8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 20, 2007

DIEDRICH COFFEE, INC.

(Exact name of registrant as specified in its charter)

Delaware	0-21203	33-0086628
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

28 Executive Park, Suite 200 Irvine, California	92614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 260-1600

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Current Report on Form 8-K/A is being filed by Diedrich Coffee, Inc. (the “Company”) to amend Item 2.01 of the Form 8-K filed on February 8, 2007, as amended by the Form 8-K/A filed on March 8, 2007 (the “Form 8-K”), to reflect one closing that occurred on March 9, 2007 with respect to certain assets relating to one Company store (excluding leaseholds) and two closings that occurred on March 23, 2007 and April 20, 2007 with respect to the transfers of Company leaseholds and related assets and to provide the pro forma financial information required by Item 9.01(b) in connection with the transfer of all 32 Company store leaseholds and related assets that have been transferred to Starbucks Corporations (“Starbucks”), as well as three Company store leaseholds and related assets and certain assets relating to two Company stores (excluding leaseholds) that were transferred to other third parties.

Item 2.01 Completion of Acquisition or Disposition of Assets.

As previously disclosed, on September 14, 2006, the Company and Starbucks entered into an asset purchase agreement (the “Agreement”) pursuant to which Starbucks agreed to purchase the Company’s leasehold interests in up to 40 of the 47 locations where the Company operates retail stores under the Diedrich Coffee and Coffee People brands (the “Company Stores”), along with certain related fixtures and equipment, improvements, prepaid items, and ground lease improvements, and to assume certain liabilities as set forth in the Agreement. On December 12, 2006, the Company’s stockholders approved the Agreement at the Company’s annual stockholder meeting.

Pursuant to the Agreement, the actual amount paid by Starbucks is dependent on which and how many of the Company Stores are ultimately transferred to Starbucks. Ten percent of the amount paid to the Company upon transfer of the Company Stores is required to be deposited into an escrow fund to be held in connection with the Company’s indemnification obligations.

The closing for the transfer of the initial group of Company Stores occurred on January 16, 2007, which related to the transfer of 15 Diedrich Coffee and Coffee People leaseholds and related assets to Starbucks in exchange for a cash payment of approximately $5,560,000 to the Company and the deposit of approximately $618,000 into the escrow fund. In connection with the closing for a second group of Company stores, which occurred on February 2, 2007, the Company transferred an additional 13 Diedrich Coffee and Coffee People leaseholds and related assets to Starbucks and agreed to retain three Company stores that were the subject of the Agreement in exchange for a cash payment of approximately $5,565,000 to the Company and the deposit of approximately $514,000 into the escrow fund. In connection with the third closing, which occurred on February 9, 2007, the Company transferred one additional Diedrich Coffee store’s leasehold and related assets to Starbucks in exchange for a cash payment of approximately $63,000 to the Company and the deposit of approximately $7,000 into the escrow fund. In connection with the fourth closing, which occurred on February 28, 2007, the Company transferred one additional Diedrich Coffee store’s leasehold and related assets to Starbucks in exchange for a cash payment of approximately $586,000 to the Company and the deposit of approximately $65,000 into the escrow fund. Subsequent to the Company’s quarter end on March 7, 2007, the Company transferred one additional Diedrich Coffee store’s leasehold and related assets to Starbucks on March 23, 2007 in exchange for a cash payment of approximately $220,000 to the Company and the deposit of approximately $25,000 into the escrow fund. On April 20, 2007, the Company closed its last transfer under the Agreement with Starbucks with the transfer of one Diedrich Coffee store’s leasehold and related assets in exchange for a cash payment of approximately $168,000 and the deposit of approximately $18,000 into the escrow fund. The Company currently has approximately $1,247,000 held in escrow.

In separate transactions with three parties other than Starbucks, the Company transferred three retail store location leaseholds and related assets on January 31, 2007, transferred certain assets (excluding leaseholds) relating to one retail store location on February 5, 2007 and transferred certain assets (excluding leaseholds) relating to one retail store location on March 9, 2007, and received proceeds from these transactions of $620,000 and $10,000, and $25,000, respectively.

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Item 9.01 Financial Statements and Exhibits.

