10-Q 1 jmba-10q_20180403.htm 10-Q jmba-10q_20180403.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

 

Jamba, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

001-32552

20-2122262

(State or other jurisdiction

of incorporation)

(Commission

File No.)

(I.R.S. Employer

Identification No.)

 

3001 Dallas Parkway, Suite 140,

Frisco, Texas 75034

(Address of principal executive offices)

Registrant’s telephone number, including area code: 

(469) 294-9600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes     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    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” or “emerging growth 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

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for the complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes     No 

The number of shares of common stock of Jamba, Inc. outstanding as of June 19, 2018 was 15,588,206.

 


 

JAMBA, INC.

QUARTERLY REPORT ON FORM 10-Q

QUARTERLY PERIOD ENDED APRIL 3, 2018

 

Item

 

Page

 

 

 

 

 

 

 

PART I

 

 

 

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

1.

 

FINANCIAL STATEMENTS (UNAUDITED)

 

3

 

 

    CONDENSED CONSOLIDATED BALANCE SHEETS

 

3

 

 

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

4

 

 

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

5

 

 

    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

6

2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

15

3.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

24

4.

 

CONTROLS AND PROCEDURES

 

24

 

 

 

 

 

 

 

PART II

 

 

 

 

OTHER INFORMATION

 

25

 

 

 

 

 

1.

 

LEGAL PROCEEDINGS

 

25

1A.

 

RISK FACTORS

 

25

2.

 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

25

3.

 

DEFAULTS UPON SENIOR SECURITIES

 

25

4.

 

MINE SAFETY DISCLOSURES

 

25

5.

 

OTHER INFORMATION

 

25

6.

 

EXHIBITS

 

26

 

 

 

 

 

 

 

SIGNATURES

 

27

 

 

 

 

 

 

 

 

 

 

 

Exhibits

 

EX-10.1

EX-31.1

 

EX-31.2

 

EX-32.1

 

EX-32.2

 

EX-101

 

 

 

 


 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

JAMBA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

April 3,

 

 

January 2,

 

 

 

2018

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,534

 

 

$

10,030

 

Receivables, net of allowances of $911 and $904

 

 

8,704

 

 

 

10,098

 

Inventories

 

 

439

 

 

 

465

 

Prepaid rent

 

 

689

 

 

 

776

 

Prepaid expenses and other current assets

 

 

3,124

 

 

 

4,321

 

Total current assets

 

 

20,490

 

 

 

25,690

 

Property, fixtures and equipment, net of accumulated depreciation of $32,729 and $32,785

 

 

10,238

 

 

 

10,928

 

Goodwill

 

 

1,181

 

 

 

1,181

 

Trademarks and other intangible assets, net of accumulated amortization of $859 and $855

 

 

1,178

 

 

 

1,211

 

Deferred tax asset

 

 

791

 

 

 

791

 

Notes receivable and other long-term assets

 

 

848

 

 

 

847

 

Total assets

 

$

34,726

 

 

$

40,648

 

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

8,348

 

 

$

10,070

 

Accrued compensation and benefits

 

 

2,999

 

 

 

2,122

 

Accrued gift card liability

 

 

13,812

 

 

 

27,469

 

Other current liabilities

 

 

8,628

 

 

 

8,052

 

Total current liabilities

 

 

33,787

 

 

 

47,713

 

Long term portion of deferred revenue

 

 

7,668

 

 

 

2,398

 

Deferred rent and other long-term liabilities

 

 

4,928

 

 

 

5,111

 

Total liabilities

 

 

46,383

 

 

 

55,222

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Shareholders’ (deficit) equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value—30,000,000 shares authorized; 18,447,023 and 15,588,206 shares issued and outstanding, respectively, at April 3, 2018, and January 2, 2018

 

 

18

 

 

 

18

 

Additional paid-in capital

 

 

409,597

 

 

 

409,518

 

Treasury shares, at cost, 2,858,817

 

 

(40,009

)

 

 

(40,009

)

Accumulated deficit

 

 

(381,263

)

 

 

(384,101

)

Total shareholders’ (deficit) equity

 

 

(11,657

)

 

 

(14,574

)

Total liabilities and shareholders' (deficit) equity

 

$

34,726

 

 

$

40,648

 

 

 

See Notes to Condensed Consolidated Financial Statements.

3


 

JAMBA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

13-Week Period Ended

 

 

 

April 3,

 

 

April 4,

 

 

 

2018

 

 

2017

 

Revenue:

 

 

 

 

 

 

 

 

Company stores

 

$

9,309

 

 

$

11,107

 

Franchise and related revenue

 

 

6,368

 

 

 

5,752

 

Advertising fees and other income

 

 

5,296

 

 

 

754

 

Total revenue

 

 

20,973

 

 

 

17,613

 

 

 

 

 

 

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Cost of sales

 

 

2,202

 

 

 

2,662

 

Labor

 

 

3,390

 

 

 

4,288

 

Occupancy

 

 

1,403

 

 

 

1,763

 

Store operating

 

 

1,421

 

 

 

1,798

 

Depreciation and amortization

 

 

871

 

 

 

881

 

General and administrative

 

 

8,023

 

 

 

8,601

 

Loss on disposal of assets

 

 

163

 

 

 

162

 

Store pre-opening

 

 

35

 

 

 

238

 

Store lease termination and closure

 

 

60

 

 

 

181

 

Advertising expense

 

 

3,016

 

 

 

-

 

Other operating, net

 

 

270

 

 

 

76

 

Total costs and operating expenses

 

 

20,854

 

 

 

20,650

 

Income (loss) from operations

 

 

119

 

 

 

(3,037

)

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

Interest income

 

 

4

 

 

 

54

 

Interest expense

 

 

(80

)

 

 

(83

)

Total other income (expenses), net

 

 

(76

)

 

 

(29

)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

43

 

 

 

(3,066

)

Income tax (expense) benefit

 

 

(5

)

 

 

(86

)

Net income (loss)

 

$

38

 

 

$

(3,152

)

 

 

 

 

 

 

 

 

 

Share Data:

 

 

 

 

 

 

 

 

Weighted-average shares used in the computation of income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

 

15,588,206

 

 

 

15,411,695

 

Diluted

 

 

15,922,204

 

 

 

15,411,695

 

Income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.00

 

 

$

(0.20

)

Diluted

 

$

0.00

 

 

$

(0.20

)

 

 

See Notes to Condensed Consolidated Financial Statements.

