1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 13, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
COMMISSION FILE NUMBER 0-21203
DIEDRICH COFFEE, INC.
(Exact name of registrant as specified in its charter)
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 29, 2001, there were 12,645,356 shares of common stock of
the registrant outstanding.
================================================================================
2
DIEDRICH COFFEE, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
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.................................................. 17
Item 5 Other Information.................................................. 17
Item 6 Exhibits and Reports on Form 8-K................................... 18
Signatures......................................................... 22
2
3
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 13, 2000 JUNE 28, 2000
----------------- -------------
(UNAUDITED)
ASSETS
Current Assets:
Cash $ 1,094,275 $ 2,943,554
Accounts receivable 4,503,685 2,359,015
Inventories (Note 2) 3,796,081 4,327,011
Prepaid expenses 776,635 382,193
Income taxes receivable 16,233 16,232
------------ ------------
Total current assets 10,186,909 10,028,005
Property and equipment, net 14,276,582 15,455,807
Costs in excess of net assets acquired, net 13,810,812 14,184,306
Other assets 699,546 661,736
------------ ------------
Total assets $ 38,973,849 $ 40,329,854
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease $ 263,177 $ 390,699
Current installments of long-term debt (Note 3) 2,344,900 1,075,000
Accounts payable 5,579,261 6,393,029
Accrued compensation 2,726,071 1,612,572
Accrued expenses (Note 4) 2,079,034 2,065,078
Franchisee deposits 698,892 662,974
Deferred franchise fee income 958,353 796,500
Provision for store closure (Note 5) 1,068,392 1,247,856
------------ ------------
Total current liabilities 15,718,080 14,243,708
Obligations under capital lease, excluding current installments 683,863 659,865
Long-term debt, excluding current installments (Note 3) 7,655,101 9,591,667
Deferred rent 744,103 713,025
------------ ------------
Total liabilities 24,801,147 25,208,265
------------ ------------
Stockholders' Equity:
Common stock 126,169 126,169
Additional paid-in capital 52,552,412 52,552,412
Accumulated deficit (38,505,879) (37,556,992)
------------ ------------
Total stockholders' equity 14,172,702 15,121,589
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 38,973,849 $ 40,329,854
============ ============
See accompanying notes to condensed consolidated financial statements.
3
4
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
TWELVE WEEKS TWELVE WEEKS TWENTY-FOUR WEEKS TWENTY-FOUR WEEKS
ENDED DECEMBER 13, ENDED DECEMBER 15, ENDED DECEMBER 13, ENDED DECEMBER 15,
2000 1999 2000 1999
------------------ ------------------ ------------------ ------------------
Revenues:
Retail $ 11,572,777 $ 10,971,709 $ 22,239,026 $ 21,434,847
Wholesale and other 6,074,264 6,106,783 10,802,793 10,741,352
Franchise revenue 1,753,424 2,054,512 3,230,596 3,229,330
------------ ------------ ------------ ------------
Total 19,400,465 19,133,004 36,272,415 35,405,529
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of sales and related occupancy
costs 9,479,402 9,635,694 17,926,930 17,597,084
Store operating expenses 4,638,169 4,422,725 9,260,197 8,601,647
Operations management 1,288,441 1,458,802 2,587,548 2,694,391
Depreciation and amortization 1,065,465 832,197 2,104,402 1,639,076
General and administrative expenses 2,365,393 1,897,111 4,592,526 4,148,939
------------ ------------ ------------ ------------
Total 18,836,870 18,246,529 36,471,603 34,681,137
------------ ------------ ------------ ------------
Operating income (loss) 563,595 886,475 (199,188) 724,392
Interest expense (357,456) (327,265) (715,659) (614,154)
Interest and other income (loss) (25,527) 50,153 (13,745) 116,834
------------ ------------ ------------ ------------
Income (loss) before income tax
provision 180,612 609,363 (928,592) 227,072
Income tax provision 17,035 10,335 20,295 17,535
------------ ------------ ------------ ------------
Net income (loss) $ 163,577 $ 599,028 $ (948,887) $ 209,537
============ ============ ============ ============
Basic net income (loss) per share: $ 0.01 $ 0.05 $ (0.08) $ 0.02
============ ============ ============ ============
Diluted net income (loss) per share: $ 0.01 $ 0.05 $ (0.08) $ 0.02
============ ============ ============ ============
Weighted average shares outstanding:
Basic 12,645,356 12,615,601 12,645,356 12,319,034
Diluted 12,645,356 13,266,565 12,645,356 13,052,131
See accompanying notes to condensed consolidated financial statements.
4
5
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWENTY-FOUR WEEKS TWENTY-FOUR WEEKS
ENDED DECEMBER 13, ENDED DECEMBER 15,
2000 1999
------------------ ------------------
Cash flows from operating activities:
Net income (loss) $ (948,887) $ 209,537
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 2,104,402 1,849,817
Amortization of loan fees 130,360 20,271
Changes in assets and liabilities:
Accounts receivable (2,144,670) (3,085,858)
Inventories 530,930 (115,132)
Prepaid expenses (394,442) (92,260)
Income taxes receivable -- --
Other assets (149,319) (91,502)
Accounts payable (813,768) 2,817,274
Accrued compensation 1,113,499 62,374
Accrued expenses and provision for
store closings and restructuring costs 32,263 (637,452)
Deferred rent 31,078 11,927
----------- ------------
Net cash (used in) provided by operating activities (508,553) 948,996
----------- ------------
Cash flows from investing activities:
Capital expenditures for property and equipment (570,536) (859,302)
Cash paid for acquisition, net -- (22,937,362)
Decrease in reserve for disposal of stores -- (273,099)
----------- ------------
Net cash used in investing activities (570,536) (24,069,763)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 25,350,799
Proceeds from the issuance of note payable, net of
fees paid -- 11,603,181
Repayment of long-term debt (666,666) (7,808,357)
Repayment of capital lease obligations (103,524) (290,509)
----------- ------------
Net cash (used in) provided by financing activities (770,190) 28,855,114
----------- ------------
Net increase (decrease) in cash (1,849,279) 5,734,347
Cash at beginning of period 2,943,554 552,124
----------- ------------
Cash at end of period $ 1,094,275 $ 6,286,471
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 579,264 $ 325,300
=========== ============
Income taxes $ 20,295 $ 21,141
=========== ============
Non-cash transactions:
Issuance of common stock to acquire Coffee People $ -- $ 8,415,000
=========== ============
See accompanying notes to condensed consolidated financial statements.
