##### Table of Contents

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UNITED STATES

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, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File No. 33-960-70-LA

THANKSGIVING COFFEE COMPANY, INC.

(Exact name of small business issuer as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 94-2823626                          
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)



|                                                |  |           
|----------------------------------------------- |  | ----------
|19100 South Harbor Drive Fort Bragg, California |  | 95437     
|(Address of principal executive offices)        |  | (Zip Code)

Issuers telephone number, including area code: 707: 964-0118



---

(Former name, former address and former fiscal year, if changed since last report.)

Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 November 12, 2007, there were 1,236,744 shares outstanding of common stock of the issuer.

Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No   x

Transitional Small Business Disclosure Format (check one):

Yes ̈No  x



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##### Table of Contents

THANKSGIVING COFFEE COMPANY, INC.

INDEX

PART I. FINANCIAL INFORMATION



|                           |  |                                                                                                             |  |       
|-------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | ------
|Item 1.                    |  | Financial Statements and Notes to Financial Statements                                                      |  |       
|                           |  |                                                                                                            
|                           |  | Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006                                   |  | 4 -5  
|                           |  |                                                                                                            
|                           |  | Statements of Operations for the Three Months and Nine Months Ended September 30, 2007 and 2006 (unaudited) |  | 6     
|                           |  |                                                                                                            
|                           |  | Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (unaudited)                  |  | 7     
|                           |  |                                                                                                            
|                           |  | Notes to unaudited Financial Statements                                                                     |  | 8 - 17
|                           |  |                                                                                                            
|Item 2.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                       |  | 18    
|                           |  |                                                                                                            
|Item 3.                    |  | Controls and Procedures                                                                                     |  | 22    
|                          
|PART II. OTHER INFORMATION
|                           |  |                                                                                                            
|Item 1.                    |  | Legal Proceedings                                                                                           |  | 22    
|                           |  |                                                                                                            
|Item 2.                    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                 |  | 23    
|                           |  |                                                                                                            
|Item 3.                    |  | Defaults Upon Senior Securities                                                                             |  | 23    
|                           |  |                                                                                                            
|Item 4.                    |  | Submission of Matters to a Vote of Security Holders                                                         |  | 23    
|                           |  |                                                                                                            
|Item 5.                    |  | Other Information                                                                                           |  | 23    
|                           |  |                                                                                                            
|Item 6.                    |  | Exhibits                                                                                                    |  | 23    



2



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##### Table of Contents

Financial Statements

and Notes to Financial Statements

Thanksgiving Coffee Company, Inc.

For the Nine Months Ended September 30, 2007 and 2006



3



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Balance Sheets



|                                       |  |                   |            |   |                  |   |            |  
|-------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                       |  | September 30,2007 |            |   | December 31,2006 |  
|                                       |  | (Unaudited)       |            |   |                  |  
|Assets                                 |  |                   |            |   |                  |   |            |  
|Current assets                         |  |                   |            |   |                  |   |            |  
|Cash                                   |  | $                 | 54,947     |   |                  | $ | 76,974     |  
|Accounts receivable, net of allowance  |  |                   | 221,445    |   |                  |   | 253,209    |  
|Inventories                            |  |                   | 326,491    |   |                  |   | 370,205    |  
|Prepaid expenses                       |  |                   | 28,277     |   |                  |   | 30,856     |  
|Deferred tax asset                     |  |                   |           |   |                  |   |           |  
|                                       |  |                   |            |   |                  |   |            |  
|Total current assets                   |  |                   | 631,160    |   |                  |   | 731,244    |  
|Property and equipment                 |  |                   |            |   |                  |   |            |  
|Property and equipment                 |  |                   | 2,728,801  |   |                  |   | 2,760,812  |  
|Accumulated depreciation               |  |                   | (2,324,512 | ) |                  |   | (2,271,747 | )
|                                       |  |                   |            |   |                  |   |            |  
|Total property and equipment           |  |                   | 404,289    |   |                  |   | 489,065    |  
|Other assets                           |  |                   |            |   |                  |   |            |  
|Deposits and other assets              |  |                   | 16,140     |   |                  |   | 18,151     |  
|Goodwill                               |  |                   | 130,406    |   |                  |   | 130,406    |  
|Other intangibles, net of amortization |  |                   | 17,333     |   |                  |   | 21,696     |  
|Deferred tax asset                     |  |                   |           |   |                  |   |           |  
|                                       |  |                   |            |   |                  |   |            |  
|Total other assets                     |  |                   | 163,879    |   |                  |   | 170,253    |  
|                                       |  |                   |            |   |                  |   |            |  
|Total assets                           |  | $                 | 1,199,328  |   |                  | $ | 1,390,562  |  
|                                       |  |                   |            |   |                  |   |            |  

See accompanying notes to financial statements



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Balance Sheets



|                                                                                                |  |                   |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                |  | September 30,2007 |           |   | December 31,2006 |  
|                                                                                                |  | (Unaudited)       |           |   |                  |  
|Liabilities and shareholders equity                                                            |  |                   |           |   |                  |   |           |  
|Current liabilities                                                                             |  |                   |           |   |                  |   |           |  
|Accounts payable                                                                                |  | $                 | 279,293   |   |                  | $ | 469,786   |  
|Notes payable - bank                                                                            |  |                   | 38,574    |   |                  |   | 48,872    |  
|Notes payable - other                                                                           |  |                   | 10,065    |   |                  |   | 9,418     |  
|Note payable - shareholders                                                                     |  |                   | 43,919    |   |                  |   | 19,919    |  
|Capital lease obligations                                                                       |  |                   | 46,688    |   |                  |   | 43,296    |  
|Accrued liabilities                                                                             |  |                   | 42,059    |   |                  |   | 73,048    |  
|                                                                                                |  |                   |           |   |                  |   |           |  
|Total current liabilities                                                                       |  |                   | 460,598   |   |                  |   | 664,339   |  
|Long term debt                                                                                  |  |                   |           |   |                  |   |           |  
|Notes payable - bank                                                                            |  |                   | 255,045   |   |                  |   | 278,245   |  
|Notes payable - shareholder                                                                     |  |                   | 41,100    |   |                  |   |          |  
|Notes payable - other                                                                           |  |                   | 15,768    |   |                  |   | 23,401    |  
|Capital lease obligations                                                                       |  |                   | 52,252    |   |                  |   | 87,381    |  
|                                                                                                |  |                   |           |   |                  |   |           |  
|Total long term debt                                                                            |  |                   | 364,165   |   |                  |   | 389,027   |  
|                                                                                                |  |                   |           |   |                  |   |           |  
|Total liabilities                                                                               |  |                   | 824,763   |   |                  |   | 1,053,366 |  
|Shareholders equity                                                                            |  |                   |           |   |                  |   |           |  
|Common stock, no par value, 1,960,000 shares authorized, 1,236,744 shares issued and oustanding |  |                   | 861,816   |   |                  |   | 861,816   |  
|Additional paid in capital                                                                      |  |                   | 24,600    |   |                  |   | 24,600    |  
|Accumulated deficit                                                                             |  |                   | (511,851  | ) |                  |   | (549,220  | )
|                                                                                                |  |                   |           |   |                  |   |           |  
|Total shareholders equity                                                                      |  |                   | 374,565   |   |                  |   | 337,196   |  
|                                                                                                |  |                   |           |   |                  |   |           |  
|Total liabilities and shareholders equity                                                      |  | $                 | 1,199,328 |   |                  | $ | 1,390,562 |  
|                                                                                                |  |                   |           |   |                  |   |           |  