4


 

JAMBA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars In thousands)

(Unaudited)

 

 

 

13-Week Period Ended

 

 

 

April 3, 2018

 

 

April 4, 2017

 

Cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

38

 

 

$

(3,152

)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

871

 

 

 

881

 

Gift card breakage income

 

 

(1,024

)

 

 

(730

)

Stock-based compensation

 

 

78

 

 

 

148

 

Deferred rent

 

 

(218

)

 

 

104

 

Other, net

 

 

328

 

 

 

302

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

1,367

 

 

 

2,683

 

Inventories

 

 

26

 

 

 

102

 

Prepaid expenses and other current assets

 

 

558

 

 

 

(257

)

Other long-term assets

 

 

(8

)

 

 

42

 

Accounts payable and accrued expenses

 

 

(1,439

)

 

 

2,509

 

Accrued compensation and benefits

 

 

877

 

 

 

(577

)

Accrued gift card liability

 

 

(2,530

)

 

 

(1,668

)

Other current liabilities

 

 

(815

)

 

 

1,018

 

Other long-term liabilities

 

 

(14

)

 

 

(58

)

Cash (used in) provided by operating activities

 

 

(1,905

)

 

 

1,347

 

 

 

 

 

 

 

 

 

 

Cash used in investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(593

)

 

 

(501

)

Proceeds from sale of assets

 

 

2

 

 

 

148

 

Cash used in investing activities

 

 

(591

)

 

 

(353

)

 

 

 

 

 

 

 

 

 

Cash provided by financing activities:

 

 

 

 

 

 

 

 

Proceeds pursuant to stock plan

 

 

-

 

 

 

65

 

Cash provided by financing activities

 

 

-

 

 

 

65

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(2,496

)

 

 

1,059

 

Cash and cash equivalents at beginning of period

 

 

10,030

 

 

 

7,133

 

Cash and cash equivalents at end of period

 

$

7,534

 

 

$

8,192

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

8

 

 

$

-

 

Income taxes paid

 

$

3

 

 

$

1

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

 

Property, fixtures and equipment in accounts payable

 

$

165

 

 

$

362

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5


 

JAMBA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.

DESCRIPTION OF BUSINESS

Business - Jamba, Inc. consummated its initial public offering in July 2005. On November 29, 2006, Jamba, Inc. consummated the merger with Jamba Juice Company whereby Jamba Juice Company, which first began operations in 1990, became its wholly owned subsidiary.

Jamba, Inc. through its wholly-owned subsidiary, Jamba Juice Company (“the Company”), is a healthful lifestyle brand that inspires and simplifies healthful living through freshly blended whole fruit and vegetable smoothies, bowls, juices, cold-pressed shots, boosts, snacks, and meal replacements. Our global business is driven by a portfolio of franchised and company-owned Jamba Juice® stores.

As of April 3, 2018, there were 853 Jamba Juice stores globally, consisting of 51 Company-owned and operated stores (“Company Stores”), 734 franchisee-owned and operated stores (“Franchise Stores”) in the United States and 68 Franchise Stores in international locations (“International Stores”).  

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and consolidation  

The accompanying unaudited Condensed Consolidated Financial Statements of Jamba, Inc. have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q. The January 2, 2018 Condensed Consolidated Balance Sheet was derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of the 13-week period ended April 3, 2018 are not necessarily indicative of the results of operations to be expected for the entire fiscal year.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, Jamba Juice Company. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications were made to the Company’s prior financial statements to conform to current year presentation. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended January 2, 2018.

Use of estimates

The preparation of the Condensed Consolidated Financial Statements and accompanying notes are in conformity with U.S. GAAP. Preparing Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

Comprehensive Income

Comprehensive income is defined as the change in equity during a period from transactions and other events, excluding changes resulting from investments from owners and distributions to owners. The Company currently has no components of comprehensive income other than net income (loss), therefore no separate statement of comprehensive income is presented.

Income (Loss) Per Share

Basic income (loss) per share is computed based on the weighted-average number of common shares outstanding during the period. Diluted income (loss) per share is computed based on the weighted-average number of common shares and potentially dilutive securities, which includes outstanding options and restricted stock awards granted under the Company’s stock option plans.

6


 

Anti-dilutive common stock equivalents totaling 0.8 million and 2.0 million were excluded from the calculation of diluted weighted-average shares outstanding for the 13-week periods ended April 3, 2018 and April 4, 2017, respectively. Basic and diluted income (loss) per share do not differ when there is a net loss position as potentially dilutive securities are anti-dilutive.

Fair Value of Financial Instruments

The following instruments are not measured at fair value on the Company’s Condensed Consolidated Balance Sheets but require disclosure of their fair values: cash and cash equivalents, accounts receivables, notes receivable and accounts payable. The estimated fair value of such instruments, excluding notes receivable, approximates their carrying value as reported in the Company’s Condensed Consolidated Balance Sheets due to their short-term nature. The estimated fair value of notes receivable approximates its carrying value due to the interest rates aligning with market rates. The fair value of such financial instruments is determined using the income approach based on the present value of estimated future cash flows. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1.

