UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
x  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended January 31, 2014
 
¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
 
Commission file number:  000-52161
Jammin Java Corp.
(Exact name of registrant as specified in its charter)
 
Nevada
 
  26-4204714
(State or other 
jurisdiction of 
incorporation or 
organization) 
 
(IRS Employer 
Identification
No.) 
     
730 Tejon St.
Denver, Colorado
 
80211
(Address of
principal
executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (323) 556-0746
 
Securities registered pursuant to Section 12(b) of the Act:
None
 
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $0.001 per share
(Title of Class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  ¨     No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨     No  x
 
 
 

 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter periods 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  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x     No  ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨
 
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “ large accelerated filer, ” “ accelerated filer ” and “ smaller reporting company ” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer   ¨
Accelerated filer   ¨
Non-accelerated filer    ¨
(Do not check if a smaller reporting company)
Smaller reporting company   x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x
 
The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates computed by reference to the closing price of such common equity on the OTCQB market as of July 31, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $38,316,888.
 
At May 13, 2014, there were 114,356,971 shares of the issuer’s common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to its fiscal 2015 annual meeting of shareholders (the “ 2015 Proxy Statement ”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2015 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

 
 

 


TABLE OF CONTENTS
  
   
Page
     
PART I
     
Item 1.
Business
5
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
19
Item 2.
Properties
19
Item 3.
Legal Proceedings
19
Item 4.
Mine Safety Disclosures
19
     
PART II
     
Item 5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
20
Item 6
Selected Financial Data
23
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 7A. 
Quantitative and Qualitative Disclosure About Market Risk
30
Item 8.
Financial Statements and Supplementary Data
30
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
30
Item 9A.
Controls and Procedures
30
Item 9B.
Other Information
32
     
PART III
     
Item 10.
Directors, Executive Officers and Corporate Governance
33
Item 11.
Executive Compensation
33
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
33
Item 13.
Certain Relationships and Related Transactions, and Director Independence
33
Item 14.
Principal Accounting Fees and Services
33
     
PART IV
     
Item 15.
Exhibits and Financial Statement Schedules
34
 

 
 

 


PART I
 
FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K (“ Form 10-K ”), particularly in Item 1, “ Business, ” and Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations, ” and the documents incorporated by reference, includes “ 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, revenue, 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 Item 1A in this Form 10-K. 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-K 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 Annual Report and in our other reports filed with the Securities and Exchange Commission (the “ SEC ”).

In this Annual Report on Form 10-K, we may rely on and refer to information regarding the market for our products and our industry in general, which information comes from market research reports, analyst reports and other publicly available information.  Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.
 
USE OF CERTAIN DEFINED TERMS

Unless the context requires otherwise, references to “ the Company, ” “ we, ” “ us, ” “ our, ” “ Jammin Java ” and “ Jammin Java Corp. ” refer specifically to Jammin Java Corp. 

In addition, unless the context otherwise requires and for the purposes of this report only:
 
●  
Exchange Act ” refers to the Securities Exchange Act of 1934, as amended;
●  
SEC ” refers to the United States Securities and Exchange Commission; and
●  
Securities Act ” refers to the Securities Act of 1933, as amended.

 
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You should carefully consider the risk factors described below, as well as the other information included in this Annual Report on Form 10-K prior to making a decision to invest in our securities.
 
ITEM 1. BUSINESS.
 
HISTORY
 
The Company was incorporated in Nevada on September 2004 under the name “ Global Electronic Recovery Corp. ” In February 2008, we changed our name to “ Marley Coffee Inc. ” when we merged our then newly-formed subsidiary, “ Marley Coffee Inc. ” into the Company. In July 2009, we changed our name to “ Jammin Java Corp. ” when we merged our newly-formed subsidiary, Jammin Java Corp., into our Company. Our common stock is quoted on the OTCQB maintained by the OTC Market (“ OTCQB ”), under the symbol “ JAMN.
 
CURRENT BUSINESS OPERATIONS
 
In July 2009, we decided to pursue the business of providing premium roasted coffee on a wholesale level to the service, hospitality, office coffee service and big box store market. We intended to gain a market share of the category by capitalizing on the global recognition of the “ Marley ” name.  Since then, the Company has expanded and developed into a provider of specialty coffee for a variety of business channels.

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 recently launched its Marley Coffee RealCup; compatible cartridges, for use in most models of Keurig®'s K-Cup brewing system.

License Agreement with Fifty-Six Hope Road

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.

 
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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 January 31, 2014, $204,149 has been accrued for such royalty fees.

Sales and Marketing Agreement With National Coffee Service & Vending

On April 25, 2011, the Company entered into an Exclusive Sales and Marketing Agreement (the “ NCSV Agreement ”) with National Coffee Service & Vending (“ NCSV ”). Pursuant to the NCSV Agreement, we agreed to appoint NCSV as our exclusive agent and distributor of “ Jammin Java Coffee ” brand roasted coffee within the U.S. (the “ Products ”) in the office coffee vending, office products, water, and other industries featuring a “ break room, ” and divisions and offshoots thereof. Pursuant to the NCSV Agreement, we share net profits generated by this agreement with NCSV on a 60/40 basis (with 60% of such net profits being provided to the Company).

Pursuant to the NCSV Agreement, NCSV is responsible for marketing and distributing Products and we agreed to refer all inquiries for purchase of the Products to NCSV (subject to small quantities of Products being referred to separate sub-agents). We also agreed not to compete with NCSV for sales and to refer to NCSV any sales relating to the Products and segments covered by the NCSV Agreement.

The NCSV Agreement remains in effect until April 25, 2014, and automatically renews for additional two year periods thereafter on a rolling basis, unless terminated by either party at least 30 days prior to the end of such applicable renewal term.  The agreement was not terminated as of April 25, 2014, and therefore automatically renewed for an additional two year period.  The NCSV Agreement can be terminated in the event of a breach of the NCSV Agreement (by the non-breaching party) or if the terminating party pays the non-terminating party a lump sum equal to the estimated net profit which would have been due to the non-terminating party if the NCSV Agreement had remained in effect for an additional 24 months from the termination date of the NCSV Agreement (based on the prior 12 months’ net profit).
 
Grocery Sales Process Agreements

On November 1, 2013, the Company hired Red Button Consulting, LLC to assist it with category management and marketing.  The group is responsible for assisting the Company with developing a go-to-market retail plan and a promotional calendar for both distributor and retailer development.  They are also responsible for helping execute the brand’s consumer value proposition to cultivate brand loyalty across a variety of retail channels and specified retail partners.  The long-term objective is to help the Company establish its brand in the grocery retail sector while ensuring that its gross margins fall in line with its promotional activities.  The contract is month to month unless terminated by either party at least 30 days prior to the end of such applicable renewal term.

In February 2014, the Company hired 2 national food brokerage companies to help it represent, market and merchandise its products at grocery retail on a store level.  The Company engaged Alliance Sales & Marketing, a private food broker based in Charlotte, North Carolina, to help increase its new market penetration in the Eastern region in the grocery and natural foods retail sector. It also hired National Sales Associates, based in Stroudsburg, Pennsylvania, to act as its broker in the natural sector for the Western United States.  The Company pays a total of 5% of revenues on accounts the brokers represent.  The contracts are month to month unless terminated by either party at least 30 days prior to the end of such applicable renewal term.

Roasting Agreements

The Company primarily receives its coffee from two main suppliers; Mother Parkers Tea & Coffee Inc. and European Roasterie, Inc. The Company generally provides these suppliers with desired taste profiles for various Company products, as well as related packaging and marketing materials, and the suppliers are generally responsible for sourcing and supplying the roasted beans for those products in quantities the Company orders from time to time.  We are responsible for carrying out sales and marketing for our products.  Our suppliers handle shipping to our distributors and customers. We receive the gross proceeds from the sale of our products and then pay our suppliers for the cost of goods sold. Pricing is subject to change based on prevailing market prices, with 30 days’ written notice. We bear all of the cost of bad debts or uncollectable accounts.

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.

Within the U.S. grocery and specialty retail segment, the Company’s products are distributed through several distributors such as UNFI, Kehe and DPI and we also distribute directly to certain customers.  We sell to retailers such as Safeway, Krogers, HEB, Market Basket, Whole Foods, Winn Dixie Bi-Lo, Ahold, Hannafords, Albertsons, Shaw’s and Fairways, Fresh and Easy. 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.
 
 
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We create and sell a variety of coffee products for almost every coffee distribution channel.  We sell 8 ounce (oz) 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 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 & Coffee Inc.  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 & Coffee Inc., develops the relationships with retailers and handles everything from selling, merchandising, discounting, promoting and marketing and we receive a licensing fee of $0.04 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 Concept . Marley Coffee BikeCaffe Coffee Bikes, can be found in Denver, Colorado and 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.

Additionally, subsequent to the end of fiscal 2013, we affected three transactions with Ironridge, defined and described in greater detail below under “ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ” – “ Liquidity and Capital Resources ” – “ Funding and Financing Agreements ” – “ Ironridge Transaction ”, 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 “ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ” – “ Liquidity and Capital Resources ” – “ Funding and Financing Agreements ” – “ Private Placement ”).

Sales and Distribution Agreements and Understandings
 
The Company has entered into informal sales arrangements, not documented by definitive agreements, with several coffee distributors, beverage services and retailers around the world.
 
In Canada, the Company has distribution channels directly to certain retailers such as London Drugs and Best Buy, and Mother Parkers Tea & Coffee Inc. is the Company’s distributor for the food service segment. Mother Parkers Tea & Coffee also brings the Company’s products into retailers such as Loblaw’s, Sobey’s, ID Foods, COOP and Metro.
 
In the United States, for the commercial break room segment, the Company uses its national sales representatives, National Coffee Service & Vending (NCS&V), to distribute to various retailers and distributors.

In addition to distributions through NCS&V, the Company conducts sales directly to retailers as well as to distributors.  In order to get in front of retail and distributor accounts, we rely on the experience and relationships of our staff to acquire both groups.  Our marketing efforts are comprised of in store promotions, in store demos, external marketing programs, public relations, social media, tradeshows and general advertising.

Within the U.S. grocery and specialty retail segment, the Company utilizes two national brokerage companies to represent, market and merchandise its products.  The Company works with Alliance Sales & Marketing, a private food broker based in Charlotte, North Carolina, to increase its new market penetration in the Eastern region in the grocery and natural foods retail sector. The Company also works with National Sales Associates, based in Stroudsburg, Pennsylvania, to act as its broker in the natural sector for the Western United States.
 
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Within the U.S. grocery and specialty retail segment, the Company’s products are distributed through several distributors such as UNFI, Kehe and DPI and we also distribute directly to certain retailers.
  
The Company has strengthened its online presence by selling through a multitude of online retailers such as Amazon.com, Cooking.com, coffeeicon.com, ecscoffee.com, officedepot.com and coffeewiz.com.

Recent Transactions

Effective in August 2013, the Company entered into and affected the transactions contemplated by an Asset Purchase Agreement with Black Rock Beverage Services, LLC (“ BRB ”).  Pursuant to the agreement, the Company acquired substantially all of the assets of BRB in consideration for $10,000 in cash and 158,040 shares of the Company’s restricted common stock (which were physically issued in February 2014), valued at $71,118.  Additionally, a required term and condition of the acquisition was that the Company enter into an employment agreement with the principal of BRB.  Included in the acquisition was all of BRB’s goodwill, intellectual property, inventory, equipment and a truck. The Company also absorbed all of BRB’s employees.  The acquisition was accounted for using the purchase method of accounting.

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.  The acquisition was accounted for using the purchase method of accounting.

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, 2015.  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 common stock valued based on the closing price of our common stock on the date the agreement was entered into (which stock had a closing price of $0.40 per share), which totals 287,500 shares of common stock.

Patents, Trademarks and Licenses
 
As described above, pursuant to the September 13, 2012, 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.

 
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Additionally, the Company currently does business under the name “ Marley Coffee ”, the rights to which name is owned by Fifty-Six Hope Road.

The Company also maintains websites at  http://www.marleycoffee.com  (the rights to which domain name are owned by FSHR) and  http://www.jamminjavacoffee.com . The information on, or that may be accessed through, our website is not incorporated by reference into this report and should not be considered a part of this report.

Competition
 
Competition in the market for coffee and coffee related products is intense and we expect it to increase. Our most significant competitors, include premium coffee companies such as Starbucks, Peet’s Coffee, Keurig Green Mountain (formerly Green Mountain Coffee Roasters), Farmer’s Brothers and other national, local and regional companies in the grocery retail and office coffee service and hospitality industry market, many of which have substantially greater financial, sales, marketing and human resources than we do.
 
We believe that our customers choose among coffee brands based on the total value proposition that includes quality, variety, convenience, personal taste preference, price and social/sustainable consciousness. We believe that our market share in the category is driven by the quality of our product and the sustainable message we convey while being competitively priced in the premium category.
 
Product Research and Development
 
We did not expend any significant funds on research and development activities for the fiscal years ending January 31, 2014 or January 31, 2013.
 
Employees
 
As of April 30, 2014, we had sixteen full-time and ten part-time employees. We also utilize independent contractors and consultants to assist us with key functions. Our agreements with these independent contractors and consultants are usually short-term. We believe that our relations with our employees, independent contractors and consultants are good. None of our employees are represented by a union or covered by a collective bargaining agreement.

AVAILABLE INFORMATION
 
We are subject to the information and reporting requirements of the Exchange Act, under which we file periodic reports, proxy and information statements and other information with the United States Securities and Exchange Commission, or SEC. Copies of the reports, proxy statements and other information may be examined without charge at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or on the Internet at http://www.sec.gov. Copies of all or a portion of such materials can be obtained from the Public Reference Room of the SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room.
 
ITEM 1A. RISK FACTORS.
 
RISK FACTORS
 
An investment in our common stock is highly speculative, and should only be made by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and other information in this annual report before deciding to become a holder of our common stock. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent.

 
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We have had negative cash flows from operations and there is substantial doubt about our ability to continue as a going concern and if we are not able to generate positive cash flow, our business operations may fail.
 
The Company has incurred a net loss of $6,704,030 and $4,017,953 for the years ended January 31, 2014 and 2013, respectively and has an accumulated deficit of $13,762,848 at January 31, 2014.   In addition, the Company has a history of losses and has only recently begun to generate revenue as part of its principal operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The operations of the Company have primarily been funded by the issuance of its common stock. The Company’s ability to meet its obligations in the ordinary course of business is dependent upon its ability to sell its products directly to end-users and through distributors, establish profitable operations through increased sales and decreased expenses, and obtain additional funds when needed. There can be no assurance that the Company will be able to increase sales or reduce expenses to a level necessary to meet its current obligations or continue as a going concern. As a result, the opinion the Company received from its independent registered public accounting firm on its January 31, 2014 financial statements contains an explanatory paragraph stating that there is substantial doubt regarding the Company’s ability to continue as a going concern. If we become unable to continue as a going concern, we may have to liquidate our assets, and may realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. The accompanying financial statements do not contain any adjustments for this uncertainty.

Shareholders may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional shares of our common stock.
 
Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock or where shares are to be issued to our officers, directors and applicable consultants, free trading shares pursuant to our Form S-8 registration statements. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock. In addition, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing management.

We rely upon key personnel and if they leave us, our business plan and results of operations could be adversely affected.
 
We rely heavily on our Chief Executive Officer, Brent Toevs, our President, Chief Operating Officer, Secretary and Treasurer, Anh Tran, and the Chairman of our Board of Directors, Rohan Marley, for our success. Their experience and input create the foundation for our business and are responsible for the directorship and control over our activities. Moving forward, should we lose the services of these individuals for any reason, we will incur costs associated with recruiting a replacement and delays in our operations. If we are unable to replace such principal with another suitably trained individual or individuals, we may be forced to scale back or curtail our business plan and activities. As a result of this, your investment in us could become devalued or worthless. We currently have an aggregate of $3 million in Directors’ and Officers’ liability insurance in place covering our officers and directors.
 
We rely on our License Agreement with Fifty-Six Hope Road Music Limited, our Roasting Agreement with Mother Parkers Tea & Coffee Inc., and various other agreements and understandings for our operations and revenues.
 
As described above under “ Item 1. Business ” – “ Current Business Operations ”, (a) on September 13, 2012, the Company entered into a license agreement with an effective date of August 7, 2012 with Fifty-Six Hope Road Music Limited, pursuant to which Fifty-Six Hope Road granted the Company a worldwide, exclusive, non-transferable license to utilize the “ Marley Coffee ” Trademarks in connection with Licensed Products;  and (b) we also have an agreement in place with Mother Parkers Tea & Coffee Inc., pursuant to which we provide that entity the exclusive right to market and sell our Marley Coffee RealCups.  We also have numerous informal sale arrangements and distribution understandings, not documented by definitive agreements, in place with several coffee distributors, beverage services and retailers.

