NetBrands Corp. Releases 2023 10-K Report Highlighting Financial and Operational Challenges
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NetBrands Corp., formerly known as Global Diversified Marketing Group Inc., has released its Form 10-K report for the fiscal year ending December 31, 2023. The company, which focuses on developing and marketing healthy snack foods and expanding its digital business through e-commerce acquisitions, has outlined key financial and operational highlights, strategic initiatives, and challenges faced during the year.
Financial Highlights
- Sales: $0.644 million, a decrease of $0.999 million or 60.8% from the previous year due to supply chain issues and the loss of a key product line.
- Gross Profit: $0.165 million, representing 25.6% of revenue, down from $0.408 million or 24.8% of revenue in the previous year, primarily due to lower sales volumes.
- Operating Expenses: $1.080 million, a decrease from $1.474 million in the previous year, attributed to lower expenses across all categories and a significant reduction in officer compensation.
- Net Loss: $1.321 million or $(0.08) per share, compared to a net loss of $1.087 million or $(0.07) per share in the previous year, driven by decreased revenue and increased interest expenses.
- Cash: $0.001 million as of December 31, 2023, compared to $0.054 million as of December 31, 2022, reflecting challenges in liquidity.
Business Highlights
- Company Overview: NetBrands Corp. focuses on developing and marketing healthy snack foods and expanding its digital business through e-commerce acquisitions.
- Business Strategy: The company aims to diversify its business by acquiring small regional brands and e-commerce assets, with a focus on scaling up these businesses to increase revenue.
- E-Commerce Expansion: A significant shift towards e-commerce is planned, with a 90/10 focus on e-commerce sales while maintaining brick-and-mortar sales. The acquisition of 'The Hula Fit' online store is part of this strategy.
- Product Development: The company is focused on developing gourmet foods and snack products under its trademarked brands, aiming to expand its product portfolio based on market trends and consumer demand.
- Trademarked Brands: The company owns six trademark brands, each encompassing numerous SKUs, which are marketed and distributed through various channels including specialty and grocery retailers.
- Vending Operations: Products are supplied to vending channels across the United States, representing approximately one percent of the company's revenues.
- Geographical Performance: The company operates as a marketer and distributor in the United States, Canada, and Europe, with a focus on expanding its national distribution network.
- Future Outlook: The company plans to explore business combinations with private entities across various industries and stages of development to enhance shareholder value.
Strategic Initiatives
- Financial Stability: The company has been actively working on improving its financial stability by entering into various agreements to manage its debt and enhance liquidity. This includes the securities purchase agreement with 1800 Diagonal and Cove Funding, aimed at securing necessary funds for operational and strategic purposes.
- Capital Management: The company has not declared or paid any cash dividends on its common stock, indicating a focus on retaining earnings to finance business expansion. Additionally, there have been no recent sales of unregistered securities or equity compensation plans in place. The company has also engaged in financing activities, including loans from its CEO, to support its capital needs.
- Future Outlook: The company faces substantial doubt about its ability to continue as a going concern due to accumulated deficits and accrued liabilities. However, it plans to use proceeds from recent financing activities for working capital and general corporate purposes, indicating a strategic focus on stabilizing its financial position and exploring opportunities for future growth.
Challenges and Risks
- Customer Concentration: The company is heavily reliant on a small number of customers, with five customers accounting for approximately 99% of its revenue in 2023. This concentration poses a significant risk to profitability and liquidity if any of these customers are lost.
- Supply Chain Risks: The company's reliance on a single supplier for key raw materials presents a significant risk. Any disruption in the supply chain could adversely affect production and sales.
- Competition: The company faces substantial competition from large, established snack food producers like PepsiCo, which have greater resources for advertising and economies of scale, potentially impacting the company's market share and pricing strategies.
- Going Concern: The company has expressed concerns about its ability to continue as a going concern due to significant operating losses, working capital deficits, and accrued liabilities. This uncertainty could materially affect business operations and investor confidence.
- Regulatory Compliance: The company is subject to FDA regulations, and any non-compliance could harm its business. Changes in regulations or their interpretation could lead to non-compliance risks.
- Cybersecurity Risks: The company is exposed to cybersecurity risks, including potential cyberattacks that could compromise sensitive data and disrupt operations.
- Operational Challenges: The company experienced a significant decrease in sales in 2023 due to supply chain disruptions, including the loss of a product line produced in Russia. This has impaired the company's ability to fulfill orders and maintain customer relationships.
- Interest Expenses: The company has incurred higher interest expenses due to increased borrowings, which have been necessary to address liquidity issues stemming from operational losses.
- Funding Needs: Management has identified the need for additional funding to sustain operations, but there is no assurance that such funding will be available on acceptable terms.