Securities And Exchange Commission
                             Washington, D.C. 20549

                 ----------------------------------------------

                                   Form 10-QSB

              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                For the Quarterly Period Ended September 30, 1997

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the Transition Period From       to
                                                  -----    -----

                         Commission File Number 0-21397
               ---------------------------------------------------

                               Coffee People, Inc.
               ---------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 Oregon                              93-1073218
    -------------------------------               -------------------
    (State or other jurisdiction of                (I.R.S Employer
     incorporation or organization)                Identification No.)

              15100 SW Koll Pkwy, Suite J, Beaverton, OR 97006
                                 (503) 672-9603

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                           Yes [ X ]          No [   ]

As of September 30, 1997, there were 3,261,085 shares of the registrant's Common
Stock outstanding.
--------------------------------------------------------------------------------

<PAGE>


                               COFFEE PEOPLE, INC.


                                      INDEX
                                                                       Page

PART I. FINANCIAL INFORMATION

   Item 1:  Financial Statements                                         3

   Item 2:  Management's Discussion and Analysis of Financial            8
                  Condition and Results of Operations

PART II.  OTHER INFORMATION

   Item 2:  Changes in Securities and Use of Proceeds                   17

   Item 6:  Exhibits and Reports on Form 8-K                            17

SIGNATURES                                                              18

EXHIBIT INDEX                                                           19

EXHIBIT 10.1      Engagement letter with Black & Company, Inc.,
                           dated August 7, 1997                         20

EXHIBIT 10.2      Amendment No. 3 to Business Loan Agreement with
                           Bank of America, dated August 12, 1997       25

EXHIBIT 10.3      Amendment No. 4 to Business Loan Agreement with
                           Bank of America, dated October 10, 1997      26

EXHIBIT 11        Statement Regarding Per Share Earnings                29

EXHIBIT 27        Financial Data Schedule                               30


<PAGE>


PART I.           FINANCIAL INFORMATION
Item 1:           Financial Statements
<TABLE>
<CAPTION>

                                                COFFEE PEOPLE, INC.
                                                  BALANCE SHEETS
                                              (Dollars in thousands)

                                                      ASSETS
                                                                                       September 30,             December 31,
                                                                                           1997                      1996
                                                                                       ------------              -----------
<S>                                                                                 <C>                       <C>
                                                                                       (Unaudited)
Current assets:
    Cash and cash equivalents                                                        $    2,907                $   10,274
    Accounts receivable                                                                     130                        26
    Inventories                                                                             594                       205
    Prepaid expenses                                                                        212                       141
    Income taxes receivable                                                                 129                         -
    Deferred tax assets                                                                      28                        28
    Other current assets                                                                      2                        96
                                                                                      ----------               -----------
      Total current assets                                                                4,002                    10,770

Property and equipment, net                                                               7,626                     5,513
Goodwill, net                                                                             5,878                         -
Other assets                                                                                119                       129
                                                                                     -----------               -----------
      Total assets                                                                   $   17,625                $   16,412
                                                                                     ===========               ===========
                                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt and capital
      lease obligations                                                              $    1,307                $      115
    Current portion of long-term debt to related parties                                     19                        20
    Accounts payable                                                                      1,005                       533
    Construction accounts payable                                                             -                       321
    Accrued liabilities                                                                     566                       262
    Provision for store closures and restructuring                                        1,820                         -
    Income taxes payable                                                                      -                        47
                                                                                     -----------               -----------
      Total current liabilities                                                           4,717                     1,298

Deferred tax liability                                                                       86                        86
Long-term debt and capital lease obligations                                              4,604                       267
Long-term debt to related parties                                                           145                       159
Stockholders' equity:
    Common stock, no par value; authorized,
      50,000,000 shares; issued and outstanding,
      3,261,085 and 3,237,432 shares                                                     14,544                    14,492
    Stock subscription notes receivable                                                    (297)                     (281)
    Retained earnings (deficit)                                                          (6,174)                      391
                                                                                     -----------               -----------
      Total stockholders' equity                                                          8,073                    14,602
                                                                                     -----------               -----------
      Total liabilities and stockholders' equity                                     $   17,625                $   16,412
                                                                                     ===========               ===========

                                        See accompanying notes to financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                  COFFEE PEOPLE, INC.
                                                  STATEMENTS OF INCOME
                                   (Dollars in thousands, except per share amounts)


                                                                Three Months Ended                    Nine Months Ended
                                                           ---------------------------          -----------------------------
                                                           Sept 30,           Sept 30,           Sept 30,           Sept 30,
                                                             1997               1996               1997               1996
                                                          ----------         ----------         ----------         ----------
                                                          (Unaudited)       (Unaudited)        (Unaudited)        (Unaudited)
<S>                                                    <C>                <C>                <C>                <C>    

Revenues:
   Retail sales                                         $   5,868          $   3,107          $  13,827          $   8,885
   Wholesale and other                                        123                 41                247                142
                                                        ----------         ----------         ----------         ----------
      Total revenues                                        5,991              3,148             14,074              9,027
Cost of sales and related
   occupancy expenses                                       2,975              1,542              6,946              4,324

Store operating expenses                                    2,095                976              5,044              2,745

