<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 20, 2000
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 NUMBER 0-21203
DIEDRICH COFFEE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0086628
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
</TABLE>
2144 MICHELSON DRIVE
IRVINE, CALIFORNIA 92612
(Address of Principal Executive Offices including Zip Code)
(949) 260-1600
(Registrant's Telephone Number including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of November 1, 2000, there were 12,645,356 shares of common stock of the
registrant outstanding.
<PAGE> 2
DIEDRICH COFFEE, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets........................................ 3
Condensed Consolidated Statements of Operations.............................. 4
Condensed Consolidated Statements of Cash Flows.............................. 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk..................... 15
PART II- OTHER INFORMATION
Item 1 Legal Proceedings.............................................................. 15
Item 5 Other Information.............................................................. 16
Item 6 Exhibits and Reports on Form 8-K............................................... 17
Signatures..................................................................... 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 20, 2000 JUNE 28, 2000
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS (NOTE 3)
Current Assets:
Cash $ 1,370,889 $ 2,943,554
Accounts receivable 3,241,353 2,359,015
Inventories (Note 2) 3,819,253 4,327,011
Prepaid expenses 475,764 382,193
Income taxes receivable 16,232 16,232
----------------- -----------------
Total current assets 8,923,491 10,028,005
Property and equipment, net 15,004,523 15,455,807
Costs in excess of net assets acquired, net 14,008,408 14,184,306
Other assets 617,979 661,736
----------------- -----------------
Total assets $ 38,554,401 $ 40,329,854
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease $ 390,699 $ 390,699
Current installments of long-term debt (Note 3) 1,133,000 1,075,000
Accounts payable 5,996,480 6,393,029
Accrued compensation 2,138,908 1,612,572
Accrued expenses 2,205,467 2,065,078
Franchisee deposits 641,080 662,974
Deferred franchise fee income 701,637 796,500
Provision for store closure 1,120,431 1,247,856
----------------- -----------------
Total current liabilities 14,327,702 14,243,708
Obligations under capital lease, excluding current installments 608,408 659,865
Long-term debt, excluding current installments (Note 3) 8,867,000 9,591,667
Deferred rent 742,166 713,025
----------------- -----------------
Total liabilities 24,545,276 25,208,265
----------------- -----------------
Stockholders' Equity:
Common stock 126,169 126,169
Additional paid-in capital 52,552,412 52,552,412
Accumulated deficit (38,669,456) (37,556,992)
------------------ ------------------
Total stockholders' equity 14,009,125 15,121,589
----------------- -----------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 38,554,401 $ 40,329,854
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS TWELVE WEEKS
ENDED ENDED
SEPTEMBER 20, 2000 SEPTEMBER 22, 1999
---------------- ----------------
<S> <C> <C>
Revenues:
Retail $ 10,610,679 $ 10,463,138
Wholesale and other 4,789,761 4,634,569
Franchise revenue 1,477,173 1,174,818
---------------- ----------------
Total revenues 16,877,613 16,272,525
---------------- ----------------
Cost and Expenses:
Cost of sales and related occupancy costs 8,447,527 7,961,390
Store operating expenses 4,391,407 3,870,585
Operations management 1,096,946 1,081,766
Other operating expenses 438,446 462,160
Depreciation and amortization 1,038,938 806,879
General and administrative expenses 2,227,132 2,251,828
---------------- ----------------
Total 17,640,396 16,434,608
---------------- ----------------
Operating loss (762,783) (162,083)
Interest expense (358,203) (286,889)
Interest and other income 11,782 66,681
---------------- ----------------
Loss before income tax provision (1,109,204) (382,291)
Income tax provision 3,260 7,200
---------------- ----------------
Net loss $ (1,112,464) $ (389,491)
================ ================
Net loss per share - basic and diluted $ (0.09) $ (0.03)
================ ================
Weighted average shares outstanding - basic and 12,645,356 12,022,467
diluted ================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS TWELVE WEEKS
ENDED SEPTEMBER 20, ENDED SEPTEMBER 22,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,112,464) $ (389,491)
Adjustments to reconcile net loss to cash used in
Operating activities:
Depreciation and amortization 1,038,938 922,385
Amortization of loan fees 39,832 -
Changes in assets and liabilities:
Accounts receivable (882,338) (799,084)
Inventories 507,758 (88,149)
Prepaid expenses (93,571) (286,366)
Other assets 3,120 (65,288)
Accounts payable (396,549) (260,060)
Accrued compensation 526,336 274,408
Accrued expenses and restructuring charge 140,389 (1,234,032)
Provision for store closure (244,182) -
Deferred rent 29,141 7,400
---------------- ----------------
Net cash used in operating activities (443,590) (1,918,277)
----------------- -----------------
Cash flows from investing activities:
Capital expenditures for property and equipment (410,951) (312,516)
Cash paid for acquisition, net - (22,937,351)
Decrease in reserve for stores to be disposed of - (237,980)
---------------- -----------------
Net cash used in investing activities (410,951) (23,487,847)
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 25,979,511
Proceeds from the issuance of note
payable, net of fees paid - 11,645,558
Repayment of long-term debt (666,667) (7,141,691)
Repayment on capital lease obligations (51,457) (94,437)
----------------- -----------------
Net cash (used in) provided by financing activities (718,124) 30,388,941
----------------- ----------------
Net increase (decrease) in cash (1,572,665) 4,982,817
Cash at beginning of period 2,943,554 552,124
---------------- ----------------
Cash at end of period $ 1,370,889 $ 5,534,941
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 306,203 $ 110,724
=============== ===============
Income taxes $ 3,260 $ 10,806
================ ================
Non-cash transactions:
Issuance of common stock to acquire Coffee People $ - $ 8,415,000
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 20, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of Diedrich
Coffee, Inc. (the "Company") and subsidiaries have been prepared in accordance
with generally accepted accounting principles, the instructions to Form 10-Q and
Article 10 of Regulation S-X. Information relating to the periods ending prior
to July 7, 1999 included in this report relates to the historical operations of
Diedrich Coffee, Inc. and, except as otherwise indicated, does not reflect the
operations of Coffee People, Inc., which the Company acquired on July 7, 1999.
These statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 28, 2000.
In the opinion of management, all adjustments (consisting of normal,
recurring adjustments and accruals) considered necessary for a fair presentation
have been included. Operating results for interim periods are not necessarily
indicative of the results expected for a full year.
