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 June 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 June 30, 1997,  there were  3,247,512  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
           Condition and Results of Operations                             6

PART II. OTHER INFORMATION                                                14

   Item 4: Submission of Matters to a vote of Security Holders.           14

   Item 6: Exhibits and Reports on Form 8-K                               14


   SIGNATURES                                                             15

EXHIBIT INDEX                                                             16

EXHIBIT 11  Statement Regarding Per Share Earnings                        17

EXHIBIT 27  Financial Data Schedule                                       18

<PAGE>


PART I.           FINANCIAL INFORMATION
Item 1:           Financial Statements

                                                 COFFEE PEOPLE, INC.
                                                   BALANCE SHEETS
                                               (Dollars in thousands)
<TABLE>
<CAPTION>
                                                       ASSETS
                                                                            June 30,                 December 31,
                                                                              1997                       1996
                                                                       --------------------      ---------------------
                                                                           (Unaudited)
<S>                                                                         <C>                         <C>        
Current assets:
    Cash and cash equivalents                                                 $      4,537               $     10,274
    Accounts receivable                                                                 80                         26
    Inventories                                                                        539                        205
    Prepaid expenses                                                                   157                        141
    Income taxes receivable                                                            129                          -
    Deferred tax assets                                                                 27                         28
    Other current assets                                                                 4                         96
                                                                       --------------------      ---------------------
      Total current assets                                                           5,473                     10,770

Property and equipment, net                                                          7,755                      5,513
Goodwill, net                                                                        5,917                          -
Other assets                                                                            97                        129
                                                                       ====================      =====================
      Total assets                                                            $     19,242               $     16,412
                                                                       ====================      =====================

                                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt and
       capital lease obligations                                             $       1,306               $        115
    Current portion of long-term debt to related
      parties                                                                           21                         20
    Accounts payable                                                                 1,181                        533
    Construction accounts payable                                                      210                        321
    Accrued liabilities                                                                633                        262
    Provision for store closures and
      restructuring                                                                  2,346                          -
    Income taxes payable                                                                 -                         47
                                                                       --------------------      ---------------------
      Total current liabilities                                                      5,697                      1,298

Deferred tax liability                                                                  86                         86
Long-term debt and capital lease obligations                                         4,932                        267
Long-term debt to related parties                                                      148                        159
Stockholders' equity:
    Common stock, no par value; authorized,
      50,000,000 shares; issued and outstanding,
      3,247,512 and 3,237,432 shares                                                14,524                     14,492
    Stock subscription notes receivable                                               (292)                      (281)
    Retained (deficit) earnings                                                     (5,853)                       391
                                                                       --------------------      ---------------------
      Total stockholders' equity                                                     8,379                     14,602
                                                                       --------------------      ---------------------
      Total liabilities and stockholders' equity                              $     19,242               $     16,412
                                                                       ====================      =====================

                                        See accompanying notes to financial statements

</TABLE>

<PAGE>


<TABLE>

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

<CAPTION>

                                                            Three Months Ended                      Six Months Ended
                                                    ------------------------------------ ---------------------------------------
                                                        June 30,           June 30,          June 30,             June 30,
                                                          1997               1996              1997                 1996
                                                    ------------------ ----------------- ------------------   ------------------
                                                       (Unaudited)       (Unaudited)        (Unaudited)          (Unaudited)
<S>                                                      <C>               <C>                <C>                  <C>    
Revenues:
   Retail sales                                            $    4,798        $    2,983         $    7,958           $    5,776
   Wholesale and other                                             91                48                124                  100
                                                    ------------------ ----------------- ------------------   ------------------
      Total revenues                                            4,889             3,031              8,082                5,876
Cost of sales and related
   occupancy expenses                                           2,412             1,449              4,014                2,783

Store operating expenses                                        1,814               931              2,949                1,804

Other operating expenses                                            1                12                  1                   25

Depreciation and amortization                                     344               118                547                  232