5
6
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 13, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of Diedrich
Coffee, Inc. (the "Company") and subsidiaries have been prepared in accordance
with generally accepted accounting principles, the instructions to Form 10-Q and
Article 10 of Regulation S-X. Information relating to the periods ending prior
to July 7, 1999 included in this report relates to the historical operations of
Diedrich Coffee, Inc. and, except as otherwise indicated, does not reflect the
operations of Coffee People, Inc., which the Company acquired on July 7, 1999.
These statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 28, 2000.
In the opinion of management, all adjustments (consisting of normal,
recurring adjustments and accruals) considered necessary for a fair presentation
have been included. Operating results for interim periods are not necessarily
indicative of the results expected for a full year.
Costs in Excess of Net Assets Acquired
In connection with the fourth quarter of fiscal year 2000 a $14.8
million impairment charge was taken against costs in excess of net assets
acquired, and management changed the related amortization period from 40 years
to 30 years for the Gloria Jean's division and from 40 years to 10 years for
both the Coffee People and Coffee Plantation divisions. Such revised
amortization periods, which became effective in the first quarter of fiscal year
2001, reflect management's best estimate of the underlying periods of
recoverability of the costs in excess of net assets acquired. The change in
amortization periods resulted in additional amortization of $89,000 for the
twelve weeks ended December 13, 2000 and $202,000 for the twenty four weeks
ended December 13, 2000.
Reclassifications
Certain reclassifications have been made to the December 15, 1999
consolidated financial statements to conform to the December 13, 2000
presentation.
2. INVENTORIES
Inventories consist of the following:
DECEMBER 13, 2000 JUNE 28, 2000
----------------- -------------
Green coffee (raw materials) $ 852,636 $1,371,009
Roasted coffee (finished goods) 1,071,526 789,816
Accessory and specialty items 700,190 750,667
Other food, beverage and supplies 1,171,729 1,415,519
---------- ----------
$3,796,081 $4,327,011
========== ==========
6
7
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 13, 2000
(UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 13, 2000 JUNE 28, 2000
----------------- -------------
BANKBOSTON, N.A. (FLEET NATIONAL BANK)
Note payable bearing interest at a rate
of 9.88% on $9.333 million and 9.66% on
$.667 million as of December 13, 2000
Due September 1, 2002. Note is secured by
the assets of the Company and its
subsidiaries' stock $10,000,001 $10,666,667
----------- -----------
Less: current installments 2,344,900 1,075,000
----------- -----------
Long-term debt, excluding current
installments $ 7,655,101 $ 9,591,667
=========== ===========
On July 7, 1999, the Company entered into a Credit Agreement with
BankBoston, N.A. (subsequently merged into Fleet National Bank) secured by
pledges of all of the Company's assets and its subsidiaries' stock and which
provided for a $12 million term loan and a $3 million revolving credit facility.
The Company used the proceeds of the term loan to repay existing indebtedness
and to pay expenses related to the acquisition of Coffee People. The term loan
provided for principal repayment based upon a five year amortization, with
quarterly principal payments of $666,667 and quarterly interest payments based
upon a formula described below. The Company established the revolving credit
facility for future flexibility to remodel existing company-owned coffeehouses,
develop new company coffeehouses, and for general corporate purposes. The
Company did not draw down any borrowings under the revolving credit facility
since it was established, although it presently has $293,000 of outstanding
Letters of Credit backed by the revolving credit facility. Amounts outstanding
under the Credit Agreement bear interest, at the Company's option, at Fleet's
base rate plus 1.25% or an adjusted Eurodollar rate plus 3.0%. At December 13,
2000, the applicable index was 6.88%.
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 meet certain financial covenants. We simultaneously announced that
on June 27, 2000, we had entered into a Letter Agreement with Fleet National
Bank under which the bank agreed to extend the due date of the June 30, 2000
quarterly principal payment until July 31, 2000, and to forbear until July 31,
2000 from exercising any of its rights and remedies arising from financial
covenant defaults. We subsequently made the July 31, 2000 principal payment as
required on the extended due date, and on August 17, 2000 we entered into an
extension of the June 27, 2000 Letter Agreement which extended through September
30, 2000 the bank's forbearance from exercising any of its default remedies.
On September 26, 2000, we entered into a First Amendment to Credit
Agreement with Fleet National Bank to amend certain terms of the original Credit
Agreement. The First Amendment to Credit Agreement provides, among other things,
for a significant reduction in required minimum principal amortization payments
going forward, an acceleration in the maturity date of all amounts owed under
the Credit Agreement, an agreement between the parties as to certain assets
intended to be sold as well as the allocation of future net asset sale proceeds
between the Company and the bank, the introduction of an additional event of
default under the Agreement, a reduction in the overall amount of the revolving
credit facility and certain new restrictions governing use of the facility, and
a modification of the financial covenants and the Company's ability to obtain
new third party debt going forward.
7
8
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 13, 2000
(UNAUDITED)
Specifically, under the terms of the First Amendment to Credit
Agreement, no further scheduled principal payments on the term loan are required
from August 1, 2000 until January 31, 2001. The Company must then pay scheduled
principal payments of $25,000 per month beginning February 1, 2001, which
increase to $100,000 per month beginning July 1, 2001 until all amounts owed
under the Credit Agreement are repaid. The First Amendment to Credit Agreement
accelerates the maturity date of all remaining amounts owed under the credit
Agreement to September 1, 2002. In addition, the Company and the bank identified
certain assets that could be sold without interfering with the Company's growth
strategy, including two pieces of owned real property under existing company
retail locations, which are expected to be leased back from the buyer, a third
parcel of owned real property, presently undeveloped, and certain company
operated coffeehouses outside of its core southern California market that could
be refranchised. Under the terms of the First Amendment to Credit Agreement,
the bank is to receive 50% of the net proceeds from any such asset sales. A sale
of one of the two owned properties referred to above was completed in late
December 2000. The net proceeds received totaled $415,000, of which 50% was paid
to the bank, resulting in a $208,000 principal repayment to the bank in early
January 2001. The other two properties are presently listed for sale. The
computation of the interest rate and the timing of quarterly interest payments
under the original Credit Agreement remain unchanged under the First Amendment
to Credit Agreement. The Company made its scheduled quarterly interest payment
in late December 2000.