 

Recently Adopted Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”) and has since issued various amendments which provide additional clarification and implementation guidance on Topic 606. This guidance establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted this new guidance effective the first day of fiscal 2018 using the modified retrospective transition method and applied Topic 606 to those contracts which were not completed as of January 2, 2018.

The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of fiscal 2018. In performing its analysis, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price.  Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under Topic 605 “Revenue Recognition” (“Topic 605”). Refer to note 3 for further disclosure of the impact of the new guidance.

Liabilities

In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The new guidance creates an exception under ASC 405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. In general, these liabilities may be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to the unredeemed stored value. The Company adopted this guidance effective January 3, 2018 in connection with its adoption of Topic 606. Refer to note 3 for further disclosure of the impact of the new guidance.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company adopted this new guidance effective the first day of fiscal 2018. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which provides specific guidance for certain cash flow classification issues, previously not specifically addressed, including classification for debt prepayment, contingent consideration made after a business combination, insurance claim proceeds and corporate-owned life insurance policies, distributions received from equity method investees and certain other items. The Company adopted this new guidance effective the first day of fiscal 2018. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

7


 

Stock Compensation

In January 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The Company adopted this new guidance effective the first day of fiscal 2018. The adoption of this standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Upcoming Accounting Pronouncements

The Company is currently assessing the potential impact of the following pronouncements on its Condensed Consolidated Financial Statements and related disclosures:

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which will require lessees to recognize a lease liability and a right-of-use asset for all leases (with the exception of leases with terms less than 12 months) at the commencement date. The guidance will be effective for the Company beginning fiscal year 2019, with early adoption permitted. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. Management believes the adoption of ASU 2016-02 will materially impact the Company’s Condensed Consolidated Financial Statements by significantly increasing non-current assets and non-current liabilities in the Condensed Consolidated Balance Sheets in order to record the right of use assets and related lease liabilities for existing operating leases. Management is in the process of determining the financial statement impact and currently unable to estimate the impact on the Company’s Condensed Consolidated Financial Statements or related disclosures.

Other Accounting Pronouncements

The Company has not yet adopted and does not expect the adoption of the following pronouncements to have a significant impact on its Condensed Consolidated Financial Statements and related disclosures:

Intangibles

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. The impairment amount will be calculated at Step 1. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance will be effective for the Company’s fourth quarter annual impairment test in fiscal year 2019, with early adoption permitted.

 

3.

REVENUE RECOGNITION

 

Adoption

 

The Company adopted Topic 606 on January 3, 2018 using the modified retrospective transition method and recorded a decrease to opening accumulated deficit of $2.8 million. The adoption of this standard update resulted in no impact to the Company’s tax accounts due to the full valuation allowance. The Company adopted Topic 606 only for contracts with remaining performance obligations as of January 3, 2018. Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under Topic 605.

 

The adoption changed the timing of recognition of initial franchise fees, development fees, market opening fees for our international business and renewal and transfer fees, the reporting of advertising fund contributions and related expenditures, as well as the recognition and classification of gift card breakage.  


8


 

 

The cumulative effects of the changes made to the Condensed Consolidated Balance Sheets as of January 2, 2018, for the adoption of Topic 606 were as follows (in thousands):

 

 

 

Balance at

January 2, 2018

 

 

Adjustment due to Topic 606

 

 

Balance at

January 3, 2018

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

4,321

 

 

$

(726

)

 

$

3,595

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accrued gift card liability

 

 

27,469

 

 

 

(10,103

)

 

 

17,366

 

Other current liabilities

 

 

8,052

 

 

 

488

 

 

 

8,540

 

Deferred revenue

 

 

2,398

 

 

 

6,089

 

 

 

8,487

 

Shareholders’ (deficit) equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(384,101

)

 

 

2,800

 

 

 

(381,301

)

 

The following table presents a disaggregation of revenue from contracts with customers for the 13-week periods ended April 3, 2018 and April 4, 2017 (in thousands):

 

 

 

13-Week Period Ended

 

 

 

April 3, 2018

 

 

April 4, 2017(1)

 

 

 

 

 

 

 

 

 

 

Company store revenue

 

$

9,309

 

 

$

11,107

 

Franchise and related revenue:

 

 

 

 

 

 

 

 

Royalties

 

 

5,937

 

 

 

5,557

 

Upfront fees

 

 

431

 

 

 

195

 

Advertising fees and other income:

 

 

 

 

 

 

 

 

Advertising fund contributions

 

 

2,584

 

 

 

-

 

Gift card breakage

 

 

1,024

 

 

 

-

 

Other

 

 

1,688

 

 

 

754

 

Total revenue

 

$

20,973

 

 

$

17,613

 

 

(1)

As disclosed in Note 2, prior period amounts have not been adjusted under the modified retrospective method of adoption of Topic 606.

 

Company stores – Revenue from Company Stores is recognized when product is sold as this is the point in time that control of the product transfers to the customer. Revenue is presented net of any taxes collected from customers and remitted to government entities. Customer payments are generally due at the time of sale. The adoption of Topic 606 did not impact the recognition of company store sales.  

 

Franchise and related revenue – Domestically, the Company sells individual franchises as well as territory arrangements in the form of multi-unit development agreements that grant the right to open and operate a specific number of stores in a specified geographic region.  The development and franchise agreements typically require the franchisee to pay an initial, non-refundable fee prior to opening the respective location, and continuing royalty fees on a monthly basis based upon a percentage of franchisee net sales. The initial term of domestic franchise agreements is typically 10 years.  Subject to the Company’s approval and the franchisee’s payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration.  If approved, a franchisee may transfer a franchise agreement or development agreement to a new or existing franchisee, at which point a transfer fee is typically paid.

