MamaMancini’s Holdings, Inc. (Mama’s Creations) — Form 10-Q Summary
Reporting period: Third quarter and nine months ended October 31, 2022. The company’s fiscal year ends January 31. Financial statements are unaudited. Results include T&L Creative Salads and Olive Branch, acquired in December 2021, so reported year-over-year comparisons include a significant change in the business perimeter.
Key financial results
| Metric | Three months ended Oct. 31, 2022 | Prior-year quarter | Nine months ended Oct. 31, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $25.69 million | $10.85 million | $70.37 million | $33.23 million |
| Gross profit | $6.56 million | $2.65 million | $12.99 million | $9.22 million |
| Gross margin | 25.5% | 24.4% | 18.5% | 27.8% |
| Operating income | $1.50 million | $1,201 | $928,239 | $1.44 million |
| Net income (loss) | $1.10 million | $(5,455) | $458,391 | $1.06 million |
| Net income per diluted share | $0.03 | $(0.00) | $0.01 | $0.03 |
Quarterly sales rose about 137% and nine-month sales about 112% year over year. The nine-month 2021 pro forma combined revenue for the company and the acquired businesses was $48.23 million, compared with $70.37 million in 2022; pro forma 2021 net income was $1.47 million. Pro forma figures are informational and are not reported actual results.
Quarterly gross margin improved to about 25.5%, while nine-month gross margin fell to about 18.5%. Operating expenses increased 92% in the quarter and 55% for the nine months, but declined as a percentage of sales to about 20% and 17%, respectively. Interest expense and debt-discount amortization were $186,859 for the quarter and $456,829 for the nine months.
Cash flow, liquidity and debt
- Cash was $3.48 million at October 31, 2022, up from $850,598 at January 31, 2022. The company reported no cash equivalents.
- Nine-month operating cash flow was $3.18 million, versus $2.13 million a year earlier. Investing cash outflow was $1.01 million, including $507,547 for fixed assets and $500,000 for the Chef Inspirational Foods investment. Financing provided $452,216.
- Working capital was $3.16 million, up from $2.65 million at fiscal year-end. Current assets were $14.32 million and current liabilities $11.15 million.
- At October 31, the balance sheet included a term loan of approximately $6.55 million, a related-party promissory note of $3.09 million, a $990,000 line-of-credit balance and finance lease liabilities totaling about $476,000. The M&T Bank credit line was increased to a $5.5 million borrowing limit and extended to June 30, 2024; the company reported compliance with its covenants at quarter-end. The acquisition term loan matures January 17, 2027.
- Management said cash resources were expected to meet requirements through December 12, 2023 based on projected operations, while cautioning that additional funding may be needed for growth and that acceptable financing may not be available.
Material developments, outlook and risks
- Management attributed quarterly improvement to strong sales, product additions to existing customers, normalized commodity, materials and freight costs, and manufacturing efficiencies. It said inflation outpaced price increases during the first six months of the nine-month period, with improved pricing and cost normalization in the final three months.
- The company acquired a 24% interest in Chef Inspirational Foods (CIF) for $1.2 million: $500,000 cash and $700,000 in common stock. It recorded $90,464 of equity-method income for the nine months and holds an option, exercisable within one year of June 28, 2022, to acquire the remaining 76% for an additional $3.8 million, subject to the disclosed payment terms.
- Customer concentration remains notable: CIF, a related party, accounted for 28% of quarterly gross sales and 26% of nine-month gross sales. The five largest customers represented 61% of quarterly and 62% of nine-month gross sales.
- Series B preferred shares carry an 8% cumulative annual cash dividend and are convertible into common stock at 15 common shares per preferred share. The company raised $1.18 million gross in the September closing and had $185,000 of proceeds recorded as a liability pending share issuance at quarter-end. A further $185,000 gross closing occurred on November 17, 2022.
- Disclosure controls and internal control over financial reporting were reported ineffective. Identified material weaknesses included insufficient accounting staff and segregation of duties, and limited experience with the new ERP platform. The company reported hiring a CFO and, effective December 12, 2022, a corporate controller to lead remediation and system implementation.
- Other disclosed risks include volatile food, packaging and freight costs, changing consumer demand, competition, and uncertainty in projecting results. Management reported no known legal proceedings expected to have a material adverse effect and no goodwill impairment recognized at October 31, 2022. No specific forward earnings guidance was provided.
Important facts for investors to verify
- How much of sales growth reflects acquired businesses versus organic growth, and whether recent pricing and margin improvements are sustainable.
- Whether cash generation can support working-capital needs, debt service and the potential CIF option purchase without additional financing.
- The CIF option’s exercise decision, related-party sales and receivable collection, and the financial effect of any acquisition.
- Progress in remediating the disclosed control weaknesses and completing the ERP implementation.
- Customer concentration, the 8% cumulative preferred dividend and potential common-share dilution from preferred conversion and equity awards.