MamaMancini’s Holdings, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Quarter and six months ended July 31, 2020. The filing identifies the registrant as MamaMancini’s Holdings, Inc.; the request metadata names Mama’s Creations, Inc.
Business context and financial performance
The company manufactures and distributes prepared meat products and sauces, with customers across the United States. Its fiscal year ends January 31.
| Metric | Three months ended July 31, 2020 | Six months ended July 31, 2020 |
|---|---|---|
| Net sales | $10.38 million, up 28% year over year | $21.49 million, up 39% |
| Gross profit / margin | $3.21 million / 32% | $6.94 million / 32% |
| Operating income | $806,765 | $1.78 million |
| Net income | $739,767; $0.02 per basic and diluted share | $1.65 million; $0.05 per basic and diluted share |
| Operating cash flow | Not separately reported for the quarter | $1.47 million |
Six-month gross margin was 32%, versus 33% in the prior-year period. Management attributed the decrease to higher beef input prices, partly offset by plant operating efficiencies. Operating expenses rose 25% for the six months, but declined to 24% of sales from 27%. Interest expense also decreased year over year.
Liquidity, debt, and capital
- At July 31, cash was $1.70 million and working capital was $3.43 million, compared with $394,000 and $1.41 million, respectively, at January 31.
- Six-month cash increased $1.30 million. Investing activities used $189,000, primarily for equipment and facility improvements; financing activities provided $28,000.
- Outstanding bank line-of-credit borrowings were $2.50 million against a $4.0 million facility, which matures June 30, 2022. The term loan had a $192,000 gross balance; the balance-sheet current portion is reported net of debt discount at $184,000. Bank debt is secured by business assets and subject to financial covenants.
- The company repaid $642,000 of related-party notes during the six months; none remained outstanding at July 31. Finance lease liabilities totaled approximately $758,000, and operating lease liabilities approximately $1.44 million.
- Warrant exercises generated $1.48 million in the six-month period. Common shares issued and outstanding were 33.52 million at July 31 and 33.72 million at September 11.
Changes, outlook, and risks
- Management linked sales growth to new customers and increased sales to existing customers. Two customers represented approximately 48% and 11% of six-month gross sales, highlighting customer concentration.
- Management said current and projected operations should provide sufficient cash through the fiscal year ending January 31, 2021, but additional financing may be needed to fund growth; availability and acceptable terms are not assured.
- The company returned the $330,505 received under a Paycheck Protection Program note in May 2020. A subsequent event disclosed a further 200,000 warrant exercise for $200,000 after July 31.
- COVID-19 could disrupt production, suppliers, deliveries, customers, and liquidity. Management noted that changing pandemic conditions could alter its expectations.
- Disclosure controls and procedures were reported as ineffective. Management reported no material change in internal control over financial reporting during the quarter.
- The filing reported no known litigation expected to have a material adverse effect. It also describes a long-term product licensing arrangement with royalty expense of $287,445 for the six months.
Most important facts for investors to verify
- Whether sales growth and plant efficiencies are sustainable, especially with beef-price exposure and concentrated customers.
- Liquidity, borrowing availability, bank covenant compliance, and the need for future financing.
- The nature and remediation plan for ineffective disclosure controls.
- Share-count and dilution effects from warrant exercises and remaining warrants.
- The six-month EPS note contains a basic weighted-average share figure that differs from the statement of operations; confirm the correct figure in the filed financial statements.