Expenses as Percent of Total Net Sales		16.5	%		15.5	%		17.9	%		15.0	%

First Quarter Fiscal 2012 Compared To First Quarter Fiscal 2011

~~Third~~Net ~~Quarter~~Sales ~~Fiscal 2011 Compared To Third Quarter Fiscal 2010~~

~~Net~~Total net sales increased $63,000, or 0.7%, to $9.6 million for the First Quarter Fiscal 2012, as compared to $9.5 million for the First Quarter Fiscal 2011. Sales of products increased $45,000, or 0.5%, to $9.4 million for the First Quarter Fiscal 2012, as compared to $9.4 million for the First Quarter Fiscal 2011. Licenses, royalties and fees decreased $24,000, or 18.6%, to $105,000 as compared to $129,000 for the First Quarter Fiscal 2011. Revenue recognized from deferred license arrangements increased $42,000 to $52,000 for the First Quarter Fiscal 2012 as compared to $10,000 for the First Quarter Fiscal 2011, due to a several franchise and license arrangements that were consummated during the latter part of Fiscal 2011.

~~Total~~The ~~net~~divisional ~~sales~~increase ~~decreased~~(decrease) ~~$536,000,~~in ornet ~~5.3%,~~sales towas ~~$9.6~~comprised ~~million for the Third Quarter Fiscal 2011,~~ as ~~compared~~follows: to $10.1 million for the Third Quarter Fiscal 2010. Sales of products decreased $556,000, or 5.6%, to $9.4 million for the Third Quarter Fiscal 2011, as compared to nearly $10.0 million for the Third Quarter Fiscal 2010. Licenses, royalties and fees increased $19,000, or 16.2%, to $136,000 as compared to $117,000 for the Third Quarter Fiscal 2010.

The divisional increase (decrease) in net sales was comprised as follows:



Total Company First Quarter Fiscal 2012 compared to First Quarter Fiscal 2011 (dollars in thousands)	Increase (Decrease) in Net Sales
Retail	$	251
Specialty	(188		)
Total company	$	63

Total Company Third Quarter Fiscal 2011 compared to Third Quarter Fiscal 2010 (dollars in thousands)	Increase(Decrease) inNet Sales
Retail	$	157
Specialty		(693	)
Total company	$	(536	)

For the First Quarter Fiscal 2012, comparable retail store sales increased 4.8%. The factors comprising the retail sales increase are summarized as follows:

For the Third Quarter Fiscal 2011 comparable retail store sales increased 3.5%. The factors comprising the retail sales increase are summarized as follows:



Retail division Components of net sales increase First Quarter Fiscal 2012 compared to First Quarter Fiscal 2011 (dollars in thousands)	Increase (Decrease) in Net Sales
Comparable store sales increase	$	392
Sales increase from new stores	352
Sales decrease from stores closed during Fiscal 2012 and Fiscal 2011	(493		)
Total retail division	$	251

Retail division Components of net sales increase Third Quarter Fiscal 2011 compared to Third Quarter Fiscal 2010 (dollars in thousands)	Increase(Decrease) inNet Sales
Comparable store sales increase	$	293
Sales increase from new stores		393
Sales decrease from stores closed during Fiscal 2011 and Fiscal 2010		(529	)
Total retail division	$	157

Specialty net sales decreased $188,000 to $450,000 in the First Quarter Fiscal 2012 from $638,000 in the First Quarter

Specialty net sales decreased $713,000 to $288,000 for the Third Quarter Fiscal 2011 from $1.0 million for the Third Quarter Fiscal 2010. During the first quarter of Fiscal 2011 we entered into a distribution agreement that enabled us to outsource the inventory and distribution of products to our Company-operated, licensed and franchised stores. We believe 19

20Table of Contents

~~Table~~Fiscal 2011, due to the distribution agreement that we entered into during the first quarter of ~~Contents~~Fiscal 2011, and that enabled us to outsource the inventory warehousing and distribution of products to our Company-operated, licensed and franchised stores. We believe that this will provide substantial operating savings over time. It also means that beginning in mid-First Quarter Fiscal 2011 we no longer recognized Sales Revenue or Cost of Sales for the sale of these products to our franchised stores. This did have and will continue to have the effect of decreasing Net Sales, Specialty Sales, and Cost of Goods Sold, as compared to prior periods.

~~that this will provide substantial operating efficiencies over time. It also means that beginning in the First Quarter Fiscal 2011 we no longer recognize Sales Revenue or~~ Cost of ~~Sales~~Goods ~~for~~Sold ~~the sale of these products to our franchised stores. This did have~~ and ~~will~~Operating ~~continue~~Expenses to have the effect of decreasing Net Sales, Specialty Sales, and Cost of Sales, as compared to prior periods. Our retail cost of goods sold has increased in recent periods as the commodity price of coffee beans has increased.

Cost of ~~Goods~~goods ~~Sold~~sold and ~~Operating~~related ~~Expenses~~occupancy costs increased by $170,000, or 5.2%, to $3.4 million for the First Quarter Fiscal 2012 as compared to First Quarter Fiscal 2011. Cost of goods sold and related occupancy costs as a percentage of total net sales increased slightly to 37.4% for the First Quarter Fiscal 2012, compared to 36.6% in the corresponding period last year. Our retail cost of goods sold has increased in recent periods as the commodity price of coffee beans has increased.

