Mama's Creations, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following management's discussion and analysis should be read in conjunction with our annual report on Form 10-K for the fiscal year ended January 31, 2025, the Condensed Consolidated Financial Statements and notes thereto contained in this report, as well as our subsequent reports on Form 10-Q and Form 8-K and any amendments to such reports. Overview Mama’s Creations, Inc. (“Mama’s,” “Mama’s Creations,” the “Company,” "we," "our," or "us") is a leading marketer, manufacturer, and distributor of fresh deli prepared foods, found in over 10,000 grocery, mass, club and convenience stores nationally. The Company’s broad product portfolio, born from MamaMancini’s rich history in Italian foods, now consists of a variety of high-quality, fresh, clean and easy-to-prepare foods to address the needs of both our consumers and retailers. Our vision is to become a one-stop-shop deli solutions platform, leveraging vertical integration and a diverse family of brands to offer a wide array of prepared foods to meet the changing demands of the modern consumer. Acquisition of Crown 1 Business After the end of the period covered by this report, on September 2, 2025, Jubilee Acquisition, Inc., a wholly-owned subsidiary of the Company, completed an acquisition (the "Acquisition") of substantially all of the assets of Crown 1 Enterprises Inc. ("Crown 1"), a full-service manufacturer of value-added proteins and ready-to-eat meals and a wholly-owned subsidiary of Sysco Corporation, for $17.5 million in cash, subject to certain adjustments (including a customary working capital adjustment). The Acquisition is expected to be accretive, provide supplemental revenue, increase the Company's sales base, and broaden our customer reach. The Acquisition also adds new strategic capabilities, such as a recently upgraded and expanded USDA-certified production facility in Bay Shore, New York, complete with incremental grill capacity on familiar equipment and approximately 200 additional employees. 24 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act. The forward-looking statements involve substantial risks and uncertainties. All statements, other than statements related to present facts or current conditions or of historical facts, contained in this report, including statements regarding our strategy, future operations, future financial position, future revenues, and projected costs, prospects, plans and objectives of management, are forward-looking statements. Accordingly, these statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in them. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include: • the adequacy of our liquidity to pursue our business objectives; • reliance on a limited number of customers; • pricing pressures in the market and lack of control over the pricing of raw materials and freight; • adverse economic conditions or intense competition; • entry of new competitors and products; • adverse federal, state and local government regulation (including, but not limited to, the Food and Drug Administration); • liability related to the consumption of our products; • supply chain disruptions due to global economic uncertainty, weather, natural disaster, fire, terrorism, pandemic, strikes, or otherwise; • loss or retirement of key executives, including prior to identifying a successor; • ability to secure placement of our products in key retail locations; • maintenance of quality control; • ability to timely realize the expected benefits of recent acquisitions and unanticipated or higher than anticipated integration expenses • wage and price inflation; and • issues related to the enforcement of our intellectual property rights. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, and to subsequent reports filed from time to time with the SEC. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason. 25 Table of Contents Results of Operations for the Three Months Ended July 31, 2025 and 2024 The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the three months ended July 31, 2025 and 2024 (in thousands): For the Three Months Ended July 31, 2025 July 31, 2024 Net sales $ 35,203 $ 28,382 Costs of sales 26,432 21,503 Gross Profit 8,771 6,879 Operating Expenses 7,071 5,267 Other Expenses, net (55) (63) Income Tax Expense (368) (401) Net Income $ 1,277 $ 1,148 For the three months ended July 31, 2025 and 2024, the Company reported net income of approximately $1.3 million and $1.1 million, respectively. The change in net income between the three months ended July 31, 2025 and 2024 is due to the changes in net sales, costs of sales and operating expenses described below. Net sales: Net Sales increased by approximately 24% to $35.2 million during the three months ended July 31, 2025, from $28.4 million during the three months ended July 31, 2024. The increase in sales is primarily due to volume gains, which were driven by successful trade and marketing promotions, which drove velocity acceleration, as well as the introduction of new products into existing customers and the introduction of new customers. Costs of sales: Costs of sales increased by approximately 23% to $26.4 million, or 75% of Net Sales, during the three months ended July 31, 2025, from $21.5 million, or 76% of Net Sales, during the three months ended July 31, 2024. The increase in cost of sales is due to higher sales and higher commodity prices, particularly of chicken, offset by increased operational efficiencies driven by increased labor and procurement efficiency. Gross Profit Margin: The gross profit margin was 25% and 24% for the three months ended July 31, 2025 