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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 19, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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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)
(949) 260-1600
(Registrant's Telephone Number, including Area Code)
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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 2, 2001 there were 5,161,276 shares of common stock of the
registrant outstanding.
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DIEDRICH COFFEE, INC.
INDEX
PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) 1
Condensed Consolidated Statements of Operations (Unaudited) 2
Condensed Consolidated Statements of Cash Flows (Unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 22
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 19, 2001 June 27, 2001
------------------ -------------
ASSETS
Current assets:
Cash $ 1,785,000 $ 3,063,000
Accounts receivable, less allowance for doubtful accounts of
$2,197,000 at September 19, 2001, and $2,007,000 at
June 27, 2001 1,856,000 1,718,000
Inventories (Note 2) 3,409,000 2,843,000
Assets held for sale 1,694,000 1,694,000
Prepaid expenses 438,000 233,000
------------ ------------
Total current assets 9,182,000 9,551,000
Property and equipment, net 9,092,000 9,364,000
Costs in excess of net assets acquired, net of amortization
of $1,422,700 at June 27, 2001(Note 7) 12,250,000 12,250,000
Other assets 685,000 726,000
------------ ------------
TOTAL ASSETS $ 31,209,000 $ 31,891,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases $ 259,000 $ 272,000
Current installments of long-term debt (Note 3) 5,243,000 2,040,000
Accounts payable 2,925,000 2,239,000
Accrued compensation 2,045,000 1,954,000
Accrued expenses 861,000 1,141,000
Franchise deposits 594,000 648,000
Deferred franchise fee income 740,000 704,000
Provision for store closure (Note 4) 1,135,000 1,372,000
------------ ------------
Total current liabilities 13,802,000 10,370,000
Obligations under capital leases, excluding current installments 661,000 716,000
Long term debt, excluding current installments (Note 3) -- 3,503,000
Deferred rent 701,000 689,000
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Total liabilities 15,164,000 15,278,000
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Stockholders' Equity:
Common stock, $0.01 par value; authorized 8,750,000 shares; issued
and outstanding 5,154,000 shares at September 19, 2001 and June 52,000 52,000
27, 2001
Additional paid-in capital 58,084,000 58,106,000
Accumulated deficit (42,091,000) (41,545,000)
------------ ------------
Total stockholders' equity 16,045,000 16,613,000
Commitments and contingencies -- --
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,209,000 $ 31,891,000
============ ============
See accompanying notes to condensed consolidated financial statements.
1
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Twelve Weeks Ended Twelve Weeks Ended
September 19, 2001 September 20, 2000
------------------ ------------------
Net Revenue:
Retail sales $ 9,610,000 $ 10,666,000
Wholesale and other 3,301,000 4,729,000
Franchise revenue 1,229,000 1,477,000
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Total 14,140,000 16,872,000
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Cost and Expenses:
Cost of sales and related occupancy costs 6,984,000 8,451,000
Operating expenses 4,759,000 5,041,000
Depreciation and amortization 671,000 1,039,000
General and administrative expenses 2,110,000 3,104,000
Loss on asset disposals 2,000 --
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Total 14,526,000 17,635,000
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Operating loss (386,000) (763,000)
Interest expense (172,000) (358,000)
Interest and other income, net 12,000 12,000
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Loss before income tax provision (546,000) (1,109,000)
Income tax provision -- 3,000
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Net loss $ (546,000) $ (1,112,000)
============ ============
Net loss per share - basic and diluted $ (0.11) $ (0.35)
============ ============
Weighted average shares outstanding - basic and diluted 5,161,000 3,161,000
============ ============
See accompanying notes to condensed consolidated financial statements.
2
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twelve Weeks Ended Twelve Weeks Ended
September 19, 2001 September 20, 2000
------------------ ------------------
Cash flows from operating activities:
Net loss $ (546,000) $(1,112,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 671,000 1,039,000
Amortization of loan fees 45,000 40,000
Provision for bad debt 190,000 92,000
Loss on disposal of assets 2,000 --
Changes in operating assets and liabilities:
Accounts receivable (328,000) (974,000)
Inventories (566,000) 508,000
Prepaid expenses (205,000) (94,000)
Other assets (9,000) 3,000
Accounts payable 686,000 (397,000)
Accrued compensation 91,000 526,000
Accrued expenses (301,000) 140,000
Provision for store closure (237,000) (244,000)
Deferred franchise income and franchisee deposits (18,000) --
Deferred rent 12,000 29,000
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Net cash used in operating activities (513,000) (444,000)
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Cash flows from investing activities:
Capital expenditures for property and equipment (398,000) (411,000)
Proceeds from disposal of property and equipment 1,000 --
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Net cash used in investing activities (397,000) (411,000)
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Cash flows from financing activities:
Payments on long-term debt (300,000) (667,000)
Payments on capital lease obligations (68,000) (51,000)
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Net cash used in financing activities (368,000) (718,000)
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Net decrease in cash (1,278,000) (1,573,000)
Cash at beginning of period 3,063,000 2,944,000
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Cash at end of period $ 1,785,000 $ 1,371,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 98,000 $ 306,000
=========== ===========
Income taxes $ 2,000 $ 3,000
=========== ===========
Non-cash transactions
Accrued stock issuance costs $ 21,000 $ --
=========== ===========
See accompanying notes to consolidated financial statements.
3
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 19, 2001
(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, as well as the
instructions to Form 10-Q and Article 10 of Regulation S-X. 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 27, 2001.