Costs in Excess of Net Assets Acquired
In connection with the fourth quarter of fiscal year 2000 $14.8 million
impairment charge taken against costs in excess of net assets acquired,
management changed the related amortization periods from 40 years to 30 years
for the Gloria Jean's division and 10 years for both the Coffee People and
Coffee Plantation divisions. Such revised amortization periods, which became
effective in the first quarter of fiscal year 2001, reflect management's best
estimate of the underlying periods of recoverability of the costs in excess of
net assets acquired.
Reclassifications
Certain reclassifications have been made to the September 22, 1999
consolidated financial statements to conform to the September 20, 2000
presentation.
2. INVENTORIES
Inventories consist of the following:
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<CAPTION>
SEPTEMBER 20, 2000 JUNE 28, 2000
------------------ -------------
<S> <C> <C>
Green coffee (raw materials) $1,353,389 $1,371,009
Roasted coffee (finished goods) 650,407 789,816
Accessory and specialty items 546,175 750,667
Other food, beverage and supplies 1,269,282 1,415,519
--------- ---------
$3,819,253 $4,327,011
========== ==========
</TABLE>
6
<PAGE> 7
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 20, 2000
(UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
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<CAPTION>
SEPTEMBER 20, 2000 JUNE 28, 2000
-------------------- -------------
<S> <C> <C>
BANKBOSTON, N.A. (FLEET NATIONAL BANK)
Note payable bearing interest at a rate of
9.88% as of September 20, 2000. Due
September 1, 2002. Note is secured by the
assets of the Company and its subsidiaries'
stock. $10,000,000 $10,666,667
-------------------- -------------
Less: current installments 1,133,000 1,075,000
-------------------- -------------
Long-term debt, excluding current $ 8,867,000 $ 9,591,667
installments
</TABLE>
On July 7, 1999, the Company entered into a Credit Agreement with
BankBoston, N.A. (subsequently merged into Fleet National Bank) secured by
pledges of all of the Company's assets and its subsidiaries' stock and which
provided for a $12 million term loan and a $3 million revolving credit facility.
The Company used the proceeds of the term loan to repay existing indebtedness
and to pay expenses related to the acquisition of Coffee People. The term loan
provided for principal repayment based upon a five year amortization, with
quarterly principal payments of $666,667 and quarterly interest payments based
upon a formula described below. The Company established the revolving credit
facility for future flexibility to remodel existing company-owned coffeehouses,
develop new company coffeehouses, and for general corporate purposes. The
Company has not drawn down any borrowings under the revolving credit facility
since it was established, although it presently has $284,000 of outstanding
Letters of Credit backed by the revolving credit facility. Amounts outstanding
under the Credit Agreement bear interest, at the Company's option, at Fleet's
base rate plus 1.25% or an adjusted Eurodollar rate plus 3.0%. At June 28, 2000,
the effective interest rate was 9.88%.
Due to various problems encountered in the year subsequent to the
acquisition, including the closure of 39 Gloria Jean's locations, six of which
were company operated, we announced on June 29, 2000 that we expected to be in
default under our Credit Agreement because of our inability to meet certain
financial covenants. We simultaneously announced that on June 27, 2000, we had
entered into a Letter Agreement with Fleet National Bank under which the bank
agreed to extend the due date of the June 30, 2000 quarterly principal payment
until July 31, 2000, and to forbear until July 31, 2000 from exercising any of
its rights and remedies arising from financial covenant defaults. We
subsequently made the July 31, 2000 principal payment as required on the
extended due date, and on August 17, 2000 we entered into an extension of the
June 27, 2000 Letter Agreement which extended through September 30, 2000 the
bank's forbearance from exercising any of its default remedies.
On September 26, 2000, we entered into a First Amendment to Credit
Agreement with Fleet National Bank to amend certain terms of the original Credit
Agreement. The First Amendment to Credit Agreement provides, among other things,
for a significant reduction in required minimum principal amortization payments
going forward, an acceleration in the maturity date of all amounts owed under
the Credit Agreement, an agreement between the parties as to certain assets
intended to be sold as well as the allocation of future net asset sale proceeds
between the Company and the bank, the introduction of an additional event of
default under the Agreement, a reduction in the overall amount of the revolving
credit facility and certain new restrictions governing use of the facility, and
a modification of the financial covenants and the Company's ability to obtain
new third party debt going forward.
7
<PAGE> 8
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 20, 2000
(UNAUDITED)
Specifically, under the terms of the First Amendment to Credit Agreement,
no further principal payments on the term loan are required from August 1, 2000
until January 31, 2001. The Company must then pay minimum principal payments of
$25,000 per month beginning February 1, 2001, which increase to $100,000 per
month beginning July 1, 2001 until all amounts owed under the Credit Agreement
are repaid. The First Amendment to Credit Agreement accelerates the maturity
date of all remaining amounts owed under the Credit Agreement from July 6, 2004
to September 1, 2002. In addition, the Company and the bank identified certain
assets that could be sold without interfering with the Company's growth
strategy, including two pieces of owned real property under existing company
retail locations, which are expected to be leased back from the buyer, a third
parcel of owned real property, presently undeveloped, and certain company
operated coffeehouses outside of its core southern California market that could
be refranchised. Under the terms of the First Amendment to Credit Agreement, the
bank is to receive 50% of the net proceeds from these sales and any other such
asset sales, which are expected to begin in fiscal 2001 and to be completed by
the end of June 2002. The interest rate and the timing of quarterly interest
payments under the original Credit Agreement remain unchanged under the First
Amendment to Credit Agreement.
The amendment also introduces an additional event of default under the
Agreement. The amendment specifies that a materially adverse change in the
financial condition of the Company (or any of its subsidiaries), as determined
by the bank in its sole and exclusive discretion, is defined as an event of
default. Under any event of default, the bank may declare all amounts owed
immediately due and payable. Additional changes under the terms of the First
Amendment to Credit Agreement include a reduction in the revolving credit
facility, which the Company had previously been unable to access because of the
covenant defaults, from a $3,000,000 limit to $1,293,000, and a restriction that
the reduced facility be used only to back up existing and future standby Letters
of Credit. The First Amendment to Credit Agreement preserves the Company's
ability to obtain third party financing for capital projects and maintenance
capital, and increases its flexibility to obtain subordinated debt as a source
of additional working capital. Under the First Amendment to Credit Agreement the
bank waived the previous financial covenant defaults, and agreed to new
financial covenant ratios going forward based upon updated financial information
and projections prepared by the Company. In addition to resetting such ratios in
the financial covenants as contained in the original Credit Agreement, the
parties agreed to a new covenant under the First Amendment to Credit Agreement
which commits the Company to achieving certain predetermined minimum levels of
cumulative principal repayments in addition to amounts already paid to date in
fiscal 2001 or reflected in the new go forward minimum monthly principal payment
obligations discussed above: $283,000 by March 2001; $708,000 by June 30, 2001;
and $1,619,900 by September 30, 2001. Such incremental principal repayments
(above the scheduled minimum monthly amounts described above) are anticipated to
be generated primarily from the 50% of net proceeds to be paid to the bank from
future asset sales, the issuance of new debt or equity, or a combination of
these sources.