Other operating expenses                                        1                  5                  3                 44

Depreciation and amortization                                 421                132                966                364

General and administrative
   expenses                                                   725                443              2,326              1,323

Provision for store closures
   and restructuring                                            -                  -              5,500                  -
                                                        ----------         ----------         ----------         ----------
   Income (loss) from operations                             (226)                50             (6,711)               227

Other income, net                                              56                 49                270                132

Interest expense                                             (150)               (22)              (242)               (65)
                                                        ----------         ----------         ----------         ----------
   Income (loss) before benefit
     (provision) for income taxes                            (320)                77             (6,683)               294

Benefit (provision) for income
   taxes                                                        -                (30)               119               (113)
                                                        ----------         ----------         ----------         ----------
Net income (loss)                                       $    (320)         $      47          $  (6,564)         $     181
                                                        ==========         ==========         ==========         ==========
Earnings (loss) per share                               $   (0.10)         $    0.02          $   (2.02)         $    0.09
                                                        ==========         ==========         ==========         ==========
Shares used in computing
   earnings (loss) per share                            3,252,958          2,134,929          3,245,814          2,066,253


                                       See accompanying notes to financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                    COFFEE PEOPLE, INC.
                                                  STATEMENTS OF CASH FLOWS
                                                   (Dollars in thousands)
                                                        (Unaudited)
                                                                                               Nine Months Ended
                                                                                   ---------------------------------------
                                                                                     Sept 30,                   Sept 30,
                                                                                       1997                       1996
                                                                                   -----------                ------------
<S>                                                                             <C>                       <C>   

CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                           $   (6,564)               $     181
     Adjustments to reconcile net income (loss) to net
      cash (used in) provided by operating activities -
        Depreciation and amortization                                                   966                      364
        Provision for store closures and
           restructuring                                                              4,974                        -
        Interest income on stock subscription                                           (16)                     (18)
        Changes in operating assets and liabilities:
           (Increase) in accounts receivable                                           (104)                     (12)
           (Increase) decrease in inventories                                          (389)                      66
           (Increase) decrease in prepaid expenses                                     (107)                       5
           (Increase) in income taxes receivable                                       (129)                       -
           Decrease (increase) in other current assets                                   94                      (30)
           Increase (decrease) in accounts payable                                      472                     (231)
           Increase in accrued liabilities                                              303                      121
           (Decrease) in income taxes payable                                           (47)                      (2)
                                                                                 -----------              -----------
        Net cash (used in) provided by operating
          activities                                                                   (547)                     444

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of property and equipment, net                                         (5,990)                    (859)
     Goodwill                                                                        (6,012)                       -
     Change in other assets                                                             (63)                     (38)
     Construction accounts payable                                                     (321)                       -
                                                                                 -----------              -----------
        Net cash used in investing activities                                       (12,386)                    (897)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from debt and capital lease obligations                                 6,000                        -
     Repayment of debt and capital lease obligations                                   (461)                     (271)
     Repayment of related party debt                                                    (25)                      (12)
     Issuance of common stock, net                                                       52                    13,599
     Proceeds from payment on stock subscription note                                     -                        84
                                                                                 -----------               -----------
        Net cash provided by financing activities                                     5,566                    13,400
                                                                                 -----------               -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     (7,367)                   12,947

CASH AND CASH EQUIVALENTS, beginning of period                                       10,274                       260
                                                                                 -----------               -----------
CASH AND CASH EQUIVALENTS, end of period                                         $    2,907                $   13,207
                                                                                 ===========               ===========

                                       See accompanying notes to financial statements.
</TABLE>

<PAGE>


                               COFFEE PEOPLE, INC.
                          NOTES TO FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1997 and 1996
                                   (Unaudited)

NOTE 1.   FINANCIAL STATEMENT PRESENTATION:

         The interim  financial  data is unaudited;  however,  in the opinion of
management,  the interim data  includes all  adjustments,  consisting  of normal
recurring  adjustments  and  accruals,  necessary  for a fair  statement  of the
results for the interim periods.  The financial  statements included herein have
been  prepared  by the  Company  pursuant  to the rules and  regulations  of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial  statements prepared in accordance with generally
accepted  accounting  principles have been condensed or omitted pursuant to such
rules and  regulations,  although  the  Company  believes  that the  disclosures
included herein are adequate to make the information presented not misleading.

NOTE 2.   ACQUISITION OF COFFEE PLANTATION

         On May 21, 1997, the Company acquired 15 specialty coffee retail stores
in Arizona from The Coffee  Plantation  Inc.,  an Arizona  corporation  ("Coffee
Plantation"),  for a purchase price of approximately $8,651,000. The transaction
was  structured  as an  acquisition  of assets and was  accounted  for under the
purchase method of accounting.  Thirteen of the units are located in Phoenix and
two are located in Tucson. One of the Coffee Plantation stores was closed at the
end of August 1997, as  anticipated,  upon  expiration  of the store lease.  The
Company also acquired Coffee  Plantation's  wholesale coffee bean business.  The
Company  financed  $6,000,000  of the  purchase  price with a term loan from its
bank, payable in 60 fixed principal payments, plus interest (9% at September 30,
1997). In conjunction  with the acquisition,  the Company  recorded  goodwill of
approximately $6,012,000 which it is amortizing over a period of 15 years.

