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By Steven Ralston, CFA

OTC:JAMN

Jammin Java (JAMN) is a growth company in the premium coffee industry. The company is a producer, marketer and distributor of sustainably-grown, ethically-farmed, artisan-roasted premium coffees sold under the brand name of Marley Coffee. All the company’s coffees are positioned as USDA Organic, Fair Trade Certified and/or Rainforest Alliance Certified. Management is implementing a growth strategy based on the business models of multi-channel geographic penetration and brand awareness-based volume growth. Having expanded through traditional retail grocery and distribution channels during the last 18 months, management’s goals for fiscal 2015 are to generate organic revenue growth, to improve the gross margin to 20%+ and to expand distribution to 10,000 retail locations. Mother Parkers made a strategic equity investment in Jammin Java, which is helping fund the company’s growth initiatives and increase Canadian distribution. In the United States, over 30 new distribution agreements were announced over the last year, including with the major grocery retailers of Kroger and Safeway. In 2014 between February and May, Marley Coffee announced ten domestic relationships, including Schnucks (Midwest), Kings Food Markets (NJ, NY and CT), Balducci's Food Lovers Market (CT, NY, MD and VA) Great Atlantic & Pacific Tea Company [A&P, Waldbaum's and Pathmark](New York City-New Jersey), Foodtown (NY, NJ and PA), Dierbergs (St. Louis area) and Hannaford Supermarkets (MA, ME, NH, VT and NY), along with two food brokerage firms (Alliance Sales & Marketing and National Sales Associates). To build awareness of the Marley Coffee brand name and to promote increased distribution, management enters into sponsorship agreements and attends trade shows. Having already entered a strategic partnership with the Denver Broncos in September 2013, Marley Coffee recently signed five-year partnership contracts with the Colorado Rockies MLB team and the Colorado Rapids, Denver’s Major League Soccer club. Thus far in 2014, management has attended the Fancy Foods Winter Show in San Francisco, the KEHE Summer Selling & Innovation Show in New Orleans, the Snack & Dry Grocery EPPS in Denver, EXPO WEST Naturals in Anaheim and UNFI East Winter Holiday Show in Ledyard, CT. At the Natural Products EXPO WEST trade show, Marley Coffee launched several new products, namely, Rainforest Alliance Certified versions of Buffalo Soldier, Mystic Morning and Smile Jamaica in 8 ounce ground and RealCup formats, along with two new flavor blends in the RealCup format: Catch a Fire (Jamaican chili flavor) and Spiced Root Rum (Jamaican rum flavor). The company plans to be represented at the upcoming trade shows: UNFI West Winter Holiday Show in Portland (May 29-30), the KEHE Holiday Show (June 9-11), the Fancy Foods Summer Show in NYC (June 29-July 1) and EXPO East Naturals in Baltimore (September 17-20). In mid-May, Marley Coffee reported financial results for the 2014 fiscal year ending January 31, 2014. In fiscal 2014, net revenue increased 211% to $5.64 million versus $1.82 million in fiscal 2013, primarily due to expanded distribution into the retail grocery market and growth of other distribution channels. Gross income increased 84.1% to $703,665 compared with $382,214; however, the gross profit margin contracted 857 basis points (bps) from 21.0% to 12.5% due to aggregate adjustments made throughout the year for manufacturer allowances, shelf slotting fees, discounts and promotions as the company expanded into new markets. The company’s net loss expanded from $4.02 million ($0.05 per diluted share) to $6.70 million ($0.07 per diluted share) as average weighted shares outstanding increased 20.8% from 77.3 million to 93.4 million, primarily through the settlement of the Ironridge Global IV transactions which extinguished $4.8 million of accounts payable and accrued expenses through the issuance of common shares. During fiscal 2014, the company’s operations and liquidity position benefited from Ironridge Global. Also, in July and August 2013, a private offering of 647,137 Units to accredited investors provided net proceeds of $246,000. Consequently, working capital improved dramatically to $1.61 million. Subsequently, in April 2014, Mother Parkers provided $2.5 million to Jammin Java through an equity purchase of 7,333,529 Units. Importantly, management continues to state that anticipated working capital needs for the next 24 months should be met through operations and funds being raised through an ongoing offering to accredited investors. In May 2014, Brent Toevs, CEO, issued a Letter to Shareholders wherein he recapped the accomplishments of Jammin Java during the last 18 months and outlined management’s growth plan for fiscal 2015. During the last year-and-one-half, the company established a national grocery distribution network, gaining distribution in over 5,000 (sic) stores in North America, including Safeway and Kroger. In addition, Jammin Java has authorization in approximately 10,000 stores. Meanwhile, net revenues increased from year-over-year from $1.8 million in fiscal 2013 to $5.6 million in fiscal 2014. During fiscal 2015, management is concentrating on increasing volume (which management terms turn rate or velocity) by building brand awareness (especially through promotions and trial programs), introducing new products, increasing international distribution and growing local Office Coffee Service (OCS) programs. An annual promotional calendar (for store-level discounts, in-store tastings, etc.) was established during the fourth fiscal quarter, and to-date, results have been positive. Management’s overall objective is to generate organic growth which will be manifest in sequential-quarter revenue increases throughout fiscal 2015. Specifically, management’s goals include generating $10 million in gross revenues, expanding distribution to 10,000 retail locations and improving the gross margin to 20% or above. Management indicated that one of the main challenges during fiscal 2015 will be the shortage of Jamaican Blue Mountain beans due to Hurricane Sandy and coffee leaf rust, which reduced production by approximately 40%. The limited supply of Jamaican Blue Mountain beans also hampered Jammin Java’s growth in fiscal 2014. Our price target is based on price-to-sales (P/S) valuation methodology. Jammin Java is a small-capitalization company, currently with negative profitability, but with an expected sales profile that should continue to grow rapidly as the company’s coffee products begin to appear on more grocery shelves and the OCS channel increases brand awareness. Price-to-sales valuation incorporates the company’s ability to generate revenues with the expectation that ultimately the growing revenue stream will manifest itself into positive earnings when the break-even point is surpassed. Based on evaluating current price-to-sales multiples of comparable companies within the industry and an expectation that Jammin Java will be valued at 4.0 times projected TTM sales, our target for Jammin Java is $0.47.

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