See accompanying notes to financial statements



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Statements of Operations

Unaudited



|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|-------------------------------------------- |  | --------------------------------------- | --------- | - | -------------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                             |  | For the Three Months EndedSeptember 30, |           |   | For the Nine Months EndedSeptember 30, |  
|                                             |  | 2007                                    |           |   | 2006                                   |   |           | 2007 |  |   | 2006      |  
|Income                                       |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Net sales                                    |  | $                                       | 1,175,290 |   |                                        | $ | 1,150,108 |      |  | $ | 3,429,811 |   |  | $ | 3,393,222 |  
|Cost of sales                                |  |                                         | 686,962   |   |                                        |   | 666,336   |      |  |   | 1,983,316 |   |  |   | 1,998,820 |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Gross profit                                 |  |                                         | 488,328   |   |                                        |   | 483,772   |      |  |   | 1,446,495 |   |  |   | 1,394,402 |  
|Operating expenses                           |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Selling, general and administrative expenses |  |                                         | 397,987   |   |                                        |   | 473,457   |      |  |   | 1,282,072 |   |  |   | 1,514,819 |  
|Depreciation and amortization                |  |                                         | 32,859    |   |                                        |   | 33,377    |      |  |   | 94,610    |   |  |   | 101,601   |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Total operating expenses                     |  |                                         | 430,846   |   |                                        |   | 506,834   |      |  |   | 1,376,682 |   |  |   | 1,616,420 |  
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Operating profit/ (loss)                     |  |                                         | 57,482    |   |                                        |   | (23,062   | )    |  |   | 69,813    |   |  |   | (222,018  | )
|Other expense                                |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Miscellaneous income/ (expense)              |  |                                         | 906       |   |                                        |   | 3,884     |      |  |   | 4,128     |   |  |   | 3,145     |  
|Gain/(loss) on sale of equipment             |  |                                         |           |   |                                        |   | 1,399     |      |  |   |           |   |  |   | 1,399     |  
|Interest expense                             |  |                                         | (12,067   | ) |                                        |   | (19,029   | )    |  |   | (35,771   | ) |  |   | (44,673   | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Total other expense                          |  |                                         | (11,161   | ) |                                        |   | (13,746   | )    |  |   | (31,643   | ) |  |   | (40,129   | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Profit/ (loss) before income taxes           |  |                                         | 46,321    |   |                                        |   | (36,808   | )    |  |   | 38,170    |   |  |   | (262,147  | )
|Income tax expense                           |  |                                         |          |   |                                        |   |          |      |  |   | (800      | ) |  |   | (800      | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Net profit/ (loss)                           |  | $                                       | 46,321    |   |                                        | $ | (36,808   | )    |  | $ | 37,370    |   |  | $ | (262,947  | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Profit/ (loss) per share (basic)             |  | $                                       | 0.037     |   |                                        | $ | (0.030    | )    |  | $ | 0.030     |   |  | $ | (0.213    | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Profit/ (loss) per share (dilutive)          |  | $                                       | 0.037     |   |                                        | $ | (0.030    | )    |  | $ | 0.030     |   |  | $ | (0.213    | )
|                                             |  |                                         |           |   |                                        |   |           |      |  |   |           |   |  |   |           |  
|Weighted Average number of shares            |  |                                         | 1,236,744 |   |                                        |   | 1,236,744 |      |  |   | 1,236,744 |   |  |   | 1,236,744 |  



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Statements of Cash Flows

Unaudited



|                                                                           |  |                                  |          |   |      |   |          |  
|-------------------------------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                           |  | For the Nine MonthsSeptember 30, |         
|                                                                           |  | 2007                             |          |   | 2006 |  
|Operating activities                                                       |  |                                  |          |   |      |   |          |  
|Net income/(loss)                                                          |  | $                                | 37,370   |   |      | $ | (262,947 | )
|Adjustments to reconcile net loss to cash flows from operating activities: |  |                                  |          |   |      |   |          |  
|Depreciation and amortization                                              |  |                                  | 105,300  |   |      |   | 101,601  |  
|Allowance for bad debts                                                    |  |                                  | 2,847    |   |      |   | (1,355   | )
|(Gain) loss on disposition of equipment                                    |  |                                  |          |   |      |   | 1,399    |  
|(Increase) decrease in:                                                    |  |                                  |          |   |      |   |          |  
|Accounts receivable                                                        |  |                                  | 31,764   |   |      |   | 51,068   |  
|Inventories                                                                |  |                                  | 43,714   |   |      |   | 83,998   |  
|Prepaid expenses                                                           |  |                                  | 2,579    |   |      |   | 434      |  
|Deposits and other assets                                                  |  |                                  | 2,654    |   |      |   | 15,981   |  
|Increase (decrease) in:                                                    |  |                                  |          |   |      |   |          |  
|Accounts payable                                                           |  |                                  | (117,393 | ) |      |   | 49,504   |  
|Accrued liabilities                                                        |  |                                  | (30,989  | ) |      |   | (42,682  | )
|                                                                           |  |                                  |          |   |      |   |          |  
|Net provided by (used in) operating activities                             |  |                                  | 77,846   |   |      |   | (2,999   | )
|Investing activities                                                       |  |                                  |          |   |      |   |          |  
|Purchases of property and equipment                                        |  |                                  | (19,652  | ) |      |   | (102,515 | )
|Proceeds from sale of equipment/disposal                                   |  |                                  |         |   |      |   | 1,500    |  
|                                                                           |  |                                  |          |   |      |   |          |  
|Net cash (used in) investing activities                                    |  |                                  | (19,652  | ) |      |   | (101,015 | )
|Financing activities                                                       |  |                                  |          |   |      |   |          |  
|Proceeds from notes payable and capital leases                             |  |                                  |         |   |      |   | 79,353   |  
|Payments of notes receivable                                               |  |                                  |         |   |      |   | 10,074   |  
|Repayments of notes payable and capital leases                             |  |                                  | (80,221  | ) |      |   | (80,623  | )
|                                                                           |  |                                  |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                        |  |                                  | (80,221  | ) |      |   | 8,804    |  
|Decrease in cash                                                           |  |                                  | (22,027  | ) |      |   | (95,210  | )
|Cash at beginning of period                                                |  |                                  | 76,974   |   |      |   | 113,385  |  
|                                                                           |  |                                  |          |   |      |   |          |  
|Cash at end of period                                                      |  | $                                | 54,947   |   |      | $ | 18,175   |  
|                                                                           |  |                                  |          |   |      |   |          |  

Supplemental Non-Cash Transactions:

Exchange of accounts payable for a note payable from a related party was $73,100 at September 30, 2007 and $0 at September 30, 2006



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements



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

The condensed financial statements in this
Form 10-QSB have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. We have continued to follow
the accounting policies disclosed in the financial statements included in our 2006 Form 10-KSB filed with the Securities and Exchange Commission (SEC). It is suggested that these statements be read in conjunction with the December 31, 2006
audited financial statements and the accompanying notes on Form 10-KSB, as filed with the Securities and Exchange Commission.