4. LOSS PER SHARE
For the twelve weeks ended September 20, 2000 and September 22, 1999,
employee stock options to purchase 2,296,725 and 2,151,275 shares of common
stock, respectively, and warrants to purchase 920,000 shares of common stock
were not included in the computation of diluted loss per share as their effect
would have been anti-dilutive.
8
<PAGE> 9
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 20, 2000
(UNAUDITED)
5. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments which include retail operations,
wholesale operations and franchise operations. The Company evaluates performance
of its operating segments based on income before provision for asset impairment
and restructuring costs, income taxes, interest expense, depreciation and
amortization, and general and administrative expenses.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The other assets consist of corporate
cash, costs in excess of net assets acquired and corporate property, plant and
equipment. The other component of segment profit before tax includes corporate
general and administrative expenses, provision for asset impairment and
restructuring costs, depreciation and amortization expense and interest expense.
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Twelve Weeks ended September 20, 2000
Revenues $10,610,679 $4,789,761 $1,477,173 $ -- $ 16,877,613
Interest expense -- -- -- 358,203 358,203
Depreciation and amortization 476,557 171,697 -- 390,683 1,038,938
Segment profit (loss) before tax 58,112 774,660 631,577 (2,573,553) (1,109,204)
Total assets as of September 20, 2000 $13,564,768 $3,035,601 $ 562,234 $ 21,391,798 $ 38,554,401
</TABLE>
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Twelve Weeks ended September 22, 1999
Revenues $10,463,138 $4,634,569 $ 1,174,818 $ -- $16,272,525
Interest expense -- -- -- 286,889 286,889
Depreciation and amortization 448,120 33,716 -- 325,043 806,879
Segment profit (loss) before tax 374,248 1,001,709 692,232 (2,450,480) (382,291)
Total assets as of June 28, 2000 $13,679,086 $2,139,241 $ 549,713 $ 23,961,814 $40,329,854
</TABLE>
6. SUBSEQUENT EVENT
On October 3, 2000, the Company signed a franchise area development
agreement by and between Gloria Jean's Gourmet Coffees Franchising Corp. and
Specialty Beans Holding SDN BHD. The agreement calls for this developer to open
40 Gloria Jean's stores and kiosks over the development period of five years
within the geographic area of Thailand. Concurrent with the execution of the
agreement, the Company received $300,000 as a non-refundable development fee and
franchise fee for satisfaction of the development quota, which will be
recognized as franchise revenues on a pro rata basis as the stores subject to
the franchise area development agreement begin operations.
The Company guarantees approximately $289,000 of equipment lease
obligations for a coffeehouse operated by one of its developers. In October
2000, the Company was notified by the developer and its lender that the
developer was in default of its payment obligations under the lease, and on
October 31, 2000 the Company made an installment payment under the lease on
behalf of this developer. The Company anticipates the termination of this
developer's area development agreement in the current fiscal year. The financial
impact to the Company of this guarantee is not yet determinable. The Company has
not made any similar guarantees on behalf of its other area developers.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this quarterly report that are
subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of Diedrich Coffee's
financial condition, operations, plans, objectives and performance.
Additionally, when we use the words "believe," "expect," "anticipate,"
"estimate" or similar expressions, we are making forward-looking statements.
Many possible events or factors could affect our future financial results and
performance. This could cause our results or performance to differ materially
from those expressed in our forward-looking statements. You should consider
these risks when you review this document, along with the following possible
events or factors:
- the financial and operating performance of our retail operations;
- our ability to regain profitability;
- our ability to perform within the terms of our amended credit
agreement;
- the successful execution of our growth strategy, which is currently
being evaluated;
- the impact of competition; and
- the availability of working capital.
Foreseeable risks and uncertainties are described elsewhere in this report
and in detail under "Risk Factors and Trends Affecting Diedrich Coffee and Its
Business" in our Annual Report on Form 10-K for the fiscal year ended June 28,
2000 and in other reports that we file with the Securities and Exchange
Commission.
GENERAL
The first retail store operating under the name of Diedrich Coffee
commenced operations in 1972. We are now the second largest specialty coffee
retailer in the United States with annual system-wide sales of more than $150
million. At September 20, 2000, Diedrich Coffee owned and operated 98 retail
locations and had 276 franchised retail locations in 38 states and ten foreign
countries. Our primary brands are Diedrich Coffee coffeehouses and Gloria
Jean's, the nation's largest chain of mall coffee stores. We also own and
operate Coffee People and Coffee Plantation coffeehouses, which we may convert
to Diedrich coffeehouses. We sell specialty brewed coffee and espresso-based
beverages such as cappuccinos, lattes, mochas and espressos and various blended
drinks through these company-owned and franchised locations. To complement
beverage sales, we also sell light food items, whole bean coffee and accessories
at our retail locations. In addition, we have a strong wholesale division that
markets our products directly to independent and chain food service
establishments, as well as to businesses for office coffee systems through
brokers and sales representatives. We also sell our products directly to
customers through mail orders and our website.
In an effort to align our fiscal year with that of Coffee People, Inc.,
which we acquired on July 7, 1999, we changed our fiscal year end from a fiscal
year ending on the Wednesday nearest January 31 to a fiscal year ending on the
Wednesday nearest June 30. References to fiscal 1999 refer to the fiscal year
ended January 27, 1999 and references to fiscal 2000 refer to the fiscal year
ended June 28, 2000. In connection with the change in fiscal year end, our
quarterly periods were changed to include 12 weeks, except for the fourth
quarter, which has approximately 16 weeks.
