MamaMancini’s Holdings, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended January 31, 2018; comparison is the year ended January 31, 2017. The filing is for MamaMancini’s Holdings, Inc. (not “Mama’s Creations, Inc.”). The company manufactures and distributes prepared Italian foods, including meatballs and entrees.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net sales | $27.54 million | $18.05 million |
| Gross profit | $9.26 million | $7.22 million |
| Gross margin | 33.6% (reported as 34%) | 40.0% |
| Operating expenses | $8.20 million | $6.76 million |
| Operating income | $1.06 million | $0.46 million |
| Net income (loss) | $319,740 | $(301,080) |
| Net income (loss) per diluted share | $0.01 | $(0.02) |
| Cash from operations | $1.32 million | $357,234 |
| Capital expenditures | $1.47 million | $552,869 |
| Cash at year-end | $581,322 | $670,807 |
Net sales rose approximately 53%. Gross margin declined to 33.6% from 40.0%, which management attributed to product mix. Operating expenses increased approximately 21%, including higher freight, commissions, promotion, professional fees, royalties and depreciation. Interest expense was $679,974, with a further $63,428 of debt-discount amortization.
At January 31, 2018, current assets were $4.75 million and current liabilities were $7.66 million, producing a $2.90 million working-capital deficit, versus a $1.55 million deficit a year earlier. Total liabilities were $9.21 million and stockholders’ deficit was $1.93 million. Cash from operations did not cover capital expenditures; cash declined by $89,485 during the year.
Reported debt totaled approximately $5.75 million, including a $2.69 million line of credit, term loans, the Manatuck note and related-party notes. The company reported $4.20 million of scheduled debt maturities for the year ending January 31, 2019. The Manatuck note was extended to November 1, 2018, with monthly principal payments of $100,000. Borrowings under the secured credit facility bear variable rates tied to prime; the CEO personally guaranteed the facility.
Business developments and material changes
- JEFE merged into a wholly owned subsidiary on November 1, 2017. The company acquired JEFE’s assets, assumed its accounts payable and accrued expenses and certain third-party loans (approximately $782,000), and agreed to indemnify the CEO concerning a bank loan guarantee of approximately $250,000. No cash or stock was exchanged. The transaction was accounted for as a common-control reorganization, with both entities’ financial statements combined for all periods presented.
- The company reported approximately 12,200 retail locations and 43,800 product placements at January 31, 2018, compared with approximately 11,700 locations and 38,700 placements a year earlier. It cited higher-volume locations and sales growth with new and existing customers.
- Two customers represented approximately 50% of FY2018 gross sales (40% and 10%), versus 41% in FY2017. Those customers represented 58% of gross receivables at year-end. Customer names are not provided in the filing text.
- All outstanding Series A preferred shares converted into approximately 3.47 million common shares in July 2017. The preferred stock carried an 8% dividend; FY2018 preferred dividends were $91,565 and were paid in common shares.
Outlook, risks and unusual items
- Management stated that revenue growth, improved gross margins and expense controls made it probable that cash resources would meet requirements through the second quarter of fiscal 2019. It also warned that additional funding might be needed to finance growth and strategic objectives, and that acceptable financing might not be available. No quantified sales or earnings guidance was provided.
- Key risks include customer concentration, a working-capital deficit, substantial debt and near-term maturities, variable interest costs, and the possibility of needing further financing. Management cited intense competition, changing consumer demand and food-price volatility.
- Management and the CEO/CFO concluded that disclosure controls and internal control over financial reporting were ineffective, citing material weaknesses including limited segregation of duties and limited controls related to information processing. The company planned remediation as resources allowed and reported subsequent additions to accounting staff. The auditor did not attest to internal-control effectiveness.
- The independent auditor gave an unqualified opinion on the financial statements. The filing reports no litigation believed to have a material adverse effect. Management disclosed a May 2018 equipment sale-leaseback with a four-year term, a 15% residual buyback option and equipment cost of $213,250.
- Management’s stated growth priorities include expanding fresh-section placements and retail distribution, introducing products, growing QVC sales, marketing and pursuing club-store opportunities. These are plans, not quantified guidance.
Most important facts for investors to verify
- Whether sales growth can continue while gross margins recover from 33.6%, and whether expansion produces positive cash flow after capital spending.
- Current availability and terms of the credit facility and other financing, compliance with debt terms, and the company’s ability to meet scheduled maturities and Manatuck payments.
- The identities, commercial terms and retention risk of the two major customers, and the collectability of concentrated receivables.
- Progress in remediating the disclosed control weaknesses and any subsequent updates to internal-control assessments.
- Potential dilution: the filing reports substantial outstanding warrants and options, in addition to the preferred-stock conversion; confirm current balances and exercise terms against later filings.