General and administrative
   expenses                                                       884               436              1,556                  855

Provision for store closures
   and restructuring                                            5,500                 -              5,500                    -

                                                    ------------------ ----------------- ------------------   ------------------
   Income (loss) from operations                               (6,066)               85             (6,485)                 177

Other income, net                                                  89                45                214                   82

Interest expense                                                  (77)              (21)               (92)                 (43)
                                                    ------------------ ----------------- ------------------   ------------------

   Income (loss) before benefit
     (provision) for income taxes                              (6,054)              109             (6,363)                 216

Benefit (provision) for income
   taxes                                                            -               (42)               119                  (83)

Net income (loss)                                          $   (6,054)        $      67         $   (6,244)           $     133
                                                    ================== ================= ==================   ==================

Earnings (loss) per share                                  $    (1.87)        $    0.03         $    (1.93)           $    0.07
                                                    ================== ================= ==================   ==================

 Shares used in computing
   earnings (loss) per share                                3,245,393         2,077,298          3,242,183            2,041,220

</TABLE>
<PAGE>


                                                   COFFEE PEOPLE, INC.
                                                STATEMENTS OF CASH FLOWS
                                                 (Dollars in thousands)
                                                       (Unaudited)
<TABLE>
<CAPTION>

                                                                                         Six Months Ended
                                                                         -------------------------------------------------
                                                                               June 30,                     June 30,
                                                                                 1997                         1996
                                                                         ----------------------         ------------------
<S>                                                                            <C>                          <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                             $      (6,244)                $      133
   Adjustments to reconcile net income (loss) to
    net cash provided by operating activities -
      Depreciation and amortization                                                        547                        232
      Provision for store closures and
         restructuring                                                                   5,500                          -
      Deferred provision for income taxes                                                    1                         24
      Interest income on stock subscriptions                                               (11)                       (12)
      Changes in operating assets and liabilities:
         Accounts receivable                                                               (54)                       (19)
         Inventories                                                                      (334)                        56
         Prepaid expenses                                                                  (52)                        76
         Income taxes receivable                                                          (129)                         -
         Other current assets                                                               92                          -
         Accounts payable                                                                  648                       (289)
         Accrued liabilities                                                               371                        (13)
         Income taxes payable                                                              (47)                       (40)
                                                                         ----------------------         ------------------
   Net cash provided by operating activities                                               288                        148

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment, net                                              (5,801)                      (443)
   Goodwill                                                                             (5,950)                         -
   Decrease in other assets                                                                (41)                       (57)
   Construction accounts payable                                                          (111)                         -
                                                                         ----------------------         ------------------
   Net cash used in investing activities                                               (11,903)                      (500)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from debt and capital lease
      obligations                                                                        6,000                          -
   Repayment of debt and capital lease obligations                                        (143)                      (202)
   Repayment of debt to related party                                                      (11)                       (44)
   Proceeds from private placement, net                                                      -                      3,725
   Issuance of common stock                                                                 32                          3
                                                                         ----------------------         ------------------
   Net cash provided by financing activities                                             5,878                      3,482
                                                                         ----------------------         ------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                        (5,737)                     3,130

CASH AND CASH EQUIVALENTS, beginning of period                                          10,274                        260
                                                                         ======================         ==================
CASH AND CASH EQUIVALENTS, end of period                                          $      4,537                $     3,390
                                                                         ======================         ==================

                                        See accompanying notes to financial statements.
</TABLE>

<PAGE>


                               COFFEE PEOPLE, INC.
                          NOTES TO FINANCIAL STATEMENTS

                 For the Six Months Ended June 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.  The  Company  also  acquired  Coffee  Plantation's
wholesale coffee bean business.  The Company financed $6,000,000 of the purchase
price with a term note from its bank,  payable in 60 fixed  principal  payments,
plus interest (9% at June 30, 1997). In conjunction  with the  acquisition,  the
Company recorded goodwill of approximately $5,950,000.

