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JAMN > SEC Filings for JAMN > Form 10-Q on 16-Dec-2013All Recent SEC Filings

Show all filings for JAMMIN JAVA CORP.

Form 10-Q for JAMMIN JAVA CORP.


16-Dec-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

As used in this Quarterly Report, unless the context requires otherwise, references to "the Company," "we," "us," "our," "Jammin Java" and "Jammin Java Corp." refer specifically to Jammin Java Corp. This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended January 31, 2013.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and the documents incorporated by reference, include "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they prove incorrect or never materialize, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. Examples of forward-looking statements include, but are not limited to any statements, predictions and expectations regarding our earnings, revenues, sales and operations, operating expenses, anticipated cash needs, capital requirements and capital expenditures, needs for additional financing, use of working capital, plans for future products, services and distribution channels, anticipated growth strategies, planned capital raises, ability to attract distributors and customers, sources of net revenue, anticipated trends and challenges in our business and the markets in which we operate, the impact of economic and industry conditions on our customers and our business, customer demand, our competitive position, the outcome of any litigation against us, critical accounting policies and the impact of recent accounting pronouncements. Additional forward-looking statements include, but are not limited to, statements pertaining to other financial items, plans, strategies or objectives of management for future operations, our financial condition or prospects, and any other statement that is not historical fact. Forward-looking statements are often identified by the use of words such as "may," "might," "intend," "should," "could," "can," "would," "continue," "expect," "believe," "anticipate," "estimate," "predict," "potential," "plan," "seek" and similar expressions and variations or the negativities of these terms or other comparable terminology.

These forward-looking statements are based on the expectations, estimates, projections, beliefs and assumptions of our management based on information currently available to management, all of which is subject to change. Such forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and could cause actual results to differ materially from those stated or implied by our forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified under "Risk Factors" in this Form 10-Q and incorporated by reference herein. We undertake no obligation to revise or update publicly any forward-looking statements to reflect events or circumstances after the date of such statements for any reason except as otherwise required by law.

The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report, our Annual Report on Form 10-K for the year ended January 31, 2013 and in our other reports filed with the Securities and Exchange Commission (the "SEC").

Overview

Jammin Java, doing business as Marley Coffee, is a United States-based company that provides sustainably grown, ethically-farmed and artisan roasted gourmet coffee through multiple United States and international distribution channels. We intend to develop a significant share of these markets and achieve a leadership position by capitalizing on the global recognition of the "Marley" brand name. We hope to capitalize on the guidance and leadership of our Chairman, Rohan Marley, and to increase our sales through the marketing of products using the likeness of, and reflecting the personality of, Mr. Marley. Additionally, through a licensing agreement with the family of the late reggae performer, Robert Nesta Marley, professionally known as Bob Marley (which family members include Rohan Marley, our Chairman and the son of Bob Marley), we are provided the worldwide right to use the name "Marley Coffee" and reasonably similar variations thereof.


We believe the key to our growth is a multichannel distribution and sales strategy. Since August 2011, we have been introducing a wide variety of coffee products through multiple distribution channels using the Marley Coffee brand name. The main channels of revenue for the Company are now and are expected to continue to be grocery retail, online retail, office coffee services (OCS), foodservice, green bean coffee sales and vending and automated retailing.

In order to market our products in these channels, we have developed a variety of coffee products in varying formats. The Company offers an entire line of coffee in whole bean and ground form with varying sizes including 2.5 ounce
(oz), 8oz, 12oz and 2 pound (lbs) sizes. The Company also offers a "single serve" solution with its compostable Single-Serve Pods for Bunn® and other pod-based home and office brewers. The Company also sells the Marley Coffee Real Cup; compatible cartridges, for use in most models of Keurig®'s K-Cup brewing system. The Company is also working to provide coffee vending solutions through its partner AVT, Inc.