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.
Reclassifications
Certain reclassifications have been made to the September 20, 2000
consolidated financial statements to conform to the September 19, 2001
presentation.
2. INVENTORIES
Inventories consist of the following:
September 19, 2001 June 27, 2001
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Unroasted coffee $ 899,000 $ 717,000
Roasted coffee 1,201,000 733,000
Accessory and specialty items 311,000 316,000
Other food, beverage and supplies 998,000 1,077,000
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$3,409,000 $2,843,000
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3. LONG-TERM DEBT
Long-term debt consists of the following:
September 19, 2001 June 27, 2001
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FLEET NATIONAL BANK
Note payable bearing interest at a rate
of 6.58% as of September 19, 2001 and
payable in monthly installments of
$100,000. Due September 1, 2002. Note
is secured by the assets of the Company
and its subsidiaries' stock $5,243,000 $5,543,000
Less: current installments 5,243,000 1,200,000
Less: 50% of proceeds from planned asset
sales, which are reflected as
current installments -- 840,000
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Long-term debt, excluding current
installments $ -- $3,503,000
========== ==========
4
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 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 has not
drawn down any borrowings under the revolving credit facility since it was
established, although it presently backs $177,500 of outstanding Letters of
Credit. 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 September 19, 2001, the applicable interest rate was 6.58%, which
was based on the Eurodollar rate at the time.
Due to various problems encountered in the year subsequent to the
acquisition of Coffee People, Inc., including the closure of 39 Gloria Jean's
locations, six of which were company operated, the Company announced on June 29,
2000 that it expected to be in default under its Credit Agreement because of the
Company's inability to satisfy certain financial covenants. The Company
simultaneously announced that on June 27, 2000, it had entered into a Letter
Agreement with Fleet under which the bank agreed to extend the due date of the
June 30, 2000 quarterly principal payment to July 31, 2000, and to forbear until
July 31, 2000 from exercising any of its rights and remedies arising from
financial covenant defaults. The Company subsequently made the July 31, 2000
principal payment on the extended due date. On August 17, 2000, the Company
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, the Company entered into the First Amendment to
Credit Agreement with Fleet to amend certain terms of the original Credit
Agreement. The First Amendment to Credit Agreement provides for, among other
things: a significant reduction in the 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 Company and the bank about
certain assets that the Company intends to sell and about the payment of future
sale proceeds to the bank, the introduction of an additional event of default, a
reduction in the overall amount of the revolving credit facility, new
restrictions governing use of the facility and a modification of the financial
covenants going forward. The interest rate and the timing of quarterly interest
payments under the original Credit Agreement remained unchanged under the First
Amendment to Credit Agreement.
Specifically, under the terms of the First Amendment to Credit Agreement,
no further principal payments on the term loan were required from August 1, 2000
until January 31, 2001. The Company began making principal payments of $25,000
per month beginning February 1, 2001, which increased to $100,000 per month
beginning July 1, 2001. Continued minimum monthly payments of $100,000 are
required 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 to September 1, 2002. In addition, the
Company and the bank identified certain assets that could be sold without
interfering with the Company's core business, including two pieces of company
owned real property under existing retail locations and a parcel of company
owned real property that is presently undeveloped. The Company and the bank also
identified certain company operated coffeehouses outside of the Company's 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 any of the Company's asset sales. In January 2001, two of the
aforementioned pieces of real property were sold in a sale-leaseback transaction
for $415,000. $208,000 of the proceeds of the transaction was remitted to Fleet.
In May 2001, three company operated coffeehouses in Texas were sold for
$1,025,000. $448,500 of the proceeds of the sale was remitted to Fleet. Also in
May 2001, the Company sold 2,000,000 shares (post-split) of Company common stock
in a private sale. $3,600,000 of the proceeds from the sale was remitted to
Fleet. The proceeds received from all three sales were applied solely to the
Company's principal note payable balance.
The First Amendment to Credit Agreement also introduced an additional
event of default under the Credit Agreement. The First 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
5
discretion, is 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
maximum amount available under the revolving credit facility, a portion of which
the Company had previously been unable to access because of the covenant
defaults, from $3,000,000 to $1,293,000, and a restriction that the credit
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 the ratios in the financial
covenants, the parties agreed to a new covenant under the First Amendment to
Credit Agreement that requires the Company to achieve 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: $283,333 by March 2001; $708,333
by June 30, 2001; and $1,619,900 by September 30, 2001. All such incremental
principal repayment obligations due prior to the accelerated maturity date have
been met as of September 19, 2001, and were generated primarily from the net
proceeds paid to the bank from the above mentioned asset sales and stock
issuance.
On September 30, 1997, the Company entered into a promissory note, term
loan agreement and security agreement with Nuvrty, Inc., a Colorado corporation
controlled by Amre Youness, a former director of the Company. All outstanding
principal and accrued interest was due and payable on September 30, 2002. The
loan was secured by the assets of the Company and provided for borrowings up to
$1,000,000 with interest accruing and paid monthly at the prime rate plus 3.5%.
The Company borrowed the full amount under the loan. In connection with the
acquisition of Coffee People, the Company repaid the loan on July 8, 1999.
When entering into the promissory note with Nurvrty, the Company issued a
warrant to Nuvrty to purchase 85,000 shares of the Company's common stock at a
price of $9.00 per share. The warrants are exercisable immediately and expire on
September 30, 2003.
