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Mama’s Creations(MAMA) - 2020 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related disclosures for the interim period Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with detailed notes explaining the company's operations, significant accounting policies, and specific financial items Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position, detailing assets, liabilities, and stockholders' deficit Condensed Consolidated Balance Sheet Highlights | Metric | July 31, 2019 | January 31, 2019 | | :-------------------------- | :------------ | :--------------- | | Total Assets | $9,626,212 | $7,764,320 | | Total Liabilities | $9,999,413 | $8,946,468 | | Total Stockholders' Deficit | $(373,201) | $(1,182,148) | Condensed Consolidated Statements of Operations This section presents the company's financial performance, including net sales, gross profit, and net income or loss Condensed Consolidated Statements of Operations (Three Months Ended July 31) | Metric | 2019 | 2018 | | :-------------------------------- | :------------ | :------------ | | Sales - Net | $8,099,445 | $5,640,830 | | Gross Profit | $2,691,396 | $2,061,990 | | Net Income (Loss) | $358,308 | $(210,195) | | Net Income (Loss) per Common Share – Basic | $0.01 | $(0.01) | | Net Income (Loss) per Common Share – Diluted | $0.01 | $(0.01) | Condensed Consolidated Statements of Operations (Six Months Ended July 31) | Metric | 2019 | 2018 | | :-------------------------------- | :------------ | :------------ | | Sales - Net | $15,464,269 | $13,382,824 | | Gross Profit | $5,062,450 | $4,890,536 | | Net Income (Loss) | $713,974 | $113,806 | | Net Income (Loss) per Common Share – Basic | $0.02 | $0.00 | | Net Income (Loss) per Common Share – Diluted | $0.02 | $0.00 | Condensed Consolidated Statements of Changes in Stockholders' Deficit This section details changes in stockholders' deficit, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Deficit (May 1, 2019 - July 31, 2019) | Item | Balance, May 1, 2019 | Stock Options Issued | Common Stock Issued | Net Income | Balance, July 31, 2019 | | :-------------------- | :------------------- | :------------------- | :------------------ | :--------- | :--------------------- | | Common Stock Amount | $320 | - | $1 | - | $321 | | Additional Paid In Capital | $16,564,544 | $5,841 | $71,874 | - | $16,642,259 | | Accumulated Deficit | $(17,224,589) | - | - | $358,308 | $(16,866,281) | | Total Stockholders' Deficit | $(809,225) | $5,841 | $71,875 | $358,308 | $(373,201) | Changes in Stockholders' Deficit (February 1, 2019 - July 31, 2019) | Item | Balance, Feb 1, 2019 | Stock Options Issued | Common Stock Issued | Net Income | Balance, July 31, 2019 | | :-------------------- | :------------------- | :------------------- | :------------------ | :--------- | :--------------------- | | Common Stock Amount | $320 | - | $1 | - | $321 | | Additional Paid In Capital | $16,547,287 | $23,098 | $71,874 | - | $16,642,259 | | Accumulated Deficit | $(17,580,255) | - | - | $713,974 | $(16,866,281) | | Total Stockholders' Deficit | $(1,182,148) | $23,098 | $71,875 | $713,974 | $(373,201) | Condensed Consolidated Statements of Cash Flows This section outlines cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Six Months Ended July 31) | Cash Flow Activity | 2019 | 2018 | | :-------------------------------- | :------------ | :------------ | | Net Cash Provided by Operating Activities | $889,577 | $1,440,447 | | Net Cash Used in Investing Activities | $(89,525) | $(903,959) | | Net Cash Used in Financing Activities | $(774,234) | $(770,778) | | Net Increase (Decrease) in Cash | $25,818 | $(234,290) | | Cash - End of Period | $635,227 | $347,032 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1 - Nature of Operations and Basis of Presentation This note describes the company's business activities, product diversification, and geographical customer concentration - MamaMancini's Holdings, Inc. manufactures and distributes beef meatballs with sauce, turkey meatballs with sauce, beef meat loaf, chicken parmesan, and other similar meats and sauces21 - The company is diversifying its product line to include ready-to-serve dinners, single-size Pasta Bowls, bulk deli, packaged refrigerated, and packed frozen products21 - Customers are located throughout the United States, with