Mama’s Creations, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended July 31, 2023; fiscal year ends January 31. The company markets, manufactures and distributes refrigerated prepared foods. The unaudited interim statements are prepared under U.S. GAAP. On July 31, 2023, the company changed its name from MamaMancini’s Holdings, Inc. to Mama’s Creations, Inc.
Financial performance
| Metric | Three months ended July 31, 2023 | Three months ended July 31, 2022 | Six months ended July 31, 2023 | Six months ended July 31, 2022 |
|---|---|---|---|---|
| Net sales | $24.79 million | $22.85 million | $47.91 million | $44.68 million |
| Gross profit (margin) | $7.51 million (30%) | $2.73 million (12%) | $13.88 million (29%) | $6.59 million (15%) |
| Operating income (loss) | $2.28 million | $(0.83) million | $4.22 million | $(0.57) million |
| Net income (loss) | $1.74 million | $(0.74) million | $3.14 million | $(0.64) million |
| Basic / diluted EPS | $0.05 / $0.05 | $(0.02) / $(0.02) | $0.09 / $0.08 | $(0.02) / $(0.02) |
- Sales increased approximately 9% in the quarter and 7% year to date. Management attributed growth to pricing, volume gains, new customers, cross-selling, product additions and the CIF acquisition.
- Cost of sales fell approximately 14% in the quarter and 11% year to date. Management cited procurement and manufacturing improvements, freight efficiencies and normalization of commodity and other material costs.
- Operating expenses rose 47% in the quarter and 35% year to date; they were 21% and 20% of sales, respectively, versus 16% in both prior-year periods. Higher payroll and related costs and insurance were major contributors; freight-related expenses declined.
- For the six months, operating cash flow was $3.36 million, versus $0.23 million a year earlier. Investing used $0.90 million, including $0.65 million for CIF and $0.25 million for equipment. Financing used $1.28 million, primarily for loan, line-of-credit and lease repayments and preferred dividends.
Liquidity, debt and material changes
- At July 31, cash was $5.56 million, current assets $18.19 million and current liabilities $13.08 million; working capital was $5.11 million, up from $3.80 million at January 31. Accounts receivable was $8.84 million.
- Bank borrowings included a $0.50 million revolving-line balance and $5.43 million outstanding on the term loan. The revolving line has $5.5 million of total availability and was extended to October 31, 2025; the term loan matures January 17, 2027. The company reported compliance with bank covenants.
- Related-party promissory notes totaled $4.95 million at period end. This includes $2.70 million of CIF acquisition consideration: $1.20 million payable in cash on the first anniversary of the June 28, 2023 closing and $1.50 million payable in company shares on the second anniversary. The separate T&L and Olive Branch seller note requires $0.75 million annual principal payments plus interest.
- On June 28, the company acquired CIF’s remaining 76% interest for stated consideration of $3.65 million ($0.95 million cash and a $2.70 million related-party note). Including the carrying value of its prior equity-method investment, total purchase price was $5.22 million; $4.56 million was allocated to customer relationships. CIF reported $13.72 million revenue and $0.93 million net income for February 1 through June 28, 2023.
- Series B preferred holders converted all 54,600 shares into 819,000 common shares in June; no Series B shares remained outstanding at July 31. Common shares outstanding were 37.34 million at period end.
Outlook, risks and contingencies
- No quantified revenue, earnings or other formal guidance is provided. Management said current cash resources, expected revenue growth and expense controls are expected to cover requirements for at least the next 12 months, but additional funding may be needed to finance growth or strategic objectives; availability and terms are not assured.
- Key disclosed risks include reliance on a limited number of customers, competition and pricing pressure, raw-material and freight costs, inflation and economic conditions, food-safety and regulatory compliance, product liability and recalls, supply-chain disruption, customer acceptance of new products, and execution and integration of acquisitions.
- Customer concentration remains material: the three largest customers represented approximately 22%, 13% and 11% of six-month gross revenue. One customer represented approximately 40% of gross receivables at July 31.
- The company reported no litigation it believes would have a material effect, no material debt defaults, and effective disclosure controls as of July 31. Management reported no material changes to internal control over financial reporting.
- Unusual or notable items include approximately $140,000 of receivables written off during the quarter and an inventory-obsolescence reserve of approximately $126,000 at July 31, compared with $32,000 at January 31. The deferred tax asset declined from $0.72 million to $0.07 million.
Most important facts for investors to verify
- Whether the sharp gross-margin improvement is sustainable and how much reflects pricing, cost normalization, operational efficiencies and product/customer mix.
- The contribution of CIF to reported sales and earnings after consolidation, and whether the acquisition’s expected benefits justify its financing and customer-relationship asset valuation.
- Customer exposure, particularly the customer representing 40% of gross receivables, and subsequent collection experience.
- Cash generation, working-capital needs and ability to meet acquisition-note payments, seller-note installments and bank debt obligations while funding growth.
- Operating-expense growth, including staffing and insurance, and the effect of further commodity, freight or wage inflation.