Item 1. Financial Statements.
JAMMIN JAVA CORP.
|
BALANCE SHEETS
|
|
|
April 30,
|
|
|
January 31,
|
|
|
|
2013
|
|
|
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
63,722
|
|
|
$
|
—
|
|
Restricted Cash
|
|
|
—
|
|
|
|
65,382
|
|
Accounts receivable
|
|
|
858,599
|
|
|
|
415,721
|
|
Prepaid expenses
|
|
|
172,421
|
|
|
|
173,264
|
|
Other current assets
|
|
|
3,000
|
|
|
|
24,387
|
|
Total Current Assets
|
|
|
1,097,742
|
|
|
|
678,754
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
21,390
|
|
|
|
19,705
|
|
License agreement
|
|
|
693,501
|
|
|
|
705,667
|
|
Deferred financing costs
|
|
|
—
|
|
|
|
43,490
|
|
Total Assets
|
|
$
|
1,812,633
|
|
|
$
|
1,447,616
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
547,693
|
|
|
$
|
762,663
|
|
Accounts payable - Related Party
|
|
|
2,258
|
|
|
|
2,258
|
|
Accrued expenses
|
|
|
103,428
|
|
|
|
92,586
|
|
Accrued expenses - Related party
|
|
|
64,788
|
|
|
|
30,073
|
|
Bank Overdraft
|
|
|
—
|
|
|
|
8,931
|
|
Notes payable - Related party
|
|
|
46,542
|
|
|
|
9,454
|
|
Secured promissory note - net of discount of $-0- and $29,925, respectively
|
|
|
—
|
|
|
|
320,075
|
|
Notes payable - current
|
|
|
9,931
|
|
|
|
—
|
|
Derivative liability
|
|
|
—
|
|
|
|
120,006
|
|
Total Current Liabilities
|
|
|
774,640
|
|
|
|
1,346,046
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
774,640
|
|
|
|
1,346,046
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 5,112,861,525 shares authorized; 86,793,357 and 79,373,546 shares issued and outstanding, as of April 30, 2013 and January 31, 2013, respectively
|
|
|
86,797
|
|
|
|
79,377
|
|
Shares due from Ironridge
|
|
|
(1,177,359
|
)
|
|
|
—
|
|
Additional paid-in-capital
|
|
|
9,606,020
|
|
|
|
7,081,011
|
|
Accumulated deficit
|
|
|
(7,477,465
|
)
|
|
|
(7,058,818
|
)
|
Total Stockholders' Equity
|
|
|
1,037,993
|
|
|
|
101,570
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
1,812,633
|
|
|
$
|
1,447,616
|
|
See accompanying notes to financial statements
JAMMIN JAVA CORP.
|
STATEMENTS OF OPERATIONS
|
|
|
Three Months Ended April 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
817,049
|
|
|
$
|
309,614
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Cost of sales products
|
|
|
318,161
|
|
|
|
234,533
|
|
Total cost of sales
|
|
|
318,161
|
|
|
|
234,533
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
$
|
498,888
|
|
|
$
|
75,081
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
275,157
|
|
|
|
575,663
|
|
Selling and marketing
|
|
|
86,213
|
|
|
|
177,778
|
|
General and administrative
|
|
|
451,802
|
|
|
|
216,060
|
|
Total operating expenses
|
|
|
813,172
|
|
|
|
969,501
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Other expense (Including loss on settlement of
liabilities of $128,836)
|
|
|
3,135
|
|
|
|
—
|
|
Interest income
|
|
|
—
|
|
|
|
310
|
|
Interest (expense)
|
|
|
(107,498
|
)
|
|
|
(69
|
)
|
Total other income (expense)
|
|
|
(104,363
|
)
|
|
|
241
|
|
Net Loss
|
|
$
|
(418,647
|
)
|
|
$
|
(894,179
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
|
83,903,387
|
|
|
|
76,744,150
|
|
See accompanying notes to financial statements
JAMMIN JAVA CORP.