a significant concentration in the Northeast and Southeast regions21 Note 2 - Summary of Significant Accounting Policies This note outlines key accounting principles applied, including lease accounting, revenue recognition, inventory, and share-based compensation - The company adopted ASC 842 'Leases' on January 1, 2019, using the modified retrospective approach, recognizing a right-of-use (ROU) asset and liability of $1,556,87336 - The adoption of ASU 2014-09 'Revenue from Contracts with Customers' (Topic 606) in fiscal 2019 did not have a material impact on the consolidated financial statements43 Inventory Composition | Category | July 31, 2019 | January 31, 2019 | | :---------------- | :------------ | :--------------- | | Raw Materials | $907,229 | $556,703 | | Work in Process | $4,530 | $38,769 | | Finished goods | $553,165 | $800,928 | | Total | $1,464,924 | $1,396,400 | Research and Development Expenses | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $24,509 | $37,083 | | Six Months Ended July 31 | $49,835 | $67,179 | Share-Based Compensation Expenses | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $12,686 | $36,945 | | Six Months Ended July 31 | $29,943 | $79,163 | Key Assumptions for Share-Based Payment Fair Value (Six Months Ended July 31) | Variable | 2019 | 2018 | | :---------------------------- | :------------ | :------------ | | Risk-free interest rate | 1.84 - 2.29% | 1.99% | | Expected life of grants | 3 - 3.5 years | 2.0 years | | Expected volatility of underlying stock | 129 - 150% | 172% | | Dividends | 0% | 0% | Note 3 - Property and Equipment This note details the company's property and equipment, including machinery, furniture, leasehold improvements, and depreciation Property and Equipment, Net | Category | July 31, 2019 | January 31, 2019 | | :------------------------ | :------------ | :--------------- | | Machinery and Equipment | $2,982,294 | $2,662,403 | | Furniture and Fixtures | $89,443 | $81,099 | | Leasehold Improvements | $2,910,402 | $2,894,949 | | Less: Accumulated Depreciation | $(3,123,906) | $(2,753,857) | | Total Property and Equipment, Net | $2,858,233 | $2,884,594 | Depreciation Expense | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $189,567 | $203,591 | | Six Months Ended July 31 | $370,052 | $337,833 | Note 4 - Investment in Meatball Obsession, LLC This note describes the company's ownership interest and valuation of its investment in Meatball Obsession, LLC - The company's ownership interest in Meatball Obsession, LLC (MO) was 12% as of July 31, 2019, and January 31, 2019, a decrease from the initial 34.62% due to dilution72 - The investment in MO was written down to $0 at December 31, 2011, due to losses incurred by MO71 Note 5 - Related Party Transactions This note discloses transactions with related parties, including revenues, receivables, commission expenses, and notes payable Revenues from Meatball Obsession, LLC (MO) | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $3,911 | $11,972 | | Six Months Ended July 31 | $33,248 | $40,710 | Receivable from MO | Date | Amount | | :------------ | :---------- | | July 31, 2019 | $33,497 | | Jan 31, 2019 | $57,374 | Commission Expense from WWS, Inc. | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $8,000 | $12,000 | | Six Months Ended July 31 | $24,000 | $24,000 | Notes Payable – Related Party (Outstanding Principal) | Lender | July 31, 2019 | January 31, 2019 | | :------------------------ | :------------ | :--------------- | | CEO of the Company | $109,844 | $109,844 | | CEO Advances (8% interest) | $400,000 | $400,000 | | CEO-owned Entity Advances (8% interest) | $132,000 | $132,000 | | Total | $641,844 | $641,844 | Interest Expense on Related Party Notes Payable | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $11,881 | $19,601 | | Six Months Ended July 31 | $22,769 | $32,687 | Note 6 - Loan and Security Agreement This note details the company's term loan and working capital line of credit, including outstanding balances and future debt maturities - Effective January 4, 2019, the company entered into a $2.5 million five-year term loan with M&T Bank at LIBOR plus four points, with an outstanding balance of $1,691,665 as of July 31, 201979 - A new $3.5 million working capital line of credit with M&T Bank was also arranged, with an outstanding balance of $2,677,348 as of July 31, 