The interim financial
information in this Form 10-QSB reflects all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of our results of operations for the interim periods. The results of operations for the three months and nine months
ended September 30, 2007 are not necessarily indicative of results to be expected for the full year.

Segment Reporting

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, changed the way public companies report information about
segments of their business in their financial statements. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and report revenues and its major customers. See
Note 12

Income Taxes

The Company accounts for income
taxes under the asset and liability method as prescribed by Statement of Financial Accounting Standards (FASB) No. 109, Accounting for Income Taxes. As such, deferred income tax assets and liabilities are recognized for the future tax
consequences of the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basses. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled.

A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be realized.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.



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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



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

Accounts receivable consist of the following:



|                                      |  |           |         |   |            |   |         |  
|------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                      |  | 9/30/2007 |         |   | 12/31/2006 |  
|Accounts receivable                   |  | $         | 226,956 |   |            | $ | 261,130 |  
|Less: allowance for doubtful accounts |  |           | (5,511  | ) |            |   | (7,921  | )
|                                      |  |           |         |   |            |   |         |  
|Net accounts receivable               |  | $         | 221,445 |   |            | $ | 253,209 |  
|                                      |  |           |         |   |            |   |         |  

The Company utilizes a percentage method to establish the allowance for doubtful accounts. The estimated allowance
ranges from 1% to 10% of outstanding receivables based on factors pertaining to the credit risk of specific customers, historical trends and other information. Delinquent accounts are written off when it is determined that amounts are uncollectible.
Bad debt expense (recovery) for the nine months ended September 30, 2007 and 2006 was $ 0 for both periods.



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

Inventories consist of the following:



|                                                        |  |           |         |            |   |        
|------------------------------------------------------- |  | --------- | ------- | ---------- | - | -------
|                                                        |  | 9/30/2007 |         | 12/31/2006
|Coffee                                                  |  |           |         |            |   |        
|Unroasted                                               |  | $         | 85,653  |            | $ | 98,260 
|Roasted                                                 |  |           | 81,218  |            |   | 81,755 
|Tea                                                     |  |           | 3,572   |            |   | 5,296  
|Packaging, supplies and other merchandise held for sale |  |           | 156,048 |            |   | 184,894
|                                                        |  |           |         |            |   |        
|Total inventories                                       |  | $         | 326,491 |            | $ | 370,205
|                                                        |  |           |         |            |   |        



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

Property and equipment consist of the
following:



|                                      |  |           |            |   |            |   |            |  
|------------------------------------- |  | --------- | ---------- | - | ---------- | - | ---------- | -
|                                      |  | 9/30/2007 |            |   | 12/31/2006 |  
|Equipment                             |  | $         | 1,352,093  |   |            | $ | 1,392,820  |  
|Furniture and fixtures                |  |           | 266,240    |   |            |   | 263,113    |  
|Leasehold improvements                |  |           | 462,702    |   |            |   | 461,830    |  
|Transportation equipment              |  |           | 174,512    |   |            |   | 169,795    |  
|Marketing equipment                   |  |           | 166,162    |   |            |   | 166,162    |  
|Capitalized website development costs |  |           | 14,076     |   |            |   | 14,076     |  
|Property held under capital leases    |  |           | 293,016    |   |            |   | 293,016    |  
|                                      |  |           |            |   |            |   |            |  
|Total property and equipment          |  |           | 2,728,801  |   |            |   | 2,760,812  |  
|Accumulated depreciation              |  |           | (2,324,512 | ) |            |   | (2,271,747 | )
|                                      |  |           |            |   |            |   |            |  
|Property and equipment, net           |  | $         | 404,289    |   |            | $ | 489,065    |  
|                                      |  |           |            |   |            |   |            |  

Depreciation expense for the nine months ended September 30, 2007 and 2006 was $100,937 and $95,220
respectively.



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Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



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

As part of the adoption of
Statement of Financial Accounting Standards (FASB) No. 142, Goodwill and Other Tangible Assetsas of January 1, 2002, the Company no longer amortizes goodwill. At December 31, 2006 the Company performed a test of impairment on
goodwill that resulted in a write down of approximately $41,000 in the value as of December 31, 2006, and is included in goodwill value as of September 30, 2007.

Intangible assets subject to amortization consist of the following:



|                                       |  |           |         |   |            |   |         |  
|-------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                       |  | 9/30/2007 |         |   | 12/31/2006 |  
|Leasehold value                        |  | $         | 67,000  |   |            | $ | 67,000  |  
|Trademarks                             |  |           | 5,127   |   |            |   | 5,127   |  
|                                       |  |           |         |   |            |   |         |  
|Total intangible assets                |  |           | 72,127  |   |            |   | 72,127  |  
|Accumulated amortization               |  |           | (54,794 | ) |            |   | (50,431 | )
|                                       |  |           |         |   |            |   |         |  
|Other intangibles, net of amortization |  | $         | 17,333  |   |            | $ | 21,696  |  
|                                       |  |           |         |   |            |   |         |  

Amortization expense for the nine months ended September 30, 2007 and 2006 was $4,362 and $6,381
respectively.



|6. | Deposits and Other Assets
|-- | -------------------------

Included in Deposits and Other Assets
are artwork that was developed for the labels for the tea program and long-term deposits.



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



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

Notes Payable



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |           |         |            |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | ---------- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | 9/30/2007 |         | 12/31/2006
|Note payable to Savings Bank of Mendocino, payable in monthly installments of $4,307 plus interest at 3% over prime rate beginning January 1, 2005 (11.25% at September 30, 2007), final
payment is due on December 1, 2009. The note payable is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal
guarantee from the Companys majority shareholders.                                                                 |  | $         | 285,619 |            | $ | 307,117
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          
|Line of credit to Savings Bank of Mendocino, payable in monthly installments of interest only at 3% over prime rate beginning January 1, 2006 (11.25% at September 30, 2007). The note
payable for the line of credit is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general intangibles and contract rights along with a personal guarantee from the Companys
majority shareholders. The line is for a maximum of $25,000 and $8,000 has been used as of September 30, 2007. |  |           | 8,000   |            |   | 20,000 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of $2,000 with interest at 12% paid monthly due July 15, 2009.                                                                                                                                                                                                                                                                                                                                                                                              |  |           | 65,100  |            |   |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          
|Note payable to majority shareholders, Paul and Joan Katzeff, payable in monthly installments of interest only at 12%, with balance due on demand after June 30, 1996.                                                                                                                                                                                                                                                                                                                                                                                    |  |           | 19,919  |            |   | 19,919 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          
|Note payable to Mercedes-Benz, payable in monthly installments of $691, including interest at 6.99%, collateralized by a vehicle, final payment due on September 24, 2009.                                                                                                                                                                                                                                                                                                                                                                                |  |           | 15,445  |            |   | 20,705 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |          
|Note payable to Chrysler Financing, payable in monthly installments of $329, including interest at 15.492%, collateralized by a vehicle, final payment due on January 24, 2011                                                                                                                                                                                                                                                                                                                                                                            |  |           | 10,388  |            |   | 12,114 