|
STATEMENTS OF CASH FLOWS
|
|
|
Three Months Ended April 30,
|
|
|
|
2013
|
|
|
2012
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(418,647
|
)
|
|
$
|
(894,179
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
110,864
|
|
|
|
—
|
|
Common Stock Issued to Ironridge for debt
extinguishment, net of TCA stock buy-back
|
|
|
28,837
|
|
|
|
—
|
|
Share based employee compensation
|
|
|
211,566
|
|
|
|
475,154
|
|
Depreciation
|
|
|
1,877
|
|
|
|
(12,776
|
)
|
Amortization of license agreement
|
|
|
12,166
|
|
|
|
—
|
|
Amortization of debt discount and deferred financing
|
|
|
43,490
|
|
|
|
—
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(442,878
|
)
|
|
|
(52,293
|
)
|
Prepaid expenses and other current assets
|
|
|
22,230
|
|
|
|
(8,305
|
)
|
Accounts payable
|
|
|
(214,972
|
)
|
|
|
106,664
|
|
Accrued expenses
|
|
|
45,557
|
|
|
|
—
|
|
Bank Overdraft
|
|
|
(8,931
|
)
|
|
|
—
|
|
Derivative liability
|
|
|
(120,006
|
)
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(728,847
|
)
|
|
|
(385,735
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows Used in Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,562
|
)
|
|
|
—
|
|
Investment in restricted cash
|
|
|
65,382
|
|
|
|
—
|
|
Net cash provided by investing activities
|
|
|
61,820
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment of notes payable - related party
|
|
|
34,717
|
|
|
|
(11,835
|
)
|
Advances from related parties
|
|
|
2,371
|
|
|
|
—
|
|
Repayment of promissory note, net of
financing costs
|
|
|
(350,000
|
)
|
|
|
—
|
|
Common Stock Issued to Ironridge for debt extenguishment
|
|
|
1,003,805
|
|
|
|
—
|
|
Borrowing on short term debt
|
|
|
—
|
|
|
|
(5,031
|
)
|
Financing on short term debt
|
|
|
39,856
|
|
|
|
15,280
|
|
Net cash provided by financing activities
|
|
|
730,749
|
|
|
|
(1,586
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
63,722
|
|
|
|
(387,321
|
)
|
Cash at beginning of period
|
|
|
—
|
|
|
|
835,878
|
|
Cash at end of period
|
|
$
|
63,722
|
|
|
$
|
448,557
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
54,103
|
|
|
$
|
103
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions:
|
|
|
|
|
|
|
|
|
Financed insurance policy
|
|
$
|
12,414
|
|
|
$
|
15,280
|
|
Extinguishment of debt
|
|
$
|
2,310,000
|
|
|
$
|
—
|
|
See accompanying notes to the financial statements
JAMMIN
JAVA CORP.
NOTES TO FINANCIAL STATEMENTS
April 30, 2013
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of Jammin
Java Corp. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction
with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC
on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation
of financial position and the results of operations for the interim periods presented have been reflected herein. The results of
operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future
period. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial
statements for the most recent fiscal year as reported in the Company’s Annual Report on Form 10-K have been omitted. The
accompanying balance sheet at January 31, 2013 has been derived from the audited balance sheet at January 31, 2013 contained in
such Form 10-K.
As used in this Quarterly Report, the terms “we,” “us,”
“our,” “Jammin Java”and “Company” mean Jammin Java Corp., unless otherwise indicated. All dollar
amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.
Note 2. Business Overview and Summary of Accounting Policies
The Company was incorporated in Nevada on September 2004 under the
name “Global Electronic Recovery Corp.” In February 2008, the Company changed its name to “Marley Coffee Inc.”
when it merged its then newly formed subsidiary, “Marley Coffee Inc.” into the Company. In July 2009, the Company changed
its name to “Jammin Java Corp.” when it merged its then newly formed subsidiary, Jammin Java Corp., into the Company.
The Company’s common stock is quoted on the OTCQB market maintained by OTC Markets Group, Inc., a quotation service that
displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities, under the symbol “JAMN.”
Jammin Java, doing business as Marley Coffee, is a United States
(U.S.)-based company that provides sustainably grown, ethically farmed and artisan roasted gourmet coffee through multiple U.S.
and international distribution channels, using the Marley Coffee brand name. U.S. and international grocery retail channels have
become the Company’s largest revenue channels, followed by online retail, office coffee services (referred to herein as OCS),
food service outlets and licensing. The Company intends to continue to develop these revenue channels and achieve a leadership
position in the gourmet coffee space by capitalizing on the global recognition of the Marley name through the licensing of
the Marley Coffee trademarks.
Reclassifications.
Certain prior year amounts have been reclassified
to conform with the current year presentation for comparative purposes.
Use of Estimates in Financial Statement Preparation.
The
preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“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. While management believes that the estimates and assumptions used in the preparation
of the financial statements are appropriate, actual results could differ from those estimates.
Fair Value.
The Company has adopted a single definition
of fair value, a framework for measuring fair value and expanded disclosures concerning fair value. In this valuation, the exchange
price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement
date and 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. As of April 30, 2013, the Company had
no money market account. No Interest income was recognized for the three months ended April 30, 2013. As of April
30, 2013, the Company held no auction rate securities.
Revenue Recognition.
Revenue is derived from the sale of
coffee products and is recognized on a gross basis upon shipment. 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.
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;
including, 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 length of time accounts receivable are past due. The Company provides reserves for accounts
receivable when they become uncollectible. The Company has determined that no allowance for doubtful accounts was required at April
30, 2013.