On September 13, 2012, the Company entered into a fifteen (15) year license agreement (renewable for two additional fifteen (15) year terms thereafter in the option of the Company) with an effective date of August 7, 2012 with Fifty-Six Hope Road Music Limited, a Bahamas international business company ("Fifty-Six Hope Road" and the "FSHR License Agreement"). Rohan Marley, our Chairman, owns an interest in and serves as a director of Fifty-Six Hope Road. Pursuant to the FSHR License Agreement, Fifty-Six Hope Road granted the Company a worldwide, exclusive, non-transferable license to utilize the "Marley Coffee" trademarks (the "Trademarks") in connection with (i) the manufacturing, advertising, promotion, sale, offering for sale and distribution of coffee in all its forms and derivations, regardless of portions, sizes or packaging (the "Exclusive Licensed Products") and (ii) coffee roasting services, coffee production services, and coffee sales, supply, distribution and support services, provided that the Company may not open retail coffee houses utilizing the Trademarks. Fifty-Six Hope Road owns and controls the intellectual property rights in and to the late reggae performer, Robert Nesta Marley, professionally known as Bob Marley, including the Trademarks. In addition, Fifty-Six Hope Road granted the Company the right to use the Trademarks on advertising and promotional materials that pertain solely to the sale of coffee cups, coffee mugs, coffee glasses, saucers, milk steamers, machines for brewing coffee, espresso and/or cappuccino, grinders, water treatment products, tea products, chocolate products, and ready-to-use (instant) coffee products (the "Non-Exclusive Licensed Products", and together with the Exclusive Licensed Products, the "Licensed Products"). Licensed Products may be sold by the Company pursuant to the FSHR License Agreement through all channels of distribution, provided that, subject to certain exceptions, the Company cannot sell the Licensed Products by direct marketing methods (other than the Company's website), including television, infomercials or direct mail without the prior written consent of Fifty-Six Hope Road. Additionally, FSHR has the right to approve all Licensed Products, all advertisements in connection therewith and all product designs and packaging. The agreement also provides that FSHR shall own all rights to any domain names (including marleycoffee.com), incorporating the Trademarks.

In consideration for the foregoing licenses, the Company agreed to pay royalties to Fifty-Six Hope Road in an amount equal to 3% of the net sales of all Licensed Products on a quarterly basis. In addition, such royalty payments are to be deferred during the first 20 months of the term of the FSHR License Agreement, and such deferred payments shall be paid on a quarterly-basis thereafter until paid in full. At October 31, 2013, $162,245 has been accrued for such royalty fees.

The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended January 31, 2013. We believe that for the nine months ended October 31, 2013, there have been no material changes to this information.


Recent Accounting Pronouncements

For the nine month period ended October 31, 2013, there were no accounting standards or interpretations issued that are expected to have a material impact on our financial position, operations or cash flows.

Products and Revenue Channels

The Company's objective is to position Marley Coffee as the premiere brand across all of the distribution channels for which we license the use of the "Marley" name and to capitalize on the likeness of our Chairman, Rohan Marley.

Geographically, we initially focused on retail grocery sales and marketing on the West Coast and Southwest portions of the United States and Western Canada. During the past year we have expanded our distributor relationships nationally in the United States. We expect our ongoing discussions with retailers will enable us to place our products in more chains throughout the year and we continue to seek to expand our product placement with grocery retailers and distributors throughout the United States and internationally.

In 2012 our primary product lines were our bagged coffee. We sell 8oz and 12oz ground and whole bean bagged coffee primarily to the retail grocery channel. We sell 2lb whole bean and 2.5oz fractional packs primarily to the food service and Office Coffee Service or Breakroom industry.

In late November, 2012 we launched our Marley Coffee RealCups; a single serve; compatible cartridge, for use in most models of Keurig® 's K-Cup brewing system. The coffee single serve segment is the fastest growing sector of the coffee industry and the fastest growing part of our business. We expect RealCups to generate about half of our revenues in the near term.

We generate revenues in this category in two ways 1) by selling directly to retailers; and 2) through a licensing agreement with our roasters Mother Parkers Tea and Coffee. For direct sales, we handle all aspects of selling, merchandising and marketing of the products to retailers. Through the licensing agreement, our brokers or Mother Parkers Tea and Coffee, develops the relationships with retailers and handles everything from selling, merchandising, discounting, promoting and marketing and we receive a $0.03 licensing fee per cup sold.

Additionally, during the year ended January 31, 2013, we added two additional revenue channels: Marley Coffee branded vending solutions and Marley Coffee branded Bike Cafés.