 
10

 


We anticipate generating revenue moving forward solely as a result of the sale of coffee bearing the Trademarks, which we source primarily under our Agreement with Mother Parkers Tea & Coffee Inc. and our agreement with European Roasterie, Inc. and which we distribute primarily through the Mother Parkers Tea & Coffee Inc. Agreement and through other various distribution understandings. As a result, if the RSHR License Agreement was to be terminated, the Roasting Agreement, or the Mother Parkers Tea & Coffee Inc. Agreement were to be terminated or not renewed, or to a lesser extent, if our various informal sale arrangements were to be terminated, our operations could be adversely effected, our revenues (if any), could be adversely affected and we could be forced to curtail or abandon our operations, causing any investment in the Company to decline in value or become worthless.
 
FSHR can terminate the FSHR License Agreement under certain circumstances.

Pursuant to the terms and conditions of the FSHR License Agreement, FSHR can terminate that agreement under certain circumstances, subject where applicable and as described in the agreement, our right to cure such breaches and other events, including: if we manufacture and sell inferior quality products using the Trademarks; we breach the FSHR License Agreement; we are deemed to have performed gross negligence or wanton misconduct under the FSHR License Agreement; we enter into bankruptcy proceedings; or the Securities and Exchange Commission or any similar government agency in any country, territory or possession makes any negative or unlawful finding regarding our activities.  The termination of the FSHR License Agreement would have a material adverse effect on our results of operations and assets, could force us to scale back and/or abandon our business operations and could cause the value of our common stock to decline in value or become worthless.
 
Our revenues are significantly dependent on sales to a small number of customers and if we lose those customers our revenues will be adversely affected.

A significant portion of our revenue is derived from a limited number of customers. The loss of one or more of our significant customers would have a material impact on our revenues and results of operations.

During the year ended January 31, 2014, of the customers that provided 10% or more of our revenue, three provided approximately 57% of total revenue.  During the year ended January 31, 2014, three vendors accounted for 93% of purchases. During the year ended January 31, 2013, two vendors accounted for 87% of purchases.  As such, if we were to lose any of our significant customers and were unable to replace such customer with an equally sized replacement, our revenues and results of operations would be materially adversely affected.
 
Competition for coffee products and coffee brands is intense and could affect our future sales and profitability.
 
The coffee industry is highly fragmented. Competition in coffee products and brands are increasingly intense as relatively low barriers to entry encourage new competitors to enter the marketplace. In addition, we believe that maintaining and developing our brands is important to our success and the importance of brand recognition may increase to the extent that competitors offer products similar to ours. Many of our current and potential competitors have substantially greater financial, marketing and operating resources and access to capital than we do. Our primary competitors include Starbucks, Tully’s, Seattle’s Best, Peet’s Coffee, Keurig Green Mountain (formerly Green Mountain Coffee Roasters), Farmer’s Brothers and other companies in the office coffee service and hospitality industry market. If we do not succeed in effectively differentiating ourselves from our competitors in the coffee industry, including by developing and maintaining our brands, or our competitors adopt our strategies, then our competitive position may be weakened and our sales of coffee, and accordingly our future revenues (if any), may be materially adversely affected.

 
11

 


The adjustable number of shares of common stock we are required to issue Ironridge pursuant to the Stipulation could require us to issue a substantially greater number of shares, which may adversely affect the market price of our common stock and cause dilution to our existing stockholders .

Pursuant to the terms of the Order and the Stipulation (described below under “ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ” – “ Liquidity and Capital Resources ” – “ Funding and Financing Agreements ” – “ Ironridge Transaction ”), the Company was required to issue and deliver to Ironridge certain shares of the Company’s common stock, in settlement of the Claim which shares are subject to adjustment as described above.  The issuance of additional shares to Ironridge could cause immediate and substantial dilution to our existing shareholders and adversely affect the trading price of our common stock. Additionally, we believe that Ironridge may be selling the shares they were issued by the Company during certain calculation periods, which could reduce the trading price of our common stock and affect the number of shares they are ultimately able to receive as a result of such transaction.

Our business is dependent on sales of coffee, and if demand for coffee decreases, our business would suffer.
 
All of our revenues are planned to be generated through the sale of coffee. Demand for coffee is affected by many factors, including:
 
 
Changes in consumer tastes and preferences;
 
Changes in consumer lifestyles;
 
National, regional and local economic and political conditions;
 
Perceptions or concerns about the environmental impact of our products;
 
Demographic trends; and
 
Perceived or actual health benefits or risks.
 
Because we are highly dependent on consumer demand for coffee, a shift in consumer preferences away from coffee would harm our business more than if we had more diversified product offerings. If customer demand for our coffee decreases, our sales, if any, would decrease and we would be materially adversely affected.
 
If we fail to continue to develop and maintain our brand, our business could suffer .
 
We believe that maintaining and developing our brand is critical to our success and that the importance of brand recognition may increase as a result of competitors offering products similar to ours. Our brand building initiative involves increasing the availability of our products on the Internet, in grocery stores, licensed locations and foodservice locations to increase awareness of our brand and create and maintain brand loyalty. If our brand building initiative is unsuccessful, we may never recover the expenses incurred in connection with these efforts and we may be unable to increase our future revenue or implement our business strategy. As part of our brand building initiative, we may revise our packaging or make other changes from time to time. If these changes are not accepted by customers, our business could suffer.
 
Our success in promoting and enhancing our brand will also depend on our ability to provide customers with high quality products and customer service. Although we take measures to ensure that we sell only high-quality coffee, we have no control over our coffee products once purchased by customers. Accordingly, customers may prepare coffee from our products in a manner inconsistent with our standards, store our coffee for long periods of time or resell our coffee without our consent, which in each case, potentially affects the quality of the coffee prepared from our products. If customers do not perceive our products to be of high quality, then our reputation and the value of our brand may be diminished and, consequently, our ability to implement our business strategy may be adversely affected.

 
12

 


Coffee costs have been very volatile over the last several years and increases in the cost of high-quality coffee beans could impact the profitability of our business .
 
In the past several years, we have experienced a dramatic increase in the price volatility of Arabica coffee traded on the New York Board of Trade. While we do not purchase coffee on the commodity markets, price movements in the commodity trading of Arabica coffee beans impact the prices we pay. We expect the coffee commodity market to continue to be challenging as it continues to be influenced by worldwide supply and demand, the relative strength of the United States Dollar and speculative trading. Coffee prices can also be affected by multiple factors in the producing countries, including weather, natural disasters, political and economic conditions, export quotas or similar factors.

Decreases in the availability of high-quality coffee beans could impact the profitability and growth of our business .
 
One of our main concerns for fiscal 2015 is a shortage in Jamaican Blue Mountain (JBM) beans and products.  Hurricane Sandy and coffee leaf rust has impacted the production output of JBM by about 40 percent for 2014.  Jamaica and the industry expect a slow recovery in 2015 and to be back in full production by 2016.  We are diligently working to secure more JBM as the market we created for it continues to expand.  Limited JBM supply hampered our growth in fiscal 2014.  If we are not able to purchase sufficient quantities of high-quality coffee beans, we may not be able to fulfill the demand for our coffee, our revenue may decrease and our ability to expand our business may be negatively impacted.
 
Besides coffee, we face exposure to other commodity cost fluctuations, which could impair our profitability .
 
In addition to the increase in coffee costs discussed above, we are exposed to cost fluctuation in other commodities, including milk and fuel. For example, an increase in the cost of fuel could indirectly lead to higher electricity costs, transportation costs and other commodity costs. An increase in the cost of milk or other products, including sugar and other sweeteners, which coffee drinkers use to flavor and season their coffee could also lead to a decrease in the demand for our products.  Much like coffee costs, the costs of these commodities depend on various factors beyond our control, including economic and political conditions, foreign currency fluctuations and global weather patterns. To the extent that we are unable to pass along such costs to our customers through price increases, our margins and profitability will decrease.
 
Our financial performance is highly dependent upon the sales of Marley Coffee RealCup, Keurig® K-Cups.
 
A significant percentage of our total revenue (approximately half of our revenue for fiscal 2014) is attributable to sales of Marley Coffee RealCups for use with Keurig® Brewing systems. Any substantial or sustained decline in the sale of Keurig® Brewing systems or sales of Marley Coffee RealCups would materially adversely affect us. Keurig® Brewing systems compete against all sellers of coffeemakers. These companies include Bunn-O-Matic Corporation, Mars, Inc. (through its FLAVIA® unit), Conair, Inc., Hamilton Beach / Proctor-Silex, Inc., Jarden Corporation, Nestle S.A. (including the Nescafe Dolce-Gusto® beverage system), Phillips Electronics NV (including the SENSEO® brewing system, in cooperation with Sara Lee Corporation) and Robert Bosch GmbH (including the TASSIMO® beverage system, in cooperation with Kraft Foods, Inc.), Stanley Black & Decker, Inc., Starbucks Corporation (including its Verismo® brewing system), Whirlpool Corporation, as well as a number of additional brewing systems and brands. If Keurig Green Mountain (formerly Green Mountain Coffee Roasters) does not succeed in effectively differentiating the Keurig® Brewing systems from its competitors, then our ability to sell, and the market for, Marley Coffee RealCups may be limited and our revenues may be materially adversely affected.
 
Changes in the coffee environment and retail landscape could impact our financial results.
 
The coffee environment is rapidly evolving as a result of, among other things, changes in consumer preferences; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, the beverage retail landscape is very dynamic and constantly evolving, not only in emerging and developing marketplaces, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed marketplaces, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace. If we are unable to successfully adapt to the rapidly changing environment and retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.

 
13

 
 
Consolidation in the retail channel or the loss of key retail or grocery customers could adversely affect our financial performance.
 
Our industry is being affected by the trend toward consolidation in the retail channel. Larger retailers may seek lower prices from us and may demand increased marketing or promotional expenditures, any of which could negatively affect the Company's profitability. In addition, our success depends in part on our ability to maintain good relationships with key retail and grocery customers. The loss of one or more of our key customers could have an adverse effect on our financial performance.
 
In addition, because of the competitive environment facing retailers, many of our customers have increasingly sought to improve their profitability through increased promotional programs, pricing concessions, more favorable trade terms and increased emphasis on private label products. To the extent we provide concessions or trade terms that are favorable to customers, our margins would be reduced. Further, if we are unable to continue to offer terms that are acceptable to our significant customers or our customers determine that they need fewer inventories to service consumers; these customers could reduce purchases of our products or may increase purchases of products from our competitors, which would harm our sales and profitability.
 
Climate change may have a long-term adverse impact on our business and results of operations.
 
There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit availability or increase the cost of key agricultural commodities, such as coffee and tea, which are important sources of ingredients for our products, and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products. As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.
 
We cannot predict the impact that the following may have on our business: (i) new or improved technologies, (ii) alternative methods of delivery, or (iii) changes in consumer behavior facilitated by these technologies and alternative methods of delivery.

Advances in technologies or alternative methods of delivery, including advances in vending machine technology and home coffee makers, or certain changes in consumer behavior driven by these or other technologies and methods of delivery could have a negative effect on our business. Moreover, technology and consumer offerings continue to develop, and we expect that new or enhanced technologies and consumer offerings will be available in the future. We may pursue certain of those technologies and consumer offerings if we believe they offer a sustainable customer proposition and can be successfully integrated into our business model. However, we cannot predict consumer acceptance of these delivery channels or their impact on our business. In addition, our competitors, many of whom have greater resources than us, may be able to benefit from changes in technologies or consumer acceptance of alternative methods of delivery, which could harm our competitive position. There can be no assurance that we will be able to successfully respond to changing consumer preferences, including with respect to new technologies and alternative methods of delivery, or to effectively adjust our product mix, service offerings, and marketing and merchandising initiatives for products and services that address, and anticipate advances in, technology and market trends. If we are not able to successfully respond to these challenges, our business, financial condition, and operating results could be harmed.

 
14

 


Adverse public or medical opinion about caffeine may harm our business .
 
Our coffee contains significant amounts of caffeine and other active compounds, the health effects of some of which are not fully understood. A number of research studies conclude or suggest that excessive consumption of caffeine may lead to increased heart rate, nausea and vomiting, restlessness and anxiety, depression, headaches, tremors, sleeplessness and other adverse health effects. An unfavorable report on the health effects of caffeine or other compounds present in coffee could significantly reduce the demand for coffee, which could harm our business and reduce our sales and profits. Also, we could become subject to litigation relating to the existence of such compounds in our coffee; any such litigation could be costly and could divert management attention.
 
Adverse publicity regarding product quality or food and beverage safety, whether or not accurate, may harm our business .
 
We may be the subject of complaints or litigation from customers alleging beverage and food-related illnesses or other quality, health or operational concerns. Adverse publicity resulting from such allegations may materially adversely affect us, regardless of whether such allegations are true or whether we are ultimately held liable. In addition, any litigation relating to such allegations could be costly and could divert management attention.
 
We face a risk of a change in control due to the fact that our current officers and directors do not own a majority of our outstanding voting stock.
 
Our current officers and our directors do not hold voting control over the Company. As a result, our shareholders who are not officers and directors of us may be able to obtain a sufficient number of votes to choose who serves on our Board of Directors and/or to remove our current directors from the Board of Directors. Because of this, the current composition of our Board of Directors may change in the future, which could in turn have an effect on those individuals who currently serve in management positions with us. If that were to happen, our new management could affect a change in our business focus and/or curtail or abandon our business operations, which in turn could cause the value of our securities, if any, to decline or become worthless.
 
Failure to comply with applicable laws and regulations could harm our business and financial results.

Our policies and procedures are designed to comply with all applicable laws, accounting and reporting requirements, tax rules and other regulations and requirements, including those imposed by the SEC, as well as applicable trade, labor, healthcare, privacy, food, anti-bribery and corruption and merchandise laws. The complexity of the regulatory environment in which we operate and the related cost of compliance are both increasing due to additional or changing legal and regulatory requirements, our ongoing expansion into new markets and new channels, together with the fact that foreign laws occasionally conflict with domestic laws. In addition to potential damage to our reputation and brand, failure to comply with the various laws and regulations as well as changes in laws and regulations or the manner in which they are interpreted or applied, may result in civil and criminal liability, damages, fines and penalties, increased cost of regulatory compliance and restatements of our financial statements. Future laws or regulations (or the cost of complying with such laws, regulations or requirements) could also adversely affect our business and results of operations.

Adverse changes in global and domestic economic conditions or a worsening of the United States economy could materially adversely affect us.

Our sales and performance depend significantly on consumer confidence and discretionary spending, which are still under pressure from United States and global economic conditions.  A worsening of the economic downturn and decrease in consumer spending may adversely impact our sales, ability to market our products, build customer loyalty, or otherwise implement our business strategy and further diversify the geographical concentration of our operations.  For example, we are highly dependent on consumer demand for specialty coffee and a shift in consumer demand away from specialty coffee due to economic or other consumer preferences would harm our business.  

 
15

 


We believe that our future success will depend in part on our ability to obtain and maintain protection of our intellectual property and brand names.
 
Our success will depend in part on our ability to maintain and enforce the Trademarks we license through the FSHR License Agreement (described above) and additional trademarks and service marks we may obtain in the future (together with the Trademarks, the “ Marks ”) registered by the Company. In the future, competitors or other third parties could claim that the Marks infringe on their rights, which could force us to defend infringement actions or challenge the validity of the third parties’ trademarks in court. Furthermore, we may have to take action, file lawsuits and expend significant resources in the future to protect the Marks and stop other parties from infringing on the use of such Marks and we cannot assure you that we will have sufficient resources to pursue such litigation or actions. Any expenses we are forced to expend in defending our Marks or stopping third parties from infringing on such Marks will decrease the amount of working capital we have available for our business activities and could cause us to curtail or abandon our operations.

We may incur additional indebtedness which could reduce our financial flexibility, increase interest expense and adversely impact our operations.
 
In the future, we may incur significant amounts of additional indebtedness in order to make acquisitions or continue our business plan.  Our level of indebtedness could affect our operations in several ways, including the following:
 
●  
a significant portion of our cash flows could be used to service our indebtedness;
 
●  
a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
 
●  
any covenants contained in the agreements governing our outstanding indebtedness could limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments;
 
●  
a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness may prevent us from pursuing; and
 
●  
debt covenants to which we may agree may affect our flexibility in planning for, and reacting to, changes in the economy and in our industry.
 
A high level of indebtedness increases the risk that we may default on our debt obligations.  We may not be able to generate sufficient cash flows to pay the principal or interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt.  If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.
 
There is currently a volatile, sporadic and illiquid market for our common stock.
 
Our securities are currently quoted on the OTCQB under the symbol “ JAMN, ” however, we currently have a volatile, sporadic and illiquid market for our common stock, which is subject to wide fluctuations in response to several factors, including, but not limited to:
 
 
actual or anticipated variations in our results of operations;
 
our ability or inability to generate new revenues;
 
increased competition; and
 
conditions and trends in the market for coffee and coffee related products.

 
16

 


Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price and liquidity of our common stock.
 
Investors may face significant restrictions on the resale of our common stock due to federal regulations of “ penny stocks.
 