~~Cost~~Store ofoperating ~~goods~~expenses ~~sold~~decreased ~~and related occupancy costs increased slightly by $6,000, or less than 0.2%, to $4.3 million for the Third Quarter Fiscal 2011~~ as ~~compared to Third Quarter Fiscal 2010. Cost of goods sold and related occupancy costs as~~ a percentage of ~~total~~retail ~~net~~ sales ~~increased slightly~~ to 4542.09% for ~~the~~First ~~Third~~ Quarter Fiscal ~~2011,~~2012 compared to 4244.60% infor ~~the~~First ~~corresponding~~Quarter ~~period~~Fiscal ~~last year~~2011.

~~Store~~Other operating expenses ~~decreased~~(expenses asassociated awith ~~percentage~~all ofoperations other than company-operated retail ~~sales~~stores) todecreased 42$211,000 or 36.91% ~~for~~to ~~Third~~$373,000 during First Quarter Fiscal 2012 from $584,000 in First Quarter Fiscal 2011 ~~compared~~due to ~~45.0%~~ ~~for~~the ~~Third~~staffing and expense reductions that we undertook early in First Quarter Fiscal ~~2010~~2012.

~~Other~~Marketing, ~~operating~~general ~~expenses~~and ~~(expenses~~administrative ~~associated~~costs ~~with~~decreased ~~all~~significantly ~~operations~~by ~~other than company-operated retail stores) decreased~~ $~~150~~807,000, or 2543.56%, to $~~439,000~~1.0 million during ~~Third~~First Quarter Fiscal ~~2011~~2012, ~~from~~as compared to $~~589,000~~1.9 inmillion ~~Third~~during First Quarter Fiscal ~~2010~~2011. This ~~due~~decrease tois anthe ~~increase~~result inof ~~reserves~~the staffing and expense reductions that ~~was~~we ~~recorded~~undertook throughout Fiscal 2011 and early in First Quarter Fiscal 2012. Since the ~~prior~~beginning ~~year~~of ~~period~~Fiscal ~~relating~~2011, towe ~~accounts receivable~~have ~~from~~reduced ~~franchisees~~corporate staffing by 20.5 full-time equivalent personnel, or 37%.

~~Marketing,~~Depreciation ~~general~~ and ~~administrative~~amortization ~~costs~~expense ~~remained~~decreased ~~virtually~~$53,000, ~~unchanged~~or at22.4%, to $~~1.6~~184,000 ~~million~~in ~~during both~~the ~~Third~~First Quarter Fiscal ~~2011~~2012 ~~and~~from ~~Third~~$237,000 in the First Quarter Fiscal ~~2010~~2011. This expense has decreased as assets have aged and become fully depreciated, and are not being replaced by the acquisition of new capital assets due to cash restraints for such expenditures.

~~Depreciation~~Net ~~and~~Loss ~~amortization expense decreased $61,000, or 21.5%, to $223,000 for the Third Quarter Fiscal 2011~~ from ~~$284,000~~Continuing for the Third Quarter Fiscal 2010. This expense has decreased as assets have aged and become fully depreciated, and new capital assets are not being acquired due to cash restraints for such expenditures. Operations

~~Net~~As ~~Loss~~a result of the factors described above, we had a loss from ~~Continuing~~continuing ~~Operations~~operations of $448,000 for the First Quarter Fiscal 2012 as compared to a net loss of $1.7 million for the First Quarter Fiscal 2011, representing a loss improvement of $1.2 million, or 70.6%.

AsLiquidity aand ~~result~~Financial ofCondition the factors described above, we had a loss from continuing operations of $1.0 million for the Third Quarter Fiscal 2011 as compared to a net loss of $1.4 million for the Third Quarter Fiscal 2010, representing a loss improvement of $400,000, or 28.6%.

~~Nine~~Sources ~~Months~~and ~~Fiscal~~Uses ~~2011~~of ~~Compared~~Cash Toin ~~Nine~~our ~~Months~~Business ~~Fiscal 2010~~

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

Total net sales decreased $1.6 million, or 5.4%, to $28.3 million for the Nine Months Fiscal 2011, as compared to $29.9 million for the Nine Months Fiscal 2010. Sales of products decreased $1.7 million, or 5.7%, to $27.8 million for the Nine Months Fiscal 2011, as compared to $29.5 million for the Nine Months Fiscal 2010. Licenses, royalties and fees increased $78,000, or 23.4%, to $412,000 for the Nine Months Fiscal 2011, as compared to $334,000 for the Nine Months Fiscal 2010. 20

~~The~~Table ~~divisional~~of ~~decrease in net sales was comprised as follows:~~ Contents

