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Item 2. Management’s Discussion and Analysis

2024-12-16 compared with 2024-09-10 · 62 added, 62 removed, 64 unchanged (66% of the section changed)

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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.

Mama’s Creations, Inc.

(“Mama’s,” “Mama’s Creations” or the “Company”) is a leading marketer and manufacturer of fresh deli prepared foods, found in over 8,000 grocery, mass, club and convenience stores nationally.

(“Mama’s,” “Mama’s Creations” the “Company”, "we", "our", or "us") is a leading marketer and manufacturer of fresh deli prepared foods, found in over 8,000 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.

Results of Operations for the Three Months Ended July 31, 2024 and 2023

The following table sets forth the summary of the condensed consolidated statements of operations for the three months ended July 31, 2024 and 2023 (in thousands):

Results of Operations for the Three Months Ended October 31, 2024 and 2023

The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the three months ended October 31, 2024 and 2023 (in thousands):

For the Three Months Ended

July 31, 2024 July 31, 2023

October 31, 2024 October 31, 2023

Net sales $ 31,523 $ 28,648

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Operating Expenses $ 6,550 $ 5,928

Other Expenses $ (63) $ (181)

Other Expenses, net $ (25) $ (130)

Income Tax Expense $ (128) $ (568)

Income from equity method investment in Chef Inspirational Foods, LLC $ — $ 78

Net Income $ 410 $ 2,009

For the three months ended July 31, 2024 and 2023, the Company reported net income of approximately $1.1 million and $1.7 million respectively.

The change in net income between the three months ended July 31, 2024 and 2023 is due to the changes in net sales, costs of sales and operating expenses described below.

Net Sales increased by approximately 14.5% to $28.4 million during the three months ended July 31, 2024, from $24.8 million during the three months ended July 31, 2023.

The increase in sales is due to volume gains, successful pricing actions, and the acquisition of CIF in June 2023.

For the three months ended October 31, 2024 and 2023, the Company reported net income of approximately $0.4 million and $2.0 million respectively.

The change in net income between the three months ended October 31, 2024 and 2023 is due to the changes in net sales, costs of sales and operating expenses described below.

Net Sales increased by approximately 10% to $31.5 million during the three months ended October 31, 2024, from $28.6 million during the three months ended October 31, 2023.

The increase in sales is due to volume gains and successful pricing actions.

Volume gains were driven by increased demand at existing customers, successful trade and marketing promotions, same-customer cross-selling of new items, and new customer door expansion.

Costs of sales:

Costs of sales increased by approximately 24% to $21.5 million, or 76% of Net Sales, during the three months ended July 31, 2024, from $17.3 million, or 70% of Net Sales, during the three months ended July 31, 2023.

The increase in costs of sales as a percentage of Net Sales is due to increases in commodity costs, in particular the price of chicken, partially offset by improvements in procurement, manufacturing and labor efficiencies.

Costs of sales increased by approximately 22% to $24.4 million, or 77% of Net Sales, during the three months ended October 31, 2024, from $20 million, or 70% of Net Sales, during the three months ended October 31, 2023.

The increase in Costs of sales as a percentage of Net Sales is due to increases in commodity costs, primarily the cost of chicken, and the non-recurring impact from construction surrounding the now completed installation of strategic capital equipment projects, partially offset by improvements in procurement, manufacturing and labor efficiencies.

Gross Profit Margin:

The gross profit margin was 24% and 30% for the three months ended July 31, 2024 and 2023, respectively.

The decrease in gross profit margin between the three months ended July 31, 2024 and 2023 is due to

increased commodity costs, in particular the price of chicken, which were partially offset by customer price increases, improvements in procurement, and manufacturing efficiencies.

The gross profit margin was 23% and 30% for the three months ended October 31, 2024 and 2023, respectively.

The decrease in gross profit margin between the three months ended October 31, 2024 and 2023 is due to increased commodity costs and construction-related inefficiencies as noted above, which were partially offset by customer price increases, improvements in procurement, and manufacturing efficiencies.

Operating Expenses:

Operating expenses were relatively flat in aggregate during the three months ended July 31, 2024, as compared to the three months ended July 31, 2023.

