MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Issuer and period: The filing names MamaMancini’s Holdings, Inc. as registrant and covers the quarter ended October 31, 2017; financial statements are unaudited. The filing describes a manufacturer and distributor of prepared meat products and sauces.
Financial performance and condition
| Metric | Three months ended October 31, 2017 | Nine months ended October 31, 2017 |
|---|---|---|
| Net sales | $7.35 million; up 61% year over year | $19.71 million; up 56% year over year |
| Gross profit / margin | $2.36 million / 32% (37% in 2016) | $6.27 million / 32% (36% in 2016) |
| Operating income | $418,000 | $941,000 |
| Net income (loss) | $203,000, versus $81,000 | $356,000, versus a $422,000 loss |
| Operating cash flow | Nine-month cash provided: $1.11 million, versus $147,000 used in 2016 |
For the nine months, cash used in investing was $1.36 million, principally for machinery, equipment and facility improvements. Financing provided $137,000. Cash declined to $559,000 from $667,000 at January 31, 2017.
At October 31, current assets were $5.41 million and current liabilities $5.28 million, leaving working capital of $132,000, down from $1.75 million at January 31. Total liabilities were $6.03 million. Debt maturities disclosed in the filing total $5.03 million, including $4.28 million due in the twelve months ending October 31, 2018. The $2.30 million line of credit is secured by company assets; the related-party notes payable balance was $118,000.
Changes and notable developments
- Sales growth reflected expanded distribution and higher-volume placements: management reported approximately 43,500 SKUs in 12,200 retail and grocery locations, versus 37,700 SKUs in 11,400 locations a year earlier.
- Gross margin declined year over year. Management cited product mix and pricing, higher commodity costs, and startup costs for large placements. Operating expenses rose 35% in the quarter and 20% year to date, including higher freight, advertising, commissions and royalties.
- On November 1, 2017, the company completed its merger with Joseph Epstein Food Enterprises, Inc. (JEFE), its related-party manufacturer and supplier. No cash or stock was exchanged; consideration included extinguishing an intercompany loan and assuming specified payables and loans. Purchase accounting was incomplete when the filing was issued, and the company said required historical and pro forma financial statements would follow in an amended Form 8-K.
- All reported product purchases were from the related-party manufacturer. The company also reported significant customer concentration: two customers accounted for approximately 50% of nine-month gross sales.
- Series A preferred stock converted into approximately 3.47 million common shares in July 2017. Common shares issued and outstanding rose to 31.72 million at October 31, from 27.81 million at January 31.
Outlook, risks and contingencies
Management expects the JEFE merger to improve plant efficiency, reduce overhead as a percentage of sales, and support higher gross margin, operating profit and net income. These are expectations, not quantified guidance. The company planned additional retail expansion and anticipated introducing lasagne products and limited-test sauces and vegetarian meatballs in fiscal 2019.
The filing reports low working capital, substantial near-term debt maturities and a history of losses. Management concluded that going-concern doubt had been alleviated, citing positive operating cash flow, sales growth, expense control, an extension of a lender note to May 1, 2018, and potential access to financing. It stated cash resources should be sufficient through the first quarter of fiscal 2019 in one discussion, but through the second quarter in another; financing availability is not assured. Other risks include commodity-price volatility, grocery-industry cyclicality, competition, customer concentration and dependence on the related-party supplier. The company reported no litigation it believed would have a material adverse effect and no defaults on indebtedness.
Important facts for investors to verify
- Confirm the issuer’s identity and corporate-name continuity: this filing is under MamaMancini’s Holdings, Inc., while the request metadata identifies Mama’s Creations, Inc.
- Review the subsequent JEFE merger disclosures and final purchase accounting, including the acquired assets, assumed liabilities, and pro forma results.
- Assess the maturity and repayment terms of the $4.28 million scheduled within twelve months, the May 1, 2018 note extension, and the company’s liquidity and financing access.
- Track whether gross margins improve as management expects and whether sales growth offsets commodity, freight, promotional and other operating costs.
- Evaluate continuing related-party manufacturing arrangements and supplier and customer concentration; confirm dilution from shares, options and warrants.
- Reconcile management’s differing cash-runway estimates (first versus second quarter of fiscal 2019) and monitor actual cash generation against them.