 

Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as operational materials, planning and functional training courses, and ongoing services, such as management of the advertising fund.  Development agreements provide exclusive development rights and additional market opening and consulting services. All of these promised services, including development rights, are highly interrelated and are not considered to be individually distinct and the Company accounts for them as part of a single franchise right obligation.  Therefore upon adoption of Topic 606, initial franchise fees, development fees and market opening fees (collectively, “upfront” fees) paid by franchisees for each arrangement are deferred and apportioned to each individual store and recognized during the respective franchise agreement from the date the store opens as this ensures that revenue recognition aligns with the customer’s access to the franchise right over the duration of the agreement.

  

 

Internationally, the Company sells master franchise agreements that grant the master franchisee the right to develop and operate, and in some instances, sub-franchise, a certain number of stores within a particular geographic area.  The master franchisee is typically

9


 

required to pay an upfront market opening fee upon entering into the master franchise agreement and an upfront initial franchise fee for each developed store prior to each respective opening. The master franchisee will also pay continuing fees, or royalty income, generally on a monthly basis based upon a percentage of sales. Generally, the master franchise agreement serves as the franchise agreement for the underlying stores, and the initial franchise term provided for each store is typically 10 years.

 

Under either domestic development agreements or international master franchise agreements, the upfront fee amount is based on the number of stores to be opened pursuant to the respective agreement.  The area developer generally pays one-half of the initial non-refundable fee multiplied by each store to be built as a non-refundable development fee upon execution of the agreement. This deposit is included in deferred revenue or other current liabilities in the accompanying Condensed Consolidated Financial Statements. The development and master franchise agreements are generally for a term of 10 years. Each time a store is opened under these agreements, the Company credits the franchisee one-half of the upfront fee as part of the development fee and the franchisee is required to pay the remaining one-half of the upfront fee.

 

Royalty income is recognized during the respective franchise agreement based on the royalties earned each period as the underlying franchise store sales occur. Renewal fees are generally recognized over the renewal term for the respective store from the start of the renewal period. Transfer fees are recognized over the remaining term of the franchise agreement beginning at the time of transfer. Previously, under Topic 605, these fees were generally recognized upfront upon either opening of the respective store, when a renewal agreement became effective, or upon transfer of a franchise agreement. Transfer fees are included within franchise fees and related revenue in the Condensed Consolidated Statements of Operations. The new guidance did not materially impact the recognition of royalty income.

 

Advertising fees and other income – Advertising revenue is comprised of contributions from franchisees to the Company’s advertising fund. The Company participates with its franchisees in an advertising fund to collect and administer funds contributed for use in advertising and promotional programs, which are designed to increase sales and enhance the reputation of the Company and its franchise owners. Contributions to the advertising fund are required for Company Stores and traditional Franchise Stores. These contributions represent sales-based royalties related entirely to the single obligation under the franchise agreement.  The franchise agreements typically require the franchisee to pay continuing advertising fees on a monthly basis based on a percentage of net sales, which are recognized during the respective franchise agreement based on the fees earned each period as the underlying store sales occur.  

 

Under Topic 606, the Company has determined that although the marketing fees are not separate performance obligations distinct from underlying franchise right, the Company acts as the principal as it is primarily responsible for the fulfilment and control of the marketing services. As a result, the Company records advertising fees in revenues and related advertising fund expenditures in expenses in the Condensed Consolidated Statement of Operations. The Company historically presented the net activities of the advertising fund within expenses in the Condensed Consolidated Statements of Operations. While this reclassification will impact the gross amount of reported advertising income and related expenses, the impact is an offsetting increase to both revenue and expense with no impact income from operations or net income.    

 

The advertising fund assets, consisting primarily of cash received from the Company and franchisees and accounts receivable from franchisees, can only be used for selected purposes. The cash contributed by franchisees is recorded as a liability against which specified advertising costs are charged.

 

Advertising fund assets as of April 3, 2018 and January 2, 2018 include $2.3 million and $2.0 million of receivables from franchisees, net of allowances, respectively, which is recorded in Notes receivables in the Condensed Consolidated Balance Sheets. Advertising fund liabilities as of April 3, 2018 and January 2, 2018, were $2.3 million and $2.0 million, respectively, and are reported in other current liabilities in the Company’s Condensed Consolidated Balance Sheets.

 

The Company, sells gift cards to its customers in its retail stores, through its website and through resellers. The Company’s gift cards do not have an expiration date and are not redeemable for cash except where required by law. Revenue from gift cards is recognized upon redemption in exchange for product and reported within Company store revenue in the Condensed Consolidated Statements of Operations. Until redemption, outstanding customer balances are recorded as a liability. An obligation is recorded at the time of either an initial load or a subsequent reload in accrued gift card liability on the Company’s Condensed Consolidated Balance Sheets.

Previously, under Topic 605, the Company recognized revenue from gift cards when the likelihood of the gift card being redeemed by the customer was remote (also referred to as “breakage”) and the Company determined that it did not have a legal obligation to remit the unredeemed gift cards to the relevant jurisdictions. The Company determined the gift card breakage amount based upon its historical redemption patterns. Gift card breakage revenue was previously included in other operating, net, in the Condensed Consolidated Statements of Operations. Under Topic 606, the Company recognizes gift card breakage proportional to actual gift card redemptions, which is recorded in Advertising fees and other income in the Condensed Consolidated Statements of

10


 

Operations. Upon adoption of Topic 606, gift card liabilities of $10.1 million, were reclassified to accumulated deficit in the Condensed Consolidated Balance Sheets, resulting in a decrease to the opening accumulated deficit balance.

 

The Company’s loyalty program allows customers to earn points based on the volume of their purchases.  Under the loyalty program, a customer receives a discount on future purchases when a defined number of points have been earned. As a result, each loyalty point is deemed to represent a separate performance obligation, with transaction price allocated to each loyalty point earned at the time of sale.  The transaction price allocated to loyalty points is initially recorded in deferred revenue and recognized when the customers redeem the loyalty points they earned.