Operating expenses increased approximately $622 thousand during the three months ended October 31, 2024, as compared to the three months ended October 31, 2023.

The change in total operating expenses is primarily attributable to the following:

• Payroll and Related Expenses inclusive of stock-based compensation decreased by approximately $364 thousand mainly related to variable compensation arrangements;

• Insurance expense decreased by approximately $213 thousand mainly related to updated terms of coverage;

• Professional fees and director fees decreased by approximately $73 thousand mainly related to private offerings done in the prior year;

• Freight related expenses decreased by approximately $112 thousand mainly related to a greater focus on full truckload sales versus less than full truckload sales as well as stronger supplier management of carriers.

• Advertising expenses increased by approximately $282 thousand du e to new strategies and enhanced focus to drive increased velocities of our existing products;

• Amortization of intangible assets increased by approximately $211 thousand due to the acquisition of CIF, which was completed in June 2023;

• Payroll and Related Expenses inclusive of stock-based compensation increased by approximately $178 thousand mainly related to new executive hires and variable compensation arrangements;

• Commission and royalty expenses increased by approximately $162 thousand due to increased sales;

• Professional fees and director fees increased by approximately $76 thousand mainly related to increase in corporate activity in the current year;

• Freight-related expenses decreased by approximately $146 thousand mainly related to a greater focus on full truckload sales versus less than full truckload sales as well as stronger supplier management of carriers;

• Insurance expense decreased by approximately $40 thousand mainly related to updated terms of coverage;

• Other operating expenses increased by approximately $50 thousand due to additional travel and office expenses.

• Commission expenses increased by approximately $203 thousand due to increased sales;

• Other Expenses:

Other expenses decreased by approximately $118 thousand to $63 thousand for the three months ended July 31, 2024, as compared to $181 thousand for the three months ended July 31, 2023.

The decrease is primarily due to interest income of approximately $63 thousand and a decrease of interest expense of approximately $127 thousand, due to a lower debt balance .

Results of Operations for the Six Months Ended July 31, 2024 and 2023

The following table sets forth the summary of the condensed consolidated statements of operations for the six months ended July 31, 2024 as compared to the six months ended July 31, 2023 (in thousands):

For the Six Months Ended

July 31, 2024 July 31, 2023

Other Expenses, net:

Other expenses, net decreased by approximately $105 thousand to $25 thousand for the three months ended October 31, 2024, as compared to $130 thousand for the three months ended October 31, 2023.

The decrease is primarily due to interest income of approximately $37 thousand and decreased interest expense of approximately $249 thousand due to a lower debt balance .

Results of Operations for the Nine Months Ended October 31, 2024 and 2023

The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the nine months ended October 31, 2024 as compared to the nine months ended October 31, 2023 (in thousands):

For the Nine Months Ended

October 31, 2024 October 31, 2023

Net Sales $ 89,743 $ 76,559

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Operating Expenses $ 18,507 $ 15,587

Other Expenses $ (104) $ (343)

Other Expenses, net $ (129) $ (473)

Income Tax Expense $ (708) $ (1,522)

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Net Income $ 2,111 $ 5,153

For the six months ended July 31, 2024 and 2023, the Company reported net income of approximately $1.7 million and $3.1 million, respectively.

The change in net income between the six months ended July 31, 2024 and 2023 is due to the changes in net sales, costs of sales and operating expenses described below.

Net Sales increased by approximately 21.5% to $58.2 million during the six months ended July 31, 2024, from $47.9 million during the six months ended July 31, 2023.

For the Nine months ended October 31, 2024 and 2023, the Company reported net income of approximately $2.1 million and $5.2 million, respectively.

The change in net income between the nine months ended October 31, 2024 and 2023 is due to the changes in net sales, costs of sales and operating expenses described below.

Net Sales increased by approximately 17.2% to $89.7 million during the nine months ended October 31, 2024, from $76.6 million during the nine months ended October 31, 2023.

The increase in sales is due to volume gains, successful pricing actions, and the acquisition of CIF in June 2023.

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Costs of sales:

Costs of sales increased by approximately 29% to $43.9 million, or 75% of Net Sales, during the six months ended July 31, 2024, from $34.0 million, or 71% of Net Sales, during the six months ended July 31, 2023.

