What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-04-08 compared with 2024-04-24 · 46 added, 68 removed, 90 unchanged (56% of the section changed)

8 unchanged sentences

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.

Recent Developments

On June 28, 2023, the Company completed the acquisition of the remaining 76% of Chef Inspirational Foods, LLC (“CIF”), a leading developer, innovator, marketer and sales company selling prepared foods for approximately $3.7 million , including approximately $1.0 million in cash at closing and $2.7 million in a promissory note (the "CIF Acquisition").

The promissory note requires a principal payment of $1.2 million in cash on the first anniversary of the closing date, and a payment of $1.5 million in common stock of the Company on the second anniversary of the closing date.

The CI F Acquisition was accounted for as an asset acquisition as substantially all of the fair value was concentrated in customer relationships.

The Company had previously acquired a 24% minority interest in CIF in June 2022.

Results of Operations for the Years Ended January 31, 2025 and 2024

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January 31, 2025 January 31, 2024

Sales - Net of Slotting Fees and Discounts $ 103,284 $ 93,188

Net Sales $ 123,328 $ 103,284

Gross Profit $ 30,533 $ 30,333

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For the years ended January 31, 2025 and 2024, the Company reported net income of approximately $3.7 million and $6.6 million, respectively.

The change in net income between the years ended January 31, 2024 and 2023 reflects strong revenue growth, normalization of costs for commodities and other materials, freight optimization, improvements in manufacturing efficiencies, as well as the CIF Acquisition, which allowed the Company to sell its products to the end retailer, wholesaler, and/or distributor.

Sales - Net of Slotting Fees and Discounts:

Sales, net of slotting fees and discounts increased by approximately 11% to $103.3 million for the year ended January 31, 2024, from $93.2 million for the year ended January 31, 2023.

The increase is due to higher volume of sales and introduction of new products at existing customers, successful pricing actions, and the acquisition of Chef Inspirational Foods, LLC, which allowed the Company to sell its products to the end retailer, wholesaler, and/or distributor.

The change in net income between the years ended January 31, 2025 and 2024 reflects strong revenue growth offset by manufacturing inefficiencies related to the capital improvement project at the Company's Farmingdale, New York facility and increased costs of commodities, primarily the cost of chicken, and other materials.

Net Sales increased by approximately 19% to $123.3 million for the year ended January 31, 2025, from $103.3 million for the year ended January 31, 2024.

The increase is due to higher volume of sales of existing products due to higher production capacity, introductions at new customers, introduction of new products at existing customers and successful pricing actions to recover the increased cost of commodities.

Gross Profit:

The gross profit margin was 25% and 29% for the years ended January 31, 2025 and 2024, respectively.

The increase in gross profit margin is due to normalization of commodity costs, successful pricing actions, higher utilization and investments in the Company's manufacturing facilities, as well as the CIF Acquisition.

The decrease in gross profit margin is due to inefficiencies related to the capital improvement project at the Company's Farmingdale, New York facility and increased costs of commodities, primarily chicken, and other materials.

Operating Expenses:

Operating expenses increased by 20% during the year ended January 31, 2025, as compared to the year ended January 31, 2024.

Operating expenses increased as a percentage of sales to 21% in 2024 compared to 18% in 2023.

Operating expenses as a percentage of sales remained relatively consistent at 21% in both fiscal year 2025 and 2024.

The approximate $4.2 million increase in total operating expenses is primarily attributable to the following:

• Payroll and Related Expenses inclusive of stock-based compensation rose by approximately $3.3 million related to executive and SG&A hires;

• Amortization of intangible assets increased by approximately $598 thousand due to the CIF Acquisition;

• Insurance expenses rose by approximately $581 thousand due to the growth of the Company and increases in coverage levels;

• Advertising expenses increased by approximately $550 thousand due to new strategies and an enhanced focus on marketing to help drive increased velocities of our existing products

• Commission Expenses rose by approximately $251 thousand due to increased sales;

• Freight-related expenses decreased by approximately $885 thousand due to the addition of dedicated logistics employees and capabilities, increased sales to major retailers, wholesalers and distributors, as well as load-sharing between the Company's two manufacturing facilities;

• Allowance for credit losses decreased by approximately $373 thousand due to our establishment of a reserve in the prior year.