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  located  outside  the  Company's  primary
markets of Oregon and Arizona.  The Company wrote off the assets  related to the
seven stores, which included approximately $3,045,000 of property and equipment,
$36,000 of prepaid  expense,  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.



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

<PAGE>

competition,  acceptance of the  Company's  products and image outside of Oregon
and other risks  detailed in the Company's 1996 Annual Report on Form 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 June 30, 1997, the Company operated 47 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 is
scheduled  to close  upon  expiration  of the store  lease in August  1997.  The
closure of this store is not expected to have a material  adverse  effect on the
Company's revenues or income.

         During  the  second  quarter,  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.

         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.

         After the closure or disposition of the seven stores outside Oregon and
Arizona,  and the  closure  of the one  Coffee  Plantation  store upon its lease

<PAGE>

expiration  in August  1997,  the  Company  will have a total of 39 stores  --25
stores in Oregon and 14 in Arizona.


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

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

         Revenues.  Total revenues  increased  61.3% to $4,889,000 for the three
months ended June 30, 1997 from  $3,031,000 for the same period in 1996.  Retail
sales  increased 60.8% to $4,798,000 for the 1997 period from $2,983,000 for the
1996 period.

     Comparable  store  sales for the 18 stores  open for the full three  months
ended June 30, 1997 and 1996 increased  2.8%,  primarily due to a price increase
effected in  September  1996 on coffee  beverages.  Comparable  store sales were
adversely  affected by a 14.0% 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  represents 4.5% of the overall
increase in retail sales.  Incremental sales from the three stores opened in the
fourth quarter of 1996 contributed 12.5% of the increase. Incremental sales from
the seven stores that opened in the first quarter of 1997  contributed  29.9% of
the increase and incremental  sales from the nineteen stores opened and acquired
in the second  quarter of 1997  contributed  56.6% of the  increase.  One store,
located in close proximity to one of the company's most successful  stores,  was
closed  during the quarter due to the  expiration  of the lease.  Sales for this
store accounted for only 0.4% of total retail sales and had a negative impact of
3.5%  on  the  overall  retail  sales  increase.  Sales  at the  Arizona  stores
contributed  52.4% of the overall  increase  in retail  sales for the period and
contributed 92.6% of the increase in sales from stores opened or acquired during
the three months ended June 30, 1997.

         Wholesale  and other  sales  increased  89.6% to $91,000  for the three
months  ended  June 30,  1997 from  $48,000  for the same  period  in 1996.  The
increase  is due to sales from the  wholesale  business  acquired as part of the
Coffee  Plantation  acquisition.  Sales  from  the  Arizona  wholesale  business
accounted for $54,000 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 49.3% for the three months ended June
30,  1997 as  compared  to  47.8%  for the same  period  in  1996.  The  primary
components  were an increase of 0.2% in cost of sales and an increase of 1.3% in
occupancy costs. The increase in cost of sales as a percentage of total revenues
is due  primarily to the effect of the new stores opened in the first and second
quarters of 1997 as well as higher  coffee  prices.  The  increase in  occupancy
expenses as a percentage  of total  revenues is due  primarily to rent  expenses
incurred  at the  fourteen  new stores  opened in 1996 and 1997 which  generated
lower sales  volumes than the  Company's  stores opened prior to 1996 and which,
consequently, had higher occupancy expenses as a percentage of sales.

         Store  operating  expenses as a percentage of retail sales increased to
37.8% for the three months ended June 30, 1997 from 31.2% for the same period in
1996. The increase is due primarily to operating  expenses  associated  with the

<PAGE>

fourteen new stores opened in 1996 and 1997. These stores,  because of their low
sales volumes,  have higher operating  expenses as a percentage of retail sales.
The increase is also partly  attributable to higher labor costs at the 15 Coffee
Plantation stores in Arizona.