The fair value of the warrants associated with all the above debt was
insignificant.
6
4. PROVISION FOR STORE CLOSURE
The estimated cost associated with closing under-performing stores is
accrued in the period in which the store is identified for closure by management
under a plan of termination. Such costs primarily include the estimated cost to
terminate a lease.
AMOUNTS
CHARGED TO CASH
BEG BALANCE EXPENSE PAYMENTS END BALANCE
----------- ------- -------- -----------
Year ended June 27, 2001 $1,387,000 $ 947,000 $ (962,000) $1,372,000
Twelve weeks ended September
19, 2002 $1,372,000 $ 2,000 $ (239,000) $1,135,000
5. EARNINGS PER SHARE
The Company computed basic net loss per share based on the weighted
average number of common shares outstanding during the periods presented.
Diluted net loss per share was computed based on the weighted average number of
common and dilutive potential common shares outstanding during the periods
presented. The Company has granted certain stock options which have been treated
as dilutive potential common shares.
The following table sets forth the computations of basic and diluted net
loss per share:
Twelve Weeks Ended Twelve Weeks Ended
September 19, 2001 September 20, 2000
------------------ ------------------
NUMERATOR:
Net loss $ (546,000) $(1,112,000)
=========== ===========
DENOMINATOR:
Basic weighted average common
shares outstanding 5,161,000 3,161,000
Effect of dilutive securities -- --
----------- -----------
Diluted weighted average common
shares outstanding 5,161,000 3,161,000
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Basic and diluted loss per share $ (0.11) $ (0.35)
=========== ===========
All 851,008 options outstanding and all of the 730,000 warrants to
purchase shares of common stock outstanding during the twelve weeks ended
September 19, 2001 were excluded from the calculation of diluted net loss per
share as their inclusion would have been anti-dilutive. All 571,366 options
outstanding options and all of the 230,000 warrants to purchase shares of common
stock outstanding during the twelve weeks ended September 20, 2000 were excluded
from the calculation of diluted net loss per share as their inclusion would have
been anti-dilutive.
6. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments: 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.
7
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, provision for asset impairment
and restructuring costs, depreciation and amortization expense and interest
expense.
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
---------- ---------- ---------- ----- -----
TWELVE WEEKS ENDED
SEPTEMBER 19, 2001
Total Revenue $ 9,610,000 $ 3,301,000 $ 1,229,000 $ -- $ 14,140,000
Interest expense 16,000 -- 19,000 137,000 172,000
Depreciation and
amortization 355,000 236,000 -- 80,000 671,000
Segment profit (loss)
before tax 383,000 354,000 1,066,000 (2,349,000) (546,000)
Total assets as of
September 19, 2001 $ 9,751,000 $ 4,493,000 $ 227,000 $ 16,738,000 $ 31,209,000
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
---------- ---------- ---------- ----- -----
TWELVE WEEKS ENDED
SEPTEMBER 20, 2000
Revenue $ 10,666,000 $ 4,729,000 $ 1,477,000 $ -- $ 16,872,000
Interest expense 18,000 -- 26,000 314,000 358,000
Depreciation and
amortization 606,000 175,000 -- 258,000 1,039,000
Segment profit (loss)
before tax 212,000 1,036,000 1,011,000 (3,368,000) (1,109,000)
Total assets as of
September 20, 2000 $ 13,509,000 $ 5,602,000 $ 642,000 $ 18,801,000 $ 38,554,000
7. INTANGIBLE ASSETS
Effective June 28, 2001, the Company adopted Statements of Financial
Accounting Standards Board Standards Nos. 141 and 142, "Business Combinations"
and "Goodwill and Other Intangible Assets," respectively, which require that the
Company prospectively cease amortization of goodwill and instead conduct
periodic tests of goodwill for impairment. The Company will complete a
transitional test for goodwill impairment by the end of December 2001. The
following table shows, on a pro-forma basis, what earnings and earnings per
share would have been if the new accounting standards had been applied for the
periods indicated:
TWELVE WEEKS ENDED
SEPTEMBER 19, 2000
------------------
Reported net loss $ (1,112,000)
Add back: goodwill amortization 173,000
-------------
Adjusted net loss $ (939,000)
=============
Per share information:
Basic and Diluted:
Reported net loss $ (0.35)
Goodwill amortization 0.05
-------------
Adjusted net loss $ (0.30)
=============
8
Financial Accounting Standards Board Standards Nos. 141 and 142 also
require that we disclose the following information related to our intangible
assets still subject to amortization and our goodwill. The following table
details the balances of our amortizable intangible assets as of September 19,
2001:
GROSS NET
CARRYING ACCUMULATED CARRYING
AMOUNT AMORTIZATION AMOUNT
------ ------------ ------
Leasehold interests $ 3,000 $ 2,000 $ 1,000
Leasehold rights $23,000 $19,000 $ 4,000
Trademarks $32,000 $ 5,000 $27,000
The weighted average amortization period for the intangible assets is
approximately 25 years. The following table shows the estimated amortization
expense for these assets for each of the five succeeding fiscal years:
FISCAL YEAR:
2002 $ 3,000
2003 $ 3,000
2004 $ 1,000
2005 $ 1,000
2006 $ 1,000
Changes in the carrying amount of goodwill for the twelve weeks ended
September 19, 2001 are summarized as follows:
Balance as of June 27, 2001 $12,250,000
Goodwill acquired --
Impairment losses --
-----------
Balance as of September 19, 2001 $12,250,000
===========
8. SUBSEQUENT EVENT
On October 3, 2001, the Company sold twelve of its Coffee Plantation stores
located in Arizona for $1,383,000 in cash and $552,000 in notes receivable. In
addition, under a coffee supply agreement, the buyer agreed to purchase all of
the roasted coffee it requires for operation of these stores from the Company
for the next seven years. Pursuant to the Company's credit agreement with Fleet
National Bank, as amended, 50% of the net proceeds received from the sale of the
assets, or $596,000, was paid directly to Fleet to reduce the Company's note
payable principal balance.