11



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

Capital Lease Obligations

|                                                                                                                                                                                             |  |           |  |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ----------
|                                                                                                                                                                                             |  | 9/30/2007 |  | 12/31/2006
|Note payable to Manifest Leasing, payable in monthly installments of $444, including interest at 12.203%, collateralized by equipment, final payment due on March 1, 2007.                   |  |          |  | 1,040     
|                                                                                                                                                                                             |  |          
|Note payable to G.E. Capital, payable in monthly installments of $1,355, including interest at 16.78%, collateralized by equipment, final payment due on March 1, 2009.                      |  | 21,423    |  | 30,284    
|                                                                                                                                                                                             |  |          
|Note payable to Avaya Financial Services, payable in monthly installments of $824, including interest at 5.855%, collateralized by equipment, final payment due on August 1,
2009.           |  | 17,891    |  | 24,365    
|                                                                                                                                                                                             |  |          
|Note payable to Axis Capital, payable in monthly installments of $709, including interest at 15.473%, collateralized by store fixtures, final payment due September 14, 2009.                |  | 14,037    |  | 18,499    
|                                                                                                                                                                                             |  |          
|Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $462, including interest at 14.237%, collateralized by equipment, final payment due on May 22, 2009. |  | 8,180     |  | 11,277    
|                                                                                                                                                                                             |  |          
|Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $522, including interest at 17.172%, collateralized by equipment, final payment due on June 1, 2010. |  | 14,129    |  | 16,956    
|                                                                                                                                                                                             |  |          
|Note payable to Marlin Leasing payable in monthly installments of $428, including interest at 18.00%, collateralized by equipment, final payment due on October 1, 2010.                     |  | 11,453    |  | 13,666    



12



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



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

Capital Lease Obligations
(continued)



|                                                                                                                                                                                                |  |           |          |   |            |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | -------- | - | ---------- | - | -------- | -
|                                                                                                                                                                                                |  | 9/30/2007 |          |   | 12/31/2006 |  
|Note payable to US Bancorp Manifest Funding Services payable in monthly installments of $533, including interest at 22.24%, collateralized by equipment, final payment due on January 10,
2010. |  | $         | 11,827   |   |            | $ | 14,590   |  
|                                                                                                                                                                                                |  |           |          |   |            |   |          |  
|                                                                                                                                                                                                |  |           | 503,411  |   |            |   | 510,532  |  
|Less current portion                                                                                                                                                                            |  |           | (139,246 | ) |            |   | (121,505 | )
|                                                                                                                                                                                                |  |           |          |   |            |   |          |  
|Long term portion of notes payable                                                                                                                                                              |  | $         | 364,165  |   |            | $ | 389,027  |  
|                                                                                                                                                                                                |  |           |          |   |            |   |          |  

Interest paid for the nine months ended September 30, 2007 and 2006 was $35,771 and $44,673, respectively.

As of September 30, 2007, maturities of notes payable and capital lease obligations for each of the next five years and in the aggregate were as
follows:



|                          |  |   |        
|------------------------- |  | - | -------
|Years Ending December 31, |  |  
|2007                      |  | $ | 56,461 
|2008                      |  |   | 113,875
|2009                      |  |   | 314,065
|2010                      |  |   | 18,685 
|2011                      |  |   | 325    
|Thereafter                |  |   |       
|                          |  |   |        
|                          |  | $ | 503,411
|                          |  |   |        

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



|8. | Income Taxes
|-- | ------------

Deferred income taxes arise from temporary timing
differences in the recognition of income and expenses for financial reporting and tax purposes. The Companys deferred tax assets consist of the benefit from net operating loss (NOL) carryforwards and temporary differences. The net operating
loss carryforwards expire in various years through 2026. The Companys deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operation loss carryforwards. Net operating loss carryforwards
may be further limited by a change in company ownership and other provisions of the tax laws.



13



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

The Companys deferred tax assets, valuation
allowance, and change in valuation allowance are as follows:



|8. | Income Taxes (continued)
|-- | ------------------------



|                   |  |                                                     |  |             |  |                 |  |                    |   |  |                             |   |  |               
|------------------ |  | --------------------------------------------------- |  | ----------- |  | --------------- |  | ------------------ | - |  | --------------------------- | - |  | --------------
|Period Ending      |  | Estimated NOLCarryforward lesstemporary differences |  | NOL Expires |  | Benefit FromNOL |  | ValuationAllowance |   |  | Change inValuationAllowance |   |  | Net TaxBenefit
|September 30, 2007 |  |                                                     |  |             |  |                 |  |                    |   |  |                             |   |  |               
|Federal            |  | 189,307                                             |  | 2017        |  | 28,396          |  | (28,396            | ) |  | (28,396                     | ) |  |              
|                   |  | 128,576                                             |  | 2018        |  | 19,286          |  | (19,286            | ) |  | (19,286                     | ) |  |              
|                   |  | 96,867                                              |  | 2023        |  | 14,530          |  | (14,530            | ) |  | (14,530                     | ) |  |              
|                   |  | 49,714                                              |  | 2024        |  | 7,457           |  | (7,457             | ) |  | (7,457                      | ) |  |              
|                   |  | 18,755                                              |  | 2025        |  | 2,813           |  | (2,813             | ) |  | (2,813                      | ) |  |              
|                   |  | 135,234                                             |  | 2026        |  | 20,285          |  | (20,285            | ) |  | (20,285                     | ) |  |              
|                   |  |                                                     |  |             |  |                 |  |                    |   |  |                             |   |  |               
|                   |  | 618,453                                             |  |             |  | 92,768          |  | (92,768            | ) |  | (92,768                     | ) |  |              
|                   |  |                                                     |  |             |  |                 |  |                    |   |  |                             |   |  |               
|State              |  | 29,506                                              |  | 2015        |  | 2,608           |  | (2,608             | ) |  | (2,608                      | ) |  |              
|                   |  | 149,935                                             |  | 2016        |  | 13,254          |  | (13,254            | ) |  | (13,254                     | ) |  |              
|                   |  |                                                    |  |             |  |                |  |                   |   |  |                            |   |  |              
|                   |  |                                                     |  |             |  |                 |  |                    |   |  |                             |   |  |               
|                   |  | 179,441                                             |  |             |  | 15,863          |  | (15,863            | ) |  | (15,863                     | ) |  |              
|                   |  |                                                     |  |             |  |                 |  |                    |   |  |                             |   |  |               

The change in deferred tax and the related allowance from December 31, 2006 to September 30, 2007 was
$38,184, principally due to the use of a 15% tax rate for federal income tax rates for the current period. The Company determined that 15% was a more accurate tax rate for future usage of net operating loss carryforwards.