         Depreciation  and  amortization  as  a  percentage  of  total  revenues
increased  to 7.2% for the three  months  ended June 30,  1997 from 4.0% for the
same period in 1996,  due primarily to the impact of higher design and build-out
costs  for the  stores  opened  in 1996 and  1997.  These  stores  carry  higher
depreciation  expense as a percentage of total revenues than stores opened prior
to 1996.  This  category 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 $884,000 for the three
months  ended  June 30,  1997 from  $436,000  for the same  period in 1996,  due
primarily to the costs  associated  with  supporting  the stores in  California,
Colorado and Illinois,  the acquisition and  assimilation of the Arizona stores,
the addition of management personnel,  and other costs. As a percentage of total
revenues,  general and administrative  expenses increased to 18.1% for the three
months ended June 30, 1997 from 14.4% for the same period in 1996.

         Average store sales and store contribution margin. For the three months
ended June 30, 1997, the Company's 21 neighborhood and drive-through stores open
for the full period  achieved  average  store  sales of $138,000  and an average
store contribution margin of 8.4% compared to $187,000 and 20.7%,  respectively,
for the 12 stores open  during the full  period of 1996.  The decline in average
store sales and store  contribution  margins is due to the low sales volumes and
relatively  higher  operating  expenses  at the 10 stores  opened in the  fourth
quarter of 1996 and the first  quarter of 1997.  The six airport  stores and one
kiosk store open for the full period  achieved  average  store sales of $121,000
and an average store  contribution  margin of 16.0%,  respectively,  compared to
$106,000  and  11.3%  for the  full  period  of  1996.  The  increase  in  store
contribution  margins at the Company's  airport stores is due primarily to labor
efficiencies and product cost savings.

         Other income.  Other income as a percentage of total revenues increased
to 1.8% for the three  months  ended June 30, 1997 from 1.5% for the same period
in 1996 due to interest  earned on the  proceeds  remaining  from the  Company's
initial public offering in September 1996.

         Interest  Expense.  Interest  expense as a percentage of total revenues
increased  to 1.6% for the three  months  ended June 30,  1997 from 0.7% for the
same  period in 1996,  as a result of  interest  incurred  on the bank loan that
helped finance the Coffee Plantation acquisition in May 1997.

<PAGE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

         Revenues.  Total  revenues  increased  37.5% to $8,082,000  for the six
months ended June 30, 1997 from  $5,876,000 for the same period in 1996.  Retail
sales increased 37.8% to $7,958,000 for the period from $5,776,000 in 1996.

     Comparable  stores  sales  for the 18 stores  open for the full six  months
ended June 30, 1997 and 1996 increased 2.9% due to a price increase  effected in
September 1996 on coffee  beverages.  Comparable store sales for the period were
adversely  affected by a 12.4% 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  represents 7.5% of the overall
increase in retail sales.  Incremental sales from the three stores opened in the
fourth quarter of 1996 contributed 19.0% of the increase. Incremental sales from
the seven stores  opened in the first quarter of 1997  contributed  30.2% of the
increase and  incremental  sales from the nineteen stores opened and acquired in
the second  quarter of 1997  contributed  47.1% of the  increase.  One store was
closed  during  the period due to the  expiration  of its lease.  Sales for this
store accounted for 1.1% of total retail sales for the period and had a negative
impact of 3.7% on the overall retail sales increase. Sales at the Arizona stores
contributed  43.6% of the overall  increase  in retail  sales for the period and
contributed 56.4% of the increase in sales from stores opened or acquired during
the six months ended June 30, 1997.

         Wholesale  and other  sales  increased  24.0% to  $124,000  for the six
months  ended  June 30,  1997 from  $100,000  for the same  period in 1996.  The
increase  is due to sales from the  wholesale  business  acquired as part of the
Coffee  Plantation  acquisition.  Sales  from  the  Arizona  wholesale  business
accounted for $54,000 of total wholesale and other sales for the six months. The
overall  increase  was offset by a decrease in the  Company's  Oregon  wholesale
business due to the Company's  decision 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 49.7% for the six months ended June
30, 1997 from 47.4% for the same period in 1996. The components of this increase
were an increase in cost of sales of 0.6% and an increase in occupancy  expenses
of 1.8%.  The increase in cost of sales as a percentage  of sales was due 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 and  because of higher  coffee  prices in 1997.  The  increase in
occupancy expenses as a percentage of total revenues is due primarily to rent on
the fourteen new stores opened in 1996 and 1997,  which  stores,  because of low
sales volumes, have higher occupancy expenses as a percentage of sales.