201980 Future Maturities of All Debt (Excluding Debt Discount) | For the Years Ending July 31, | Amount | | :---------------------------- | :---------- | | 2020 | $500,000 | | 2021 | $3,177,351 | | 2022 | $500,004 | | 2023 | $191,658 | | 2024 | $641,844 | | Total | $5,010,857 | Note 7 - Leases This note provides information on lease expenses, balance sheet impact, weighted average terms, discount rates, and future payments Components of Lease Expense (Six Months Ended July 31, 2019) | Category | Amount | | :---------------------- | :---------- | | Depreciation of assets (Finance leases) | $47,009 | | Interest on lease liabilities (Finance leases) | $14,113 | | Operating leases | $132,749 | | Short-term lease | $5,566 | | Total Net Lease Cost | $199,437 | Supplemental Balance Sheet Information Related to Leases (July 31, 2019) | Category | Amount | | :-------------------------------------- | :---------- | | Operating lease ROU assets | $1,556,873 | | Total operating lease liabilities | $1,556,872 | | Property and equipment, net (Finance leases) | $406,945 | | Total finance lease liabilities | $439,210 | Weighted Average Lease Terms and Discount Rates (July 31, 2019) | Lease Type | Remaining Lease Term (years) | Discount Rate | | :-------------- | :--------------------------- | :------------ | | Operating leases | 9.0 | 6.54% | | Finance leases | 3.9 | 5.85% | Total Future Minimum Payments Under Lease Obligations (July 31, 2019) | Twelve Months Ending July 31, | Amount | | :---------------------------- | :---------- | | 2020 | $350,693 | | 2021 | $354,728 | | 2022 | $371,686 | | 2023 | $268,175 | | 2024 | $252,288 | | Thereafter | $988,697 | | Total Lease Payments | $2,586,867 | Note 9 - Concentrations This note identifies significant customer concentrations in gross sales and outstanding receivables - For the six months ended July 31, 2019, three customers accounted for approximately 46%, 10%, and 10% of gross sales90 - As of July 31, 2019, three customers represented approximately 38%, 13%, and 10% of total gross outstanding receivables90 Note 10 - Stockholders' Deficit This note details changes in stockholders' deficit, including common stock issuances, stock option, and warrant activity - On June 1, 2019, the company issued 125,000 shares of common stock to a consultant for services, with a fair value of $71,87591 Stock Option Activity Summary | Metric | January 31, 2019 | July 31, 2019 | | :------------------------ | :--------------- | :------------ | | Options Outstanding | 649,000 | 906,500 | | Weighted Average Exercise Price (Outstanding) | $0.77 | $0.70 | | Options Exercisable | 521,500 | 581,500 | | Weighted Average Exercise Price (Exercisable) | $0.71 | $0.73 | | Granted (during period) | - | 257,500 | Warrant Activity Summary | Metric | January 31, 2019 | July 31, 2019 | | :------------------------ | :--------------- | :------------ | | Warrants Outstanding | 6,245,331 | 6,070,664 | | Weighted Average Exercise Price (Outstanding) | $1.04 | $1.03 | | Warrants Exercisable | 6,245,331 | 6,070,664 | | Weighted Average Exercise Price (Exercisable) | $1.04 | $1.03 | | Forfeited/Cancelled (during period) | - | (174,667) | - Unrecognized share-based compensation related to options was $112,106 as of July 31, 201996 Note 11 - Commitments and Contingencies This note discusses the company's legal proceedings, royalty agreements, and advisory service commitments - The company is not currently involved in any litigation that is expected to have a material adverse effect on its financial condition or results of operations99 Royalty Expenses | Period | 2019 | 2018 | | :------------------------ | :---------- | :---------- | | Three Months Ended July 31 | $104,380 | $70,993 | | Six Months Ended July 31 | $220,846 | $200,856 | - The company has a Development and License agreement with an exclusive term ending on the 50th anniversary of January 1, 2009, with tiered royalty rates based on net sales100101 - An Advisory Agreement with Spartan Capital Securities, LLC, effective June 1, 2019, includes a non-refundable monthly fee of $5,000 for 21 months and a grant of 125,000 shares of common stock107 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the three and six months ended July 31, 2019, compared to the prior year. It highlights significant changes in sales, gross profit, operating expenses, and net income, along