NOTE 3.   PROVISION FOR STORE CLOSURES AND RESTRUCTURING

         During the second quarter,  the Company  incurred a provision for store
closures and related  restructuring of $5,500,000.  The Company  anticipates the
closure or sale of the seven stores  outside the  Company's  primary  markets in
Oregon  and  Arizona.  The  Company  wrote off the  assets  related to the seven
stores,  which  included  approximately  $3,045,000  in property and  equipment,
$36,000 in prepaid  expenses,  and $73,000 in other  assets.  The  Company  also
established a current liability of approximately $2,346,000 for additional costs
expected  to be  incurred  in  connection  with the store  closures  and related
restructuring.


NOTE 4:   SUBSEQUENT EVENT:  BUSINESS COMBINATION

         On November 13, 1997, the Company  entered into a definitive  agreement
that  provides for the  combination  of the Company  with Gloria  Jean's Inc., a
Delaware  corporation and an indirect wholly owned  subsidiary of The Second Cup
Ltd., a Toronto-based public company. Gloria Jean's is a specialty coffee retail

<PAGE>

company,  currently with 272 stores, of which 240 are franchised stores.  Gloria
Jean's also operates a coffee bean roasting facility in Castroville, California.

         Pursuant to the  agreement,  Gloria  Jean's will become a wholly  owned
subsidiary  of the Company,  and the Company  will issue to a subsidiary  of The
Second Cup Ltd.  approximately  7.5  million  shares  (subject  to  adjustment),
representing  approximately  69.5 percent of the  Company's  outstanding  common
stock  post-transaction.  The  number of shares to be issued by the  Company  is
subject to adjustment based on the financial performance of both the Company and
Gloria Jean's Inc., during the period form July 1, 1997 to December 31, 1997.

         The  closing of the  transaction  is  subject  to  certain  conditions,
including  obtaining certain regulatory  approvals and obtaining the approval of
the Company's  shareholders.  Shareholders  representing  over 50 percent of the
currently  outstanding  common stock of the Company have signed  commitments  to
vote in favor of the  transaction.  The transaction is expected to close as soon
as practicable after obtaining all necessary approvals.

<PAGE>



Item 2:     Management's Discussion and Analysis of Financial Condition and
            Results of Operations

         The following discussion contains forward-looking statements within the
meaning  of the  federal  securities  laws and  involves  a number  of risks and
uncertainties.  Actual  results  and  trends  may  differ  materially  from  the
statements contained in this discussion, depending on a variety of factors. Such
factors  include,  but are not limited to, the price and  availability  of green
coffee and other raw materials,  successful  execution of the Company's  planned
store  dispositions,  the ability of the Company to manage growth, the impact of
competition,  acceptance of the  Company's  products and image outside of Oregon
and  Arizona  and  other  risks  detailed  in  the  Company's   10-KSB  and  its
Registration Statement on Form SB-2, effective September 25, 1996, both of which
are on file with the Securities and Exchange Commission.

OVERVIEW
--------

         Coffee People sells coffee beverages,  coffee beans, cookies,  pastries
and coffee related merchandise. The first Coffee People store opened in 1983. As
of September 30, 1997, the Company operated 45 stores.

         In January  1996,  the Company  raised net proceeds of  $3,725,000 in a
private  placement of Common Stock. In September 1996, the Company  completed an
initial public  offering in which it raised net proceeds of $9,717,000  from the
sale of 1,225,000 shares of Common Stock.

         At the time of its initial  public  offering,  the Company  operated 19
stores, all of which were located in Oregon. During the period from October 1996
through  June 30,  1997,  the  Company  opened 14 new  stores -- two in  Denver,
Colorado,  three  in  southern  California,   seven  in  the  Portland,   Oregon
metropolitan area, and two in Chicago, Illinois. The Company closed one store in
Portland,  Oregon,  in April 1997, as anticipated,  upon expiration of the store
lease.

         On May 21, 1997 the Company  acquired  15 Coffee  Plantation  stores in
Phoenix and Tucson, Arizona for cash consideration of approximately  $8,651,000.
The transaction  was an acquisition of assets,  accounted for under the purchase
method of accounting.  Assets acquired included property and equipment,  leases,
inventories,  prepaid expenses, wholesale business assets and intangible assets.
Of the total  purchase  price,  $6,000,000  was financed  with  proceeds  from a
five-year term loan from Bank of America.  One of the Coffee  Plantation  stores
was closed at the end of August 1997,  as  anticipated,  upon  expiration of the
store lease.

         During the second quarter of 1997, the Company  incurred a provision of
$5,500,000  relating  to the  anticipated  closure  or sale of the seven  stores
located  outside  its  primary  Oregon  and  Arizona  markets  and  for  related
restructuring.  Such stores include the two stores located in Denver,  Colorado,
the three stores located in southern  California,  and the two stores located in
Chicago, Illinois. The Company intends to dispose of the stores as expeditiously
as  possible  while  endeavoring  to  maximize  the amount of store value and to
minimize the Company's total future cash outlays.
<PAGE>

         The  Company's  decision to dispose of or close  these  stores was made
because sales at these stores had not developed as  anticipated  and because the
stores were incurring significant operating losses. The Company believes that by
disposing  of these  stores,  by  focusing  on its core  markets,  and by making
substantial  reductions in general and administrative  overhead expense,  it can
return itself to profitability.  This is a forward-looking  statement. There can
be no assurance  that all of these  actions can be taken by the Company or that,
if taken, such actions will return the Company to profitability.