The amendment also introduces an additional event of default under the
Agreement. The amendment specifies that a materially adverse change in the
financial condition of the Company (or any of its subsidiaries), as determined
by the bank in its sole and exclusive discretion, is defined as an event of
default. Under any event of default, the bank may declare all amounts owed
immediately due and payable. Additional changes under the terms of the First
Amendment to Credit Agreement include a reduction in the revolving credit
facility, which the Company had previously been unable to access because of the
covenant defaults, from a $3,000,000 limit to $1,293,000, and a restriction that
the reduced facility be used only to back up existing and future standby Letters
of Credit. The First Amendment to Credit Agreement preserves the Company's
ability to obtain third party financing for capital projects and maintenance
capital, and increases its flexibility to obtain subordinated debt as a source
of additional working capital. Under the First Amendment to Credit Agreement the
bank waived the previous financial covenant defaults, and agreed to new
financial covenant ratios going forward based upon updated financial information
and projections prepared by the Company. In addition to resetting such ratios in
the financial covenants as contained in the original Credit Agreement, the
parties agreed to a new covenant under the First Amendment to Credit Agreement
which commits the Company to achieving certain predetermined minimum levels of
cumulative principal repayments in addition to amounts already paid to date in
fiscal 2001 or reflected in the new go forward minimum monthly principal payment
obligations discussed above: $283,000 by March 31, 2001; $708,000 by June 30,
2001; and $1,619,900 by September 30, 2001. Such incremental principal
repayments (above the scheduled minimum monthly amounts described above) are
anticipated to be generated primarily from the net proceeds to be paid to the
bank from future asset sales, the issuance of new debt or equity, or a
combination of these sources. Of the $283,000 due by March 2001, $208,000 has
already been paid as a result of the asset sale described above.
4. ACCRUED EXPENSES
Accrued expenses represents accrued severance costs, amounts due to
franchisee trust accounts, accrued interest, accrued professional fees, accrued
legal settlements, and other miscellaneous accruals.
During the twelve weeks ended December 13, 2000 the company recorded a
charge of $220,000 to accrue for its estimated liability associated with its
guarantee of an equipment lease for a former franchise area developer. During
this same period the company reversed $169,000 of accrued expenses pertaining to
accrued legal settlements and other miscellaneous accruals.
8
9
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 13, 2000
(UNAUDITED)
5. PROVISION FOR STORE CLOSURE
Activity in the provision for store closure for the twenty-four weeks
ended December 13, 2000 is summarized as follows:
Balance at June 28, 2000 $1,247,856
Charges to operations 197,493
Disbursements as costs incurred (178,638)
Adjustments (198,319)
----------
Balance at December 13, 2000 $1,068,392
During the twelve weeks ended December 13, 2000 the Company recorded a
charge of $197,493 for the anticipated costs associated with the termination of
six coffeehouse leases that were never developed. During this same period the
Company reversed $101,000 of reserves previously provided based upon more
favorable than expected lease settlements, and made certain other
reclassifications.
6. EARNINGS PER SHARE
The Company computed basic net income (loss) per share based on the
weighted average number of common shares outstanding during the period
presented. Diluted net income (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 income (loss) per share:
TWELVE TWELVE TWENTY-FOUR TWENTY-FOUR
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 13, 2000 DECEMBER 15, 1999 DECEMBER 13, 2000 DECEMBER 15, 1999
----------------- ----------------- ----------------- -----------------
NUMERATOR:
Net income (loss) $ 163,577 $ 599,028 $ (948,887) $ 209,537
DENOMINATOR:
Denominator for basic net income (loss) per
share - weighted average shares 12,645,356 12,615,601 12,645,356 12,319,034
Dilutive potential common shares using
treasury stock method 650,964 733,097
----------- ----------- ------------ -----------
Denominator for diluted net income (loss) per share 12,645,356 13,266,565 12,645,356 13,052,131
=========== =========== ============ ===========
BASIC NET INCOME (LOSS) PER SHARE: $ 0.01 $ 0.05 $ (0.08) $ 0.02
=========== =========== ============ ===========
DILUTED NET INCOME (LOSS) PER SHARE: $ 0.01 $ 0.05 $ (0.08) $ 0.02
=========== =========== ============ ===========
9
10
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 13, 2000
(UNAUDITED)
All 2,353,969 outstanding options plus 920,000 warrants to purchase
shares of common stock during the twelve weeks and twenty-four weeks ended
December 13, 2000 were excluded from the calculation of diluted net income
(loss) per share as their inclusion would have been anti-dilutive.
Options and warrants to purchase 1,111,725 and 1,386,725 shares of
common stock with exercise prices that exceed the weighted average market price
of $5.57 and $4.83 during the twelve weeks and twenty-four weeks ended December
15, 1999, respectively, were excluded from the calculation of diluted net income
per share as their inclusion would have been anti-dilutive.
7. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments which include retail
operations, wholesale operations and franchise operations. The Company evaluates
performance of its operating segments based on income before provision for asset
impairment and restructuring costs, income taxes, interest expense, depreciation
and amortization, and general and administrative expenses. Summarized financial
information concerning the Company's reportable segments is shown in the
following tables. 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 December 13, 2000
Revenue $ 11,572,777 $ 6,074,264 $1,753,424 $ -- $ 19,400,465
Interest expense -- -- -- 357,456 357,456
Depreciation & amortization 453,503 199,763 -- 412,199 1,065,465
Segment profit (loss) before tax 939,979 1,273,400 1,074,789 (3,107,556) 180,612
Total assets as of December 13, 2000 $ 14,062,236 $ 3,794,274 $1,084,703 $ 20,032,636 $ 38,973,849
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ----------- ---------- ---------- ------------
Twelve Weeks Ended December 15, 1999
Revenue $ 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 June 28, 2000 $ 13,679,086 $ 2,139,241 $ 549,713 $ 23,961,814 $ 40,329,854
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ----------- ---------- ---------- ------------
Twenty-Four Weeks ended December 13, 2000
Revenues $ 22,239,026 $10,802,793 $3,230,596 $ 36,272,415
Interest expense -- -- -- 715,659 $ 715,659
Depreciation & amortization 930,060 371,460 -- 802,883 2,104,402
Segment profit (loss) before tax 998,091 2,048,060 1,706,366 (5,681,109) (928,592)
Total assets as of December 13, 2000 $ 14,062,236 $ 3,794,274 $1,084,703 $ 20,032,636 $ 38,973,849
10
11
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 13, 2000
(UNAUDITED)
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
----------- ----------- ---------- ---------- -----------
Twenty-Four Weeks ended December 15, 1999
Revenues $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 June 28, 2000 $13,679,086 $ 2,139,241 $ 549,713 $ 23,961,814 $40,329,854
ITEM 2.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this quarterly report that are
subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of Diedrich Coffee's
financial condition, operations, plans, objectives and performance.