9
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. 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 maintain profitability over time
- our ability to perform within the terms of our amended credit
agreement
- the successful execution of our growth strategies
- the impact of competition
- the availability of working capital
Foreseeable risks and uncertainties are described elsewhere in this report
and in detail under the caption "Risk Factors and Trends Affecting Diedrich
Coffee and Its Business" in our Annual Report on Form 10-K for the fiscal year
ended June 27, 2001 and in other reports that we file with the Securities and
Exchange Commission.
GENERAL.
Diedrich Coffee, Inc. is a specialty coffee roaster, wholesaler and
retailer. We sell brewed, espresso-based and various blended beverages primarily
made from our own fresh roasted premium coffee beans, as well as light food
items, whole bean coffee and accessories, through our company operated and
franchised retail locations. We also sell whole bean and ground coffees on a
wholesale basis in the Office Coffee Service market, and to other wholesale
customers, including restaurant chains and other retailers through a network of
distributors. Our brands include Diedrich Coffee, Gloria Jean's Coffees and
Coffee People. We also operate a limited number of coffeehouses and kiosks under
the Coffee Plantation brand name. As of September 19, 2001, Diedrich Coffee
owned and operated 87 retail locations and franchised 295 other retail locations
under these brands, for a total of 382 retail coffee outlets. Our retail units
are located in 37 states and 11 foreign countries. We also have 375 wholesale
accounts with Office Coffee Service distributors, chain and independent
restaurants and others. In addition, we operate a large coffee roasting facility
in central California that supplies freshly roasted coffee to our retail
locations and wholesale accounts.
Retail Outlets
Our retail outlet distribution channel can be divided into two
sub-channels, each with its own business model distinguished by differences in
revenue, cost structure, overhead and capital requirements. These two retail
sub-channels are company operated retail outlets and franchised retail outlets.
We view retail outlets as a single distribution channel, despite the differences
noted above, primarily because our retail customers do not make any distinction
between company and franchise operated locations. The
10
critical success factors -- quality of product, service and atmosphere -- are
therefore the same for each type of retail location whether company operated or
franchised. The economic model and cost structures are also the same for each
type of location at the retail unit level, notwithstanding their different
direct financial impacts on us as both an operator and franchiser of retail
outlets. Furthermore, the potential contribution of any given outlet, as
measured by the amount of roasted coffee produced through our roasting plant, is
the same.
Our largest brand is Gloria Jean's and over 94% of our Gloria Jean's
retail units are franchised. Our Diedrich Coffee brand has a higher
concentration of company operated units, with 68% of retail locations operated
by us. Retail coffee outlets operated under the Coffee People and Coffee
Plantation brands are 100% company operated at this time. We are currently in
the process of divesting our Coffee Plantation business (see Note 8 of the Notes
to Condensed Consolidated Financial Statements). A table summarizing the
relative sizes of each of our brands, on a unit count basis, and changes in unit
count for the first quarter ended September 19, 2001, is set forth below:
NET TRANSFERS
UNITS AT BETWEEN THE UNITS AT
JUNE 27, COMPANY AND SEPTEMBER 19,
2001 ACQUIRED OPENED CLOSED FRANCHISE 2001
---- -------- ------ ------ --------- ----
GLORIA JEAN'S BRAND
Company Operated 19 -- -- -- -- 19
Franchise - Domestic 177 -- -- (4) -- 173
Franchise - International 95 -- 15 -- -- 110
----- ----- ----- ----- ----- -----
Subtotal Gloria Jean's 291 -- 15 (4) -- 302
----- ----- ----- ----- ----- -----
DIEDRICH COFFEE BRAND
Company Operated 26 -- -- -- 26
Franchise - Domestic 14 -- -- (2) -- 12
----- ----- ----- ----- ----- -----
Subtotal Diedrich 40 -- -- (2) -- 38
----- ----- ----- ----- ----- -----
OTHER BRANDS
Company Operated 42 -- -- -- -- 42
----- ----- ----- ----- ----- -----
TOTAL 373 -- 15 (6) -- 382
===== ===== ===== ===== ===== =====
Wholesale Distribution
We presently have over 375 wholesale accounts not affiliated with our
retail locations, which purchase coffee from us under both the Diedrich Coffee
and Gloria Jean's brands. Our current wholesale accounts are in the Office
Coffee Supply market, chain restaurants, independent restaurants, other
hospitality industry enterprises and specialty retailers. Additionally, our
franchise agreements require both Diedrich Coffee and Gloria Jean's franchisees
to purchase substantially all of their coffee from us.
Seasonality and Quarterly Results
Historically, we have experienced variations in sales from
quarter-to-quarter due to the peak November-December holiday season, as well as
from a variety of other factors, including, but not limited to, general economic
trends, the cost of green coffee, competition, marketing programs, weather and
special or unusual events.