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



|                                           |  |        |   
|------------------------------------------ |  | ------ | --
|Tax (benefit) at Federal statutory rate    |  | (15.00 | )%
|State tax (benefit) net of Federal benefit |  | (7.50  | )%
|Non-taxable differences                    |  | (12.32 | ) 
|Temporary Differences                      |  | (8.22  | )%
|Valuation allowance                        |  | 45.14  | % 
|                                           |  |        |   
|Tax Provision (benefit)                    |  | 2.10   | % 
|                                           |  |        |   

Income taxes paid for the nine months ended September 30, 2007 and the year ended December 31, 2006 were
$800 and $800, respectively.



14



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



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

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

As of September 30, 2007,
minimum annual lease payments due under these agreements for each of the next five years and in the aggregate were:



|                          |  |   |       
|------------------------- |  | - | ------
|Years Ending December 31, |  |  
|2007                      |  |   | 11,380
|2008                      |  |   | 9,853 
|2009                      |  |   | 5,454 
|2010                      |  |   | 1,979 
|                          |  |   |      
|                          |  |   |       
|                          |  | $ | 28,666
|                          |  |   |       

Total operating lease payments for the nine months ended September 30, 2007 and 2006 were $34,141 and $44,046
respectively.



|10. | Long Term Leases
|--- | ----------------

The Company leases its corporate headquarters,
warehouse and waterfront facilities from Paul and Joan Katzeff (the Companys majority shareholders). The lease is classified as an operating lease and provides for monthly rental payments of $8,600. The Company is responsible for all real
estate taxes, insurance and maintenance costs related to the facilities. The ten-year lease term ends May 31, 2015. Rental expense under the lease for the nine months ended September 30, 2007 and 2006 was $77,400 in both years.

The Company also leases a bakery establishment in Mendocino, California and warehouse premises in Santa Rosa, California under operating leases expiring
September 30, 2011 and January 31, 2007, respectively. The Company terminated the lease for the Santa Rosa facility when it expired in January of 2007. Rental expense under these operating leases for the nine months ended
September 30, 2007 and 2006 was $37,128 and $43,002 respectively.



15



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)

As of September 30, 2007, minimum future rental
payments under noncancelable facilities operating leases for each of the next five years and in the aggregate are as follows:



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



|                          |  |   |          
|------------------------- |  | - | ---------
|Years ending December 31, |  |  
|2007                      |  | $ | 38,937   
|2008                      |  |   | 154,470  
|2009                      |  |   | 158,400  
|2010                      |  |   | 161,070  
|2011                      |  |   | 148,155  
|Thereafter                |  |   | 412,800  
|                          |  |   |          
|                          |  | $ | 1,073,832
|                          |  |   |          



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

As of September 30, 2007, the
Company has an interest only note payable, due on demand and a principal and interest note payable due on July 15, 2009 to Paul and Joan Katzeff (the Companys majority shareholders). The Company also leases properties from its majority
shareholders.

The summary of payments made to Paul and Joan Katzeff in connection with these related party transactions for the nine months ended
September 30, 2007, is as follows:



|                   |  |   |       
|------------------ |  | - | ------
|Interest payments  |  | $ | 3,354 
|Rent payments      |  | $ | 60,200
|Principal payments |  | $ | 8,000 

The Companys majority shareholders also guarantee certain notes payable of the Company (See
Note 7).



|12. | Information on Business Segments
|--- | --------------------------------

As noted in Note 1 in the Notes
to the financial statements, the Company operates in two different business segments: the specialty coffee business and the retail bakery business. The specialty coffee business, although primarily based in California, sells to grocery stores,
serving locations and other retail outlets throughout the United States and some international business. The bakery sells exclusively on the north coast of California in Mendocino and Fort Bragg.

Selected financial data by business segment



|                   |  |           |           |           |   |          
|------------------ |  | --------- | --------- | --------- | - | ---------
|                   |  | 9/30/2007 |           | 9/30/2006
|Net Sales          |  |           |           |           |   |          
|Specialty Coffee   |  | $         | 3,002,156 |           | $ | 2,984,531
|Bakery             |  |           | 466,281   |           |   | 444,763  
|                   |  |           |           |           |   |          
|Total              |  | $         | 3,468,437 |           | $ | 3,429,294
|                   |  |           |           |           |   |          
|Intersegment Sales |  |           |           |           |   |          
|Specialty Coffee   |  | $         | 38,626    |           | $ | 36,072   
|                   |  |           |           |           |   |          
|Total Sales        |  | $         | 3,429,811 |           | $ | 3,393,222
|                   |  |           |           |           |   |          



16



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##### Table of Contents

Thanksgiving Coffee Company, Inc.

Notes to Financial Statements (continued)



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



|                              |  |           |           |   |            |   |           |  
|----------------------------- |  | --------- | --------- | - | ---------- | - | --------- | -
|                              |  | 9/30/2007 |           |   | 9/30/2006  |  
|Operating Income/(Loss)       |  |           |           |   |            |   |           |  
|Specialty Coffee              |  | $         | 100,514   |   |            | $ | (189,656  | )
|Bakery                        |  |           | (31,507   | ) |            |   | (32,362   | )
|                              |  |           |           |   |            |   |           |  
|Total                         |  | $         | 69,006    |   |            | $ | (222,018  | )
|                              |  |           |           |   |            |   |           |  
|Depreciation and Amortization |  |           |           |   |            |   |           |  
|Specialty Coffee              |  | $         | 81,522    |   |            | $ | 88,389    |  
|Bakery                        |  |           | 13,088    |   |            |   | 13,212    |  
|                              |  |           |           |   |            |   |           |  
|Total                         |  | $         | 94,610    |   |            | $ | 101,601   |  
|                              |  |           |           |   |            |   |           |  
|Interest Expense              |  |           |           |   |            |   |           |  
|Specialty Coffee              |  | $         | 35,771    |   |            | $ | 44,673    |  
|Bakery                        |  |           |          |   |            |   |          |  
|                              |  |           |           |   |            |   |           |  
|Total                         |  | $         | 35,771    |   |            | $ | 44,673    |  
|                              |  |           |           |   |            |   |           |  
|                              |  |          
|                              |  | 9/30/2007 |           |   | 12/31/2006 |  
|Assets                        |  |           |           |   |            |   |           |  
|Specialty Coffee              |  | $         | 960,849   |   |            | $ | 1,138,160 |  
|Bakery                        |  |           | 238,479   |   |            |   | 252,402   |  
|                              |  |           |           |   |            |   |           |  
|Total                         |  | $         | 1,199,328 |   |            | $ | 1,390,562 |  
|                              |  |           |           |   |            |   |           |  
|Fixed Assets - Net            |  |           |           |   |            |   |           |  
|Specialty Coffee              |  | $         | 341,478   |   |            | $ | 417,657   |  
|Bakery                        |  |           | 62,812    |   |            |   | 71,408    |  
|                              |  |           |           |   |            |   |           |  
|Total                         |  | $         | 404,290   |   |            | $ | 489,065   |  
|                              |  |           |           |   |            |   |           |  