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.
Depreciation was $1,877 and $1,088 for the three months ended April
30, 2013 and 2012, respectively.
Impairment of Long-Lived Assets.
Long-lived
assets consist of a license agreement and property and equipment. The license agreement is reviewed for impairment at least
annually whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable
(see Note 4). Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the
use of the asset. 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 long-lived
assets including the license and determined that no impairment existed at April 30, 2013.
Stock-Based Compensation.
Pursuant to the provisions of Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10, “Compensation
– Stock Compensation,” 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 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 measurement 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 valued at (i)
the market value of the stock on the date of issuance or (ii) the value of the services, whichever is more clearly determinable.
If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital
account. We estimate volatility of our publicly-listed common stock by considering historical stock volatility.
Income Taxes.
The Company follows ASC 740,
Income
Taxes
. Deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between
the financial reporting basis of assets and liabilities and their tax basis at each reporting period. These amounts are adjusted,
as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences 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 equals net earnings or loss divided by the weighted average of shares outstanding during the year. Diluted
earnings per share includes 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 three months ended April 30, 2013 and 2012, respectively. In addition, basic and diluted
earnings per share for such periods are the same because all potential common equivalent shares would be anti-dilutive
including the 9,400,000 outstanding options as of April 30, 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.
Note 3 – Going Concern and Liquidity
These financial statements have been prepared by management assuming
that the Company will be able to continue as a going concern and contemplate the realization of assets and the satisfaction of
liabilities in the normal course of business. These financial statements do not include any adjustments to the recoverability of
recorded asset amounts or the amounts or classifications of liabilities that might be necessary should the Company be unable to
continue as a going concern.
The Company incurred a net loss of $418,647 for the
three months ended April 30, 2013, and has an accumulated deficit since inception of $7,477,465. 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 may, in the future, need to secure additional funds
through future equity sales. No assurance can be given that additional financing will be available, or if available, will be
on terms acceptable to the Company.
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. Management intends
to increase sales by increasing the Company’s product offerings, expanding its direct sales force and expanding its domestic
and international distributor relationships.
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. As a result, the
opinion the Company received from its independent registered public accounting firm on its January 31, 2013 financial statements
contains an explanatory paragraph stating that there is a substantial doubt regarding the Company’s ability to continue as
a going concern.
Note 4. Trademark License Agreements
|
|
April 30,
2013
|
|
January 31,
2013
|
License Agreement
|
|
$
|
705,667
|
|
|
$
|
766,000
|
|
Impairment
|
|
|
—
|
|
|
|
(36,000)
|
|
Accumulated amortization
|
|
|
(12,166
|
)
|
|
|
(24,333)
|
|
License Agreement, net
|
|
|
693,501
|
|
|
|
705,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization period is fifteen years. Amortization expense consists of the following:
|
|
|
Three Months Ended April 30,
|
|
|
2013
|
|
2012
|
License Agreement
|
|
$
|
(12,166
|
)
|
|
$
|
—
|
|
Total License Agreement Amortization Expense
|
|
$
|
(12,166
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
As of April 30, 2013, the remaining useful life of the Company's license agreement was approximately 14.25 years. The following table shows the estimated amortization expense for those assets for the remaining current fiscal year, each of the four succeeding fiscal years and thereafter.
|
|
|
|
Years Ending January 31,
|
|
|
2014
|
|
|
$
|
36,501
|
|
2015
|
|
|
|
48,667
|
|
2016
|
|
|
|
48,667
|
|
2017
|
|
|
|
48,667
|
|
2018
|
|
|
|
48,667
|
|
Thereafter
|
|
|
|
462,332
|
|
Total
|
|
|
$
|
693,501
|
|
|
|
|
|
|
|
|
Note 5 – Notes Payable
On July 19, 2012, we 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, we 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.
The Credit Agreement and Revolving
Note were terminated in connection with the March 2013 Stipulation, described in Note 8, 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
were cancelled in May 2013. See Note 8 for further details.
Note 6 – Related Party Transactions
Transactions with Marley Coffee Ltd
During the three months ended April 30,
2013, the Company paid $84,880 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.
Capital Advance by Company President&
CEO/Shareholders
During the three months ended April 30,
2013, Anh Tran, President of the Company, and Brent Toevs, Chief Executive Officer, advanced the Company funds to supplement working
capital totaling a balance due to Mr. Tran and Mr. Toevs at April 30, 2013 of $24,552 and $22,000, respectively. The advances are
unsecured, non-interest bearing and due on demand.
Note 7 – Stock Options
Share-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, 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 April 30, 2013, 1,824,631 shares of common stock and 5,400,000 options are outstanding under
the 2012 Equity Compensation Plan.