 

As part of the Company’s franchise agreements, the franchisee purchases products and supplies from designated vendors through the Company’s platform.  The Company is entitled to receive rebates from the distributor on product purchases by franchisees through the platform.  The Company does not possess control of the products prior to their transfer to the franchisee and has determined under Topic 606 that it is acting as an agent for accounting purposes.  As a result, the Company recognizes the rebates as franchisees purchase products and supplies from distributors, which are reported as other revenue within Advertising fees and other income in the Condensed Consolidated Statements of Operations.

 

Revenues related to the Company’s flexible format franchise locations are recognized when the products are delivered to the operators of the Jamba Juice Express. Licensing fees from Consumer Packaged Goods (“CPG”) products sold to retail outlets and online and royalties from licensed CPG products are recognized when the products are delivered to the customer. License revenue from CPG products is based on a percentage of product sales and is recognized as revenue upon the sale of the product to retail outlets which are reported as other revenue within Advertising fees and other income

 

    

Contract balances and transaction price allocated to remaining performance obligations

Franchise fees, development fees and market opening fee payments (“upfront fees”) received by the Company are recorded as deferred revenue in the Condensed Consolidated Balance Sheet.  Deferred revenue is reduced as fees are recognized in revenue on a straight-line basis during the franchise agreement for each respective store. The estimated amount of points redeemable for discounts on future purchases under the Company’s loyalty program are also recorded in deferred revenue and recognized when the customers redeem the points they earned. Deferred revenue is included in other current liabilities and other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets. The deferred revenue balance subject to Topic 606 was $10.0 million and $1.3 million as of April 3, 2018 and January 2, 2018, respectively. During the period ended April 3, 2018, the Company recognized $0.4 million of revenue that was included in the deferred revenue balance as of January 3, 2018.

 

Deferred gift card liabilities are reported within accrued gift card liability in the Condensed Consolidated Balance Sheets and consist of the unredeemed portion of gift cards sold.  The balance of accrued gift card liabilities represents our remaining performance obligations to our customers. During the quarter ended April 3, 2018, the Company recognized revenue of $4.9 million from gift card redemptions.

 

The Company expects to recognize approximately $5.4 million of revenue in the future related to franchise obligations that are either unsatisfied or partially unsatisfied at April 3, 2018.  This estimate does not contemplate future franchise renewals and does not include estimates of future sales-based royalties as a result of applying the sales-based royalty disclosure exemption.  The estimate also excludes $6.5 million of consideration allocated to stores that have not yet opened, so the fees are not yet being amortized. The weighted average remaining amortization period for deferred franchise and renewal fees related to open stores is 3.5 years.

 

As of April 3, 2018, there were no contract assets from contracts with customers.  

 

11


 

Impact to Prior Period information

In accordance with the new revenue standard requirements, the following tables summarize the effects of the new standard on selected unaudited line items within the Company’s Condensed Consolidated Statement of Operations and Condensed Consolidated Balance Sheets for the 13-week period ended April 3, 2018 (in thousands):

 

 

 

13-Week Period Ended

 

 

 

As Reported

 

 

Balances without the adoption of Topic 606

 

 

Effect of Change Higher/(Lower)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Franchise and related revenue

 

$

6,368

 

 

$

6,396

 

 

$

(28

)

Advertising fees and other income

 

 

5,296

 

 

 

-

 

 

 

5,296

 

General and administrative

 

 

8,023

 

 

 

6,569

 

 

 

1,454

 

Advertising expense

 

 

3,016

 

 

 

-

 

 

 

3,016

 

Other operating, net

 

 

270

 

 

 

418

 

 

 

(148

)

Income (loss) from operations

 

 

119

 

 

 

(827

)

 

 

946

 

Income (loss) before income taxes

 

 

43

 

 

 

(903

)

 

 

946

 

Income tax (expense) benefit

 

 

(5

)

 

 

(5

)

 

 

-

 

Net income (loss)

 

$

38

 

 

$

(908

)

 

$

946

 

 

 

 

13-Week Period Ended

 

 

 

As Reported

 

 

Balances without the adoption of Topic 606

 

 

Effect of Change Higher/(Lower)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

3,124

 

 

$

3,586

 

 

$

(462

)

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accrued gift card liability

 

 

13,812

 

 

 

24,391

 

 

 

(10,579

)

Other current liabilities

 

 

8,628

 

 

 

7,917

 

 

 

711

 

Deferred revenue

 

 

7,668

 

 

 

2,008

 

 

 

5,660

 

Accumulated deficit

 

 

(381,263

)

 

 

(385,009

)

 

 

3,746

 

 

4.

SEVERANCE AND OTHER COMPENSATION

In connection with the relocation of the Company’s headquarters from Emeryville, California to Frisco, Texas, in the fourth quarter of fiscal year 2016, the Company incurred severance and retention obligations. At April 3, 2018 and January 2, 2018, $0.2 million and $0.3 million of severance liability were classified in accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets. The Company made severance payments of $0.1 million during the 13-week period ended April 3, 2018. The remaining severance payments will be completed by the end of the first quarter in fiscal 2019.

During the first quarter of fiscal 2018, we recorded severance of $0.3 million for the departure of one senior executive.

5.

FAIR VALUE MEASUREMENT

Financial Assets and Liabilities

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

 

Level 1:  Quoted prices are available in active markets for identical assets or liabilities.

 

Level 2:  Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable.

 

Level 3:  Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions that market participants would use in pricing.

12


 

Non-financial Assets and Liabilities

The Company’s non-financial assets and liabilities primarily consist of long-lived assets, trademarks and other intangibles, and are reported at carrying value. They are not required to be measured at fair value on a recurring basis. The Company evaluates long-lived assets for impairment when facts and circumstances indicate that their carrying values may not be recoverable. Trademarks and other intangibles are evaluated for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company had no impairments during the 13-week period ended April 3, 2018 and April 4, 2017.