Costs of sales increased by approximately 26% to $68.3 million, or 76% of Net Sales, during the nine months ended October 31, 2024, from $54.0 million, or 71% of Net Sales, during the nine months ended October 31, 2023.

The increase in costs of sales as a percentage of Net Sales is due to increases in commodity costs, primarily the cost of chicken, and the non-recurring impact from construction surrounding the now completed installation of strategic capital equipment projects, partially offset by improvements in procurement, manufacturing and labor efficiencies.

Gross Profit Margin:

The gross profit margin was 25% and 29% for the three months ended July 31, 2024 and 2023, respectively.

The decrease in gross profit margin between the six months ended July 31, 2024 and 2023 is due to increased commodity costs, partially offset by customer price increases and manufacturing efficiencies.

The gross profit margin was 24% and 29% for the nine months ended October 31, 2024 and 2023, respectively.

The decrease in gross profit margin between the nine months ended October 31, 2024 and 2023 is due to increased commodity costs and construction-related inefficiencies, as noted above, partially offset by customer price increases and manufacturing efficiencies.

Operating Expenses:

Operating expenses increased by 24% during the six months ended July 31, 2024, as compared to the six months ended July 31, 2023.

Operating expenses increased by 19% during the nine months ended October 31, 2024, as compared to the nine months ended October 31, 2023.

The $2.9 million increase in total operating expenses is primarily attributable to the following:

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• Amortization of intangible assets increased by approximately $508 thousand due to the acquisition of CIF, which was completed in June 2023;

• Commission expenses increased by approximately $219 thousand due to increased sales;

• Payroll and Related Expenses inclusive of stock-based compensation decreased by approximately $93 thousand, mainly related to variable compensation arrangements;

• Other operating expenses increased by ap proximately $435 thousand mainly due to increased spend on travel, and computer and information technology software and systems expense.

• Commission and royalty expenses increased by approximately $381 thousand due to increased sales;

• Professional fees and director fees increased by approximately $170 thousand, mainly related to increase in corporate activity in the current year;

• Payroll and Related Expenses inclusive of stock-based compensation increased by approximately $85 thousand, mainly related to new executive hires and variable compensation arrangements;

• Insurance expense decreased by approximately $206 thousand, mainly related to updated terms of our coverage;

• Other Expenses:

Other expenses decreased by approximately $239 thousand to $104 thousand for the six months ended July 31, 2024, as compared to $343 thousand for the six months ended July 31, 2023.

• Freight-related expenses decreased by approximately $114 thousand, mainly related to a greater focus on full truckload sales versus less than full truckload sales as well as stronger supplier management of carriers.

Other Expenses, net:

Other expenses, net decreased by approximately $344 thousand to $129 thousand for the nine months ended October 31, 2024, as compared to $473 thousand for the nine months ended October 31, 2023.

The decrease is primarily due to interest income in the current year of approximately $192 thousand, and a decrease of interest expense of approximately $114 thousand, due to a lower debt balance.

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Working Capital

The following table summarizes total current assets, liabilities and working capital at July 31, 2024 compared to January 31, 2024 (in thousands):

July 31, 2024 January 31, 2024 Change

The following table summarizes total current assets, liabilities and working capital at October 31, 2024 compared to January 31, 2024 (in thousands):

October 31, 2024 January 31, 2024 Change

Current Assets $ 22,005 $ 23,566 $ (1,561)

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Working Capital $ 3,170 $ 6,876 $ (3,706)

As of July 31, 2024, we had working capital of approximately $5.4 million as compared to working capital of approximately $6.9 million as of January 31, 2024.

The decrease in working capital is primarily attributable to a decrease in cash and cash equivalents of approximately $3.7 million, a decrease in inventory of approximately $0.5 million a decrease in accounts payable and accrued expenses of approximately $2.6 million, and an increase in promissory notes - related parties of $0.3 million, partially offset by an increase in accounts receivable of approximately $0.3 million.

As of October 31, 2024, we had working capital of approximately $3.2 million as compared to working capital of approximately $6.9 million as of January 31, 2024.