Total company Nine Months Fiscal 2011 compared to Nine Months Fiscal 2010 (dollars in thousands)	Increase(Decrease) inNet Sales
	First Quarter Fiscal 2011			First Quarter Fiscal 2012
Retail	$	38
	(dollars in thousands)
Specialty		(1,640	)
STATEMENTS OF CASH FLOWS DATA
Total company	$	(1,602	)
Cash provided by (used for):
Net loss	$	(1,680	)	$	(295	)
Deferred Gain on Green Mountain Transaction	(42		)	(42		)
Adjustments for depreciation and other non-cash operating activities	163			138
Net loss adjusted for non-cash operating statement amounts	(1,559		)	(199		)
Cash provided by other changes in assets and liabilities	295			388
Net cash provided by (used in) operating activities	(1,264		)	189
Escrow receivable established in connection with Green Mountain transaction	3,500			—
Purchases of property and equipment	(708		)	(234		)
Other investing activities	18			76
Net repayments of notes payable	(104		)	(124		)
Foreign currency translation adjustment	1			(19		)
Net increase (decrease) in cash and cash equivalents	$	1,443		$	(112	)

21Overall, our operating, investing and financing activities used $112,000 of cash during the First Quarter Fiscal 2012 as compared to providing $1.4 million of cash during the Three Months Fiscal 2011, which included the release of $3.5 million from Escrow in connection with the Green Mountain transaction.

~~Table~~Cash provided by operating activities during the First Quarter Fiscal 2012 was $189,000, an improvement of ~~Contents~~nearly $1.5 million, compared to First Quarter Fiscal 2011, when operating activities used cash of $1.3 million.

~~For~~Investing activities used cash of $158,000 in the ~~Nine~~First ~~Months~~Quarter Fiscal ~~2011~~2012, ~~comparable~~compared ~~retail~~to ~~store~~providing ~~sales~~$2.8 ~~increased~~million ~~1.5%.~~of ~~The~~cash ~~factors comprising~~in the ~~retail~~First ~~sales~~Quarter ~~increase~~Fiscal ~~are~~2011, ~~summarized~~again asrelating ~~follows:~~to the release of $3.5 million from Escrow related to the Green Mountain transaction.

Retail division Components of net sales decrease Nine Months Fiscal 2011 compared to Nine Months Fiscal 2010 (dollars in thousands)	Increase(Decrease) inNet Sales
Comparable stores sales increase	$	381
Sales increase from new stores		975
Sales decrease from stores closed during Fiscal 2011 and Fiscal 2010		(1,318	)
Total retail division	$	38

Financing activities used cash of $143,000 in the First Quarter Fiscal 2012, compared to use of $103,000 in the First Quarter Fiscal 2011. In both quarterly periods, this use was primarily related to payments made on financed insurance policies.

~~Specialty~~Liquidity net sales decreased $1.6 million to $1.5 million for the Nine Months Fiscal 2011 from $3.1 million for the Nine Months Fiscal 2010. During the First Quarter Fiscal 2011 we entered into a distribution agreement that enabled us to outsource the inventory and ~~distribution~~Capital ofResources products to our Company-operated, licensed and franchised stores. We believe that this will provide substantial operating efficiencies over time. It also means that beginning in the First Quarter Fiscal 2011 we no longer recognize Sales Revenue or Cost of Sales for the sale of these products to our franchised stores. This did have and will continue to have the effect of decreasing Net Sales, Specialty Sales, and Cost of Sales, as compared to prior periods.

~~Cost~~As of ~~Goods~~July 3, ~~Sold~~2011 we had cash and ~~Operating~~cash ~~Expenses~~equivalents of $2.7 million, of which $456,000 was held in TCAPPLP and limited in use, and a working capital deficit of $8.7 million, which also includes TCAP’s $4.0 million obligation to AFCM; such obligation is not expected to be satisfied by funds held by TC Global, Inc.

