MamaMancini’s Holdings, Inc. (identified in the request as Mama’s Creations, Inc.) — Form 10-Q Summary
Reporting period: Three months ended April 30, 2019, the company’s fiscal first quarter. The filing is unaudited and compares results with the three months ended April 30, 2018. The company manufactures and distributes meatballs, meatloaf, and related products. It reports that customers are concentrated mainly in the Northeast and Southeast.
Financial performance
- Net sales: $7.365 million, down about 5% from $7.742 million. Management attributed the decline to no major merchandising events in the quarter and one fewer shipping week; it estimated the shorter shipping period reduced sales by about $500,000.
- Gross profit and margin: The filing reports gross profit of $2.371 million and a gross margin of 32%, versus $2.829 million and 37% a year earlier. Management cited higher depreciation from plant capacity additions, product mix, and lower plant efficiencies.
- Operating expenses: $1.891 million, down about 17% year over year. Management cited lower advertising, social media and promotional spending, and lower stock-based compensation.
- Operating income: $479,566, compared with $553,513.
- Net income: $355,666, versus $324,001. Management attributed the increase mainly to lower interest and debt-discount amortization expense. Reported basic and diluted EPS was $0.01 per share.
- Cash flow: Operating activities provided $674,903, compared with $138,898. Investing activities used $242,820, primarily for plant and equipment; financing activities used $354,987, mainly for term-loan repayment. Cash increased $77,096 to $686,505.
Financial position and liquidity
- At April 30, 2019, current assets were $4.736 million and current liabilities were $3.621 million, giving working capital of $1.114 million. Working capital was $1.244 million at January 31, 2019. The filing’s MD&A describes the earlier balance as a deficit, although its table shows positive working capital at both dates.
- Total assets were $9.346 million; total liabilities were $10.156 million; stockholders’ deficit was $809,225.
- Debt included a $2.175 million M&T term loan, a $2.596 million line-of-credit balance, and $641,844 in related-party notes payable. The term loan and line of credit bear interest at LIBOR plus four percentage points and are secured by business assets; the CEO provides a limited guaranty. The line has a $3.5 million stated limit, with borrowing subject to collateral eligibility and other restrictions. Finance-lease liabilities totaled $256,299.
- Adoption of ASC 842 resulted in recognition of $1.589 million in operating lease right-of-use assets and $1.590 million in operating lease liabilities. The prior-period balance sheet was not adjusted.
Outlook, risks, and other notable matters
- Management expects sales to increase from the quarter’s level and believes greater plant efficiency could improve gross margins. It also believes available cash resources will be sufficient through the fiscal year ending January 31, 2020, while warning that additional funding may be needed to support growth and strategic objectives; no specific financial guidance was provided.
- Risks cited include competition, changing consumer demand, economic conditions, food-price volatility, and variability in sales and earnings. Three customers represented approximately 44%, 12%, and 10% of gross sales in the quarter; three customers accounted for approximately 45%, 14%, and 12% of gross receivables at quarter-end.
- The company reported no litigation it believed would have a material adverse effect and no defaults on indebtedness. It reported effective disclosure controls and no material changes in internal control over financial reporting.
- Royalty expense under a product-development and licensing agreement was $116,466 for the quarter. The company also disclosed financing-agent agreements that may entail fees or equity-related obligations under specified circumstances.
Important facts for investors to verify
- Gross-profit inconsistency: The statements list net sales of $7,364,824, cost of sales of $4,933,770, and gross profit of $2,371,054. Sales less stated cost of sales does not equal stated gross profit; confirm the correct figure and margin.
- Net-income inconsistency: The statements report net income of $355,666, but the EPS reconciliation note lists net income attributable to common stockholders as $335,666.
- Working-capital description: The MD&A calls the January 31, 2019 working-capital balance a deficit, while the table reports positive working capital of $1,243,887.
- Assess the effect of major-customer concentration, collateral-based line-of-credit availability and loan covenants, and the company’s potential need for additional financing.
- Evaluate whether anticipated sales growth and plant-efficiency improvements materialize, given the quarter’s lower gross margin and management’s estimate that one fewer shipping week reduced sales by about $500,000.