and 2024, respectively. The year-over-year improvement was driven by labor and procurement efficiency as well as improved fixed overhead absorption. Operating Expenses: Operating expenses increased approximately $1.8 million during the three months ended July 31, 2025, as compared to the three months ended July 31, 2024. The change in total operating expenses is primarily attributable to the following: • Payroll and Related Expenses inclusive of stock-based compensation increased by approximately $1.1 million mainly related to new executive hires and variable compensation arrangements; • Advertising expenses increased by approximately $305 thousand du e to new marketing strategies and enhanced distribution of our existing products; • Freight-related expenses increased by approximately $206 thousand mainly due to increased sales; • Professional fees increased by approximately $100 thousand, primarily due to increased corporate development activity in the current year; • Commission and royalty expenses increased by approximately $89 thousand due to increased sales; and • Other operating expenses increased by approximately $61 thousand due to additional travel, IT, and office expenses. Other Expenses, net: Other expenses, net decreased by approximately $8 thousand to $55 thousand for the three months ended July 31, 2025, as compared to $63 thousand for the three months ended July 31, 2024. The decrease is primarily due to lower interest expense, which is due to a lower debt balance . 26 Table of Contents Results of Operations for the Six Months Ended July 31, 2025 and 2024 The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the three months ended July 31, 2025 and 2024 (in thousands): For the Six Months Ended July 31, 2025 July 31, 2024 Net Sales $ 70,458 $ 58,220 Costs of Sales 52,503 43,878 Gross Profit 17,955 14,342 Operating Expenses 14,677 11,957 Other Expenses, net (116) (104) Income Tax Expense (648) (580) Net Income $ 2,514 $ 1,701 For the six months ended July 31, 2025 and 2024, the Company reported net income of approximately $2.5 million and $1.7 million, respectively. The change in net income between the six months ended July 31, 2025 and 2024 is due to the changes in net sales, costs of sales and operating expenses described below. Net sales: Net Sales increased by approximately 21% to $70.5 million during the six months ended July 31, 2025, from $58.2 million during the six months ended July 31, 2024. The increase in sales is primarily due to volume gains, which were driven by new products sold into existing customers, and successful trade and marketing promotions, which drove velocity acceleration, and initial entry into new customers. Costs of sales: Costs of sales increased by approximately 20% to $52.5 million, or 75% of Net Sales, during the six months ended July 31, 2025, from $43.9 million, or 75% of Net Sales, during the six months ended July 31, 2024. The increase in cost of sales is due to higher sales and higher commodity prices, particularly of chicken, offset by increased operational efficiencies driven by increased labor and procurement efficiency. Gross Profit Margin: The gross profit margin remained consistent at 25% for the six months ended July 31, 2025 and 2024, respectively. The gross profit margin remained consistent due to year-over-year improvement primarily driven by labor and procurement efficiency, as well as improved fixed overhead absorption offset by higher commodity costs and promotional activities. Operating Expenses: Operating expenses increased approximately $2.7 million during the six months ended July 31, 2025, as compared to the six months ended July 31, 2024. The change in total operating expenses is primarily attributable to the following: • Payroll and Related Expenses inclusive of stock-based compensation increased by approximately $1.6 million mainly related to new executive hires and variable compensation arrangements; • Advertising expenses increased by approximately $706 thousand du e to new marketing strategies and enhanced distribution of our existing products; • Freight-related expenses increased by approximately $273 thousand mainly due to increased sales; • Professional fees and director-related expenses decreased by approximately $463 thousand primarily due to the $900 thousand director settlement in the prior year, partially offset by increased corporate development activity in the current year, and • Commission and royalty expenses increased by approximately $582 thousand due to increased sales. Other Expenses, net: Other expenses, net increased by approximately $12 thousand to $116 thousand for the six months ended July 31, 2025, as compared to $104 thousand for the six months ended July 31, 2024. The decrease is primarily due to lower interest income . 27 Table of Contents 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 July 31, 2025 compared to January 31, 2025 (in thousands): July 31, 2025 January 31, 2025 Change Current Assets $ 23,438 $ 21,877 $ 1,561 Current Liabilities 14,836 17,025 (2,189) Working Capital $ 8,602 $ 4,852 $ 3,750 As of July 31, 2025, we had working capital of approximately $8.6 million as compared to working capital of approximately $4.9 million as of January 31, 2025. The increase in working capital is primarily attributable to an increase in cash and cash equivalents of approximately $2.2 million, and an increase in inventory of approximately $1.6 million, partially offset by an decrease in accounts payable and accrued expenses of approximately $0.9 million, a decrease in accounts receivable of approximately $1.4 million, a decrease in related party promissory notes of approximately $1.5 