10
<PAGE> 11
Franchise Area Development Agreements and Franchising Activities
Management's franchise development approach for Diedrich coffeehouses has
been to enter into franchise area development agreements covering major U.S.
markets. Recently, management determined that certain franchise area developers
would not be able to meet their agreed upon development schedules and has begun
the process of terminating their agreements. On September 13, 2000, Diedrich
Coffee and an area developer mutually terminated a franchise area development
agreement that called for the development of 50 Diedrich Coffee brand
coffeehouses in the San Diego, Temecula, and Palm Springs, California area. As
of September 20, 2000, Diedrich Coffee had a total of seven area development
agreements with commitments for the development of 341 coffeehouses, although
two agreements have been terminated since that date. On September 25, 2000,
Diedrich Coffee and an area developer mutually terminated a franchise area
development agreement that called for the development of ten Diedrich Coffee
brand coffeehouses in the states of Montana and Wyoming. Additionally, on
November 1, 2000, Diedrich Coffee terminated a franchise area development
agreement for the failure to pay area development fees. This agreement called
for the development of 50 Diedrich coffeehouses in the following California
counties: Kern, San Luis Obispo, Ventura, Santa Barbara, Los Angeles, Orange,
and Riverside, along with 17 Diedrich coffeehouses in Nevada. After the
termination of these agreements, a total of five franchise area development
agreements, with commitments for the development of 264 franchised coffeehouses,
remain.
We anticipate the termination of one additional franchise area development
agreement in the current fiscal year which would reduce the number of franchised
coffeehouses to be developed pursuant to area development agreements to 214.
Diedrich Coffee had provided a guarantee of this area developer's obligations of
approximately $289,000 under an equipment lease. As a result of a payment
default by this area developer, we have paid one monthly installment under this
equipment lease pursuant to this guarantee. We have not made any similar
guarantees for obligations of any other area developers.
On October 3, 2000, Diedrich Coffee, Inc. signed a franchise area
development agreement between Gloria Jean's Gourmet Coffees Franchising Corp.
and Specialty Beans Holding SDN BHD. The agreement calls for this developer to
open 40 Gloria Jean's retail locations over five years within the geographic
area of Thailand.
Management is currently assessing our franchising strategies for both the
Diedrich Coffee and Gloria Jean's brands. Our franchising efforts for Diedrich
coffeehouses have been temporarily suspended from time to time since June 28,
2000 in order for us to comply with applicable federal and state franchise
disclosure requirements and to update our Diedrich Coffee Uniform Franchise
Offering Circular ("UFOC"). We also have temporarily suspended selling new
Gloria Jean's franchises domestically pending the preparation of stand-alone
audited Gloria Jean's financial statements which will be included in our Gloria
Jean's UFOC. Presently there are franchise agreements in effect for 18 Gloria
Jean's retail locations, which were entered into since the acquisition of Coffee
People in July 1999, that contain a guarantee by Diedrich Coffee of Gloria
Jean's obligations pursuant to such agreements. Management has determined that
it is in the best interests of the company not to include a guarantee by
Diedrich Coffee in Gloria Jean's franchise agreements, although we may choose to
do so on an individual basis in the future. Pending the generation of audited
stand-alone financial statements for Gloria Jean's and registering Gloria Jean's
UFOC in applicable states with franchise regulations distinct from federal
guidelines which will enable us to sell Gloria Jean's franchises without a
Diedrich Coffee guarantee, we are not generally offering Gloria Jean's
franchises for sale domestically at present.
Other Recent Developments
On September 26, 2000, after three years as our President and Chief
Executive Officer, Timothy J. Ryan retired from Diedrich Coffee. Effective
September 27, 2000, J. Michael Jenkins, who has over 30 years experience in the
restaurant industry, was appointed to succeed him as our President and Chief
Executive Officer. Effective as of October 20, 2000, our board of directors
accepted John E. Martin's offer to transition from an executive Chairman of the
Board to a non-executive Chairman of the Board. Additionally, Greg MacIsaac, our
Senior Vice President -- Operations has announced his intention to resign,
effective November 8, 2000.
Since the arrival of Mr. Jenkins, the management team has been reassessing
our growth strategy. As a result, we have decided not to commence construction
and to terminate leases for four company-owned stores in
11
<PAGE> 12
southern California which were scheduled to open in fiscal 2001. We have
terminated one of the leases with consent of the landlord and are currently
negotiating the termination of the leases for the remaining three locations. In
addition, we are negotiating the termination of leases for three company-owned
stores located outside of southern California where construction has not
commenced.
Seasonality and Quarterly Results
Our business is subject to seasonal fluctuations as well as economic trends
that affect retailers in general. Historically, our net revenues have not been
realized proportionately in each quarter, with net revenues being the highest
during the second fiscal quarter which includes the December holiday season. Hot
weather tends to reduce revenues. Quarterly results are affected by the timing
of the opening of new stores, which may not occur as anticipated due to events
outside our control. As a result of these factors, and of the other
contingencies and risk factors described elsewhere in this report and our Annual
Report on Form 10-K, the financial results for any individual quarter may not be
indicative of the results that may be achieved in a full fiscal year.
RESULTS OF OPERATIONS
Twelve Weeks Ended September 20, 2000 Compared with the Twelve Weeks Ended
September 22, 1999
Total revenues. Total revenues for the twelve weeks ended September 20,
2000 increased 3.7% to $16,878,000 from $16,273,000 for the twelve weeks ended
September 22, 1999. During this most recent quarter, we derived 62.9% of total
revenues from our retail coffeehouse operations. Wholesale and mail order
revenue accounted for 28.4% of total revenues and franchise revenues counted for
8.8% of total revenues.
For the twelve weeks ended September 20, 2000, retail revenues, which
includes Diedrich Coffee, Coffee People, Coffee Plantation and Gloria Jean's
brand company-owned locations, increased 1.4% to $10,611,000 from $10,463,000 in
the twelve weeks ended September 22, 1999. This increase was principally due to
the impact of six new company-owned Diedrich coffeehouses, net of the closure or
transfer to franchisees of an aggregate of 13 company-owned locations in all of
our four brands since June 30, 1999. At September 20, 2000, we owned and
operated 98 retail locations. On September 22, 1999, we owned and operated 105
retail locations. Same store sales at Diedrich Coffee coffeehouses open at least
one year declined 0.2% for the quarter, as compared with the same period last
year. First quarter same store sales at our Coffee People and Coffee Plantation
coffeehouses declined 7.1% and 10.2% respectively. Same store sales at
company-owned Gloria Jean's locations declined 4.2% during the first quarter
compared with the same period last year.
Wholesale and other revenues increased 3.3% to $4,790,000 in the twelve
weeks ended September 20, 2000 from $4,635,000 for the twelve weeks ended
September 22, 1999. The increase primarily reflects the expanded wholesale
office coffee service through a strategic partnership with Keurig, Inc.
Franchise revenues, which includes both Diedrich Coffee and Gloria Jean's
franchised locations, increased 25.7% to $1,477,000 in the twelve weeks ended
September 20, 2000, from $1,175,000 in the twelve weeks ended September 22,
1999. Franchise revenues consists of initial franchise fees and royalties
received on sales made at each franchise location. As of September 20, 2000, we
had nine franchised Diedrich coffeehouses, 196 franchised Gloria Jean's mall
coffee stores and 71 Gloria Jean's franchised international coffee stores.