         As of October  31,  1997,  the  Company had closed one of the stores in
Chicago,  Illinois,  but is still making payments on the lease  obligation.  The
Company is  endeavoring to sell the remaining six stores and,  accordingly,  has
not yet closed these stores.

         After the closure or disposition of the seven stores outside Oregon and
Arizona,  the Company  will have a total of 39 stores -- 25 stores in Oregon and
14 in Arizona.


RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 1996

         Revenues.  Total revenues  increased  90.3% to $5,991,000 for the three
months ended  September  30, 1997 from  $3,148,000  for the same period in 1996.
Retail sales  increased  88.9% to $5,868,000 for the 1997 period from $3,107,000
for the 1996  period.  Revenues  for the  quarter  represent  sales  made at the
Company's stores in Oregon and Arizona and do not include  operating  results of
the seven  stores  outside  Oregon and  Arizona  which are slated for closure or
sale.

         Comparable  store  sales  for the 18 stores  open for the three  months
ended  September  30,  1997  and  1996  declined  0.9%  primarily  due to  lower
transaction  volumes.  Comparable store sales were adversely affected by a 16.7%
decline in sales at one of the  Company's  stores  located in a shopping  center
that is undergoing redevelopment.

         Incremental  sales  from the  Arizona  stores  acquired  in the  second
quarter  contributed  75.6% of the increase and incremental sales from the seven
Oregon stores opened since September 30, 1996 accounted for the remainder of the
increase in retail sales for the three months ended  September 30, 1997.  One of
the stores in Arizona was closed during the quarter,  as  anticipated,  upon the
expiration of its lease.  Sales from this store represented 0.9% of total retail
sales.

         Wholesale  and other sales  increased  200.0% to $123,000 for the three
months ended  September  30, 1997 from $41,000 for the same period in 1996.  The
increase was due to sales from the  wholesale  business  acquired as part of the
Coffee  Plantation  acquisition.  Sales  from  the  Arizona  wholesale  business
accounted for $85,000 of total wholesale and other sales for the quarter.

         Costs and expenses.  Cost of sales and related occupancy  expenses as a
percentage  of total  revenues  increased  to 49.7% for the three  months  ended

<PAGE>

September 30, 1997 as compared to 49.0% for the same period in 1996. The primary
components  were an increase of 0.3% in cost of sales and an increase of 0.4% in
occupancy costs. The increase in cost of sales as a percentage of total revenues
was due  primarily  to the  effect of higher  coffee  prices.  The  increase  in
occupancy  expenses as a percentage of total  revenues was due primarily to rent
expenses incurred at the Company's Arizona stores. The Arizona stores,  acquired
in May 1997,  have higher  overall  occupancy  costs than the  Company's  Oregon
stores.

         Store  operating  expenses as a percentage of retail sales increased to
35.7% for the three  months  ended  September  30,  1997 from 31.4% for the same
period in 1996.  The increase was due  primarily  to higher  operating  expenses
associated  with the seven new stores opened in Oregon since  September 30, 1996
and to higher  labor and  operating  costs at the  Coffee  Plantation  stores in
Arizona.

         Depreciation  and  amortization  as  a  percentage  of  total  revenues
increased to 7.0% for the three months  ended  September  30, 1997 from 4.2% for
the same period in 1996,  due primarily to the impact of higher costs for stores
opened and  acquired  since  September  30,  1996.  These  stores  carry  higher
depreciation  expense as a percentage of total revenues than stores opened prior
to 1996.  The  increase in 1997 was  further  affected  by the  amortization  of
goodwill  associated  with the  acquisition of the Coffee  Plantation  stores in
Arizona.

         General and administrative expenses increased to $725,000 for the three
months ended  September 30, 1997 from $443,000 for the same period in 1996,  due
to higher  overhead  costs  associated  with the Company's  growth in Oregon and
Arizona. As a percentage of total revenues,  general and administrative expenses
decreased to 12.1% for the three months ended  September 30, 1997 from 14.1% for
the same period in 1996.

         Average store sales and store contribution margin. For the three months
ended September 30, 1997, the Company's 26 neighborhood and drive-through stores
open for the full period achieved average store sales of $169,000 and an average
store contribution margin of 13.5% compared to $196,000 and 19.0%, respectively,
for the 11 stores open  during the full  period of 1996.  The decline in average
store sales was due to lower sales  volumes at the seven Oregon stores opened in
the  fourth  quarter of 1996 and the first six  months of 1997.  The  decline in
store  contribution  margins at the  Company's  neighborhood  and  drive-through
stores was due to higher operating  expenses incurred at the seven Oregon stores
opened  since  September  30,  1996  and to  higher  operating  expenses  at the
Company's Coffee Plantation neighborhood units. The six airport stores and seven
kiosk stores open for the full period  achieved  average store sales of $109,000
and an average store  contribution  margin of 24.3%,  respectively,  compared to
$124,000  and 12.3% for the six  airport  units and one kiosk  open for the full
period of 1996.  The decrease in average store sales for the  Company's  airport
and kiosk stores was due to lower  average  sales  volumes at the four kiosk and
two cart units located in Arizona.  The increase in store  contribution  margins
from the Company's  airport and kiosk units was due to higher unit  contribution
margins at the kiosks and carts located in Arizona.