During the three month period ended April 30, 2013, the Company
recognized share-based compensation expenses totaling $211,566. The remaining amount of unamortized stock options expense at April
30, 2013 is $1,531,938.
The intrinsic value of exercisable and outstanding options at April 30, 2013 was $540,000.
Activity in options during the three month period ended April 30,
2013 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, 2013
|
|
|
9,400,000
|
|
|
$
|
0.26
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Forfeited and canceled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2013
|
|
|
9,400,000
|
|
|
$
|
0.26
|
|
|
|
4.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at April 30, 2013
|
|
|
816,667
|
|
|
$
|
0.16
|
|
|
|
4.72
|
|
Note 8 – Settlement of Liabilities with Ironridge
Ironridge Transaction
On March 6, 2013, pursuant to an
order setting forth a stipulated settlement (the “Order” and the “Stipulation”) 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 (the “Claim”) owed by us to various parties, was issued 7,000,000 shares of our common stock
(the “Initial Issuance”) in satisfaction of such accounts payable and accrued expenses, which amount will come
off our balance sheet and have been 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.
The shares issued in the Initial Issuance
are subject to adjustment as provided below:
|
—
|
From the date of the Stipulation 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 (the “Calculation Period”), Ironridge will retain that number of shares of Common Stock of the Initial Issuance (the “Final Amount”) with an aggregate value equal to (a) $1,068,631 (105% of the Claim Amount), 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 the Order (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 the Calculation Period, less $0.01 per share (the “Share Price”).
|
|
—
|
If at any time during the Calculation Period the Initial Issuance is less than any reasonable possible Final Amount or a daily volume weighted average price is below 80% of the closing price on the day before the Issuance Date, Ironridge may request that the Company reserve and issue additional shares of Common Stock (the “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, the Calculation Period shall be extended by one trading day.
|
|
—
|
At the end of the Calculation Period, if the sum of the Initial Issuance and any True-Up Shares does not equal the Final Amount, adjustments shall be made to the shares of Common Stock issued pursuant to the Stipulation and either additional shares shall be issued to Ironridge or Ironridge shall return shares to the Company for cancellation.
|
The Stipulation 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 the Stipulation that (a) until at least
one half of the total trading volume for the Calculation Period 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 the Order 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 the Order is 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).
At April 30, 2013, pursuant to the adjustment
of common shares contemplated by the Order, the Company estimates the ultimate settlement with Ironridge will take less common
shares and has re-evaluated the number of common shares to settle at April 30, 2013 to be 4,294,524. Accordingly, the loss on
extinguishment of the liabilities under the Ironridge transaction is reflected in the accompanying financial statements based
management’s estimates as follows:
Fair Value of Shares to settle (4,294,524)
|
$
|
1,202,467
|
|
|
|
|
|
Carrying amount
of liabilities released
|
|
(1,073,631
|
)
|
|
|
|
|
Estimated Loss
on extinguishment
|
$
|
128,836
|
|
Additionally,
at April 30, 2013, management presently estimates Ironridge will need to return 2,705,476 shares of common stock. It is noted
that the loss reflected above may vary from current estimates once the actual settlement with Ironridge occurs and such settlement
is expected to occur when the Company meets all conditions stated in the Order.
Note 9 – Commitments and Contingencies
The Company’s commitments and contingencies include the usual
claims and obligations of a wholesaler and distributor of coffee products in the normal course of business. The Company may be,
from time to time, involved in legal proceedings incidental to the conduct of our business. The Company is not involved in any
litigation or legal proceedings as of April 30, 2013.
Note 10 – Subsequent Events
Ironridge Transaction
On May 24, 2013, pursuant to an order
setting forth a stipulated settlement (the “Order” and the “Stipulation”) 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 $1,278,058 in accounts payable and accrued
expenses (the “Claim”) owed by us to various parties, was issued 5,000,000 shares of our common stock (the
“Initial Issuance”) in satisfaction of such accounts payable and accrued expenses, which amount will come off our
balance sheet and will significantly improve 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 Issuance
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 Report on Form 8-K filed with the Securities and Exchange Commission on May 15, 2013).
The Stipulation 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 the Stipulation that (a) until at least
one half of the total trading volume for the Calculation Period 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 the Order 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 the Order is approved, the Company would not, directly or indirectly, issue or sell any free
trading securities for financing purposes.
Issued Shares
In May 2013, the Company issued 30,000 shares at $0.36 per share
for investor relation services rendered.