~~Cost~~The ofCompany ~~goods~~has ~~sold~~realized some improvements during its most recent periods in sales volumes as compared to previous periods and ~~related~~has ~~occupancy~~made ~~costs~~certain ~~increased~~reductions ~~$173,000,~~in orstaffing ~~1.4%~~and other expenses, toincluding ~~$12~~such reductions during First Quarter Fiscal 2012.9 ~~million~~With ~~for~~the exception of the ~~Nine~~third ~~Months~~and fourth quarters of Fiscal 2011 asand ~~compared~~First toQuarter Fiscal 2012, the ~~Nine~~Company ~~Months~~has ~~Fiscal~~consistently ~~2010~~incurred negative cash flows from operations. ~~Cost~~If ofsales ~~goods~~volumes ~~sold~~do ~~and~~not ~~related occupancy~~meet expectations during Fiscal 2012 or if increased costs ~~decreased~~result ~~slightly~~from pending litigation or contingent obligations, the Company does not believe it will be able to 47offset such negative events through additional overhead cost reductions.4% As a result, if operating results do not meet expectations, the Company may not have sufficient resources to cover its working capital and capital expenditure requirements and, without additional sources of ~~net~~capital ~~sales~~made ~~for~~available to the ~~Nine~~Company ~~Months~~during Fiscal ~~2011~~2012, ~~compared~~there towill ~~48.6%~~be insubstantial ~~the~~doubt ~~corresponding~~that ~~prior~~the ~~year~~Company ~~period.~~will ~~Retail~~be ~~occupancy~~able ~~expenses~~to continue as a ~~percentage~~going concern. In order to maintain an appropriate level of ~~retail~~liquidity, ~~store~~the ~~sales~~Company ~~were~~believes ~~lower~~it atwill ~~11.0%~~need to either effectively implement its operational plans and objectives or obtain additional capital in the ~~Nine Months~~next ~~Fiscal~~six ~~2011~~to asnine ~~compared~~months in order to ~~12.4%~~fund inits working capital requirements for the ~~Nine~~remainder ~~Months~~for Fiscal ~~2010.~~2012 ~~Our~~and ~~retail~~is ~~cost~~evaluating a variety of ~~goods~~alternatives, ~~sold~~reorganization ~~increased~~of toexisting ~~37.1%~~operations asand/or asale ~~percentage~~of some of ~~retail~~its ~~sales~~stores or other selected assets. Certain financing alternatives could result in ~~the~~significant ~~Nine~~interest ~~Months~~and ~~Fiscal~~other ~~2011~~costs, ~~compared~~be highly dilutive to 35existing shareholders or require the divestiture or sale of some or all of the Company’s assets.2% inThere ~~Nine~~can ~~Months~~be ~~Fiscal~~no ~~2010~~assurance that any debt or equity financing arrangement will be available to the Company on acceptable terms, ~~primarily~~if ~~because of~~at aall. ~~dramatic~~In ~~increase~~addition, inthere can be no assurance that these financing alternatives would provide the ~~cost~~Company ofwith ~~coffee~~sufficient infunds ~~recent~~to ~~periods~~meet its current or long term capital requirements.

~~Store~~If ~~operating~~sources ~~expenses~~of ascapital aare ~~percentage~~unavailable, ofor ~~retail~~are ~~sales remained~~available ~~relatively~~only ~~flat~~on ata ~~43.6%~~limited ofbasis ~~retail~~or ~~sales~~under ~~for~~unacceptable terms, then the ~~Nine~~Company ~~Months~~could ~~Fiscal~~be ~~2011~~required ~~compared~~to substantially reduce or discontinue its investments in store improvements, new customers and new products; reduce operating, marketing, general and administrative costs related to ~~43.8%~~its ~~for~~continuing operations; or limit the ~~Nine~~scope ~~Months~~of ~~Fiscal~~its ~~2010.~~continuing

Other operating expenses (expenses associated with all operations other than company-operated retail stores) increased $131,000 or 8.6% to $1.7 million during Nine Months Fiscal 2011 from $1.5 million in the Nine Months Fiscal 2010 due to an increase in reserves relating to accounts receivable from franchisees. 21

~~Marketing, general~~Table ~~and administrative costs increased $580,000, or 13.0%, to $5.1 million for the Nine Months Fiscal 2011 from $4.5 million for the Nine Months Fiscal 2010. This is primarily a result~~ of ~~increased marketing and other administrative costs and expenses associated with outsourcing the inventory and distribution of products to our Company-operated, licensed and franchised stores.~~ Contents

~~Depreciation~~operations. ~~and~~Due ~~amortization~~to ~~expense~~various ~~decreased~~contractual ~~$230,000,~~obligations orof ~~24.5%~~the Company, toincluding ~~$705~~store operating leases,~~000~~ ~~for~~supply ~~the~~agreements ~~Nine~~and ~~Months~~franchise ~~Fiscal~~agreements, ~~2011~~the ~~from~~Company ~~$935,000~~may ~~for~~not have the ~~Nine~~discretion ~~Months~~to ~~Fiscal~~reduce ~~2010.~~operations ~~This~~in ~~expense~~an ~~has~~orderly ~~decreased~~manner asto ~~assets~~a ~~have aged~~more ~~and~~sustainable ~~become~~level. ~~fully~~The ~~depreciated,~~potential ~~and~~sale ~~new~~of ~~capital~~stores ~~assets~~or ~~are~~other ~~not~~income-producing ~~being~~assets ~~acquired~~could ~~due~~adversely toaffect ~~cash~~future ~~restraints~~operating ~~for~~results ~~such~~and ~~expenditures~~cash flows.

~~Net~~During ~~Loss from~~the ~~Continuing~~remainder ~~Operations~~of Fiscal 2012, we expect that the majority of new store locations will be franchised and/or licensed stores, rather than Company-operated stores. Franchised and licensed stores do not require capital investment in property and equipment, although they do require selling and support costs for such new stores related to store opening, training, and quality control. Typically, a new company-operated store will require capital investment of approximately $100,000 to $400,000, but this varies depending on a specific location. We invested $234,000 primarily for limited refurbishment of some existing stores during the First Quarter Fiscal 2012, and expect that we will continue to perform limited refurbishment on our group of aging retail locations throughout Fiscal 2012 and beyond.

AsSEASONALITY a result of the factors described above, we had a loss from continuing operations of $4.3 million for the Nine Months Fiscal 2011 as compared to the net loss of $3.6 million for the Nine Months Fiscal 2010, an increase of $668,000, or 18.4%.

