MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. The filing identifies the registrant as MamaMancini’s Holdings, Inc.; the business manufactures and distributes prepared Italian meat products. The January 2013 reverse merger made MamaMancini’s, Inc. the surviving operating subsidiary and accounting acquirer.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net sales | $2.168 million | $0.969 million | $5.640 million | $3.381 million |
| Gross profit | $624,488 | $256,526 | $1.629 million | $1.015 million |
| Operating expenses | $1.113 million | $711,627 | $3.479 million | $2.324 million |
| Operating loss | $(488,796) | $(455,101) | $(1.849) million | $(1.310) million |
| Net loss | $(493,568) | $(454,876) | $(1.858) million | $(1.320) million |
| Basic and diluted loss per share | $(0.02) | $(0.03) | $(0.09) | $(0.08) |
- Sales grew approximately 124% in Q3 and 67% for the nine-month period. Management attributed growth principally to expanded distribution: approximately 19,500 retail placements versus 12,000 a year earlier.
- Gross margin was approximately 28.8% in Q3 versus 26.5% a year earlier; management cited product mix and lower packaging costs. For the nine months, gross margin was approximately 28.9% versus 30.0%; the filing attributes the decline primarily to slotting fees and discounts.
- Operating expenses rose 56% in Q3 and 50% for the nine months. Major nine-month increases included advertising and promotion ($375,000), payroll ($245,000), stock-based compensation ($179,000), and professional fees ($175,000).
- At September 30, cash was $1.918 million; current assets were $3.961 million, current liabilities $407,419, and working capital $3.554 million. Total assets were $4.403 million and stockholders’ equity $3.996 million.
- Operating cash use was $2.580 million for the nine months, compared with $1.401 million in 2012. Investing cash use was $849,000, mainly for equipment, equipment deposits, and the reverse-merger transaction. Financing provided $3.339 million. Ending cash declined $90,000 from year-end 2012.
- The $200,000 credit-line balance at December 31, 2012 was repaid; the line was repaid and cancelled on September 9, 2013. The September 30 balance was zero. No other debt balance is clearly reported.
Outlook, risks, and unusual items
- Management expected an operating loss in 2013 as it invested in distribution, marketing, personnel, and product development. It described expansion into additional retail, food-service, Canadian, and Caribbean channels, and planned new product testing.
- Management estimated next-12-month working-capital needs of $2.2 million, or about $183,000 monthly, and said cash plus anticipated fourth-quarter 2013 and first-quarter 2014 financing could cover at least 12 months. However, the filing states that operating losses and cash use raise substantial doubt about the company’s ability to continue as a going concern; additional financing may not be available on acceptable terms. The filing warns that bankruptcy protection could be sought if adequate revenue or financing is unavailable.
- After quarter-end, the company issued 562,000 shares for $843,000 gross proceeds on October 16, 2013, with approximately $109,590 in issuance costs and 56,200 warrants issued to its placement agent. On October 22 it entered a new placement-agent agreement for up to $2.5 million, with cash fees, warrants, and a $10,000 monthly fee.
- The company relied on a manufacturer owned by its CEO and president for substantially all purchases. It reported $445,379 due from that related party, including customer receipts collected, a $100,000 loan, and shared expenses. Customer and receivables concentrations are also disclosed; one customer represented 30% of receivables at quarter-end.
- Management reported that disclosure controls and procedures were not effective at period-end. It reported no material change in internal control during the quarter. The company disclosed no litigation believed likely to have a material adverse effect and no material risk-factor changes from its 2012 Form 10-K.
Key facts for investors to verify
- Whether subsequent financing was completed and whether available liquidity can cover the stated cash needs, given the going-concern warning and operating cash use.
- Whether sales growth can translate into improved margins and reduced operating losses as marketing and expansion spending continue.
- The terms, costs, and dilution associated with equity raises, warrants, and placement-agent agreements, including post-quarter transactions.
- The collectability and settlement of amounts due from the related-party manufacturer, the ongoing supply relationship, and customer/vendor concentration exposure.
- Whether the company remedied the ineffective disclosure controls identified in the filing.