         Store  operating  expenses as a percentage of retail sales increased to
37.1% for the six months  ended June 30,  1997 from 31.2% for the same period in
1996. The increase is due primarily to operating  expenses  associated  with the
fourteen new stores opened in 1996 and 1997. These stores,  because of their low
sales volumes,  have higher operating  expenses as a percentage of retail sales.

<PAGE>

The increase is also partly  attributable to higher labor costs at the 15 Coffee
Plantation stores in Arizona.

         Depreciation  and  amortization  as  a  percentage  of  total  revenues
increased  to 6.8% for the six months ended June 30, 1997 from 4.0% for the same
period in 1996, due to the impact of higher build-out costs for stores opened in
1996 and 1997. The new stores carry higher depreciation  expense as a percentage
of sales than stores opened before 1996.  This category 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 19.3% for the six months ended June 30, 1997  compared to 14.6% for
the same period in 1996, due primarily to the costs  associated  with supporting
the  stores  in  California,   Colorado  and  Illinois,   the   acquisition  and
assimilation of the Arizona stores and the addition of management personnel.

     Average store sales and store contribution margin. For the six months ended
June 30, 1997, the Company's 14 neighborhood and  drive-through  stores open for
the full period  achieved  average  store sales of $325,000 and an average store
contribution margin of 15.1% compared to $360,000 and 21.1%,  respectively,  for
the 12  neighborhood  and  drive-through  stores  open during the full period of
1996.  The  decrease in average  store  sales is due to the lower  sales  volume
achieved at the three stores opened in fourth  quarter of 1996.  The decrease in
contribution  margin is due to the  operating  losses  incurred  by these  three
stores during the six-month period.  The Company's airport and kiosk stores open
for the full period  achieved  average  store  sales of $233,000  and an average
store  contribution  margin  of  15.8%,  as  compared  to  $208,000  and  10.4%,
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 the price increase effected in September 1996 on coffee beverages.  The
increased contribution margin is primarily due to labor efficiencies and product
cost savings at the airport stores.

         Other income.  Other income as a percentage of total revenues increased
to 2.7% for the six months  ended June 30, 1997 from 1.4% for the same period in
1996,  due to  interest  earned on the  remaining  proceeds  from the  Company's
initial public offering in September 1996.

         Interest  Expense.  Interest  expense as a percentage of total revenues
increased  to 1.1% for the six months ended June 30, 1997 from 0.7% for the same
period  in 1996,  as a result  of  interest  incurred  on the bank  loan to help
finance 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

<PAGE>

these  efforts,  such cash outlays could  continue for an  indeterminate  period
during the term of the store leases.

         The  Company  has  suspended  its plans to open or acquire  new stores,
pending  the  disposition  of its stores  outside of its core Oregon and Arizona
markets. The Company may resume new store development or acquisitions,  however,
if circumstances warrant.  Furthermore, the Company intends to evaluate a number
of strategic  alternatives  and has retained  Black & Company,  Inc. a Portland,
Oregon-based  investment banking firm, to advise it on a full range of potential
actions,  including  strategic  acquisitions of other specialty coffee retailers
and the merger or sale of the company.

         As of June 30, 1997 the Company had $4,537,000 in cash and equivalents.

          The Company had a working  capital  deficit of $224,000 as of June 30,
1997 as compared to positive working capital of $9,472,000 at December 31, 1996.

         For the six months ended June 30, 1997 and for the same period in 1996,
cash provided by operating activities was $288,000 and $148,000, respectively.