         Interest  Expense.  Interest  expense as a percentage of total revenues
increased to 2.5% for the three months  ended  September  30, 1997 from 0.7% for
the same  period in 1996,  as a result  of  interest  incurred  on the bank loan
obtained to finance in part the Coffee Plantation acquisition in May 1997.

<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996

         Revenues.  Total revenues  increased  55.9% to $14,074,000 for the nine
months ended  September  30, 1997 from  $9,027,000  for the same period in 1996.
Retail sales  increased  55.6% to $13,827,000  for the period from $8,885,000 in
1996. Revenues for the nine month period include sales through June 30, 1997 for
the seven  stores  outside  Oregon and  Arizona  which are slated for closure or
sale.  Retail  sales for these seven  stores  represented  3.4% of total  retail
sales.

         Comparable  stores sales for the 18 stores open for the full nine month
periods ended  September 30, 1997 and 1996 increased 1.5% due to price increases
effected in September 1996 and July 1997,  which increases were partially offset
by lower  transaction  volumes.  Comparable  store  sales  for the  period  were
adversely  affected by a 13.8% decline in sales at one of the  Company's  stores
located in a shopping center that is undergoing redevelopment.

         The increase in comparable store sales  represented 2.7% of the overall
increase in retail sales.  Incremental sales from the Arizona stores acquired in
the second quarter  contributed 61.5% of the increase and incremental sales from
the seven Oregon  stores  opened since  September  30, 1996,  accounted  for the
remainder of the  increase in retail sales for the three months ended  September
30,  1997.  One store in Oregon was closed in April and one store in Arizona was
closed,  as anticipated,  at the end of August upon expiration of leases.  Sales
from these stores  represented  1.2% of total retail sales during the nine month
period.

         Wholesale  and other sales  increased  73.9% to  $247,000  for the nine
months ended  September 30, 1997 from $142,000 for the same period in 1996.  The
increase was due to sales from the  wholesale  business  acquired as part of the
Coffee  Plantation  acquisition.  Sales  from  the  Arizona  wholesale  business
accounted  for $139,000 of total  wholesale and other sales for the nine months.
The overall  increase was offset by a decrease in the Company's Oregon wholesale
business due to the Company's decision in 1996 to turn over the servicing of its
Oregon  wholesale  business  to an  outside  firm.  Sales  made in Oregon to the
outside firm are made at a fixed mark-up over cost.

         Costs and  expenses.  Cost of sales and  related  occupancy  costs as a
percentage  of total  revenues  increased  to 49.4%  for the nine  months  ended
September  30,  1997  from  47.9%  for the  same  period  in 1996.  The  primary
components  were an  increase  in cost of  sales  of  0.6%  and an  increase  in
occupancy  expenses of 0.9%.  The increase in cost of sales as a  percentage  of
sales was due primarily to the effect of higher coffee prices in 1997 and to the
effect of new  stores  opened in the first and  second  quarters  of 1997  which
stores had higher product costs as a percentage of sales than the Company's more
mature  stores.  The  increase in occupancy  expenses as a  percentage  of total
revenues was due  primarily to rent expenses  incurred at the Company's  Arizona
stores. The Arizona stores,  acquired in May 1997, have higher overall occupancy
costs than the Company's Oregon stores.

         Store  operating  expenses as a percentage of retail sales increased to
36.5% for the nine  months  ended  September  30,  1997 from  30.9% for the same
period in 1996.  The increase was due  primarily  to higher  operating  expenses
associated with new stores opened or acquired since September 30, 1996.
<PAGE>

         Depreciation  and  amortization  as  a  percentage  of  total  revenues
increased to 6.9% for the nine months ended September 30, 1997 from 4.0% for the
same  period in 1996,  due to the impact of higher  costs for stores  opened and
acquired  since  September  30, 1996.  These  stores  carry higher  depreciation
expense as a percentage of total  revenues than stores opened prior to 1996. The
increase in 1997 was further affected by the amortization of goodwill associated
with the acquisition of the Coffee Plantation stores in Arizona.

         General and  administrative  expenses as a percentage of total revenues
increased  to 16.5% for the nine months  ended  September  30, 1997  compared to
14.7% for the same  period in 1996,  due  primarily  to  higher  overhead  costs
associated  with the Company's  growth in Oregon and Arizona as well as overhead
costs  through  June 30, 1997  associated  with the  operation of the stores now
slated for closure or sale in California, Colorado and Illinois.