Cost of Sales and Related Occupancy Costs. Cost of roasted coffee, dairy,
food, paper and bar supplies, accessories and clothing (cost of sales) and rent
(related occupancy costs) for the twelve weeks ended September 20, 2000
increased to $8,448,000 from $7,961,000 for the twelve weeks ended September 22,
1999. As a percentage of total revenue, cost of sales and related occupancy
costs increased to 50.1% in the twelve weeks ended September 20, 2000 from 48.9%
in the twelve weeks ended September 22, 1999. The increase in the cost of sales
and related occupancy costs as a percentage of total revenue resulted from
several factors. Specifically, during this fiscal quarter, we sold certain
non-coffee inventory items, such as cups and merchandise, to outside
distributors at our purchase price. These sales are part of a strategy to
outsource the distribution of non-coffee items for Gloria Jean's franchisees.
Such outsourcing should result in long term benefits for the company. We
experienced a decrease in same store sales, which decreased our coffeehouse
margins, and utilized higher priced green coffee in certain of our coffee
blends. We also expanded our office coffee service through our strategic
partnership with Keurig, which sales have lower margins than coffeehouse sales,
plus we experienced an overall increase in freight and transportation costs.
Finally, occupancy costs increased due to normal lease escalations, and the
opening of new company coffeehouses.
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<PAGE> 13
Store Operating Expenses. Store operating expenses increased to $4,391,000
for the twelve weeks ended September 20, 2000 from $3,871,000 for the twelve
weeks ended September 22, 1999. As a percentage of retail and franchise
revenues, store operating expenses increased to 36.3% in the twelve weeks ended
September 20, 2000 from 33.3% in the twelve weeks ended September 22, 1999. This
increase in store operating expenses can be primarily attributed to the higher
costs of providing a more competitive benefits package to company-owned store
level employees.
Operations Management. Operations management increased to $1,097,000 for
the twelve weeks ended September 20, 2000 from $1,082,000 for the twelve weeks
ended September 22, 1999. As a percentage of retail and franchise revenues,
operations management slightly decreased to 9.1% in the twelve weeks ended
September 20, 2000 from 9.3% in the twelve weeks ended September 22, 1999.
Other Operating Expenses. Other operating expenses (those associated with
wholesale and other revenues) decreased to $438,000 in the twelve weeks ended
September 20, 2000 from $462,000 in the twelve weeks ended September 22, 1999.
These expenses, as a percentage of the revenues from the wholesale division,
decreased to 9.2% in the twelve weeks ended September 20, 2000 from 10.0% in the
twelve weeks ended September 22, 1999. The decrease can be primarily attributed
to a one person reduction in our sales force in our most recent quarter compared
to the twelve weeks ended September 22, 1999.
Depreciation and Amortization. Depreciation and amortization increased to
$1,039,000 in the twelve weeks ended September 20, 2000 from $807,000 in the
twelve weeks ended September 22, 1999. As a percentage of total revenue,
depreciation and amortization increased to 6.2% for the twelve weeks ended
September 20, 2000 compared to 5.0% for the twelve weeks ended September 22,
1999. This increase can be primarily attributed to the depreciation expense of
six new coffeehouses opened during the latter part of fiscal 2000 and newly
acquired equipment in our roasting plant.
General and Administrative Expenses. General and administrative expenses
decreased to $2,227,000 for the twelve weeks ended September 20, 2000 from
$2,252,000 for the twelve weeks ended September 22, 1999. As a percentage of
total revenue, general and administrative expenses decreased to 13.2% from
13.8%.
Interest Expense. Interest expense increased to $358,000 for the twelve
weeks ended September 20, 2000 from $287,000 for the twelve weeks ended
September 22, 1999. This increase was a result of an increase in our interest
rate under our $12 million term loan with Fleet National Bank (formerly
BankBoston, N.A.) which averaged 9.88% for the twelve weeks ended September 20,
2000 compared to 8.31% for the twelve weeks ended September 22, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years principally through
public and private placements of our common stock and long-term debt. We had a
working capital deficit of $5,404,000 as of September 20, 2000 compared to
working capital deficit of $4,216,000 as of June 28, 2000. Cash used in
operating activities for the twelve weeks ended September 20, 2000 totaled
$444,000 as compared to $1,918,000 for the twelve weeks ended September 22,
1999.
Net cash used in investing activities for the twelve weeks ended September
20, 2000 totaled $411,000, which was used for property and equipment
expenditures. Net cash used in financing activities for the twelve weeks ended
September 20, 2000 totaled $718,000 which consisted of payments of long-term
debt and capital leases.
On July 7, 1999, Diedrich Coffee completed a secondary offering of
4,930,000 shares (including an over-allotment option). All of the shares of
common stock were sold on behalf of Diedrich Coffee, of which 330,000 shares of
common stock were sold pursuant to the exercise of the underwriters'
over-allotment option. The net proceeds of the offering to Diedrich Coffee,
after deducting approximately $4.1 million in underwriters' commissions and
related expenses, were approximately $25.4 million.
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<PAGE> 14
On July 7, 1999, we entered into a Credit Agreement with BankBoston, N.A.
(subsequently merged into Fleet National Bank) secured by pledges of all of
Diedrich Coffee's assets and its subsidiaries' stock and which provided for a
$12 million term loan and a $3 million revolving credit facility. Diedrich
Coffee used the proceeds of the term loan to repay existing indebtedness and to
pay expenses related to the acquisition of Coffee People. The term loan provided
for principal repayment based upon a five year amortization, with quarterly
principal payments of $666,667 and quarterly interest payments based upon a
formula described below. Diedrich Coffee established the revolving credit
facility for future flexibility to remodel existing company-owned coffeehouses,
develop new company coffeehouses, and for general corporate purposes. Diedrich
Coffee has not drawn down any borrowings under the revolving credit facility
since it was established, although it presently has $284,000 of outstanding
Letters of Credit backed by the revolving credit facility. Amounts outstanding
under the Credit Agreement bear interest, at the company's option, at Fleet's
base rate plus 1.25% or an adjusted Eurodollar rate plus 3.0%.
On September 26, 2000, we entered into a First Amendment to Credit
Agreement with Fleet National Bank to amend certain terms of the original Credit
Agreement. The First Amendment to Credit Agreement provides, among other things,
for a significant reduction in required minimum principal amortization payments
going forward, an acceleration in the maturity date of all amounts owed under
the Credit Agreement, an agreement between the parties as to certain assets
intended to be sold as well as the allocation of future net asset sale proceeds
between the company and the bank, the introduction of an additional event of
default under the Agreement, a reduction in the overall amount of the revolving
credit facility and certain new restrictions governing use of the facility, and
a modification of the financial covenants and the company's ability to obtain
new third party debt going forward.