Additionally, when we use the words "believe," "expect," "anticipate,"
"estimate" or similar expressions, we are making forward-looking statements.
Many possible events or factors could affect our future financial results and
performance. This could cause our results or performance to differ materially
from those expressed in our forward-looking statements. You should consider
these risks when you review this document, along with the following possible
events or factors:
o the financial and operating performance of our retail operations;
o our ability to maintain profitability over time;
o our ability to perform within the terms of our amended credit agreement;
o the successful execution of our new growth strategies;
o the impact of competition; and
o the availability of working capital.
Foreseeable risks and uncertainties are described elsewhere in this
report and in detail under "Risk Factors and Trends Affecting Diedrich Coffee
and Its Business" in our Annual Report on Form 10-K for the fiscal year ended
June 28, 2000 and in other reports that we file with the Securities and Exchange
Commission.
GENERAL
The first retail store operating under the name of Diedrich Coffee
commenced operations in 1972. We are now the second largest specialty coffee
retailer in the United States with annual system-wide sales of more than $150
million. At December 13, 2000, Diedrich Coffee owned and operated 98 retail
locations and had 285 franchised retail locations in 37 states and ten foreign
countries. Our primary brands are Diedrich Coffee coffeehouses and Gloria
Jean's, the nation's largest chain of mall-based coffee stores. We also own and
operate Coffee People and Coffee Plantation coffeehouses. We sell brewed
specialty coffee and espresso-based beverages
11
12
such as cappuccinos, lattes, mochas and espressos and various blended drinks as
well as a wide variety of whole bean coffees through these company-owned and
franchised locations. To complement beverage sales, we also sell light food
items and other merchandise at our retail locations. In addition, we have a
wholesale division that markets our products directly to businesses through
office coffee systems as well as to food service establishments. Our products
are also sold directly to customers through our website and through mail order.
In an effort to align our fiscal year with that of Coffee People, Inc.,
which we acquired on July 7, 1999, we changed our fiscal year end from a fiscal
year ending on the Wednesday nearest January 31 to a fiscal year ending on the
Wednesday nearest June 30. References to fiscal 2000 refer to the fiscal year
ended June 28, 2000, and references to fiscal 2001 refer to the fiscal year
ending June 27, 2001. In connection with the change in fiscal year end, our
quarterly periods were changed to include 12 weeks, except for the fourth
quarter, which has approximately 16 weeks.
Franchise Area Development Agreements and Franchising Activities
Management's franchising strategy for the Diedrich Coffee brand has
changed. Diedrich Coffee will no longer pursue large Area Development Agreements
covering major US markets, but rather will seek multi-unit franchisees
interested in developing a limited geographic area for the sale of Diedrich
Coffee brand coffee products through a variety of non-mall retail venues.
Franchising at Diedrich Coffee had been temporarily suspended from time to time
since June 28, 2000 in order for us to comply with applicable federal and state
franchise disclosure requirements and to update our Diedrich Coffee Uniform
Franchise Offering Circular ("UFOC"). We have now resumed offering Diedrich
Coffee franchises for sale based upon our updated UFOC.
We currently have four franchise area development agreements in effect
to develop 214 Diedrich Coffee brand coffeehouses. We anticipate the termination
of two of these franchise area development agreements in the current fiscal
year, which would reduce the number of franchised coffeehouses to be developed
pursuant to existing area development agreements to 84.
Since July 2000, the company has periodically suspended sale of new,
domestic franchises at Gloria Jean's in order to update the Gloria Jean's UFOC
and to reevaluate our franchising criteria. That review is now complete.
Management intends to begin selling Gloria Jeans franchises again on or about
February 1, 2001. The franchising strategy for the brand is to seek franchise
candidates interested in either single or multi-unit development of Gloria
Jean's coffee stores, kiosks and carts in mall locations. We will also continue
to grow the Gloria Jean's brand internationally through franchising.
Other Recent Developments
On January 9, 2001, we announced our plan to relocate Gloria Jeans'
administrative support center from Castroville, California to our Irvine,
California headquarters to more efficiently provide support to franchisees of
our Gloria Jean's subsidiary. Sourcing, roasting and distribution of coffee for
all Diedrich Coffee subsidiaries will continue to be conducted at the
Castroville roasting facility. Simultaneously, we restructured certain functions
in our Irvine headquarters, including the elimination of a number of positions.
On a cumulative basis, a total of 31 positions at the Company have been
eliminated during the current fiscal year, including the position of President
at Gloria Jean's. Projected annualized savings of approximately $3.1 million are
expected as a result of these actions and other discretionary cost saving
measures taken since the beginning of the fiscal year. At the same time, we also
reserved for the cost of closing certain underperforming company operated
locations in each of our four brands. There will be a third quarter charge of
approximately $1.8 to $2.0 million resulting from these actions.
The Company is in discussion with one or more potential equity
investors. While there is no assurance that a capital raising transaction will
be completed, the Company has retained the services of a national investment
banking firm, Houlihan Lokey Howard & Zukin, to assist the company and to render
a fairness opinion in connection with any equity investment.
