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, 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. 20 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; • 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. 21 Table of Contents Results of Operations for the Three Months Ended April 30, 2025 and 2024 The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the three months ended April 30, 2025 and 2024 (in thousands): For the Three Months Ended April 30, 2025 April 30, 2024 Net sales $ 35,255 $ 29,838 Costs of sales $ 26,071 $ 22,375 Gross Profit $ 9,184 $ 7,463 Operating Expenses $ 7,606 $ 6,690 Other Expenses, net $ (61) $ (41) Income Tax Expense $ (280) $ (179) Net Income $ 1,237 $ 553 For the three months ended April 30, 2025 and 2024, the Company reported net income of approximately $1.2 million and $0.6 million, respectively. The change in net income between the three months ended April 30, 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 18% to $35.3 million during the three months ended April 30, 2025, from $29.8 million during the three months ended April 30, 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 17% to $26.1 million, or 74% of Net Sales, during the three months ended April 30, 2025, from $22.4 million, or 75% of Net Sales, during the three months ended April 30, 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 26% and 25% for the three months ended April 30, 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 $916 thousand during the three months ended April 30, 2025, as compared to the three months ended April 30, 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 $563 thousand mainly related to new executive hires and variable compensation arrangements; • Commission and royalty expenses increased by approximately $508 thousand due to increased sales; • Advertising expenses increased by approximately $338 thousand du e to new strategies and enhanced distribution of our existing products; • Freight-related expenses increased by approximately $71 thousand mainly due to increased sales, partially offset by a greater focus on full truckload sales versus less than full truckload sales as well as stronger supplier management of carriers; • Insurance expense increased by approximately $24 thousand mainly related to increased sales; • Other operating expenses increased by approximately $56 thousand due to additional travel, IT, and office expenses; and • Professional fees and director related expenses decreased by approximately $623 thousand primarily due to a one-time legal settlement with certain directors of approximately $900 thousand in the prior year, offset by higher professional fees due to increased corporate activity in the current year. 22 Table of Contents Other Expenses, net: Other expenses, net increased by approximately $20 thousand to $61 thousand for the three months ended April 30, 2025, as compared to $41 thousand for the three months ended April 30, 2024. The increase is primarily due to lower interest income, offset by a lower interest expense, which is 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 April 30, 2025 compared to January 31, 2025 (in thousands): April 30, 2025 January 31, 2025 Change Current Assets $ 24,227 $ 21,877 $ 2,350 Current Liabilities 18,715 17,025 1,690 Working Capital $ 5,512 $ 4,852 $ 660 As of April 30, 2025, we had working capital of approximately $5.5 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 $4.9 million, and an increase in inventory of approximately $0.5 million, partially offset by an increase in accounts payable and accrued expenses of approximately $1.5 million and a decrease in accounts receivable of approximately $2.3 million. Long-Term Requirements As of April 30, 2025, we had no borrowings outstanding under our Credit Agreement and approximately $2.4 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 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. 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 leases, as discussed in Item 1. Note 11. Cash Flows The following table summarizes the key components of our cash flows for the three months ended April 30, 2025 and 2024 (in thousands); For the Three Months Ended April 30, 2025 2024 Net Cash Provided by Operating Activities $ 6,005 $ 3,641 Net Cash (Used in) Investing Activities (539) (1,144) Net Cash (Used in) Financing Activities (605) (476) Net Increase in cash 4,861 2,021 Cash and cash equivalents, beginning of period 7,150 11,022 Cash and cash equivalents, end of period $ 12,011 $ 13,043 Operating activities Net cash provided by operating activities for the three months ended April 30, 2025 was approximately $6.0 million, which consisted of (i) net income of approximately $1.2 million, (ii) non-cash expenses of approximately $1.3 million, and (iii) an increase in operating assets and liabilities of approximately $3.5 million. 23 Table of Contents Net cash provided by operating activities for the three months ended April 30, 2024 was approximately $3.6 million, which consisted of (i) net income of approximately $0.6 million, (ii) non-cash expenses of approximately $1.2 million, and (iii) an increase in operating assets and liabilities of approximately $1.9 million. Investing activities Net cash used in investing activities for the three months ended April 30, 2025 was approximately $0.5 million and consisted of purchases of machinery and equipment. Net cash used in investing activities for the three months ended April 30, 2024 was approximately $1.1 million, and consisted of purchases of machinery and equipment. Financing activities Net cash used in financing activities for the three months ended April 30, 2025 was approximately $0.6 million and consisted of approximately $0.5 million of payments on the Term Loan and approximately $0.1 million payments on finance leases. Net cash used in financing activities for the three months ended April 30, 2024 was approximately $0.5 million and consisted of approximately $0.4 million of payments on the Term Loan and approximately $0.1 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. 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 annual report on Form 10-K for the most recent completed fiscal year.