Specifically, under the terms of the First Amendment to Credit Agreement,
no further principal payments on the term loan are required from August 1, 2000
until January 31, 2001. The company must then pay minimum principal payments of
$25,000 per month beginning February 1, 2001, which increase to $100,000 per
month beginning July 1, 2001 until all amounts owed under the Credit Agreement
are repaid. The First Amendment to Credit Agreement accelerates the final
maturity date of all remaining amounts owed under the Credit Agreement from July
6, 2004 to September 1, 2002. In addition, the company and the bank identified
certain assets that could be sold, including two pieces of owned real property
under existing company retail locations, which would be leased back from the
buyer, a third parcel of owned real property, presently undeveloped, and certain
company operated coffeehouses outside of its core southern California market
that could be refranchised. Under the terms of the First Amendment to Credit
Agreement, the bank will receive 50% of the net proceeds from these sales and
any other such asset sales. We have commenced negotiations with respect to
certain of these sales. The interest rate and the timing of quarterly interest
payments under the original Credit Agreement remain unchanged under the First
Amendment to Credit Agreement.
The amendment also introduces an additional event of default under the
Agreement. The amendment specifies that a materially adverse change in the
financial condition of Diedrich Coffee (or any of our subsidiaries), as
determined by the bank in its sole and exclusive discretion, is defined as an
event of default. Under any event of default, the bank may declare all amounts
owed immediately due and payable. Additional changes to the Credit Agreement
under the terms of the First Amendment to Credit Agreement include a reduction
in the revolving credit facility, which the company had previously been unable
to access because of the covenant defaults, from a $3,000,000 limit to
$1,293,000 and a restriction that the reduced facility be used only to back up
existing and future standby Letters of Credit. The First Amendment to Credit
Agreement preserves the company's ability to obtain third party financing for
capital projects and maintenance capital, and increases its flexibility to
obtain subordinated debt as a source of additional working capital. Under the
First Amendment to Credit Agreement the bank waived the previous financial
covenant defaults, and agreed to new financial covenant ratios going forward
based upon updated financial information and projections prepared by the
company. In addition to resetting such ratios in the financial covenants as
contained in the original Credit Agreement, the parties agreed to a new covenant
under the First Amendment to Credit Agreement which commits the company to
achieving certain minimum levels of cumulative principal repayments in addition
to amounts already paid to date in fiscal 2001 or reflected in the new go
forward minimum monthly principal payment obligations discussed above: $283,000
by March 2001; $708,000 by June 30, 2001; and $1,619,900 by September 30, 2001.
Such incremental principal repayments (above the scheduled minimum monthly
amounts described above) are anticipated to be generated primarily from the 50%
of net proceeds to be paid to the bank from future asset sales, the issuance of
new debt or equity, or a combination of these sources.
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<PAGE> 15
Diedrich Coffee believes that cash from future operations and borrowings
under our existing credit facility will be sufficient to satisfy our working
capital needs at anticipated operating levels through the end of fiscal 2001,
including our obligations under our Credit Agreement as modified. As a result of
the cumulative principal repayments required under the covenants discussed
above, we anticipate the need for additional cash to be obtained either through
the sale of certain assets, the sale of equity or the placement of subordinated
debt, in order to satisfy our working capital requirements and other obligations
going forward.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 ("SAB 101") "Revenue Recognition in Financial
Statements." This Staff Accounting Bulletin summarizes certain of the staff
views in applying generally accepted accounting principles to revenue
recognition in financial statements. SAB 101, as amended, is effective for the
fourth fiscal quarter of the fiscal years beginning after December 15, 1999. We
do not expect the adoption of SAB 101 to have a material impact on our
consolidated results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
DERIVATIVE INSTRUMENTS
We did not invest in market risk sensitive instruments in the twelve weeks
ended September 20, 2000. From time to time, however, we enter into agreements
to purchase green coffee in the future at prices to be determined within two to
twelve months of the time of actual purchase. At September 20, 2000 these
commitments totaled $2,537,000. These agreements are tied to specific market
prices (defined by both the origin of the coffee and the month of delivery) but
we have significant flexibility in selecting the date of the market price to be
used in each contract.
We have not used derivative financial instruments for any purpose,
including hedging or mitigating interest rate risk.
MARKET RISK
Our market risk exposure with regard to financial instruments outstanding
as of September 20, 2000 was to changes in an adjusted Eurodollar rate. We
borrowed $12 million on July 7, 1999 in connection with our acquisition of
Coffee People, which bears interest at our option at Fleet's base rate plus
1.25%, or an adjusted Eurodollar rate plus 3.0%. Diedrich Coffee may convert the
interest rate from the Fleet base rate to the adjusted Eurodollar rate at
anytime with 3 day's notice. We may convert the interest rate from the adjusted
Eurodollar rate to the Fleet base rate at the end of each calendar quarter. At
September 20, 2000 the effective interest rate was 9.88%. At September 20, 2000,
a hypothetical 100 basis point increase in the rate would result in additional
interest expense of $100,000 on an annualized basis. The estimated increase is
based upon the outstanding balance of long term debt at September 20, 2000.
Substantially all of our business is transacted in U.S. dollars. Accordingly,
foreign exchange fluctuations have never had a significant impact on us and are
not expected to in the foreseeable future.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of its business, we may become involved in legal
proceedings from time to time. During the twelve week period ending September
20, 2000, we were not a party to any material legal proceedings.
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<PAGE> 16
ITEM 5. OTHER INFORMATION
MINIMUM ADVANCE NOTICE OF STOCKHOLDER PROPOSALS
Diedrich Coffee stockholders are advised that we must be notified by June
27, 2001 (120 days prior to the month and day of mailing the last year's proxy
statement) of any proposal or solicitation that any stockholder intends to
present at the next annual meeting of stockholders and which the stockholder has
not sought to have included in our proxy statement for the meeting in accordance
with Rule 14a-8 under the Securities Exchange Act of 1934. If a proponent fails
to notify us before the required deadline, management proxies will be allowed to
use their discretionary voting authority when the proposal is raised at the
annual meeting, without any discussion of the matter in the proxy statement.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Set forth below is a list of the exhibits included as part of this
Quarterly Report.
