Mama's Creations, Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) Market Information Our shares of common stock are currently quoted on the OTCQB under the symbol “MMMB” The following table sets forth (i) the intra-day high and low sales price per share for our common stock, as reported on the OTCQB, for the fiscal years ended January 31, 2021 and January 31, 2020. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Fiscal Year Ended January 31, 2021 High Low First Quarter $ 1.74 $ 0.77 Second Quarter $ 1.95 $ 1.53 Third Quarter $ 2.43 $ 1.57 Fourth Quarter $ 2.20 $ 1.77 Fiscal Year Ended January 31, 2020 High Low First Quarter $ 0.84 $ 0.64 Second Quarter $ 0.69 $ 0.43 Third Quarter $ 0.82 $ 0.38 Fourth Quarter $ 1.50 $ 0.57 The market price of our common stock, like that of other early stage companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance. (b) Holders As of April 9, 2021, there were approximately 103 record holders of our common stock and there were 35,608,474 shares of our common stock issued and outstanding. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees. Please see SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT for information related to the holdings of certain beneficial owners and management of the Company. (c) Dividends Preferred Stock . The holders of the Series A Convertible Preferred were entitled to receive dividends at a rate of eight percent (8%) per annum payable quarterly in cash or Company Common Stock at the option of the holder. All outstanding shares of Series A Convertible Preferred Stock automatically converted to Company Common Stock on July 27, 2017 and no shares of Preferred Stock are currently issued and outstanding. Common Stock. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, general economic conditions, and other pertinent conditions. We have not paid any cash dividends to the holders of our Common Stock and it is not our present intention to pay any cash dividends on our Common Stock in the foreseeable future, but rather to reinvest earnings, if any, in our business operations. (d) Securities Authorized for Issuance under Equity Compensation Plans At the present time, we have 450,000 shares of common stock authorized for issuance under our equity compensation plan. For more information on our equity compensation plan please refer to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 5, 2013. 10 Recent Sales of Unregistered Securities Below is a list of securities sold by us from February 1, 2020 through January 31, 2021 which were not registered under the Securities Act. Common Stock : The Company issued an aggregate of 3,612,490 shares during this period, 3,588,490 of which were the result of the exercise of outstanding warrants and 24,000 which resulted from the exercise of stock options. The securities issued in the abovementioned transactions were issued in connection with a Consulting Agreement and were exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act. Item 6. Selected Financial Data. Pursuant to permissive authority under Regulation S-K, Rule 301, we have omitted Selected Financial Data. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD- LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REPORT. Results of Operations for the Year ended January 31, 2021 and 2020 The following table sets forth the summary statements of operations for the year ended January 31, 2021 and 2020: Year Ended January 31, 2021 January 31, 2020 (As Revised) Sales - Net of Slotting Fees and Discounts $ 40,758,605 $ 33,750,465 Gross Profit $ 12,739,309 $ 9,984,328 Operating Expenses $ (9,261,461 ) $ (7,786,278 ) Other Expenses $ (155,615 ) $ (550,730 ) Income tax benefit $ 744,973 $ - Net Income $ 4,067,206 $ 1,532,694 For the year ended January 31, 2021 and 2020, the Company reported a net income of $4,067,206 and $1,532,694, respectively. The change in net income between the year ended January 31, 2021 and 2020 was primarily attributable an increase in sales of 21% and increased gross profit margins (31% of sales as discussed below) in addition to a decrease in interest expense and a small decrease in operating expenses as a percentage of sales (23% of sales, a 0.3% decrease from the prior year, as discussed below). During the year ended January 31, 2021, the Company also recorded an income tax benefit of $744,973 which significantly increased its net income compared to $0 for the year ended January 31 , 2020. Sales: Sales, net of slotting fees and discounts increased by approximately 21% to $40,758,605 during the year ended January 31, 2021, from $33,570,465 during the year ended January 31, 2020. In addition, during the year ended January 31, 2021, the Company was able to increase its sales through new customers as well as its existing customer base. COVID-19 had the effect of, consumer hoarding of food and increasing inventory build at retailers in the first quarter of the year but slowed new placements in the third quarter. The Company expects new placements to revert back to normal levels in the second and third quarter of the fiscal year ended January 31, 2022. 