17



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##### Table of Contents

THANKSGIVING COFFEE COMPANY, INC.



|ITEM 2. | MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -----------------------------------------------------------------------------------

FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-QSB contains
forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. In some cases, forward-looking statements may be identified by words such as believe,
anticipate, expect, intend, plan, will, may, and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements. These statements relate to, among other things, possible expansions into new and existing markets and trends in the operations of Thanksgiving Coffee Company, Inc. (the
Company). Any forward-looking statements should be considered in light of various risks and uncertainties that could cause results to differ materially from expectations, estimates or forecasts expressed. These various risks and uncertainties
include, but are not limited to: changes in general economic conditions, changes in business conditions in the coffee industry, fluctuations in consumer demand for coffee products and in the availability and costs of green beans, continuing
competition within the Companys businesses, variances from budgeted sales mix and growth rate, consumer acceptance of the Companys products, inability to secure adequate capital to fund its operating expenses and working capital
requirements, inability to hire, train and retain qualified personnel, concentration of production and sales in Northern California, the loss of one or more major customers, inability to successfully implement the Companys sales goals, natural
disasters, civil unrest in countries which produce coffee and tea, weather and other risks identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this Quarterly
Report on Form 10-QSB. The Companys forward-looking statements should also be considered in light of its reviewed financial statements, related notes and the other financial information appearing elsewhere in this report and in its other
filings with the Securities and Exchange Commission. As a result of these risks and uncertainties, the Companys actual results may differ materially and adversely from those expressed in any forward-looking statements. The Company assumes no
obligation to update any forward-looking statements.

SUMMARY

Sales of the Company have eroded over the last five years primarily due to declines in the direct distribution sales method of the Companys business (i.e., delivery by company truck). Increased competition, customer attrition and
customers roasting green beans for their own use have all had a negative impact on the Companys sales. The Company has tried a number of strategies that have not proven effective in abating these declines. In 2004, the Company began changing
its method of distribution to rely less on direct distribution and instead use independent distributors or shipping direct (via UPS or other common carrier). The effect of these changes on the Companys sales has been limited but has reduced
distribution expenses. Because of the limited impact of these changes, as well as the increase in cost of sales and other factors noted herein, there can be no assurances that the Company will be profitable in any future period, and, as a
consequence, the Company is considering various strategic alternatives.

The Company pays substantially more for its green beans than the market price,
because of quality, organic nature of many of its lines and the fact that it uses fair-traded coffees. Green bean costs continue to be firm in 2007 and have placed pressure on margins. If green bean costs do not decline or continue to rise, whether
as a consequence of inclement weather in a major producing area or any other event that affects green bean pricing, and the Company cannot offset costs by raising prices, it would have a negative impact on the Company and its margins.

The Company has a revolving line of credit for $25,000 of which $8,000 is currently outstanding and a term debt facility of $285,619 with the Savings Bank of Mendocino.
The term debt is a five-year note due December 1, 2009 and the line of credit is renewed annually. If the credit line should not be renewed, the stability of the Companys business would be in question. See Liquidity and Capital
Resources.

Results of Operations

Three months ended September 30, 2007 versus September 30, 2006



|                              |  |                     |         |    |                |       |   
|----------------------------- |  | ------------------- | ------- | -- | -------------- | ----- | --
|Consolidated                  |  | Increase (Decrease) |         |    | Percent Change |      
|Net Sales                     |  | $                   | 25,182  |    |                | 2.2   | % 
|Cost of Sales                 |  | $                   | 20,626  |    |                | 3.1   | % 
|Gross Margin                  |  |                     | (.5     | )% |                | (1.2  | )%
|Selling, G&A Expense          |  | $                   | (75,470 | )  |                | (15.9 | )%
|Depreciation And Amortization |  |                     | (518    | )  |                | (1.6  | )%
|Interest Expense              |  | $                   | (6,962  | )  |                | (36.6 | )%
|Net Income (Loss)             |  | $                   | 83,129  |    |                |      |   



18



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##### Table of Contents

Consolidated net sales for the three months ended September 30, 2007 were $1,175,290, up 2.2% or $25,182 when
compared with net sales of $1,150,108 for the same period in fiscal 2006.

Distribution revenues (e.g., revenues generated on our own truck distribution)
were down $5,000, or 1% for the three months ended September 30, 2007 when compared with the same period in fiscal 2006. One foodservice account in the bay area discontinued use of the Companys products.

National revenues (e.g., revenues not derived by mail order and direct truck distribution) for the three months ended September 30, 2007 were up $30,000 or 8% when
compared to sales for the same period in 2006. The drop in volume from a national chain has been offset by gains with an existing distributor in southern California and several new customers.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media or the Internet) increased nearly $16,000 or 14%, for
the three months ended September 30, 2007 when compared to the same period in 2006. The increase in mail order and the cornucopia program is a result of continued promotion of the online store and additional partners for the non-profits in the
cornucopia program.

Sales for the Company bakery were down $16,000, or 8% for the three months ended September 30, 2007 when compared to the same
period in 2006. Volume dropped because of lower customer counts.

Consolidated cost of sales for the three months ended September 30, 2007 were
$686,962, up 3.1% or over $20,000 when compared with the cost of sales of $666,336 for the same period in 2006. This increase is a result of higher costs for green beans and higher sales.

Consolidated gross margin (gross profit as a percentage of net sales) for the three months ended September 30, 2007 was 41.6%, a decrease of .5% when compared with
gross margin of 42.1% for the same period in 2006. The decrease in gross margin percentage is a result of higher green bean costs this year compared to the same period last year. Average per pound cost for the three month period ending September
2007 was $2.06 versus a per pound price of $1.89 for the same period in 2006 or an increase of $28,000.

Consolidated selling, general and administrative
expenses were $397,987 for the three months ended September 30, 2007, a decrease of nearly 15.9% or over $75,000 when compared with the selling, general and administrative expenses of $473,457 for the same period in 2006. The decrease was due
to a $45,000 drop in wages, payroll taxes and benefits through a reduction in personnel and hours worked and a reduction in salary for the President and CEO, a $15,000 reduction in fees by a certifying agency, $7,500 reduction in shareholder expense
by performing shareholder relations tasks by Company staff instead of an outside consultant and a $5,000 reduction in distribution expenses by an elimination of another route.

Depreciation and amortization expenses for the three months ended September 30, 2007 were $32,859, a 1.6% decrease, or more than $500, when compared to depreciation and amortization expenses of $33,377 for the
same period in fiscal 2006. Additions for the three months ended September 30, 2007 were $3,000 for brewing equipment and $3,000 for computer equipment.