(b) Unaudited Pro Forma Condensed Consolidated Financial Statements:

The following unaudited pro forma financial statements of Diedrich Coffee, Inc. and its subsidiaries are attached hereto as Exhibit 99.1 and are incorporated herein by reference:

(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 7, 2007

(ii) Unaudited Pro Forma Condensed Consolidated Statement of Operations for the thirty-six weeks ended March 7, 2007

(iii) Unaudited Pro Forma Condensed Consolidated Statements of Operations for the fiscal years ended June 28, 2006, June 29, 2005, and June 30, 2004

(iv) Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

(d) Exhibits:

Exhibit Number	Reference
10.1	Agreement of Purchase and Sale of Assets by and between Starbucks Corporation, Diedrich Coffee, Inc. and Coffee People, Inc. (incorporated by reference from Exhibit 10.25 to the Company’s Form 10-K for the fiscal year ended June 28, 2006)
99.1	Unaudited Pro Forma Condensed Consolidated Financial Statements

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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 hereunto duly authorized.

	Diedrich Coffee, Inc.
Date: April 26, 2007
	/s/ Sean M. McCarthy
	(Signature)
	Name:	Sean M. McCarthy
	Title:	Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Agreement of Purchase and Sale of Assets by and between Starbucks Corporation, Diedrich Coffee, Inc. and Coffee People, Inc. (incorporated by reference from Exhibit 10.25 to the Company’s Form 10-K for the fiscal year ended June 28, 2006)
99.1	Unaudited Pro Forma Condensed Consolidated Financial Statements

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EX-99.1

EXHIBIT 99.1

Unaudited Pro Forma Condensed Consolidated Financial Statements

The following unaudited pro forma condensed consolidated balance sheet as of March 7, 2007 presents the financial position of Diedrich Coffee, Inc. and Subsidiaries (the “Company”) assuming the transfer of two retail store leaseholds and related assets and certain assets relating to one Company store (excluding its leasehold) (as described below) had been completed on that date (the “Transaction”).

The following unaudited pro forma condensed consolidated statements of operations for the fiscal years ended June 28, 2006, June 29, 2005, June 30, 2004 and for the thirty-six weeks ended March 7, 2007 present our results of operations assuming that the sale to Starbucks and other third parties had been completed on the first day of these respective periods. In the opinion of our management, these statements include all material adjustments necessary to reflect, on a pro forma basis, the impact of the sale to Starbucks and other third parties on our historical financial information. The adjustments set forth in the “Pro Forma Adjustments” column are described in the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

The unaudited pro forma financial statements for the periods presented do not purport to represent what our results of operations or financial position actually would have been had the sale to Starbucks and other third parties occurred on the dates noted above, or to project our results of operations for any future periods. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. Actual amounts could differ materially from these estimates. The pro forma results should be read in conjunction with the financial statements and notes thereto in our Annual Report on Form l0-K for the year ended June 28, 2006.

The closing for the transfer of the initial group of Company Stores occurred on January 16, 2007, which related to the transfer of 15 Diedrich Coffee and Coffee People leaseholds and related assets to Starbucks in exchange for a cash payment of approximately $5,560,000 to the Company and the deposit of approximately $618,000 into the escrow fund. In connection with the closing for a second group of Company stores, which occurred on February 2, 2007, the Company transferred an additional 13 Diedrich Coffee and Coffee People leaseholds and related assets to Starbucks and agreed to retain three Company stores that were the subject of the Agreement in exchange for a cash payment of approximately $5,565,000 to the Company and the deposit of approximately $514,000 into the escrow fund. In connection with the third closing, which occurred on February 9, 2007, the Company transferred one additional Diedrich Coffee store’s leasehold and related assets to Starbucks in exchange for a cash payment of approximately $63,000 to the Company and the deposit of approximately $7,000 into the escrow fund. In connection with the fourth closing, which occurred on February 28, 2007, the Company transferred one additional Diedrich Coffee store’s leasehold and related assets to Starbucks in exchange for a cash payment of approximately $586,000 to the Company and the deposit of approximately $65,000 into the escrow fund. Subsequent to the Company’s quarter end on March 7, 2007, the Company transferred one additional Diedrich Coffee store’s leasehold and related assets to Starbucks on March 23, 2007 in exchange for a cash payment of approximately $220,000 to the Company and the deposit of approximately $25,000 into the escrow fund. On April 20, 2007, the Company closed its last transfer under the Agreement with Starbucks with the transfer of one Diedrich Coffee store’s leasehold and related assets in exchange for a cash payment of approximately $168,000 and the deposit of approximately $18,000 into the escrow fund. The Company currently has approximately $1,247,000 held in escrow.

