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. Overview Mama’s Creations, Inc. (“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 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 October 31, 2024 October 31, 2023 Net sales $ 31,523 $ 28,648 Costs of sales $ 24,410 $ 20,013 Gross Profit $ 7,113 $ 8,635 Operating Expenses $ 6,550 $ 5,928 Other Expenses, net $ (25) $ (130) Income Tax Expense $ (128) $ (568) Net Income $ 410 $ 2,009 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: 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 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 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. 2 Table of Contents Operating Expenses: 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: • Advertising expenses increased by approximately $282 thousand du e to new strategies and enhanced focus to drive increased velocities of our existing products; • 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; and • Other operating expenses increased by approximately $50 thousand due to additional travel and office expenses. 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 Costs of Sales $ 68,288 $ 54,047 Gross Profit $ 21,455 $ 22,512 Operating Expenses $ 18,507 $ 15,587 Other Expenses, net $ (129) $ (473) Income Tax Expense $ (708) $ (1,522) Income from equity method investment in Chef Inspirational Foods, LLC $ — $ 223 Net Income $ 2,111 $ 5,153 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: 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. 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 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. 3 Table of Contents Gross Profit Margin: 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 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: • One-time legal settlement expense of approximately $900 thousand, due to the Settlement Agreement with directors; • Advertising expenses increased by approximately $701 thousand due to new strategies and enhanced focus to drive increased velocities of our existing products; • Amortization of intangible assets increased by approximately $508 thousand due to the acquisition of CIF, which was completed in June 2023; • 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; and • 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. 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 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) Current Liabilities 18,835 16,690 2,145 Working Capital $ 3,170 $ 6,876 $ (3,706) 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. 4 Table of Contents Long-Term Requirements 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. In addition, we have payments of $750 thousand (plus accrued interest) due on December 29, 2024 and 2025 pursuant to the promissory notes issued to the sellers of T&L and Olive Branch, as discussed in Item 1, Note 5. 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. Note 10. Cash Flows 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, 2024 2023 Net Cash Provided by Operating Activities $ 6,034 $ 4,878 Net Cash (Used in) Investing Activities (5,022) (1,317) Net Cash (Used in) Financing Activities (2,715) (2,314) Net (Decrease) Increase in cash (1,703) 1,247 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 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 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 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 5 Table of Contents 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. 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 2024 Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not applicable.