22Our business is subject to moderate seasonal fluctuations. Greater portions of Tully’s net sales are generally realized during the third quarter of Tully’s fiscal year, which includes the November and December holiday season. Seasonal patterns are generally applicable to each of our operating divisions. In addition, quarterly results are affected by the timing of the opening of new stores (by Tully’s and our franchisees) or the closure of stores not meeting our expectations. Because of these factors, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

~~Table of Contents~~22

~~Liquidity~~Table ~~and~~of ~~Financial Condition~~ Contents

~~Sources~~ITEM 3. QUANTITATIVE ~~and~~AND ~~Uses~~QUALITATIVE ofDISCLOSURES ~~Cash~~ABOUT inMARKET ~~our~~RISK ~~Business~~

The ~~following~~supply ~~table~~and ~~sets~~price ~~forth~~of coffees are subject to significant volatility and can be affected by multiple factors in green coffee producing countries, ~~for~~including weather, political and economic conditions. In addition, green coffee bean prices have been affected in the ~~periods~~past, ~~indicated~~and may be affected in the future, ~~selected~~by ~~statements~~the actions of ~~cash~~certain ~~flows~~organizations ~~data:~~and associations that have historically attempted to influence commodity prices of green coffee beans through agreements establishing export quotas or restricting coffee bean supplies worldwide. Because we purchase all of our coffee according to the terms of a Supply Agreement with GMCR, we are limited to offsetting the cost exposure of the main commodity used in our business, as we are unable to enter into fixed-price purchase commitments with other roasters.

	Third Quarter Fiscal2011			Third Quarter Fiscal2010			Nine Months Fiscal2011			Nine Months Fiscal2010
	(dollars in thousands)
STATEMENTS OF CASH FLOWS DATA
Cash provided by (used for):
Net loss attributable to TC Global, Inc.	$	(1,000	)	$	(1,389	)	$	(4,165	)	$	(3,481	)
Deferred Gain on Green Mountain Transaction		(43	)		(43	)		(127	)		(127	)
Adjustments for depreciation and other non-cash operating activities		221			620			487			1,214
Net loss adjusted for non-cash operating statement amounts		(822	)		(812	)		(3,805	)		(2,394	)
Cash provided by (used in) other changes in assets and liabilities		831			(25	)		4,300			1,824
Net cash provided by (used in) operating activities		9			(837	)		495			(570	)
Purchases of property and equipment		(127	)		(137	)		(1,139	)		(485	)
Other investing activities		18			—			39			18
Net repayments of notes payable		(158	)		(147	)		(316	)		(409	)
Foreign currency translation adjustment		(32	)		10			(31	)		12
Shareholder distribution		—			(3	)		—			(5,993	)
Proceeds from warrant and stock option exercise		—			—			—			27
Net decrease in cash and cash equivalents	$	(290	)	$	(1,114	)	$	(952	)	$	(7,400	)

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

~~Overall, our operating, investing and financing activities used $952,000 of cash during the Nine Months Fiscal 2011 as compared to a use of $7.~~ITEM 4. CONTROLS ~~million~~AND ~~during~~PROCEDURES ~~the Nine Months Fiscal 2010, which included a shareholder distribution in May 2009.~~

~~Cash~~An ~~provided~~evaluation bywas ~~operating~~performed, ~~activities~~under ~~for~~the ~~Nine~~supervision ~~Months~~of, ~~Fiscal~~and ~~2011~~with ~~was~~the ~~$495~~participation of,~~000~~ the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), anof ~~improvement~~the effectiveness of ~~nearly~~the ~~$1.1~~design ~~million,~~and ~~compared~~operation toof ~~Nine~~our ~~Months~~disclosure ~~Fiscal~~controls ~~2010,~~and ~~when~~procedures ~~operating~~(as ~~activities~~defined ~~used~~in ~~cash~~Rule 13a-15(e) under the Securities Exchange Act of ~~$570~~1934,~~000. However,~~ ~~without~~as amended (the ~~impact~~1934 ~~of $3~~Act)).5 ~~million~~Based on that ~~was~~evaluation, ~~released~~the ~~from~~CEO ~~Escrow~~and ~~from~~CFO ~~the~~have ~~GMCR~~concluded ~~transaction~~that, weas ~~used~~of $July 3.0, ~~million~~2011, ~~for~~our ~~operating~~disclosure ~~activities~~controls ~~during~~and ~~the~~procedures ~~Nine~~were ~~Months~~ineffective ~~Fiscal~~due ~~2011.~~to ~~Net~~limited ~~cash~~technical resources and lack of ~~$9,000~~segregation ~~was~~of ~~provided~~duties bywith ~~operating~~regard ~~activities~~to ~~during~~financial accounting and reporting disclosures. As part of the ~~Third~~ ~~Quarter~~cost ~~Fiscal~~savings ~~2011~~initiatives discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," aswe reduced ~~compared~~finance staff. Management continues to aassess ~~use~~and remediate disclosure controls and procedures as part of ~~$837,000~~their ~~during~~reorganization ~~the~~and ~~Third~~“right ~~Quarter~~sizing” effort and will continue to do so during Fiscal ~~2010,~~2012; anwe ~~improvement~~also continue to assess the appropriate level of ~~$846~~staffing to support our organization,~~000~~ ingiven ~~quarterly~~our ~~use~~limited offinancial ~~cash~~resources ~~for~~at ~~operating~~the ~~activities.~~present time.