In separate transactions with three parties other than Starbucks, the Company transferred three retail store location leaseholds and related assets on January 31, 2007, transferred certain assets (excluding leaseholds) relating to one retail store location on February 5, 2007 and transferred certain assets (excluding leaseholds) relating to one retail store location on March 9, 2007, and received proceeds from these transactions of $620,000 and $10,000, and $25,000, respectively.

The Company and Starbucks have made certain customary representations, warranties and covenants in the asset purchase agreement. The asset purchase agreement also contains customary indemnification provisions for certain claims and provides for a basket of $100,000 and a cap of $2,000,000 for breaches of the Company’s representations and warranties contained in the asset purchase agreement.

As part of the asset purchase agreement, the Company has agreed to a non-compete provision that for three years after the closing of the transaction restricts its ability to operate or have any interest in the ownership or operation of any entity operating any retail specialty coffee stores in any city where its retail stores were located at the time that the asset purchase agreement was executed. The non-compete provision applies only to stores opened after the date of the asset purchase agreement and does not apply to (1) any retail stores operated under the “Gloria Jean’s” brand name, (2) wholesale sales to retail businesses that are not operated by the Company, or other non-retail businesses, or (3) the conversion of Company-operated stores existing on the date of the asset purchase agreement to franchise stores. The Company has also agreed that it will not solicit any Starbucks employee to become employed by the Company for three years after the closing of the transaction.

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Diedrich Coffee, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Balance Sheet

	March 7, 2007			Pro Forma Adjustments			Notes	Pro Forma March 7, 2007
Assets
Current assets:
Cash	$	9,667,000		$	413,000		A	$	10,080,000
Restricted cash		667,000			—				667,000
Accounts receivable, net		4,320,000			—				4,320,000
Inventories		2,969,000			(7,000	)	A		2,962,000
Assets held for sale		238,000			(155,000	)	A		83,000
Income tax refund		516,000			—				516,000
Current portion of notes receivable		1,141,000			—				1,141,000
Advertising fund assets, restricted		204,000			—				204,000
Prepaid expenses		350,000			—				350,000
Total current assets		20,072,000			251,000				20,323,000
Property and equipment, net		3,530,000			—				3,530,000
Goodwill		6,832,000			—				6,832,000
Notes receivable		3,364,000			—				3,364,000
Cash surrender value of life insurance policy		375,000			—				375,000
Other assets		176,000			—				176,000
Total assets	$	34,349,000		$	251,000			$	34,600,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,659,000		$	—			$	2,659,000
Accrued compensation		2,446,000			—				2,446,000
Accrued expenses		1,549,000			—				1,549,000
Franchisee deposits		568,000			—				568,000
Deferred franchise fee income		86,000			—				86,000
Advertising fund liabilities		204,000			—				204,000
Accrued provision for store closure		797,000			—				797,000
Total current liabilities		8,309,000			—				8,309,000
Deferred rent		240,000			(2,000	)	A		238,000
Deferred compensation		406,000			—				406,000
Total liabilities		8,955,000			(2,000	)			8,953,000
Commitments and contingencies
Stockholders’ equity:
Common stock		54,000			—				54,000
Additional paid-in capital		59,570,000			—				59,570,000
Accumulated deficit		(34,230,000	)		253,000		A		(33,977,000	)
Total stockholders’ equity		25,394,000			253,000				25,647,000
Total liabilities and stockholders’ equity	$	34,349,000		$	251,000			$	34,600,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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Diedrich Coffee, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Thirty-Six Weeks Ended March 7, 2007