• Advertising expenses increased by approximately $1.1 million due to new digital strategies and an enhanced focus on marketing to help drive increased velocities of our existing products;

• One-time legal settlement expense of approximately $900 thousand, due to the Settlement Agreement with directors;

• Commission and royalty expenses rose by approximately $568 thousand due to increased sales;

• Professional fees increased by approximately $474 thousand due to increased corporate activity due to the growth of the Company and fees associated with Sarbanes-Oxley 404(b) implementation;

• Amortization of intangible assets increased by approximately $463 thousand due to the CIF Acquisition in the prior fiscal year;

• Office and computer-related expenses increased by approximately $300 thousand due to growth of the company, increased office space, and investment in new software to drive efficiencies;

• Travel-related expenses increased by approximately $170 thousand, due to a larger sales team and increased travel to national retailers;

• Freight-related expenses increased by approximately $71 thousand due to increased sales offset by load-sharing between the Company's two manufacturing facilities;

• Insurance expenses decreased by approximately $204 thousand due to consolidation of policies.

Other Income (Expenses):

Other expenses decreased by approximately $373 thousand to approximately $171 thousand for the year ended January 31, 2025, as compared to approximately $544 thousand for the year ended January 31, 2024.

The decrease is mainly due to a decrease in interest expense of approximately $85 thousand, which was a result of lower debt balances outstanding as well as higher interest earned on Company cash balances.

The decrease is mainly due to a decrease in net interest expense of approximately $290 thousand, which was a result of lower debt balances outstanding as well as higher interest earned on Company cash balances.

Liquidity and Capital Resources

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Working Capital $ 4,852 $ 6,876 $ (2,024)

As of January 31, 2024, we had working capital of approximately $6.9 million as compared to working capital of approximately $3.8 million as of January 31, 2023, an increase of approximately $3.1 million.

The increase in working capital is primarily attributable to an increase in cash of approximately $6.6 million, an increase in accounts receivable of approximately $1.0 million due to increased sales, and an increase in prepaid expenses and other current assets of approximately $547 thousand, due to deposits placed for machinery and equipment, partially offset by better cash management, which resulted in an increase in accounts payable and accrued expenses of approximately $3.4 million, and an increase in Promissory notes - related parties of $1.2 million due to the CIF Acquisition.

As of January 31, 2025, we had working capital of approximately $4.9 million as compared to working capital of approximately $6.9 million as of January 31, 2024, a decrease of approximately $2.0 million.

The decrease in working capital is primarily attributable to a decrease in cash of approximately $3.9 million, which was used to purchase approximately $5.1 million of property plant and equipment, an increase in operating lease liabilities of approximately $414 thousand, and an increase in Promissory notes – related parties of approximately $300 thousand, offset by an increase in inventory of approximately $1.5 million due to increased sales, and a decrease in accounts payable and accrued expenses of approximately $373 thousand due to lower accrued taxes.

Long-term Requirements:

As of January 31, 2024, we have $0 outstanding under our Line of Credit Agreement and approximately $4.5 million o utstanding under our Term Loan Agreement with M&T Bank (the "Term Loan Agreement").

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 December 29, 2025 pursuant to promissory notes issued to the sellers of T&L Creative Salads ("T&L") and Olive Branch LLC ("Olive Branch"), as discussed in Item 8, Note 5.

In addition we have a promissory note of $2.7 million with the sellers of CIF as discussed in Item 8, Note 5.

Of the $2.7 million, a payment of $1.2 million is due on June 28, 2024, and $1.5 million is payable in common stock on June 28, 2025.

As of January 31, 2025, we have $0 outstanding under our Line of Credit Agreement, with a maximum capacity of $5.5 million, and approximately $2.9 million o utstanding under our Term Loan Agreement with M&T Bank (the "Term Loan Agreement").

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, 2025 pursuant to promissory notes issued to the sellers of T&L Creative Salads ("T&L") and Olive Branch LLC ("Olive Branch"), as discussed in Item 8, Note 6.

In addition, we have a promissory note with a balance of $1.5 million with the sellers of CIF as discussed in Item 8, Note 6.

This note is payable in common stock 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 8, Note 11.

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Net income for the years ended January 31, 2025 and 2024 was approximately $3.7 million and $6.6 million, respectively.

During the year ended January 31, 2024, net income was affected by non-cash adjustments of approximately $2.8 million and by changes in operating activities which provided cash of approximately $2.2 million.

During the year ended January 31, 2023, net income was affected by non-cash adjustments of approximately $1.7 million and changes in operating activities which used cash of approximately $1.5 million.

Net cash used in investing activities for the years ended January 31, 2024 was approximately $1.4 million as compared to approximately $1.1 million for the year ended January 31, 2023, respectively.

For the year ended January 31, 2024, the Company used cash of approximately $786 thousand to purchase new machinery and equipment.

In addition, the Company paid net cash of approximately $646 thousand for the CIF Acquisition.