11 Gross Profit: The gross profit margin was 31% for the year ended January 31, 2021 compared to 30% for the year ended January 31, 2020. Gross margins increased as a percentage of sales, due to increased plant efficiencies and process improvements offset by short term higher beef raw material prices in the Spring and Summer. Operating Expenses: Operating expenses increased by 17% during the year ended January 31, 2021, as compared to the year ended January 31, 2020. Operating expenses remained consistent as a percentage of sales of 23% in 2020 and 2021. The $1,360,556 increase in total operating expenses is primarily attributable to the following increases in operating expenses: ● Postage and freight of $484,762 due to increased sales and change of customer mix; ● Commission expense of $331,182 due to increased sales; ● Payroll and related expenses of $164,824 due to the addition of a Senior Executive in February 2020; ● Royalty expenses of $76,261 due to the increase in sales; and ● Professional fees of $63,518 due to an increase in investor relations and investment banking activities. These expense increases were offset by decreases in the following as well as minimal decreases in other expense categories: ● Trade show and travel expenses of $98,882 due to reduced need for travel and the elimination of in person trade shows due to COVID-19; and ● Director fees decreased by $59,456 due to a decrease in one director in February who joined the Company as a Senior Executive. Other Expense: Other expenses decreased by $395,115 to $155,615 for the year ended January 31, 2021 as compared to $550,730 during the year ended January 31, 2020. For year ended January 31, 2021, other expenses consisted of $137,751 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $17,864 of amortization expense related to the debt discount. For year ended January 31, 2020, other expenses consisted of $482,995 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $67,735 of amortization expense related to the debt discount. Liquidity and Capital Resources The following table summarizes total current assets, liabilities and working capital at January 31, 2021 compared to January 31, 2020: January 31, 2021 January 31, 2020 Change Current Assets $ 8,879,451 $ 5,620,255 $ 3,259,196 Current Liabilities $ 4,045,349 $ 4,208,231 $ 162,882 Working Capital $ 4,834,102 $ 1,412,024 $ 3,422,078 As of January 31, 2021, we had working capital of $4,834,102 as compared to a working capital of $1,412,024 as of January 31, 2020, an increase of $3,422,078 . In addition to the increase in sales and net income, the increase in working capital is primarily attributable to an increase in cash of $2,796,877, an increase in receivables of $245,906, an increase in prepaid expenses of $267,619, and a net decrease of $317,203 in the current portion of lease and debt obligations. These amounts were offset by a decrease in inventories of $51,206 and an increase in accounts payable and accrued expenses $154,321. 12 Net cash provided by operating activities for the year ended January 31, 2021 and 2020 was $3,698,540 and $1,814,689, respectively. The net income for the year ended January 31, 2021 and 2020 was $4,067,206 and $1,532,694, respectively. Net cash used in all investing activities for the year ended January 31, 2021 was $451,940 as compared to $268,106 for the year ended January 31, 2020, respectively, to acquire new machinery and equipment and leasehold improvements. Our capital expenditures are attributed to a Plant Expansion Project in progress since mid-2017 to expand plant capacity and efficiency to meet growing demand. During the year ended January 31, 2021, the Company also paid $32,567 for the acquisition of intangibles. Net cash used in all financing activities for the year ended January 31, 2021 was $449,723 as compared to $1,762,399 for the year ended January 31, 2020. During the year ended January 31, 2021, the Company received proceeds of $330,505 from the Paycheck Protection Program promissory note and net proceeds of $3,787,582 from the exercise of options and warrants. These cash in-flows were offset by payments on its line of credit of $2,997,348, payments on its term loan of $441,663, payments of $641,844 on the related party loans and $156,450 paid for finance lease payments. The Company returned the $330,505 received from the Paycheck Protection Program in May 2020. During the year ended January 31, 2020, the Company made net borrowings on the line of credit of $385,314. These cash in-flows were offset by net payments of term loan of $2,058,337 and $89,376 paid for capital lease payments. As reflected in the accompanying consolidated financial statements, the Company has net income and net cash provided by operations of $4,067,206 and $3,698,540, respectively, for the year ended January 31, 2021. Although the expected revenue growth and control of expenses lead management to believe that it is probable that the Company’s cash resources will be sufficient to meet its cash requirements through the fiscal year ending January 31, 2022 based on current and projected levels of operations, the Company may require additional funding to finance growth and achieve its strategic objectives. If such financing is required, there can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In the event funding is not available on reasonable terms, the Company might be required to change its growth strategy and/or seek funding on an alternative basis, but there is no guarantee it will be able to do so. Because of the rapidly changing environment in response to COVID-19, the current expectations of the Company may be altered as conditions change. Recent