Mama's Creations, Inc. current report, 24 January 2013

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SEC Filing Summary: Mascot Properties, Inc. (Form 8-K)

Business Context and Reporting Period

Date of Report: January 24, 2013
Registrant: Mascot Properties, Inc. (Nevada Corporation)
Event: Completion of a reverse triangular merger with MamaMancini's, Inc., a producer of upscale specialty pre-prepared and frozen/refrigerated foods. Following the merger, Mascot Properties changed its business plan to focus on the food products business of MamaMancini's. The former real estate management business of Mascot is being spun out to the former majority shareholder.

Key Financial Metrics

Revenue (MamaMancini's):

  • Nine months ended Sept 30, 2012: $3,381,378 (51% increase vs. prior year).
  • Year ended Dec 31, 2011: $3,734,062 (147% increase vs. 2010).
Profitability:
  • Net Loss (9 months ended Sept 30, 2012): $(1,319,776).
  • Net Loss (Year ended Dec 31, 2011): $(681,728).
  • Accumulated Deficit (as of Sept 30, 2012): $(2,672,186).
Cash Flow and Liquidity:
  • Working Capital (Sept 30, 2012): $1,652,487 (up from $29,298 at Dec 31, 2011).
  • Net Cash Used in Operating Activities (9 months ended Sept 30, 2012): $(1,400,638).
  • Net Cash from Financing Activities (9 months ended Sept 30, 2012): $2,643,661 (primarily from stock sales).
  • Estimated Monthly Burn Rate: $183,000.
Capital Structure (Post-Closing):
  • Shares Outstanding: 20,854,000.
  • Warrants Outstanding: 505,400 (Exercise price $1.00).
  • Options Outstanding: 223,404.

Material Changes vs. Prior Period

  • Change in Control: MamaMancini's shareholders now own approximately 96.2% of the Company. Former Mascot majority shareholder David Dreslin resigned from all positions and cancelled 103,408,000 shares in exchange for $295,000 and liability releases.
  • Operational Shift: The Company transitioned from a shell company seeking real estate opportunities to an operating food manufacturer and distributor.
  • Expense Growth: Operating expenses increased 87% in the nine months ended Sept 30, 2012, driven by a $503,000 increase in advertising/promotion, $230,000 in payroll, and $93,000 in legal fees.
  • Customer Concentration: The ten largest customers accounted for approximately 92% of sales for the nine months ended Sept 30, 2012. Publix Supermarkets Inc. represented 39% of sales in that period.

Guidance, Outlook, and Risks

Outlook and Strategy:
Management plans to increase sales through expanded distribution (currently in ~16,000 locations), new product development (e.g., "Mama's Mac-n-Cheese"), and marketing initiatives including a national radio campaign. The Company estimates a working capital requirement of $2.2 million for the next 12 months.

Material Risks:

  • Going Concern: The filing states there is "substantial doubt" about the Company's ability to continue as a going concern due to recurring losses and negative cash flow. Continued operations depend on raising additional capital.
  • Customer Dependence: Heavy reliance on a few major retailers (Publix, The Fresh Market, ShopRite) creates significant risk if any reduce orders.
  • Related Party Transactions: All manufacturing is outsourced to Hors d'oeuvres Unlimited, Inc. (HDU), a related party entity owned by Company officers. A loss of this supplier would materially impact operations.
  • Profitability: The Company is not profitable and expects to incur significant operating losses in the foreseeable future.

Investor Verification Checklist

  • Capital Sufficiency: Verify if the Company has secured the additional debt or equity financing required to cover the estimated $2.2 million working capital need for the next 12 months.
  • Customer Contracts: Confirm the status of relationships with top customers (Publix, The Fresh Market, ShopRite), noting the lack of long-term contracts and high concentration risk.
  • Related Party Manufacturing: Review the terms of the supply agreement with HDU to understand pricing controls and the risk of supply chain disruption given the related-party nature of the manufacturer.
  • Stock Liquidity: Assess the impact of "penny stock" regulations on the ability to trade shares, given the stock trades on the OTCQB under symbol "MSCT".
  • Accounting Change: Note the dismissal of Seale and Beers, CPAs, and the engagement of Rosenberg Rich Baker Berman and Company as the new independent auditor.