Interest expense for the three months ended September 30, 2007 was $12,067, a 36.6% decrease, or nearly $7,000 from interest expense of $19,029 for the same period in 2006. The decrease in interest expense is a result of lower debt for
the three month period ending September 30, 2007 compared to the same period in 2006. Total debt is $503,411 at September 30, 2007 versus $510,532 for December 31, 2006. Interest rates are slightly lower because of fewer capitalized
leases at September 30, 2007 compared to the same period last year. Capitalized leases have higher interest rates than the term debt (See Liquidity and Capital Resources section).

As a result of the foregoing factors, the Company had a consolidated net profit of $46,321 for the three months ended September 30, 2007, compared to a consolidated net loss of $36,808 for the same period in
2006. Because of the decline in volume in the past and the higher cost of green beans, there can be no assurances that the Company will be profitable in any future period.

Nine months ended September 30, 2007 versus September 30, 2006



|                              |  |                     |          |   |                |       |   
|----------------------------- |  | ------------------- | -------- | - | -------------- | ----- | --
|Consolidated                  |  | Increase (Decrease) |          |   | Percent Change |      
|Net Sales                     |  | $                   | 36,589   |   |                | 1.1   | % 
|Cost of Sales                 |  |                     | (15,504  | ) |                | (.8   | )%
|Gross Margin %                |  |                     | 1.1      | % |                | 2.7   | % 
|Selling, G&A Expense          |  |                     | (232,747 | ) |                | (15.4 | )%
|Depreciation And Amortization |  |                     | (6,991   | ) |                | (6.9  | )%
|Interest Expense              |  |                     | (8,902   | ) |                | (19.9 | )%
|Net Income (Loss)             |  |                     | 300,317  |   |                |      |   



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Consolidated net sales for the nine months ended September 30, 2007 were $3,492,811, up 1.1%, or over $36,000 when
compared with net sales of $3,393,222 for the same period in fiscal 2006.

Distribution revenues (e.g., revenues generated on our own truck distribution)
were down $60,000, or 6% for the nine month period ended September 30, 2007, when compared with distribution sales for the same period in fiscal 2006. The Company lost two foodservice accounts in the bay area during the year and a large chain
has discontinued the Companys product placement when their stores are remodeled.

National revenues (e.g., revenues not derived by mail order and
direct truck distribution) were up $20,000, or 2% for the nine months ended September 30, 2007 when compared to national sales for the same period in 2006. The increase was a result of growth from the southern California distributor and several
new accounts added during this period.

Mail order revenues (e.g., revenues generated from product sold directly to the consumer either through print media
or the Internet) increased over $70,000, or 20% for the nine months ended September 30, 2007 when compared to mail order sales for the same period in 2006. Increases of the Companys Ugandan Mirembe coffee through the
cornucopia program (non-profit organizations that use the Companys coffee for fund-raising purposes) and several specials promoted on the Companys mail order and web store business has improved performance of this method of distribution.

Sales of the Company bakery were up over $10,000, or 2% for the nine months ended September 30, 2007 when compared to bakery sales for the same
period in 2006.

Consolidated cost of sales for the nine months ended September 30, 2007 were $1,983,316 down .8%, or over $15,500 when compared with
the cost of sales of $1,998,820 for the same period in 2006. This decrease was a result of an increase in green bean costs offset by slightly lower wages, benefits, medical and general insurance.

Consolidated gross margin percentage (gross profit as a percentage of net sales) for the nine months ended September 30, 2007 was 42.2%, up 1.1 % when compared
with gross margin of 41.1% for the same period in 2006. The increase in gross margin was a result of improved sales as a percentage of total sales of the mail order and cornucopia sales methods which have a higher margin than the other sales methods
and the loss of a national account that would not accept a price increase. This account had very low margins.

Consolidated selling, general and
administrative expenses were $1,282,075 for the nine months ended September 30, 2007, a decrease of 15.4% or nearly $233,000 when compared with the selling, general and administrative expenses of $1,514,819 for the same period in 2006. The
decrease was a result of nearly $133,000 decrease in payroll expenses through a reduction in personnel and hours worked and salary cuts including salary reduction of the President and CEO, a $17,000 reduction in shareholder expense by performing
shareholder relations tasks by Company staff rather than an outside consultant, a $15,000 reduction in certification fees from two different certifying agencies, a $15,000 reduction in travel and entertainment, a $10,000 reduction in expenses
because of an elimination of another route, a $20,000 reduction in legal fees, an $8,000 decrease in rental expense with the closing of the maintenance warehouse and a $5,000 reduction in lease expense as two leases expired.

Depreciation and amortization expenses for the nine months ended September 30, 2007 were $94,610, a 6.9% decrease, or nearly $7,000, when compared to depreciation
and amortization expenses of $101,601 for the same period in fiscal 2006. The decrease in depreciation expense was a result of fewer purchases of fixed assets during the year.

Interest expense for the nine months ended September 30, 2007 was $35,771, a 19.9% decrease, or nearly $9,000 compared to interest expense of $44,673 for the same period in 2006. Total debt is $503,411 at
September 30, 2007 versus $524,324 for the same period in 2006.

As a result of the foregoing factors, the Company had a consolidated net profit of
$37,370 for the nine months ended September 30, 2007, compared to a loss of $262,947 for the same period in 2006. Because of the past sales declines and the increase in the cost of green beans, there can be no assurances that the Company will
be profitable in future period.



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LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2007, the Company had working capital of $170,562 versus working capital of $66,905 as of December 31, 2006. The increase in working capital is due primarily to a substantial decrease in
accounts payable of over $190,000. The payable decline is a result of settling a dispute with a certifying agency for $30,000, paying down older payables of nearly $80,000 and converting amounts due for rent payable in arrears to the majority
shareholders of $73,100 from a current payable to a term debt. From time to time, beginning in May 2006, the majority shareholders, who lease the main office, production and warehouse facilities to the Company, had accepted the deferment of the rent
for the facility when the Company did not have sufficient cash on hand to make the payment. The amount in the term debt as of September 30, 2007 represents approximately 7.5 months rent. The current rent is being paid on a timely basis.

Net cash provided by operating activities was $77,846 for the nine months ended September 30, 2007 compared to net cash used in operating activities
for the nine months ended September 30, 2006 of $2,999. The increase in cash provided by operating activities in the nine months of 2007 was the result of profit generated by the Company compared to a substantial loss the prior year and a
reduction of receivables and inventories offset by a reduction of payables when compared to the same period in 2006.

Cash used in investing activities was
$19,652 for the nine months ended September 30, 2007 compared to $101,015 used in the same period in 2006. Capital additions for the first nine months of 2007 were $4,000 for a transmission of a delivery truck, $6,000 for new brewers, $3000 for
a new in-store fixture, $3,000 for computer equipment and $3,000 for production equipment.

Net cash used in financing activities for the nine months ended
September 30, 2007 was $80,221 compared to net cash provided by financing activities of $8,804 during the same period in 2006. The Company did not borrow any new amounts for financing operations. It did convert an accounts payable liability to
a term debt of the majority shareholders as noted above.