We are subject to the requirements of Rule 15(g)9, promulgated under the Exchange Act, as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the SEC defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and NYSE MKT Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
 
Because our Directors are not independent directors, we do not currently have independent audit or compensation committees. As a result, our Directors have the ability to, among other things, determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors may be reluctant to provide us with funds necessary to expand our operations.
 
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, Directors and members of board committees required to provide for our effective management as a result of the Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of Directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.

 
17

 


We have reported several material weaknesses in the effectiveness of our internal controls over financial reporting, and if we cannot maintain effective internal controls or provide reliable financial and other information, investors may lose confidence in our SEC reports.

We reported material weaknesses in the effectiveness of our internal controls over financial reporting related to the lack of segregation of duties and the need for a stronger internal control environment. In addition, we concluded that our disclosure controls and procedures were ineffective and that material weaknesses existed in connection with such internal controls. Specifically, management identified the following control deficiencies that represent material weaknesses at January 31, 2014:
 
 
(1)
lack of a functioning audit committee and lack of a majority of outside directors on the Company's Board of Directors capable to oversee the audit function;

 
(2)
inadequate segregation of duties due to limited number of personnel, which makes the reporting process susceptible to management override;

 
(3)
insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements;

 
(4)
ineffective controls over period end financial disclosure and reporting processes; and

 
(5)
ineffective controls over the recordation of certain revenue transactions.
 
Internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles, or GAAP. Disclosure controls generally include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial and other reports and effectively prevent fraud. If we cannot maintain effective internal controls or provide reliable financial or SEC reports or prevent fraud, investors may lose confidence in our SEC reports, our operating results and the trading price of our common stock could suffer and we might become subject to litigation.

Because we are a small company, the requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
 
As a public company with listed equity securities, we must comply with the federal securities laws, rules and regulations, including certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act and the Dodd-Frank Act, related rules and regulations of the SEC, with which a private company is not required to comply. Complying with these laws, rules and regulations will occupy a significant amount of time of our sole director and management and will significantly increase our costs and expenses, which we cannot estimate accurately at this time. Among other things, we must:

 
establish and maintain a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 
prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws;

 
maintain various internal compliance and disclosures policies, such as those relating to disclosure controls and procedures and insider trading in our common stock;

 
involve and retain to a greater degree outside counsel and accountants in the above activities;

 
maintain a comprehensive internal audit function; and

 
maintain an investor relations function.

 
18

 


In addition, being a public company subject to these rules and regulations may require us to accept less director and officer liability insurance coverage than we desire or to incur substantial costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS.
 
None.
 
ITEM 2. PROPERTIES.
 
On June 25, 2013, and effective August 1, 2013, we entered into a lease agreement for office space located at 4730 Tejon Street, Denver, Colorado 80211.  The office space encompasses approximately 4,800 square feet.  The lease has a term of 36 months expiring on July 31, 2016, provided that we have two additional three year options to renew the lease after the end of the initial term.  Rent during the first three year option period escalates at the rate of 4% per year (starting with the last monthly rental cost of the initial term of the agreement, described below), and rent during the second three year option period will be at a rental cost mutually agreed by the Company and the landlord.  Rent due under the initial term of the agreement is as follows:

·
$7,858 per month from August 1, 2013 to July 31, 2014;
·
$8,172 per month from August 1, 2014 to July 31, 2015; and
·
$8,499 per month from August 1, 2015 to July 31, 2016.

Effective August 1, 2013, in connection with our entry into the office space lease described above, we moved our principal place of business to Denver, Colorado.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.
 
ITEM 4. MINE SAFETY DISCLOSURES.
 
Not applicable.  

 
19

 


PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
Market Information and Holders

Our common stock has been quoted on the OTCQB market under the symbol “ JAMN ” since July 23, 2012, when our common stock was delisted from the Over-The-Counter Bulletin Board (the “ OTCBB ”) due to the fact that no market maker quoted our common stock on the OTCBB for a period of four or more days.  

The following table sets forth the high and low trading prices of one (1) share of our common stock for each fiscal quarter over the past two fiscal years. The quotations provided are for the over the counter market, which reflect interdealer prices without retail mark-up, mark-down or commissions, and may not represent actual transactions. Our common stock trades on a limited, sporadic and volatile basis.
  
   
PRICE RANGES
 
QUARTER ENDED
 
HIGH
   
LOW
 
 Fiscal Year Ended January 31, 2014
               
       January 31, 2014
 
$
0.50
   
$
0.26
 
       October 31, 2013
 
$
0.50
   
$
0.35
 
       July 31, 2013
 
$
0.65
   
$
0.22
 
      April 30, 2013
 
$
0.44
   
$
0.22
 
                 
Fiscal Year Ended January 31, 2013
               
January 31, 2013
 
$
0.58
   
$
0.08
 
October 31, 2012
 
$
0.18
   
$
0.13
 
July 31, 2012
 
$
0.28
   
$
0.14
 
April 30, 2012
 
$
0.35
   
$
0.24
 
 
Approximate Number of Equity Security Holders
 
As of April 30, 2014, there were 24 shareholders of record of the common stock. This number does not include stockholders for whom shares were held in “ nominee ” or “ street name ”.
 
Because the Company did not comply with certain Canadian securities filings requirements, the Company’s common stock is not eligible to be traded in British Columbia and is subject to a Cease Trade Order. At this stage in the Company’s development, the Company has determined to invest its resources in other aspects of its business rather than incurring the significant expense to regain compliance with the British Columbia Securities Commission requirements.
 
Dividends
 
We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any dividends on our common stock in the foreseeable future.  We intend to retain all earnings, if any, for the foreseeable future for use in the operation of our business and to fund future growth of our business.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
The following table sets forth information, as of January 31, 2014, with respect to our compensation plans under which common stock is authorized for issuance. We grant options to officers, directors, employees and consultants under our Equity Compensation Plan. We believe that the exercise price for all of the options set forth below reflects at least 100% of the fair market value on the dates of grant for the options at issue.

 
20

 


Equity Compensation Plan Information
 
Plan Category
 
Number of securities to be 
issued upon exercise of 
outstanding options, 
warrants and rights 
 
(A)
   
Weighted-average 
exercise price of 
outstanding options, 
warrants and rights 
 
(B)
   
Number of securities 
available for future 
issuance under equity 
compensation plans 
(excluding securities 
reflected in column A) 
 
(C)
 
                   
Equity compensation plans approved by shareholders
   
-
   
$
-
     
-
 
                         
Equity compensation plans not approved by shareholders
   
17,160,000
     
0.35
     
20,756,465
 
                         
Total
   
17,160,000
   
$
0.35
     
20,756,465
 
  
2011 Equity Compensation Plan
 
On August 5, 2011, the Board of Directors approved the Company’s 2011 Equity Compensation Plan (the “ 2011 Plan ”). The 2011 Plan authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, performance shares and other securities as described in greater detail in the 2011 Plan, to the Company’s employees, officers, directors and consultants. A total of 20,000,000 shares are authorized for issuance under the 2011 Plan, which has not been approved by the shareholders of the Company to date, and as of the filing of this report, a total of 16,333,333 shares are available for issuance under the 2011 Plan.

2012 Equity Incentive Plan

On October 14, 2012, the Board of Directors approved the Company’s 2012 Equity Incentive Plan, which was amended and restated on September 19, 2013 (as amended and restated, the “ 2012 Plan ”). The 2012 Plan authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, restricted units, stock appreciation rights, performance shares and other securities as described in greater detail in the 2012 Plan, to the Company’s employees, officers, directors and consultants. A total of 12,000,000 shares are authorized for issuance under the 2012 Plan, which has not been approved by the shareholders of the Company to date, and as of the filing of this report, a total of 1,526,133 shares are available for issuance under the 2012 Plan.

2013 Equity Incentive Plan

On September 10, 2013, the Board of Directors approved the Company’s 2013 Equity Incentive Plan (the “ 2013 Plan ”). The 2013 Plan authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, restricted units, stock appreciation rights, performance shares and other securities as described in greater detail in the 2013 Plan, to the Company’s employees, officers, directors and consultants. A total of 12,000,000 shares are authorized for issuance under the 2013 Plan, which has not been approved by the shareholders of the Company to date, and as of the filing of this report, a total of 4,140,000 shares are available for issuance under the 2013 Plan.

 
21

 


Recent Sales of Unregistered Securities

As described in greater detail below under “ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ” – “ Liquidity and Capital Resources ” – “ Funding and Financing Agreements ” – “ Ironridge Transaction ”, in March 2013, May 2013 and July 2013, we issued 7,000,000, 5,000,000 and 5,000,000 shares of common stock, respectively, to Ironridge in connection with certain transactions, which are subject to adjustment as discussed above.  In July 2013, in connection with the true up associated with the March 2013 Ironridge transaction and pursuant to the terms of the March 2013 Stipulation, Ironridge returned 1,646,488 shares of the Company’s common stock to the Company for cancellation, which shares were cancelled by the Company in July 2013.  In November 2013 we issued Ironridge an additional 4,524,079 shares of common stock, representing 671,841 additional shares pursuant to the May 2013 Order and Stipulation and 3,852,238 additional shares pursuant to the July 2013 Order and Stipulation. In February 2014, we issued Ironridge an additional 3,366,316 shares of common stock pursuant to the July 2013 Order and Stipulation.
 
The Company claims an exemption from registration provided by Section 3(a)(10) of the Securities Act, for the issuance of the shares of the Company’s common stock issued to Ironridge, as the issuances of securities were in exchange for bona fide outstanding claims, where the terms and conditions of such issuance were approved by a court after a hearing upon the fairness of such terms and conditions. 

As described above under “ Item 1. Business ” – “ Current Business Operations ” - “ Recent Transactions ”, we entered into an Asset Purchase Agreement with BikeCaffe Franchising on December 4, 2013 and purchased all of that company’s assets 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). 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.  As partial consideration we agreed to pay the Supplier $115,000, 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 had a closing price of $0.40 per share), which totals 287,500 shares of common stock.

Effective in August 2013, the Company entered into and affected the transactions contemplated by an Asset Purchase Agreement with Black Rock Beverage Services, LLC (“ BRB ”).  Pursuant to the agreement, the Company acquired substantially all of the assets of BRB in consideration for $10,000 in cash and 158,040 shares of the Company’s restricted common stock (which were physically issued in February 2014), valued at $71,118.
 
As described in greater detail above under “ Liquidity and Capital Resources ” - “ Funding and Financing Agreements ” - “ Mother Parker’s Investment ”, on April 24, 2014, the Company entered into a Subscription Agreement with Mother Parkers Tea & Coffee Inc. (“ Mother Parkers ” and the “ Subscription ”).  Pursuant to the Subscription, Mother Parkers purchased 7,333,529 units from the Company, each consisting of (a) one share of the Company’s common stock, $0.001 par value per share (the “ Shares ”); and (b) one (1) warrant to purchase one share of the Company’s common stock (the “ Warrants ” and collectively with the Shares, the “ Units ”) at a price per Unit equal to the fifty day weighted-average price per share of the Company’s common stock on the OTCQB market, for the fifty trading days ending March 7, 2014 (the date the parties first discussed the transactions contemplated by the Subscription), which was $0.3409 (the “Per Unit Price”). The total purchase price paid for the Units was $2,500,000.  The Warrants have an exercise price equal to 150% of the Per Unit Price ($0.51135 per share), a term of three years and prohibit Mother Parkers from exercising such Warrants to the extent such exercise would result in the beneficial ownership of more than 9.99% of the Company’s common stock, subject to Mother Parkers’ right to waive such limitation with 61 days prior written notice.
 
The issuances described above were exempt from registration pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act since the foregoing issuances did not involve a public offering, the recipients took the securities for investment and not resale, we took appropriate measures to restrict transfer, and the recipients were (a) “ accredited investors ”; and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Act. None of these securities may be re-offered or resold absent either registration under the Act or the availability of an exemption from the registration requirement.

Use of Proceeds From Sale of Registered Securities
 
None.

Issuer Purchases of Equity Securities
 
None.

 
22

 


ITEM 6. SELECTED FINANCIAL DATA.
 
Not applicable.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Overview

You should read the following discussion and analysis in conjunction with our Consolidated Financial Statement and related Notes thereto included in Part II, Item 8 of this Report and the “ Risk Factors ” included in Part I, Item IA of this Report, before deciding to purchase, hold or sell our common stock.
 
We provide 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. Through a licensing agreement with Fifty-Six Hope Road (described above under “ Item 1. Business ” – “ Current Business Operations ”), the Company has the worldwide right to use, and sublicense, the intellectual property rights in and to the late reggae performer, Robert Nesta Marley, professionally known as Bob Marley, including “ Marley Coffee ”, 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 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.

Additionally, through fiscal 2014, we affected the transactions with Ironridge, described in greater detail below under “ Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ” – “ Liquidity and Capital Resources ” – “ Funding and Financing Agreements ” – “ Ironridge Transaction ”, pursuant to which a total of $4,795,802 in accounts payable and accrued expenses owed by us to various parties, which was purchased by Ironridge was satisfied by the issuance of shares of our common stock as provided above, came off our balance sheet and significantly improved our liquidity.

Throughout fiscal 2014 and 2013, 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 plans to continue in fiscal 2015.  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

Comparison of the Years Ended January 31, 2014 and 2013

Sales Revenue.  Sales revenues for the years ended January 31, 2014 and 2013 were $6,077,956 and $1,820,945, respectively, which represents an increase of $4,257,011 or 234% from the prior year. Net revenue was $5,644,211 and $1,816,432 for the years ended January 31, 2014 and 2013, after deducting discounts and allowances of $433,745 and $4,513, respectively. 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 January 31, 2013 to January 31, 2014.

 
23

 


Cost of Sales . Cost of sales for the years ended January 31, 2014 and 2013 were $4,940,546 and $1,434,218, respectively, which represents an increase of $3,506,328 or 244% from the prior year, which was mostly attributed to increased sales, especially of items with larger profit margins.

Gross Profit.   We had a gross profit of $703,665 for the year ended January 31, 2014, compared to a gross profit of $382,214 for the year ended January 31, 2013. Gross profit as a percentage of gross sales was 10% for the year ended January 31, 2014 and 21% for the year ended January 31, 2013.  Gross profit increased due to an increase in overall sales.  Gross profit as a percentage of sales decreased due to expansion into new markets with lower initial margins on sales.
 
Compensation and Benefit Expenses.  Compensation and benefits for the years ended January 31, 2014 and 2013, were $2,298,951 and $2,437,786, respectively, which represents a decrease of $138,835 or 6%. The decrease was a result of stock compensation expenses and executive officer payroll.
 
Selling and Marketing Expenses . Selling and marketing expenses for the years ended January 31, 2014 and 2013, were $182,251 and $262,230, respectively, which represents a decrease of $79,979 or 30% from the prior year. 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 years ended January 31, 2014 and 2013, were $2,762,485 and $1,463,511, respectively, which represents an increase of $1,298,974 or 89% from the prior year. 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, in addition to relocation of the Company’s headquarters from California to Colorado. 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 $2,164,008 for the year ended January 31, 2014, compared to $200,640 of total other expense for the year ended January 31, 2013, an increase of $1,963,368 from the prior year.  Total other expense for the year ended January 31, 2014 was mainly in connection with the Ironridge transactions that caused a $2,130,993 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) and the gain on derivatives pertaining to TCA Global Credit Master Fund, LP (“ TCA ”). Also included in total other expense was interest expense of $108,424 for the year ended January 31, 2014, compared to interest expense of $150,180 for the year ended January 31, 2013.  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, 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 Liquidity and Capital Resources ” – “ Funding and Financing Agreements ” – “ Ironridge Transaction , 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 $6,704,030 and $4,017,953 for the years ended January 31, 2014 and 2013, respectively, an increase of $2,686,077 or 67% from the prior year. The principal reason for the increase in net loss was the $1,963,368 increase in total other expenses, mainly due to the extinguishment of liabilities in connection with the Ironridge Transactions and the $1,044,160 increase in total operating expenses, offset by the $321,451 increase in gross profit. Non-cash payments of common stock included in net loss for the year ended January 31, 2014 and 2013 were $2,110,826 and $2,375,156, respectively.

 
24

 
LIQUIDITY AND CAPITAL RESOURCES
 
Since our inception, we have financed our operations primarily through the issuance of our common stock.
 
The following table presents details of our working capital and cash and cash equivalents:

   
January 31, 2014
   
January 31, 2013
   
Increase / (Decrease)
 
Working Capital
 
$
1,606,350
   
$
(667,292) 
   
$
2,273,642
 
Cash
 
$
857,122
   
$
   
$
857,122
 

At January 31, 2014, we had total assets of $4,754,667 and total liabilities of $1,899,719. Our current sources of liquidity include our existing cash and cash equivalents and cash from operations and funds raised through the sale of common stock and warrants in private placements (as described in greater detail below). For the year ended January 31, 2014, although we generated sales of $6,077,956 and we had a net loss of $6,704,030. Included in this loss were non-cash payments of common stock totaling $2,110,827.

Total current assets of $3,506,069 as of January 31, 2014 included cash of $857,122, accounts receivable of $1,085,947, notes receivable – related party of $2,724, and inventory of $354,932, prepaid expenses of $1,163,914, and other current assets of $41,430.

