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. 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. On September 2, 2025, Crown 1 Foods, Inc. (formerly "Jubilee Acquisition, Inc."), a Nevada corporation and wholly owned direct subsidiary of the Company, acquired substantially all of the assets of Crown 1, a full-service manufacturer of value-added proteins and ready-to-heat meals, for $17.5 million, subject to working capital adjustments, cash payment. 26 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. 27 Table of Contents Results of Operations for the Three Months Ended October 31, 2025 and 2024 The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the three months ended October 31, 2025 and 2024 (in thousands): For the Three Months Ended October 31, 2025 October 31, 2024 Net sales $ 47,269 $ 31,523 Costs of sales 36,133 24,410 Gross Profit 11,136 7,113 Operating Expenses 10,313 6,550 Other Expenses, net (97) (25) Income Tax Expense (186) (128) Net Income $ 540 $ 410 For the three months ended October 31, 2025 and 2024, the Company reported net income of approximately $0.5 million and $0.4 million, respectively. The change in net income between the three months ended October 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 50%, to $47.3 million, during the three months ended October 31, 2025, from $31.5 million during the three months ended October 31, 2024. The increase in sales is primarily due to the acquisition of the Crown 1 business, which contributed approximately $10.0 million in net sales, volume gains at our existing customers, driven by successful trade and marketing promotions that drove velocity acceleration, selling in new items to existing customers and the introduction of new customers. Costs of sales: Costs of sales increased by approximately 48%, to $36.1 million, or 76% of Net Sales, during the three months ended October 31, 2025, from $24.4 million, or 77% of Net Sales, during the three months ended October 31, 2024. The increase in cost of sales is due to higher sales, partially offset by increased operational efficiencies resulting from increased overhead, labor and procurement efficiencies. Gross Profit Margin: The gross profit margin was 24% and 23% of net sales for the three months ended October 31, 2025 and 2024, respectively. The year-over-year margin rate improvement was driven by overhead, labor and procurement efficiencies. Operating Expenses: Operating expenses increased approximately $3.8 million during the three months ended October 31, 2025, as compared to the three months ended October 31, 2024. The change in total operating expenses are primarily attributable to the following: • Professional fees increased by approximately $1.2 million, primarily due to third party fees associated with the acquisition of the Crown 1 business; • 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; • Freight-related expenses increased by approximately $518 thousand mainly due to increased sales; • Commission and royalty expenses increased by approximately $458 thousand due to increased sales; • Advertising expenses increased by approximately $93 thousand du e to new marketing strategies and enhanced distribution of our existing products; and • Other operating expenses increased by approximately $285 thousand due to additional travel, IT, and office expenses. Other Expenses, net: Other expenses, net increased by approximately $72 thousand, to $97 thousand, for the three months ended October 31, 2025, as compared to $25 thousand for the three months ended October 31, 2024. The increase is primarily due to higher interest expense, which is due to a higher debt balance associated with the Crown Note . 28 Table of Contents Results of Operations for the Nine Months Ended October 31, 2025 and 2024 The following table sets forth the summary of the Condensed Consolidated Statements of Operations for the nine months ended October 31, 2025 and 2024 (in thousands): For the Nine Months Ended October 31, 2025 October 31, 2024 Net Sales $ 117,727 $ 89,743 Costs of Sales 88,636 68,288 Gross Profit 29,091 21,455 Operating Expenses 24,990 18,507 Other Expenses, net (213) (129) Income Tax Expense (834) (708) Net Income $ 3,054 $ 2,111 For the nine months ended October 31, 2025 and 2024, the Company reported net income of approximately $3.1 million and $2.1 million, respectively. The change in net income between the nine months ended October 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 31%, to $117.7 million, during the nine months ended October 31, 2025, from $89.7 million during the nine months ended October 31, 2024. The increase in sales is primarily due to volume gains, which were driven by new products sold into existing customers, successful trade and marketing promotions, which drove velocity acceleration, and initial entry into new customers, as well as the acquisition of the Crown 1 business, which contributed approximately $10.0 million in net sales. Costs of sales: Costs of sales increased by approximately 30%, to $88.6 million, or 75% of Net Sales, during the nine months ended October 31, 2025, from $68.3 million, or 76% of Net Sales, during the nine months ended October 31, 2024. The increase in costs of sales is due to higher sales volume, partially offset by increased operational efficiencies driven by increased overhead, labor, and procurement efficiencies. Gross Profit Margin: The gross profit margin was 25% and 24% for the nine months ended October 31, 2025 and 