MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Business context and reporting period. The company manufactures and distributes meatballs, meatloaf, prepared meals, and related food products. This unaudited filing covers the quarter and nine months ended October 31, 2020; the company’s fiscal year ends January 31. The filing identifies the registrant as MamaMancini’s Holdings, Inc.
Financial performance
| Metric | Three months ended Oct. 31, 2020 | Three months ended Oct. 31, 2019 | Nine months ended Oct. 31, 2020 | Nine months ended Oct. 31, 2019 |
|---|---|---|---|---|
| Net sales | $9.90 million | $9.27 million | $31.38 million | $24.73 million |
| Gross profit | $3.13 million | $2.90 million | $10.07 million | $7.96 million |
| Operating expenses | $2.34 million | $2.40 million | $7.50 million | $6.53 million |
| Operating income | $787,128 | $503,600 | $2.57 million | $1.43 million |
| Net income | $734,142 | $408,615 | $2.38 million | $1.12 million |
| Basic and diluted EPS | $0.02 | $0.01 | $0.07 | $0.04 |
- Margins: Gross margin was 32% in the quarter versus 31% a year earlier; for the nine-month periods it was 32% in both years. Operating expenses were 24% of sales for the 2020 quarter and nine-month period, versus 26% in each comparable 2019 period.
- Cash flow: Nine-month operating cash flow was $2.52 million, compared with $975,848 in 2019. Investing activities used $320,332, mainly for plant-related fixed assets; financing activities used $798,520. Cash increased by $1.40 million to $1.79 million.
- Liquidity: At October 31, cash was $1.79 million, accounts receivable $3.69 million, inventory $1.56 million, and current liabilities $3.84 million. Working capital was $3.49 million, versus $1.41 million at January 31, 2020.
- Debt and leases: The M&T term loan and related-party notes were paid off by quarter-end. The line of credit was $650,000, down from $3.00 million at January 31, 2020; its amended maturity is June 30, 2022, and it is secured by business assets and subject to covenants. Finance lease liabilities totaled about $711,000; operating lease liabilities totaled about $1.40 million.
Material changes and management commentary
- Quarterly net sales rose 7% year over year, while nine-month sales rose 27%. Management attributed growth to new and existing customers. COVID-19-related food hoarding and retailer inventory building supported first-quarter demand, while the pandemic slowed new product placements in the third quarter.
- Management said it expected new placements to return to normal levels in the fourth quarter. Quarterly gross margin improved with plant operating efficiencies; for the nine-month period, higher beef prices were offset by operational efficiencies.
- Nine-month operating expenses increased 15% in dollars, largely from freight, commissions, payroll, professional fees, and royalties, but declined as a percentage of sales. Lower advertising and promotion costs and reduced trade-show and travel spending partly offset those increases.
- Interest expense declined year over year as debt balances fell. The company returned the $330,505 received under the Paycheck Protection Program in May 2020.
Outlook, risks, and unusual items
- Management stated that cash resources were expected to meet requirements through the fiscal year ending January 31, 2021, based on current and projected operations. It cautioned that additional financing may be needed to fund growth and that acceptable financing may not be available. COVID-19-related conditions could change expectations.
- The company cited competition, changing consumer demand, food-price volatility, economic conditions, and potential supply-chain, production, employee, or customer disruptions from COVID-19 as risks.
- Customer concentration is significant: two customers represented approximately 45% and 11% of nine-month gross sales and 30% and 11% of gross receivables at October 31, 2020.
- Disclosure controls and procedures were reported as not effective. Management reported no material change in internal control over financial reporting during the quarter.
- The company reported no litigation believed likely to have a material adverse effect. Product-license royalties were $399,013 for the nine-month period. A September 2020 B. Riley advisory agreement provides for a fairness-opinion fee of $125,000 or $175,000, depending on transaction value, with potential additional fees.
- After quarter-end, the filing reports exercises of warrants for 823,890 shares at $1.50, with stated proceeds of $1,124,724. Elsewhere it reports exercises through December 14, 2020 of 618,335 warrants at $1.50 for $927,502, as well as exercises at $1.00. These disclosures have differing periods and should be reconciled.
Important facts for investors to verify
- Whether customer concentration and any changes in major customer relationships affect future sales and collections.
- Liquidity and availability under the asset-based credit line, including compliance with covenants and the need for additional growth financing.
- Remediation plans and progress addressing ineffective disclosure controls.
- The timing, share counts, exercise prices, and proceeds for post-quarter warrant exercises; confirm the reported $1.50 exercise proceeds.
- Whether COVID-19, raw-material costs, or production capacity materially affect placements, margins, or the company’s stated cash outlook.