MamaMancini’s Holdings, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. The filing is by MamaMancini’s Holdings, Inc. (the company name differs from the supplied metadata, “Mama’s Creations, Inc.”). The company manufactures and distributes prepared Italian meat products. Its January 2013 reverse merger made MamaMancini’s, Inc. the surviving operating business; the financial statements present that business for all periods shown.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $1.700 million | $1.275 million | $3.473 million | $2.412 million |
| Gross profit | $515,000 | $405,000 | $1.005 million | $758,000 |
| Gross margin | 30.3% | 31.8% | 28.9% | 31.4% |
| Operating expenses | $1.266 million | $867,000 | $2.365 million | $1.613 million |
| Operating loss | $(752,000) | $(462,000) | $(1.361) million | $(855,000) |
| Net loss | $(753,000) | $(465,000) | $(1.364) million | $(865,000) |
| Basic and diluted loss per share | $(0.04) | $(0.03) | $(0.07) | $(0.05) |
Sales grew about 33% in Q2 and 44% in the first half, with retail and grocery locations increasing to approximately 17,000 from 12,000. Gross margin declined about 1.5 percentage points in Q2 and 2.5 points for the half, which management attributed primarily to slotting fees and discounts. Operating expenses rose about 46% in both comparisons; higher advertising, payroll, share-based compensation, professional fees, and selling costs contributed. The filing reports $156,104 of share-based compensation for the first half.
Cash, liquidity, and debt
- At June 30, cash was $184,254, down from $2.008 million at year-end 2012. Current assets were $1.545 million and current liabilities $681,000, leaving working capital of $865,000, versus $2.435 million at year-end.
- First-half operating cash outflow was $1.572 million; investing outflow was $402,000; financing inflow was $150,000. The investing outflow included $295,000 paid in the reverse-merger recapitalization, $77,000 for equipment, and a $30,000 related-party loan, repaid in July.
- The company had $350,000 outstanding on its revolving credit line, versus $200,000 at December 31. The facility was extended after quarter-end to September 1, 2013, with its principal limit reduced to $400,000 and a higher interest-rate floor beginning in July. The company was negotiating a proposed $1.5 million credit line under a nonbinding term sheet.
- Management estimated next-12-month working-capital needs of $2.2 million and a monthly burn rate of $183,000. The filing states that available cash and anticipated funding may be insufficient without additional financing and discloses substantial doubt about the company’s ability to continue as a going concern.
Outlook, risks, and notable events
- No formal revenue or earnings guidance is provided. Management said it was pursuing additional distribution and expansion opportunities and planned to use capital for advertising, marketing, and distribution growth.
- From July 1 through August 13, the company issued 1,759,028 shares for $2.639 million gross proceeds and incurred approximately $398,000 in issuance costs. The filing reports 22,613,028 shares outstanding as of August 14.
- Manufacturing and supply are highly concentrated: the company purchased all reported first-half inventory from a manufacturer owned by its CEO and president. The company also had $378,000 due from that related-party manufacturer and an $84,000 inventory deposit with it at June 30.
- Customer concentration is material: one customer represented 23% of first-half sales; the three largest listed customers represented 54%. The largest accounts-receivable concentration was 27%. Management cited grocery-industry cyclicality, economic conditions, food-price volatility, competition, and changing consumer demand as risks.
- Management reported no material pending litigation and no material change in previously disclosed risk factors. The filing states disclosure controls and procedures were not effective; it reports no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether the post-quarter equity proceeds and proposed refinancing provide adequate liquidity, and the actual terms and availability of the proposed credit facility.
- Whether cash burn, working-capital requirements, and the going-concern uncertainty change as distribution expands.
- Sales growth, gross-margin pressure from slotting fees and discounts, and the trajectory of operating expenses and losses.
- Exposure to the CEO-affiliated manufacturer, collection of related-party balances, and customer and supplier concentration.
- The filing’s MD&A gives first-half net sales once as $3,472,522; the financial statements and sales note report $3,472,552, used above.