We had total assets as of January 31, 2014 of $4,754,667 which included the total current assets of $3,506,069, $440,194 of property and equipment, net, $657,001 of license agreement, representing the value of the FSHR License Agreement, $47,525 of intangible assets, $15,716 of other assets and $88,162 of goodwill.

We had total liabilities of $1,899,719 as of January 31, 2014, which were solely current liabilities and included $1,181,510 of accounts payable, $219,799 of accrued royalty and other expenses - related party, in connection with amounts owed under the FSHR License Agreement, $369,589 of common shares due to Ironridge in connection with the transactions described below, $123,856 of accrued expenses, and $4,965 of note payable.

As of the filing of this report, we believe that our cash position, the funds raised through our ongoing offering, and the revenues we generate will be sufficient to meet our working capital needs for approximately the next twenty-four months based on the pace of our planned activities.
 
In fiscal 2014, we established a national grocery distribution network, increased our brand awareness and strengthened our international presence.  Last year we focused on expansion and this upcoming year we are prepared to build on that platform with organic growth. Over the course of the last year, we gained distribution in over 5,000 stores in North America and have authorization in approximately 10,000 stores.  We’ve also established distribution in two of the largest chains in the country, Safeway and Kroger.

The past year was a “developmental year” in the retail grocery space for us.  Through fiscal 2015, while we will still look to gain additional distribution, we are not pursuing it at the same pace we did during the past 18 months. We have four primary strategies for the remainder of fiscal 2015:

1)  
Increase our turn rate (velocity) within existing distribution while strategically looking for new stores to expand into.
2)  
Focus on building brand awareness to drive that growth.
3)  
Capitalize on our relationship with Mother-Parkers, both from a revenue and innovations perspective.
4)  
Continue building our ancillary businesses such as our international distribution and Office Coffee Service (OCS) program locally.

In the fourth fiscal quarter of 2014 and first fiscal quarter of 2015, we established an annual promotional calendar for our retailers and distributors.  Promotions range from discounts at store level to in-store tastings.  To date, promotions and trial programs, especially at some of our larger accounts such as Kroger, Safeway and HEB, are increasing product velocity.  Additionally we are constantly evaluating cost effective tools to generate brand awareness and trials outside of the retail environment.  We plan to continue driving these efforts with the goal of seeing revenues from organic growth increase quarter-to-quarter through fiscal 2015.

 
25

 
We are excited about our other business lines as well. Our away from home business has been growing, especially in the Denver, Colorado area.  Its growth helps feed our grocery retail business at a minor cost.  Our international growth is picking up pace as well.  Europe is growing, as has our commitment to foster the region.  Chile and South America still remain one of the most exciting markets for us as our distributors and partners in that region have done a phenomenal job marketing and growing the brand.

Gross margins were very tight in fiscal 2014 as significant discounts and deductions were given to gain distribution and market penetration.  As these accounts mature, we expect our gross margins to return to prior levels in fiscal 2015.

One of our main concerns for fiscal 2015 is a shortage in Jamaican Blue Mountain (JBM) beans and products.  Hurricane Sandy and coffee leaf rust has impacted the production output of JBM by about 40 percent for 2014.  Jamaica and the industry expect a slow recovery in 2015 and to be back in full production by 2016.  We are diligently working to secure more JBM as the market we created for it continues to expand.  Limited JBM supply hampered our growth in fiscal 2014.  We are currently working to address the supply issues and while we believe we will be in a far better position in Fiscal 2015 with respect to JBM availability, if we are unable to purchase a sufficient quantity of high-quality coffee beans, we may not be able to fulfill demand for our coffee, our revenue may decrease and our ability to expand our business may be negatively impacted.
 
We have not yet generated net income through the sale of our products and make no assurances that net income will be generated in the future.  We will remain flexible in the implementation of our business strategy and will revise downward our funding requirements and further reduce our selling and marketing and our general and administrative expenses to a level that is in line with our financial means but consistent with our vision.
 
In March, May and July 2013, we affected the transactions with Ironridge, described in greater detail below, pursuant to which an aggregate of $4,795,802 in accounts payable and accrued expenses owed by us to various parties, which was purchased by Ironridge, was satisfied by the issuance of shares of our common stock, came off our balance sheet and significantly improve our liquidity.  The Ironridge transactions helped fuel our significant growth for fiscal 2014; however, we have no intentions, nor do we anticipate doing another transaction in the same format as we did with Ironridge in the foreseeable future.
 
From time to time, we may attempt to raise capital through either equity or debt offerings.  In July and August 2013, we raised $246,000 through the sale of units, described in greater detail below. Our capital requirements will depend on many factors, including, among other things, the rate at which our business grows, with corresponding demands for working capital and expansion capacity. We could be required, or may elect, to seek additional funding through public or private equity, debt financing or bank financing. However, a credit facility, or additional funds through public or private equity or other debt financing, may not be available on terms acceptable to us or at all, or that any such financing activity would not be dilutive to our stockholders. Without additional funds and/or increased revenues, we may not be able to expand our business as planned.

Our ability to meet our obligations in the ordinary course of business is dependent upon our ability to sell our products directly to end-users and through distributors, establish profitable operations through increased sales and decreased expenses and obtain additional funds when needed.

 
26

 
 
There can be no assurance that we will be able to increase sales, reduce expenses or obtain additional financing, if necessary, at a level to meet our current obligations. As a result, the opinion we have received from our independent registered public accounting firm on our January 31, 2014 financial statements contains an explanatory paragraph stating that there is a substantial doubt regarding our ability to continue as a going concern.

Cash Flows
   
Year Ended January 31
 
   
2014
   
2013
 
Net cash provided by (used in) operating activities
 
$
1,341,814
   
$
(968,920)
 
Net cash provided by (used in) investing activities
 
$
(430,128)
   
$
(81,512)
 
Net cash (used in) provided by financing activities
 
$
(54,564)
   
$
214,554
 
 
Operating Activities
 
Compared to the corresponding period in 2013, net cash provided by operating activities increased by $2,310,734 for the year ended January 31, 2014. The increase was primarily due to $5,562,906 of decrease in accounts payable, $1,344,202 of common stock issued for services, $1,161,424 of share based employee compensation and $2,130,993 of loss on extinguishment of debt, offset by $670,226 of increase in accounts receivable, $279,276 of increase in inventory, $394,799 of common stock issued to Ironridge for debt extinguishment and $6,704,030 of net loss.
 
Investing Activities
 
Compared to the corresponding period in fiscal 2013, net cash used by investing activities increased by approximately $348,616 due primarily to purchases of property and equipment in connection with the BRB and BikeCaffe Franchising acquisitions described in greater detail above under “ Item 1. Business ” – “ Current Business Operations ” – “ Recent Transactions ”.

Financing Activities
 
Compared to the corresponding period in fiscal 2013, net cash used in financing activities increased by approximately $269,118 for the year ended January 31, 2014 primarily because of the repayment of promissory notes offset by the sale of common stock.

From time to time, we may attempt to raise capital through either equity or debt offerings. Our capital requirements will depend on many factors, including, among other things, the rate at which our business grows, with corresponding demands for working capital and expansion capacity. We could be required, or may elect, to seek additional funding through public or private equity, debt financing or bank financing.

Funding and Financing Agreements

Ironridge Transactions

On March 6, 2013, May 24, 2013 and July 26, 2013, pursuant to three separate orders setting forth stipulated settlements (the “ Orders ” and the “ Stipulations ”) issued by the Superior Court of the State of California for the County of Los Angeles – Central District (the “ Court ”), Ironridge Global IV, Ltd. (“ Ironridge ”), who had previously purchased a total of $1,017,744, $1,278,058 and $2,499,372, respectively, in accounts payable and accrued expenses (each, the “ Claim ”) owed by us to various parties, was issued shares of our common stock (each the “ Initial Issuance ”) in satisfaction of such accounts payable and accrued expenses, which amounts came off our balance sheet and significantly improved our liquidity. The accounts payable and accrued expenses represented amounts originally owed by us to various creditors in connection with trade payables, the purchase of property and equipment, prior credit agreements, and attorneys’ fees.  The shares issued in the Initial Issuances, totaling 7,000,000, 5,000,000 and 5,000,000 shares, respectively, are subject to adjustment based on the closing prices of our common stock during certain calculation periods (as described in greater detail in the Current Reports on Form 8-K filed with the Securities and Exchange Commission on March 8, 2013, May 15, 2013 and July 30, 2013, respectively and Note 15 to the financial statements included in this report).  In July 2013, in connection with the true up associated with the March 2013 Ironridge transaction and pursuant to the terms of the March 2013 Stipulation, Ironridge returned 1,646,488 shares of the Company’s common stock to the Company for cancellation, which shares were cancelled in July 2013. In November 2013 we issued Ironridge an additional 4,524,079 shares of common stock, representing 671,841 additional shares pursuant to a true up in connection with the May 2013 Order and Stipulation and 3,852,238 additional shares pursuant to the July 2013 Order and Stipulation. In February 2014, we issued Ironridge an additional 3,366,316 shares of common stock pursuant to the July 2013 Order and Stipulation.  The settlement of payables for common shares has been recorded as extinguishments.

 
27

 


Additionally, as a result of each Stipulation, we agreed that at no time shall shares of common stock be issued to Ironridge and its affiliates which would result in them owning or controlling more than 9.99% of the Company’s outstanding common stock.  We also agreed pursuant to each Stipulation that (a) until at least one half of the total trading volume for each respective calculation period has traded, we would not, directly or indirectly, enter into or effect any split or reverse split of our common stock; (b) until at least thirty days from the date each Order was approved, we would not, directly or indirectly, issue any securities pursuant to a Form S-8 registration statement; and (c) until at least six months from the date each Order was approved, we would not, directly or indirectly, issue or sell any free trading securities for financing purposes; provided that in lieu of covenant (c) above, for the July 2013 Stipulation, we instead agreed that until at least 180 days after the end of the applicable calculation period, (a) we would not issue, sell or agree to issue or sell any securities to any person other than Ironridge or its affiliates, except for: (A) common stock, options or warrants to employees, officers, consultants or directors pursuant to Employee Stock Ownership Plans, or (B) restricted common stock, in transactions with strategic industry, business or operating partners that provide benefits other than the investment of funds, issued at a fixed price not subject to any adjustment, reset or variable element of any kind.

The result of the Orders and Stipulations is that a total of $4,795,802 in accounts payable and accrued expenses owed by us to various parties, which was purchased by Ironridge was satisfied by the issuance of shares of our common stock as provided above, came off our balance sheet and significantly improved our liquidity.  At January 31, 2014, this method of funding is no longer used and remains open subject to final settlement.

Private Placement

In July and August 2013, the Company undertook a private offering of units to accredited investors, each consisting of one share of common stock and ½ of one warrant to purchase one share of common stock, which units have a sales price equal to a 20% discount to the closing price of the Company’s common stock on the date of each investor’s subscription and which warrants have an exercise price equal to 150% of the closing price on the date of each investor’s subscription.  The Company sold an aggregate of 647,137 units to four accredited investors at prices between $0.35 and $0.392 per unit and raised proceeds of $246,000 from such sales.  An aggregate of 647,137 shares and warrants to purchase an aggregate of 323,570 shares of the Company’s common stock were sold in the offering, which warrants are evidenced by Common Stock Purchase Warrants, have exercise prices from between $0.66 and $0.74 per share, a term of one year, and prohibit the holders thereof from exercising such warrants to the extent such exercise would result in the beneficial ownership of more than 4.99% of the Company’s common stock, subject to the holders’ right to waive such limitation with 61 days prior written notice.

Mother Parker’s Investment

On April 24, 2014, the Company entered into a Subscription Agreement with Mother Parkers Tea & Coffee Inc. (“ Mother Parkers ” and the “ Subscription ”).  Pursuant to the Subscription, Mother Parkers purchased 7,333,529 units from the Company, each consisting of (a) one share of the Company’s common stock, $0.001 par value per share (the “ Shares ”); and (b) one (1) warrant to purchase one share of the Company’s common stock (the “ Warrants ” and collectively with the Shares, the “ Units ”) at a price per Unit equal to the fifty day weighted-average price per share of the Company’s common stock on the OTCQB market, for the fifty trading days ending March 7, 2014 (the date the parties first discussed the transactions contemplated by the Subscription), which was $0.3409 (the “ Per Unit Price ”). The total purchase price paid for the Units was $2,500,000.

Pursuant to the Subscription, we provided Mother Parkers a right of first refusal for a period of two (2) years following the Subscription, to purchase up to 10% of any securities (common stock, options or warrants exercisable for common stock) we propose to offer and sell in a public or private equity offering (the “ ROFO Securities ”), exercisable for 48 hours from the time we provide Mother Parkers notice of such proposed sale of ROFO Securities (subject where applicable to Mother Parkers meeting any prerequisites to participation in the offering). The right of first refusal does not apply to the issuance of (a) shares of common stock or options to employees, officers, directors or consultants of the Company in consideration for services, (b) securities exercisable or exchangeable for or convertible into shares of common stock issued and outstanding on the date of the Subscription, (c) securities issued pursuant to acquisitions or strategic transactions approved by the directors of the Company, provided that any such issuance shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital, and (d) any debt securities (other than any debt securities exchangeable for or convertible into shares of common stock) . The right of first refusal is not assignable and expires upon the first to occur of two (2) years following the date of the Subscription and the date Mother Parkers enters into or takes certain bankruptcy related actions.

 
28

 


The Warrants have an exercise price equal to 150% of the Per Unit Price ($0.51135 per share), a term of three years and prohibit Mother Parkers from exercising such Warrants to the extent such exercise would result in the beneficial ownership of more than 9.99% of the Company’s common stock, subject to Mother Parkers’ right to waive such limitation with 61 days prior written notice.

Off-Balance Sheet Arrangements
 
As part of our on-going business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“ SPEs ”), which would have been established for the purpose of facilitating off-balance sheet arrangement or other contractually narrow or limited purposes. As of January 31, 2014, we are not involved in any material unconsolidated SPEs.

Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our financial statements.
 
Stock-Based Compensation.   On January 1, 2006, we adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718 which establishes accounting for equity instruments exchanged for employee service. We utilize the Black-Scholes option pricing model to estimate the fair value of employee stock based compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.

We estimated volatility by considering historical stock volatility. We have opted to use the simplified method for estimating the expected term of stock options equal to the midpoint between the vesting period and the contractual term.
 
Revenue Recognition.   All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and ability to collect is reasonably assured. Revenue is derived from the sale of coffee products and is recognized on a gross basis upon shipment. The Company utilizes a third party for the production and fulfillment of orders placed by customers. Customers order directly from the Company and accordingly, the Company acts as a principal, takes title to the products, and has the risks and rewards of ownership, such as the risk of loss for collection, delivery and returns.
 
Impairment of Long-Lived Assets . Long-lived assets consist of a license agreement that was recorded at the estimated cost to acquire the asset (See Note 4 to the financial statements included in this report). The license agreement is reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Management evaluated the carrying value of the license and determined that no impairment existed at January 31, 2014 or 2013.

 
29

 


Recent Accounting Pronouncements
 
Accounting standards that have been issued by the FASB or other standards setting bodies that do not require adoption until a future date are being evaluated by the Company to determine whether adoption will have a material impact on the Company’s financial statements.
  
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
 
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “ smaller reporting company, ” as defined by Rule 229.10(f)(1).
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Our financial statements and supplementary data, along with reports of independent registered public accounting firms thereon, are presented beginning on page F-1 of this annual report on Form 10-K and are incorporated herein by reference.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosure. As required by Rule 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.  Based on the foregoing, our principal executive and principal financial officer concluded that our disclosure controls and procedures are not effective to ensure the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed and reported within the time periods specified in the SEC’s rules and forms.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (US GAAP) and includes those policies and procedures that:
 
 
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 
provide reasonable assurance that the transactions are recorded  as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;

 
30

 


 
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements;

 
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 
provide reasonable assurance that the transactions are recorded  as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
 
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
 
Management has used the framework set forth in the report entitled  Internal Control-Integrated Framework  published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of January 31, 2014.
 
A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at January 31, 2014:
 
 
(1)
lack of a functioning audit committee and lack of a majority of outside directors on the Company's Board of Directors capable to oversee the audit function;

 
(2)
inadequate segregation of duties due to limited number of personnel, which makes the reporting process susceptible to management override;

 
(3)
insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements;

 
(4)
ineffective controls over period end financial disclosure and reporting processes; and
 
 
(5)
ineffective controls over the recordation of certain revenue transactions.
 
Management believes that the material weaknesses set forth in items (1) through (4) above did not have an effect on the Company's financial reporting during the year ended January 31, 2014.

