U-Swirl, Inc. Reports FY2014 Operating Results

Company Anticipates Significant Growth in FY 2015 Due to Acquisition of Three Self-Serve Frozen Yogurt Chains in Recent Months

HENDERSON, NV - (Marketwired - Jun 5, 2014) - U-Swirl, Inc. (OTCQB: SWRL) ("U-Swirl" or the "Company"), parent to U-Swirl International, Inc., through which it owns and franchises self-serve frozen yogurt cafés, today announced operating results for the fiscal year ended February 28, 2014.

FY2014 Highlights

  • During FY2014, the Company completed the acquisition of four self-serve frozen yogurt chains. On a combined basis, these acquisitions increased the number of frozen yogurt cafés operated by U-Swirl and its franchisees by over 300 percent.
  • At the end of FY2014, U-Swirl and its franchisees operated 285 frozen yogurt cafés in 37 states and 3 foreign countries, and the Company ranked as the fourth-largest franchisor in the self-serve frozen yogurt segment of the $6 billion away-from-home frozen desserts industry.
  • Total revenue increased 86 percent to approximately $5.5 million in the fiscal year ended February 28, 2014 (FY 2014), compared with total revenue of approximately $3.0 million in the fiscal year ended February 28, 2013 (FY 2013).
  • Company-owned frozen yogurt cafés generated $4,052,000 in net sales during FY2014, which represented a 68 percent increase when compared with $2,406,000 in FY 2013.
  • Franchise royalties and fees rose 158 percent to $1,477,000 in FY 2014, compared with $572,000 in FY 2013.
  • The Company recorded a net loss of ($2,126,000), or ($0.14) per share, in FY 2014, compared with a net loss of ($794,000), or ($0.03) per share, in the previous fiscal year.
  • On a non-GAAP basis (excluding interest, depreciation and amortization, equity compensation and impairment and restructuring charges), the Company earned $393,000 in FY2014, compared with a non-GAAP loss of ($221,000) in FY 2013.

Management Comments

"Fiscal 2014 was a year of great progress for U-Swirl, particularly as it relates to the pursuit of our consolidation strategy within the self-serve frozen yogurt segment of the $6 billion away-from-home frozen desserts industry," stated Rico Conte, Chief Executive Officer of U-Swirl, Inc. "While operating losses in the seasonally-slow second half of the fiscal year, combined with non-recurring impairment and restructuring costs associated with the acquisition of a number of self-serve frozen yogurt franchisors, caused the Company to be unprofitable in Fiscal 2014, we believe U-Swirl has established a solid foundation for growth and profitability going forward. We completed the acquisition of four franchisors and increased the number of frozen yogurt cafés operating under U-Swirl-owned brand names by over 300 percent during Fiscal 2014, and we ended the fiscal year as the fourth-largest franchise company in the self-serve frozen yogurt industry."

"We now have franchised and/or company-owned frozen yogurt cafés operating in 37 states and 3 foreign countries, compared with 24 states and no foreign countries at the beginning of Fiscal 2014," continued Conte. "We will continue to pursue expansion opportunities through new store openings and acquisitions, as we believe that the self-serve frozen yogurt industry is too fragmented, with many small, undercapitalized chains whose owners lack 'critical mass', the ability to expand and/or do not have a viable exit strategy. This presents opportunities for U-Swirl, with the support of its parent company, Rocky Mountain Chocolate Factory, Inc. (NASDAQ: RMCF), to bring together under one corporate umbrella the world's largest network of frozen yogurt cafés over the next few years."

"U-Swirl's Fiscal 2014 operating results do not reflect the full impact of acquisitions completed during the fiscal year, as we acquired three self-serve frozen yogurt chains that franchised and/or operated a total of 201 stores under the brand names CherryBerry, Yogli Mogli, and Fuzzy Peach during the fourth quarter. Our full-year operating results included contributions from these three acquisitions for less than two months during the seasonally slow fourth quarter, which was further impacted by severe winter storms that negatively impacted the business of most retailers. These three acquisitions alone increased the number of franchised and company-operated stores in the U-Swirl network by more than 250 percent and will contribute to our operating results for a full year in Fiscal 2015."

"In addition to our acquisition strategy, we will continue to work closely with our franchisees to identify attractive new store opportunities," added Conte. "We have many new store locations under development, and our co-branding initiative with Rocky Mountain Chocolate Factory is favorably impacting annual store volumes while reducing the seasonal peaks and valleys that characterize the performance of stores that are dependent upon yogurt products alone. In the fourth quarter of fiscal 2014, we launched the offering of U-Swirl-n-Go franchises, which are limited-product stores within non-traditional locations, such as convenience stores, airports, hotels and other mass gathering areas. The initial investment for these franchises is substantially less than for full service stores, and franchisees pay flat royalty fees instead of fees based on a percentage of revenues. We currently expect the first U-Swirl-n-Go location to open this summer."