~~Investing~~There ~~activities~~has ~~used~~been ~~cash~~no ofchange ~~$1.1 million~~ in ~~the~~our ~~Nine~~internal ~~Months~~control ~~Fiscal~~over ~~2011,~~financial ~~compared~~reporting toduring ~~use of $467,000 in~~ the ~~Nine~~three ~~Months~~month ~~Fiscal~~period ~~2010~~ended July 3, as2011 wethat ~~made~~has ~~increased~~materially ~~purchases of property and equipment to support new store openings. Investing activities remained relatively flat in the Third Quarter Fiscal 2011~~affected, ~~using~~or ~~$109,000~~is ofreasonably ~~cash,~~likely ~~compared~~ to ~~use~~materially ~~of $137~~affect,~~000~~ ~~during~~our ~~Third~~internal ~~Quarter~~control ~~Fiscal~~over ~~2010~~financial reporting.

~~Financing~~PART ~~activities used cash of $347,000 in the Nine Months Fiscal 2011, compared to use of $6~~II.4 ~~million~~OTHER inINFORMATION the Nine Months Fiscal 2010, which included a special distribution to shareholders of nearly $6.0 million paid in May 2009. Financing activities used cash of $191,000 in the Third Quarter Fiscal 2011, compared to $140,000 in the Third Quarter Fiscal 2010, the difference was primarily driven by foreign currency translation adjustment gains versus losses.

~~Liquidity~~ITEM 1. LEGAL ~~and~~PROCEEDINGS ~~Capital Resources~~

WeOn ~~believe~~May ~~that~~17, ~~our~~2011, ~~projected~~a ~~operating~~lawsuit ~~cash~~was ~~flows~~filed against the Company in California state court by JH Development, ~~financing~~LLC, ~~cash~~a ~~flows~~franchise area developer, ~~and~~alleging ~~investing~~that ~~cash~~(i) ~~flows~~at ~~for~~the time the ~~remainder of~~Company ~~Fiscal~~entered ~~2011,~~into ~~and~~agreements with the ~~cash~~plaintiff, the Company concealed its financial strength and ~~cash~~the ~~equivalents~~fact ~~balance~~that ofit ~~approximately~~was ~~$2.6~~contemplating ~~million,~~a sale of ~~which~~its ~~approximately~~wholesale ~~$478,000~~division ~~was~~and ~~held~~rights into the “Tully’s” ~~Coffee~~trademark; ~~Asia,~~(ii) atthe ~~December 26,~~Company ~~2010,~~breached ~~will~~the befranchise ~~sufficient~~agreements with the plaintiff; (iii) the Company made false promises to ~~fund~~the ~~our~~plaintiff; ~~ongoing~~and ~~operations~~(iv) ~~through~~the ~~at least~~Company violated certain provisions of the ~~First~~California ~~Quarter~~Corporations ~~Fiscal~~Code ~~2012~~governing the sale of franchises. The plaintiff is seeking damages, rescission, and attorneys’ fees and costs. We ~~have~~are ~~realized~~investigating ~~some~~the ~~improvements~~claims, inhave ~~sales~~retained ~~volumes~~California incounsel, ~~recent~~have ~~months~~removed asthe ~~compared~~case to ~~previous~~federal ~~periods~~court in the Central District of California, and ~~have~~intend ~~made~~to ~~some~~vigorously ~~reductions~~defend inthis ~~staffing~~litigation, ~~and~~but ~~other~~cannot ~~expenses~~predict inthe ~~recent~~outcome ~~months~~or financial impact to ~~bring~~the ~~operating~~Company ~~expenses~~at ~~more in~~this time.

23We are not currently a party to any other legal proceeding that we believe could have a material adverse effect on our financial position or results of operations.

~~Table~~ITEM 2. UNREGISTERED ofSALES ~~Contents~~OF EQUITY SECURITIES AND USE OF PROCEEDS

~~line~~No ~~with~~Company ~~operating~~securities ~~revenues. Despite~~were ~~improved~~offered revenues during the current quarter and reductions to staffing and other expenses, and with the exception of Third Quarter Fiscal 2011, we continue to incur negative cash flows from operations. If sales volumes decline significantly or dosold ~~not meet expectations of sustained increases~~ during the fourth quarter of Fiscal 2011, we do not believe that we will be able to offset such negative trends through additional overhead cost reductions. As a result, we will not have sufficient resources to support operations or cover our working capital and capital expenditure requirements beyond this timeframe and, without additional sources of capital, by the end of the First Quarter of Fiscal 2012 ~~there will be substantial doubt that the Company will be able to continue as a going concern~~. ~~The timing and extent of success for our strategies cannot be predicted with any level of certainty.~~