11
RESULTS OF OPERATIONS.
Twelve Weeks Ended September 19, 2001 Compared with the Twelve Weeks
Ended September 20, 2000
TOTAL REVENUE. Total revenue for the twelve weeks ended September 19, 2001
decreased by $2,732,000, or 16.2%, to $14,140,000 from $16,872,000 for the
twelve weeks ended September 20, 2000. This decrease was attributable to a
decrease in retail and wholesale sales and franchise revenue. Each component is
discussed below.
Retail sales for the twelve weeks ended September 19, 2001 decreased by
$1,056,000, or 9.9%, to $9,610,000 from $10,666,000 for the prior year period.
This decrease represented the combined impact of two factors. First, the number
of company store operating weeks decreased in the current year versus the
earlier period. This primarily resulted from the closure of nine unprofitable
company locations since the prior year period, six of which were Diedrich Coffee
carts and three of which were Gloria Jean's mall stores, and the sale to a
franchisee of three company operated Diedrich coffeehouses. The net impact of
the reduction in company store operating weeks noted above, slightly offset by
increases in operating weeks in other company stores, was a $450,000 net
decrease in retail sales versus the prior year. The balance of the $1,056,000
decrease resulted from a 6.0 % decrease in comparable store sales for company
operated units during the twelve weeks ended September 19, 2001 as compared to
the prior year period.
Wholesale revenue decreased $1,428,000, or 30.2%, to $3,301,000 for the
twelve weeks ended September 19, 2001 from $4,729,000 for the prior year period.
This 30.2% decrease was the net impact of the five factors listed below in
declining order of magnitude:
- the decision to stop distributing most non-coffee products to our
Gloria Jean's franchisees
- an increase in our Keurig "K-cup" and other sales in the Office
Coffee Service market
- an unfavorable match up in the timing of holiday gift basket sales
to Gloria Jean's franchisees versus the prior year
- a decrease in coffee bean sales to our Gloria Jean's franchisees
- a decrease in coffee sales to independent and chain restaurants and
specialty retailers
Sale of non-coffee products to Gloria Jean's franchisees. Sales of
non-coffee products decreased by $794,000 for the twelve weeks ended September
19, 2001, a 97% decrease versus the prior year period. These products include
paper cups, napkins, sweetener packets, coffee stirrers, and coffee related
merchandise such as ceramic mugs and novelties sold in our Gloria Jean's
mall-based coffee stores. We began eliminating most of these lower margin or
lower turnover product lines during fiscal 2001 in order to increase focus on
our core coffee operations. Franchisees now purchase these items directly from
outside distributors.
Keurig "K-cup" and other sales. Keurig and other Office Coffee Service
sales increased by $584,000 to $1,244,000 for the twelve weeks ended September
19, 2001, an 88.5% increase over the year ago quarter, which was our first
fiscal period that included K-cup sales.
Holiday gift basket sales. Holiday gift basket sales to Gloria Jean's
franchisees decreased $511,000 versus the prior year period due to the timing of
the fiscal quarter end. In fiscal 2001, the majority of holiday sales were
recorded in the first quarter, but in fiscal 2002 the majority of the sales will
be recorded in the second quarter of the fiscal year.
Coffee bean sales to Gloria Jean's franchisees. Sales of coffee to Gloria
Jean's franchisees declined $379,000, or 20.5% for several reasons. First, there
were fewer domestic franchise store operating
12
weeks in the current year period due primarily to the net closure of 21 domestic
franchise operated Gloria Jean's stores since the year ago period. Second,
Gloria Jean's system comparable store sales decreased 3.9% versus the prior year
period, thus reducing coffee bean usage. Finally, coffee shipments during the
first quarter of fiscal year 2001 were unusually high because two of our
distributors had just begun to distribute our coffee.
Coffee sales to independent and chain restaurants and specialty retailers.
Wholesale coffee sales to independent and chain restaurants and other specialty
retailers decreased $328,000 versus the year ago quarter because we increased
our relative emphasis on increasing our sales to Office Coffee Service wholesale
accounts.
Franchise revenue decreased $248,000 to $1,229,000 for the twelve weeks
ended September 19, 2001, a 16.8% decrease from the prior year period. Franchise
revenue consists of initial franchise fees, franchise renewal fees, area
development fees, royalties received on sales at franchised locations and other
franchise income including coordination fees received from product suppliers.
Initial franchise fees and franchise renewal fees represented approximately
$80,000 of the decrease for the twelve weeks ended September 19, 2001 versus the
prior year, as a result of fewer franchise agreements signed. Supplier
coordination fees decreased $62,000 due primarily to the timing of such
payments. Franchise revenue also decreased versus the prior year period due to
$83,000 of other franchise income recorded in the year ago quarter in
conjunction with a settlement payment received from a former franchisee in
resolution of a monetary dispute.
COST OF SALES AND RELATED OCCUPANCY COSTS. Cost of sales and related
occupancy costs for the twelve weeks ended September 19, 2001 decreased 17.4% to
$6,984,000 from $8,451,000 for the prior year period. On a margin basis, cost of
sales and related occupancy costs decreased to 49.4% of total revenue for the
twelve weeks ended September 19, 2001 from 50.1% of total revenue for the twelve
weeks ended September 20, 2000. This 0.7 margin basis point improvement resulted
from the favorable margin impact of discontinuing the sale of lower margin
non-coffee product lines, as noted above in the discussion of changes in
wholesale revenue, as well as from the closure of several unprofitable company
operated locations since the prior year period.