         Average store sales and store contribution  margin. For the nine months
ended September 30, 1997, the Company's 12 neighborhood and drive-through stores
open for the full period achieved average store sales of $542,000 and an average
store contribution margin of 19.0% compared to $574,000 and 20.7%, respectively,
for 1996.  The  decrease in average  store sales was due  primarily to the lower
sales volume  achieved at the Oregon store opened in fourth quarter of 1996. The
decrease in contribution  margin was due to higher  operating  expenses at these
stores. The Company's airport and kiosk stores open for the full period achieved
average  store sales of $364,000  and an average  store  contribution  margin of
16.5%, as compared to $332,000 and 11.1%,  respectively,  for 1996. The increase
in average store sales for the Company's  airport and kiosk stores resulted from
higher  transaction  volumes at the airport and from higher average  transaction
amounts  attributable to the price increase effected in September 1996 on coffee
beverages.  The  increased  contribution  margin  was  primarily  due  to  labor
efficiencies and product cost savings at the airport stores.

         Interest  Expense.  Interest  expense as a percentage of total revenues
increased to 1.7% for the nine months ended September 30, 1997 from 0.7% for the
same period in 1996, as a result of interest  incurred on the bank loan obtained
to finance in part the Coffee Plantation acquisition in May 1997.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         With respect to the seven stores  identified  for sale,  disposition or
closure, the Company will continue to make cash outlays for store losses and for
such items as rent,  utilities  and  insurance  until such time as it is able to
sell  the  store  or  until  it can  negotiate  satisfactory  arrangements  with
landlords for  re-leasing the store  premises or for otherwise  terminating  the
lease.  There can be no assurance that the Company will be successful at selling
its stores or in  negotiating  with  landlords  for the  re-leasing of the store
premises or for  terminating  the leases.  If the Company is not  successful  in
these  efforts,  such cash outlays could  continue for an  indeterminate  period
during the term of the store  leases.  As of October 31,  1997,  the Company had
closed one of the stores in Chicago,  Illinois,  but is still making payments on
the lease  obligation.  The Company is  endeavoring  to sell the  remaining  six
stores and, accordingly, has not yet closed these stores.
<PAGE>

         The  Company  has  suspended  its plans to open or acquire  new stores,
pending  the  disposition  of its stores  outside  its core  Oregon and  Arizona
markets,  although  the Company has  committed  to build an  additional  unit at
Portland  International  Airport  during the second quarter of 1998. The Company
may resume other new store development or acquisitions if circumstances warrant.

         As of  September  30,  1997  the  Company  had  $2,907,000  in cash and
equivalents.

          The Company had a working  capital deficit of $715,000 as of September
30, 1997 as compared to positive  working  capital of $9,472,000 at December 31,
1996.

         For the nine months ended  September  30, 1997,  cash used by operating
activities was $547,000, as compared to cash provided by operating activities of
$444,000 for the nine months ended September 30, 1996.

         For the nine months ended  September  30, 1997 the Company had net cash
provided by  financing  activities  of  $5,566,000  primarily as a result of the
$6,000,000  bank  loan  obtained  to  finance  the  acquisition  of  the  Coffee
Plantation stores in May 1997. For the nine months ended September 30, 1996, net
cash provided by financing activities totaled $13,400,000  primarily as a result
of net  proceeds  of  $9,717,000  received  from the  Company's  initial  public
offering  in  September  1996 and  from  net  proceeds  of  $3,725,000  from the
Company's private placement completed in January 1996.

         The Company  has a bank line of credit  with Bank of America  providing
for  borrowings  through  August  1,  1998 of up to  $500,000.  Borrowings  bear
interest  at the rate of 0.5% over the bank's  prime rate (8.5% as of  September
30,  1997)  and  are  secured  by  substantially  all of the  Company's  assets,
including accounts receivable,  inventories, trade fixtures and equipment. As of
September  30,  1997,  there were no  borrowings  outstanding  under the line of
credit; however,  $100,000 of the line was reserved for a letter of credit dated
August 1, 1997.

         As a result of the  $5,500,000  charge  taken in the second  quarter to
provide for store closures and related  restructuring  charges, the Company fell
out of compliance with certain  financial  covenants and other terms of its loan
agreement  with Bank of America  relating to its credit line, to the  $6,000,000
term loan obtained to finance in part the Coffee Plantation acquisition,  and to
another term loan with a balance as of September 30, 1997,  of $63,250.  Bank of
America  has  agreed to waive  such  noncompliance,  provided  that the  Company
maintains  minimum  cash  balances  of  $2,400,000  and  provided  that  certain
financial  information is periodically provided to the bank. As of September 30,
1997, the company was in compliance with such terms.

         For the nine months ended September 30, 1997 and 1996, net cash used in
investing activities was $12,386,000 and $897,000 respectively.  The primary use
of net cash used in investing  activities was for the  acquisition of the Coffee
Plantation  stores  in  May  1997  for  which  the  Company  paid  approximately
$8,651,000.  The  remaining  cash used in investing  activities  was for capital
expenditures for new retail stores.  The Company currently  anticipates that any
significant  capital  expenditures for the remainder of 1997 and early 1998 will
be curtailed  pending  activities  related to the  disposition or closure of the
seven stores outside of Oregon and Arizona.
<PAGE>

         The  Company  believes  that  anticipated  cash flow  from  operations,
existing  cash and bank  debt  will be  sufficient  to meet the  Company's  cash
requirements through the end of 1998.