6.

CREDIT AGREEMENT

 

On November 3, 2016, the Company entered into a credit agreement with Cadence Bank, NA (“Credit Agreement”). The Credit Agreement provides an aggregate principal amount of up to $10.0 million. The Credit Agreement also allows the Company to request an additional $5.0 million for an aggregate principal amount of up to $15.0 million. The Credit Agreement accrues interest at a per annum rate equal to the LIBOR rate plus 2.50% and has a five-year term. Under the terms of the Credit Agreement, the Company is required to either maintain minimum cash or consolidated EBITDA levels and a minimum fixed charge coverage ratio. The Credit Agreement terminates November 3, 2021. This credit facility is subject to customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company with respect to liens, indebtedness, guaranties, investments, distributions, mergers and acquisitions and dispositions of assets. The credit facility is evidenced by a revolving note made by the Company in favor of the Lender, is guaranteed by the Company and is secured by substantially all of its assets including the assets of its subsidiary and a pledge of stock of its subsidiary.

 

To acquire the Credit Agreement, the Company incurred upfront fees, which are being amortized over the term of the Credit Agreement. As of April 3, 2018, the unamortized commitment fee amount was not material and is recorded in prepaid expenses in the Condensed Consolidated Balance Sheets. During the 13-week period ended April 3, 2018, there were no borrowings under the Credit Agreement. As of April 3, 2018, the Company was in compliance with the financial covenants to the Credit Agreement.

 

7.

OTHER OPERATING, NET

For the 13-week periods ended April 3, 2018 and April 4, 2017, the components of other operating, net were as follows (in thousands):

 

 

 

13-Week Period Ended

 

 

 

April 3, 2018(1)

 

 

April 4, 2017

 

Franchise gift card discount expense

 

$

-

 

 

$

70

 

Franchise other expense

 

 

155

 

 

 

528

 

Gift card expense

 

 

208

 

 

 

263

 

Gift card breakage income

 

 

-

 

 

 

(730

)

Other (income) expense

 

 

(93

)

 

 

(55

)

Total other operating, net

 

$

270

 

 

$

76

 

 

(1)

Refer to Note 3, for the impact of the new guidance to breakage income.

8.

COMMITMENTS AND CONTINGENCIES

The Company records a liability for litigation claims and contingencies when payment is probable and the amount of loss can be reasonably estimated.

During the 13-week period ended April 4, 2017, the Company had recorded a liability for ongoing litigation matters by $1.0 million in the normal course of business based on the available information at the time. The estimated losses are included in general and administrative expenses in the Company’s Condensed Consolidated Financial Statements of Operations.  No additional liabilities were incurred in the during the 13-week period ended April 3, 2018. As of April 3, 2018 and January 2, 2018, the liabilities associated with these matters are recorded in accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets and was $2.0 million, respectively.

The Company is a defendant in litigation arising in the normal course of business. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company’s management, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations, liquidity or financial condition of the Company.

13


 

9.

RELATED-PARTY TRANSACTIONS

For the 13-week periods ended April 3, 2018 and April 4, 2017, the Company received $0.1 million from Sodexo related to licensing fees for Jamba units operated by Sodexo. One Jamba Juice Director is an executive with Sodexo.

10.

SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. There were no subsequent events that required recognition or disclosure.

 

14


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this report. Except for historical information, the discussion in this report contains certain forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and assumptions about future events. In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “forecast” and similar expressions (or the negative of such expressions). Forward-looking statements include, but are not limited to, statements concerning projected new store openings, revenue growth rates, and capital expenditures. Forward-looking statements are based on our beliefs as well as assumptions based on information currently available to us, including financial and operational information, the volatility of our stock price, and current competitive conditions. As a result, these statements are subject to various risks and uncertainties. For a discussion of material risks and uncertainties that the Company faces, see the discussion titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2018.

JAMBA, INC. OVERVIEW

Jamba, Inc. through its wholly-owned subsidiary, Jamba Juice Company, (“the Company”), is a global healthy lifestyle brand that inspires and simplifies healthful living through freshly blended whole fruit and vegetable smoothies, bowls, juices, cold-pressed shots, boosts, snacks, and meal replacements. Jamba’s blends are made with premium ingredients free of artificial flavors and preservatives so guests can feel their best and blend the most into life.

We operate on a 52 or 53 week fiscal year ending on the Tuesday closest to December 31st. Our fiscal quarters are comprised of 13 weeks, with the exception of the fourth quarter of a 53 week year, which contains 14 weeks. For fiscal quarters 2018 and 2017, both contained 52 weeks.

2018 First Quarter Financial Summary

 

Total revenue for the quarter increased $3.4 million to $21.0 million from $17.6 million for the 13-week period ended April 4, 2017, primarily due to an increase in system-wide comparable sales and the adoption of Topic 606.

 

Company Store comparable sales increased 1.6% for the 13-week period ended April 3, 2018 and Franchise Store comparable sales increased 2.4% for the 13-week period ended April 3, 2018 compared to the prior year. System-wide comparable sales (includes both Company and Franchise Stores) increased 2.3% for the 13-week period ended April 3, 2018. System-wide and Franchise Store comparable store sales are non-GAAP financial measures and represent the change in year-over-year sales, opened for at least one full fiscal year.

 

Franchisees opened 5 new Jamba Juice stores globally; which included 2 traditional stores in the U.S. and 3 new International Stores. Openings were limited in the first quarter primarily because the Company did not have an active Franchise Disclosure Document (“FDD”) with which to solicit prospective franchisees, due to the delayed financial reporting. 

