MamaMancini’s Holdings, Inc. (Mama’s Creations) — Form 10-Q Summary
Reporting period: Second quarter and six months ended July 31, 2022; fiscal year ends January 31. Financial statements are unaudited. The filing reports the company under the name MamaMancini’s Holdings, Inc.
Financial performance
| Metric | Three months ended July 31, 2022 | Prior-year quarter | Six months ended July 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $22.85 million | $12.06 million | $44.68 million | $22.38 million |
| Gross profit | $2.73 million | $3.37 million | $6.59 million | $6.71 million |
| Gross margin | 12% | 28% | 15% | 30% |
| Operating expenses | $3.56 million | $2.78 million | $7.16 million | $5.28 million |
| Net income (loss) | $(743,246) | $431,925 | $(639,549) | $1.06 million |
| Operating cash flow | Not presented by quarter | $232,978 | $1.62 million |
- Sales grew approximately 89% in the quarter and 100% year to date, primarily reflecting the December 2021 acquisitions of T&L Creative Salads and Olive Branch; management also cited product additions to existing customers.
- Despite higher sales, gross profit declined and the company moved to losses. Management attributed margin pressure to the acquired businesses’ lower-margin mix and inflation in raw materials, packaging, freight and especially poultry, which outpaced price increases.
- Operating expenses rose 28% in the quarter and 36% year to date, including higher freight, payroll, commissions, insurance and professional fees. Expenses declined as a share of sales.
Liquidity, cash flow and debt
- At July 31, cash was $1.90 million; current assets were $13.48 million and current liabilities $11.02 million, giving working capital of $2.46 million, down from $2.65 million at January 31.
- Six-month operating cash flow was $233,000. Investing used $806,000, including $500,000 cash invested in Chef Inspirational Foods (CIF) and $306,000 for fixed assets. Financing provided $1.62 million, including $1.73 million of net line-of-credit borrowings and $515,000 received toward a preferred-stock offering.
- Total liabilities were $24.60 million. At period-end, the company reported a $2.49 million line-of-credit balance, term-loan carrying value of approximately $6.93 million, and related-party promissory note of approximately $3.06 million, in addition to lease liabilities. The M&T acquisition loan has a variable SOFR-based rate and matures January 2027; the line of credit matures June 2023.
- Management stated that cash resources were expected to meet requirements through September 14, 2023, but additional financing may be needed to fund growth; availability on acceptable terms is not assured.
Material developments, outlook and risks
- In June 2022, the company acquired a 24% interest in CIF for $1.2 million: $500,000 cash and $700,000 in company shares. It also received an option, exercisable within one year, to acquire the remaining 76% for $3.8 million, payable primarily in cash. CIF is accounted for under the equity method. The filing reports $18,540 of equity-method income for the period.
- Management said it expected gross profits to return to targeted levels in the quarter ending October 31, 2022, citing improving balance between inflation and price increases and a new process to track input costs and pricing. This is forward-looking and not a guarantee.
- On September 13, 2022, after quarter-end, the company closed the first round of its Series B preferred offering, raising $1.18 million gross. The preferred shares carry an 8% cumulative annual cash dividend, no voting rights and optional conversion at 15 common shares per preferred share. At July 31, $515,000 received toward the offering was recorded as a liability because shares had not yet been issued.
- Disclosure controls and internal control over financial reporting were deemed ineffective. Reported weaknesses involved inadequate accounting staffing and segregation of duties, and insufficient experience with the new ERP system. Management said remediation was underway and the weaknesses had not affected reported results, but could cause future misstatements if not addressed.
- Customer concentration is material: three customers represented 23%, 14% and 12% of quarterly revenue; the largest was identified as related-party CIF. T&L reported $5.39 million of sales to CIF during the quarter. Related-party arrangements also include a seller note and a facility lease.
- The filing describes competitive and demand variability, food-cost volatility and estimation risks. Management reported no material litigation known to it and no debt payment defaults. It reported no goodwill impairment at July 31.
Investor facts to verify
- Whether margins improved as management expected in the quarter ending October 31, 2022, and whether pricing kept pace with input-cost inflation.
- Cash generation, inventory levels and borrowing needs, including compliance with the line-of-credit terms and the status of the 2023 maturity.
- Completion, terms and dilution from the Series B offering, and whether the CIF acquisition option is exercised and how it is funded.
- Progress in remediating internal-control weaknesses and improving timely financial reporting.
- Ongoing CIF-related sales, customer concentration and the terms and balances of related-party transactions.