SUBSEQUENT EVENT
----------------

         On November 13, 1997, the Company  entered into a definitive  agreement
that  provides for the  combination  of the Company  with Gloria  Jean's Inc., a
Delaware  corporation and an indirect wholly owned  subsidiary of The Second Cup
Ltd., a Toronto-based public company (the "Gloria Jean's  Transaction").  Gloria
Jean's is a specialty coffee retail company, currently with 272 stores, of which
240 are  franchised  stores.  Gloria Jean's also operates a coffee bean roasting
facility in Castroville, California.

         Pursuant to the  agreement,  Gloria  Jean's will become a wholly  owned
subsidiary  of the Company,  and the Company  will issue to a subsidiary  of The
Second Cup Ltd.  approximately  7.5  million  shares  (subject  to  adjustment),
representing  approximately  69.5 percent of the  Company's  outstanding  common
stock  post-transaction.  The  number of shares to be issued by the  Company  is
subject to  adjustment  based on the  financial  results of both the Company and
Gloria Jean's Inc., during the period form July 1, 1997 to December 31, 1997.

         The  closing of the  transaction  is  subject  to  certain  conditions,
including  obtaining certain regulatory  approvals and obtaining the approval of
the Company's  shareholders.  Shareholders  representing  over 50 percent of the
currently  outstanding  common stock of the Company have signed  commitments  to
vote in favor of the  transaction.  The transaction is expected to close as soon
as practicable after obtaining all necessary approvals.

NASDAQ LISTING; STORE CLOSURES;
COFFEE PRICES AND OTHER EXPENSES AND RISKS
-------------------------------------------

         Nasdaq  Listing.  On August 25, 1997,  Nasdaq adopted new  quantitative
requirements  for  initial and  continued  listing of  securities  on the Nasdaq
National  Market  System  ("NMS").  On September 8, 1997,  the Company  received
notification  from  Nasdaq  that  it is  not  in  compliance  with  the  revised
requirements for continued NMS listing.  The letter informed the Company that if
it does not comply with the amended  listing  requirements by February 23, 1998,
Nasdaq will take steps to delist the Company's  common stock from the NMS. As of
the date of this Report,  the Company is not in  compliance  with certain of the
NMS listing requirements, including that the Company have at least $4,000,000 in
net tangible assets.

         The  Company  anticipates  that upon the  closing of the Gloria  Jean's
Transaction,  it will be in compliance with the continued listing  requirements.
However,  there can be no assurance  that such  transaction  will be consummated
prior to Nasdaq's compliance deadline, and there can be no assurance that Nasdaq
will delay any  delisting  action  pending  the  closing  of the  Gloria  Jean's
Transaction.  Moreover,  due to the structure of the Gloria Jean's  Transaction,
Nasdaq may require the post-transaction  combined company to comply with the NMS
initial listing  standards,  which are  substantially  higher than the continued
listing standards.  As of this time, it is uncertain whether Nasdaq will require

<PAGE>

compliance with the initial listing standards and whether the combined companies
would meet such  standards,  if required.  Delisting  from the NMS could have an
adverse effect on the market price and liquidity of the Company's common stock.

         The Company believes that delisting from the NMS due to failure to meet
the listing standards would result in the Company's common stock being listed on
the  Nasdaq  SmallCap  Market.  There can be no  assurance,  however,  that upon
delisting from the NMS, the Company's  common stock would  immediately be listed
on the SmallCap Market. Any delay in listing would have an adverse effect on the
liquidity and possibly the market price of the Company's common stock.

         Store  Closures.  In connection  with the disposition or closure of the
seven  Company  stores  outside of Oregon and  Arizona,  the  Company  may incur
substantially  greater  expenses  than is currently  anticipated.  Such expenses
could result from,  among other risks, the inability of the Company to discharge
its lease obligations upon store closure,  expenses and liabilities  incurred in
connection with the layoff of store employees and losses relating to disposition
of store inventory and supplies. In addition,  the sale or closure of the stores
will require the attention of Company  management,  which during the  transition
period  may have an adverse  affect of the  Company's  operations  in Oregon and
Arizona.

         Coffee  Prices.  Coffee prices  continue to be volatile and the Company
continues to experience  price  fluctuations  for purchased  coffee.  During the
first half of 1997, the commodities markets witnessed a significant  increase in
the price of green coffee,  with prices for coffee  climbing from a level in the
$1.15 per pound  range in  December  1996 to over  $2.85 per pound in June 1997.
Since then, coffee prices have moderated  somewhat,  with green prices declining
to a level in the $1.50 to $1.60 range. The Company's supply agreement  provides
for the Company to purchase its coffee at a fixed  amount over green cost.  As a
result,  the  Company's  cost of coffee will  fluctuate  with the price of green
coffee.  Though the price of green  coffee  has  declined  from its  highs,  the
current market price for green coffee is substantially higher than existed prior
to  December  1996.  Moreover,  much of the coffee  inventory  purchased  by the
Company was  purchased at prices  higher than market  prices now if effect.  The
Company is  incurring  higher  coffee  costs as a result.  In  response to these
higher prices,  the Company initiated a price increase in late June 1997 on both
drinks and whole beans.  It is uncertain  what  long-term  impact,  if any, this
price  increase  will have on  transaction  volumes,  although  the  Company has
experienced  a decline in  transaction  volumes at its Oregon  stores during the
third quarter.  The Company's  inability to pass through higher coffee prices in
the form of higher retail prices, or a consequent  reduction in sales because of
fewer  customer  transactions,  could  have a  material  adverse  affect  on the
Company's earnings.