with discussions on accounting policies and future outlook Results of Operations for the Three Months ended July 31, 2019 and 2018 This section analyzes financial performance for the three months ended July 31, 2019, focusing on sales, gross profit, and operating expenses Key Financial Results (Three Months Ended July 31) | Metric | 2019 | 2018 | Change (%) | | :------------------------ | :------------ | :------------ | :--------- | | Sales - Net | $8,099,445 | $5,640,830 | 43.6% | | Gross Profit | $2,691,396 | $2,061,990 | 30.5% | | Gross Profit Margin | 33% | 37% | -4 ppts | | Operating Expenses | $(2,240,454) | $(1,932,164) | 16.0% | | Other Expenses | $(92,634) | $(340,021) | -72.7% | | Net Income (Loss) | $358,308 | $(210,195) | N/A | - Sales increased by approximately 44% due to growth with existing customers and the addition of new customers110 - Gross profit margin decreased from 37% to 33%, primarily due to a $187,800 increase in depreciation expense from plant capacity additions and a change in product mix111 - Operating expenses increased by 16% but decreased as a percentage of sales from 34% to 28%112 - Key increases in operating expenses included postage and freight ($298,226), professional fees ($87,643), and commission expense ($56,310)113 - Other expenses decreased significantly by $247,387, mainly due to lower interest expense and amortization of debt discount114 Results of Operations for the Six Months ended July 31, 2019 and 2018 This section analyzes financial performance for the six months ended July 31, 2019, focusing on sales, gross profit, and operating expenses Key Financial Results (Six Months Ended July 31) | Metric | 2019 | 2018 | Change (%) | | :------------------------ | :------------ | :------------ | :--------- | | Sales - Net | $15,464,269 | $13,382,824 | 15.5% | | Gross Profit | $5,062,450 | $4,890,536 | 3.5% | | Gross Profit Margin | 33% | 37% | -4 ppts | | Operating Expenses | $(4,131,942) | $(4,207,197) | -1.8% | | Other Expenses | $(216,534) | $(569,533) | -62.0% | | Net Income | $713,974 | $113,806 | 527.4% | - Sales increased by approximately 16% due to growth with new and existing customers117 - Gross profit margin decreased from 37% to 33%, primarily due to a $367,000 increase in depreciation expense from plant capacity additions and a change in product mix118 - Operating expenses decreased by 2% and as a percentage of sales from 31% to 27%, driven by a $149,388 decrease in advertising and promotion and a $49,220 decrease in stock-based compensation, partially offset by increases in postage/freight, professional fees, and commission expense119 - Other expenses decreased by $352,999, mainly due to lower interest expense and amortization of debt discount, and the absence of non-recurring interest charges incurred in the prior year119 Liquidity and Capital Resources This section discusses working capital, cash flow activities, and management's assessment of future liquidity Working Capital Summary | Metric | July 31, 2019 | January 31, 2019 | Increase/(Decrease) | | :---------------- | :------------ | :--------------- | :------------------ | | Current Assets | $5,190,929 | $4,859,549 | $331,380 | | Current Liabilities | $3,789,491 | $3,615,662 | $173,829 | | Working Capital | $1,401,438 | $1,243,887 | $157,551 | Net Cash Flow Summary (Six Months Ended July 31) | Activity | 2019 | 2018 | | :------------------------ | :------------ | :------------ | | Net Cash Provided by Operating Activities | $889,577 | $1,440,447 | | Net Cash Used in Investing Activities | $(89,525) | $(903,959) | | Net Cash Used in Financing Activities | $(774,234) | $(770,778) | - The increase in working capital was primarily driven by increases in cash, inventories, accounts receivable, and prepaid expenses, partially offset by increases in accounts payable and lease obligations120 - Capital expenditures significantly decreased in 2019, reflecting a reduction in spending on the Plant Expansion Project compared to the prior year122 - Management believes current cash resources, combined with expected revenue growth and expense control, will be sufficient to meet cash requirements through the fiscal year ending January 31, 2020125 Recent Accounting Pronouncements This section outlines the company's evaluation of recently issued accounting standards and their potential impact - The company is