In order to maintain an appropriate level of liquidity, we believe we will need additional capital in the next three to six months in order to fund all of our working capital requirements for the remainder of Fiscal 2011 and in 2012 and are evaluating a variety of capital raising alternatives, including the sale of debt or equity securities, reorganization of existing operations, and/or sale of some of our stores or other selected assets. 23

~~The~~Table ~~Company’s management continues to seek potential sources~~ of capital. Certain financing alternatives could result in significant interest and other costs, be highly dilutive to existing shareholders, or require the divestiture or sale of some or all of the Company’s assets. There can be no assurance that any debt or equity financing arrangement will be available to the Company on acceptable terms, if at all. In addition, there can be no assurance that these financing alternatives would provide the Company with sufficient funds to meet its current or long term capital requirements. Contents

If sources of capital are unavailable, or are available only on a limited basis or under unacceptable terms, then the Company could be required to substantially reduce or discontinue its investments in store improvements, new customers and new products; reduce operating, marketing, general and administrative costs related to its continuing operations; or limit the scope of its continuing operationsITEM 6. EXHIBITS Due to various contractual obligations of the Company, including store operating leases, supply agreements and franchise agreements; the Company may not have the discretion to reduce operations in an orderly manner to a more sustainable level. The potential sale of stores or other income-producing assets could adversely affect future operating results and cash flows.

~~During~~(a) The ~~the~~exhibits ~~remainder~~listed ofbelow ~~Fiscal~~are ~~2011~~filed ~~and~~as ~~into~~part ~~Fiscal 2012~~of, ~~we expect that the majority of new store locations will be franchised and/~~or ~~licensed~~incorporated ~~stores,~~by ~~rather~~reference ~~than Company-operated stores. Franchised and licensed stores do not require capital investment in property and equipment~~into, although they do require selling and support costs for such new stores related to store opening, training, and quality control. We opened one new Company-operated store, and closed three underperforming stores during the third quarter of Fiscal 2011. Typically, a new company-operated store will require capital investment of approximately $100,000 to $400,000, but this ~~varies~~Quarterly ~~depending~~Report on aForm ~~specific~~10-Q ~~location. We invested $127,000 primarily for limited refurbishment of some existing stores during the Third Quarter Fiscal 2011.~~

~~SEASONALITY~~EXHIBIT INDEX

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



3.1	Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on October 26, 1999 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2001 as filed with the SEC on October 19, 2001, and incorporated herein by reference)
3.1(a)	Articles of Amendment of the Restated Articles of Incorporation containing the Statement of Rights and Preferences of Series B Preferred Stock filed with the Washington Secretary of State on June 27, 2000 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2001, as filed with the Commission on October 19, 2001, and incorporated herein by reference)
3.1(b)	Articles of Correction to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on August 8, 2000 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.1(c)	Articles of Correction to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on August 8, 2000 (Filed with the Registrant’s Annual Report Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.1(d)	Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on December 16, 2004 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.1(e)	Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on December 16, 2004 (Filed with the Registrant’s Current Report on Form 8-K, dated March 26, 2009, as filed with the SEC on March 27, 2009, and incorporated herein by reference)
3.1(f)	Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on June 27, 2007 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.2	Amended and Restated Bylaws adopted on July 18, 2007 (Filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2007, as filed with the SEC on July 26, 2007, and incorporated herein by reference)
3.2(a)	Amendment to Amended and Restated Bylaws, adopted effective July 8, 2010 (Filed with the Registrant’s Current Report on Form 8-K, as filed with the SEC on July 8, 2010, and incorporated herein by reference)
4.1	Description of capital stock contained in the Amended and Restated Articles of Incorporation (see Exhibit 3.1)
4.2	Description of rights of security holders contained in the Bylaws (see Exhibit 3.2)
4.2(c)	Common Stock Purchase Warrant dated April 26, 2007, issued to Benaroya Capital Company, L.L.C. (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)
4.3	Form of Registration Rights Agreement with Series A Preferred Shareholders (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)
4.4	Registration Rights Agreement, dated December 14, 2000 between Tully’s and KWM Investments LLC (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on 139 18, 2008, and incorporated herein by reference)
31.1*	Certification of principal executive officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of principal financial officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of principal executive officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of principal financial officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~RISK FACTORS~~* Filed herewith

~~We will need to raise additional capital to fund our business if sales volumes do not meet our expectations of sustained increases during the fourth quarter of Fiscal 2011.~~ 24

~~Our~~Table retail and specialty businesses have incurred significant operating expenses and losses. As we continue to operate our business, we expect these losses to continue. Based on our current projections, if sales volumes do not meet our expectations of sustained increases during the fourth quarter of Fiscal 2011 we may not have sufficient resources to cover our working capital and capital expenditure requirements and, without additional sources of capital, by mid-summer 2011 there could be substantial doubt that the Company will be able to continue as a going concern. Contents

~~Financing~~SIGNATURE alternatives available to us would likely involve significant interest and other costs or could be highly dilutive to our existing shareholders. There can be no assurance any debt or equity financing arrangement will be available to us when needed on acceptable terms, if at all. In addition, there can be no assurance that these financing alternatives would

24Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized, in Seattle, Washington on August 17, 2011.

