MamaMancini’s Holdings, Inc. (now identified in the request as Mama’s Creations, Inc.) — Form 10-Q Summary
Reporting period: Three months ended April 30, 2017; comparison period is the three months ended April 30, 2016. Balance-sheet comparisons are with January 31, 2017. The filing names the registrant as MamaMancini’s Holdings, Inc.
Business context and financial results
The company manufactures and distributes meatballs, meatloaf, sauces, and similar products. Sales are concentrated in the Northeast and Southeast U.S.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Net sales | $5.357 million | $3.924 million |
| Gross profit / margin | $1.900 million / 35% | $1.475 million / 38% |
| Operating income (loss) | $316,162 | ($55,220) |
| Net income (loss) | $128,225 | ($226,107) |
| Net income (loss) available to common stockholders | $81,425 | ($290,628) |
| Basic and diluted EPS | $0.00 | ($0.01) |
| Cash from (used in) operations | $526,555 | ($437,862) |
| Capital expenditures | $666,733 | $18,650 |
Liquidity, debt, and balance sheet
- At April 30, 2017, cash was $436,447, working capital was $829,629, and current assets and liabilities were $5.015 million and $4.185 million, respectively. Working capital declined $924,042 from January 31, 2017.
- Cash fell $230,133 during the quarter, reflecting operating cash inflow of $526,555, investing outflow of $666,733, and financing outflow of $89,955.
- Total liabilities were $5.532 million and stockholders’ equity was $1.218 million. The balance sheet reports a $1.608 million line of credit, $618,331 total term loan, $2.418 million Manatuck note payable (net), and $117,656 related-party notes.
- Scheduled maturities of debt total $4.845 million; $3.498 million is scheduled in the twelve months ending April 30, 2018. The Manatuck note was extended to May 1, 2018, with monthly principal payments specified in the amendment. The credit facility is secured by company assets; the CEO personally guarantees amounts borrowed under it.
Material changes and management commentary
- Net sales grew approximately 37%, which management attributed to higher-volume locations and sales gains from new and existing customers. The company reported approximately 38,600 SKUs in 11,700 retail and grocery locations, versus 35,000 SKUs in 11,400 locations a year earlier.
- Gross margin declined to 35% from 38%, attributed to product mix and higher commodity costs.
- Operating expenses rose 3% to $1.583 million. Higher freight, commissions, royalties, and depreciation were partly offset by lower advertising and promotional, share-based compensation, and trade-show and travel costs. Interest and debt-discount amortization brought other expenses to $187,937.
- Investing cash outflow primarily funded machinery, equipment, and leasehold improvements to support capacity and growth.
- Management said it expects cash resources to be sufficient through the first quarter of the fiscal year ending January 31, 2019, citing revenue growth, expense control, operating cash generation, and the lender extension. It concluded that conditions raising substantial doubt about going concern had been alleviated, while acknowledging that financing may be needed and cannot be assured on acceptable terms.
- No specific revenue or earnings guidance was provided. Management cautioned that interim results may not indicate full-year results and highlighted competition, changing consumer demand, grocery-industry cycles, economic conditions, and food-price volatility.
Concentrations, related parties, and contingencies
- Two customers represented approximately 35% and 13% of gross sales; together they represented approximately 56% of gross receivables. One related-party manufacturer accounted for approximately 100% of purchases.
- The company had $2.016 million due from the related-party manufacturer, which is co-owned by the company’s CEO and President. Purchases from the manufacturer were $3.307 million for the quarter. The manufacturing agreement includes minimum-purchase terms and a gross-margin rebate arrangement.
- Preferred dividends of $46,800 were issued in common shares. The company also issued 87,554 common shares valued at $83,000 for services.
- The filing reports no litigation or claims believed to have a material adverse effect, no defaults on indebtedness, and no off-balance-sheet arrangements. The company reported no derivatives or hedging activities.
Important facts for investors to verify
- Whether operating cash flow and sales growth continue, and whether gross margins recover from the effects of product mix and commodity costs.
- Near-term debt service capacity, including the Manatuck repayment schedule and the company’s ability to maintain or refinance its credit facilities.
- Collection of the $2.016 million due from the related-party manufacturer and the ongoing terms, performance, and governance of that relationship.
- Exposure to major customers and the single related-party supplier, and the effect of any disruption or change in commercial terms.
- Whether management’s projected cash runway and going-concern assessment remain supportable; management expressly noted that financing availability is not assured.