OPERATING EXPENSES. Operating expenses for the twelve weeks ended
September 19, 2001 decreased 5.6% to $4,759,000 from $5,041,000 for the prior
year period, primarily due to a decrease in the number of company store
operating weeks as noted above. On a margin basis, operating expenses increased
to 33.7% of total revenue during the current year period from 29.9% for the year
ago quarter. This unfavorable 3.8 margin basis point change resulted from
several factors. First, operating costs for company retail units, most notably
labor, increased on average relative to the retail sales from those locations
because of a $0.50 per hour, or 8.7%, increase in the federal minimum wage
since the year ago quarter, and a 6.0% comparable company store sales decrease
versus the prior year period. Labor, utilities and other operating expenses in a
retail unit are semi-fixed, rather than completely variable based upon volume,
and therefore represent a higher percentage of revenue when retail sales in
existing locations decline. In addition, certain of the revenue decreases versus
the prior year period noted above, including the discontinuation of most
non-coffee item wholesale sales and reductions in franchise revenue, could not
be accompanied by significant operating expense reductions, and therefore had
the impact of increasing operating expenses as a percentage of total revenue.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased by
$368,000 to $671,000 for the twelve weeks ended September 19, 2001 from
$1,039,000 for the prior year period, primarily due to our adoption of the
FASB's Statement No. 142 as of the beginning of the current fiscal year. As
required under Statement No. 142, we have discontinued periodic amortization of
goodwill, and will complete a transitional goodwill impairment test by the end
of December 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by $994,000, or 32.0%, to $2,110,000 for the twelve weeks ended
September 19, 2001 from $3,104,000 for the prior year period. On a margin basis,
general and administrative expenses decreased to 14.9% in the first quarter of
fiscal 2002 from 18.4% in the year ago quarter. This 3.5 margin basis point
improvement is primarily due to the fact that subsequent to the prior year
period we implemented a restructuring plan
13
specifically intended to reduce overhead. Under this restructuring plan we
consolidated our previously separate support centers for Diedrich Coffee and
Gloria Jean's, closed our retail division field offices in Portland, Oregon and
Phoenix, Arizona, and eliminated 31 support center positions.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net decreased
by $186,000 to $160,000 for the twelve weeks ended September 19, 2001 from
$346,000 for the twelve weeks ended September 20, 2000. This decrease is
primarily due to the reduction in our note payable from $10,000,000 at September
20, 2000 to $5,243,000 at September 19, 2001, and to a lesser degree to a
reduction in our interest rate.
LIQUIDITY AND CAPITAL RESOURCES.
We had a working capital deficit of $4,620,000 as of September 19, 2001
compared to working capital deficit of $5,404,000 as of September 20, 2000. Cash
used in operating activities for the twelve weeks ended September 19, 2001
totaled $513,000 as compared to $444,000 for the twelve weeks ended September
20, 2000. This increase in cash used is the net result of many factors more
fully discussed in the unaudited consolidated statement of cash flows in the
accompanying financial statements, including increases during the first quarter
of fiscal 2002 in inventory levels and accounts receivable relative to the
beginning of the quarter. In the prior year, inventories declined during the
first fiscal quarter.
Net cash used in investing activities for the twelve weeks ended September
19, 2001 totaled $397,000, as compared to the $411,000 in net cash used in
investing activities for the twelve weeks ended September 20, 2000. For both
periods the net cash used in investing activities was used for property and
equipment expenditures.
Net cash used in financing activities for the twelve weeks ended September
19, 2001 totaled $368,000, as compared to the $718,000 net cash used in
financing activities for the twelve weeks ended September 20, 2000. For both
periods the net cash used in financing activities consisted of repayment of
long-term debt and capital leases.
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 our
assets and our subsidiaries' stock and which provided for a $12 million term
loan and a $3 million revolving credit facility. 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. We have not drawn down any borrowings under the
revolving credit facility since it was established, although it presently backs
$177,500 of outstanding Letters of Credit. Amounts outstanding under the Credit
Agreement bear interest, at our option, at Fleet's base rate plus 1.25% or an
adjusted Eurodollar rate plus 3.0%. At September 19, 2001, the applicable
interest rate was 6.58%, which was based on the Eurodollar rate at the time.
Due to various problems encountered in the year subsequent to the
acquisition of Coffee People, Inc., 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 satisfy certain financial covenants. We simultaneously announced
that on June 27, 2000, we had entered into a Letter Agreement with Fleet under
which the bank agreed to extend the due date of the June 30, 2000 quarterly
principal payment to 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 on the
extended due date. 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 the First Amendment to Credit
Agreement with Fleet to amend certain terms of the original Credit Agreement.
The First Amendment to Credit Agreement provides for, among other things: a
significant reduction in the required minimum principal amortization payments
going forward, an acceleration in the maturity date of all amounts owed under
the Credit Agreement, an agreement between us and the bank about certain assets
we intend to sell and about the
14
payment of future sale proceeds to the bank, the introduction of an additional
event of default, a reduction in the overall amount of the revolving credit
facility, new restrictions governing use of the facility and a modification of
the financial covenants going forward. The interest rate and the timing of
quarterly interest payments under the original Credit Agreement remain unchanged
under the First Amendment to Credit Agreement.