Branded Vending & Foodservice. AVT, Inc. ("AVT") is a leading developer of vending and self-service retail equipment and has created Marley Coffee branded coffee self-automated vending machines designed to target college campuses, traditional retail locations, high-density traffic areas such as theaters and hotels and traditional foodservice vendors.

Marley Coffee BikeCaffe Mobile Franchise Concept. Marley Coffee branded BikeCaffe Coffee Bike, found in select cities in the U.S. and Europe, are a new approach to serving coffee to customers. These three-wheeled, geared bikes are environmentally-friendly, full-service cafes that roll from location to location. Bike Caffe franchises are available to Marley Coffee branded bikes that will sell coffee drinks exclusively featuring Marley Coffee beans.

Additionally, subsequent to the end of fiscal 2013, we affected three transactions with Ironridge, defined and described in greater detail below under "Funding and Financing Agreements" - "Ironridge Transactions", pursuant to which $4,795,802 in accounts payable and accrued expenses owed by us to various parties, which was purchased by Ironridge, will be satisfied by the issuance of shares of our common stock, and came off our balance sheet significantly improving our liquidity. In July and August 2013, we also raised $246,000 through the sale of units (described in greater detail below under "Funding and Financing Agreements" - "Private Placement").


Recent Transactions

Effective December 4, 2013, the Company entered into and closed an Asset Purchase Agreement with BikeCaffe Franchising Inc. ("BikeCaffe Franchising"), a franchisor of the BikeCaffe mobile coffee carts in the United States and throughout the world. Prior to us entering into the Asset Purchase Agreement, we were a brand partner of BikeCaffe Franchising. Pursuant to the Asset Purchase Agreement we purchased all of the assets of BikeCaffe Franchising (including the rights to the design of the BikeCaffe carts, intellectual property relating to the operation of BikeCaffe Franchising, and five Marley Coffee Branded BikeCaffe carts) in consideration for $140,000, of which $40,000 was paid in cash and $100,000 was paid through the issuance of 250,000 shares of our restricted common stock valued based on the closing price of the Company's common stock on the effective date of the agreement ($0.40 per share). BikeCaffe Franchising and its owners agreed to indemnify us against various claims resulting from the operations of the assets acquired prior to closing. The Asset Purchase Agreement also required Pedal Power Supply, LLC, which is under common control with BikeCaffe Franchising, to build and sell BikeCaffe units to the Company for 12 months at the current sales price of such carts and for an additional 12 months thereafter (24 months in total) at no more than 110% of the current sales price. BikeCaffe and its owners agreed to a non-compete provision prohibiting them from competing against us in connection with any line of business similar to ours for a period of three years from the closing date.

Additionally, effective on the same date, we entered into a Supplier Business Relationship Agreement with Ralph Massetti / The Franchise Builders ("Supplier")(President and CEO of BikeCaffe Franchising), pursuant to which the Supplier agreed to provide 150 hours of franchise consulting services to the Company, which services are to be rendered prior to January 31, 2014. We agreed to provide the Supplier consideration of (a) 8% of the annual net profits derived from the BikeCaffe related assets and opportunities for five years following the closing; and (b) 8% of the purchase value attributable to any sale of the BikeCaffe assets which occurs during the five year years following the closing. The first annual net profits payment is due 90 days following the end of the Company's January 31, 2015 fiscal year. The Company has the right to pay the annual net profits payment in cash or stock. We also agreed to make a one-time payment to the supplier in consideration for the 150 hours of consulting services to be provided to the Company in the amount of $115,000, which we agreed to pay in Form S-8 common stock valued based on the closing price of our common stock on the date the agreement was entered into (which stock at a closing price of $0.40 per share), which totals 287,500 shares of common stock.

Plan of Operations

Moving forward throughout the remainder of fiscal 2014, we hope to expand our operations into new markets and into new retail grocery locations, leverage the Trademarks and create additional brand awareness for our products.