	Thirty-Six Weeks Ended March 7, 2007			Pro Forma Adjustments			Notes	Pro Forma Thirty-Six Weeks Ended March 7, 2007
Net revenue:
Wholesale and other	$	19,349,000		$	—			$	19,349,000
Franchise revenue		2,613,000			—				2,613,000
Retail sales		2,191,000			—				2,191,000
Total net revenue		24,153,000			—				24,153,000
Costs and expenses:
Cost of sales and related occupancy costs		15,718,000			—				15,718,000
Operating expenses		5,473,000			—				5,473,000
Depreciation and amortization		710,000			—				710,000
General and administrative expenses		5,167,000			—				5,167,000
Gain on asset disposals		(22,000	)		—				(22,000	)
Asset impairment		537,000			—				537,000
Total costs and expenses		27,583,000			—				27,583,000
Operating loss from continuing operations		(3,430,000	)		—				(3,430,000	)
Interest expense		(210,000	)		—				(210,000	)
Interest and other income, net		269,000			—				269,000
Loss from continuing operations before income tax benefit		(3,371,000	)		—				(3,371,000	)
Income tax benefit		(1,304,000	)		1,304,000		B		—
Net loss from continuing operations		(2,067,000	)		(1,304,000	)			(3,371,000	)
Gain on sale of discontinued operations, net of $1,304,000 taxes		5,917,000			(5,917,000	)	B		—
Loss from discontinued operations		(3,272,000	)		3,110,000		B		(162,000	)
Income (loss) from discontinued operations		2,645,000			(2,807,000	)			(162,000	)
Net income (loss)	$	578,000		$	(4,111,000	)		$	(3,533,000	)
Basic and diluted net income (loss) per share:
Loss from continuing operations	$	(0.38	)	$	(0.25	)		$	(0.63	)
Net income (loss)	$	0.11		$	(0.77	)		$	(0.66	)
Weighted average and equivalent shares outstanding:
Basic and diluted		5,371,000			5,371,000				5,371,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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Diedrich Coffee, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Year Ended June 28, 2006

	Year Ended June 28, 2006			Pro Forma Adjustments			Notes	Pro Forma Year Ended June 28, 2006
Net revenue:
Wholesale and other	$	21,244,000		$	—			$	21,244,000
Franchise revenue		3,775,000			—				3,775,000
Retail sales		34,428,000			(26,299,000	)	B		8,129,000
Total net revenue		59,447,000			(26,299,000	)			33,148,000
Costs and expenses:
Cost of sales and related occupancy costs		32,440,000			(12,182,000	)	B		20,258,000
Operating expenses		19,947,000			(12,999,000	)	B		6,948,000
Depreciation and amortization		2,601,000			(1,023,000	)	B		1,578,000
General and administrative expenses		13,546,000			(2,175,000	)	B		11,371,000
Gain on asset disposals		(58,000	)		—				(58,000	)
Total costs and expenses		68,476,000			(28,379,000	)			40,097,000
Operating loss from continuing operations		(9,029,000	)		2,080,000				(6,949,000	)
Interest expense		(116,000	)		26,000		B		(90,000	)
Interest and other income, net		548,000			—				548,000
Loss from continuing operations before income tax benefit		(8,597,000	)		2,106,000				(6,491,000	)
Income tax benefit		(801,000	)		196,000		B		(605,000	)
Net loss from continuing operations	$	(7,796,000	)	$	1,910,000			$	(5,886,000	)
Basic and diluted net loss per share:
Loss from continuing operations	$	(1.47	)	$	0.36			$	(1.11	)
Weighted average and equivalent shares outstanding:
Basic and diluted		5,303,000			5,303,000				5,303,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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Diedrich Coffee, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Year Ended June 29, 2005

	Year Ended June 29, 2005			Pro Forma Adjustments			Notes	Pro Forma Year Ended June 29, 2005
Net revenue:
Wholesale and other	$	16,482,000		$	—			$	16,482,000
Franchise revenue		4,166,000			—				4,166,000
Retail sales		31,890,000			(24,389,000	)	B		7,501,000
Total net revenue		52,538,000			(24,389,000	)			28,149,000
Costs and expenses:
Cost of sales and related occupancy costs		26,765,000			(10,817,000	)	B		15,948,000
Operating expenses		17,449,000			(11,524,000	)	B		5,925,000
Depreciation and amortization		2,372,000			(1,137,000	)	B		1,235,000
General and administrative expenses		11,178,000			(1,504,000	)	B		9,674,000
Gain on asset disposals		(4,000	)		—				(4,000	)
Total costs and expenses		57,760,000			(24,982,000	)			32,778,000
Operating loss from continuing operations		(5,222,000	)		593,000				(4,629,000	)
Interest expense		(223,000	)		34,000		B		(189,000	)
Interest and other income, net		279,000			—				279,000
Loss from continuing operations before income tax benefit		(5,166,000	)		627,000				(4,539,000	)
Income tax benefit		(1,851,000	)		225,000		B		(1,626,000	)
Net loss from continuing operations	$	(3,315,000	)	$	402,000			$	(2,913,000	)
Basic and diluted net loss per share:
Loss from continuing operations	$	(0.64	)	$	0.08			$	(0.56	)
Weighted average and equivalent shares outstanding:
Basic and diluted		5,218,000			5,218,000				5,218,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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Diedrich Coffee, Inc. and Subsidiaries