         For the six  months  ended  June  30,  1997  the  Company  had net cash
provided by  financing  activities  of  $5,878,000  primarily as a result of the
$6,000,000  bank  loan  used to  help  finance  the  acquisition  of the  Coffee
Plantation  stores in May 1997. For the six months ended June 30, 1996, net cash
provided by financing activities totaled $3,482,000 primarily as a result of 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 (9.0% as of June 30,
1997) and are secured by substantially  all of the Company's  assets,  including
accounts receivable,  inventories,  trade fixtures and equipment. As of June 30,
1997, there were no borrowings  outstanding  under the line of credit;  however,
$73,000 of the line was reserved for a letter of credit dated August 1, 1997.

         As a result of the $5,500,000  write off 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 used to help finance the Coffee Plantation acquisition, and to another
term loan with a balance as of June 30,  1997,  of $80,500.  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 August 12,  1997,  the company was in
compliance with such terms.

         For the six months ended June 30, 1997 and for the same period in 1996,
net cash used in investing activities was $11,903,000 and $500,000 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  relating  to the  new  retail  stores.  The  Company
currently   anticipates  that  any  significant  capital  expenditures  for  the

<PAGE>

remaining two quarters of 1997 will be curtailed pending  activities  related to
the disposition or closure of the seven stores outside of Oregon and Arizona.

         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 1997.


STORE CLOSURES, COFFEE PRICES, AND OTHER RISKS
---------------------------------------------------------

         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 effect on the Company's operations in Oregon and Arizona.

     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 have 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. 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.  Because  the  current  market  price for green
coffee is substantially  higher than existed prior to December 1996, the Company
is  incurring  higher  coffee  costs.  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 impact,  if any, this price  increase will have on
transaction  volumes.  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.

         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, 1997.


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 4:           Submission of Matters to a vote of Security Holders.

         (a) The annual meeting of stockholders of the registrant was held on
          April 24, 1997.

         (b) The meeting  involved the election of directors.  Proxy  statements
         for the meeting  were  solicited  pursuant to  Regulation  14 under the
         Securities   Exchange  Act  of  1934.  There  was  no  solicitation  in
         opposition to management's  nominees as listed on the proxy  statement.
         All of  management's  nominees were elected.  The following  table sets
         forth  information  with  respect  to votes cast for and  against  each
         nominee:

                              Votes for   Votes Against   Votes      Broker
         Nominee              Election      Election    Abstaining  Non-votes
         -------              --------      --------    ----------  ---------
         James L. Roberts     2,665,577      1,450          0          -
         Douglas L. Ayer      2,665,277      1,750          0          -
         Gary G. Talboy       2,665,027      2,000          0          -
         Jeffrey M. Ferguson  2,665,327      1,700          0          -
         Taylor H. Devine     2,664,977      2,050          0          -

         The  stockholders  ratified  appointment  of  Arthur  Andersen  LLP  as
         independent  auditors.  The  appointment  was  approved  by a  vote  of
         2,654,968 in favor, 4,000 against,  and 8,059 abstentions and no broker
         non-votes.


Item 6:           Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  11 Statement Regarding Computation of Per Share Earnings

                  27 Financial Data Schedule


         (b)      Reports on Form 8-K

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

         A Current Report dated April 21, 1997 was filed to report under Item 5 
         an agreement to purchase 15 retail specialty coffee stores in Arizona
         from Coffee Plantation.

         A  Current  Report  on Form 8-K dated May 21,  1997,  as  amended  by a
         Current Report on Form 8-K/A of the same date filed August 4, 1997, was
         filed to report  under  Item 2 the  closing  of the  Coffee  Plantation
         acquisition,  and under Item 5 the  resignation  of James L. Roberts as
         Chief  Executive  Officer  and the  appointment  of Taylor H. Devine as
         President and Chief Executive Officer.



<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.



                               /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
-------                                                          ----
  11           Statement Regarding Per Share Earnings

  27           Financial Data Schedule