"We added a new revenue stream to our business model in March 2014 with the acquisition of Moxie USA, LLC, which sells beverages, toppings and other consumer products, including a popular beverage that meets the more strict criteria for 'allowable sugar' in products sold in schools and other educational facilities. The Moxie Consumer Products subsidiary will supply toppings and beverages to our frozen yogurt cafés, allowing U-Swirl to broaden its sources of revenue while delivering excellent value to our franchisee network."

"Our parent company, Rocky Mountain Chocolate Factory, Inc. ("Rocky Mountain"), which has over three decades of experience in franchising in the retail chocolate business, has been highly supportive of our growth strategy. We have benefited greatly from Rocky Mountain's franchise development and support capabilities, and its strong balance sheet has allowed us to move quickly when attractive acquisition opportunities are identified. For example, Rocky Mountain provided much of the cash needed to acquire CherryBerry, Yogli Mogli and Fuzzy Peach, through a convertible note arrangement that was established specifically in support of our acquisition program."

"From January through May 2014, we raised approximately $988,000 through the exercise of our Class C warrants that remained outstanding. This eliminated investors' concerns regarding the warrant 'overhang' and reduced the associated derivative liability from our balance sheet. We have also reduced the peak amount outstanding under our convertible note with our parent company and consider U-Swirl well-positioned to pursue further acquisition opportunities when they arise," concluded Conte.

FY2014 Results

For the twelve months ended February 28, 2014, Company-owned frozen yogurt cafés generated approximately $4,052,000 in net sales, an increase of 68% when compared with approximately $2,406,000 in FY 2013. The improvement in net sales was due primarily to an increase in the average number of Company-owned locations, which averaged 12 at the end of FY 2014, versus 7 average units during FY 2013.

Franchise royalties and fees increased 158% to approximately $1,477,000 in FY 2014, compared with $572,000 in FY 2013, primarily due to an expansion in the number of franchised cafés in operation to 272 at the end of FY 2014, versus 58 in the previous fiscal year. The average number of franchised cafés during FY 2014 was significantly lower than the 285 units operated by franchisees at the end of FY 2014, because 194 of the franchised cafés joined the U-Swirl network in the quarter ended February 28, 2014 and therefore contributed minimal royalties and fees to U-Swirl's operating results for FY 2014.

The Company recorded an operating loss of ($806,000) in FY 2014, compared with a net operating loss of ($788,000) in the prior year, partly due to higher marketing and advertising expenses, increased general and administrative expenses, and acquisition-related costs. Some of these costs were non-recurring in nature, including one-time expenses related to the acquisition of the Josie's, CherryBerry, Yogli Mogli and Fuzzy Peach franchise systems.

Net interest expense and financing costs increased to $1,320,000 in FY 2014, versus net interest expense of $6,000 in FY 2013, primarily due to borrowings incurred to fund the acquisition of CherryBerry, Yogli Mogli and Fuzzy Peach assets.

The Company reported a net loss of ($2,126,000), or ($0.14) per share, in the year ended February 28, 2014, compared with a net loss of ($794,000), or ($0.03) per share, in the previous fiscal year.
The weighted average number of common shares outstanding increased 243% to 14,871,959 in FY 2014, versus 6,111,947 in FY 2013, reflecting shares issued to Rocky Mountain Chocolate Factory in exchange for certain assets in January 2013 and shares issued as part of the purchase consideration in certain acquisitions during FY 2014.

U-Swirl franchisees opened 12 new cafés during FY2014, and the Company acquired franchise rights or license agreements for 205 stores from a number of franchisors acquired in FY 2014.

Fourth Quarter Results

For the three months ended February 28, 2014 (fourth quarter of FY 2014), net sales generated by Company-owned frozen yogurt cafés rose 28% to approximately $678,000, compared with $529,000 in the prior-year quarter. The increase was due to an expansion in the number of Company-owned locations in operation during the fourth quarter of FY 2014 when compared with the corresponding period of the previous fiscal year.

Franchise royalties and fees increased 164% to $402,000 in the fourth quarter of FY 2014, compared with $152,000 in the fourth quarter of FY 2013, primarily due to an increase in the number of franchised cafés in operation.