Retired Shares
In May 2013, the Company cancelled 588,235 shares of common stock
as part of the Ironridge settlement of TCA discussed in Note 5.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
As used in this Quarterly Report, unless the context requires otherwise,
references to “the Company,” “we,” “us,” “our,” “Jammin Java” and “Jammin
Java Corp.” refer specifically to Jammin Java Corp. This information should be read in conjunction with the interim unaudited
financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements
and notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the year ended January 31, 2013.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q
and
the documents incorporated by reference, include “forward-looking statements” that involve risks and uncertainties,
as well as assumptions that, if they prove incorrect or never materialize, could cause our results to differ materially and adversely
from those expressed or implied by such forward-looking statements. Examples of forward-looking statements include, but are not
limited to any statements, predictions and expectations regarding our earnings, revenues, sales and operations, operating expenses,
anticipated cash needs, capital requirements and capital expenditures, needs for additional financing, use of working capital,
plans for future products, services and distribution channels, anticipated growth strategies, planned capital raises, ability to
attract distributors and customers, sources of net revenue, anticipated trends and challenges in our business and the markets in
which we operate, the impact of economic and industry conditions on our customers and our business, customer demand, our competitive
position, the outcome of any litigation against us, critical accounting policies and the impact of recent accounting pronouncements.
Additional forward-looking statements include, but are not limited to, statements pertaining to other financial items, plans, strategies
or objectives of management for future operations, our financial condition or prospects, and any other statement that is not historical
fact. Forward-looking statements are often identified by the use of words such as “may,” “might,” “intend,”
“should,” “could,” “can,” “would,” “continue,” “expect,”
“believe,” “anticipate,” “estimate,” “predict,” “potential,” “plan,”
“seek” and similar expressions and variations or the negativities of these terms or other comparable terminology.
These forward-looking statements are based
on the expectations, estimates, projections, beliefs and assumptions of our management based on information currently available
to management, all of which is subject to change. Such forward-looking statements are subject to risks, uncertainties and other
factors that are difficult to predict and could cause actual results to differ materially from those stated or implied by our forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified under
“Risk Factors” in this Form 10-Q and incorporated by reference herein. We undertake no obligation to revise or update
publicly any forward-looking statements to reflect events or circumstances after the date of such statements for any reason except
as otherwise required by law.
The information contained in this
Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We
urge you to carefully review and consider the various disclosures made by us in this Quarterly Report, our Annual Report on
Form 10-K for the year ended January 31, 2013 and in our other reports filed with the Securities and Exchange Commission (the
“SEC”).
Overview
Jammin Java, doing business as Marley Coffee, is a United
States-based company that provides sustainably grown, ethically- farmed and artisan roasted gourmet coffee through multiple
United States and international distribution channels. We intend to develop a significant share of these markets and achieve
a leadership position by capitalizing on the global recognition of the “Marley” brand name. We hope to capitalize
on the guidance and leadership of our Chairman, Rohan Marley, and to increase our sales through the marketing of products
using the likeness of, and reflecting the personality of, Mr. Marley. Additionally, through a licensing agreement with the
family of the late reggae performer, Robert Nesta Marley, professionally known as Bob Marley (which family members include
Rohan Marley, our Chairman and the son of Bob Marley), we are provided the worldwide right to use the name “Marley
Coffee” and reasonably similar variations thereof.
We believe the key to our growth is a multichannel distribution
and sales strategy. Since August 2011, we have been introducing a wide variety of coffee products through multiple distribution
channels using the Marley Coffee brand name. The main channels of revenue for the Company are now and are expected to continue
to be grocery retail, online retail, office coffee services (OCS), foodservice, green bean coffee sales and vending and automated
retailing.
In order to market our products in these channels, we have
developed a variety of coffee products in varying formats. The Company offers an entire line of coffee in whole bean and
ground form with varying sizes including 2.5 ounce (oz), 8oz, 12oz and 2 pound (lbs) sizes. The Company also offers a
“single serve” solution with its compostable Single-Serve Pods for Bunn® and other pod-based home and office
brewers. The Company recently launched its Marley Coffee Real Cup; compatible cartridges, for use in most models of
Keurig®’s K-Cup brewing system. The Company is also working to provide coffee vending solutions through its partner
AVT, Inc.