 

Net income for the quarter improved to $38 thousand compared to a loss of $3.2 million for the 13-week period ended April 4, 2017.

15


 

RESULTS OF OPERATIONS — 13-WEEK PERIOD ENDED APRIL 3, 2018 AS COMPARED TO THE 13-WEEK PERIOD ENDED APRIL 4, 2017 (UNAUDITED)

The discussion that follows should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto. The following table sets forth selected operating data as a percentage of total revenue (unless otherwise noted), of certain items included in our Condensed Consolidated Statements of Operations, for the periods indicated.

 

 

 

13-Week

Period Ended

April 3, 2018

 

 

(1)

 

 

13-Week

Period Ended

April 4, 2017

 

 

(1)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company stores

 

$

9,309

 

 

 

44.5

%

 

$

11,107

 

 

 

63.1

%

Franchise and related revenue

 

 

6,368

 

 

 

30.4

%

 

 

5,752

 

 

 

32.7

%

Advertising fees and other income

 

 

5,296

 

 

 

25.3

%

 

 

754

 

 

 

4.3

%

Total revenue

 

 

20,973

 

 

 

100.0

%

 

 

17,613

 

 

 

100.0

%

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

2,202

 

 

 

23.7

%

 

 

2,662

 

 

 

24.0

%

Labor

 

 

3,390

 

 

 

36.4

%

 

 

4,288

 

 

 

38.6

%

Occupancy

 

 

1,403

 

 

 

15.1

%

 

 

1,763

 

 

 

15.9

%

Store operating

 

 

1,421

 

 

 

15.3

%

 

 

1,798

 

 

 

16.2

%

Depreciation and amortization

 

 

871

 

 

 

4.2

%

 

 

881

 

 

 

5.0

%

General and administrative

 

 

8,023

 

 

 

38.3

%

 

 

8,601

 

 

 

48.8

%

Loss on disposal of assets

 

 

163

 

 

 

0.8

%

 

 

162

 

 

 

0.9

%

Store pre-opening

 

 

35

 

 

 

0.2

%

 

 

238

 

 

 

1.4

%

Store lease termination and closure

 

 

60

 

 

 

0.3

%

 

 

181

 

 

 

1.0

%

Advertising expense

 

 

3,016

 

 

 

14.4

%

 

 

-

 

 

 

0.0

%

Other operating, net

 

 

270

 

 

 

1.3

%

 

 

76

 

 

 

0.4

%

Total costs and operating expenses

 

 

20,854

 

 

 

99.4

%

 

 

20,650

 

 

 

117.2

%

Income (loss) from operations

 

 

119

 

 

 

0.6

%

 

 

(3,037

)

 

 

(17.2

)%

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4

 

 

 

0.0

%

 

 

54

 

 

 

0.3

%

Interest expense

 

 

(80

)

 

 

(0.4

)%

 

 

(83

)

 

 

(0.5

)%

Total other income (expenses), net

 

 

(76

)

 

 

(0.4

)%

 

 

(29

)

 

 

(0.2

)%

Income (loss) before income taxes

 

 

43

 

 

 

0.2

%

 

 

(3,066

)

 

 

(17.4

)%

Income tax (expense) benefit

 

 

(5

)

 

 

(0.0

)%

 

 

(86

)

 

 

(0.5

)%

Net income (loss)

 

 

38

 

 

 

0.2

%

 

 

(3,152

)

 

 

(17.9

)%

 

(1)

Cost of sales, labor, occupancy and store operating expenses percentages are calculated using Company Stores revenue. All other line items are calculated using total revenue. Certain percentage amounts do not sum to total due to rounding.

Known Events, Trends or Uncertainties Impacting or Expected to Impact Comparisons of Reported or Future Results

Impact of New Revenue Standard

Effective the first day of fiscal 2018, the Company adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (“Topic 606”) and all subsequent ASUs that modified Topic 606 on a modified retrospective basis. Results for reporting periods beginning after January 3, 2018 are presented under Topic 606. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of fiscal 2018. Comparative information from prior year periods has not been adjusted and continue to be reported under the accounting standards in effect for those periods under Topic 605 “Revenue Recognition” (“Topic 605”).

The most significant effects of the new guidance on the comparability of our results of operations between 2018 and 2017 include the following:

 

Under Topic 606, advertising revenues and expenditures are recorded on a gross basis within the Condensed Consolidated Statements of Operations. Under the previous guidance of Topic 605, we recorded franchise advertising expense net of contributions from franchisees to our marketing fund contribution. While this change materially impacts the gross amount of reported franchise and license revenue and costs of franchise and license revenue, the impact is generally an offsetting increase to both revenue and expense with little, if any, impact on operating income and net income. Similarly, upon adoption, other franchise services fees are recorded on a gross basis within the Condensed Consolidated Statements of Operations, whereas, under previous guidance, they were netted against the related expenses.

16


 

 

Under Topic 606, recognition of initial franchise fees, development fees and market opening fees (collectively, “upfront” fees) are deferred until the commencement date of the agreement and occurs over time based on the term of the underlying franchise agreement. In the event a franchise agreement is terminated, any remaining deferred fees are recognized in the period of termination. Under the previous guidance, upfront fees were recognized upon the opening of a franchise restaurant. The effect of the required deferral of upfront fees received in a given year is mitigated by the recognition of revenue from fees received in prior periods.

 

Under previous guidance, we recorded gift card breakage when the likelihood of redemption was remote. Breakage was recorded as a benefit to our advertising fund or reduction to other operating expenses, depending on where the gift cards were sold. Under Topic 606, gift card breakage is recognized proportionally as redemptions occur. Our gift card breakage primarily relates to cards sold by third parties. Breakage revenue related to third party sales is recorded as advertising fees and other income with an offsetting amount recorded as advertising expense (included in the Condensed Consolidated Statements of Operations).