The Company reported an operating loss of ($957,000) in the fourth quarter of FY 2014, compared with an operating loss of ($561,000) in the corresponding period of the previous fiscal year. The increase in the loss was due to $620,000 in acquisition-related costs in the fourth quarter of FY 2014, partially offset by an improvement in gross profits realized on a higher level of revenue than in the prior-year period.

Net interest expense totaled $1,299,000 in the final quarter of FY2014, compared with net interest expense of $6,000 in the year-earlier period. Net interest expense for 2014 includes valuation of imbedded derivatives within the note with RMCF.

The Company recorded a net loss of ($2,256,000), or ($0.15) per share, in the fourth quarter of FY2014, compared with a net loss of ($567,000), or ($0.06) per share, in the corresponding period of the previous fiscal year.

The weighted average number of common shares outstanding increased 158% to 15,393,297 in the fourth quarter of FY 2014, compared with 9,698,284 in the fourth quarter of FY 2013.
The Company acquired franchise rights or license agreements for 194 stores from a number of franchisors that were purchased during the fourth quarter of FY 2014.

About Rocky Mountain Chocolate Factory, Inc.

Rocky Mountain Chocolate Factory, Inc., headquartered in Durango, Colorado, is an international franchisor of gourmet retail chocolate stores and self-serve frozen yogurt cafés, and a manufacturer of an extensive line of premium chocolates and other confectionery products. As of June 4, 2014, the Company and its franchisees, licensees and majority-owned subsidiary (U-Swirl, Inc.) operated 646 stores and cafés in 42 states, Canada, Japan, South Korea, and The United Arab Emirates. The Company's common stock is listed on The Nasdaq Global Market under the symbol "RMCF." Additional information is available on the Internet at www.rmcf.com.

About U-Swirl, Inc.

U-Swirl, Inc. is an operator and franchisor of self-serve frozen yogurt cafés that operate under the following names: U-SWIRL Frozen Yogurt, CherryBerry, Aspen Leaf Yogurt, Yogli Mogli, Gracie Bleu, Fuzzy Peach, and Josie's Frozen Yogurt. The cafés offer frozen yogurt in up to 20 non-fat and low-fat flavors, including tart, traditional, and no-sugar-added options, along with fresh sorbet. Approximately 70 toppings such as fresh fruit, sauces, candies, and granola are available to customize each serving of yogurt to the customer's individual taste.

In January 2013, the Company acquired frozen yogurt café assets, franchise rights and certain other assets from Rocky Mountain Chocolate Factory, Inc. (NASDAQ: RMCF), primarily in exchange for certain warrants/options, notes payable, and a controlling ownership interest in the Company.

U-Swirl, Inc. is headquartered in Henderson, Nevada, and its common stock trades on the OTCQB under the symbol "SWRL." As of June 4, 2014, the Company and its franchisees operated 295 self-serve frozen yogurt cafés in 39 states and 3 foreign countries.

Forward-Looking Statements

Certain statements in this press release are "forward-looking statements." These statements involve risks and uncertainties, and the Company undertakes no obligation to update any forward-looking information. Risks and uncertainties that could cause cash flows to decrease or actual results to differ materially include, without limitation, seasonality, consumer interest in the Company's products, general economic conditions, consumer and retail trends, costs and availability of raw materials, competition, market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control. Readers are referred to the Company's periodic reports filed with the SEC, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. The information contained in this press release is a statement of the Company's present intentions, beliefs or expectations and is based upon, among other things, the existing business environment, industry conditions, market conditions and prices, the economy in general and the Company's assumptions. The Company may change its intentions, beliefs or expectations at any time and without notice, based upon any changes in such factors, in its assumptions or otherwise, and it undertakes no obligation to revise or update publicly any forward-looking statements for any reason. The cautionary statements contained or referred to in this press release should be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue.

 


 
 
    STORE INFORMATION    
    New stores opened during    
    three months ended   Stores open as of
    February 28, 2014   February 28, 2014
Franchise Stores   0   268
Company-Owned Stores   0   13
International License Stores       4
         
         
 
 
 
SELECTED BALANCE SHEET DATA
(in thousands)
         
    February 28, 2014   February 28, 2013
             
Current Assets   $ 2,269   $ 604
Total Assets   $ 16,066   $ 3,718
Current Liabilities   $ 2,660   $ 665
Stockholder's Equity   $ 3,005   $ 1,693
             
             
 
   
   
INTERIM UNAUDITED  
STATEMENTS OF OPERATIONS  
(in thousands, except per share data and percentages)  
                         
    Three Months Ended February 28,     Three Months Ended February 28,  
          Unaudited           Unaudited  
    2014     2013     2014     2013  
Revenues                            
  Franchise, royalty and marketing fees     402       152     37.2 %   22.3 %
  Retail sales     678       529     62.8 %   77.7 %
  Total Revenues     1,080       681     100.0 %   100.0 %
                             
