MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2016; balance-sheet comparisons are with January 31, 2016. The filing identifies the registrant as MamaMancini’s Holdings, Inc.
Financial results
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Net sales | $3.924 million | $3.236 million; up approximately 21% |
| Gross profit / margin | $1.475 million / approximately 38% | $828,191 / approximately 26% |
| Operating expenses | $1.530 million | $1.681 million; down approximately 9% |
| Operating loss | $55,220 | $852,647 |
| Interest and debt-discount expense | $170,887 | $241,909 |
| Net loss | $226,107 | $1.095 million |
| Net loss available to common shareholders | $290,628 | $1.095 million |
| Operating cash flow | $(437,862) | $(336,755) |
Management attributed the improved results mainly to higher sales, improved gross margin and lower operating expenses. Sales locations declined to approximately 35,000 from 37,600 as the company discontinued some unprofitable accounts. Advertising and promotional expense fell substantially; increased share-based compensation, freight, commissions and other costs partly offset the savings.
Cash, liquidity and debt
- Cash was $502,459 at April 30, down from $587,422 at January 31. Investing activities used $18,650; financing activities provided $371,549, including net line-of-credit borrowings of approximately $481,000.
- Working capital was positive $85,338, compared with a $34,365 deficit at January 31. Current assets were $5.101 million and current liabilities were $5.016 million.
- The line of credit was $1.423 million, net of discount, versus $933,001 at January 31. The secured facility has a stated maximum of $3.1 million; borrowings are secured by company assets.
- The $2.540 million Manatuck convertible debenture bears 14% interest and matures December 19, 2016. The company also reported a $410,000 term-loan balance and $257,085 aggregate promissory-note balances.
- The debt maturity schedule lists $4.341 million due in the 12 months ending April 30, 2017, and $4.773 million in total listed maturities. These obligations materially exceed cash on hand.
Business, outlook and material risks
- The company manufactures and distributes meatballs, sauces and related products. Its plan is to expand sales through new and existing retail outlets, new products, broader broker coverage and food-service, mass-market and export channels. It provided no quantified financial guidance.
- Management said it was focusing on more profitable accounts and pursuing expanded distribution. The related-party manufacturer added warehouse capacity and production equipment; expected packaging-cost reductions are not assured.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management plans to seek additional debt or equity financing to refinance maturing debt and fund working capital; financing availability and terms are uncertain. The filing warns that inability to raise funds or generate sufficient revenue could lead the company to seek bankruptcy protection.
- Manufacturing is highly concentrated: a related-party supplier accounted for 98% of purchases in the quarter. The company reported $2.197 million due from that manufacturer. The supplier is co-owned by the company’s CEO and president.
- Four customers represented approximately 50% of gross sales in the quarter. Competition, changing consumer demand, food-price volatility, sales variability and reliance on financing are identified risks.
- Disclosure controls and procedures were reported as not effective. Management reported no material change in internal control over financial reporting during the quarter.
- No material litigation was identified. Subsequent events included a May 2016 investor-relations agreement involving monthly fees and shares, and grants of employee and consultant options.
Most important facts for investors to verify
- Whether the company obtained financing sufficient to address the $4.341 million scheduled to mature within 12 months and its ongoing operating cash use.
- The terms, availability and borrowing capacity of the secured credit facility, and the status of the Manatuck debenture at its December 2016 maturity.
- Collectability and settlement timing of the $2.197 million related-party manufacturer receivable, and the terms and continuity of the manufacturing relationship.
- Whether higher sales and gross margins can persist while the company manages customer concentration, operating costs and cash requirements.
- The extent of potential dilution: the filing lists 9.19 million potential common-share equivalents at April 30, 2016, and reports additional common shares issued for compensation and preferred dividends.
- Remediation of ineffective disclosure controls and any later developments concerning going-concern uncertainty.