Mama's Creations, Inc. 10-Q

Item 2. 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” DETAILED IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K, OTHER PRIOR COMPANY FILINGS AND THOSE INCLUDED ELSEWHERE IN THIS REPORT. Results of Operations for the Three Months Ended April 30, 2023 and 2022 The following table sets forth the summary of the condensed consolidated statements of operations for the three months ended April 30, 2023 and 2022: For the Three Months Ended April 30, 2023 April 30, 2022 Sales - Net of Slotting Fees and Discounts $ 23,120,816 $ 21,830,580 Gross Profit $ 6,371,000 $ 3,860,263 Operating Expenses $ 4,430,216 $ 3,599,290 Other Expenses $ (162,924 ) $ (127,891 ) Income Tax Benefit (Provision) $ (524,692 ) $ (29,385 ) Income from equity method investment in Chef Inspirational $ 145,758 $ - Net Income $ 1,400,926 $ 103,697 For the three months ended April 30, 2023 and 2022, the Company reported net income of $1,400,926 and $103,697, respectively. The change in net income between the three months ended April 30, 2023 and 2022 reflects strong sales, successful pricing actions, same-customer cross-selling, product additions, normalization of costs for commodities, as well as other materials, and freight efficiencies and other improvements in manufacturing execution. Sales: Sales, net of slotting fees and discounts increased by approximately 6% to $23,120,816 during the three months ended April 30, 2023, from $21,830,580 during the three months ended April 30, 2022. The increase in sales is due to successful pricing actions, same-customer cross-selling and product additions. Gross Profit: The gross profit margin was 28% and 18% for the three months ended April 30, 2023 and 2022, respectively. The change in between the three months ended April 30, 2023 and 2022 is due to successful pricing actions, improvements in manufacturing efficiencies and normalization of costs for commodities. Operating Expenses: Operating expenses increased by 23% during the three months ended April 30, 2023, as compared to the three months ended April 30, 2022. Operating expenses increased as a percentage of sales to 19% in 2023 compared to 16% in 2022. The $830,926 increase in total operating expenses is primarily attributable to the following: ● Payroll and Related Expenses rose by approximately $760,000 related to the executive and office hires. ● Commission Expenses rose by approximately $222,000 due to increased sales; ● Freight related expenses decreased by approximately $354,000 due to the addition of dedicated logistics employees; 2 Other Income (Expenses): Other expenses increased by $35,033 to $162,924 for the three months ended April 30, 2023 as compared to $127,891 for the three months ended April 30, 2022. For the three months ended April 30, 2023, other income (expenses) consisted of $177,394 in interest expense on the Company’s financing arrangements and $5,530 in amortization of debt discount offset by $20,000 in other income. For the three months ended April 30, 2022, other expenses consisted of $124,251 in interest expense incurred on the Company’s financing arrangements and $3,640 in amortization of debt discount. Liquidity and Capital Resources We finance our operations with internally generated funds, supplemented by credit arrangements with third parties and, potentially, capital market financing. Working Capital The following table summarizes total current assets, liabilities and working capital at April 30, 2023 compared to January 31, 2023: April 30, 2023 January 31, 2023 Change Current Assets $ 17,312,018 $ 15,674,701 $ 1,637,317 Current Liabilities 12,288,594 11,879,091 409,503 Working Capital $ 5,023,424 $ 3,795,610 $ 1,227,814 As of April 30, 2023, we had working capital of $5,023,424 as compared to working capital of $3,795,610 as of April 30, 2022, an increase of $1,227,814. The increase in working capital is primarily attributable to an increase in cash of $881,065, an increase of accounts recivables of $1,557,062, and an increase in prepaid expenses and other current assets of $299,240 partially offset a decrease in inventory of $1,632,860 and an increase in accounts payable and accrued liabilities of $1,903,312. Long Term Requirements As discussed above, as of April 30, 2023, we have $750,000 outstanding under our Credit Agreement and $6,206,905 outstanding under our Term Loan Agreement, each with M&T Bank. The Credit Agreement and Term Loan Agreement have maturity dates of June 30, 2024 and January 17, 2027, respectively. Cash Flows The following table summarizes the key components of our cash flows for the three months ended April 30, 2023 and 2022. For the Three Months Ended April 30, 2023 2022 USD USD Net cash provided by operating activities $ 1,613,690 $ 1,343,768 Net cash used in investing activities (145,015 ) (354,394 ) Net cash used in financing activities (585,610 ) (27,578 ) Net changes in cash 881,065 1,052,796 Cash, beginning of period 4,378,383 3,190,560 Cash, end of period $ 5,259,448 $ 4,246,356 Net cash provided by operating activities for the three months ended April 30, 2023 was $1,611,690 compared to net cash used in operating activities for the three months ended April 30, 2022 of $1,343,013. The net income for the three months ended April 30, 2023 and 2022 was $1,400,926 and $103,697, respectively. During the three months ended April 30, 2023, net income was affected by non-cash adjustments of $616,457 and by changes in operating activities which used cash of $401,693. During the three months ended April 30, 2022, net income was affected by adjustments to net income of $424,368 offset by changes in operating activities which used cash of $1,871,078 3 Net cash used in investing activities for three months ended April 30, 2023 was $145,015 as compared to $174,007 for the three months ended April 30, 2022, respectively. For the three months ended April 30, 2023, the Company used cash of $145,015 to purchase new machinery and equipment. For the three months ended April 30, 2022, the cash used in investing activities of $174,007 was to purchase new machinery and equipment. Net cash used in financing activities for the three months ended April 30, 2023 was $585,610 as compared to $1,587,682 provided by financing activities for the three months ended April 30, 2022. During the three months ended April 30, 2023, the Company had repayments of $140,000 from borrowings pursuant to the line of credit, payments of the term loan and finance lease payments of $387,931, and $49,879, respectively. In addition, during the three months ended April 30, 2023, the Company received proceeds of $19,500 for the exercise of options. During the three months ended April 30, 2023, the Company paid dividends on the Series B Preferred stock of $27,300. During the three months ended April 30, 2022, the Company received proceeds of $1,775,000 from borrowings from a line of credit. These cash in-flows were offset by payments of $129,310 paid for repayment of a term loan and $58,008 paid in repayment of financing lease obligation. 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 at least the next twelve months, based on current and projected levels of operations, the Company may require additional funding to finance growth or 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. Recent Accounting Pronouncements As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our 2023 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures.” Critical Accounting Estimates and Policies As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our 2023 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.