Costs and expenses                            
  Food, beverage and packaging costs     200       188     18.5 %   27.6 %
  Labor and related expenses     235       207     21.8 %   30.4 %
  Occupancy and related expenses     86       128     8.0 %   18.8 %
  Franchise development     60             5.6 %   0.0 %
  Marketing and advertising     93       16     8.6 %   2.3 %
  General and administrative     494       607     45.7 %   89.1 %
  Depreciation and amortization     249       96     23.1 %   14.1 %
  Acquisition related costs     620       -     57.4 %   0.0 %
  Total Costs and Expenses     2,037       1,242     188.6 %   182.4 %
                             
Income (loss) from operations     (957 )     (561 )   -88.6 %   -82.4 %
                             
Interest expense     (1,299 )     (6 )   -120.3 %   -0.9 %
                             
Income (loss) before income taxes     (2,256 )     (567 )   -208.9 %   -83.3 %
                             
Provision for income taxes     -       -     0.0 %   0.0 %
                             
Net income (loss)     (2,256 )     (567 )   -208.9 %   -83.3 %
                             
                             
Basic and Diluted Earnings (Loss)                            
  Per Common Share   $ (0.15 )   $ (0.06 )            
                             
Weighted Average Common Shares                            
  Outstanding, Basic and Diluted     15,305,453       9,698,284              
                               
                               
 
   
   
INTERIM UNAUDITED  
STATEMENTS OF OPERATIONS  
(in thousands, except per share data and percentages)  
                 
  Year Ended February 28,   Year Ended February 28,  
      Unaudited       Unaudited  
  2014   2013   2014   2013  
Revenues                    
  Franchise, royalty and marketing fees   1,477     572   26.7 % 19.2 %
  Retail sales   4,052     2,406   73.3 % 80.8 %
  Total Revenues   5,529     2,978   100.0 % 100.0 %
                     
Costs and expenses                    
  Food, beverage and packaging costs   1,307     797   23.6 % 26.8 %
  Labor and related expenses   1,110     633   20.1 % 21.3 %
  Occupancy and related expenses   769     472   13.9 % 15.8 %
  Franchise development   60     -   1.1 % 0.0 %
  Marketing and advertising   255     73   4.6 % 2.5 %
  General and administrative   1,693     1,464   30.6 % 49.2 %
  Depreciation and amortization   521     327   9.4 % 11.0 %
  Acquisition related costs   620     -   11.2 % 0.0 %
  Total Costs and Expenses   6,335     3,766   114.6 % 126.5 %
                     
Income (loss) from operations   (806 )   (788 ) -14.6 % -26.5 %
                     
Interest expense   (1,320 )   (6 ) -23.9 % -0.2 %
                     
Income (loss) before income taxes   (2,126 )   (794 ) -38.5 % -26.7 %
                     
Provision for income taxes   -     -   0.0 % 0.0 %
                     
Net income (loss)   (2,126 )   (794 ) -38.5 % -26.7 %
                     
                     
Basic and Diluted Earnings (Loss)                    
  Per Common Share $ (0.14 ) $ (0.13 )        
                     
Weighted Average Common Shares                    
  Outstanding, Basic and Diluted   14,871,959     6,111,947          
                     
                     
 
   
   
GAAP RECONCILIATION  
EBITDA EXCLUDING IMPAIRMENT CHARGES AND  
EQUITY COMPENSATION  
(in thousands)  
                   
    Three Months Ended February 28,     Change  
    2014     2013        
GAAP: Income from Operations   $ (957 )   $ (561 )   (396 )
  Depreciation and Amortization     249       96     153  
  Equity Compensation Expense     5       129     (124 )
  Impairment and Restructuring     620       -     620  
Non-GAAP, adjusted EBITDA   $ (83 )   $ (336 )   253  
                       
                       
 
   
   
GAAP RECONCILIATION  
EBITDA EXCLUDING IMPAIRMENT CHARGES AND  
EQUITY COMPENSATION  
(in thousands)  
                   
    Year Ended February 28,     Change  
    2014     2013        
GAAP: Income from Operations   $ (806 )   $ (788 )   (18 )
  Depreciation and Amortization     521       327     194  
  Equity Compensation Expense     58       240     (182 )
  Impairment and Restructuring     620       -     620  
Non-GAAP, adjusted EBITDA   $ 393     $ (221 )   614  
                       
                       

Contact:

U-Swirl, Inc.
(702) 586-8700

###

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