currently evaluating ASU 2018-13, 'Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,' effective for fiscal years beginning after December 15, 2019126 - Management does not believe other recently issued, but not yet effective, accounting pronouncements will have a material effect on the financial statements127 Critical Accounting Policies This section highlights significant accounting policies and estimates requiring management's judgment - The company's financial statements rely on estimates, assumptions, and judgments in accordance with GAAP128 - There have been no material changes to critical accounting policies and estimates since the January 31, 2019 Annual Report, other than the adoption of FASB ASU 2016-02, 'Leases' (Topic 842)129 Off Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements or relationships with unconsolidated entities - The company does not have any off-balance sheet arrangements, financings, or relationships with unconsolidated entities or special purpose entities130 Item 3. Quantitative and Qualitative Disclosures About Market Risk. The company states that it does not engage in derivative instruments or hedging activities, indicating minimal exposure to market risk from such financial tools - The company does not hold any derivative instruments131 - The company does not engage in any hedging activities131 Item 4. Controls and Procedures. Management concluded that the company's disclosure controls and procedures were effective as of July 31, 2019, and reported no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of July 31, 2019132 - There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter133 PART II – OTHER INFORMATION This section provides additional information not covered in financial statements, including legal proceedings, equity sales, and exhibits Item 1. Legal Proceedings. The company is not currently involved in any litigation that is expected to have a material adverse effect on its financial condition or results of operations - The company is not involved in any litigation that could have a material adverse effect on its financial condition or results of operations136 Item 1A. Risk Factors. As a smaller reporting company, the registrant is not required to provide specific risk factor information in this item - Smaller reporting companies are not required to provide risk factor information in this item137 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Between May 1, 2019, and September 9, 2019, the company issued 125,000 shares of its common stock to a consultant as compensation for financial advisory services - 125,000 shares of common stock were issued to a consultant for financial advisory services between May 1, 2019, and September 9, 2019138 Item 3. Defaults Upon Senior Securities. The company reported no defaults in payment of principal, interest, or any other material default with respect to any of its indebtedness - There has been no default in payment of principal, interest, or any other material default with respect to any indebtedness of the company139 Item 4. Mine Safety Disclosures. This item is not applicable to the company's operations - This item is not applicable to the company140 Item 5. Other Information There is no other information required to be disclosed under this item that was not previously disclosed in the report - No other information required to be disclosed under this item was not previously disclosed141 Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including various certifications (31.1, 31.2, 32.1, 32.2) and XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) List of Exhibits | Exhibit No. | Description | | :---------- | :----------------------------------------------------------------------- | | 31.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* | | 31.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* | | 32.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | | 32.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | | 101.INS | XBRL Instance Document** | | 101.SCH | XBRL Taxonomy Extension Schema Document** | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** | Signatures This section includes the official signatures certifying the accuracy and completeness of the report - The report was signed on September 12, 2019, by Carl Wolf, Chief Executive Officer of MamaMancini's Holdings, Inc147