JMBA Jamba, Inc. (delisted)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

J amba, 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 July 3, 2018, there were 848 Jamba Juice stores globally, consisting of 51 Company-owned and operated stores (“Company Stores”), 737 franchisee-owned and operated stores (“Franchise Stores”) in the United States and 60 Franchise Stores in international locations (“International Stores”).  

On August 1, 2018 we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Focus Brands Inc., a Delaware corporation (“Parent”), and Jay Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”).   The Merger Agreement provides that Parent will cause Merger Sub to commence, as promptly as practicable, but in no event later than ten (10) business days after the date of the Merger Agreement, a tender offer (the “Offer”) to acquire all of the Company’s outstanding shares of common stock, par value $0.001, per share (the “Shares”), at a purchase price of $13.00, per Share in cash, without interest, and subject to any required withholding of taxes (the “Offer Price”).

As soon as practicable following consummation of the Offer (the “Offer Acceptance Time”), subject to the satisfaction or waiver of certain customary conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Parent (the “Merger”), pursuant to the procedure provided for under Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), without adoption of the Merger Agreement by the Company’s stockholders.

At the effective time of the Merger (the “Effective Time”), each Share issued and outstanding immediately prior to the Effective Time (other than Shares (i) held in the treasury of the Company and Shares owned by Merger Sub, Parent or any wholly-owned subsidiary of Parent or the Company immediately prior to commencement of the Offer, (ii) irrevocably accepted for purchase in the Offer and (iii) owned by a holder who was entitled to demand and who has properly demanded appraisal for such Shares under Section 262 of the DGCL and as of the Effective Time has neither effectively withdrawn nor lost such holder’s rights to such appraisal under DGCL with respect to such Shares) will automatically be converted into the right to receive an amount in cash equal to the Offer Price without interest thereon.

The transaction, which was unanimously approved by the Company’s board, is expected to close during the third quarter, subject to tender of at least a majority of the issued and outstanding Shares and other customary closing conditions.

Additional information about the Merger Agreement and the related transactions can be found in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 2, 2018.

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 or 26-week periods ended July 3, 2018 are not necessarily indicative of the results of operations to be expected for the entire fiscal year.

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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.

Anti-dilutive common stock equivalents totaling 1.0 million and 1.1 million were excluded from the calculation of diluted weighted-average shares outstanding for the 13-week and 26-week periods ended July 3, 2018, respectively. Anti-dilutive common stock equivalents totaling 1.6 million and 2.0 million were excluded from the calculation of diluted weighted-average shares outstanding for the 13-week and 26-week periods ended July 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 “Revenue Recognition” (“Topic 605”). Refer to Note 4 for further disclosure of the impact of the new guidance.

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During 13-week period ended July 3, 2018, the Company corrected certain errors related to the adoption of Topic 606 which resulted in additional expense of approximately $0.2 million related to the 13-week period ended April 4, 2018 financial statements. In relation to this adjustment, the Company adjusted the cumulative effect as an adjustment to the opening balance of accumulated deficit by $0.7 million. The Company determined that the corrections were neither quantitatively nor qu alitatively material to fiscal year 2018 either individually or in the aggregate or to the trends of the reported results of operations .

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 4 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.

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.

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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.

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 $3.5 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.  

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):

The following table presents a disaggregation of revenue from contracts with customers for the 13-week and 26-week periods ended July 3, 2018 and July 4, 2017 (in thousands):

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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. Revenu e 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 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.  

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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 July 3, 2018 and January 2, 2018 include $2.6 million and $2.0 million of receivables from franchisees, net of allowances, respectively, which is recorded in Receivables in the Company’s Condensed Consolidated Balance Sheets. Advertising fund liabilities as of July 3, 2018 and January 2, 2018, were $3.0 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 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 distributor, 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. Revenue from sale of 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 with in 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

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redeem the points they earned. Deferred revenue is included in other current liabilities and other long-term liabilities in the Company’s Condensed Consolidated Balanc e Sheets. The deferred revenue balance subject to Topic 606 was $ 8.6 million and $1.3 million as of July 3, 2018 and January 2, 2018, respectively. During the 13-week and 26-week periods ended July 3, 2018, the Company recognized $0.3 million and $0.7 mill ion 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 13-week and 26-week periods ended July 3, 2018, the Company recognized revenue of $4.3 million and $9.2 million, respectively, from gift card redemptions.

The Company expects to recognize approximately $5.5 million of revenue in the future related to franchise obligations that are either unsatisfied or partially unsatisfied at July 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 July 3, 2018, there were no contract assets from contracts with customers.  

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 for the 13-week period ended July 3, 2018 (in thousands):

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 26-week period ended July 3, 2018 (in thousands):

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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 obligations. At July 3, 2018 and January 2, 2018, $0.1 million and $0.3 million of severance liability were classified in account payable and accrued expenses, respectively, in the Condensed Consolidated Balance Sheets. The Company made severance payments of $0.1 million during the 13-week and 26-week periods ended July 3, 2018 . The remaining severance payments will be completed by the end of the fourth quarter in fiscal 2018.

During the first quarter of fiscal 2018, we recorded severance of $0.3 million for the departure of one senior executive. The remaining severance payments will be completed by the end of the first quarter in fiscal 2019.

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:

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 and 26-week periods ended July 3, 2018 and July 4, 2017.

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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 July 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 and 26-week periods ended July 3, 2018, there were no borrowings under the Credit Agreement. As of July 3, 2018, the Company was in compliance with the financial covenants to the Credit Agreement.

The Jamba, Inc. 2013 Equity Incentive Plan, as amended and restated (“the Plan”) authorizes the Company to provide incentive compensation in the form of stock options (“options”), restricted stock and stock units (“RSUs”), performance based and market based shares and units (“PSUs”) and (“MBRSUs”), other stock-based and restricted stock-based awards (“RSAs”), cash-based awards and deferred compensation awards. In addition, the Company periodically authorizes grants of stock-based compensation as inducement awards to new employees. This type of award does not require shareholder approval in accordance with Rule 5635(c)(4) of the Nasdaq listing rules.

Share-based compensation expense, which is included in general and administrative expenses in the Condensed Consolidated Statements of Operations, was $2.1 million and $2.2 million for the 13-week and 26-week periods ended July 3, 2018 , and $0.5 million and $0.6 million for the 13-week and 26-week periods ended July 4, 2017. Upon issuance of such grants for the 13-week and 26-week periods ended July 3, 2018, the Company recognized accelerated share-based compensation expense of $0.7 million, in connection with accelerated vesting for certain restricted stock units and $1.1 million related to a cash-based bonus award. There was no income tax benefit recognized in our Condensed Consolidated Statements of Operations in connection with all share-based compensation awards during the 13-week and 26-week periods ended July 3, 2018 and July 4, 2017.

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A summary of stock option activities for the 26-week period ended as of July 3, 2018 are presented below (shares and aggregate intrinsic value in thousands):

During the 13-week and 26-week periods ended July 3, 2018, 48,000 shares of the Company’s common stock were granted as inducement awards to new employees. The weighted average grant date fair value of options granted was $3.44.   

During the 26-week period ended July 4, 2017, 15,000 shares of the Company’s common stock were granted as an inducement award to a new employee. The weighted average grant date fair value of options granted was $3.54. At July 3, 2018, stock options vested or expected to vest totaled 0.5 million. The remaining expense to amortize is approximately $1.4 million over a weighted-average remaining recognition period of approximately 1.6 years.

Time-Based Restricted Stock Units  — Information regarding activities during the 26-week period ended July 3, 2018 for outstanding time-based RSUs is as follows (shares in thousands):

During the 13-week and 26-week periods ended July 3, 2018, the Company granted 127,671 time-based RSUs at a weighted average grant date fair value of $9.71 with a remaining vesting period of two years. The fair value of restricted stock units is the market close price of our common stock on the date of the grant. There were no time-based RSUs granted in fiscal year 2017. Compensation expense for time-based RSUs is generally recognized over the vesting period on a straight-line basis. The aggregate grant date fair value of the time-based RSUs granted during 26-week period ended July 3, 2018 was $2.0 million.

During the 13-week and 26-week periods ended July 3, 2018, the Company granted 70,206 time-based RSUs to the Board of Directors as part of their compensation. These awards generally vest within one year from the date of grant. At July 3, 2018, unvested share-based compensation for time-based RSUs, totaled $0.4 million and is expected to be recognized over the remaining weighted-average vesting period of approximately 1 year.

Performance- Based Restricted Stock Units — Information regarding activities during fiscal 2018 for outstanding PSUs is as follows (shares in thousands):

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There were no PSUs granted during the 13 week and 26-week periods ended July 3, 2018 and January 2, 2018.

Market-Based Restricted Stock Units — Information regarding activities during fiscal 2018 for outstanding MBRSUs is as follows (shares in thousands):

The market-based RSU’s will vest upon achievement of compound annual stock price growth rate targets of 15%, 22.5% and 30%. The estimated requisite service period in general ranges between approximately eighteen and thirty months. Compensation expense related to market-based RSUs over the requisite service period on a straight-line basis. The requisite service period is a measure of the expected time to reach the respective vesting threshold. The Company estimated the expense and service period by utilizing a Monte Carlo simulation, considering only those stock price-paths in which the threshold was exceeded.

There were 105,000 market-based RSUs granted during the 13-week and 26-week periods ended July 3, 2018 at a weighted average grant date fair value of $3.51. There were no market-based RSUs granted during the 13-week period ended July 4, 2017, and there were 70,000 market-based RSUs granted during the 26-week period ended July 4, 2017, at a weighted average grant date fair value of $1.06. 

At July 3, 2018, unvested share-based compensation for market-based RSUs was $0.3 million, which will be recognized over the remaining weighted-average recognition period of approximately 2.5 years.

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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 26-week period ended July 4, 2017, the Company had recorded a liability for an ongoing litigation matter 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 during the 13-week or 26-week periods ended July 3, 2018. As of July 3, 2018 and January 2, 2018, the liabilities associated with these matters are recorded in account 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.

For the 13-week and 26-week periods ended July 3, 2018 and July 4, 2017, the Company received $0.1 million and $0.1 million, respectively, from Sodexo related to licensing fees for Jamba units operated by Sodexo. One Jamba Juice Director is an executive with Sodexo.

The Company evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. See Note 2 related to the pending merger with Focus Brands Inc.

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