<PAGE> 1
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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 December 15, 1999
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)
DELAWARE 33-0086628
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
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 January 28, 2000, there were 12,616,871 shares of common stock of
the registrant outstanding.
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<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............................................... 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk.......... 16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings................................................... 16
Item 5 Other Information................................................... 16
Item 6 Exhibits and Reports on Form 8-K.................................... 17
Signatures.......................................................... 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS (NOTE 4) DECEMBER 15, 1999 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 6,286,471 $ 552,124
Accounts receivable 5,775,834 335,903
Note receivable 100,000 100,000
Inventories (Note 3) 5,090,858 1,432,249
Prepaid expenses 740,412 153,113
Income taxes receivable 17,686 17,686
------------ ------------
Total current assets 18,011,261 2,591,075
Property and equipment, net 16,091,655 7,504,439
Costs in excess of net assets acquired, net 30,854,376 317,741
Note receivable - long-term 40,000 40,000
Other assets 880,410 1,329,185
------------ ------------
Total assets $ 65,877,702 $ 11,782,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease $ 231,488 $ 169,488
Current installments of long-term debt and note payable 2,000,000 1,000,000
Accounts payable 5,451,656 1,978,325
Accrued compensation 1,898,422 900,565
Accrued expenses 6,841,008 886,903
Reserve for disposal of stores (Note 2) 1,303,617 --
Reserve for store closings and restructuring costs 18,375 95,195
------------ ------------
Total current liabilities 17,744,566 5,030,476
Obligations under capital lease, excluding current installments 599,560 239,049
Long-term debt, excluding current installments (Note 4) 9,333,334 2,500,000
Deferred rent 445,539 233,548
------------ ------------
Total liabilities 28,122,999 8,003,073
------------ ------------
Stockholders' Equity: (Note 5)
Common stock 126,168 61,736
Additional paid-in capital 52,509,878 18,826,473
Accumulated deficit (14,881,343) (15,108,842)
------------ ------------
Total stockholders' equity 37,754,703 3,779,367
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 65,877,702 $ 11,782,440
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS THIRTEEN WEEKS TWENTY-FOUR WEEKS TWENTY-SIX WEEKS
ENDED DECEMBER 15, ENDED JANUARY 27, ENDED DECEMBER 15, ENDED JANUARY 27,
1999 1999 1999 1999
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net Sales:
Retail $ 10,971,709 $ 5,350,991 $ 21,434,847 $ 10,619,613
Wholesale and other 6,106,783 768,084 10,741,352 1,442,714
Franchise revenue 2,054,512 100,000 3,229,330 200,000
------------ ----------- ------------ ------------
Total 19,133,004 6,219,075 35,405,529 12,262,327
------------ ----------- ------------ ------------
Cost and Expenses:
Cost of sales and related occupancy
costs 9,635,694 2,841,693 17,597,084 5,560,129
Store operating expenses 5,669,426 2,191,131 10,621,777 4,378,736
Other operating expenses 212,101 173,228 674,261 338,823
Depreciation and amortization 832,197 506,915 1,639,076 997,446
General and administrative expenses 1,897,111 922,875 4,148,939 1,925,431
------------ ----------- ------------ ------------
Total 18,246,529 6,635,842 34,681,137 13,200,565
------------ ----------- ------------ ------------
Operating income (loss) 886,475 (416,767) 724,392 (938,238)
Interest expense (327,265) (92,650) (614,154) (187,290)
Interest and other income 50,153 62,831 116,834 70,111
------------ ----------- ------------ ------------
Income (loss) before income tax 609,363 (446,586) 227,072 (1,055,417)
provision
Income tax provision 10,335 -- 17,535 --
------------ ----------- ------------ ------------
Net income (loss) $ 599,028 $ (446,586) $ 209,537 $ (1,055,417)
============ =========== ============ ============
Basic net income (loss) per share: $ 0.05 $ (0.08) $ 0.02 $ (0.18)
============ =========== ============ ============
Diluted net income (loss) per share:
$ 0.05 $ (0.08) $ 0.02 $ (0.18)
============ =========== ============ ============
Weighted average shares outstanding:
Basic 12,615,601 5,934,287 12,319,034 5,934,287
Diluted 13,266,565 5,934,287 13,052,131 5,934,287
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS TWENTY-SIX WEEKS
ENDED DECEMBER 15, ENDED JANUARY 27,
1999 1999
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 209,537 $(1,055,417)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization 1,870,088 997,446
Changes in assets and liabilities:
Accounts receivable (3,085,858) (31,511)
Inventories (115,132) (15,503)
Prepaid expenses (92,260) 46,641
Income taxes receivable -- 1,677
Other assets (91,502) 4,339