million, and an increase in operating lease liabilities of $265k. Cash Flows The following table summarizes the key components of our cash flows for the six months ended July 31, 2025 and 2024 (in thousands); For the Six Months Ended July 31, 2025 2024 Net Cash Provided by Operating Activities $ 4,334 $ 1,234 Net Cash Used in Investing Activities (1,053) (2,740) Net Cash Used in Financing Activities (1,047) (2,128) Net Increase (Decrease) in Cash 2,234 (3,634) Cash and cash equivalents, beginning of period 7,150 11,022 Cash and cash equivalents, end of period $ 9,384 $ 7,388 Operating activities Net cash provided by operating activities for the six months ended July 31, 2025 was approximately $4.3 million, which consisted of net income of approximately $2.5 million and non-cash expenses of approximately $2.9 million, partially offset by an increase in operating assets and liabilities of approximately $1.0 million. Net cash provided by operating activities for the six months ended July 31, 2024 was approximately $1.2 million, which consisted of net income of approximately $1.7 million and non-cash expenses of approximately $2.3 million, partially offset by an increase in operating assets and liabilities of approximately $2.8 million. Investing activities Net cash used in investing activities for the six months ended July 31, 2025 was approximately $1.1 million and consisted of purchases of fixed assets. Net cash used in investing activities for the six months ended July 31, 2024 was approximately $2.7 million, and consisted of purchases of fixed assets. Financing activities 28 Table of Contents Net cash used in financing activities for the six months ended July 31, 2025 was approximately $1.0 million and consisted of approximately $0.9 million of payments on the Term Loan and approximately $0.2 million payments on finance leases. Net cash used in financing activities for the six months ended July 31, 2024 was approximately $2.1 million and consisted of approximately $1.2 million payment on a related party note, $0.8 million of payments on the Term Loan and approximately $0.2 million payments on finance leases. Credit Facility As of July 31, 2025, we had no borrowings outstanding under our Credit Agreement and approximately $2.0 million outstanding under our Term Loan Agreement with M&T Bank ("M&T"). The Term Loan Agreement has a maturity date of January 17, 2027. In addition, we have a payment of $750 thousand (plus accrued interest) due on December 29, 2025, pursuant to the promissory notes issued to the sellers of T&L and Olive Branch, as discussed in Item 1, Note 1. We also have operating leases for offices and other facilities used for our operations and finance leases comprised primarily of machinery and equipment leases, as discussed in Item 1. Note 11. On August 28, 2025, the Company entered into an Amended and Restated Loan and Security Agreement (the “A&R Loan Agreement”) with M&T Bank (“M&T”). The A&R Loan Agreement provides the Company with a senior secured credit facility (the “Credit Facility”) consisting of (i) an existing term loan in the outstanding principal amount of approximately $1.9 million, (ii) a $5.5 million revolving credit facility (the “Revolving Loan Facility”), and (iii) a $20.0 million non-revolving line of credit (the “PA Line”). The Company made an initial draw on the PA Line on August 28, 2025 in the amount of $19.0 million to finance the Acquisition and related expenses. The PA Line advances are subject to mandatory prepayment equal to 25% of annual Excess Cash Flow (as defined in the A&R Loan Agreement) within 150 days of fiscal year end. The Company may use the proceeds of the Term Loan Facility and Revolving Loan Facility for working capital and general corporate purposes and the remaining proceeds of the PA Line for other permitted acquisitions. The principal outstanding under the Credit Facility bears interest at a variable rate per annum based on the Company's Senior Funded Debt/EBITDA Ratio (as defined in the A&R Loan Agreement) with respect to the Company as of the date of any advance under the loans as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.25, 3.25 percentage points above the applicable index rate; (ii) greater than 1.50 but less than 2.25, 2.75 percentage points above the applicable index rate; and (iii) less than or equal to1.50, 2.25 percentage points above the applicable index rate. The applicable index rate is daily simple SOFR for the Revolving Loan Facility, the Term Loan Facility and until the permanent loan period, the PA Line. After any advance under the PA Line is converted to an amortizing term loan, the applicable index rate for such advance will be one month term SOFR. Private Placement of Common Stock On September 2, 2025, the Company entered into a securities purchase agreement with the purchasers named therein, for the private placement (the “Private Placement”) of 2,666,667 shares of the Company’s common stock, at a purchase price of $7.50 per share. The Private Placement has closed and resulted in gross proceeds of approximately $20.0 million to the Company before deducting placement agent fees and offering expenses. Liquidity and capital requirements outlook Although the expected revenue growth and control of expenses leads 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 on 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 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 condensed consolidated financial position, earnings, cash flows or disclosures. 29 Table of Contents 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 annual report on Form 10-K for the most recent completed fiscal year.