MamaMancini’s Holdings, Inc. (Mama’s Creations) — Q3 FY2022 Form 10-Q
Business and period: The company manufactures and distributes prepared meat and sauce products. This unaudited quarterly report covers the three and nine months ended October 31, 2021; comparisons are to the corresponding 2020 periods. The company’s fiscal year ends January 31.
Key financial results
| Metric | Three months ended Oct. 31 | Nine months ended Oct. 31 |
|---|---|---|
| Net sales, 2021 | $10.85 million | $33.23 million |
| Net sales, 2020 | $9.68 million | $30.77 million |
| Gross profit, 2021 | $2.73 million | $9.44 million |
| Operating income, 2021 | $1,201 | $1.44 million |
| Net income (loss), 2021 | $(5,455) | $1.06 million |
| Net income, 2020 | $734,142 | $2.38 million |
| Basic and diluted EPS, 2021 | $(0.00) | $0.03 |
Margins and changes: Quarterly net sales rose about 12%, and nine-month sales rose about 8%, primarily from higher volumes at major customers. Gross margin declined to 25% from 30% in the quarter and to 28% from 31% for nine months. Management attributed the pressure to higher raw-material, packaging and inbound-freight costs. Operating expenses increased 29% for the quarter and 16% year to date; higher postage and freight were a major contributor. The quarter moved from profit to a small loss, while nine-month net income fell substantially, also reflecting a $391,313 income-tax provision versus none in 2020.
Cash, liquidity and obligations
- Cash was $4.54 million at October 31, 2021, up from $3.19 million at January 31, 2021. Working capital was $6.03 million, up from $4.83 million.
- Nine-month operating cash flow was $2.13 million, compared with $2.52 million in 2020. Investing cash outflow was $658,000, primarily for machinery and leasehold improvements; financing cash outflow was $126,000.
- Current assets were $10.71 million and current liabilities $4.68 million. The company reported no outstanding balance on its $6.0 million working-capital line or its term loan. The line is secured by business assets and matures August 4, 2026.
- Lease liabilities totaled $2.20 million, including operating and finance leases. Total liabilities were $6.49 million.
Outlook, risks and unusual items
- Management expected cash resources to meet requirements through December 14, 2022, based on current and projected operations, but said additional funding may be needed for growth and strategic objectives; availability and acceptable terms are not assured. No specific revenue or earnings guidance was provided.
- Risks noted include competition, changing consumer demand, grocery-industry cyclicality, economic conditions, and volatility in food and beverage prices. Three customers accounted for approximately 32%, 20% and 11% of nine-month gross sales, creating customer concentration risk.
- A December 2020 plant fire damaged a spiral oven, which was rebuilt and returned to service in late February 2021. The company reported business-interruption insurance proceeds of $152,850 during the nine months and property-damage proceeds resulting in $91,312 of other income, offset in part by repair and equipment costs.
- The company revised 2020 comparative revenue presentation to record promotion expenses as reductions to revenue rather than general and administrative expense. The correction reduced reported revenue and gross profit but did not change operating income or net income for the comparative periods.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. The filing states no material pending litigation and no defaults on indebtedness.
Important facts for investors to verify
- Whether sales growth and customer volumes can persist while raw-material, packaging and transportation costs pressure gross margins.
- Whether operating-expense growth, especially freight, moderates and profitability recovers after the quarterly near break-even result.
- Customer concentration, receivable exposure and the terms and availability of the secured credit facilities, including the separate acquisition line.
- Cash needs for planned growth and plant expansion, capital spending, and management’s stated liquidity horizon.
- The accounting and cash-flow effects of insurance recoveries, the prior-period revenue-presentation revision, and the continuing lease commitments.