Accounts payable 2,817,274 462,360
Accrued compensation 62,374 52,965
Accrued expenses and reserve for store
closings and restructuring costs (637,452) (14,157)
Deferred rent 11,927 28,122
------------ -----------
Net cash provided by operating activities 948,996 476,962
------------ -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (859,302) (860,534)
Cash paid for acquisition, net (22,937,362)
Decrease in reserve for disposal of stores (273,099) 148,785
------------ -----------
Net cash used in investing activities (24,069,763) (711,749)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 25,350,799 479,236
Proceeds from the issuance of note payable,
net of fees paid 11,603,181 --
Repayment of long-term debt (7,808,357) --
Repayment of capital lease obligations (290,509) (45,213)
------------ -----------
Net cash provided by financing activities 28,855,114 434,023
------------ -----------
Net increase in cash 5,734,347 199,236
Cash at beginning of period 552,124 1,001,625
------------ -----------
Cash at end of period $ 6,286,471 $ 1,200,861
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 325,300 $ 149,670
============ ===========
Income taxes $ 21,141 $ --
============ ===========
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
DECEMBER 15, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of Diedrich
Coffee, Inc. (the "Company") and its 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. ("Coffee People"), which the
Company acquired on July 7, 1999. These statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 27, 1999 and the Company's
transition report on Form 10-Q for the transition period January 28, 1999 to
June 30, 1999.
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.
Change in Fiscal Year
In an effort to align its fiscal year with that of Coffee People, the
Company changed its year-end from a fiscal year ending on the Wednesday nearest
January 31 to a fiscal year ending on the Wednesday nearest June 30.
Accordingly, the condensed statements of operations and cash flows for the
twelve and twenty-four weeks ended December 15, 1999 are not necessarily
comparable to the accompanying thirteen and twenty-six weeks ended January 27,
1999.
2. ACQUISITION OF COFFEE PEOPLE, INC.
On July 7, 1999, the Company acquired Coffee People pursuant to an
Agreement and Plan of Merger. The acquisition was affected through the merger of
CP Acquisition Corp., an indirect wholly owned subsidiary of the Company, with
and into Coffee People. As a result of the acquisition, each share of Coffee
People common stock was converted into the right to receive $2.11 in cash and
0.14 share of the Company's common stock. At the time of the acquisition, Coffee
People owned 67 retail stores and franchised 253 retail stores in 36 states and
7 foreign countries under the names Gloria Jean's, Coffee People and Coffee
Plantation.
The Company, in recording the fair value of assets acquired and
liabilities assumed, has made certain estimates. These estimates consist
primarily of (i) recording property and equipment at estimated fair value and
(ii) providing for contractual lease obligations on negative operating cash
flows on certain underperforming stores. The acquisition has been accounted for
as a purchase and the resulting estimated costs in excess of net assets acquired
in the amount of $31,181,704 are being amortized using the straight-line method
over a 40 year period. The allocation of purchase price to the fair value of
assets acquired and liabilities assumed is dependent upon certain valuations and
other studies that have not progressed to a stage where there is sufficient
information to make a definitive allocation. Although the purchase price
allocation is preliminary, management is unaware of any significant changes
necessary to arrive at a final allocation.
The assets acquired, including the costs in excess of net assets
acquired, and liabilities assumed in the acquisition of Coffee People are
summarized in the following table.
6
<PAGE> 7
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 15, 1999
(UNAUDITED)
2. ACQUISITION OF COFFEE PEOPLE, INC. (CONTINUED)
<TABLE>
<S> <C>
Fair value of tangible assets acquired $ 15,774,761
Costs in excess of net assets acquired 31,181,704
Liabilities assumed at fair value (15,604,103)
Common stock issued (8,415,000)
------------
Net cash paid for acquisition 22,937,362
Cash acquired in acquisition 1,780,578
------------
Cash paid for acquisition $ 24,717,940
============
</TABLE>
In conjunction with the transaction, the Company acquired 29
company-owned Gloria Jean's stores, of which 25 are intended to be closed or
disposed of by June 30, 2000. Under the provisions of Emerging Issues Task Force
87-11 Allocation of Purchase Price to Assets to Be Sold, the Company has
excluded the operating results of the 25 stores from the condensed consolidated
statement of operations for the twelve and twenty-four weeks ended December 15,
1999. Additionally, the Company established a reserve of $1.6 million for the
estimated net cash holding costs of these stores until the estimated date of
closure or disposal.
