MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2018 (first quarter of fiscal 2019; fiscal year ends January 31). The filing identifies the issuer as MamaMancini’s Holdings, Inc.
Business context and results
The company manufactures and distributes prepared meat products and sauces. Net sales increased amid higher-volume locations, new and existing customer sales, and a merchandising event with one customer. The company reported distribution in approximately 44,600 SKUs across 12,200 retail and grocery locations, versus 38,600 SKUs and 11,700 locations a year earlier.
| Metric | Three months ended Apr. 30, 2018 | Three months ended Apr. 30, 2017 |
|---|---|---|
| Net sales | $7.742 million | $5.357 million |
| Gross profit / reported gross margin | $2.829 million / 37% | $1.942 million / 36% |
| Operating expenses | $2.275 million | $1.745 million |
| Income from operations | $553,513 | $197,779 |
| Interest expense and debt-discount amortization | $229,512 | $202,012 |
| Net income (loss) | $324,001 | $(4,233) |
| Operating cash flow | $138,898 | $529,272 |
| Capital expenditures | $420,220 | $661,025 |
Net sales rose approximately 45%; gross profit increased approximately 46%. Management attributed improved gross margin to manufacturing efficiencies and cost control. Operating expenses increased 30%, including higher advertising and promotional, freight, commission, and depreciation costs. Basic and diluted earnings per share were $0.01; diluted weighted-average shares were 34.7 million versus 31.8 million basic shares.
Liquidity, debt, and cash flow
Cash was $479,110 at April 30, down from $581,322 at January 31. Current assets were $5.572 million and current liabilities $8.626 million, producing a $3.054 million working-capital deficit, up $150,144 from January 31. Accounts receivable was $3.782 million and inventory $1.123 million. Operating cash flow fell from $529,272 to $138,898, as increased receivables and inventory absorbed cash. Investing activities used $420,220; financing activities provided $179,110, including net line-of-credit borrowings of $480,495. Cash decreased by $102,212 for the quarter.
At April 30, the balance sheet showed a $3.174 million net line-of-credit liability, a $717,230 term loan, $1.386 million of current notes payable net of discount, and $649,656 of related-party notes payable. Scheduled maturities of all debt totaled $5.988 million, including $4.863 million due in the twelve months ending April 30, 2019. Total liabilities were $9.886 million, exceeding total assets of $8.357 million; stockholders’ deficit was $1.528 million.
Changes, outlook, and risks
- Net income improved from a small loss to $324,001, primarily alongside sales growth. The company also reported a one-percentage-point improvement in gross margin.
- Management said cash resources were expected to cover requirements through the second quarter of fiscal 2019, but additional financing might be needed to fund growth and strategic objectives; availability on acceptable terms was not assured. The company reported collecting a net $1.5 million of receivables after quarter-end.
- Management expected gross margin to improve as operations became more efficient. Planned fiscal 2019 launches included pasta-based entrees and limited tests of Italian sauces and vegetarian meatballs.
- Subsequent financing: in May, the company entered a four-year equipment sale-leaseback with $213,250 of equipment cost and a 15% residual buyback option. In May, the EGC term note was amended to a $1.1 million amount and an October 1, 2020 termination date. On June 6, the company executed a separate $300,000 secured note due June 1, 2020, with monthly principal payments and interest at prime plus 4%.
- Customer concentration is material: one customer represented approximately 55% of first-quarter gross sales and 60% of gross receivables at April 30. The company cited competition, changing consumer demand, grocery-industry cyclicality, economic conditions, and food-price volatility as risks.
- Related-party balances included $649,656 of notes payable to the CEO and a CEO-owned entity. Sales to Meatball Obsession, an entity associated with a company director, were approximately $28,738 for the quarter; $38,991 was receivable at April 30. The company reported no litigation believed to have a material adverse effect and no debt default.
Most important facts for investors to verify
- Whether the post-quarter $1.5 million receivables collection improved liquidity and whether customer concentration remains at similar levels.
- Availability and terms of additional funding, the status of the revolving line and subsequent EGC financing, and the near-term debt maturities.
- Whether sales growth and the reported manufacturing efficiencies translate into sustained margin improvement and positive operating cash flow.
- The effect of the merchandising event, promotional spending, plant expansion, and planned product launches on recurring sales and cash needs.