On September 13, 2012, the Company entered
into a fifteen (15) year license agreement (renewable for two additional fifteen (15) year terms thereafter in the option of the
Company) with an effective date of August 7, 2012 with Fifty-Six Hope Road Music Limited, a Bahamas international business company
(“Fifty-Six Hope Road” and the “FSHR License Agreement”). Rohan Marley, our Chairman, owns an interest
in and serves as a director of Fifty-Six Hope Road. Pursuant to the FSHR License Agreement, Fifty-Six Hope Road granted the Company
a worldwide, exclusive, non-transferable license to utilize the “Marley Coffee” trademarks (the “Trademarks”)
in connection with (i) the manufacturing, advertising, promotion, sale, offering for sale and distribution of coffee in all its
forms and derivations, regardless of portions, sizes or packaging (the “Exclusive Licensed Products”) and (ii) coffee
roasting services, coffee production services, and coffee sales, supply, distribution and support services, provided that the Company
may not open retail coffee houses utilizing the Trademarks. Fifty-Six Hope Road owns and controls the intellectual property rights
in and to the late reggae performer, Robert Nesta Marley, professionally known as Bob Marley, including the Trademarks. In addition,
Fifty-Six Hope Road granted the Company the right to use the Trademarks on advertising and promotional materials that pertain solely
to the sale of coffee cups, coffee mugs, coffee glasses, saucers, milk steamers, machines for brewing coffee, espresso and/or cappuccino,
grinders, water treatment products, tea products, chocolate products, and ready-to-use (instant) coffee products (the “Non-Exclusive
Licensed Products”, and together with the Exclusive Licensed Products, the “Licensed Products”). Licensed Products
may be sold by the Company pursuant to the FSHR License Agreement through all channels of distribution, provided that, subject
to certain exceptions, the Company cannot sell the Licensed Products by direct marketing methods (other than the Company’s
website), including television, infomercials or direct mail without the prior written consent of Fifty-Six Hope Road. Additionally,
FSHR has the right to approve all Licensed Products, all advertisements in connection therewith and all product designs and packaging.
The agreement also provides that FSHR shall own all rights to any domain names (including marleycoffee.com), incorporating the
Trademarks.
In consideration for the foregoing licenses,
the Company agreed to pay royalties to Fifty-Six Hope Road in an amount equal to 3% of the net sales of all Licensed Products
on a quarterly basis. In addition, such royalty payments are to be deferred during the first 20 months of the term of the FSHR
License Agreement, and such deferred payments shall be paid on a quarterly-basis thereafter until paid in full. At April 30, 2013,
$19,715 has been accrued for such royalty fees.
The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the date of the unaudited financial statements and revenues and expenses during the periods reported. Actual results could
differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most
significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended
January 31, 2013. We believe that for the three months ended April 30, 2013, there have been no material changes to this information.
Recent Accounting Pronouncements
For the three month period ended April 30, 2013, there were no accounting
standards or interpretations issued that are expected to have a material impact on our financial position, operations or cash
flows.
Products and Revenue Channels
The Company’s objective is to position
Marley Coffee as the premiere brand across all of the distribution channels for which we license the use of the “Marley”
name and to capitalize on the likeness of our Chairman,Rohan Marley.
Geographically, we initially focused on
retail grocery sales and marketing on the West Coast and Southwest portions of the United States and Western Canada. During the
past year we have expanded our distributor relationships nationally in the United States. We expect our ongoing discussions with
retailers will enable us to place our products in more chains throughout the year and we continue to seek to expand our product
placement with grocery retailers and distributors throughout the United States and internationally.
In 2012 our primary product lines
were our bagged coffee. We sell 8oz and 12oz ground and whole bean bagged coffee primarily to the retail grocery channel. We
sell 2lb whole bean and 2.5oz fractional packs primarily to the food service and Office Coffee Service or Breakroom
industry.
In late November, 2012 we launched our Marley Coffee RealCups; a
single serve; compatible cartridge, for use in most models of Keurig® ‘s K-Cup brewing system. The coffee single serve
segment is the fastest growing sector of the coffee industry and the fastest growing part of our business. We expect RealCups to
generate about half of our revenues in the near term.
We generate revenues in this category in two ways 1) by
selling directly to retailers;and 2) through a licensing agreement with our roasters Mother Parkers Tea and Coffee. For
direct sales, we handle all aspects of selling, merchandising and marketing of the products to retailers. Through the
licensing agreement, our brokers or Mother Parkers Tea and Coffee, develops the relationships with retailers and handles
everything from selling, merchandising, discounting, promoting and marketing and we receive a $0.03 licensing fee per cup
sold. In the first quarter of fiscal 2014 we generated $44,630 in licensing fees equaling 1,487,652 RealCups sold. The gross
wholesale value if we sold the cups directly would be worth approximately $744,000 at $0.50 per cup.
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, have created Marley Coffee branded
coffee self-automated vending machines designed to target college campuses, traditional retail locations, high-density traffic
areas such as theaters and hotels and traditional foodservice vendors.
Marley Coffee BikeCaffe Mobile Franchise
Concept
. Marley Coffee branded BikeCaffe Coffee Bike, found in select cities in the U.S. and Europe, are a new approach
to serving coffee to customers. These three-wheeled, geared bikes are environmentally-friendly, full-service cafes that roll from
location to location. Bike Caffe franchises are available to Marley Coffee branded bikes that will sell coffee drinks exclusively
featuring Marley Coffee beans.