The total revenues excluded from the Company's condensed consolidated
statement of operations for the twelve and twenty-four weeks ended December 15,
1999 totaled $1.0 and $2.5 million, respectively, and the related net losses
totaled $35,000 and $273,000, respectively. Such net losses have been charged
against the reserve for disposal of stores.
The following table presents selected unaudited pro forma results of
operations for the Company, assuming the Coffee People acquisition had occurred
on July 1, 1998. The unaudited pro forma results of operations do not include
the operating results of the 25 Gloria Jean's Company-owned stores to be closed
or disposed of. The pro forma results of operations are not indicative of the
results of operations of the combined companies that would have occurred had the
acquisition occurred on July 1, 1998, nor are they indicative of future
operating results.
<TABLE>
<CAPTION>
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED JANUARY, 27 ENDED JANUARY 27,
1999 1999
----------------- -----------------
<S> <C> <C>
Total revenues $19,571,327 $36,750,784
Net income (loss) $ 15,736 $(1,194,177)
Net income (loss) per share - basic &
diluted $ 0.00 $ (0.10)
Weighted average shares outstanding - basic
& diluted 12,364,287 12,364,287
</TABLE>
7
<PAGE> 8
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 15, 1999
(UNAUDITED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 15, 1999 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Green coffee (raw materials) $1,325,454 $ 574,745
Roasted coffee (finished goods) 958,873 157,115
Accessory and specialty items 1,532,524 258,889
Other food, beverage and supplies 1,274,007 441,500
---------- ----------
$5,090,858 $1,432,249
========== ==========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 15, 1999 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
NUVRTY, INC.
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999. $ -- $1,000,000
GRANDVIEW TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999. -- 750,000
OCEAN TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999. -- 750,000
BANCBOSTON, N.A
Note payable bearing interest at a rate of
9.03% as of December 15, 1999 and payable
in quarterly installments of $666,667,
commencing December 31, 1999. Due March 31,
2004. Note is secured by the assets of the
Company and its subsidiaries' stock. 11,333,334 --
----------- ----------
Less: Current installments 2,000,000 --
----------- ----------
Long-term debt, excluding current
installments $ 9,333,334 $2,500,000
=========== ==========
</TABLE>
On July 7, 1999, the Company entered into a credit agreement with
BankBoston, N.A. that is secured by pledges of all of the Company's assets and
its subsidiaries' stock and provides 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 is payable in quarterly installments
of $666,667. The Company intends to use the proceeds from the revolving credit
facility to finance additional and remodel existing company-owned retail
locations and for general corporate purposes. The Company has not presently
drawn down the revolving credit facility. Amounts outstanding under the credit
agreement bear interest, at the Company's option, at BankBoston's base rate plus
1.25% or an adjusted Eurodollar rate plus 3.0%.
8
<PAGE> 9
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 15, 1999
(UNAUDITED)
5. STOCKHOLDERS' EQUITY
On July 7, 1999, the Company 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 the Company, 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 the Company, after
deducting approximately $4.1 million in underwriters' commissions and related
expenses, were approximately $25.4 million.
On July 7, 1999, the Company issued 1,500,000 shares of the Company's
common stock to Coffee People stockholders in connection with the acquisition of
Coffee People.
6. 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 income taxes.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The other total 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, amortization expense and interest
expense.
