Credit Lines and Long Term Debt

6 Months Ended

Oct. 02, 2011

Credit lines and long term debt

Farnam Street Lease Facility

Currently, the Company has an available lease facility with Farnam Street Financial, Inc. which allows the Company to borrow up to $825,000. This lease facility is being utilized to support the purchase and implementation of new point of sale systems in the Company's retail locations, as well as the upgrade of back-end accounting systems. As of October 2, 2011, there was $219,000 outstanding under this facility. The lease has a term of 24 months, which commences upon acceptance of equipment on any given lease schedule associated with the lease agreement. This lease fails to meet the conditions of capital lease accounting and is therefore accounted for as an operating lease within the accompanying consolidated financial statements.

CIT Technology Financing Services Lease

In June, 2011, the Company entered into a lease agreement with CIT Technology Financing Services, Inc. ("CIT") in order to finance the purchase of hardware and software to update the Company's corporate computer network. As of October 2, 2011, there was approximately $70,000 outstanding under this facility. The lease has a term of 36 months, which commenced on July 29, 2011. This lease is being accounted for as capital lease within the accompanying consolidated financial statements.

Tully’s Coffee Asia Pacific – Limited Partnership Loan

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

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

Tully’s Coffee Asia Pacific – Limited Partnership Interest Obligation

On March 27, 2009, TCAP agreed to purchase, or cause a third party to purchase, one-half of AFCM’s partnership interest in 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 October 2, 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.

Obligations under notes payable and capital leases as of October 2, 2011 consist of the following:



	April 3, 2011			October 2, 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		$	40
Capital lease obligation	—			70
Note payable due to Limited Partner in TCAPPLP	4,000			4,000
Total long-term debt	4,054			4,110
Less: Current portion	(4,054		)	(4,062		)
Long-term debt, net of current portion	$	—		$	48