Specifically, under the terms of the First Amendment to Credit Agreement,
no further principal payments on the term loan were required from August 1, 2000
until January 31, 2001. We began making principal payments of $25,000 per month
beginning February 1, 2001, which increased to $100,000 per month beginning July
1, 2001. Continued minimum monthly payments of $100,000 are required 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 to September 1, 2002. In addition, we and the bank
identified certain assets that could be sold without interfering with our core
business, including two pieces of company owned real property under existing
company retail locations and a parcel of company owned real property that is
presently undeveloped. We and the bank also identified certain company operated
coffeehouses outside of our 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 any of our asset sales. In
January 2001, two of the aforementioned pieces of real property were sold in a
sale-leaseback transaction for $415,000. $208,000 of the proceeds from the
transaction was remitted to Fleet. In May 2001, three company operated
coffeehouses in Texas were sold for $1,025,000. $448,500 of the proceeds from
the sale was remitted to Fleet. Also in May 2001, we sold 2,000,000 shares
(post-split) of our common stock in a private sale. $3,600,000 of the proceeds
from the sale was remitted to Fleet. The proceeds received from all three of
these sales were applied solely to our principal note payable balance.
The First Amendment to Credit Agreement also introduced an additional
event of default under the Credit Agreement. The First Amendment specifies that
a materially adverse change in our financial condition or any of our
subsidiaries, as determined by the bank in its sole and exclusive discretion, is
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 maximum
amount available under the revolving credit facility, a portion of which we had
previously been unable to access because of the covenant defaults, from
$3,000,000 to $1,293,000, and a restriction that the credit facility be used
only to back up existing and future standby Letters of Credit. The First
Amendment to Credit Agreement preserves our ability to obtain third party
financing for capital projects and maintenance capital, and increases our
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 us. In addition to resetting the ratios in the financial covenants, we agreed
to a new covenant under the First Amendment to Credit Agreement that requires us
to achieve 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: $283,333 by March 2001; $708,333 by June 30, 2001; and
$1,619,900 by September 30, 2001. All such incremental principal repayment
obligations due prior to the accelerated maturity date have been met as of
September 19, 2001, and were generated primarily from the net proceeds paid to
the bank from the above mentioned asset sales and stock issuance.
We believe that cash from operations and asset sales (including those
presently in escrow), will be sufficient to satisfy our working capital needs at
the anticipated operating levels, including our obligations under our Credit
Agreement, as amended, for the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS.
In July 2001, the Financial Accounting Standards Board issued Statement
No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets." Statement No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
Statement No. 141 also specifies the criteria that intangible assets acquired in
a purchase method
15
business combination must meet to be recognized and reported apart from
goodwill. Statement No. 142 requires that intangible assets with estimable
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with FAS
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." We adopted the provisions of Statement No.
141 and Statement No. 142 in the first quarter of fiscal 2002.
In connection with Statement No. 142's transitional goodwill impairment
evaluation, we must perform an assessment of whether there was an indication
that our unamortized goodwill at June 28, 2001 of $12,250,000 was impaired as of
the date of adoption. To accomplish this, we identified our reporting units and
determined the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. We now have until the end of
December 2001 to determine the fair value of each reporting unit and to compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and we must perform the second step of the
transitional impairment test. In the second step, we would be required to
compare the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets, recognized and
unrecognized, and liabilities in a manner similar to a purchase price allocation
in accordance with Statement No. 141, to its carrying amount, both of which
would be measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in our statement of operations.
As of the date of adoption, we had unamortized goodwill in the amount of
$12,250,000, all of which is subject to the transition provisions of Statement
Nos. 141 and 142. The impact in fiscal year 2002 of adopting Statement No. 142
will be to eliminate the amortization of goodwill. Such goodwill amortization
totaled $803,000 in the fiscal year 2001.
The Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations" in September 2001. Statement No.
143, which is effective for fiscal years beginning after June 15, 2002,
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. We have not assessed whether the application of these standards will have
a material effect on our financial position, results of operations or liquidity.
The Financial Accounting Standards Board issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" in October
2001. Statement No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets, and is effective for fiscal years
beginning after December 15, 2001. We have not assessed whether the application
of these standards will have a material effect on our financial position,
results of operation or liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
MARKET RISK SENSITIVE ITEMS ENTERED INTO FOR TRADING PURPOSES
None.
MARKET RISK SENSITIVE ITEMS ENTERED INTO FOR OTHER THAN TRADING PURPOSES
Interest Rate Risk
We are exposed to market risk from changes in interest rates on our
outstanding bank debt. At September 19, 2001, we had $5,243,000 in bank debt
that was tied to changes in short term interest rates. At the end of our first
fiscal quarter of fiscal 2002, the interest rate was the "adjusted Eurodollar
rate" plus 3%. The rate can be fixed over periods ranging from one to six
months, at our discretion. At September
16
19, 2001, a hypothetical 100 basis point increase in the adjusted Eurodollar
rate would result in additional interest expense of $52,000 on an annualized
basis.