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Twelve Weeks Ended December 15, 1999
Net sales $ 10,971,709 $6,106,783 $2,054,512 $ -- $19,133,004
Interest expense -- -- -- 327,265 327,265
Depreciation & amortization 497,344 33,716 -- 301,137 832,197
Segment profit (loss) before tax (127,729) 1,266,965 1,168,586 (1,698,459) 609,363
Total assets as of December 15, 1999 $ 6,256,817 $3,939,337 $5,095,440 $ 50,586,108 $65,877,702
</TABLE>
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Twenty-Four Weeks Ended
December 15, 1999
Net sales $21,434,847 $10,741,352 $3,229,330 $ -- $35,405,529
Interest expense -- -- -- 614,154 614,154
Depreciation & amortization 983,806 67,432 -- 587,838 1,639,076
Segment profit (loss) before tax 246,519 2,268,674 1,860,818 (4,148,939) 227,072
Total assets as of December 15, 1999 $ 6,256,817 $ 3,939,337 $5,095,440 $ 50,586,108 $65,877,702
</TABLE>
9
<PAGE> 10
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 15, 1999
(UNAUDITED)
6. SEGMENT AND RELATED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
---------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Thirteen Weeks Ended
January 27, 1999
Net sales $5,350,991 $ 768,084 $100,000 $ -- $ 6,219,075
Interest expense -- -- -- 92,650 92,650
Depreciation & amortization 362,984 30,744 -- 113,187 506,915
Segment profit (loss) before tax 383,632 (41,577) 48,320 (836,961) (446,586)
Total assets as of June 30, 1999 $6,276,410 $ 1,579,591 $ 10,015 $ 3,916,424 $ 11,782,440
</TABLE>
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
----------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Twenty-Six Weeks ended
January 27, 1999
Net sales $10,619,613 $ 1,442,714 $200,000 $ -- $ 12,262,327
Interest expense -- -- -- 187,290 187,290
Depreciation & amortization 713,686 65,106 -- 218,654 997,446
Segment profit (loss) before tax 817,882 (142,803) 96,639 (1,827,135) (1,055,417)
Total assets as of June 30, 1999 $ 6,276,410 $ 1,579,591 $ 10,015 $ 3,916,424 $ 11,782,440
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
We make forward-looking statements in this document 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:
o our growth strategy may not be as successful as we expect if
we are unable to attract franchise area developers or single
store franchisees;
o our growth strategy may not be as successful if franchisees
are unable to secure attractive real estate;
o we may encounter difficulties and incur additional expenses as
we integrate Diedrich Coffee's and Coffee People's business,
brands or operating systems or retaining key personnel;
o competition within the retail specialty coffee market may
intensify;
o inclement weather or adverse political changes in the
countries where we source our green coffee may significantly
increase our coffee costs; and
o adverse changes may occur in the securities or financial
markets.
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
January 27, 1999 and in 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. Following our acquisition of Coffee People on July
7, 1999, we became the second largest specialty coffee retailer in the United
States with annual systemwide sales of more than $150 million. We currently own,
operate, or franchise 360 retail locations in 38 states and 9 foreign countries.
Our primary brands are Diedrich Coffee coffeehouses and Gloria Jean's, the
nation's largest chain of mall coffee stores. 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 retail
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 its 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.
Coffee People Acquisition. On July 7, 1999, we completed our
acquisition of Coffee People pursuant to an Agreement and Plan of Merger, dated
as of March 16, 1999. The acquisition was effected by way of a merger of CP
Acquisition Corp., an indirect wholly owned subsidiary of Diedrich Coffee, with
and into Coffee People. As a result of the merger, each share of Coffee People
common stock was converted into the right to receive $2.11 in cash and 0.14
share of our common stock. The cash payment to Coffee People stockholders was
financed by a portion of the net proceeds of a public equity offering of
4,930,000 shares of our common stock at a price of $6.00 per share.
11
<PAGE> 12
On July 7, 1999, we entered into a credit agreement with BankBoston,
N.A. that is secured by pledges of all of our assets and our subsidiaries' stock
and provides for a $12 million term loan and a $3 million revolving credit
facility, payable in quarterly installments with final maturity in July 2004. We
used the proceeds of the term loan to repay existing indebtedness and to pay
expenses related to the acquisition of Coffee People and our public equity
offering. When we draw down the revolving credit facility, we intend to use the
proceeds to finance additional and remodel existing company-owned retail
locations and for general corporate purposes. Amounts outstanding under the
credit agreement bear interest, at our option, at BankBoston's base rate plus
1.25% or an adjusted Eurodollar rate plus 3.0%
Franchise Area Development Agreements. Management's franchise area
development goal is to enter into franchise area development agreements covering
most major U. S. markets. Presently, we have entered into seven franchise area
development agreements calling for the development of up to 334 Diedrich
coffeehouses, as well as carts and kiosks, over the next 5 to 7 years. In
addition, two of these agreements contain options to develop an additional 143
coffeehouses.
To date, during this fiscal year, we have entered into three additional
area development agreements and terminated one area development agreement. The
terminated area development agreement covered the states of Kentucky and
Tennessee. On August 23, 1999, we announced a franchise area development
agreement which calls for the development of 50 coffeehouses in Wyoming, Montana
and Colorado. On October 19, 1999 we announced a franchise area development
agreement which provides for the development of 50 coffeehouses in various
counties in Southern California including Kern, San Luis Obispo, Ventura and
Santa Barbara as well as portions of Los Angeles, San Bernardino, Riverside and
Orange. On January 20, 2000, we announced a franchise area development agreement
which calls for the development of 50 coffeehouses in Connecticut, Western
Massachusetts and upstate New York. We are currently in various stages of
discussion and negotiations with several additional potential area developers.