On January 18, 2001, we received a formal notice of deficiency from
Nasdaq indicating that within the next 90 days, our stock price must maintain a
$1.00 minimum bid price for ten consecutive days. If this condition is not met,
Nasdaq will commence the delisting process from the Nasdaq National Market. On
January 26, 2001, we received a Nasdaq Staff Determination indicating that
Diedrich Coffee fails to comply with the minimum net
12
13
tangible assets requirement for continued listing set forth in Marketplace Rule
4450(a)(3), and that its securities are, therefore, subject to delisting from
the Nasdaq National Market. In light of the discussions with potential equity
investors, we intend to request a hearing before a Nasdaq Listing Qualifications
Panel to review the Staff Determination and our plan to achieve compliance with
the listing requirements. The hearing request will stay any delisting of our
securities pending the Panel's decision. However, there can be no assurance that
the Nasdaq Listing Qualifications Panel will grant our request for continued
listing.
Seasonality and Quarterly Results
Our business is subject to seasonal fluctuations as well as economic
trends that affect retailers in general. Historically, our net revenues have not
been realized proportionately in each quarter, with net revenues being the
highest during the second fiscal quarter which includes the December holiday
season. Hot weather tends to reduce revenues. Quarterly results are affected by
the timing of the opening of new stores, which may not occur as anticipated due
to events outside our control. As a result of these factors, and of the other
contingencies and risk factors described elsewhere in this report and our Annual
Report on Form 10-K, the financial results for any individual quarter may not be
indicative of the results that may be achieved in a full fiscal year.
RESULTS OF OPERATIONS
Twelve and Twenty-Four Weeks Ended December 13, 2000 Compared with the Twelve
and Twenty-Four Weeks Ended December 15, 1999
Total revenues. Total revenues for the twelve weeks ended December 13,
2000 increased 1.4% to $19,400,465 from $19,133,004 for the twelve weeks ended
December 15, 1999. Total revenues for the twenty-four weeks ended December 13,
2000 increased 2.4% to $36,272,415 from $35,405,529 for the twenty-four weeks
ended December 15, 1999. During this most recent quarter, we derived 59.7% of
total revenues from our retail coffeehouse operations. Wholesale and mail order
revenue accounted for 31.3% of total revenues and franchise revenues accounted
for 9.0% of total revenues.
Retail revenues, which includes company operated locations under the
Diedrich Coffee, Coffee People, Coffee Plantation and Gloria Jean's brands, for
the twelve weeks ended December 13, 2000 increased 5.5% to $11,572,777 from
$10,971,709 for the twelve weeks ended December 15, 1999. This increase was due
to the opening of new coffeehouses (net of the impact of closed locations),
comparable store sales increases in our California and Texas coffeehouses as
well as our Gloria Jean's company stores and the transfer of the highest volume
Gloria Jean's unit from franchise to corporate operations. The Company also
increased menu prices by 2% in its California and Texas Diedrich Coffee
locations on June 29, 2000. As of December 13, 2000, we operated 98 retail
locations whereas on December 15, 1999, we operated 99 retail locations. The
percentage increase (decrease) in system-wide comparable store sales for the
fiscal quarter was 1.0% for the Diedrich Coffee coffeehouses, (3.8%) for the
Gloria Jean's coffee stores, (9.0%) for the Coffee People coffeehouses (Oregon)
and (11.3%) for the Coffee Plantation coffeehouses (Arizona).
Retail revenues for the twenty-four weeks ended December 13, 2000
increased 3.8% to $22,239,026 from $21,434,847 for the twenty-four weeks ended
December 15, 1999. This increase resulted primarily from the same factors cited
above. The percentage increase (decrease) in system-wide comparable store sales
was 0.3% for the Diedrich Coffee coffeehouses, (0.8%) for the Gloria Jean's
coffee stores, (8.1%) for the Coffee People coffeehouses (Oregon), and (9.9%)
for the Coffee Plantation coffeehouses (Arizona) during the twenty-four weeks
ended December 13, 2000.
Wholesale and other revenues of $6,074,264 for the most recent quarter
did not materially change from $6,106,783 for the twelve weeks ended December
15, 1999. Wholesale and other revenues increased 0.6% to $10,802,793 in the
twenty-four weeks ended December 13, 2000 from $10,741,352 for the twenty-four
weeks ended December 15, 1999. For both periods increased sales from expanded
wholesale office coffee service were offset by a decrease versus the applicable
prior year period in the number of Gloria Jean's franchisee units, which
purchase roasted coffee from Diedrich Coffee.
Franchise revenue decreased to $1,753,424 for the twelve weeks ended
December 13, 2000, from $2,054,512 for the twelve weeks ended December 15, 1999.
Franchise revenue remained flat at $3,230,596 for the
13
14
twenty-four weeks ended December 13, 2000, compared to $3,229,330 for the
twenty-four weeks ended December 15, 1999. Franchise revenue consists of initial
franchise fees and royalties received on sales from each franchise location. As
of December 13, 2000, we had 12 franchised Diedrich Coffee coffeehouses and 273
Gloria Jean's franchised mall coffee stores. The decrease in second quarter
franchise revenue is principally due to the receipt of fewer initial franchise
fees, and area development fees, as well as reduced royalties resulting from a
3.5% decrease in franchised Gloria Jean's comparable store sales versus the
prior year period.
Cost of Sales and Related Occupancy Costs. Cost of roasted coffee,
dairy, food, paper and bar supplies and accessories (cost of sales) and rent
(related occupancy costs) for the twelve weeks ended December 13, 2000 decreased
to $9,479,402 from $9,635,694 for the twelve weeks ended December 15, 1999. As a
percentage of total revenue, cost of sales and related occupancy costs decreased
to 48.9% in the twelve weeks ended December 13, 2000 from 50.4% for the twelve
weeks ended December 15, 1999. Cost of sales and related occupancy costs for the
twenty-four weeks ended December 13, 2000 increased to $17,926,930 from
$17,597,084 for the twenty-four weeks ended December 15, 1999. As a percentage
of total revenue, cost of sales and related occupancy costs decreased to 49.4%
in the twenty-four weeks ended December 13, 2000 from 49.7% for the twenty-four
weeks ended December 15, 1999. The percentage decreases primarily resulted from
favorable green coffee purchases and greater manufacturing efficiencies in our
Castroville roasting facility, as well as the June 29, 2000 menu price increase
in our company operated Diedrich Coffee coffeehouses.