 
31

 


We are committed to improving our financial organization. As part of this commitment, moving forward, at such time as we are able to raise additional funding, we plan to hire additional outside accounting personnel and take action to consolidate check writing and financial controls.  Additionally, as soon as funds are available, we plan to make a determination as to whether it is in the Company’s best interest to (1) appoint one or more outside directors to our Board of Directors to be appointed to the audit committee of the Company resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures; (2) create a position to segregate duties consistent with control objectives and will increase our personnel resources; (3) hire independent third parties to provide expert advice; and (4) prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements.
 
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
 
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.
 
Changes in Internal Control over Financial Reporting
 
There was no change in internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION.
 
Not applicable.

 
32

 


PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
 
The information required by this Item will be set forth under the headings “ Election of Directors ”, “ Executive Officers ”, “ Corporate Governance ”, and “ Section 16(a) Beneficial Ownership Reporting Compliance ” in the Company’s 2014 Proxy Statement to be filed with the U.S. Securities and Exchange Commission (“ SEC ”) within 120 days after January 31, 2014 in connection with the solicitation of proxies for the Company’s 2014 annual meeting of shareholders and is incorporated herein by reference.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
The information required by this Item will be set forth under the headings " Executive Compensation ", " Board of Directors   Compensation " and " Outstanding Equity Awards at Fiscal Year-End " in the Company's 2014 Proxy Statement to be filed with the SEC within 120 days after January 31, 2014 and is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
The information required by this Item will be set forth under the headings “ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ” in the Company’s 2014 Proxy Statement to be filed with the SEC within 120 days after January 31, 2014 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
The information required by this Item will be set forth under the headings “ Certain Relationships and Related Transactions ” and “ Director Independence ” in the Company’s 2014 Proxy Statement to be filed with the SEC within 120 days after January 31, 2014 and is incorporated herein by reference.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
The following table presents the estimated aggregate fees incurred for services performed during our last two fiscal years, all of which were approved by our Board of Directors.
 
    Fiscal Year Ended  January 31,  
    2014    
2013
 
Audit fees (1)
  $ 87,500     $ 46,505  
Audit-related fees (2)
    -0-       -0-  
Tax fees (3)
    10,423       29,133  
All other fees
    -0-       -0-  
Total fees
  $ 97,923     $ 75,638  
 
 
(1)
Audit fees include professional services rendered for the audit and/or reviews of our financial statements and in connection with statutory and regulatory filings or engagements.
 
(2)
Audit-related fees include assurance and related services that were reasonably related to the performance of the audit or review of our financial statements that are not included under footnote (1) above.
 
(3)
Tax fees include professional services relating to preparation of the annual tax return.
 
It is the policy of our Board of Directors that all services to be provided by our independent registered public accounting firm, including audit services and permitted audit-related and non-audit services, must be pre-approved by our Board of Directors. Our Board of Directors pre-approved all services, audit and non-audit related, provided to us by our independent auditors for fiscal 2014 and 2013.

 
33

 


PART IV
 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
(a)     Documents filed as part of this report

(1)
All financial statements

Index to Consolidated Financial Statements
 
Page
Report of Independent Registered Public Accounting Firm
  F-2
Balance Sheets as of January 31, 2014 and 2013
  F-3
Statements of  Operations for the years ended January 31, 2014 and 2013
  F-4
Statements of Stockholders’ Equity for the years ended January 31, 2014 and 2013
  F-5
Statements of Cash Flows for the years ended January 31, 2014 and 2013
  F-6
Notes to Consolidated Financial Statements
  F-7

(2)
Financial Statement Schedules

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.

(3)
Exhibits required by Item 601 of Regulation S-K

The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page of this Form 10-K.

 
34

 


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
 
 
JAMMIN JAVA CORP.
   
 
By:  /s/ Brent Toevs
 
Brent Toevs
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
Date: May 16, 2014
 
 
By:  /s/ Anh Tran
 
Anh Tran
 
President, Chief Operating Officer, Secretary and Treasurer
 
(Principal Financial Officer and Principal Accounting Officer)
  
 
Date: May 16, 2014
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
         
/s/ Brent Toevs
 
Chief Executive Officer
 
May 16, 2014
Brent Toevs
 
(Principal Executive Officer)
   
   
Director
   
         
/s/ Anh Tran
 
President, Chief Operating Officer,
 
May 16, 2014
Anh Tran
 
Secretary and Treasurer
   
   
(Principal Financial Officer and
   
   
Principal Accounting Officer)
   
   
Director
   
         
/s/ Rohan Marley
 
Chairman of the Board of Directors
 
May 16, 2014
Rohan Marley
       
 

 
35

 


Exhibit Index

Exhibit
Number
 
Description
     
2.1
 
Asset Purchase Agreement with BikeCaffe Franchising Inc. (December 4, 2013)(incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed with the Commission on December 10, 2013)
     
3.1
 
Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed April 1, 2014)
     
3.2
 
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed April 1, 2014)
     
3.3
 
Articles of Merger (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K filed March 12, 2008) 
     
3.4
 
Articles of Merger (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed September 17, 2009)
     
4.1
 
Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form SB-2 filed August 3, 2005)
     
4.2
 
2011 Equity Compensation Plan (incorporated by reference to Exhibit 10.4 of the Company’s Form 8-K filed August 10, 2011)
     
4.3
 
Amended and Restated 2012 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 of the Company’s Form S-8/A Registration Statement filed October 17, 2013)
     
4.4
 
Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.5 of the Company’s Quarterly Report on Form 10-Q filed September 12, 2013)
     
4.5
 
2013 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed October 17, 2013)
     
10.1
 
Trademark License Agreement, dated as of March 31, 2010, by and between Marley Coffee, LLC and the Company (incorporated by reference to the Company’s Annual Report on Form 10-K filed May 17, 2011)
     
10.2**
 
Supply and Toll Agreement, dated as of April 28, 2010, between Canterbury Coffee Corporation and the Company (incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K filed May 17, 2011)
     
10.3
 
Exclusive Sales and Marketing Agreement, dated as of April 25, 2011, by and between National Coffee Service & Vending and the Company (incorporated by reference to Exhibit 10.3 of the Company’s Annual Report on Form 10-K filed May 17, 2011)
     
10.4
 
Share Issuance Agreement, dated as of December 22, 2010, between Straight Path Capital and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 5, 2011)
     
10.5**
 
First Amendment to Supply and Toll Agreement, dated as of May 12, 2011, by and between Canterbury Coffee Corporation and the Company (incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K filed May 17, 2011)

 
36

 


10.6
 
Amendment to Trademark License Agreement, dated as of August 5, 2011, by and between Marley Coffee, LLC and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.7
 
Consulting Agreement, dated as of August 6, 2011, by and between Shane Whittle and the Company (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.8
 
Grant of Contractor Stock Option, dated as of August 11, 2011, from the Company to Shane Whittle(incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K/A filed August 11, 2011)
     
10.9
 
Jammin Java Corp. Equity Compensation Plan(incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.10
 
Employment Agreement, dated as of August 5, 2011, by and between Anh Tran and the Company (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.11
 
Employment Agreement, dated as of August 8, 2011, by and between Brent Toevs and the Company (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.12
 
Grant of Employee Stock Option  dated as of August 5, 2011, from the Company to Anh Tran (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.13
 
Grant of Employee Stock Option, dated as of August 5, 2011, from the Company to Rohan Marley(incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.14
 
Grant of Employee Stock Option, dated as of August 10, 2011, from the Company to Brent Toevs (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K filed August 10, 2011)
     
10.15**
 
Roasting and Distribution Agreement, dated as of January 1, 2012, by and between the Company and Canterbury Coffee Corporation, (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed May 14, 2012)
     
10.16
 
Credit Agreement, dated as of July 19, 2012, by and between the Company and TCA Global Credit Master Fund, LP (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 2, 2012)
     
10.17
 
Revolving Note ($350,000) issued by the Company to TCA Global Credit Master Fund, LP (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed August 2, 2012)
     
10.18
 
Security Agreement dated July 29, 2012, by and between the Company and TCA Global Credit Master Fund, LP (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed August 2, 2012)
     
10.19
 
Investment Agreement, dated July 31, 2012, by and between the Company and Fairhills Capital Offshore, Ltd. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed August 2, 2012)

 
37

 


10.20
 
Registration Rights Agreement, dated July 31, 2012, by and between the Company and Fairhills Capital Offshore, Ltd. (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed August 2, 2012)
     
10.21
 
Securities Purchase Agreement, dated July 31, 2012, by and between the Company and Fairhills Capital Offshore, Ltd. (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed August 2, 2012)
     
10.22
 
License Agreement with Fifty-Six Hope Road Music Limited dated September 13, 2012 (incorporated by reference to Exhibit 10.7 of the Company’s Amended Report on Form 10-Q/A, filed on October 4, 2012)
     
10.23
 
Form of Subscription Agreement (August 2013 Offering) (incorporated by reference to Exhibit 10.23 of the Company’s Quarterly Report on Form 10-Q filed September 12, 2013)
     
10.24
 
Amended and Restated Employment Agreement with Brent Toevs (August 2013) (incorporated by reference to Exhibit 10.24 of the Company’s Quarterly Report on Form 10-Q filed September 12, 2013)
     
10.25
 
Amended and Restated Employment Agreement with Anh Tran (August 2013) (incorporated by reference to Exhibit 10.25 of the Company’s Quarterly Report on Form 10-Q filed September 12, 2013)
     
10.26
 
Lease Agreement (June 2013) – 4730 Tejon Street, Denver, Colorado 80211 (incorporated by reference to Exhibit 10.26 of the Company’s Quarterly Report on Form 10-Q filed September 12, 2013)
     
10.27*
 
Asset Purchase Agreement between the Company and Black Rock Beverage Services, LLC (August 2013)
     
10.28*
 
Form of Subscription Agreement July/August 2013 Offering
     
10.29*
 
Form of Common Stock Purchase Warrant Agreement July/August 2013 Offering
     
14.1
 
Code of Ethical Business Conduct, adopted March 31, 2014 (incorporated by reference to Exhibit 14.1 of the Company’s Current Report on Form 8-K filed April 1, 2014)
     
21.1*
 
List of Subsidiaries
     
23.1*
 
Consent of Squar, Milner, Peterson, Miranda & Williamson, LLP
     
31.1*
 
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2*
 
Certification of the Principal Accounting and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1****
 
Certifications of the Principal Executive Officer and the Principal Accounting and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
99.1****   Press Release dated May 16, 2014
     
101.INS***
 
XBRL Instance Document
     
101.SCH***
 
XBRL Taxonomy Extension Schema Document
     
101.CAL***
 
XBRL Taxonomy Extension Calculation Linkbase Document

 
38

 


101.DEF***
 
XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB***
 
XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE***
 
XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

**   The Company has obtained confidential treatment of certain portions of this agreement which have been omitted and filed separately with the U.S. Securities and Exchange Commission.  

*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

**** Furnished herewith.


 
39

 



INDEX TO FINANCIAL STATEMENTS
 
 
Page
   
Report of Independent Registered Public Accounting Firm
F-2
   
Balance Sheets as of  January 31, 2014 and January 31, 2013
F-3
   
Statements of Operations for the Years Ended January 31, 2014 and January 31, 2013
F-4
   
Statements in Changes of Stockholders' Equity for the Years Ended January 31, 2014 and January 31, 2013
F-5
   
Statements of Cash Flows for the Years Ended January 31, 2014 and January 31, 2013
F-6
   
Notes to Financial Statements
F-7
 
 

 
F-1

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of Jammin Java Corp. (the “Company”) as of January 31, 2014 and 2013, and the related statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jammin Java Corp as of January 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 under "Basis of Presentation," the Company has incurred operating losses from inception, has an accumulated deficit approximating $13,762,848, and has only recently generated revenues from its principal operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP
Newport Beach, California
May 16, 2014





 
F-2

 
JAMMIN JAVA CORP.
BALANCE SHEETS

   
January 31,
   
January 31,
 
   
2014
   
2013
 
                 
Assets
               
Current Assets:
               
Cash
 
$
857,122
   
$
                          -
 
Restricted cash
   
                          -
     
                  65,382
 
Accounts receivable, net
   
1,085,947
     
415,721
 
Notes receivable - related party
   
2,724
     
                          -
 
Inventory
   
354,932
     
                          -
 
Prepaid expenses
   
1,163,914
     
173,264
 
Other current assets
   
                  41,430
     
24,387
 
Total Current Assets
   
3,506,069
     
678,754
 
                 
Property and equipment, net
   
                440,194
     
                  19,705
 
License agreement
   
                657,001
     
                705,667
 
Intangible assets
   
                  47,525
     
                          -
 
Deferred financing costs
   
                          -
     
                  43,490
 
Other assets
   
                  15,716
     
                          -
 
Goodwill
   
                  88,162
     
                          -
 
Total Assets
 
$
4,754,667
   
$
1,447,616
 
                 
Liabilities and Stockholders' Equity
               
Current Liabilities:
               
Accounts payable
 
$
             1,181,510
   
$
762,663
 
Payable to Ironridge in common shares
   
                369,589
     
                          -
 
Accounts payable - related party
   
                          -
     
2,258
 
Accrued expenses
   
    123,856
     
92,586
 
Accrued royalty and other expenses - related party
   
                  219,799
     
                  30,073
 
Bank Overdraft
   
                          -
     
                    8,931
 
Notes payable - Related party
   
                          -
     
9,454
 
Secured promissory note -  net of discount of $-0- and $29,925, respectively
                          -
     
                320,075
 
Notes payable
   
                    4,965
     
                          -
 
Derivative liability
   
                          -
     
                120,006
 
Total Current Liabilities
   
             1,899,719
     
1,346,046
 
                 
Total Liabilities
   
             1,899,719
     
1,346,046
 
                 
Stockholders' Equity:
               
Common stock, $.001 par value, 5,112,861,525  shares authorized; 104,085,210 and 79,373,546  shares issued and outstanding, as of January 31, 2014 and January 31, 2013, respectively
                103,166
     
79,377
 
Additional paid-in-capital
   
           16,514,630
     
7,081,011
 
Accumulated deficit
   
         (13,762,848)
     
           (7,058,818)
 
Total Stockholders' Equity
   
             2,854,948
     
101,570
 
                 
Total Liabilities and Stockholders' Equity
 
$
4,754,667
   
$
1,447,616
 
 
See accompanying notes to financial statements

 
F-3

 
 
JAMMIN JAVA CORP.
STATEMENTS OF OPERATIONS
 
   
Year Ended January 31,
 
   
2014
    2013  
                 
Revenue:
 
$
6,077,956
   
$
1,820,945
 
Discounts and allowances
 
             (433,745
   
                     (4,513
Net revenue
   
5,644,211
     
1,816,432
 
                 
Cost of sales:
               
Cost of sales products
   
            4,940,546
     
1,434,218
 
Total cost of sales
   
4,940,546
     
1,434,218
 
                 
Gross Profit
 
$
703,665
   
$
382,214
 
                 
Operating Expenses:
               
Compensation and benefits
 
2,298,951
     
2,437,786
 
Selling and marketing
   
182,251
     
262,230
 
General and administrative
 
2,762,485
     
1,463,511
 
Impairment of license
   
                         -
     
                     36,000
 
Total operating expenses
   
            5,243,687
     
4,199,527
 
                 
Other income (expense):
               
Other expense (Including loss on settlement of liabilities of $2,130,993
          (2,055,584
)    
                   (50,460
Interest expense
   
             (108,424
)    
                 (150,180
)
Total other income (expense)
 
          (2,164,008
)    
                 (200,640
                 
Net Loss
 
$
          (6,704,030
)  
$
              (4,017,953
)
                 
Net loss per share:
               
Basic and diluted loss per share
$
                   (0.07
 
$
                       (0.05
)
                 
Weighted average common shares outstanding - basic and diluted
93,430,025
     
77,338,169
 
                 
See accompanying notes to financial statements
 
 
F-4

 
JAMMIN JAVA CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
   
Common Stock
 
Common Stock
           
   
Shares
 
Amount
  Shares To Be Issued  
Paid-In Capital
  Accumulated Deficit  
Totals
Balance, January 31, 2012
 
       76,744,150
 
              76,744
 
                      -
 
         4,708,487
 
       (3,040,865)
 
         1,744,366
                         
Issuance of common stock for services
 
         2,629,396
 
                2,633
 
                      -
 
            366,332
 
                      -
 
            368,965
Stock based compensation
 
                      -
 
                      -
 
                      -
 
         2,006,192
 
                      -
 
         2,006,192
Net loss
 
                      -
 
                      -
 
                      -
 
                      -
 
       (4,017,953)
 
       (4,017,953)
Balance, January 31, 2013
 
       79,373,546
 
              79,377
 
                      -
 
         7,081,011
 
       (7,058,818)
 
            101,570
                         
Issuance of common stock for services
 
         3,505,914
 
                3,505
 
                      -
 
         1,340,697
 
                      -
 
         1,344,202
Issuance of common stock for cash
 
            647,137
 
                   647
 
                      -
 
            245,353
 
                      -
 
            246,000
Issuance of common stock for acquisitions
 
            250,000
 
                   408
 
            158,039
 
            170,710
 
                      -
 
            171,118
Shares issued to Ironridge for debt extinguishment
 
       19,877,591
 
              19,129
 
                      -
 
         6,591,535
 
                      -
 
         6,610,664
Cancellation of TCA shares
 
          (588,235)
 
                      -
 
                      -
 
          (100,000)
 
                      -
 
          (100,000)
Exercise of stock options
 
            100,000
 
                   100
 
              50,000
 
         23,900
 
                      -
 
         24,000
Option expense   -   -   -   1,161,424   -   1,161,424
Shares issued for consulting services and subsequently rescinded (1)
  919,257   -   -   -   -   -
Net loss
 
                      -
 
                      -
 
                      -
 
                      -
 
       (6,704,030)
 
       (6,704,030)
Balance, January 31, 2014
 
     104,085,210
 
            103,166
 
            208,039
 
       16,514,630
 
     (13,762,848)
 
         2,854,948
 
(1) Shares were issued as consideration for a consulting agreement that was subsequently rescinded and the shares were returned in March 2014. No amount has been recorded to common stock or additional paid-in capital for these shares due to the rescission.
 