Because of the profitability and the reduction of inventories and receivables and the reduction
of capital equipment offset by the payment of accounts payable and repayment of debt, cash at September 30, 2007 is over $22,000 lower than the cash balance at January 1, 2007 and over $36,000 higher than cash at September 30, 2006.

In November 2004, the Company secured a term note with the Savings Bank of Mendocino. This note is amortized over ten years and is payable in five years
with a balloon payment on December 1, 2009 at 3% over prime rate. The rate was 11.25% at September 30, 2007. The note is collateralized by the Companys accounts receivable, inventory, equipment, instruments, general intangibles and
contract rights. This note is personally guaranteed by the Companys majority shareholders. As of September 30, 2007 the balance on the note is $285,619 (See Note 7 of Notes to the Financial Statements)

The Company also has a $25,000 line of credit with the Savings Bank of Mendocino. The credit line is interest only payments renewable annually at 3% over the prime rate.
Prime rate was 11.25% at September 30, 2007 with an outstanding balance on the line of $8,000. The credit line is collateralized by a security interest of first priority in all accounts receivable, inventory, equipment, instruments, general
intangibles and contract rights. The line of credit is personally guaranteed by the Companys majority shareholders. (See Note 7 of Notes to Financial Statements)

The Company has an interest only loan outstanding for $19,919 and an interest and principal loan outstanding for $65,100 at September 30, 2007, payable to the majority shareholders Joan and Paul Katzeff . The
interest only loan is at 12%, with balance due on demand after June 30, 1996. The principal and interest loan is at 12% payable in monthly installments of $2,000 plus interest with the balance due on July 2009. (See Note 7 and Note 11 of Notes
to Financial Statements)

At June 30, 2007, the Company had total borrowings of $503,411 including $293,619 owing to the Savings Bank of Mendocino.
This compares to total borrowings of $510,532 as of December 31, 2006, including $327,117 outstanding to the Savings Bank of Mendocino.

For long-term
debt, see Note 7 and Note 11 of the Notes to Financial Statements. For operating leases, see Note 9 of the Notes to Financial Statements. For real estate leases, see Note 10 and Note 11 of the Notes to Financial Statements.



|                        |  |                        |           |                    |   |           |  |           |         |              |   |         |  |   |        
|----------------------- |  | ---------------------- | --------- | ------------------ | - | --------- |  | --------- | ------- | ------------ | - | ------- |  | - | -------
|                        |  | Payments Due By Period
|Contractual Obligations |  | Total                  |           | Less than One year |   | 1-3 years |  | 4-5 years |         | After 5years
|Long Term Debt          |  | $                      | 503,411   |                    | $ | 56,461    |  | $         | 427,940 |              | $ | 19,010  |  | $ |       
|Operating Leases        |  |                        | 28,666    |                    |   | 11,380    |  |           | 15,307  |              |   | 1,979   |  |   |       
|Real Estate Leases      |  |                        | 1,073,832 |                    |   | 38,937    |  |           | 312,870 |              |   | 309,225 |  |   | 412,800
|Total Cash Obligations  |  | $                      | 1,605,909 |                    | $ | 106,778   |  | $         | 756,117 |              | $ | 330,214 |  | $ | 412,800



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The Company is dependent on successfully executing its business plan to achieve profitable operations, obtaining
additional sources of borrowings (including normal trade credit) and securing favorable financing arrangements (including lease financing) to finance its working capital needs. There can be no assurance that the Company will be successful in this
regard. If the Company is not able to meet its credit obligations the stability of the Companys business would be in question.

RELATED PARTY
TRANSACTIONS

From time to time, the Company enters into various transactions with its majority shareholders, Paul and Joan Katzeff. See note 11
 Related Party Transactions in the Notes to the Financial Statements.

SEASONALITY AND OTHER FACTORS AFFECTING PERFORMANCE

The Companys business is seasonal in nature. The seasonal availability of green bean coffee in the first two quarters of the year and increased sales in the last
quarter historically creates a high use of cash and a build up in inventories in the first two quarters, with a corresponding decrease in inventory and increase in cash in the last quarter. Because of the seasonality of the Companys business,
results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. Furthermore, past seasonal patterns are not necessarily indicative of future results.

INDEMNIFICATION MATTERS

The Companys Bylaws provide that the
Company may indemnify its directors, officers, employees and other agents to the fullest extent permitted by California law. The Company believes that indemnification under its Bylaws also permits the Company to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether California law would permit indemnification. The Company maintains such liability insurance for its directors and
certain officers and employees.

At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company
where indemnification would be required or permitted. The Company is not aware of any pending or threatened litigation or proceeding that might result in a claim for such indemnification.



|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------

An evaluation was performed under
the supervision and with the participation of the Companys management, including the Chief Executive Officer, the President and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures as of
September 30, 2007. Based on that evaluation, the Companys management, including the Chief Executive Officer, the President and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective.
There have been no changes in the Companys Disclosure controls over financial reporting during the third quarter of 2007 that have materially affected or are reasonably likely to affect the Companys internal controls over financial
reporting.

Part II  Other Information



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

-None-



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##### Table of Contents

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

- None 



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

- None 



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

At the
Companys annual meeting held in Mendocino at 10:00 A. M. on Friday, September 28, 2007, the Company submitted for a vote of security holders the election of three directors and ratification of the Companys independent public
accountants Schumacher & Associates, Inc. Below is a summary of the results:

Proposal No. 1: Election of three directors



|                 |  |            |  |                  |  |        
|---------------- |  | ---------- |  | ---------------- |  | -------
|Name             |  | Shares for |  | Against/Withheld |  | Abstain
|Paul Katzeff     |  | 982,450    |  | 0                |  | 0      
|Joan Katzeff     |  | 982,450    |  | 0                |  | 0      
|Nicholas Hoskyns |  | 982,450    |  | 0                |  | 0      

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



|                             |  |            |  |                  |  |        
|---------------------------- |  | ---------- |  | ---------------- |  | -------
|Name                         |  | Shares for |  | Against/Withheld |  | Abstain
|Schumacher & Associates, Inc |  | 982,450    |  | 0                |  | 0      



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

- None 



|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K
|------- | --------------------------------



| | a. | Exhibits
| | -- | --------



|     |  |                                                                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.1 |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
|     | 
|31.2 |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (President)               
|     | 
|31.3 |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer) 
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).  
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (President).                
|     | 
|32.3 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).  



| | b. | No reports filed on Form 8-K
| | -- | ----------------------------



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SIGNATURES

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

THANKSGIVING COFFEE COMPANY, INC.



|                              |  |                         |  |                  
|----------------------------- |  | ----------------------- |  | -----------------
|Name                          |  | Title                   |  | Date             
|                              |  |                        
|/s/ Paul Katzeff Paul
Katzeff |  | Chief Executive Officer |  | November 14, 2007
|                              |  |                        
|/s/ Joan Katzeff Joan
Katzeff |  | President               |  | November 14, 2007
|                              |  |                        
|/s/ Sam Kraynek Sam
Kraynek   |  | Chief Financial Officer |  | November 14, 2007



24