MamaMancini’s Holdings, Inc. — Form 10-Q
Reporting period: Three and six months ended July 31, 2017. The filing issuer is MamaMancini’s Holdings, Inc. (the company now identified in the request as Mama’s Creations). The company manufactures and distributes meatballs, meat loaves, and related prepared foods.
Financial performance and position
| Metric | Three months ended July 31, 2017 | Six months ended July 31, 2017 |
|---|---|---|
| Net sales | $7.01 million; +69% year over year | $12.36 million; +53% |
| Gross profit / margin | $2.01 million / 29% | $3.91 million / 32% |
| Operating income | $207,467 | $523,629 |
| Net income | $24,399 | $152,624 |
| Net income (loss) available to common stockholders | $(20,366) | $61,059 |
- Compared with the prior-year periods, sales and gross profit increased, and the company moved from net losses to net income. Gross margins nevertheless declined: 29% versus 33% for the quarter and 32% versus 35% for the six-month period.
- Six-month operating cash flow was $388,605, versus cash use of $23,403 a year earlier. Investing cash flow was $(836,735), primarily for equipment and facility improvements; financing cash flow was $421,004. Cash decreased by $27,126 to $639,454.
- At July 31, current assets were $5.68 million and current liabilities $5.61 million, leaving working capital of $67,443, down from $1.75 million at January 31. The current ratio was approximately 1.01.
- Total liabilities were $6.17 million. Debt maturities disclosed for the twelve months ending July 31, 2018 totaled $4.72 million; the line of credit was $2.45 million and the Manatuck note, net, was $2.13 million. The Manatuck note maturity was extended to May 1, 2018, with required principal payments stepping up from $100,000 monthly to $150,000 and then $200,000.
- Capital spending included $836,735 of cash paid for fixed assets and a $493,855 deposit on machinery and equipment. Stockholders’ equity was $1.30 million.
Changes, outlook, and risks
- Management attributed sales growth to higher-volume locations and new and existing customers. The company reported distribution in approximately 40,600 SKUs and 11,900 retail and grocery locations, compared with 36,000 SKUs and 11,400 locations a year earlier.
- Management attributed lower margins to product mix, higher commodity costs, and startup costs for large placements. Higher sales also increased freight, commissions, and royalties; lower share-based compensation partly offset expense growth.
- Management said cash resources were expected to cover requirements through the first quarter of fiscal 2019 in the financial-statement note, but through the second quarter in MD&A. It also said additional financing might be needed and that availability on acceptable terms was not assured. The filing states that management considered prior going-concern concerns resolved, while noting that continued viability depends on revenue growth, cost control, and potentially raising funds.
- A September 7, 2017 letter of intent proposed a merger with related-party supplier Joseph Epstein Food Enterprises (JEFE), targeted for around November 1, 2017, subject to due diligence and definitive agreements. No cash was to be exchanged. Proposed consideration included eliminating the $1.60 million intercompany balance, assuming estimated JEFE payables and accrued expenses of $2.66 million and third-party loans of about $782,000, and indemnifying the CEO for a bank-loan guarantee of about $250,000. Management expected the transaction to be accretive, but terms and balances remained subject to verification.
- Related-party and concentration risks are significant: the CEO and president co-owned the manufacturer, which supplied approximately 100% of purchases; three customers represented approximately 60% of six-month gross sales. The company also owed a related-party CEO note of $117,656.
- The filing reported no material pending litigation, no defaults on indebtedness, no off-balance-sheet arrangements, and effective disclosure controls. It identified competitive, consumer-demand, grocery-cycle, economic, and food-price risks.
Important facts for investors to verify
- Reconcile the cash-flow investment amount: the cash-flow statement reports $836,735, while MD&A describes investing cash use of $863,735.
- Confirm the cash-runway period: the note cites the first quarter of fiscal 2019, while MD&A cites the second quarter.
- Reconcile common shares outstanding: the balance sheet reports 31,593,665 issued and outstanding, while the statement of stockholders’ equity reports 31,503,665 at July 31. The filing also reports 28,918,433 shares outstanding as of September 13.
- Assess the proposed JEFE merger’s final terms, audited balances, related-party governance, and effect on consolidated debt and working capital.
- Evaluate refinancing and repayment capacity given the $4.72 million of disclosed maturities in the following twelve months, low working capital, customer concentration, and dependence on a related-party supplier.