See accompanying notes to the financial statements
 
 
F-5

 
JAMMIN JAVA CORP.
STATEMENTS OF CASH FLOWS
 
   
Year Ended January 31,
 
   
2014
   
2013
 
Cash Flows From Operating Activities:
               
Net loss
 
$
         (6,704,030)
   
$
          (4,017,953)
 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
Common stock issued for services
   
           1,344,202
     
              368,964
 
Common stock issued to Ironridge for debt extinguishment
            (394,799)
     
                        -
 
Shared-based employee compensation
   
           1,161,424
     
           2,006,192
 
Depreciation
   
                32,421
     
                  6,327
 
Amortization of license agreement
   
                42,147
     
                24,333
 
Amortization of intangible assets
   
                  8,894
     
                        -
 
Amortization of debt discount and deferred financing costs
                43,490
     
                91,980
 
Loss on settlement of liabilities
   
           2,130,993
         
Impairment of license
   
                       -
     
                36,000
 
Changes in:
               
Accounts receivable
   
            (670,226)
     
             (380,938)
 
Notes receivable - related party
   
                (2,724)
     
                        -
 
Inventory and inventory in transit
   
              (279,276)
     
                        -
 
Prepaid expenses and other current assets
   
         (1,007,693)
     
                16,865
 
Other assets - long term
   
              (15,716)
     
                        -
 
Accounts payable
   
           5,562,906
     
              742,436
 
Accounts payable - related party
   
                (2,258)
     
                        -
 
Accrued expenses
   
                31,270
     
                  7,936
 
Accrued royalty and other expenses - related party
   
               189,726
     
                        -
 
Bank Overdraft
   
                (8,931)
     
                  8,931
 
Derivative liability
   
            (120,006)
     
              120,006
 
Net cash provided by (used in) operating activities
 
     1,341,814
     
             (968,921)
 
                 
Cash Flows From Investing Activities:
               
Purchases of property and equipment
   
            (445,510)
     
               (16,129)
 
    Acquisition of business, net of cash received     (50,000)       -  
Restricted cash
   
                65,382
     
               (65,382)
 
Net cash (used in) investing activities
   
(430,128)
     
               (81,511)
 
                 
Cash Flows From Financing Activities:
               
Common stock issued for cash
   
              246,000
     
                        -
 
Exercise of stock options
   
                24,000
     
                        -
 
Repayment on notes payable - related party
   
              (11,825)
     
               (44,192)
 
Advances from related parties
   
                  2,371
     
                  2,371
 
Repayment on promissory note
   
            (350,000)
     
              350,000
 
Payment of financing costs
   
                       -
     
               (63,700)
 
Financing on short term debt
   
                34,890
     
               (29,925)
 
Net cash (used in) provided by financing activities
 
              (54,564)
     
              214,554
 
                 
Net change in cash
   
              857,122
     
             (835,878)
 
Cash at beginning of period
   
                       -
     
              835,878
 
Cash at end of period
 
$
              857,122
   
$
                        -
 
                 
Supplemental Cash Flow Information:
               
Cash paid for interest
 
$
54,103
   
$
                54,103
 
Cash paid for income taxes
 
$
-
   
$
 -
 
                 
Non-Cash Transactions:
               
Financed insurance policy
 
$
                12,414
   
$
                        -
 
Extinguishment of debt for stock
 
$
           4,749,260
   
$
 -
 
Common stock issued for acquisitions
 
$
              171,118
   
$
 -
 
 
See accompanying notes to the financial statements
 
F-6

 
JAMMIN JAVA CORP.
NOTES TO FINANCIAL STATEMENTS
January 31, 2014 and 2013
 
NOTE 1—NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Jammin Java Corp. (the “Company” or “Jammin Java”), operates as a United States (U.S.) based company providing premium roasted coffee on a wholesale level to the grocery, retail, online, service, hospitality, office coffee service and big box store industry. Through the use of our roaster distributor relationships, we have the exclusive right to manufacture and market our coffee lines to gourmet, natural and independent grocery markets in the U.S., Canada, Mexico and the Caribbean and the non-exclusive right worldwide.
 
As used herein, the terms “we,” “us,” “our,” and “Company” mean Jammin Java Corp., unless otherwise indicated. All dollar amounts in these financial statements are in U.S. dollars unless otherwise stated.
 
Jammin Java was incorporated on September 27, 2004 in Nevada under its former name “Global Electronic Recovery Corp.” On October 23, 2007, our Board of Directors (the “Board”) approved a 22.723829 for one (1) forward stock split of our authorized, issued and outstanding shares of common stock (the “2007 Forward Split”) and amended our Articles of Incorporation by the filing of a Certificate of Change with the Secretary of State of Nevada on September 11, 2007. As a result of the 2007 Forward Split, our authorized capital increased from 75,000,000 to 1,704,287,175 shares of common stock with a par value of $0.001 each.
 
On February 5, 2008, we incorporated a subsidiary named Marley Coffee Inc. On February 25, 2008, we changed our name from “Global Electronic Recovery Corp.” to “Marley Coffee Inc.” when we merged our subsidiary, Marley Coffee Inc., into our Company. Effective July 13, 2009, we formed and merged our then newly-formed subsidiary, Jammin Java Corp., into our Company and changed our name from “Marley Coffee Inc.” to “Jammin Java Corp.” Our common stock has, since September 17, 2009, been quoted on the Over-the-Counter Bulletin Board (“OTCBB”) or the OTCQB market under the symbol “JAMN.”
 
On January 10, 2010, the Board approved a three (3) for one (1) forward stock split of our authorized, issued and outstanding shares of common stock (the “2010 Forward Split” and, collectively with the 2007 Forward Split, the “Stock Splits”). We amended our Articles of Incorporation by the filing of a Certificate of Change with the Nevada Secretary of State, effective on February 2, 2010. As a result, our authorized capital increased from 1,704,287,175 to 5,112,861,525 shares of common stock with a par value of $0.001 each.
 
Unless otherwise stated, the shares of common stock disclosed throughout these financial statements have been retroactively reflected for the Stock Splits.
 
Summary of Significant Accounting Policies. The summary of our significant accounting policies presented below is designed to assist the reader in understanding our financial statements. Such financial statements and related notes are the representations of our management, who are responsible for their integrity and objectivity. In the opinion of management, these accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.

Basis of Presentation. These financial statements have been prepared by management assuming that the Company will be able to continue as a going concern and realize its assets and discharge its liabilities in the normal course of business. However, certain conditions noted below currently exist which raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

 
F-7

 


The Company has incurred a net loss of $6,704,030 and $4,017,953 for the years ended January 31, 2014 and 2013, respectively and has an accumulated deficit of $13,762,848 at January 31, 2014. In addition to the Company’s recent history of losses, the Company has recently begun to generate revenue as part of its principal operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Further, the operations of the Company have primarily been funded by the issuance of common stock and debt.  In order for us to conduct our business for the next twelve months and to continue operations thereafter and be able to discharge our liabilities and commitments in the normal course of business, we must increase sales, reduce operating expenses, and potentially raise additional funds, through either debt and/or equity financing to meet our working capital needs. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may be required to curtail its operations.

If we become unable to continue as a going concern, we may have to liquidate our assets, and might realize significantly less than the values at which our net assets are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. The accompanying financial statements do not reflect any adjustments related to the outcome of this uncertainty.
 
Reclassifications. Certain prior year amounts have been reclassified to conform with the current year presentation for comparative purposes.  
 
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. Certain accounting principles require subjective and complex judgments to be used in the preparation of financial statements. Accordingly, a different financial presentation could result depending on the judgments, estimates, or assumptions that are used. Such estimates and assumptions include, but are not specifically limited to, those required in the assessment of the impairment of long-lived assets, the allowance for doubtful accounts, valuation allowances for deferred tax assets, and valuation of our derivatives and financial and equity instruments. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.
 
Fair Value of Financial Instruments . The carrying amount of the Company’s cash, accounts receivables, accounts payables, and accrued expenses approximates their estimated fair values due to the short-term maturities of those financial instruments.

The Company has adopted a single definition of fair value, a framework for measuring fair value, and providing expanded disclosures concerning fair value whereby estimated fair value is the price to be paid for an asset or the amount to settle a liability in an orderly transaction between market participants at the measurement date. Accordingly, fair value is a market-based measurement and not an entity-specific measurement.
 
The Company utilizes the following hierarchy in fair value measurements:
 
 
·
Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
 
·
Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
 
·
Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
 
Cash and Cash Equivalents . The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At January 31, 2014, the Company has no cash equivalents. During the year ended January 31, 2013, the Company invested funds in money market accounts with an average market yield of 0.05%.  No funds were invested in money market accounts during the year ended January 31, 2014.
 
Restricted Cash.  Cash held by the Company which pursuant to certain debt agreements is not available for general operating purposes is classified as restricted cash. Restricted cash at January 31, 2013 totaled approximately $65,000.  There was no restricted cash at January 31, 2014.  

 
F-8

 
 
Concentrations of Credit Risk. Our cash and cash equivalents are principally on deposit in a non-insured short-term asset management account at a large financial institution. Accounts receivable potentially subject us to concentrations of credit risk. Currently, our customer base is comprised of only a limited number of customers (see Note 13).
 
Revenue Recognition . Revenue is derived from the sale of coffee products and is recognized on a gross basis upon shipment to the customer. All revenue is recognized when (i) persuasive evidence of an arrangement exists; (ii) the service or sale is completed; (iii) the price is fixed or determinable; and (iv) the ability to collect is reasonably assured.  Revenue is recognized as the net amount estimated to be received after deducting estimated amounts for discounts, trade allowances and product terms. We record promotional and return allowances based on recent and historical trends. Promotional allowances, including customer incentive and trade promotion activities, are recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and redemption rates. Promotional allowances deducted from sales for fiscal years 2014 and 2013 were $433,745 and $4,513, respectively.
 
The Company utilizes third parties for the production and fulfillment of orders placed by customers. The Company, acting as principal, takes title to the product and assumes the risks of ownership; namely, the risks of loss for collection, delivery and returns.
 
Allowance for Doubtful Accounts.  The Company does not require collateral from its customers with respect to accounts receivable. The Company determines any required allowance by considering a number of factors, including the terms for each customer, and the length of time accounts receivable are outstanding. Management provides an allowance for accounts receivable whenever it is evident that they become uncollectible. The Company has determined that no allowance for doubtful accounts was required at January 31, 2014 and 2013.   Because our accounts receivable are concentrated in a relatively few number of customers, a significant change in the liquidity or financial position of any one of these customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results.

Inventories.   Inventories are stated at the lower of cost or market. Cost is computed using weighted average cost, which approximates actual cost, on a first-in, first-out basis. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete or in excess of future needs. Items determined to be obsolete are reserved for. The Company provides for the possible inability to sell its inventories by providing an excess inventory reserve. As of January 31, 2014 the Company determined that no reserve was required.
 
Acquisition of BlackRock Beverage Services, Inc. and Bike Caffe Franchising Inc.   On August 16, 2013, the Company purchased certain assets including inventory, fixed assets, and IP owned by BlackRock Beverage Services Inc. for $81,118 in total consideration consisting of $10,000 in cash and 158,039 common shares of the Company valued at $71,118. In addition, on December 4, 2013, the Company purchased certain assets including fixed assets, inventory, IP and trademarks owned by Bike Caffe Franchising, Inc. for total consideration of $140,000 consisting of $40,000 in cash and 250,000 common shares of the Company valued at $100,000.  No liabilities were assumed as part of the acquisitions.  The acquisitions were accounted for by the Company using the purchase method of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, at the date of acquisition, the net assets of BlackRock and BikeCaffe were recorded at their respective fair values and represents management’s estimates based on a third party valuation report.  T he Company incurred $5,000 of acquisition-related costs, which were expensed as incurred in the accompanying consolidated Statement of Operations included within Other Operating Expenses.

 
F-9

 
The results of BlackRock and BikeCaffe operations are included in the accompanying statements of operations from the date of acquisition through January 31, 2014. In connection with the Acquisition, the consideration paid, the net assets acquired, were recorded at fair value on the date of acquisition, as summarized in the following table:
 
Bike Caffe Franchising, Inc.
     
       
Tangible Assets Acquired
     
Current Assets
     
WIP & Inventory
  $ 75,656  
Fixed Assets - Property and Equipment,net
    7,400  
Total Tangible Assets
  $ 83,056  
Intangible Assets Acquired
       
Customer Base
    15,000  
Trade-Name/Marks
    20,800  
Non-Compete
    14,100  
Total Intangible Assets Acquired
  $ 49,900  
Goodwill
    7,044  
Total Consideration Acquired
  $ 140,000  
 
 
Black Rock Beverage Services, Inc.
       
         
Intangible Assets Acquired
    81,118  
Total Consideration Acquired
  $ 81,118  
 
Property and Equipment. Equipment is stated at cost less accumulated depreciation and amortization. Maintenance and repairs, as incurred, are charged to expense. Renewals and enhancements which extend the life or improve existing equipment are capitalized. Upon disposition or retirement of equipment, the cost and related accumulated depreciation are removed and any resulting gain or loss is reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are three years.

Our property and equipment is summarized as follows:
   
January 31, 2014
   
January 31, 2013
 
                 
Equipment
 
$
     217,005
   
$
       13,400
 
Computers
   
       52,205
     
       14,418
 
Furniture
   
       60,145
     
               -
 
Leasehold improvements
   
     151,373
     
               -
 
     
     480,728
     
       27,818
 
                 
Less Accumulated depreciation
   
       40,534
     
         8,113
 
   
$
     440,194
   
$
       19,705
 
 
Depreciation expense was $32,421 and $6,327 for the years ended January 31, 2014 and 2013, respectively.
 
 
F-10

 
Impairment of Long-Lived Assets. Long-lived assets consist primarily of a license agreement that was recorded at the estimated cost to acquire the asset. The license agreement is reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Management evaluated the carrying value of the license and determined that no impairment existed at January 31, 2014 or 2013.
 
Stock-Based Compensation.   Pursuant to the provisions of FASB ASC 718-10, “Compensation – Stock Compensation,” which establishes accounting for equity instruments exchanged for employee service, management utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.  
 
Common stock issued for services to non-employees is recorded based on the value of the services or the value of the common stock whichever is more clearly determinable. Whenever the value of the services is not determinable, the measurement date occurs generally at the date of issuance of the stock. In more limited cases, it occurs when a commitment for performance has been reached with the counterparty and nonperformance is subject to significant disincentives.  If the total value of stock issued exceeds the par value, the value in excess of the par value is added to the additional paid-in-capital.
We estimate volatility of our publicly-listed common stock by considering historical stock volatility.
 
Income Taxes . The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No 740, Income Taxes .
 
The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on net operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
 
Earnings or Loss Per Common Share . Basic earnings per common share equal net earnings or loss divided by the weighted average of shares outstanding during the reporting period. Diluted earnings per share include the impact on dilution from all contingently issuable shares, including options, warrants and convertible securities. The common stock equivalents from contingent shares are determined by the treasury stock method. The Company incurred a net loss for the years ended January 31, 2014 and 2013, respectively and therefore, basic and diluted earnings per share for those periods are the same because all potential common equivalent shares would be anti-dilutive.  Anti-dilutive shares include 4,973,333 options for fiscal year 2014 and 400,000 options for the fiscal year ended 2013.
 
Recently Issued Accounting Pronouncements . Accounting standards that have been issued by the FASB or other standards setting bodies that do not require adoption until a future date are being evaluated by the Company to determine whether adoption will have a material impact on the Company’s financial statements.
 
Subsequent Events. Management has evaluated events subsequent to January 31, 2014 through the date the accompanying consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events that may require adjustment of and/or disclosure in such financial statements.