EXHIBIT NO. DESCRIPTION
2.1 Form of Agreement and Plan of merger by and between Diedrich
Coffee, a California corporation, and Diedrich Coffee, Inc., a
Delaware corporation(1)
2.2 Agreement and Plan of Merger dated as of March 16, 1999, by and
among Diedrich Coffee, CP Acquisition Corp., a wholly owned
subsidiary of Diedrich Coffee, and Coffee People(2)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Purchase Agreement for Series A Preferred Stock dated as of
December 11, 1992 by and among Diedrich Coffee, Martin R.
Diedrich, Donald M. Holly, SNV Enterprises and D.C.H., L.P.(1)
4.2 Purchase Agreement for Series B Preferred Stock dated as of June
29, 1995 by and among Diedrich Coffee, Martin R. Diedrich, Steven
A. Lupinacci, Redwood Enterprises VII, L.P. and Diedrich Partners
I, L.P.(1)
4.3 Specimen Stock Certificate(1)
4.4 Form of Conversion Agreement in the connection with the
conversion of Series A and Series B Preferred Stock into Common
Stock(1)
4.5 Form of Lock-up Letter Agreement among The Second Cup, Ltd. and
Diedrich Coffee, Inc.(3)
4.6 Voting Agreement and Irrevocable Proxy dated as of March 16, 1999
by and among Diedrich Coffee, Inc., D.C.H., L.P., Peter Churm,
Martin R. Diedrich, Lawrence Goelman, Paul C. Heeschen, John E.
Martin, Timothy J. Ryan, and Second Cup USA Holdings Ltd.(3)
10.1 Form of Indemnification Agreement(1)
10.2 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan(4)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan(1)
10.4 Agreement of Sale dated as of February 23, 1996 by and among
Diedrich Coffee (as purchaser) and Brothers Coffee Bars, Inc. and
Brothers Gourmet Coffees, Inc. (as sellers)(1)
10.5 Separation agreement dated May 13, 1997 between Steven A.
Lupinacci and Diedrich Coffee, Inc.(5)
10.6 Letter agreement by and between the Company and John E. Martin
appointing Mr. Martin Chairman of the Board, dated as of November
17, 1997(6)
10.7 Stock Option Plan and Agreement by and between the company and
John E. Martin granting Mr. Martin the option to purchase up to
850,000 shares of the Common Stock of the Company, dated as of
November 17, 1997(6)
10.8 Common Stock Purchase Agreement by and between the company and
John E. Martin under which Mr. Martin agrees to purchase 333,333
shares of the Common Stock of the Company, dated as of November
17, 1997(6)
10.9 Employment Agreement by and between the Company and Timothy J.
Ryan retaining Mr. Ryan as Chief Executive Officer, dated as of
November 17, 1997(6)
10.10 Stock Option Plan and Agreement by and between the company and
Timothy J. Ryan granting Mr. Ryan up to 600,000 shares of the
Common Stock of the Company, dated as of November 17, 1997(6)
17
<PAGE> 18
EXHIBIT NO. DESCRIPTION
10.11 Common Stock Purchase Agreement by and between the Company and
Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667
shares of the Common Stock of the Company, dated as of November
17, 1997(6)
10.12 Form of Promissory Note made in favor of Nuvrty, Inc., the Ocean
Trust and the Grandview Trust(7)
10.13 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.14 Form of Security Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.15 Form of Warrant Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.16 Form of Intercreditor Agreement made in favor of Nuvrty, Inc.,
the Ocean Trust and the Grandview Trust(7)
10.17 Form of Common Stock and Option Purchase Agreement with Franchise
Mortgage Acceptance Company dated as of April 3, 1998(8)
10.18 Separation and Release Agreement dated January 28, 1998 with
Kerry W. Coin(8)
10.19 Employment Agreement with Ann Wride dated April 8, 1998(9)
10.20 Employment Agreement with Catherine Saar dated June 11, 1998(10)
10.21 Form of Franchise Agreement(11)
10.22 Form of Area Development Agreement(11)
10.23 Employment Agreement with Martin R. Diedrich dated June 29,
1998(3)
10.24 Credit Agreement, dated as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries(12)
10.25 Security Agreement, dated as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries(12)
10.26 Securities Pledge Agreement, dated as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries(12)
10.27 Trademark Security Agreement, dated as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries(12)
10.28 Form of Term Note made in favor of BankBoston, N.A.(12)
10.29 Form of Revolving Note made in favor of BankBoston, N.A.(12)
10.30 Employment Agreement with Matt McGuinness dated effective March
13, 2000 (13)
10.31 Letter Agreement re: employment with Greg MacIsaac dated February
25, 2000 (13)
10.32 First Amendment to Credit Agreement dated as of September 26,
2000(13)
10.33 Letter Agreement re: employment with J. Michael Jenkins dated
September 22, 2000 (13)
10.34 Letter Agreement re: employment with Carl Mount dated October 29,
1999*
10.35 Letter Agreement re: employment with Joseph E. Caruso dated
February 28, 2000*
10.36 Letter Agreement re: employment with Edward A. Apffel dated May
25, 2000*
10.37 Letter Agreement re: employment with Lisa Steere dated June 12,
2000*
11.1 Statement regarding computation of per share earnings*
21.1 List of Subsidiaries (13)
27.1 Financial Data Schedule*
18
<PAGE> 19
------------
* Filed with this Form 10-Q
(1) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-1 (No. 333-08633), as amended, as declared effective by the
Securities and Exchange Commission on September 11, 1996.
(2) Previously filed as Appendix A to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April 23,
1999.
(3) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April 23,
1999.
(4) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended September 22, 1999, filed with the
Securities and Exchange Commission on November 5, 1999.
(5) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 30, 1997, filed with the Securities
and Exchange Commission on June 13, 1997.
(6) Previously filed as an exhibit to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 25,
1997.
(7) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended October 29, 1997, filed with the Securities
and Exchange Commission on December 11, 1997.
(8) Previously filed as an exhibit to Diedrich Coffee's Annual Report on Form
10-K for the fiscal year ended January 28, 1998.
(9) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on June 11, 1998.
(10) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended July 29, 1998, filed with the Securities and
Exchange Commission on September 10, 1998.
(11) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on December 11, 1998.
(12) Incorporated by reference to Diedrich Coffee's Transition Report on Form
10-Q for the period from January 28, 1999 to June 30, 1999, filed with the
Securities and Exchange Commission on August 16, 1999.
(13) Previously filed as an exhibit to Diedrich Coffee's annual report on Form
10-K for the fiscal year ended June 28, 2000.
(b) Reports on Form 8-K.
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 6, 2000 DIEDRICH COFFEE, INC.