Unaudited Pro Forma Condensed Consolidated Statement of Operations

for the Year Ended June 30, 2004

	Year Ended June 30, 2004			Pro Forma Adjustments			Notes	Pro Forma Year Ended June 30, 2004
Net revenue:
Wholesale and other	$	14,861,000		$	—			$	14,861,000
Franchise revenue		4,407,000			—				4,407,000
Retail sales		31,617,000			(23,756,000	)	B		7,861,000
Total net revenue		50,885,000			(23,756,000	)			27,129,000
Costs and expenses:
Cost of sales and related occupancy costs		24,642,000			(10,404,000	)	B		14,238,000
Operating expenses		16,701,000			(11,054,000	)	B		5,647,000
Depreciation and amortization		2,315,000			(1,135,000	)	B		1,180,000
General and administrative expenses		9,597,000			(1,157,000	)	B		8,440,000
Provision for asset impairment and restructuring costs		94,000			(90,000	)	B		4,000
Gain on asset disposals		(2,000	)		—				(2,000	)
Total costs and expenses		53,347,000			(23,840,000	)			29,507,000
Operating loss from continuing operations		(2,462,000	)		84,000				(2,378,000	)
Interest expense		(348,000	)		26,000		B		(322,000	)
Interest and other income, net		30,000			—				30,000
Loss from continuing operations before income tax benefit		(2,780,000	)		110,000				(2,670,000	)
Income tax benefit		(1,133,000	)		45,000		B		(1,088,000	)
Net loss from continuing operations	$	(1,647,000	)	$	65,000			$	(1,582,000	)
Basic and diluted net loss per share:
Loss from continuing operations	$	(0.32	)	$	0.01			$	(0.31	)
Weighted average and equivalent shares outstanding:
Basic and diluted		5,161,000			5,161,000				5,161,000

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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An analysis of the discontinued operations of the retail business that are part of the Transaction is as follows:

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

A. The asset allocation of the sale of the Diedrich and Coffee People retail locations assumes that the remaining three stores were transferred on the same day. Starbucks has paid $43,000 into an escrow account held by a third party escrow agent. These funds will be held in the escrow account for six months after the closing of the Starbucks transaction, provided that any funds necessary to satisfy outstanding claims for indemnification will remain in escrow after such time. Since the payments from the escrow account are not reasonably assured, the Company will record these funds when payments are actually received. The gain from the transactions is not included in the unaudited pro forma condensed consolidated statement of operations since it is a one-time amount directly attributable to the transactions.

Purchase price – Cash	$	413,000
Inventories		(7,000	)
Fixed assets, net		(127,000	)
Other Assets		(28,000	)
Deferred Rent		2,000
Estimated Book Gain on Sale of retail locations	$	253,000

The Company has had losses from operations during the year, and has net operating loss carryforwards from prior year. Therefore, the Company expects a zero tax liability for the year and therefore no income tax provision has been accrued on this gain on sale.

B. Adjustment to eliminate the direct revenue and expenses, as well as the gain on sale of discontinued operations, related to the 37 Diedrich and Coffee People retail stores transferred to Starbucks and other third parties. In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” the financial results of the stores transferred to Starbucks and other third parties and gain on sale were reported as discontinued operations for the 36 weeks ended March 7, 2007. Accordingly, the net elimination amount of $4,111,000 for the 36 weeks ended March 7, 2007 is an adjustment to the discontinued operations and tax benefit from continuing operations.

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