 
F-11

 
 
NOTE 2 – INVENTORY

Inventories were comprised of:

 
    January 31,    
January 31,
 
 
  2014    
2013
 
Finished Goods - Coffee
  $ 354,932     $ -  
    $ 354,932     $ -  
 
NOTE 3 – RECEIVABLES

Receivables were comprised of:
 
 
  January 31,    
January 31,
 
 
  2014    
2013
 
Grocery retail clients
  $
  771,359
   
$
  404,468  
Online clients
      35,539        11,253  
Other foodservice clients
      279,049         -  
    $
1,085,947
   
$
415,721
 
 
NOTE 4 – LICENSE AGREEMENTS
 
On March 31, 2010, the Company obtained a sub-license agreement (the “Agreement”) with Marley Coffee, LLC (“MCL”), a private limited liability company of which Rohan Marley, a Director of the Company, and his family have a combined controlling interest as more fully described below.
2010 MCL Trademark License Agreement
 
Fifty-Six Hope Road Music Limited, a Bahamas international business company (“Fifty-Six Hope Road”) owns and controls the intellectual property rights, including the “Marley Coffee” trademarks relating to the late reggae performer, Robert Nesta Marley, professionally known as Bob Marley (the “Trademarks”). On March 31, 2010, Fifty-Six Hope Road and MCL entered into an agreement which granted to MCL the exclusive, oral, terminable license to use the Trademarks and granted to the Company an exclusive, terminable, sublicense to use the Trademark.
 
On March 31, 2010, MCL entered into the Agreement with the Company, effective March 30, 2010, pursuant to which it sublicensed the use of the Trademarks to the Company (the “MCL Trademarks License Agreement”). Rohan Marley, a director of the Company, also serves as the managing member of MCL and is the beneficial owner of one-third of MCL’s membership interests.

 
F-12

 


The consideration for the MCL Trademarks License Agreement was as follows:
 
 
(1)
The Company entered into an Asset Purchase Agreement to sell all its interests in its Branding Development and Business Plan Development to MCL;

 
(2)
The Company assigned the Farm Lease Agreement that it had previously entered into with Rohan Marley relating to farm land located in Jamaica and all of the related leasehold improvements to MCL; and

 
(3)
The Company agreed to issue to MCL 10 million shares of the Company’s common stock as follows:

 
1 million shares upon the execution of the MCL Trademark License Agreement on March 31, 2010; and;

 
1 million shares on each anniversary of the execution of the MCL Trademark License Agreement for the following nine years through March 31, 2019.
 
In accordance with FASB ASC 505-25- “Share-Based payments to Non Employees,” management recorded the transaction based on the estimated fair value of the perpetual license at the measurement date of March 31, 2010 totaling $766,000, (the date when the Trademarks and its underlying rights were granted to the Company and when MCL’s performance was completed).
 
On August 5, 2011, the parties expanded the scope of the MCL Trademarks License Agreement in favor of the Company by an amendment in consideration for the Company assuming $126,000 in additional obligations of MCL. As part of the Agreement, the Company had issued 2,000,000 shares of its common stock.
 
On September 13, 2012, the MCL Agreement was replaced and superseded with the 2012 Trademarks License Agreement with Fifty-Six Hope Road more fully described below. The MCL Termination Agreement provided that all of the Company’s obligations under the MCL Agreement were terminated except for the Company’s obligations to: (i) issue to MCL the 1 million shares of its common stock which were due to MCL on March 31, 2012 (which obligation has since been forgiven); and (ii) repay its remaining outstanding debt obligation $19,715 in monthly installments, the final installment of which was paid in February 2013.
 
2012 Trademarks License Agreement
 
On September 13, 2012, the Company entered into a new trademark license agreement with Fifty-Six Hope Road which superseded and replaced the MCL Trademarks License Agreement (the “2012 Trademarks License Agreement”), with an effective date of August 7, 2012. Pursuant to the 2012 Trademarks License Agreement, Fifty-Six Hope Road granted to the Company a worldwide, exclusive, non-transferable license to utilize 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 however that the Company may not open retail coffee houses under 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”). The Licensed Products may be sold by the Company pursuant to the 2012 Trademarks 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.  The 2012 Trademarks License Agreement has a 15 year term and provides two renewal periods of 15 years at the discretion of the Company.  In return, 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. In addition, such royalty payments are to be deferred during the first 20 months of the term of the 2012 Trademarks License Agreement, and such deferred payments shall be paid on a quarterly-basis thereafter. At January 31, 2014, $157,417 has been accrued for such royalty fees and is included in Accrued royalty – related party in the Balance Sheet.

 
F-13

 

In connection with the termination and replacement, the Company recorded an impairment of license agreement assets totaling $36,000 and amortization expense totaling $24,333 for the year ended January 31, 2013.  No impairment was recorded for the year ended January 31, 2014 and amortization expense was $48,666 for the year ended January 31, 2014. License agreement, net consists of the following:
 
   
January 31,
 
   
2014
   
2013
 
License Agreement
 
$
                      730,000
   
$
      730,000
 
Accumulated amortization
   
                      (72,999)
     
      (24,333)
 
License Agreement, net
 
$
                      657,001
   
$
      705,667
 
 
The amortization period is fifteen years. Amortization expense consists of the following:
 
   
Years Ended January 31,
 
     
2014
     
2013
 
License Agreement
 
$
                      (48,666)
   
$
      (24,333)
 
Total License Agreement Amortization Expense
 
$
                      (48,666)
   
$
      (24,333)
 
 
As of January 31, 2014, the remaining useful life of the Company's license agreement was approximately 13.5 years. The following table shows the estimated amortization expense for such assets for each of the five succeeding fiscal years and thereafter.
 
Years Ending January 31,
       
2015
 
$
48,667
 
2016
   
48,667
 
2017
   
48,667
 
2018
   
48,667
 
2019
   
48,667
 
Thereafter
   
413,666
 
Total
 
$
657,001
 
 
NOTE 5 – GOODWILL

The $88,162 recorded as goodwill represents the excess of the purchase price over the assets recorded from the acquisitions of BlackRock Beverage Services, LLC and Bike Caffe Franchising Inc.  The Company does not amortize goodwill.  Instead, the Company evaluates goodwill annually in the fourth quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred.  As of January 31, 2014, the Company determined that no such impairment existed.
 
NOTE 6 – PREPAID EXPENSES

Prepaid expenses are comprised of the following:
 
 
January 31,
 
January 31,
 
 
2014
 
2013
 
Non refundable deposit-coffee supplier
  $ 1,004,198     $ -  
Prepaid consulting services
    159,716       173,264  
Total
  $ 1,163,914     $ 173,264  
 
During 2014, the Company made a non-refundable deposit to its largest coffee roaster based on the Company's projected purchases. As of January 31, 2014, the remaining non-refundable deposit totaled $1,004,198 and is expected to be fully utilized during the Company's fiscal year ending January 31, 2015.
 
 
F-14

 

NOTE 7 – RELATED PARTY TRANSACTIONS
 
Transactions with Marley Coffee Ltd
 
During the year ended January 31, 2014, the Company paid $329,132 to Marley Coffee Ltd. ("MC") a producer of Jamaican Blue Mountain coffee that the Company purchases in the normal course of its business. The Company directs these purchases to third-party roasters for fulfillment of sales orders. The Company's Chairman, Rohan Marley, is an owner of approximately 25% of the equity of MC.
 
Transactions with Nicole Whittle
 
During the year ended January 31, 2014, the Company paid $54,974 to Nicole Whittle. Ms. Whittle serves as the Company’s Creative Director, for ongoing creative design costs services.  Nicole Whittle is the sister of Shane Whittle who is a former director and chief executive officer of the Company and who is currently a manager and equity owner of MCL.

Capital Advance by Company President/Shareholder
 
During the year ended January 31, 2014, Anh Tran, President of the Company, advanced the Company funds to supplement working capital totaling a balance due from Mr. Tran at January 31, 2014 of $2,724. The advances are unsecured, non-interest bearing and due on demand.
 
NOTE 8 – STOCKHOLDER’S EQUITY
 
Common Stock

Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company's ability to pay dividends on its common stock. The Company has not declared any dividends since incorporation.

As of January 31, 2014, the Company had 5,112,861,525 common shares authorized of its $0.001 par value common stock.

During the year ended January 31, 2014, the Company issued the following shares of $0.001 par value common stock:
 
 
·
776,414 shares in exchange for services from six vendors providing finance, business development, investor relations and other services valued at $354,352.
 
·
195,801 shares in exchange for services with a director of the Company valued at $57,500.
 
·
2,533,699 shares in exchange for services with four executives/employees valued at $932,350.
 
·
647,137 shares in exchange for $246,000 in cash.
 
·
100,000 shares in exchange for $16,000 in cash for the exercise of stock options.
 
·
408,039 shares as consideration for acquisitions valued at $171,118.
 
·
19,877,591 shares for extinguishment of accounts payable and purchase of inventory and legal and accounting services valued at $6,610,664.

NOTE 9 – STOCK BASED COMPENSATION
 
On October 14, 2012, the Board approved the 2012 Equity Compensation Plan (the “2012 Equity Compensation Plan”). The Equity Compensation Plan authorizes the issuance of a variety of awards, including options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and stock awards. The 2012 Equity Compensation Plan provides that no more than 12 million shares of the Company’s common stock may be issued pursuant to awards under the 2012 Equity Compensation Plan. On November 13, 2012 (amended on October 17, 2013), the Company registered the shares of common stock under the 2012 Equity Compensation Plan on a registration statement on Form S-8 filed with the Securities and Exchange Commission. Awards under the 2012 Equity Compensation Plan may be made to employees, directors and consultants of the Company. As of January 31, 2014, 1,526,133 shares are available for issuance under the 2012 Equity Compensation Plan.

On September 10, 2013, the Board of Directors approved the Company’s 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan authorizes the issuance of various forms of stock-based awards, including incentive or non-qualified options, restricted stock awards, restricted units, stock appreciation rights, performance shares and other securities as described in greater detail in the 2013 Plan, to the Company’s employees, officers, directors and consultants. On October 17, 2013, the Company registered the shares of common stock under the 2013 Plan on a registration statement on Form S-8 filed with the Securities and Exchange Commission.  A total of 12,000,000 shares are authorized for issuance under the 2013 Plan, which has not been approved by the shareholders of the Company to date, and as of January 31, 2014, a total of 4,140,000 shares are available for issuance under the 2013 Plan.

 
F-15

 


Activity in options during the year ended January 31, 2014 and related balances outstanding as of that date are set forth below:

                 
Weighted Average
   
Number of
   
Weighted Average
 
Remaining Contract
   
Shares
   
Exercise Price
 
Term (# years)
Outstanding at February 1, 2012
   
             7,200,000
   
$
 -
 
  
Granted
   
             6,233,333
     
                            0.40
 
  
Exercised
   
 -
     
 -
 
  
Forfeited and canceled
   
           (4,033,333)
     
 -
 
  
Outstanding at January 31, 2013
   
             9,400,000
   
$
                            0.40
 
                                   4.79
Exercisable at  January 31, 2013
   
                400,000
   
$
                            0.26
 
                                   4.96
     
  
     
  
 
  
Outstanding at February 1, 2013
   
             9,400,000
   
$
                            0.26
 
  
Granted
   
             7,960,000
     
                            0.45
 
  
Exercised
   
              (100,000)
     
                            0.16
 
  
Forfeited and canceled
   
                         -
     
                                -
 
  
Outstanding at January 31, 2014
   
           17,260,000
   
$
                            0.35
 
                                   4.23
Exercisable at  January 31, 2014
   
             4,985,833
   
$
                            0.30
 
                                   3.77
 
During the years ended January 31, 2014 and 2013, the Company recognized share-based compensation expenses totaling $1,161,424 and $2,006,192, respectively. The remaining amount of unamortized stock options expense at January 31, 2014 is $2,985,529.
 
The intrinsic value of exercisable and outstanding options at January 31, 2014 was $325,333.
 
The grant date fair value of stock options granted during the year was $2,403,448 and $1,228,939 for the fiscal years ended January 31, 2014 and 2013, respectively.
 
NOTE 10- INCOME TAXES
 
The provision for refundable income taxes consists of the following:
 
   
January 31,
   
January 31,
 
   
2014
   
2013
 
Federal income tax benefit
 
$
2,053,743
   
$
1,232,000
 
State income tax benefit
   
597,533
     
352,000
 
Less change in valuation allowance
   
(2,651,276)
     
(1,584,000
)
Provision for income taxes
 
$
-
   
$
-
 

The cumulative tax effect of significant items comprising our net deferred tax amount is as follows:
 
   
January 31,
   
January 31,
 
   
2014
   
2013
 
Deferred tax asset attributable to:
           
Compensatory stock options
 
$
1,640,309
   
$
1,122,000
 
   Net operating loss carryforward
   
3,644,967
     
1,512,000
 
   Less valuation allowance
   
(5,285,276
)
   
(2,634,000
)
Net deferred tax asset
 
$
-
   
$
-
 

 
F-16

 


At January 31, 2014, the Company had unused net operating loss carryforwards of approximately $9,126,107 that are available to offset future federal and state taxable income which expires beginning in 2031.   
 
The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at January 31, 2014 and 2013, due to the following:
 
   
January 31,
   
January 31,
 
   
2014
   
2013
 
Federal income taxes at 34%
 
$
(2,279,370)
   
$
(1,352,000)
 
State income tax, net of federal benefit
   
(398,219)
     
(232,000)
 
Tax effect on non-deductible expenses and credits
   
26,313
     
-
 
Increase in valuation allowance
   
2,651,276
     
1,584,000
 
   
$
-
   
$
-
 
 
Pursuant to Internal Revenue Code Sections 382, use of our net operating loss carryforwards could be limited if a cumulative change in ownership of more than 50% occurs within a three-year period.

On July 13, 2006, the FASB issued FIN 48, subsequently codified in ASC 740, Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements, and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. ASC 740 is effective for fiscal years beginning after December 15, 2006.

We follow the provisions of ASC 740 relating to uncertain tax provisions and have commenced analyzing filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. As a result of adoption, no additional tax liabilities have been recorded. There are no unrecognized tax benefits as of January 31, 2014 or January 31, 2013.  The Company files income tax returns in the U.S. federal jurisdiction and in certain state jurisdictions.  The Company has not been subjected to tax examinations for any year and the statute of limitations has not expired.
 
NOTE 11 – AGREEMENTS

On August 1, 2012, the Company entered into an Investment Agreement (the “Investment Agreement”) with Fairhills Capital. The Investment Agreement provided that from time to time in our sole discretion, in accordance with the terms and conditions of the Investment Agreement, the Company could deliver a notice of a put (“Put Notice”) to Fairhills Capital and require Fairhills Capital to purchase a number of shares of common stock equal to a maximum of 200% of the average daily volume of our common stock for the 10 trading days prior to the applicable Put Notice. The purchase price per share to be paid by Fairhills Capital was to be calculated at a 20% discount to the average of the three lowest bid prices during the 10 trading days immediately prior to Fairhills Capital’s receipt of the Put Notice.
 
In connection with the Investment Agreement, the Company and Fairhills Capital entered into a Registration Rights Agreement (“Registration Rights Agreement”). Under the Registration Rights Agreement, the Company agreed to use its commercially reasonable efforts to (a) file, within 21 days of the date of the Investment Agreement, a Registration Statement on Form S-1 covering the resale of the common stock subject to the Investment Agreement, and (b) to have the Registration Statement declared effective by the SEC within 120 calendar days after the date of the Registration Rights Agreement.

 
F-17

 


In addition to the Investment Agreement, on August 1, 2012, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Fairhills Capital pursuant to which Fairhills Capital purchased 625,000 shares of our common stock at a purchase price of $0.12 per share and an aggregate purchase price of $75,000 (the “SPA Shares”). The purchase of the SPA Shares was affected in two closings of 312,500 shares each, with the first closing on August 1, 2012 and the second closing occurring on or around November 30, 2012 (provided that Fairhills Capital assigned its right to purchase the second tranche of shares and its rights to the first tranche of shares purchased, to its affiliate, Deer Valley Management, LLC). Pursuant to the Securities Purchase Agreement, the Company agreed to (i) register the SPA Shares with the SEC and (ii) provide price protection for the SPA Shares. The Company agreed to issue the holder of the SPA Shares, additional shares of our common stock on the earlier of the (a) the date on which the SEC declared the SPA Registration Statement effective (provided that such Registration Statement has since been withdrawn as discussed below); and (b) such time as the SPA Shares can be sold pursuant to Rule 144 of the Securities Act, such that the total value of the SPA Shares and any additional shares issuable on such date total $75,000 in value, based on a 20% discount to the then trading price of our common stock.
 
On October 9, 2012, the Company filed a Form S-1 Registration Statement with the SEC covering 16,000,000 shares of our common stock relating to certain “put notices” pursuant to the Investment Agreement and 315,500 of the SPA Shares.  In March 2013, the Company and Fairhills Capital agreed to terminate the Investment Agreement and the Registration Rights agreement and the Company withdrew the Form S-1 Registration Statement filing.  Due to the termination of the Investment Agreement and the withdrawal of the Registration Statement, the Company will not be able to raise any funds or sell any securities in connection with the Investment Agreement moving forward.
 