Throughout fiscal 2013 and continuing through fiscal 2014, the Company issued shares of common stock in consideration for services rendered to its officers, directors and employees in an effort to maximize its cash on hand and improve liquidity, which practice the Company has continued in the beginning of fiscal 2014. The Company has also accrued salaries for several of its officers and employees and will continue accruing such salaries or paying such salaries in shares of Form S-8 common stock until it has sufficient available funds to pay such salaries in cash. As the Company continues to grow it will need to raise additional cash in order to maintain its growth and fund its operations. If the Company is unable to access additional capital moving forward, it will hurt our ability to maintain growth and possibly jeopardize our ability to maintain our current operations. There can be no assurance that the Company will be able to increase sales, reduce expenses or obtain additional financing, if necessary, at a level to meet its current obligations to continue as a going concern.


RESULTS OF OPERATIONS

Results of Operations

Comparison of the Three Months Ended October 31, 2013 and 2012

Sales Revenue. Sales revenues for the three months ended October 31, 2013 and 2012 were $2,193,118 and $536,055, respectively, which represents an increase of $1,657,063 or 309% from the prior period. Sales revenue increased as a result of the Company's continued expansion into the retail grocery market and its continued growth of other business verticals. The Company grew from a 2% grocery retail market share to being authorized to sell in approximately 8,000 stores which represents approximately a 22% retail grocery market share from October 31, 2012 to October 31, 2013.

Cost of Sales. Cost of sales for the three months ended October 31, 2013 and 2012 were $1,382,067 and $382,741, respectively, which represents an increase of $999,326 or 261%, which was mostly attributed to increased sales, especially of items with larger profit margins.

Gross Profit. We had a gross profit of $811,051 for the three months ended October 31, 2013, compared to a gross profit of $153,314 for the three months ended October 31, 2012. Gross profit as a percentage of sales was 37% for the three months ended October 31, 2013 and 29% for the three months ended October 31, 2012. Gross profit and gross profit as a percentage of sales decreased due to increased sales, especially of items with higher margins.

Compensation and Benefit Expenses. Compensation and benefits for the three months ended October 31, 2013 and 2012, were $686,241 and $567,668, respectively, which represented an increase of $118,573 or 21% from the prior period. The increase was mostly the result of more employees and contractors to help manage the growth of the company.

Selling and Marketing Expenses. Selling and marketing expenses for the three months ended October 31, 2013 and 2012, were $15,777 and $191,566, respectively, which represents a decrease of $175,789 or 92% from the prior period. The decrease was principally the result of a large marketing campaign done in the prior period and not in the current period. As the business has developed, the customer base has increased and sales have grown more organically. We anticipate, however, experiencing significant marketing expenses throughout 2014 as we will seek to expand our customer base even more and build out the Company brand. Much of the selling and marketing that happens outside of this categorization occurred in new staffing in marketing.

General and Administrative Expenses. General and administrative expenses for the three months ended October 31, 2013 and 2012, were $758,635 and $237,774, respectively, which represents an increase of $520,861 or 219% from the prior period. The increase was principally the result of overall increased expansion of the business and the need to support that expansion mostly through professional fees and payroll. General and administrative expense also increased due to increased corporate reporting expenses and increased insurance expenses.

Total Other Income (Expense). We had total other expense of $728,949 for the three months ended October 31, 2013, compared to total other expense for the three months ended October 31, 2012 of $65,048, an increase of $663,901. Total other expense for the three months ended October 31, 2013 was mainly in connection with the two Ironridge transactions completed during prior quarters (described below) which caused a $684,386 loss on extinguishment of debt from the issuance of shares but which are also subject to true-ups after the applicable "calculation periods" (see Note 9 to the financial statements included herein). Also included in total other expense was interest expense of $244 for the three months ended October 31, 2013, compared to interest expense of $53,896 for the three months ended October 31, 2012. Interest expense decreased due to the acquisition of our outstanding interest bearing liabilities by Ironridge and the extinguishment of such debt through the issuance of common stock.


Net Loss. We incurred a net loss of $1,378,551 and $944,742 for the three months ended October 31, 2013 and 2012, respectively, an increase in net loss of $433,809 or 46% from the prior period. The principal reason for the increase in net loss was the $663,901 increase in other expense due to the loss on extinguishment of debt of $684,386 during the current period, the $427,645 increase in total operating expenses from the growth of the Company and its staffing needs, offset by the $657,737 increase in gross profit. Non-cash payments of common stock included in net loss for the three months ended October 31, 2013 and 2012 were $1,286,145 and $0, respectively.