Store Operating Expenses. Store operating expenses increased to
$4,638,169 for the twelve weeks ended December 13, 2000 from $4,422,725 for the
twelve weeks ended December 15, 1999. As a percentage of total revenues, store
operating expenses increased to 23.9% in the twelve weeks ended December 13,
2000 from 23.1% in the twelve weeks ended December 15, 1999. For the twenty-four
weeks ended December 13, 2000, store operating expenses increased to $9,260,197
from $8,601,647 for the twenty-four weeks ended December 15, 1999. As a
percentage of total revenues, store operating expenses increased to 25.5% in the
twenty-four weeks ended December 13, 2000 from 24.3% in the twenty-four weeks
ended December 15, 1999. These increases are primarily attributed to higher
labor costs, including higher wage rates, increased staffing levels and the cost
of providing a more competitive benefit package to our store level employees.
Operations Management. Operations management decreased to $1,288,441
for the twelve weeks ended December 13, 2000 from $1,458,802 for the twelve
weeks ended December 15, 1999. As a percentage of total revenues, operations
management decreased to 6.6% for the twelve weeks ended December 13, 2000 from
7.6% for the twelve weeks ended December 15, 1999. For the twenty-four weeks
ended December 13, 2000, operations management decreased to $2,587,548 from
$2,694,391 for the twenty-four weeks ended December 15, 1999. As a percentage of
total revenues, operations management decreased to 7.1% for the twenty-four
weeks ended December 13, 2000 from 7.6% for the twenty-four weeks ended December
15, 1999. The decrease primarily results from a re-organization in operations
management resulting in fewer employees versus prior year.
Depreciation and Amortization. Depreciation and amortization increased
to $1,065,465 for the twelve weeks ended December 13, 2000 from $832,197 for the
twelve weeks ended December 15, 1999. As a percentage of total revenue,
depreciation and amortization increased to 5.5% in comparison to 4.3% for the
twelve weeks ended December 15, 1999. Depreciation and amortization increased to
$2,104,402 for the twenty-four weeks ended December 13, 2000 from $1,639,076 for
the twenty-four weeks ended December 15, 1999. As a percentage of total revenue,
depreciation and amortization increased to 5.8% for the twenty-four weeks ended
December 13, 2000 in comparison to 4.6% for the twenty-four weeks ended December
15, 1999. The increase is primarily attributable to the depreciation expense of
six new coffeehouses that opened during the later part of fiscal year 2000 and
newly acquired equipment in our roasting facility.
General and Administrative Expenses. General and administrative
expenses increased to $2,365,393 for the twelve weeks ended December 13, 2000
from $1,897,111 for the twelve weeks ended December 15, 1999. As a percentage of
total revenue, general and administrative expenses increased to 12.2% from 9.9%.
For the twenty-four weeks ended December 13, 2000, general and administrative
expenses increased to $4,592,526 from $4,148,939 for the twenty-four weeks ended
December 15, 2000. As a percentage of net revenues, general and administrative
expenses increased to 12.7% for the twenty-four weeks ended December 13, 2000
from 11.7% for the twenty-four weeks ended December 15, 1999. In both periods
versus prior year, the increase in general and administrative expense resulted
primarily from the increased infrastructure that was put in place to support our
previous franchising strategy.
14
15
Interest Expense. Interest expense increased to $357,456 for the twelve
weeks ended December 13, 2000 from $327,265 for the twelve weeks ended December
15, 1999. For the twenty-four weeks ended December 13, 2000, interest expense
increased to $715,659 from $614,154 for the twenty-four weeks ended December 15,
1999. This increase is primarily attributable to an 85 basis point increase on
our term loan interest rate. As of December 13, 2000 the company was paying
9.88% on its term loan compared to 9.03% on December 15, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years principally
through public and private placements of our common stock and long-term debt. We
had a working capital deficit of $5,531,171 as of December 13, 2000 compared to
working capital deficit of $4,216,000 as of June 28, 2000. Cash (used in) or
provided from operating activities for the twenty-four weeks ended December 13,
2000 totaled $(508,553) as compared to $948,996 for the twenty-four weeks ended
December 15, 1999.
Net cash used in investing activities for the twenty-four weeks ended
December 13, 2000 totaled $570,536, which was used for property and equipment
expenditures. Net cash used in financing activities for the twenty-four weeks
ended December 13, 2000 totaled $770,190 which consisted of repayment of
long-term debt and capital leases.
Net cash used in investing activities for the twenty-four weeks ended
December 15, 1999 totaled $24,069,763 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 $28,855,114 which consisted of
proceeds 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.
On July 7, 1999, we completed a public offering of 4,930,000 shares
(including an over-allotment option). All of the shares of common stock were
sold on behalf of Diedrich Coffee, of which 330,000 shares of common stock were
sold pursuant to the exercise of the underwriters' over-allotment option. The
net proceeds of the offering to Diedrich Coffee, after deducting approximately
$4.1 million in underwriters' commissions and related expenses, were
approximately $25.4 million.
On July 7, 1999, we entered into a Credit Agreement with BankBoston,
N.A. (subsequently merged into Fleet National Bank) secured by pledges of all of
Diedrich Coffee's assets and its subsidiaries' stock and which provided for a
$12 million term loan and a $3 million revolving credit facility. We used the
proceeds of the term loan to repay existing indebtedness and to pay expenses
related to the acquisition of Coffee People. The term loan provided for
principal repayment based upon a five year amortization, with quarterly
principal payments of $666,667 and quarterly interest payments based upon a
formula described below. We established the revolving credit facility for future
flexibility to remodel existing company-owned coffeehouses, develop new company
coffeehouses, and for general corporate purposes. We have not drawn down any
borrowings under the revolving credit facility since it was established,
although it presently has $293,000 of outstanding Letters of Credit backed by
the revolving credit facility. Amounts outstanding under the Credit Agreement
bear interest, at the Company's option, at Fleet's base rate plus 1.25% or an
adjusted Eurodollar rate plus 3.0%.