~~Table~~TC Global, Inc. By: /S/ CATHERINE M. CAMPBELL Catherine M. Campbell Chief Financial Officer & Principal Financial Officer Signing on behalf of ~~Contents~~the Registrant

provide us with sufficient funds to meet our long term capital requirements. If we are unable to secure additional financing or generate sufficient cash flow from operations to fund our working capital and capital expenditure requirements, we could be required to sell stores or other significant assets to provide capital to fund our business. The sale of stores or other income-producing assets could adversely affect our future operating results and cash flows. 25

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The supply and price of coffees are subject to significant volatility and can be affected by multiple factors in green coffee producing countries, including weather, political and economic conditions. In addition, green coffee bean prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to influence commodity prices of green coffee beans through agreements establishing export quotas or restricting coffee bean supplies worldwide. Because we purchase all of our coffee according to the terms of a Supply Agreement with GMCR, we are limited to offsetting the cost exposure of the main commodity used in our business, as we are unable to enter into fixed-price purchase commitments with other roasters.

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

ITEM 4T. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms in a manner that allows timely decisions regarding required disclosures. We carried out, under the supervision of, and with the participation of management, including our principal executive officer (“CEO”) who is currently also our Acting Chief Financial Officer and principal financial officer (“CFO”), an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 26, 2010. Based on their evaluation as of December 26, 2010, our CEO who is also Acting CFO concluded that the current disclosure controls and procedures are effective.

There has been no change in our internal control over financial reporting during the three and nine month periods ended December 26, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In July 2010, TC Global, Inc. was named as a defendant in a lawsuit by a former distributor of Tully’s products alleging breach of contract, and that certain guarantees were made and subsequently not adhered to during the term of the relationship between the Company and the distributor. The Company settled this matter in December 2010.

We are not currently a party to any other legal proceeding that we believe could have a material adverse effect on our financial position or results of operations.

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

No Company securities were offered or sold during Third Quarter Fiscal 2011.

ITEM 6. EXHIBITS

(a) The exhibits listed below are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q

EXHIBIT INDEX

3.1		Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on October 26, 1999 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2001 as filed with the SEC on October 19, 2001, and incorporated herein by reference)
3.1(a)		Articles of Amendment of the Restated Articles of Incorporation containing the Statement of Rights and Preferences of Series B Preferred Stock filed with the Washington Secretary of State on June 27, 2000 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2001, as filed with the Commission on October 19, 2001, and incorporated herein by reference)
3.1(b)		Articles of Correction to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on August 8, 2000 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.1(c)		Articles of Correction to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on August 8, 2000 (Filed with the Registrant’s Annual Report Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.1(d)		Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on December 16, 2004 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.1(e)		Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on December 16, 2004 (Filed with the Registrant’s Current Report on Form 8-K, dated March 26, 2009, as filed with the SEC on March 27, 2009, and incorporated herein by reference)
3.1(f)		Articles of Amendment to Amended and Restated Articles of Incorporation filed with the Washington Secretary of State on June 27, 2007 (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
3.2		Amended and Restated Bylaws adopted on July 18, 2007 (Filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2007, as filed with the SEC on July 26, 2007, and incorporated herein by reference)
3.2(a)		Amendment to Amended and Restated Bylaws, adopted effective July 8, 2010 (Filed with the Registrant’s Current Report on Form 8-K, as filed with the SEC on July 8, 2010, and incorporated herein by reference)
4.1		Description of capital stock contained in the Amended and Restated Articles of Incorporation (see Exhibit 3.1)
4.2		Description of rights of security holders contained in the Bylaws (see Exhibit 3.2)
4.2(a)		Common Stock Purchase Warrant, dated December 14, 2000, issued to KWM Investments LLC (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)
4.2(b)		Form of Common Stock Purchase Warrants issued to Guarantors of Kent Central, LLC Promissory Note (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)
4.2(c)		Common Stock Purchase Warrant dated April 26, 2007, issued to Benaroya Capital Company, L.L.C. (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)
4.2(d)		Form of Stock Purchase Warrant issued July 12, 2007 to Guarantor of Benaroya Capital credit facility (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
4.2(e)		Stock Purchase Warrant dated July 12, 2007, issued to Benaroya Capital Company, L.L.C. (Filed with the Registrant’s Annual Report on Form 10-K for the year ended April 1, 2007, as filed with the SEC on July 13, 2007, and incorporated herein by reference)
4.3		Form of Registration Rights Agreement with Series A Preferred Shareholders (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on September 18, 2008, and incorporated herein by reference)

4.4		Registration Rights Agreement, dated December 14, 2000 between Tully’s and KWM Investments LLC (Filed with the Registrant’s Annual Report on Form 10-K for the year ended March 30, 2008, as filed with the SEC on 139 18, 2008, and incorporated herein by reference)
31.1*		Certification of principal executive officer and acting principal financial officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of principal executive officer and acting principal financial officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized, in Seattle, Washington on February 9, 2011.

TC Global, Inc. By: /S/ CARL W. PENNINGTON, SR. Carl W. Pennington, Sr. President, Chief Executive Officer and Chairman of the Board of Directors Signing on behalf of the Registrant

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