On November 2, 1999, we announced that our Gloria Jean's Coffees
Division signed a franchise area development agreement which provides for the
development of 30 Gloria Jean's brand stores in South East Asian countries
including Malaysia, Singapore and Brunei.
Year 2000. The year 2000 problem was the result of computer programs
being written using two digits rather than four to define the applicable year.
Miscalculations or system failures could have occurred to any of our programs on
or after January 1, 2000 that had time-sensitive software if they had recognized
dates using "00" as the year 1900 rather than the year 2000. Based on our review
of our business since January 1, 2000, we have not experienced any material
effects of the year 2000 problem. Although we have not been informed of any
material risks associated with the year 2000 problem from third parties, there
can be no assurance that they may not impact our business in the future. We are
continuously monitoring our business applications and having continuous
communication with significant suppliers and key business partners to resolve
any year 2000 problems that may arise in the future.
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 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, our Annual
Report on Form 10-K and our Transition Report on Form 10-Q, the financial
results for any individual quarter may not be indicative of the results that may
be achieved in a full fiscal year.
12
<PAGE> 13
RESULTS OF OPERATIONS
Coffee People Acquisition. On July 7, 1999, we acquired Coffee People
in a transaction that was accounted for using the purchase method of accounting;
and accordingly, the assets acquired and liabilities assumed were recorded as of
their fair values on that date. The results of operations for the periods ended
December 15, 1999 and January 27, 1999 differ significantly because of the
acquisition of Coffee People in July 1999. The resulting estimated costs in
excess of net assets of the business acquired in the amount of $31,181,704 are
being amortized using the straight-line method over a 40 year period.
Change in Fiscal Year. In an effort to align our fiscal year with that
of Coffee People which we acquired on July 7, 1999, we changed our year end from
a fiscal year ending on the Wednesday nearest January 31 to a fiscal year ending
on the Wednesday nearest June 30. Accordingly, the condensed consolidated
financial statements for the twelve and twenty-four weeks ended December 15,
1999 are not necessarily comparable to the accompanying thirteen and twenty-six
weeks ended January 27, 1999.
Twelve and Twenty-Four Weeks Ended December 15, 1999 Compared with the Thirteen
and Twenty-Six Weeks Ended January 27, 1999
Total revenues. Total revenues for the twelve weeks ended December 15,
1999 increased 208.0% to $19,133,000 from $6,219,000 for the thirteen weeks
ended January 27, 1999. Total revenues for the twenty-four weeks ended December
15, 1999 increased 189% to $35,406,000 from $12,262,000 for the twenty-six weeks
ended January 27, 1999. These increases were principally due to the acquisition
of Coffee People and also due to an increase in comparable store sales for the
Diedrich Coffee coffeehouses and the Gloria Jean's coffee stores. During this
most recent quarter, we derived 57.4% of total revenues from our retail
coffeehouse operations. Wholesale and mail order revenue accounted for 31.9% of
total revenues and franchise revenues counted for 10.7% of total revenues.
Retail revenues for the twelve weeks ended December 15, 1999 increased
105.0% to $10,972,000 from $5,351,000 for the thirteen weeks January 27, 1999.
This increase was primarily a result of the acquisition of Coffee People and
also due to an increase in comparable store sales for the Diedrich Coffee
coffeehouses and the Gloria Jean's coffee stores. As of December 15, 1999, we
operated 99 retail locations; whereas on January 27, 1999, we operated 43 retail
locations. The percentage increase (decrease) in system-wide comparable store
sales was 5.4% for the Diedrich Coffee coffeehouses, 8.9% for the Gloria Jean's
coffee stores, (0.4)% for the Coffee People concept, and (2.3)% for the Coffee
Plantation concept during the twelve weeks ended December 15, 1999.
Retail revenues for the twenty-four weeks ended December 15, 1999
increased 102% to $21,435,000 from $10,620,000 for the twenty-six weeks ended
January 27, 1999, principally due to the acquisition of Coffee People and also
due to an increase in comparable store sales for the Diedrich Coffee
coffeehouses and the Gloria Jean's coffee stores. The percentage increase
(decrease) in system-wide comparable store sales was 5.8% for the Diedrich
Coffee coffeehouses, 6.9 % for the Gloria Jean's coffee stores, 0.4% for the
Coffee People concept, and (0.3)% for the Coffee Plantation concept during the
twenty-four weeks ended December 15, 1999.
Wholesale and other revenues increased 695.0% to $6,107,000 in the
twelve weeks ended December 15, 1999 from $768,000 for the thirteen weeks ended
January 27, 1999. Wholesale and other revenues increased 644.0% to $10,741,000
in the twenty-four weeks ended December 15, 1999 from $1,443,000 for the
twenty-six weeks ended January 27, 1999. These increases reflect the addition of
the Gloria Jean's franchisee operations, which purchase roasted coffee from
Diedrich Coffee.