/s/ J. Michael Jenkins
--------------------------------------------
J. Michael Jenkins
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Matthew C. McGuinness
--------------------------------------------
Matthew C. McGuinness
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Form of Agreement and Plan of merger by and between Diedrich
Coffee, a California corporation, and Diedrich Coffee, Inc., a
Delaware corporation(1)
2.2 Agreement and Plan of Merger dated as of March 16, 1999, by and
among Diedrich Coffee, CP Acquisition Corp., a wholly owned
subsidiary of Diedrich Coffee, and Coffee People(2)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Purchase Agreement for Series A Preferred Stock dated as of
December 11, 1992 by and among Diedrich Coffee, Martin R.
Diedrich, Donald M. Holly, SNV Enterprises and D.C.H., L.P.(1)
4.2 Purchase Agreement for Series B Preferred Stock dated as of
June 29, 1995 by and among Diedrich Coffee, Martin R. Diedrich,
Steven A. Lupinacci, Redwood Enterprises VII, L.P. and Diedrich
Partners I, L.P.(1)
4.3 Specimen Stock Certificate(1)
4.4 Form of Conversion Agreement in the connection with the
conversion of Series A and Series B Preferred Stock into Common
Stock(1)
4.5 Form of Lock-up Letter Agreement among The Second Cup, Ltd. and
Diedrich Coffee, Inc.(3)
4.6 Voting Agreement and Irrevocable Proxy dated as of March 16,
1999 by and among Diedrich Coffee, Inc., D.C.H., L.P., Peter
Churm, Martin R. Diedrich, Lawrence Goelman, Paul C. Heeschen,
John E. Martin, Timothy J. Ryan, and Second Cup USA Holdings
Ltd.(3)
10.1 Form of Indemnification Agreement(1)
10.2 Amended and Restated Diedrich Coffee 1996 Stock Incentive
Plan(4)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option
Plan(1)
10.4 Agreement of Sale dated as of February 23, 1996 by and among
Diedrich Coffee (as purchaser) and Brothers Coffee Bars, Inc.
and Brothers Gourmet Coffees, Inc. (as sellers)(1)
10.5 Separation agreement dated May 13, 1997 between Steven A.
Lupinacci and Diedrich Coffee, Inc.(5)
10.6 Letter agreement by and between the Company and John E. Martin
appointing Mr. Martin Chairman of the Board, dated as of
November 17, 1997(6)
10.7 Stock Option Plan and Agreement by and between the company and
John E. Martin granting Mr. Martin the option to purchase up to
850,000 shares of the Common Stock of the Company, dated as of
November 17, 1997(6)
10.8 Common Stock Purchase Agreement by and between the company and
John E. Martin under which Mr. Martin agrees to purchase
333,333 shares of the Common Stock of the Company, dated as of
November 17, 1997(6)
10.9 Employment Agreement by and between the Company and Timothy J.
Ryan retaining Mr. Ryan as Chief Executive Officer, dated as of
November 17, 1997(6)
10.10 Stock Option Plan and Agreement by and between the company and
Timothy J. Ryan granting Mr. Ryan up to 600,000 shares of the
Common Stock of the Company, dated as of November 17, 1997(6)
<PAGE> 22
EXHIBIT NO. DESCRIPTION
----------- -----------
10.11 Common Stock Purchase Agreement by and between the Company and
Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667
shares of the Common Stock of the Company, dated as of November
17, 1997(6)
10.12 Form of Promissory Note made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.13 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.14 Form of Security Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.15 Form of Warrant Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust(7)
10.16 Form of Intercreditor Agreement made in favor of Nuvrty, Inc.,
the Ocean Trust and the Grandview Trust(7)
10.17 Form of Common Stock and Option Purchase Agreement with
Franchise Mortgage Acceptance Company dated as of April 3,
1998(8)
10.18 Separation and Release Agreement dated January 28, 1998 with
Kerry W. Coin(8)
10.19 Employment Agreement with Ann Wride dated April 8, 1998(9)
10.20 Employment Agreement with Catherine Saar dated June 11,
1998(10)
10.21 Form of Franchise Agreement(11)
10.22 Form of Area Development Agreement(11)
10.23 Employment Agreement with Martin R. Diedrich dated June 29,
1998(3)
10.24 Credit Agreement, dated as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries(12)
10.25 Security Agreement, dated as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries(12)
10.26 Securities Pledge Agreement, dated as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.27 Trademark Security Agreement, dated as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.28 Form of Term Note made in favor of BankBoston, N.A.(12)
10.29 Form of Revolving Note made in favor of BankBoston, N.A.(12)
10.30 Employment Agreement with Matt McGuinness dated effective March
13, 2000(13)
10.31 Letter Agreement re: employment with Greg MacIsaac dated
February 25, 2000(13)
10.32 First Amendment to Credit Agreement dated as of September 26,
2000(13)
10.33 Letter Agreement re: employment with J. Michael Jenkins dated
September 22, 2000(13)
10.34 Letter Agreement re: employment with Carl Mount dated October
29, 1999*
10.35 Letter Agreement re: employment with Joseph E. Caruso dated
February 28, 2000*
10.36 Letter Agreement re: employment with Edward A. Apffel dated May
25, 2000*
10.37 Letter Agreement re: employment with Lisa Steere dated June 12,
2000*
11.1 Statement regarding computation of per share earnings*
21.1 List of Subsidiaries(13)
27.1 Financial Data Schedule*
<PAGE> 23
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* Filed with this Form 10-Q.
(1) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-1 (No. 333-08633), as amended, as declared effective by the
Securities and Exchange Commission on September 11, 1996.
(2) Previously filed as Appendix A to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April 23,
1999.
(3) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April 23,
1999.
(4) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended September 22, 1999, filed with the
Securities and Exchange Commission on November 5, 1999.
(5) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 30, 1997, filed with the Securities
and Exchange Commission on June 13, 1997.
(6) Previously filed as an exhibit to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 25,
1997.
(7) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended October 29, 1997, filed with the Securities
and Exchange Commission on December 11, 1997.
(8) Previously filed as an exhibit to Diedrich Coffee's Annual Report on Form
10-K for the fiscal year ended January 28, 1998.
(9) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on June 11, 1998.
(10) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended July 29, 1998, filed with the Securities and
Exchange Commission on September 10, 1998.
(11) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on December 11, 1998.
(12) Incorporated by reference to Diedrich Coffee's Transition Report on Form
10-Q for the period from January 28, 1999 to June 30, 1999, filed with the
Securities and Exchange Commission on August 16, 1999.
(13) Previously filed as an exhibit to Diedrich Coffee's annual report on Form
10-K for the fiscal year ended June 28, 2000.