On September 26, 2000, we entered into a First Amendment to Credit
Agreement with Fleet National Bank to amend certain terms of the original Credit
Agreement. The First Amendment to Credit Agreement provides, among other things,
for a significant reduction in required minimum principal amortization payments
going forward, an acceleration in the maturity date of all amounts owed under
the Credit Agreement, an agreement between the parties as to certain assets
intended to be sold as well as the allocation of future net asset sale proceeds
between the Company and the bank, the introduction of an additional event of
default under the Agreement, a reduction in the overall amount of the revolving
credit facility and certain new restrictions governing use of the facility, and
a modification of the financial covenants and the Company's ability to obtain
new third party debt going forward.
Specifically, under the terms of the First Amendment to Credit
Agreement, no further scheduled principal payments on the term loan are required
from August 1, 2000 until January 31, 2001. The Company must then pay scheduled
principal payments of $25,000 per month beginning February 1, 2001, which
increase to $100,000 per month beginning July 1, 2001 until all amounts owed
under the Credit Agreement are repaid. The First Amendment to Credit Agreement
accelerates the maturity date of all remaining amounts owed under the credit
Agreement to
15
16
September 1, 2002. In addition, the Company and the bank identified certain
assets that could be sold without interfering with the Company's growth
strategy, including two pieces of owned real property under existing company
retail locations, which are expected to be leased back from the buyer, a third
parcel of owned real property, presently undeveloped, and certain company
operated coffeehouses outside of its core southern California market that could
be refranchised. Under the terms of the First Amendment to Credit Agreement, the
bank is to receive 50% of the net proceeds from any such asset sales. A sale of
one of the two owned properties referred to above was completed in late December
2000. The net proceeds received totaled $415,000, of which 50% was paid to the
bank, resulting in a $208,000 principal repayment to the bank in early January
2001. The interest payments under the original Credit Agreement remain unchanged
under the First Amendment to Credit Agreement. The Company made its scheduled
quarterly interest payment in late December 2000.
The amendment also introduces an additional event of default under the
Agreement. The amendment specifies that a materially adverse change in the
financial condition of the Company (or any of our subsidiaries), as determined
by the bank in its sole and exclusive discretion, is defined as an event of
default. Under any event of default, the bank may declare all amounts owed
immediately due and payable. Additional changes under the terms of the First
Amendment to Credit Agreement include a reduction in the revolving credit
facility, which the Company had previously been unable to access because of the
covenant defaults, from a $3,000,000 limit to $1,293,000, and a restriction that
the reduced facility be used only to back up existing and future standby Letters
of Credit. The First Amendment to Credit Agreement preserves the Company's
ability to obtain third party financing for capital projects and maintenance
capital, and increases its flexibility to obtain subordinated debt as a source
of additional working capital. Under the First Amendment to Credit Agreement the
bank waived the previous financial covenant defaults, and agreed to new
financial covenant ratios going forward based upon updated financial information
and projections prepared by the Company. In addition to resetting such ratios in
the financial covenants as contained in the original Credit Agreement, the
parties agreed to a new covenant under the First Amendment to Credit Agreement
which commits the Company to achieving certain minimum levels of cumulative
principal repayments in addition to amounts already paid to date in fiscal 2001
or reflected in the new go forward minimum monthly principal payment obligations
discussed above: $283,000 by March 31, 2001; $708,000 by June 30, 2001; and
$1,619,900 by September 30, 2001. Such incremental principal repayments (above
the scheduled minimum monthly amounts described above) are anticipated to be
generated primarily from the net proceeds to be paid to the bank from future
asset sales, the issuance of new debt or equity, or a combination of these
sources. Of the $283,000 due by March 2001, $208,000 has already been paid as a
result of the asset sale described above.
Management believes that cash from operations and asset sales will be
sufficient to satisfy our working capital needs at the anticipated operating
levels, including its obligations under its Credit Agreement modified as
described above, for the next twelve months.
New Accounting Pronouncements. In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin 101 ("SAB101") "Revenue
Recognition in Financial Statements." This Staff Accounting Bulletin summarizes
certain of the staff views in applying generally accepted accounting principles
to revenue recognition in financial statements. SAB101, as amended, is effective
for the fourth fiscal quarter of the fiscal years beginning after December 15,
1999. We do not expect the adoption of SAB101 to have a material impact on our
consolidated results of operations.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
DERIVATIVE INSTRUMENTS
We have not used derivative financial instruments for any purpose,
including hedging or mitigating interest rate risk.
MARKET RISK
We did not invest in market risk sensitive instruments in the twelve
weeks ended December 13, 2000. From time to time, however, we enter into
agreements to purchase green coffee in the future at prices to be
16
17
determined within two to twelve months of the time of actual purchase. At
December 13, 2000 these commitments totaled $2,054,000. 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.
Our market risk exposure with regard to financial instruments
outstanding as of December 13, 2000 was to changes in an adjusted Eurodollar
rate. We borrowed $12 million on July 7, 1999 in connection with our acquisition
of Coffee People, which amount bears interest at our option at Fleet's base rate
plus 1.25%, or an adjusted Eurodollar rate plus 3.0%. We may convert the
interest rate from the Fleet base rate to the adjusted Eurodollar rate at
anytime with 3 day's notice. We may convert the interest rate from the adjusted
Eurodollar rate to the Fleet base rate at the end of each calendar quarter. At
December 13, 2000 the effective interest rate was 9.88%. At December 13, 2000, a
hypothetical 100 basis point increase in the rate would result in additional
interest expense of $100,000 on an annualized basis. The estimated increase is
based upon the outstanding balance of long term debt at December 13, 2000.
Substantially all of our business is transacted in U.S. dollars. Accordingly,
foreign exchange fluctuations have never had a significant impact on us and are
not expected to in the foreseeable future.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In the ordinary course of its business, we may become involved in legal
proceedings from time to time. During the twenty-four week period ending
December 13, 2000, 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
June 27, 2001 (120 days prior to the month and day of mailing the last year's
proxy statement) of any proposal or solicitation that any stockholder intends to
present at the next annual meeting of stockholders and which the stockholder has
not sought to have included in our proxy statement for the meeting in accordance
with Rule 14a-8 under the Securities Exchange Act of 1934. If a proponent fails
to notify us before the required deadline, management proxies will be allowed to
use their discretionary voting authority when the proposal is raised at the
annual meeting, without any discussion of the matter in the proxy statement.
