MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Business and period: The company manufactures and distributes prepared meatballs, meatloaf, sauces and related products. This report covers the quarter and six months ended July 31, 2018 (the second quarter of fiscal 2019); interim results are unaudited. The company acquired JEFE in November 2017 and includes it in consolidated results.
Financial performance
| Metric | Three months ended July 31, 2018 | Six months ended July 31, 2018 |
|---|---|---|
| Net sales | $5.64 million, down 19% year over year | $13.38 million, up 8% |
| Gross profit / margin | $2.06 million / 36.6% (prior year 33.6%) | $4.89 million / 36.5% (prior year 34.7%) |
| Operating income | $130,000 (prior year $365,000) | $683,000 (prior year $563,000) |
| Net income (loss) | $(210,000) (prior year $168,000) | $114,000 (prior year $164,000) |
| Operating cash flow | Not provided separately for the quarter | $1.44 million (prior year $328,000) |
Quarterly cost of sales was $3.58 million; operating expenses were $1.93 million. For the six months, operating expenses were $4.21 million and other expenses, chiefly interest and debt-discount amortization, were $570,000. Basic and diluted earnings per share were $(0.01) for the quarter and reported as $0.00 for the six-month period.
Liquidity, cash flow and debt
- At July 31, cash was $347,000, current assets $3.70 million and current liabilities $7.16 million, resulting in a $3.46 million working-capital deficit, up from $2.90 million at January 31.
- Six-month investing cash use was $904,000, primarily for plant expansion and equipment. Financing cash use was $771,000; cash declined $234,000 to $347,000.
- Total liabilities were $8.51 million. Debt and capital-lease maturities totaled $5.46 million; the filing’s schedule lists $4.10 million due in the twelve months ending July 31, 2019.
- The company reported a $1.99 million line-of-credit balance and $963,000 in term loans. The line facility was extended to October 2020. The Manatuck note maturity was extended to May 2019; $393,000 of accrued interest was added to principal, and management cited approximately $112,500 of nonrecurring expense related to the extension and debt modification.
- Management said cash resources were expected to cover requirements through fiscal 2019’s third quarter, but additional funding might be needed and may not be available on acceptable terms. Subsequent to quarter-end, the company collected a net $2.4 million on receivables.
Changes, outlook and risks
- Quarterly sales fell amid changes in purchasing offices at major retailers and comparison with a prior-year customer inventory build. Management described these as short-term factors and said sales growth had resumed. Six-month growth reflected higher-volume locations, new and existing customers, and a customer merchandising event.
- Management attributed improved gross margins to manufacturing efficiencies and cost control and expected further margin improvement from more efficient operations. Planned initiatives included expansion into additional retailers, pasta-based entrees later in fiscal 2019, and limited tests of Italian sauces and vegetarian meatballs.
- Advertising and promotional expense rose to $906,000 for the six months from $739,000 a year earlier; plant expansion contributed to higher depreciation and capital spending.
- Customer concentration increased: one customer represented approximately 52% of six-month gross sales and 49% of gross receivables at July 31. The filing also cites intense competition, changing consumer demand, grocery-industry cycles, economic conditions and food-price volatility.
- The company disclosed no litigation believed likely to have a material adverse effect and no defaults on indebtedness. It reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether the post-quarter $2.4 million receivables collection materially improved cash and the working-capital deficit.
- Customer sales trends, concentration and the sustainability of the reported sales recovery after the quarter’s decline.
- Near-term debt maturities, compliance with financing terms, and the availability and cost of additional funding.
- Whether plant expansion delivers the anticipated operating efficiencies and margin improvement.
- The effect of the Manatuck debt extension and related interest and fees on future earnings and cash requirements.