Additionally, subsequent to the end of fiscal 2013, we affected
two transactions with Ironridge, defined and described in greater detail below under “Funding and Financing Agreements”
– “Ironridge Transactions”, pursuant to which $1,017,744 (during the three months ended April 30, 2013) and $1,278,058
(subsequent to April 30, 2013) 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, will come off our balance sheet and will significantly improve
our liquidity.
Moving forward throughout fiscal 2014, we hope to expand our operations
into new markets and into new retail grocery locations, leverage the Trademarks and create additional brand awareness for our products.
Throughout fiscal 2013, the Company issued shares of
common stock in consideration to its officers, directors and employees in an effort to maximize its cash on hand and
improve liquidity, which practice the Company has continued in the beginning of fiscal 2014. The Company has also accrued
salaries for several of its officers and employees and will continue accruing such salaries or paying such salaries in shares
of Form S-8 common stock until it has sufficient available funds to pay such salaries in cash. As the Company continues to
grow it will need to raise additional cash in order to maintain its growth and fund its operations. If the Company is unable
to access additional capital moving forward, it will hurt our ability to maintain growth and possibly jeopardize our ability
to maintain our current operations. There can be no assurance that the Company will be able to increase sales, reduce
expenses or obtain additional financing, if necessary, at a level to meet its current obligations and continue as a going
concern.
RESULTS OF OPERATIONS
Results of Operations
Comparison of the Three months Ended
April 30, 2013 and 2012
Sales Revenue.
Sales
revenues for the three months ended April 30, 2013 and 2012 were $817,049 and $309,614, respectively, which represents an
increase of $507,435 from the prior period. Sales revenue increased as a result of the Company’s continued maturation
from its development stage, the expansion of product lines and verticals and its ability to execute on its business plan.
Cost of Sales
. Cost of sales
for the three months ended April 30, 2013 and 2012 were $318,161 and $234,533, respectively, which represents an increase of
$83,628, which was mostly attributed to increased sales, especially of items with larger profit margins.
Compensation and Benefit Expenses.
Compensation
and benefits for the three months ended April 30, 2013 and 2012, were $275,157 and $575,663, respectively, which represented a
decrease of $300,506 from the prior period. The decrease was mostly a result from a decrease of stock compensation expenses and
executive officer payroll.
Selling and Marketing Expenses
.
Selling and marketing expenses for the three months ended April 30, 2013 and 2012, were $86,213 and $177,778, respectively, which
represents a decrease of $91,565 from the prior period. The decrease was principally the result of a large marketing campaign done
in the prior period and not in the current period. As the business has developed, the customer base has increased and sales have
grown more organically. We anticipate, however, experiencing significant marketing expenses throughout 2014 as we will seek to
expand our customer base even more and build out the Company brand.
General and
Administrative Expenses.
General and administrative expenses for the three months ended April 30, 2013 and 2012, were
$451,802 and $216,060, respectively, which represents an increase of $235,742 from the prior period. The increase was
principally the result of overall increased expansion of the business and the need to support that expansion mostly through
professional fees and payroll. General and administrative expense also increased due to increased corporate reporting
expenses and increased insurance expenses.
Other Income (Expense).
We had
other expense of $3,135 for the three months ended April 30, 2013, compared to $310 in other expense for the three
months ended April 30, 2012. Other expense for the three months ended April 30, 2013 was in connection with the
Ironridge transaction that caused a loss on extinguishment of debt from the issuance of shares but is subject to a true-up
after the “calculation period.” (see Note 8 to the financial statements included herein) and the gain on
derivatives pertaining to TCA. We also had interest expense of $107,498 for the three months ended April 30, 2013, compared
to interest expense of $69 for the three months ended April 30, 2012. Interest expense increased due to increased interest
bearing debt mostly from the TCA note (described below).
Net Loss.
We incurred a net
loss of $418,647 and $894,179 for the three months ended April 30, 2013 and 2012, respectively, a decrease in net loss of $475,532
from the prior period. The principal reason for the decrease in net loss is increased sales revenue and lower operating expenses
offset by higher cost of sales and the recognition of loss on extinguishment of debt from the Ironridge transaction (described
below). Non-cash payments of common stock included in net loss for the three months ended April 30, 2013 and 2012 were $2,420,863
and $475,154 respectively.
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:
|
|
April 30, 2013
|
|
|
January 31, 2013
|
|
|
Increase / (Decrease)
|
|
Working Capital
|
|
$
|
323,102
|
|
|
$
|
(667,292
|
)
|
|
$
|
990,394
|
|
Cash
|
|
$
|
63,722
|
|
|
$
|
—
|
|
|
$
|
63,722
|
|
At April 30, 2013, we had total assets
of $1,812,633 and total liabilities of $774,640. Our current sources of liquidity include our existing cash and cash equivalents
and cash from operations, provided that we have historically raised funds through the sale of common stock in private placements
as well. For the three months ended April 30, 2013, although we generated sales of $817,049 we had a net loss of $418,647. Included
in this loss were non-cash payments of common stock totaling $1,529,494.