Comparison of the Nine Months Ended October 31, 2013 and 2012

Sales Revenue. Sales revenues for the nine months ended October 31, 2013 and 2012 were $4,615,605 and $1,405,154, respectively, which represents an increase of $3,210,451 or 228% from the prior period. Sales revenue increased as a result of the Company's continued expansion into the retail grocery market and its continued growth of other business verticals. The Company grew from a 2% grocery retail market share to being authorized to sell in approximately 8,000 stores, which represents approximately a 22% retail grocery market share from October 31, 2012 to October 31, 2013.

Cost of Sales. Cost of sales for the nine months ended October 31, 2013 and 2012 were $2,833,587 and $1,110,002, respectively, which represents an increase of $1,723,585 or 155%, which was mostly attributed to increased sales, especially of items with larger profit margins.

Gross Profit. We had a gross profit of $1,782,018 for the nine months ended October 31, 2013, compared to a gross profit of $295,152 for the nine months ended October 31, 2012. Gross profit as a percentage of sales was 39% for the nine months ended October 31, 2013 and 21% for the nine months ended October 31, 2012. Gross profit and gross profit as a percentage of sales increased due to an increase in sales for higher margin products.

Compensation and Benefit Expenses. Compensation and benefits for the nine months ended October 31, 2013 and 2012 were $1,373,394 and $1,778,397, respectively, which represented a decrease of $405,003 or 23% from the prior period. The decrease was mostly a result of a decrease in non-cash stock compensation of $721,509, offset by increase in executive payroll.

Selling and Marketing Expenses. Selling and marketing expenses for the nine months ended October 31, 2013 and 2012, were $139,709 and $494,338, respectively, which represents a decrease of $354,629 or 72% from the prior period. The decrease was principally the result of a large marketing campaign done in the prior period and not in the current period. As the business has developed, the customer base has increased and sales have grown more organically. We anticipate, however, experiencing significant marketing expenses throughout 2014 as we will seek to expand our customer base even more and build out the Company brand.

General and Administrative Expenses. General and administrative expenses for the nine months ended October 31, 2013 and 2012, were $1,627,383 and $731,546, respectively, which represents an increase of $895,837 or 122% from the prior period. The increase was principally the result of overall increased expansion of the business and the need to support that expansion mostly through professional fees and payroll. General and administrative expense also increased due to increased corporate reporting expenses and increased insurance expenses.


Total Other Income (Expense). We had total other expense of $1,153,809 for the nine months ended October 31, 2013, compared to $80,024 of total other expense for the nine months ended October 31, 2012. Total other expense for the nine months ended October 31, 2013 was mainly in connection with the Ironridge transactions that caused a $1,120,593 loss on extinguishment of debt from the issuance of shares but which are subject to certain true-ups after the applicable "calculation periods" (other than the first and second transactions for which true up has already occurred)(see Note 9 to the financial statements included herein) and the gain on derivatives pertaining to TCA. Also included in total other expense was interest expense of $108,918 for the nine months ended October 31, 2013, compared to interest expense of $69,285 for the nine months ended October 31, 2012. Interest expense increased due to the recognition of deferred financing costs and the debt discount related to the July 19, 2012 credit agreement with TCA Global Credit Master Fund, LP ("TCA"), effective June 29, 2012 (the "Credit Agreement"), pursuant to which TCA agreed to loan us up to $2 million, of which $350,000 was borrowed on July 19, 2012, which amount was repaid in connection with the March 2013 Stipulation, described below under "Ironridge Transactions", pursuant to which Ironridge purchased the outstanding debt which we owed to TCA and also purchased $100,000 of outstanding liabilities relating to 588,235 shares of our common stock originally issued to TCA, which shares TCA returned to the Company for cancellation and which shares were cancelled in May 2013.

Net Loss. We incurred a net loss of $2,512,277 and $2,825,153 for the nine months ended October 31, 2013 and 2012, respectively, a decrease in net loss of $312,876 or 11% from the prior period. The principal reason for the increase in net loss was the $1,073,785 increase in total other expenses, mainly due to the extinguishment of liabilities in connection with the Ironridge Transactions, offset by the $1,486,866 increase in gross profit. Non-cash payments of common stock included in net loss for the nine months ended October 31, 2013 and 2012 . . .

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