Franchise revenue increased to $2,055,000 for the twelve weeks ended
December 15, 1999, from $100,000 for the thirteen weeks ended January 27, 1999.
Franchise revenue increased to $3,229,000 for the twenty-four weeks ended
December 15, 1999, from $200,000 for the twenty-six weeks ended January 27,
1999. Franchise revenue consists of initial franchise fees and royalties
received on sales made at each franchise location. As of December 15, 1999, we
had 2 franchised neighborhood coffeehouses and 260 franchised mall coffee
stores. The increase in franchise revenue is principally due to the franchised
coffee stores obtained from our acquisition of Coffee People.
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
13
<PAGE> 14
December 15, 1999 increased to $9,636,000 from $2,842,000 for the thirteen weeks
ended January 27, 1999. As a percentage of total revenue, cost of sales and
related occupancy costs increased to 50.4% in the twelve weeks ended December
15, 1999 from 45.7% for the thirteen weeks ended January 27, 1999. Cost of sales
and related occupancy costs for the twenty-four weeks ended December 15, 1999
increased to $17,597,000 from $5,560,000 for the twenty-six weeks ended January
27, 1999. As a percentage of total revenue, cost of sales and related occupancy
costs increased to 49.7% in the twenty-four weeks ended December 15, 1999 from
45.3% for the twenty-six weeks ended January 27, 1999. These increases are
primarily related to the smaller margins received on coffee and products sold to
franchisees than those sold to wholesale accounts.
Store Operating Expenses. Store operating expenses increased to
$5,669,000 for the twelve weeks ended December 15, 1999 from $2,191,000 for the
thirteen weeks ended January 27, 1999. As a percentage of retail and franchise
revenues, store operating expenses increased to 43.5% in the twelve weeks ended
December 15, 1999 from 40.2% in the thirteen weeks ended January 27, 1999. For
the twenty-four weeks ended December 15, 1999, store operating expenses
increased to $10,622,000 from $4,379,000 for the twenty-six weeks ended January
27, 1999. As a percentage of retail and franchise revenues, store operating
expenses increased to 43.1% in the twenty-four weeks ended December 15, 1999
from 40.5% in the twenty-six weeks ended January 27, 1999. These increases can
be attributed to an increase in labor expenses due to additional staff training
at the store level as well as the addition of the Coffee People Oregon stores.
Oregon has a higher minimum wage compared to states in which we were operating
during the prior year.
Other Operating Expenses. Other operating expenses (those associated
with wholesale and other revenues) increased to $212,000 for the twelve weeks
ended December 15, 1999 from $173,000 for the thirteen weeks ended January 27,
1999. These expenses, as a percentage of the revenues from the wholesale
division, decreased to 3.5% from 22.5%. For the twenty-four weeks ended December
15, 1999, other operating expenses, as a percentage of the revenues from the
wholesale division, decreased to 6.3% from 23.5% for the twenty-six weeks ended
January 27, 1999. These decreases can be primarily attributed to a larger
revenue base with the addition of the Gloria Jean's franchisees.
Depreciation and Amortization. Depreciation and amortization increased
to $832,000 for the twelve weeks ended December 15, 1999 from $507,000 for the
thirteen weeks ended January 27, 1999. As a percentage of total revenue,
depreciation and amortization decreased to 4.3% in comparison to 8.2% for the
thirteen weeks ended January 27, 1999. Depreciation and amortization increased
to $1,639,000 for the twenty-four weeks ended December 15, 1999 from $997,000
for the twenty-six weeks ended January 27, 1999. As a percentage of total
revenue, depreciation and amortization decreased to 4.6% for the twenty-four
weeks ended December 15, 1999 in comparison to 8.1% for the twenty-six weeks
ended January 27, 1999.
General and Administrative Expenses. General and administrative
expenses increased to $1,897,000 for the twelve weeks ended December 15, 1999
from $923,000 for the thirteen weeks ended January 27, 1999. As a percentage of
total revenue, general and administrative expenses decreased to 9.9% from 14.8%.
As a percentage of net revenues, general and administrative expenses decreased
to 11.7% for the twenty-four weeks ended December 15, 1999 from 15.7% for the
twenty-six weeks ended January 27, 1999. These decreases in general and
administrative expenses as a percentage of total revenue were primarily a result
of cost savings incurred with the acquisition due to the result of the
elimination of management personnel who were not essential to our growth
strategy.
