MamaMancini’s Holdings, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended April 30, 2023; comparisons are with the three months ended April 30, 2022. The company markets, manufactures, and distributes prepared foods, including meatballs, salads, and olive products. Results are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Net sales | $23.12 million | $21.83 million | Up about 6% |
| Gross profit | $6.37 million | $3.86 million | Gross margin about 27.5%, versus 17.7% |
| Operating expenses | $4.43 million | $3.60 million | Increased; payroll and related costs rose about $760,000, commissions about $222,000, partly offset by lower freight costs of about $354,000 |
| Operating income | $1.94 million | $261,000 | Improved substantially |
| Net income | $1.40 million | $104,000 | Includes $146,000 equity-method income from Chef Inspirational Foods (CIF) |
| Net income per common share | $0.04 basic and diluted | $0.00 basic and diluted | Series B preferred dividends were $27,300 |
Management attributed stronger results to pricing actions, cross-selling, product additions, lower commodity costs, and manufacturing and freight efficiencies. Interest expense was $177,000, compared with $124,000 a year earlier.
Cash flow, liquidity, and debt
- Cash: $5.26 million at April 30, 2023, up from $4.38 million at January 31, 2023.
- Working capital: $5.02 million; current assets were $17.31 million and current liabilities $12.29 million. The current ratio was approximately 1.41.
- Cash flows: The financial statements report $1.61 million provided by operating activities, $145,000 used in investing, and $586,000 used in financing; cash increased $881,000. Operating cash flow benefited from lower inventory, partly offset by higher receivables and prepaid expenses.
- Borrowings: The balance sheet reports $750,000 outstanding on the M&T Bank line of credit and term-loan carrying amounts of $1.50 million current and $4.27 million long-term. The related-party acquisition note totaled $2.25 million, comprising $750,000 current and $1.50 million long-term. Lease liabilities totaled about $3.64 million.
- The $5.5 million revolving credit facility matures June 30, 2024; the term loan matures January 17, 2027. The company reported compliance with bank covenants at quarter-end.
Material changes, outlook, and risks
- Sales and profitability improved year over year, with gross margin rising by roughly 10 percentage points. Operating expenses also increased, particularly payroll and commissions.
- The company owns a 24% interest in CIF and recorded $146,000 of equity-method income. It reported $6.54 million of sales to CIF during the quarter and $2.94 million of CIF receivables at April 30, 2023. CIF accounted for a significant related-party relationship.
- Management believes available cash and expected revenue growth and expense control should fund requirements for at least the next 12 months. It cautions that additional funding may be needed to support growth or strategic objectives and may not be available on acceptable terms. No specific revenue or earnings guidance was provided.
- Customer concentration is material: two customers represented approximately 28% and 12% of gross revenue; two customers represented approximately 44% and 37% of gross receivables. Risks also include food safety and product liability, regulation, commodity and freight costs, competition, supply-chain disruption, customer demand, and access to capital.
- The filing reports no litigation believed likely to have a material effect. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material changes in internal control over financial reporting. The risk-factor discussion separately describes limited segregation of duties and control limitations associated with the company’s size.
Items investors should verify
- Reconcile inconsistencies between the financial statements and MD&A: the statements report Q1 2022 operating cash use of $1.34 million, while an MD&A table presents positive operating cash flow; the MD&A also gives different operating-expense and Q1 2023 cash-flow figures from the statements.
- Confirm the term-loan balance presentation: the balance sheet shows about $5.76 million net of debt discount, while the debt note describes approximately $5.82 million outstanding before discount and MD&A cites $6.21 million.
- Assess customer and CIF concentration, especially the significant CIF receivable and related-party sales and expenses.
- Monitor covenant compliance, revolving-credit availability and maturity, and whether growth requires additional financing.
- Review the impact of Series B preferred stock, including its 8% cumulative dividend and conversion provisions, on future cash needs and common-share dilution.