In connection with the purchase of the SPA Shares, on each of August 24, 2012 and November 30, 2012, the Company paid to Kashwise Investments, as its consultant, a cash fee in the aggregate amount of $1,125 and 23,438 shares of common stock for advisory services in connection with the Investment Agreement.
 
NOTE 12 – NOTE PAYABLE - RELATED PARTY

The Company entered into the License Agreement with MCL, a private limited liability company of which (i) Rohan Marley, one of the Company’s directors, has a 33% ownership interest (and collectively with his family, has a controlling interest) and serves as a Manager, and (ii) Shane Whittle, a former chief executive officer and director of the Company, has a 29% ownership interest and serves as a Manager. In consideration for the License Agreement Amendment, the Company agreed to assume $126,000 of obligations by paying MCL $55,000, with the balance being paid, with no interest, in equal monthly installments over a period of eighteen months. The balance was fully paid at January 31, 2014.

NOTE 13 – NOTE PAYABLE
 
On July 19, 2012, the Company entered into a credit agreement with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership (“TCA”), effective June 29, 2012 (the “Credit Agreement”). Pursuant to the Credit Agreement, TCA agreed to loan the Company up to $2 million for working capital purposes, based on the amount of eligible accounts receivable the Company provided to secure the repayment of the amounts borrowed.
 
On July 19, 2012, the Company borrowed $350,000 pursuant to the Credit Agreement, evidenced by a revolving note (the “Revolving Note”), the repayment of which was secured by a security interest in substantially all of our assets in favor of TCA, including the Trademarks. The Revolving Note accrued interest at the rate of 12% per annum (18% per annum upon a default) and was due and payable on July 18, 2013. After cash expenses, but not counting the cost of the Fee Facility Shares discussed below, the Company’s net amount of cash received at the closing on July 19, 2012 was $292,425 (the “Initial Funding”).

 
F-18

 


The Credit Agreement and Revolving Note were terminated in connection with the March 2013 Stipulation (Ironridge Transaction #1), described in Note 15, 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 and cancelled in May 2013. See Note 13 for further details.

Upon an event of default under the Credit Agreement or the Revolving Note, TCA had the right to convert all or any portion of the outstanding principal, interest and all other amounts due under the Revolving Note into shares of our common stock at a conversion price equal to 85% of the lowest daily volume weighted average price during the five (5) trading days immediately prior to the conversion date, in each case subject to TCA not being able to beneficially own more than 4.99% of outstanding common stock upon any conversion. Because the conversion feature of the Revolving Note required the Company to issue a variable number of shares for settlement, the Revolving Note was deemed to be a derivative liability and reflected as debt on the Company’s balance sheet with an original discount valued at $59,850, under the caption “Liabilities and Stockholders’ Equity – Current Liabilities – Secured promissory note – net of discount of $0 and $29,925, respectively”.
 
The Company also agreed to pay TCA various fees during the term of the Credit Agreement, including a fee of $100,000, payable in shares of our common stock (initially equal to 588,235 shares of common stock) (the “Fee Facility Shares”).  The number of Fee Facility Shares are adjusted upon the earlier of (i) the date that all Fee Facility Shares are sold or (ii) 12 months after the Initial Funding, such that the total value realized by TCA in connection with the sale of the Fee Facility Shares is equal to $100,000.   The Facility Fee is reflected on the Balance Sheet under the line item “Deferred financing costs” and is amortized over the term of the loan. The unamortized balance at January 31, 2014 is $0. The Fee Facility Shares are carried as a derivative liability so long as the Company is obligated to redeem the shares in cash. At each reporting period the Company evaluates its obligation and adjusts the liability as needed.
 
During the term of the Credit Agreement, the Company was prohibited from (i) incurring any indebtedness (other than in connection with the Credit Agreement or as otherwise approved by TCA); (ii) making any new investments, creating any encumbrances on our assets, permitting a change in control of the Company, issuing any shares of common stock (other than as otherwise approved by TCA and/or in connection with the issuance of up to 15% of our issued and outstanding common stock towards employee stock option plans or acquisitions); and (iii) affecting any transactions with affiliates of the Company or undertaking certain other actions as described in the Credit Agreement, except in the usual course of business.

NOTE 14 – CONCENTRATIONS

A significant portion of our revenue is derived from a limited number of customers. The loss of one or more of our significant customers would have a material impact on our revenues and results of operations.  During the year ended January 31, 2014, three customers accounted for 57% of net revenues.  During the year ended January 31, 2013, four customers accounted for 73% of net revenues.
 
During the year ended January 31, 2014, three vendors accounted for 93% of purchases.  During the year ended January 31, 2013, two vendors accounted for 87% of purchases.
 
NOTE 15 – SETTLEMENT OF LIABILITIES WITH IRONRIDGE
 
Ironridge Transaction #1
 
On March 6, 2013, pursuant to an order setting forth a stipulated settlement (“Order #1” and “Stipulation #1”) issued by the Superior Court of the State of California for the County of Los Angeles – Central District (the “Court”), Ironridge Global IV, Ltd. (“Ironridge”), who had previously purchased a total of $1,017,744 in accounts payable and accrued expenses (“Claim #1”) owed by us to various parties, was issued 7,000,000 shares of our common stock (“Initial Issuance #1”) in satisfaction of such accounts payable and accrued expenses, which amount came off our balance sheet and was legally released. The accounts payable and accrued expenses represented amounts originally owed by us to various creditors in connection with trade payables, the purchase of property and equipment, prior credit agreements, and attorneys’ fees.

 
F-19

 


The shares issued in Initial Issuance #1 were subject to adjustment as provided below:

 
·
From the date of Stipulation #1 until that number of consecutive trading days following the Issuance Date required for the aggregate trading volume of the Common Stock to exceed $10,000,000 (“Calculation Period #1”), Ironridge was to retain that number of shares of Common Stock of Initial Issuance #1 (“Final Amount #1”) with an aggregate value equal to (a) $1,068,631 (105% of Claim Amount #1), plus reasonable attorney’s fees and expenses, divided by (b) 80% of the following: the closing price of the Common Stock on the trading day immediately preceding the date of entry of Order #1 (which closing price was $0.35 per share), not to exceed the arithmetic average of the individual volume weighted average prices of any five trading days during Calculation Period #1, less $0.01 per share (“Share Price #1”).

 
·
If at any time during Calculation Period #1 Initial Issuance #1 was less than any reasonable possible Final Amount #1 or a daily volume weighted average price was below 80% of the closing price on the day before Issuance Date #1, Ironridge could request that the Company reserve and issue additional shares of Common Stock (“True Up Shares”), provided that no additional shares of common stock were requested.

 
·
At the end of Calculation Period #1, if the sum of Initial Issuance #1 and any True-Up Shares did not equal the Final Amount #1, adjustments were to be made to the shares of Common Stock issued pursuant to Stipulation #1 and either additional shares were to be issued to Ironridge or Ironridge was required to return shares to the Company for cancellation.

The Stipulation #1 provided that at no time shall shares of Common Stock be issued to Ironridge and its affiliates which would result in them owning or controlling more than 9.99% of the Company’s outstanding Common Stock.  The Company also agreed pursuant to Stipulation #1 that (a) until at least one half of the total trading volume for Calculation Period #1 had traded, the Company would not, directly or indirectly, enter into or effect any split or reverse split of Common Stock; (b) until at least thirty days from the date Order #1 was approved, the Company would not, directly or indirectly, issue any securities pursuant to a Form S-8 registration statement; and (c) until at least six months from the date Order #1 was approved, the Company would not, directly or indirectly, issue or sell any free trading securities for financing purposes (except for shares issuable to TCA Global Credit Master Fund, LP).

The Calculation Period #1 was satisfied as of June 18, 2013, at which time a final adjustment was made to the number of shares owed to Ironridge.  The final number of shares owed was 5,353,512, resulting in 1,646,488 shares of the initial 7,000,000 shares issued being returned by Ironridge and cancelled by the Company in July 2013.

For the nine months ended October 31, 2013, the Company, in connection with the above transaction, recorded a loss on extinguishment of debt in the amount of $340,398 which equaled the difference in the fair value of the shares issued to and the obligations assumed by Ironridge.

Ironridge Transaction #2

On May 24, 2013, pursuant to an order setting forth a stipulated settlement (“Order #2” and “Stipulation #2”) issued by the Court, Ironridge, who had previously purchased a total of an additional $1,278,058 in accounts payable and accrued expenses (“Claim #2”) owed by us to various parties, was issued 5,000,000 shares of our common stock (“Initial Issuance #2”) in satisfaction of such accounts payable and accrued expenses, which amount came off our balance sheet and was legally released. The accounts payable and accrued expenses represented amounts originally owed by us to various creditors in connection with trade payables, the purchase of property and equipment, prior credit agreements, and attorneys’ fees.

 
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The shares issued in Initial Issuance #2 are subject to adjustment as provided below:

 
·
From the date of Stipulation #2 until that number of consecutive trading days following Issuance Date #2 required for the aggregate trading volume of the Common Stock to exceed $20,000,000 (“Calculation Period #2”), Ironridge will retain that number of shares of Common Stock of the Initial Issuance #2 (“Final Amount #2”) with an aggregate value equal to (a) $1,278,058 (105% of Claim Amount #2), plus reasonable attorney’s fees and expenses, divided by (b) 80% of the following: the closing price of the Common Stock on the trading day immediately preceding the date of entry of Order #2 (which closing price was $0.32 per share), not to exceed the arithmetic average of the individual volume weighted average prices of any five trading days during Calculation Period #2, less $0.01 per share (“Share Price #2”) a nd (b) the positive difference, if any, between (i) $1,019,390 divided by 80% of the average of the lowest five lowest   volume weighted average prices  during Calculation Period #2, and (ii) $1,019,390 divided by 80% of the average of the lowest five   volume weighted average prices  during the period from March 4, 2013 to May 24, 2013 .
 
 
·
If at any time during Calculation Period #2 Initial Issuance #2 is less than any reasonable possible Final Amount #2 or a daily volume weighted average price is below 80% of the closing price on the day before Issuance Date #2, Ironridge may request that the Company reserve and issue True-Up Shares as soon as possible, and in any event, within one trading day. For each day after Ironridge requests issuance that shares are not, for any reason, received into Ironridge’s account in electronic form and fully cleared for trading, Calculation Period #2 shall be extended by one trading day.

 
·
At the end of Calculation Period #2, if the sum of Initial Issuance #2 and any True-Up Shares does not equal Final Amount #2, adjustments shall be made to the shares of Common Stock issued pursuant to Stipulation #2 and either additional shares shall be issued to Ironridge or Ironridge shall return shares to the Company for cancellation.

Stipulation #2 provides that at no time shall shares of Common Stock be issued to Ironridge and its affiliates which would result in them owning or controlling more than 9.99% of the Company’s outstanding Common Stock.  The Company also agreed pursuant to Stipulation #2 that (a) until at least one half of the total trading volume for Calculation Period #2 has traded, the Company would not, directly or indirectly, enter into or effect any split or reverse split of Common Stock; (b) until at least thirty days from the date Order #2 is approved, the Company would not, directly or indirectly, issue any securities pursuant to a Form S-8 registration statement; and (c) until at least six months from the date Order #2 is approved, the Company would not, directly or indirectly, issue or sell any free trading securities for financing purposes.

The Calculation Period #2 was satisfied as of September 12, 2013, at which time a final adjustment was made to the number of shares owed to Ironridge.  The final number of shares owed was 5,406,337, resulting in 406,337 additional shares being owed to Ironridge.

For the nine months ended October 31, 2013, the Company, in connection with the above transaction, recorded a loss on extinguishment of debt in the amount of $51,901 which equaled the difference in the fair value of the shares issued to and the obligations assumed by Ironridge.

Ironridge Transaction #3

On July 26, 2013, pursuant to an order setting forth a stipulated settlement (“Order #3” and “Stipulation #3”) issued by the Court, Ironridge, who had previously purchased an additional total of $2,499,372 in accounts payable and accrued expenses (“Claim #3”) owed by us to various parties, was issued 5,000,000 shares of our common stock (“Initial Issuance #3”) in satisfaction of such accounts payable and accrued expenses, which amount came off our balance sheet and was legally released. The accounts payable and accrued expenses represented amounts originally owed by us to various creditors in connection with trade payables, the purchase of property and equipment, prior credit agreements, and attorneys’ fees.

 
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The shares issued in Initial Issuance #3 are subject to adjustment as provided below:

 
·
From the date of Stipulation #3 until that number of consecutive trading days following Issuance Date #3 required for the aggregate trading volume of the Common Stock to exceed $50,000,000 (“Calculation Period #3”), Ironridge will retain that number of shares of Common Stock of Initial Issuance #3 (“Final Amount #3”) with an aggregate value equal to (a)(i) $2,624,340 (105% of Claim Amount #3), plus reasonable attorney’s fees and expenses, (ii) divided by 80% of the following:  the closing price of the Common Stock on the trading day immediately preceding the date of entry of Order #3 (which closing price was $0.50 per share), not to exceed the arithmetic average of the individual volume weighted average prices of any five trading days during Calculation Period #3, less $0.01 per share; and (b) the sum of (i) the positive difference, if any, between (A) $1,358,299.08 divided by 80% of the average of the lowest five individual daily volume weighted average prices during Calculation Period #3, and (B) $1,358,299.08 divided by 80% of the average of the lowest five individual daily volume weighted average prices during the period from May 24, 2013 to the date of entry of Order #3, and (ii) the positive difference, if any, between (A) the sum of one and a half times Initial Issuance #3, and (B) the number of shares otherwise owed pursuant to the foregoing.
 
 
·
If at any time during Calculation Period #3 Initial Issuance #3 is less than any reasonable possible Final Amount #3 or a daily volume weighted average price is below 80% of the closing price on the day before Issuance Date #3, Ironridge may request that the Company reserve and issue True-Up Shares as soon as possible, and in any event, within one trading day. For each day after Ironridge requests issuance that shares are not, for any reason, received into Ironridge’s account in electronic form and fully cleared for trading, Calculation Period #3 shall be extended by one trading day.

 
·
At the end of Calculation Period #3, if the sum of Initial Issuance #3 and any True-Up Shares does not equal Final Amount #3, adjustments shall be made to the shares of Common Stock issued pursuant to Stipulation #3 and either additional shares shall be issued to Ironridge or Ironridge shall return shares to the Company for cancellation.

Stipulation #3 provides that at no time shall shares of Common Stock be issued to Ironridge and its affiliates which would result in them owning or controlling more than 9.99% of the Company’s outstanding Common Stock and with regard to at least 5% of Final Amount #3, Ironridge shall not sell any shares of Common Stock issuable in connection with such amount until at least six months after entry of Order #3.  We also agreed pursuant to Stipulation #3 that (a) until at least one half of the total trading volume for Calculation Period #3 has traded, we would not, directly or indirectly, enter into or effect any split or reverse split of our Common Stock; and (b) until at least thirty days from the date Order #3 is approved, we would not, directly or indirectly, issue any securities pursuant to a Form S-8 registration statement.  Until at least 180 days after the end of Calculation Period #3, (a) we agreed that we would not issue, sell or agree to issue or sell any securities to any person other than Ironridge or its affiliates, except for:  (A) common stock, options or warrants to employees, officers, consultants or directors pursuant to Employee Stock Ownership Plans, or (B) restricted common stock, in transactions with strategic industry, business or operating partners that provide benefits other than the investment of funds, issued at a fixed price not subject to any adjustment, reset or variable element of any kind.

Through January 31, 2014, the Company, in connection with the above transaction, recorded an estimated loss on extinguishment of debt in the amount of $1,738,694 which equaled the difference in the fair value of the shares issued and the obligations assumed by Ironridge. The Company further recorded an additional amount to current liabilities for the excess shares owed to Ironridge of $2,288,066.  This liability was reduced by the issuance of 4,524,079 common shares to Ironridge in November 2013.  The remaining liability as of January 31, 2014 is $369,589.  This amount will be adjusted each period until Calculation Period #3 has ended and the true-up is completed.

NOTE 16 – SUBSEQUENT EVENTS

On April 24, 2014, the Company entered into a Subscription Agreement with Mother Parkers Tea & Coffee Inc. (“ Mother Parkers ” and the “ Subscription ”).  Pursuant to the Subscription, Mother Parkers purchased 7,333,529 units from the Company, each consisting of (a) one share of the Company’s common stock, $0.001 par value per share (the “ Shares ”); and (b) one (1) warrant to purchase one share of the Company’s common stock (the “ Warrants ” and collectively with the Shares, the “ Units ”) at a price per Unit equal to the fifty day weighted-average price per share of the Company’s common stock on the OTCQB market, for the fifty trading days ending March 7, 2014 (the date the parties first discussed the transactions contemplated by the Subscription), which was $0.34 (the “ Per Unit Price ”). The total purchase price paid for the Units was $2,500,000.
 
The Company processed two orders totaling $448,800 that were in transit to customers as of January 31, 2014, and will be recognized as revenue in the Company’s first quarter ending April 30, 2014.
 
In February 2014, the Company issued Ironridge an additional 3,366,316 shares of common stock pursuant to the July 2013 Order and Stipulation. See Note 15.


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