 

See Note 2 and Note 3 for information on the implementation of Topic 606 and its impact on our Condensed Consolidated Financial Statements.

Management reviews and discusses its operations based on both financial and non-financial metrics. Among the key financial metrics upon which management focuses, is reviewing the performance based on the Company’s consolidated GAAP results, including Company Store comparable sales, franchise and related revenue, and income from operations. Management also uses certain supplemental, non-GAAP financial metrics in evaluating financial results, including Franchise Store comparable sales and system-wide comparable sales.

Company Store comparable sales represents the change in year-over-year sales for all Company Stores opened for at least one full year. Franchise Store comparable sales, a non-GAAP financial measure, represents the change in year-over-year sales for all Franchise Stores opened for at least one full year, as reported by franchisees excluding International Stores. System-wide comparable store sales, a non-GAAP financial measure, represents the change in year over-year sales for all Company and Franchise Stores opened for at least one full year and is based on sales by both company-owned and domestic franchise operated stores, as reported by franchisees, which are in the store base. System-wide comparable store sales excludes International Stores, and Jamba Juice Express™.

Company-owned stores that were sold in refranchising transactions are included in the store base for each accounting period of the fiscal quarter in which the store was sold to the extent the sale is consummated at least three days prior to the end of such accounting period, but only for the days such stores have been company-owned. Thereafter, such stores are excluded from the store base until such stores have been franchise-operated for at least one full fiscal period at which point such stores are included in the store base and compared to sales in the comparable period of the prior year. Comparable store sales include closed locations for the periods in which they have comparable sales.

We review the increase or decrease in Company Store comparable sales, Franchise Store comparable sales and system-wide comparable sales compared with the same period in the prior year to assess business trends and make certain business decisions. We believe that Franchise Store comparable sales and system-wide comparable sales data, both non-GAAP financial measures, are useful in assessing the overall performance of the Jamba brand and, ultimately, the performance of the Company.

During fiscal 2016, we underwent significant changes in our business model, leadership, key personnel, and relocation of our corporate office. These changes resulted in a significant increase in non-routine transactions and impacted certain routine processes needed to effectively accumulate and present consolidated financial results. We identified that our risk assessment process, which was intended to identify new transactions and changes to existing processes and design appropriate control activities over financial reporting, was not sufficient to prevent or detect material misstatement on a timely basis. Consequently, a material weakness in internal control over financial reporting resulted for fiscal 2016. Management, with the oversight of the Audit Committee dedicated significant incremental resources to successfully implement and test effectiveness of the enhanced controls throughout fiscal 2017 in order to successfully remediate the material weakness in fiscal 2017. G&A expenses have been negatively impacted by costs in connection with the remediation plan in fiscal 2017 and the Company also expects additional associated expenses in fiscal 2018.

On December 22, 2017 the U.S. government passed sweeping tax legislation with the “Tax Cuts and Jobs Act” which includes significant changes to the taxation of business entities. These legislative changes begin to take effect after December 31, 2017. These changes include, among others, (i) a permanent reduction of the corporate income tax rate to a flat 21%,  (ii) a repeal of the corporate alternative minimum tax (AMT), (iii) changes to tax depreciation for first-year property, luxury automobiles and qualified leasehold improvements, (iv) a partial limitation on the deductibility of business interest expense, (v) for losses incurred after December 21, 2017 the NOL deduction is limited to 80% of taxable income with an indefinite carry forward and (vi) a disallowance of entertainment expenses but an expansion of the types of expenses allowable as a 50% business meal expenditure. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, we continue to assess the impact of the recently enacted federal tax reform legislation on our business and our Condensed Consolidated Financial Statements.

17


 

Key Financial Metrics

The following table sets forth operating data that do not otherwise appear in our Condensed Consolidated Financial Statements for the periods indicated:

 

 

 

13-Week Period Ended

 

Increase/(decrease)

 

April 3, 2018

 

 

April 4, 2017

 

Percentage change in comparable store sales

 

 

 

 

 

 

 

 

Company stores (1)

 

 

1.6

%

 

 

(4.5

)%

Franchise stores

 

 

2.4

%

 

 

(2.2

)%

System-wide (2)

 

 

2.3

%

 

 

(2.5

)%

Percentage change in comparable company store sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Traffic

 

 

1.6

%

 

 

(7.2

)%

Average check

 

 

 

 

 

2.7

%

Total comparable company store sales

 

 

1.6

%

 

 

(4.5

)%

 

(1)

Percentage change in comparable sales compares sales during the current fiscal year to sales from the same stores for the prior fiscal year. A store is included in this calculation after its first full fiscal year of operations. Company Store comparable sales excludes sales from Franchise and International Stores. Franchise Store comparable sales excludes sales from Company, and International Stores. Closed locations are included for the periods in which they have comparable sales.

(2)

Percentage change in system-wide comparable sales compares the combined sales of Company and Franchise Stores, during the current fiscal year to the combined sales from the same Company and Franchise Stores for the prior fiscal year. A Company or Franchise Store is included in this calculation after its first full fiscal period of operations. System-wide comparable store sales do not include International Stores and Jamba Juice Express. Closed locations are included for the periods in which they have comparable sales.

The following table sets forth certain data relating to Company Stores, Franchise Stores and International Stores for the periods indicated:

 

 

 

13-Week Period Ended

 

 

13-Week Period Ended

 

 

 

April 3, 2018

 

 

April 4, 2017

 

 

 

Domestic

 

 

International

 

 

Domestic (1)

 

 

International

 

Company Stores:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

 

53

 

 

 

-

 

 

 

66

 

 

 

-

 

Company Stores opened

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Company Stores closed

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

-

 

Company Stores sold to franchisees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Company Stores

 

 

51

 

 

 

-

 

 

 

66

 

 

 

-