Accounting Pronouncements In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements. In August 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” . The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this guidance on February 1, 2020 on a prospective basis. Since the adoption of ASU 2018-15 on February 1, 2020, the Company evaluates upfront costs including implementation, set-up or other costs (collectively, implementation costs) for hosting arrangements under the internal-use software framework. Costs related to preliminary project activities and post implementation activities are expensed as incurred, whereas costs incurred in the development stage are generally capitalized. Capitalized implementation costs are amortized on a straight-line basis over the expected term of the hosting arrangement, which includes consideration of the non-cancellable contractual term and reasonably certain renewals. 13 In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “ Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements. Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements. Critical Accounting Policies Our consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. Our significant accounting policies are summarized in Note 2 of our consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report. We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: allowance for doubtful accounts, inventory obsolescence and the fair value of share-based payments. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates. 14 Leases In February 2016, the FASB issued ASU 2016-02 “ Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. On February 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the consolidated balance sheet in the amount of $1,599,830 related to the operating lease for office and warehouse space. Results for the year ended January 31, 2020 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases . As part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to: 1. Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. 2. Not to apply the recognition requirements in ASC 842 to short-term leases. 3. Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial. Revenue Recognition In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 supersedes the revenue recognition requirements under Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients . This update clarifies the objectives of collectability, sales and other taxes, noncash consideration, contract modifications at transition, completed contracts at transition and technical correction. The amendments in this update affect the guidance in ASU 2014-09. In September 2017, the FASB issued additional amendments providing clarification and implementation guidance. The Company adopted this guidance and related amendments as of the first quarter of fiscal 2019, applying the full retrospective transition method. As the underlying principles of the new standard, relating to the measurement of revenue and the timing of recognition, are closely aligned with the Company’s current business model and practices, the adoption of ASU 2014-09 did not have a material impact on the consolidated financial statements. In addition, the adoption of ASC 606 did not impact the previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. The Company’s sales predominantly are generated from the sale of finished products to customers, contain a single performance obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs when the goods are shipped to the customer. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods. The Company reports all amounts billed to a customer in a sale transaction as revenue. Under the new revenue guidance, the Company elected to treat shipping and handling activities as fulfillment activities, and the related costs are recorded as selling expenses in general and administrative expenses on the consolidated statement of operations. 15 Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC Topic 718, “ Compensation – Stock Compensation” (“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans in accordance with ASC 718. The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest. Share-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statement of operations. Share-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction in additional paid in capital. When computing fair value of share-based payments, the Company has considered the following variables: ● The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. ● The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future. ● The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110. ● The term is the life of the grant. ● The expected volatility was estimated using the historical volatilities of the Company’s common stock. ● The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%. Advertising Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred. Off Balance Sheet Arrangements: We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs). Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Smaller reporting companies are not required to provide the information required by this item. 16 Item 8. Financial Statements. Our consolidated financial statements appear at the end of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There are no reportable events under this item for the year ended January 31, 2021.