Commodity Price Risk
Green coffee, the principal raw material for our products, is subject to
significant price fluctuations caused by multiple factors, including weather,
political, and economic conditions. To date, we have not used commodity based
financial instruments to hedge coffee or any other commodity. To ensure an
adequate supply of coffee, however, we enter into agreements to purchase green
coffee in the future that may or may not be fixed as to price. At September 19,
2001, we had commitments totaling $6,575,022 (for 4,983,894 pounds of green
coffee), all of which were fixed as to price. The coffee scheduled to be
delivered to us in this fiscal year pursuant to these commitments will satisfy
approximately 45% to 50% of our anticipated green coffee requirements for this
fiscal year. Assuming we require approximately 2,000,000 additional pounds of
green coffee during 2002 for which no price has yet been fixed, each $0.01 per
pound increase in the price of green coffee would likely result in $20,000 of
additional cost. However, because the price we pay for green coffee is
negotiated with suppliers, we believe that the commodity market price for green
coffee would have to increase significantly, by as much as $0.25 per pound,
before suppliers would increase the price they charge us.
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 twelve week period ending September
19, 2001, we were not a party to any material legal proceedings.
ITEM 5. OTHER INFORMATION.
Minimum Advance Notice of Stockholder Proposals
Diedrich Coffee stockholders are advised that we must be notified by July
1, 2002 (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 2002 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, as amended. 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 2002 annual meeting, without any discussion of the matter in the
proxy statement.
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 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 (1)
3.1 Restated Certificate of Incorporation of the Company, dated
May 11, 2001 (2)
3.2 Bylaws of the Company (3)
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.
(3)
17
EXHIBIT
NO. DESCRIPTION
--- -----------
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. (3)
4.3 Specimen Stock Certificate (3)
4.4 Form of Conversion Agreement in connection with the conversion
of Series A and Series B Preferred Stock into Common Stock (3)
4.5 Form of Lock-up Letter Agreement among The Second Cup, Ltd.
and Diedrich Coffee, Inc. (4)
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. (4)
10.1 Form of Indemnification Agreement (3)
10.2 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan
(5)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan
(3)
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) (3)
10.5 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)
10.6 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)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 Form of Warrant Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust (7)
18
EXHIBIT
NO. DESCRIPTION
--- -----------
10.12 Form of Common Stock and Option Purchase Agreement with
Franchise Mortgage Acceptance Company dated as of April 3,
1998 (8)
10.13 Employment Agreement with Catherine Saar dated June 11, 1998
(9)
10.14 Form of Franchise Agreement (10)
10.15 Form of Area Development Agreement (10)
10.16 Employment Agreement with Martin R. Diedrich dated June 29,
2001 (18)
10.17 Credit Agreement, dated as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (11)
10.18 Security Agreement, dated as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (11)
10.19 Securities Pledge Agreement, dated as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries
(11)
10.20 Trademark Security Agreement, dated as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries
(11)
10.21 Form of Term Note made in favor of BankBoston, N.A. (11)
10.22 Form of Revolving Note made in favor of BankBoston, N.A. (11)
10.23 Employment Agreement with Matt McGuinness dated effective
March 13, 2000 (12)
10.24 First Amendment to Credit Agreement dated as of September 26,
2000 (12)
10.25 Second Amendment to Credit Agreement dated as of February 26,
2001 (13)
10.26 Letter Agreement re: employment with J. Michael Jenkins dated
September 22, 2000 (12)
10.27 Letter Agreement re: employment with Carl Mount dated October
29, 1999 (14)
10.28 Letter Agreement re: employment with Edward A. Apffel dated
May 25, 2000 (14)
10.29 Diedrich Coffee, Inc. 2000 Non-Employee Directors Stock Option
Plan (15)
10.30 Stock Option Plan and Agreement with J. Michael Jenkins, dated
September 22, 2000 (16)
10.31 Diedrich Coffee, Inc. 2000 Equity Incentive Plan (16)
10.32 Common Stock and Warrant Purchase Agreement by and among
Diedrich Coffee, Inc., Westcliff Partners, L.P., Westcliff
Foundation, Westcliff Long/Short, L.P., Westcliff Small Cap
Fund, L.P., Westcliff Aggressive Growth, L.P., Westcliff
Profit Sharing Plan, Westcliff Master Fund, Ltd.,
19
EXHIBIT
NO. DESCRIPTION
--- -----------
Peninsula Capital, L.P., Common Sense Partners, L.P. and
Sequoia Enterprises, L.P., dated March 14, 2001 (17)
21.1 List of Subsidiaries (12)
----------
(1) 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.
(2) Previously filed as an exhibit to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on May 16, 2001.
(3) 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.
(4) 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.
(5) 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.
(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 July 29, 1998, filed with the Securities and
Exchange Commission on September 10, 1998.
(10) 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.
(11) 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.
(12) Previously filed as an exhibit to Diedrich Coffee's annual report on Form
10-K for the fiscal year ended June 28, 2000.
(13) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended March 7, 2001, filed with the Securities and
Exchange Commission on April 23, 2001.
(14) Previously filed as an exhibit to Diedrich Coffee's Report on Form 10-Q for
the period ended September 20, 2000, filed with the Securities and Exchange
Commission on November 6, 2000.
20
(15) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-8, filed with the Securities and Exchange Commission on November
21, 2000.
(16) Previously filed as an exhibit to Diedrich Coffee's Report on Form 10-Q for
the period ended December 13, 2000, filed with the Securities and Exchange
Commission on January 29, 2001.
(17) Previously filed as an exhibit to the Definitive Proxy Statement, filed
with the Securities and Exchange Commission on April 12, 2001.
(18) Previously filed as an exhibit to Diedrich Coffee's Annual Report on Form
10-K for the year ended June 27, 2001, filed with the Securities and
Exchange Commission on September 25, 2001.
(b) Reports on Form 8-K.
None.
21
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 5, 2001 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)
22