For the year ended January 31, 2023, the cash used in investing activities of approximately $593 thousand was to purchase new machinery and equipment and $500 thousand for the acquisition of the minority interest in CIF in 2022.

Net cash used in financing activities for the year ended January 31, 2024 was $3.5 million as compared to $0.9 million for the year January 31, 2023.

During the year ended January 31, 2024, the Company had payments of the term loan, line of credit, related party loan, and finance lease liabilities of approximately $1.7 million, $890 thousand, $750 thousand, and $272 thousand, respectively.

During the year ended January 31, 2023, the Company had net borrowings from the line of credit of approximately $125 thousand and received proceeds of approximately $1.4 million from the sale of Series B Preferred Stock.

This was offset by payments of the term loan, related party loan, and finance lease liabilities of approximately $1.3 million, $750 thousand, and $235 thousand, respectively.

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 April 26, 2025, 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.

During the year ended January 31, 2025, net income was affected by non-cash adjustments of approximately $2.9 million and by changes in operating activities which used cash of approximately $1.4 million.

During the year ended January 31, 2024, net income was affected by non-cash adjustments of approximately $2.8 million and changes in operating activities which provided cash of approximately $2.2 million.

Net cash used in investing activities for the years ended January 31, 2025 was approximately $5.1 million as compared to approximately $1.4 million for the year ended January 31, 2024.

For the year ended January 31, 2025, the Company used cash of approximately $5.1 million to purchase new machinery and equipment.

For the year ended January 31, 2024, the cash used in investing activities consisted of approximately $786 thousand to purchase new machinery and equipment and $646 thousand for the acquisition of the remaining interest in CIF.

Net cash used in financing activities for the year ended January 31, 2025 was approximately $4.0 million as compared to $3.5 million for the year ended January 31, 2024.

During the year ended January 31, 2025, the Company had payments on the term loan, related party loans, and finance lease liabilities of approximately $1.7 million, $2.0 million, and $397 thousand, respectively.

During the year ended January 31, 2024, the Company had payments on the term loan, line of credit, related party loans, and finance lease liabilities of approximately $1.7 million, $890 thousand, $750 thousand, and $272 thousand, respectively.

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 and 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.

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See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.

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 (“US GAAP”).

US 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 US GAAP and are consistently 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 the Consolidated Financial Statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Such estimates and assumption s impact, among others, the following:

allowance for doubtful accounts, valuation of the CIF Acquisition (which was accounted for as an asset acquisition as substantially all of the fair value is concentrated in customer relationships) , the fair value of stock-based compensation, inventory reserves, impairment of goodwill and intangible assets, and estimates for unrealized returns, discounts, and other allowances that are netted against revenue.

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.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires us to make estimates and judgments that affect the amounts reported in the consolidated financial statements and related notes.

Critical accounting estimates are those estimates that, in accordance with GAAP, involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements.

Management has determined that our most critical accounting estimates are those relating to the fair value of stock-based compensation, impairment of goodwill and intangible assets, and estimates for unrealized returns, discounts, and other allowances that are netted against revenue.

Although we believe that the estimates we use are reasonable, actual results reported in future periods could differ materially from those estimates.

The following is a summary of certain accounting estimates we consider critical.

For further discussion about our accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements appearing elsewhere in this Annual Report.

Goodwill is the excess of the consideration paid for a business over the fair value of the identifiable net assets acquired.

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However, the Company may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.

When performing its quantitative annual goodwill impairment test the Company is comparing the fair value with its carrying amounts.

When performing its quantitative annual goodwill impairment test, the Company is comparing the fair value with its carrying amount.

The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the fair value;

however, the loss recognized would not exceed the total amount of goodwill.

Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount when measuring the goodwill impairment loss, if applicable.

Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount when measuring the

goodwill impairment loss, if applicable.

The fair value is estimated using discounted cash flow methodologies, as well as considering third party market value indicators.

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The Company also develops estimates for future levels of gross and operating profits and projected capital expenditures.

The Company’s methodology also includes the use of

estimated discount rates based upon industry and competitor analysis as well as other factors.

The Company’s methodology also includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors.

Calculating the fair value requires significant estimates and assumptions by management.

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The Company does not receive a distinct service in relation to the trade incentives and promotions.

The Company’s contracts are all short term in nature, therefore there are no unsatisfied performance obligations requiring disclosure as of January 31, 2024.

The Company’s contracts are all short term in nature;

therefore, there are no unsatisfied performance obligations requiring disclosure as of January 31, 2025.

Stock-Based Compensation

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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-K

Item 7. Management’s Discussion and Analysis