MamaMancini’s Holdings, Inc. (Mama’s Creations) — Q1 FY2022 10-Q
Business and period: The company manufactures and distributes prepared meat and sauce products, with newer ready-to-serve, pasta-bowl, deli, refrigerated and frozen offerings. This report covers the three months ended April 30, 2021; comparisons are with the three months ended April 30, 2020, whose results were revised for a revenue-classification correction.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter |
|---|---|---|
| Net sales | $10.31 million | $10.83 million |
| Gross profit / margin | $3.34 million / 32% | $3.46 million / 32% |
| Operating expenses | $2.49 million | $2.49 million |
| Operating income | $852,199 | $975,954 |
| Net income | $631,524 | $906,202 |
| Basic and diluted EPS | $0.02 | $0.03 |
| Cash from operations | $1.43 million | $1.20 million |
- Net sales fell approximately 5%, which management attributed mainly to elevated prior-year orders as major national accounts stocked inventory early in the COVID-19 pandemic. Gross profit decreased 3%; gross margin was reported at 32% in both periods.
- Operating expenses increased less than 1%, but rose to 24% of sales from 23%. Management cited higher executive payroll and bonuses, director fees, and insurance, partly offset by lower professional fees and stock compensation.
- Net income declined about 30%, reflecting lower gross profit and a $247,949 income tax provision, versus no provision in the prior-year quarter. Other income was $27,274, including insurance-related income, compared with $69,752 of other expense in the prior-year period.
- Operating cash flow increased to $1.43 million. Investing used $354,394, mainly for machinery, equipment and leasehold improvements; financing used $27,578. Cash increased $1.05 million to $4.24 million.
Balance sheet, liquidity and debt
- At April 30, 2021, current assets were $9.91 million and current liabilities were $4.41 million, producing working capital of $5.50 million, up $666,040 from January 31, 2021. Cash was $4.24 million; accounts receivable were $3.72 million and inventory was $1.44 million.
- Total assets were $15.28 million and total liabilities were $6.32 million. The company reported no outstanding balance on its M&T Bank term loan or revolving credit line. It had $618,639 of finance lease liabilities and $1.65 million of operating lease liabilities.
- The M&T working-capital line was undrawn at quarter-end. A June 11, 2021 amendment, after the reporting date, increased availability from $4.0 million to $4.5 million and extended maturity to June 30, 2023. Borrowings are subject to borrowing-base limits and covenants, and the facility is secured by company assets.
- Cash balances exceeding federal insurance limits were $3,975,358 at April 30, 2021.
Outlook, risks and notable items
- Management said cash resources were expected to be sufficient through June 14, 2022 based on current and projected operations, but noted potential need for additional funding to support growth and strategic objectives. It gave no specific revenue or earnings guidance and cautioned that COVID-19 conditions could change expectations.
- The business cited competition, changing consumer demand, grocery-industry cyclicality, economic conditions and food-price volatility. Three customers represented approximately 31%, 19% and 11% of quarterly gross sales, indicating customer concentration.
- A December 2020 plant fire damaged a spiral oven, which returned to service in late February 2021. The company recorded $67,426 of business-interruption insurance proceeds in cost of sales and $91,312 of property-damage proceeds as other income, alongside related repair and equipment costs. The claim remained open to assess additional business-income losses; the filing’s MD&A separately describes $37,704 of net insurance-related other income/expense.
- The company revised prior-year quarterly sales and general and administrative expense downward by $265,978 to correct promotion expenses that should have been recorded as a reduction of revenue. The correction did not change prior-year operating income or net income.
- Related-party disclosures include $12,000 of quarterly commission expense from WWS, Inc., affiliated with two directors, and $4,517 reimbursed to an entity wholly owned by the CEO for investor-relations conference expenses.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company reported no material litigation and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether sales and margins recover after the prior-year pandemic-related inventory stocking, and how customer concentration evolves.
- Whether the open insurance claim produces further recoveries, and how fire-related costs and proceeds are ultimately reflected.
- Liquidity assumptions supporting management’s cash-runway statement, capital spending needs, and availability under the amended, secured credit line.
- The effect of operating and finance lease commitments, including $2.67 million of undiscounted future lease payments disclosed at quarter-end.
- The revised prior-period revenue presentation and the company’s estimates for promotions, receivable collection and inventory obsolescence.