Total current assets of $1,097,742 as of
April 30, 2013 included cash of $63,722, accounts receivable of $858,599, prepaid expenses of $172,421, and other current assets
of $3,000.
We had total assets as of April 30, 2013
of $1,812,633 which included the total current assets of $1,097,742, $21,390 of property and equipment, net, and $693,501 of license
agreement, representing the value of the FSHR License Agreement.
We had total liabilities of $774,640 as
of April 30, 2013, which were solely current liabilities and included $547,693 of accounts payable, $2,258 of accounts payable
- related party, representing amounts loaned to us by Brent Toevs, our CEO, which amount is unsecured, non-interest bearing and
due on demand, $103,428 of accrued expenses, $64,788 of accrued expenses, related party relating to amounts owed to Marley Coffee
Canada, Inc., a related party of Marley Coffee, LLC, which Rohan Marley, our Chairman, serves as a co-Manager of (“MCL”),
$46,542 of related party note payable, representing amounts loaned to us by Anh Tran, our President, and Brent Toevs, our CEO which
amounts are unsecured, non-interest bearing and due on demand, and $9,931 of note payable.
As of the filing of this report, we believe
that our cash position and the revenues we generate will be sufficient to meet our working capital needs for approximately the
next twelve months based on the pace of our planned activities. During the next 12 months, we estimate our funding requirements
to expand our operations to be approximately $1,200,000. There can be no assurance that any such financing will be available upon
terms and conditions acceptable to us, if at all.
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 and May 2013, we affected
the transactions with Ironridge, described in greater detail below, pursuant to which $1,017,744 (during the three months
ended April 30, 2013) and $1,278,058 (subsequent to April 30, 2013), respectively, 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, will come off our balance sheet and will significantly improve our liquidity.
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. 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 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.
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, 2013 financial
statements contains an explanatory paragraph stating that there is a substantial doubt regarding our ability to continue as a going
concern.
Cash Flows
|
|
Three Months Ended
|
|
|
April 30, 2013
|
|
April 30, 2012
|
Net cash used in operating activities
|
|
$
|
(728,847
|
)
|
|
$
|
(385,735
|
)
|
Net cash provided by investing activities
|
|
$
|
61,820
|
|
|
$
|
—
|
|
Net cash provided by financing activities
|
|
$
|
730,749
|
|
|
$
|
(1,586
|
)
|
Operating Activities
Compared to the corresponding period in
2012, net cash used in operating activities increased by approximately $343,112 for the three months ended April 30, 2013. The
increase was primarily due to our net loss of $418,647, and higher utilization of cash resources for payment of operating liabilities
such as accounts payable, pre-paid expenses and other current assets, and other current liabilities. The impact of such decrease
was offset by $28,837 of net common stock issued to Ironridge in connection with the transaction described below.
Investing Activities
Compared to the corresponding period
in fiscal 2012, net cash provided by investing activities increased by approximately $61,820 due primarily to restricted cash
received in connection with the termination of our sweep fund account with TCA Global Master Fund, as discussed below.
Financing Activities
Compared to the corresponding period in
fiscal 2012, net cash provided by financing activities increased by approximately $732,335 for the three months ended April 30,
2013 primarily because of the shares of common stock issued to Ironridge in consideration for debt extinguishment (as described
in greater detail below).
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
Credit Agreement
On July 19, 2012, we 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 provides to secure the repayment of the
amounts borrowed.
On July 19, 2012, we 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.
The Credit Agreement and
Revolving Note were terminated in connection with the March 2013 Stipulation, described below under
“Ironridge Transactions“, pursuant to which Ironridge purchased the outstanding debt which we owed to TCA and
also purchased $100,000 of outstanding liabilities relating to 588,235 shares of our common stock originally issued to TCA,
which shares TCA returned to the Company for cancellation and which shares were cancelled in May 2013.
Ironridge Transactions
On March 6, 2013 and May 24, 2013, pursuant
to two 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 and $1,278,058, 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 (in March 2013 in connection with the March 2013 Order) and will come off (in May 2013 in connection with the May 2013
Order) our balance sheet and will significantly improve 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 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 and May 15, 2013,
respectively).
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 Stipulations 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.
The result of the Orders and
Stipulations is that a total of $1,017,744 (during the three months ended April 30, 2013) and $1,278,058 (subsequent to April
30, 2013) 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, will come off our balance sheet and will
significantly improve our liquidity.
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 April 30, 2013, we are not involved in any
material unconsolidated SPEs.