Interest Expense. Interest expense increased to $327,000 for the twelve
weeks ended December 15, 1999 from $93,000 for the thirteen weeks ended January
27, 1999. For the twenty-four weeks ended December 15, 1999, interest expense
increased to $614,000 from $187,000 for the twenty-six weeks ended January 15,
1999. These increases are a result of the $12 million term loan, which funded on
July 7, 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 working capital of $267,000 as of December 15, 1999 compared to working
capital deficit of $2,439,000 as of June 30, 1999. Cash provided by operating
activities for the twenty-four weeks ended December 15, 1999 totaled $949,000 as
compared to $477,000 for the twenty-six weeks ended January 27, 1999.
Net cash used in investing activities for the twenty-four weeks ended
December 15, 1999 totaled $24,070,000 which was primarily used for the
acquisition of Coffee People. Net cash provided by financing activities for the
twenty-four weeks ended December 15, 1999 totaled $28,855,000 which consisted of
proceeds
14
<PAGE> 15
from the issuance of common stock and long-term debt, reduced by the $8,099,000
repayment of long-term debt and capital lease obligations.
As of December 15, 1999, we had $11.3 million of long-term debt,
including current installments, that consisted of a term loan with BankBoston,
N.A. that is secured by pledges of all of our assets and subsidiaries' stock and
was bearing interest at a rate of 9.03%. The credit agreement with BankBoston,
N.A. also provides for a $3 million revolving credit facility, which we have not
presently drawn down. The term loan and the revolving credit facility both
require quarterly payments and have a final maturity in July 2004. 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 Company intends to use
the remaining proceeds from the revolving credit facility to finance additional
and remodel existing company-owned retail locations and for general corporate
purposes. Amounts outstanding under the credit agreement bear interest, at the
Company's option, at BankBoston's base rate plus 1.25% or an adjusted Eurodollar
rate plus 3.00%. Diedrich Coffee may change the interest rate from the
BankBoston base rate to the adjusted Eurodollar rate at any time with 3 day's
notice and from the adjusted Eurodollar rate to the BankBoston base rate at the
end of each calendar quarter.
We believe that the credit facility described above will be sufficient
to satisfy our working capital needs at the anticipated operating levels for the
next twelve months.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. We did not invest in market risk sensitive
instruments in fiscal 1999, the transition period ended June 30, 1999 nor in the
twenty-four weeks ended December 15, 1999. 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
December 15, 1999 these commitments totaled $3,818,000. 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 do not use commodity based
financial instruments to hedge coffee or any other commodity, as we believe
there will continue to be a high probability of maintaining a strong correlation
between increases in green coffee prices and the final selling prices of our
products.
We have not used derivative financial instruments for any purpose,
including hedging or mitigating interest rate risk.
New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issues Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133 establishes accounting and reporting standards for derivative instruments
embedded in other contracts and hedging activities. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Application
of SFAS 133 is not expected to have a material impact on our business, results
of operations or liquidity.
Market Risk. Our market risk exposure with regard to financial
instruments outstanding as of December 15, 1999 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
BankBoston's base rate plus 1.25%, or an adjusted Eurodollar rate plus 3.0%.
Diedrich Coffee may convert the interest rate from the BankBoston 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 BankBoston base rate at
the end of each calendar quarter. The $12 million outstanding under the term
loan was bearing interest at the BankBoston base rate plus 1.25% from July 7,
1999 to July 10, 1999 at which time the interest was converted to the adjusted
Eurodollar rate plus 3.0% for the remainder of the twenty-four week period
ending December 15, 1999. At December 15, 1999, the adjusted Eurodollar rate was
6.03%. At December 15, 1999, a hypothetical 100 basis point increase in the rate
would result in additional interest expense of $113,333 on an annualized basis.
The additional interest expense is based upon the outstanding balance of our
long-term debt, and assumes no change in the volume or composition of debt at
December 15, 1999. The credit agreement also provides for a $3 million line of
credit which also bears interest at our option, at BankBoston's base rate plus
1.25%, or an adjusted Eurodollar rate plus 3.00%.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our business, we may become involved in legal
proceedings from time to time. During the twenty-four week period ending
December 15, 1999, no material developments occurred in any material pending
legal proceedings. A discussion of our material pending legal proceedings
appears in our registration statement on Form S-1 (Reg. No. 333-78083) under the
heading "Business - Legal Proceedings."