17
18
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 Certificate of Incorporation of the Company(2)
3.2 Bylaws of the Company(2)
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.(2)
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.(2)
4.3 Specimen Stock Certificate(2)
4.4 Form of Conversion Agreement in the connection with the conversion of Series A and Series B
Preferred Stock into Common Stock(2)
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(2)
10.2 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan(4)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan(2)
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)(2)
18
19
EXHIBIT NO. DESCRIPTION
----------- -----------
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(5)
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(5)
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(5)
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(5)
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(5)
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(5)
10.11 Form of Warrant Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview Trust(6)
10.12 Form of Common Stock and Option Purchase Agreement with Franchise Mortgage Acceptance Company
dated as of April 3, 1998(7)
10.13 Employment Agreement with Catherine Saar dated June 11, 1998(8)
10.14 Form of Franchise Agreement(9)
10.15 Form of Area Development Agreement(9)
10.16 Employment Agreement with Martin R. Diedrich dated June 29, 1998(3)
10.17 Credit Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(10)
19
20
EXHIBIT NO. DESCRIPTION
----------- -----------
10.18 Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich Coffee and
its subsidiaries(10)
10.19 Securities Pledge Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries(10)
10.20 Trademark Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries(10)
10.21 Form of Term Note made in favor of BankBoston, N.A.(10)
10.22 Form of Revolving Note made in favor of BankBoston, N.A.(10)
10.23 Employment Agreement with Matt McGuinness dated effective March 13, 2000(11)
10.24 Letter Agreement re: employment with Greg MacIsaac dated February 25, 2000(11)
10.25 First Amendment to Credit Agreement dated as of September 26, 2000(11)
10.26 Letter Agreement re: employment with J. Michael Jenkins dated September 22, 2000(11)
10.27 Letter Agreement re: employment with Carl Mount dated October 29, 1999(12)
10.28 Letter Agreement re: employment with Edward A. Apffel dated May 25, 2000(12)
10.29 Letter Agreement re: employment with Lisa Steere dated June 12, 2000(12)
10.30 Diedrich Coffee, Inc. 2000 Non-Employee Directors Stock Option Plan(13)
10.31 Stock Option Plan and Agreement with J. Michael Jenkins, dated September 22, 2000*
10.32 Diedrich Coffee, Inc. 2000 Equity Incentive Plan*
11.1 Statement regarding computation of per share earnings*
21.1 List of Subsidiaries (11)
- ------------
* Filed with this Form 10-Q
(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.
20
21
(2) 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.
(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 Current Report on
Form 8-K, filed with the Securities and Exchange Commission on November
25, 1997.
(6) 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.
(7) Previously filed as an exhibit to Diedrich Coffee's Annual Report on
Form 10-K for the fiscal year ended January 28, 1998.
(8) 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.
(9) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on December 11, 1998.
(10) 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.
(11) Previously filed as an exhibit to Diedrich Coffee's annual report on
Form 10-K for the fiscal year ended June 28, 2000.
(12) 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.
(13) 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.
(b) REPORTS ON FORM 8-K.
None.
21
22
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 29, 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 Officer)
22
23
EXHIBIT INDEX
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 Certificate of Incorporation of the Company(2)
3.2 Bylaws of the Company(2)
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.(2)
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.(2)
4.3 Specimen Stock Certificate(2)
4.4 Form of Conversion Agreement in the connection with the conversion of Series A and Series B
Preferred Stock into Common Stock(2)
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(2)
10.2 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan(4)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan(2)
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)(2)
24
EXHIBIT NO. DESCRIPTION
----------- -----------
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(5)
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(5)
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(5)
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(5)
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(5)
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(5)
10.11 Form of Warrant Agreement made in favor of Nuvrty, Inc., the Ocean Trust and the Grandview Trust(6)
10.12 Form of Common Stock and Option Purchase Agreement with Franchise Mortgage Acceptance Company
dated as of April 3, 1998(7)
10.13 Employment Agreement with Catherine Saar dated June 11, 1998(8)
10.14 Form of Franchise Agreement(9)
10.15 Form of Area Development Agreement(9)
10.16 Employment Agreement with Martin R. Diedrich dated June 29, 1998(3)
10.17 Credit Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries(10)
25
EXHIBIT NO. DESCRIPTION
----------- -----------
10.18 Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich Coffee and
its subsidiaries(10)
10.19 Securities Pledge Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries(10)
10.20 Trademark Security Agreement, dated as of July 7, 1999, by and among BankBoston, N.A., Diedrich
Coffee and its subsidiaries(10)
10.21 Form of Term Note made in favor of BankBoston, N.A.(10)
10.22 Form of Revolving Note made in favor of BankBoston, N.A.(10)
10.23 Employment Agreement with Matt McGuinness dated effective March 13, 2000(11)
10.24 Letter Agreement re: employment with Greg MacIsaac dated February 25, 2000(11)
10.25 First Amendment to Credit Agreement dated as of September 26, 2000(11)
10.26 Letter Agreement re: employment with J. Michael Jenkins dated September 22, 2000(11)
10.27 Letter Agreement re: employment with Carl Mount dated October 29, 1999(12)
10.28 Letter Agreement re: employment with Edward A. Apffel dated May 25, 2000(12)
10.29 Letter Agreement re: employment with Lisa Steere dated June 12, 2000(12)
10.30 Diedrich Coffee, Inc. 2000 Non-Employee Directors Stock Option Plan(13)
10.31 Stock Option Plan and Agreement with J. Michael Jenkins, dated September 22, 2000*
10.32 Diedrich Coffee, Inc. 2000 Equity Incentive Plan*
11.1 Statement regarding computation of per share earnings*
21.1 List of Subsidiaries (11)
- ------------
* Filed with this Form 10-Q
(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.
26
(2) 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.
(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 Current Report on
Form 8-K, filed with the Securities and Exchange Commission on November
25, 1997.
(6) 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.
(7) Previously filed as an exhibit to Diedrich Coffee's Annual Report on
Form 10-K for the fiscal year ended January 28, 1998.
(8) 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.
(9) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on December 11, 1998.
(10) 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.
(11) Previously filed as an exhibit to Diedrich Coffee's annual report on
Form 10-K for the fiscal year ended June 28, 2000.
(12) 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.
(13) 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.