         Minimum Wage  Increase.  On November 5, 1996,  Oregon  voters  passed a
ballot  initiative  which will raise the state  minimum  wage over a  three-year
period from $4.75 per hour to $6.50 per hour. Prior to 1997 the Company paid all
employees,  other than newly hired employees participating in a 20-hour training
program,  above the  minimum  wage in effect in 1997.  In  compliance  with this
initiative the Company pays all employees at or above the minimum wage in effect
in 1997.  The next increase in the state minimum wage occurs on January 1, 1998,
when the minimum  wage  increases  from $5.50 per hour to $6.00 per hour.  It is
uncertain  what  impact,  if any,  the minimum  wage  increase  will have on the
Company's operating results in 1998 and beyond.
<PAGE>

         Other Risks.  In addition to the risks set forth above,  the Company is
subject to, and reference is made to, the risks  detailed in the Company's  1996
Annual Report on Form 10-KSB,  filed with the Securities and Exchange Commission
on March 31, 1997, and Registration  Statement on Form SB-2, effective September
25, 1996.


NEW ACCOUNTING STANDARDS
------------------------

         Statement of Financial  Accounting  Standards  No. 128,  "Earnings  per
Share," simplifies the standards for computing earnings per share and makes them
comparable to  international  EPS standards.  It replaces primary EPS with basic
EPS that excludes dilution and uses the weighted-average number of common shares
outstanding for the period. This statement is effective for financial statements
for periods ending after December 15, 1997,  with  restatement of prior earnings
per share  required.  The Company is in the process of  analyzing  the impact of
this  statement  and does not  believe  that it will have a  material  impact on
earnings per share.

<PAGE>


PART II:  OTHER INFORMATION
Item 2.   Changes in Securities and Use of Proceeds

     The following is information relating to the Company's  underwritten public
offering of common stock, which offering closed on September 30, 1996. Reference
is made to the  Company's  Report  of Sales of  Securities  and Use of  Proceeds
Therefrom on From SR, filed with the  Commission on January 10, 1997, as amended
on July 10, 1997.

     The  Company's  public  offering of common  Stock was made  pursuant to its
Registration Statement on From SB-2, effective September 25, 1996,  Registration
No. 333-5376-LA.

     Total net offering  proceeds after total offering  expenses was $9,715,114.
Net offering proceeds were applied, based on a reasonable estimate, as follows:

     Construction of plant, building
          and facilities.................................$5,936,886

     Purchase and installation of
          machinery and equipment .......................   858,000

     Purchase of real estate.............................   404,280

     Acquisition of other business....................... 2,515,948

None of such payments were made to directors,  officers, general partners of the
Company or their  associates,  or to persons  owning ten (10) percent or more of
any class of equity securities of the Company,  or to affiliates of the Company.
All of such payments were direct or indirect payments to others.

Item 6: Exhibits and Reports on Form 8-K

         (a)  Exhibits

              10.1  Engagement letter with Black & Company, Inc.,
                    dated August 7, 1997

              10.2  Amendment No. 3 to Business Loan Agreement with 
                    Bank of America, dated August 12, 1997

              10.3  Amendment No. 4 to Business Loan Agreement with
                    Bank of America, dated October 10, 1997

              11       Statement Regarding Computation of Per Share Earnings

              27       Financial Data Schedule

         (b)  Reports on Form 8-K

                  The Registrant  filed three Current Reports on Form 8-K during
the quarter ended September 30, 1997.

                  A Current Report on Form 8-K dated July 31, 1997, was filed on
August 4, 1997, to report under Item 5 the Company's  announcement,  on July 31,
1997,  of its second  quarter  earnings and its  announcement  of a $5.5 million
charge to provide for store closures and restructuring.

                  A Current  Report on Form 8-K/A dated May 21, 1997,  was filed
on August 4, 1997,  to amend the Current  Report dated May 21,  1997,  to report
under Item 2 the closing of the Coffee Plantation acquisition.

                  A Current  Report on Form 8-K dated August 15, 1997, was filed
to report under Item 5 the  resignation of Steven P. Crantz as Vice President of
Development


<PAGE>

SIGNATURES


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

                                          Coffee People, Inc.



Date:  November 13,1997                  /s/ Kenneth B. Ross
-----------------------                  -----------------------
                                         Kenneth B. Ross
                                         Chief Financial Officer
                                           and Secretary

                                         Signing on behalf of the registrant
                                         and as principal financial officer

<PAGE>

                                  EXHIBIT INDEX

EXHIBIT                                                                   PAGE
-------                                                                   ----

10.1  Engagement letter with Black & Company, Inc., dated                  20
         August 7, 1997

10.2  Amendment No. 3 to Business Loan Agreement with Bank
         of America, dated August 12, 1997                                 25

10.3  Amendment No. 4 to Business Loan Agreement with Bank                 26
         of America, dated October 10, 1997

11       Statement Regarding Share Earnings                                29

27       Financial Data Schedule                                           30