The decrease in working capital is primarily attributable to a decrease in cash and cash equivalents of approximately $1.7 million, a decrease in inventory of approximately $0.1 million, an increase in accounts payable and accrued expenses of approximately $1.4 million, and an increase in promissory notes - related parties of $0.3 million, partially offset by an increase in accounts receivable of approximately $0.7 million.

Long-Term Requirements

As of July 31, 2024, we have $0 outstanding under our Credit Agreement and approximately $3.8 million outstanding under our Term Loan Agreement with M&T Bank.

As of October 31, 2024, we had no borrowings outstanding under our Credit Agreement and approximately $1.6 million outstanding under our Term Loan Agreement with M&T Bank.

The Term Loan Agreement has a maturity date of January 17, 2027.

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In addition, we have a payment of $1.5 million in common stock due to the sellers of CIF on June 28, 2025.

We also have operating leases for

offices and other facilities used for our operations and finance leases comprised primarily of machinery and equipment, as discussed in Item 1.

The following table summarizes the key components of our cash flows for the six months ended July 31, 2024 and 2023 (in thousands).

For the Six Months Ended July 31,

We also have operating leases for offices and other facilities used for our operations and finance leases comprised primarily of machinery and equipment, as discussed in Item 1.

The following table summarizes the key components of our cash flows for the nine months ended October 31, 2024 and 2023 (in thousands).

For the Nine Months Ended October 31,

Net Cash Provided by Operating Activities $ 6,034 $ 4,878

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Net (Decrease) Increase in cash (1,703) 1,247

Cash, beginning of period 11,022 4,378

Cash, end of period $ 7,388 $ 5,557

Cash and cash equivalents, beginning of period 11,022 4,378

Cash and cash equivalents, end of period $ 9,319 $ 5,625

Operating activities

Net cash provided by operating activities for the six months ended July 31, 2024 was approximately $1.2 million, which consisted of (i) net income of approximately $1.7 million, (ii) non-cash expenses of approximately $2.3 million, and (iii) a decrease in operating assets and liabilities of approximately $2.8 million.

Net cash provided by operating activities for the six months ended July 31, 2023 was approximately $3.4 million, which consisted of (i) net income of approximately $3.1 million, (ii) non-cash expenses of approximately $1.6 million, and (iii) a decrease in operating assets and liabilities of approximately $1.5 million.

Net cash provided by operating activities for the nine months ended October 31, 2024 was approximately $6.0 million, which consisted of (i) net income of approximately $2.1 million, (ii) non-cash expenses of approximately $3.0 million, and (iii) a decrease in operating assets and liabilities of approximately $1.0 million.

Net cash provided by operating activities for the nine months ended October 31, 2023 was approximately $4.9 million, which consisted of (i) net income of approximately $5.2 million, (ii) non-cash expenses of approximately $2.1 million, and (iii) a decrease in operating assets and liabilities of approximately $2.5 million.

Investing activities

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.

Net cash used in investing activities for the six months ended July 31, 2023 was approximately $0.9 million and consisted of approximately $0.3 million purchases of fixed assets and $0.6 million for the purchase of the remaining interest in CIF.

Net cash used in investing activities for the nine months ended October 31, 2024 was approximately $5.0 million and consisted of purchases of fixed assets.

Net cash used in investing activities for the nine months ended October 31, 2023 was approximately $1.3 million and consisted of approximately $0.7 million purchases of fixed assets and $0.6 million for the purchase of the remaining interest in CIF.

Financing activities

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 of payments of related party promissory notes, approximately $0.8 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, 2023 was approximately $1.3 million and consisted of approximately $0.8 million of payments on the Term Loan, approximately $0.4 million of payments on the line of credit, and approximately $0.1 million payments on finance leases.

Net cash used in financing activities for the nine months ended October 31, 2024 was approximately $2.7 million and consisted of approximately $1.2 million of payments of related party promissory notes, approximately $1.3 million of payments on the Term Loan and approximately $0.3 million payments on finance leases.

Net cash used in financing activities for the nine months ended October 31, 2023 was approximately $2.3 million and consisted of approximately $1.3 million of payments on the Term Loan, approximately $0.9 million of payments on the line of credit, and approximately $0.2 million payments on finance leases.

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.

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.

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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 consolidated financial position, earnings, cash flows or disclosures.

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.

Critical Accounting Estimates and Policies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis