The Company recognizes retail coffeehouse sales for products and services when payment is tendered at the point of sale. Sales tax
collected from customers is presented net of amounts expected to be remitted to various tax jurisdictions. Accordingly, sales taxes have no effect on the Company’s reported net sales in the accompanying statements of operations.
Revenue from the sale of products to commercial, franchise or on-line customers is
recognized when ownership and price risk of the products are legally transferred to the customer, which is generally upon the shipment of goods. Revenues include any applicable shipping and handling costs invoiced to the customer, and the expense of
such shipping and handling costs is included in cost of sales.
The Company sells stored value cards of various denominations.
Cash receipts related to stored value card sales are deferred when initially received and revenue is recognized when the card is redeemed and the related products are delivered to the customer. Such amounts are classified as a current liability on
the Company’s condensed consolidated balance sheets. The Company will honor all stored value cards presented for payment; however, the Company has determined that the likelihood of redemption is remote for certain card balances due to long
periods of inactivity (“breakage”). The Company estimates that cards which have had no activity for 48 months are unlikely to be used in the future. In these circumstances, to the extent management determines there is no requirement for
remitting balances to government agencies under unclaimed property laws, card and certificate balances may be recognized in the condensed consolidated statements of operations. The Company uses the redemption recognition method and recognizes the
estimated value of abandoned cards as a percentage of every stored value card redeemed and includes the amount in coffeehouse sales. Such amounts represent the Company’s experience regarding unused balances related to stored value cards
redeemed. The Company excludes stored value card balances sold in jurisdictions which require remittance of unused balances to government agencies under unclaimed property laws. Breakage recognized was immaterial to all periods presented.
Territory development fees and initial franchise fees are recognized upon substantial performance of services for a new
territory or coffeehouse, which is generally upon the opening of a new coffeehouse. Royalties based upon a percentage of reported sales are recognized on a monthly basis when earned. Cash payments received in advance for territory development fees
or initial franchise fees are recorded as deferred revenue until earned.
All revenues are recognized net of any discounts,
returns, allowances and sales incentives, including coupon redemptions and rebates. The Company periodically participates in trade-promotion programs such as shelf price reductions and consumer coupon programs that require the Company to estimate
and accrue the expected cost of such programs. Coupons are recognized as a liability when distributed based upon expected consumer redemptions. The Company maintains liabilities based on historical experience and management’s judgment at the
end of each period for the estimated expenses incurred, but unpaid for these programs.