2024, respectively. The year-over-year margin rate improvement was driven by overhead, labor and procurement efficiencies, partially offset by increases in commodity costs. Operating Expenses: Operating expenses increased approximately $6.5 million during the nine months ended October 31, 2025, as compared to the nine months ended October 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 $2.7 million, primarily related to new executive hires and variable compensation arrangements; • Commission and royalty expenses increased by approximately $1.1 million due to increased sales. • Advertising expenses increased by approximately $799 thousand du e to new marketing strategies and enhanced distribution of existing products; • Freight-related expenses increased by approximately $791 thousand primarily due to increased sales; • Professional fees and director-related expenses increased by approximately $668 thousand primarily due to expenses associated with the acquisition of the Crown 1 business, partially offset by the absence of the prior year $900 thousand director settlement expense; and • Other operating expenses increased by approximately $340 thousand due to additional travel, IT, and office expenses. Other Expenses, net: Other expenses, net increased by approximately $84 thousand, to $213 thousand, for the nine months ended October 31, 2025, as compared to $129 thousand for the nine months ended October 31, 2024. The increase is primarily due to higher interest expense, which is due to a higher debt balance associated with the Crown Note . 29 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 October 31, 2025 compared to January 31, 2025 (in thousands): October 31, 2025 January 31, 2025 Change Current Assets $ 40,963 $ 21,877 $ 19,086 Current Liabilities 22,128 17,025 5,103 Working Capital $ 18,835 $ 4,852 $ 13,983 As of October 31, 2025, we had working capital of approximately $18.8 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 of cash and cash equivalents of app roximately $10.9 million, an increase in inventory of approximately $5.5 million, an increase in accounts receivable of approximately $2.9 million, and a decrease in related party promissory notes of $1.5 million, partially offset by an increase in accounts payable and accrued expenses of approximately $6.4 million and an increase in operating lease liabilities of approximately $798 thousand. Cash Flows The following table summarizes the key components of our cash flows for the nine months ended October 31, 2025 and 2024 (in thousands); For the Nine Months Ended October 31, 2025 2024 Net Cash Provided by Operating Activities $ 8,200 $ 6,034 Net Cash Used in Investing Activities (18,747) (5,022) Net Cash Provided by (Used in) Financing Activities 21,465 (2,715) Net Increase (Decrease) in Cash 10,918 (1,703) Cash and cash equivalents, beginning of period 7,150 11,022 Cash and cash equivalents, end of period $ 18,068 $ 9,319 Operating activities Net cash provided by operating activities for the nine months ended October 31, 2025 was approximately $8.2 million, which consisted of net income of approximately $3.1 million and non-cash expenses of approximately $5.0 million, partially offset by an increase in operating assets and liabilities of approximately $0.2 million. Net cash provided by operating activities for the nine months ended October 31, 2024 was approximately $6.0 million, which consisted of net income of approximately $2.1 million and non-cash expenses of approximately $3.0 million, partially offset by an increase in operating assets and liabilities of approximately $1.0 million. Investing activities Net cash used in investing activities for the nine months ended October 31, 2025 was approximately $18.7 million and consisted of the purchase of Crown 1 and other purchases of fixed assets. 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. Financing activities 30 Table of Contents Net cash provided by financing activities for the nine months ended October 31, 2025 was approximately $21.5 million and consisted of net proceeds from the sale of common stock of approximately $18.9 million and proceeds from the Crown Note of approximately $18.8 million, partially offset by approximately $16.0 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, 2024 was approximately $2.7 million and consisted of approximately $1.2 million payment on a related party note, $1.3 million of payments on the Term Loan and approximately $0.3 million payments on finance leases. Credit Facility As of October 31, 2025, we had no borrowings outstanding under our Credit Agreeme nt and approximately $5.9 million outstanding under our Term Loan Agreement with M&T Bank ("M&T"). The Term Loan Agreement ha s a maturity date of October 1, 2030. 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. 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 Other than as set forth below, there have been no material changes to the critical accounting estimates previously described in our Form 10-K for the fiscal year ended January 31, 2025. The Company applies the provisions of ASC Topic 805, Business Combinations (“ASC 805”) in the accounting for acquisitions of businesses. ASC 805 requires the Company to use the acquisition method of accounting by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, measured at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the aforementioned amounts. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses in the consolidated statements of operations.