MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended July 31, 2015; fiscal year ends January 31. The filing identifies the registrant as MamaMancini’s Holdings, Inc.
Financial performance
- Revenue: Q2 net sales were $2.74 million, up 22% from $2.25 million; first-half sales were $6.09 million, up 26% from $4.83 million.
- Gross profit and margins: Q2 gross profit was $648,168 versus $658,864, with margin of 24% versus 29%. First-half gross profit was $1.59 million versus $1.46 million, with margin of 26% versus 30%.
- Operating results and earnings: Q2 operating loss was $762,936 and net loss was $1.00 million, compared with losses of $766,688 and $793,398, respectively. First-half operating loss was $1.62 million and net loss was $2.09 million, versus $1.45 million and $1.49 million. First-half basic and diluted loss per share was $0.08, versus $0.06.
- Expenses: First-half operating expenses rose 10% to $3.22 million, including higher advertising, freight, depreciation, payroll and professional fees. Other expense rose to $470,706 from $43,344, primarily due to interest and amortization of the Manatuck convertible debenture discount and financing costs.
- Cash flow: First-half operating cash use was $763,417, compared with $2.39 million a year earlier. Investing cash use was $100,683; financing provided $406,041. Cash declined by $458,059 to $396,936.
- Liquidity and debt: At July 31, cash was $396,936 and working capital was $173,782, down from $2.96 million at January 31. Current liabilities were $4.12 million. The balance sheet included a $1.05 million line of credit, $500,000 term loan, and $1.73 million net current convertible note; total liabilities were $4.50 million. The $2.20 million due from the related-party manufacturer was a significant current asset.
Material changes and notable items
- Sales growth accompanied expansion to approximately 10,500 retail and grocery locations and 33,900 product placements, from 8,600 locations and 26,000 placements a year earlier.
- Margins were pressured by a $130,000 second-quarter charge because purchases from the manufacturer were below the agreed monthly minimum, as well as inventory liquidation during a packaging changeover. Management also reported reduced inventory and lower quarterly volume.
- The company depends heavily on a manufacturer co-owned by its CEO and President. That supplier represented 95% of first-half purchases; the company reported $2.20 million due from the manufacturer.
- In June, the company issued Series A convertible preferred stock. It received $350,000 in cash at the initial closing and converted $650,000 of directors’ notes into preferred stock. The company’s private placement sought up to $10 million; it reported $1.185 million raised by September 11. Subsequent to quarter-end, two placements generated $185,000 gross proceeds and $160,950 net of placement costs.
Outlook, risks and controls
- Management planned to expand distribution, market new products, increase production-capacity utilization, shift sales toward higher-margin fresh-food channels and pursue direct-to-consumer sales, including QVC. It expected lower cash needs in subsequent quarters, but provided no quantified revenue or earnings guidance.
- Management estimated approximately $1 million of working-capital needs over the next 12 months, or about $83,000 per month, and said available resources were expected to meet needs through the current fiscal year. It warned that additional financing or spending cuts could be necessary and that financing may not be available on acceptable terms, or at all.
- The company expected an operating loss in 2016 as it invested in distribution and business development. It also cited competition, changing consumer demand, grocery-industry conditions, food-price volatility and variability in sales and earnings.
- Disclosure controls and procedures were reported as ineffective. Management reported no material changes to internal control over financial reporting during the quarter.
- The filing reported no material litigation known to the company and no debt defaults. It disclosed no derivatives or hedging activities.
Investor verification priorities
- Verify cash runway, working-capital needs and whether further financing was obtained on acceptable terms.
- Assess the terms, dilution and cash proceeds of the preferred-stock offering, including placement-agent fees and warrants.
- Monitor the manufacturer relationship, minimum-purchase charges, amounts due from the related party and the concentration of supply.
- Track whether sales growth translates into improved gross margins and lower cash burn, given first-half losses and margin contraction.
- Review remediation of ineffective disclosure controls and the company’s ability to manage customer and supplier concentration.