MamaMancini’s Holdings, Inc. — Q1 FY2021 Form 10-Q
Business context and period. The filing covers the three months ended April 30, 2020, compared with the three months ended April 30, 2019. The company manufactures and distributes prepared meat and sauce products. The filing identifies the registrant as MamaMancini’s Holdings, Inc.
Financial performance and position
- Revenue: Net sales were $11.10 million, up 51% from $7.36 million. Gross sales were $11.24 million; slotting fees, discounts and allowances reduced sales by $140,385.
- Profit and margins: Gross profit was $3.73 million versus $2.37 million; gross margin increased to 34% from 32%. Operating income was $975,954 versus $479,566. Net income was $906,202, or $0.03 per basic and diluted share, compared with $355,666, or $0.01 per share.
- Expenses: Operating expenses rose 45% to $2.75 million, but fell to 25% of sales from 26%. Other expenses declined to $69,752 from $123,900, principally reflecting lower interest expense.
- Cash flow: Operating cash flow was $1.20 million versus $674,903. Investing activities used $105,616, mainly for fixed assets. Financing activities provided $330,296, including a PPP loan received during the quarter. Cash ended at $1.81 million, up from $393,683 at January 31, 2020.
- Liquidity: Current assets were $7.22 million and current liabilities $4.75 million, yielding working capital of $2.48 million, up from $1.41 million at January 31, 2020.
- Debt and leases: At April 30, the company reported a $3.15 million line-of-credit balance, a term-loan balance of $316,662 before $12,514 of unamortized debt discount, and $641,844 of related-party notes payable. Lease liabilities totaled $2.09 million. A $330,505 PPP promissory note was recorded at quarter-end; the company returned the proceeds, including interest, on May 6, 2020.
Material changes versus the prior comparable period
- Management attributed sales growth to new customers and increased sales to existing customers. Gross-margin improvement was attributed to higher plant utilization and efficiency and a change in product mix.
- Operating expense increases included postage and freight (+$344,615), professional fees (+$124,795), commissions (+$120,754), payroll (+$73,391), royalties (+$45,161), and advertising and promotion (+$40,194). Professional fees included a non-recurring $52,289 expense related to terminating investment-banker services.
- Capital expenditures were $105,616, below $242,820 a year earlier; management linked the spending to a plant-expansion project intended to increase capacity and efficiency.
Outlook, risks and other notable items
- Management said expected revenue growth and expense control made it believe cash resources would be sufficient through the fiscal year ending January 31, 2021. It also cautioned that additional funding might be needed for growth and strategic objectives, and that financing may not be available on acceptable terms.
- COVID-19 could disrupt the company’s supply chain, manufacturing, staffing, shipments or customer demand and adversely affect results and liquidity. Management noted that expectations could change as conditions evolved. No numerical earnings or revenue guidance was provided.
- Customer concentration is significant: three customers represented approximately 44%, 10% and 10% of gross sales for the quarter. The company also cited competition, changing consumer demand, economic conditions and food-price volatility as risks.
- Disclosure controls and procedures were reported as not effective; no material change in internal control over financial reporting was reported during the quarter.
- The filing reported no legal proceedings believed likely to have a material adverse effect and no defaults on indebtedness. Subsequent to quarter-end, warrants and employee options were exercised, producing $155,348 in disclosed proceeds in total, in addition to a cashless warrant conversion.
Important facts for investors to verify
- Confirm the post-quarter return of the PPP proceeds and the resulting debt and cash balances after May 6, 2020.
- Review borrowing availability, covenants, interest-rate exposure and maturity obligations for the M&T Bank credit facilities, alongside the company’s stated potential need for additional capital.
- Assess customer concentration and the extent to which the quarter’s sales growth and margin improvement are sustainable, particularly under COVID-19-related operating and demand risks.
- Review remediation plans for the ineffective disclosure controls and procedures.
- Reconcile apparent inconsistencies in the filing: the EPS note lists prior-year net income attributable to common stockholders as $335,666, while the statements report $355,666; share counts also differ between the January 31 balance sheet and the stockholders’ equity rollforward.