ITEM 5. OTHER INFORMATION
Minimum Advance Notice of Stockholder Proposals. Diedrich Coffee
stockholders are advised that we must be notified by April 25, 2000, which is 45
days prior to the month and day of mailing 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.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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 conversation 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)
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
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)
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 Dolf Berle dated April 8,
1998(10)
10.21 Employment Agreement with Catherine Saar dated June 11,
1998(10)
10.22 Form of Franchise Agreement(11)
10.23 Form of Area Development Agreement(11)
10.24 Employment Agreement with Martin R. Diedrich dated June
29, 1998(3)
10.25 Credit Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.26 Security Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.27 Securities Pledge Agreement, dated, as of July 7, 1999,
by and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.28 Trademark Security Agreement, dated, as of July 7, 1999,
by and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.29 Form of Term Note made in favor of BankBoston, N.A.(12)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
10.30 Form of Revolving Note made in favor of BankBoston,
N.A.(12)
11 Statement Re: Computation of Per Share Earnings*
27 Financial Data Schedule*
</TABLE>
* 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 January 27, 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 January 27, 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.
(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: January 28, 2000 DIEDRICH COFFEE, INC.
/s/ Timothy J. Ryan
--------------------------------------------
Timothy J. Ryan,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ann Wride
--------------------------------------------
Ann Wride
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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 conversation 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)
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
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)
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 Dolf Berle dated April 8,
1998(10)
10.21 Employment Agreement with Catherine Saar dated June 11,
1998(10)
10.22 Form of Franchise Agreement(11)
10.23 Form of Area Development Agreement(11)
10.24 Employment Agreement with Martin R. Diedrich dated June
29, 1998(3)
10.25 Credit Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.26 Security Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.27 Securities Pledge Agreement, dated, as of July 7, 1999,
by and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.28 Trademark Security Agreement, dated, as of July 7, 1999,
by and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(12)
10.29 Form of Term Note made in favor of BankBoston, N.A.(12)
</TABLE>
<PAGE> 23
<TABLE>
<S> <C>
10.30 Form of Revolving Note made in favor of BankBoston,
N.A.(12)
11 Statement Re: Computation of Per Share Earnings*
27 Financial Data Schedule*
</TABLE>
* 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 January 27, 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 January 27, 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.
<PAGE> 1
EXHIBIT 11
DIEDRICH COFFEE, INC.
---------------------
COMPUTATION OF PER SHARE EARNINGS
---------------------------------
<TABLE>
<CAPTION>
TWELVE WEEKS THIRTEEN WEEKS TWENTY-FOUR WEEKS TWENTY-SIX WEEKS
ENDED DECEMBER 15, ENDED JANUARY 27, ENDED DECEMBER 15, ENDED JANUARY 27,
1999 1999 1999 1999
------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
- ------------------------
Net income (loss) $ 599,028 $ (446,586) $ 209,537 $(1,055,417)
============ =========== ============ ===========
Weighted average number of shares
outstanding during the period 12,615,601 5,934,287 12,319,034 5,934,287
============ =========== ============ ===========
Basic net income (loss) per share: $ 0.05 $ (0.08) $ 0.02 $ (0.18)
============ =========== ============ ===========
DILUTED EARNINGS PER SHARE
- --------------------------
Diluted net income (loss)
$ 599,028 $ (446,586) $ 209,537 $(1,055,417)
============ =========== ============ ===========
Weighted average number of shares
outstanding during the period 12,615,601 5,934,287 12,319,034 5,934,287
Incremental shares attributable
to the exercise of outstanding
options 650,964 -- 733,097 --
------------ ----------- ------------ -----------
Total Shares
13,266,565 5,934,287 13,052,131 5,934,287
============ =========== ============ ===========
Diluted net income (loss) per
share: $ 0.05 $ (0.08) $ 0.02 $ (0.18)
============ =========== ============ ===========
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-15-1999
<CASH> 6,286,471
<SECURITIES> 0
<RECEIVABLES> 5,775,834
<ALLOWANCES> 0
<INVENTORY> 5,090,858
<CURRENT-ASSETS> 18,011,261
<PP&E> 29,310,957
<DEPRECIATION> 13,219,302
<TOTAL-ASSETS> 65,877,702
<CURRENT-LIABILITIES> 17,744,566
<BONDS> 0
0
0
<COMMON> 126,168
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 65,877,702
<SALES> 35,405,529
<TOTAL-REVENUES> 35,405,529
<CGS> 17,597,084
<TOTAL-COSTS> 17,597,084
<OTHER-EXPENSES> 17,084,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614,154
<INCOME-PRETAX> 227,072
<INCOME-TAX> 17,535
<INCOME-CONTINUING> 209,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209,537
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
