Company Quick10K Filing
MamaMancini's Holdings
Price0.72 EPS0
Shares32 P/E21
MCap23 P/FCF24
Net Debt4 EBIT1
TEV28 TEV/EBIT24
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-04-30 Filed 2020-06-15
S-1 2020-02-07 Public Filing
10-K 2020-01-31 Filed 2020-04-23
10-Q 2019-10-31 Filed 2019-12-09
10-Q 2019-07-31 Filed 2019-09-12
10-Q 2019-04-30 Filed 2019-06-14
10-K 2019-01-31 Filed 2019-04-23
10-Q 2018-10-31 Filed 2018-12-11
10-Q 2018-07-31 Filed 2018-09-14
10-Q 2018-04-30 Filed 2018-06-13
10-K 2018-01-31 Filed 2018-05-16
10-Q 2017-10-31 Filed 2017-12-14
10-Q 2017-07-31 Filed 2017-09-14
10-Q 2017-04-30 Filed 2017-06-13
10-K 2017-01-31 Filed 2017-03-23
10-Q 2016-10-31 Filed 2016-12-15
10-Q 2016-07-31 Filed 2016-09-13
10-Q 2016-04-30 Filed 2016-06-13
10-K 2016-01-31 Filed 2016-04-21
10-Q 2015-10-31 Filed 2015-12-11
10-Q 2015-07-31 Filed 2015-09-14
10-Q 2015-04-30 Filed 2015-06-12
10-K 2015-01-31 Filed 2015-05-01
10-Q 2014-10-31 Filed 2014-12-22
10-Q 2014-07-31 Filed 2014-09-08
10-Q 2014-04-30 Filed 2014-06-12
10-K 2013-12-31 Filed 2014-03-20
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-09
10-Q 2012-12-31 Filed 2013-01-23
10-K 2012-12-31 Filed 2013-04-16
10-Q 2012-09-30 Filed 2012-11-13
10-K 2012-06-30 Filed 2012-09-24
10-Q 2012-03-31 Filed 2012-05-15
10-Q 2011-12-31 Filed 2012-02-06
10-Q 2011-09-30 Filed 2011-11-09
8-K 2020-06-16
8-K 2020-05-06
8-K 2019-05-01
8-K 2019-01-04
8-K 2018-09-17
8-K 2018-01-22

MMMB 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Nature of Operations and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Property and Equipment:
Note 4 - Investment in Meatball Obsession, Llc
Note 5 - Related Party Transactions
Note 6 - Loan and Security Agreement
Note 7 - Promissory Note
Note 8 - Leases
Note 9 - Concentrations
Note 10 - Stockholders' Equity
Note 11 - Commitments and Contingencies
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

MamaMancini's Holdings Earnings 2020-04-30

Balance SheetIncome StatementCash Flow
1511841-22012201420172020
Assets, Equity
10.07.65.32.90.6-1.82012201420172020
Rev, G Profit, Net Income
4.12.81.40.1-1.3-2.62012201420172020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended: April 30, 2020

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to ____________

 

Commission File Number: 000-54954

 

MamaMancini’s Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

Nevada   27-067116
(State or other jurisdiction
of incorporation)
  (IRS Employer
I.D. No.)

 

25 Branca Road

East Rutherford, NJ 07073

(Address of principal executive offices and zip Code)

 

(201) 531-1212

(Registrant’s telephone number, including area code)

 

Securities Registered Pursuant to Section 12(g) of the Act:

 

Title of Each Class   Trading Symbol   Name of Each Exchange on which registered
Common Stock, par value $0.00001   MMMB   OTCQB

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer [  ] Accelerated filer [  ]
       
Non-accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of June 11, 2020, there were 31,991,241 shares outstanding of the registrant’s common stock.

 

 

 

 
 

 

TABLE OF CONTENTS

 

      Page
PART I – FINANCIAL INFORMATION    
       
Item 1. Financial Statements.   F-1
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   2
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk.   5
       
Item 4. Controls and Procedures.   5
       
PART II – OTHER INFORMATION    
       
Item 1. Legal Proceedings.   6
       
Item 1A. Risk Factors.   6
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   6
       
Item 3. Defaults Upon Senior Securities.   6
       
Item 4. Mine Safety Disclosures.   6
       
Item 5. Other Information   6
       
Item 6. Exhibits.   6
       
Signatures   7

 

 1 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

MAMAMANCINI’S HOLDINGS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

 

 

 F-1 

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Balance Sheets

 

   April 30, 2020   January 31, 2020 
   (unaudited)     
Assets          
           
Current Assets:          
Cash  $1,814,028   $393,683 
Accounts receivable, net   3,967,266    3,727,887 
Inventories   1,180,653    1,246,417 
Prepaid expenses   262,034    252,268 
Total current assets   7,223,981    5,620,255 
           
Property and equipment, net   2,975,261    2,805,843 
           
Operating lease right of use assets, net   1,456,998    1,490,794 
           
Deposits   20,177    20,177 
Total Assets  $11,676,417   $9,937,069 
           
Liabilities and Stockholders’ Equity          
           
Liabilities:          
Current Liabilities:          
Accounts payable and accrued expenses  $3,830,965   $3,552,790 
Term loan   304,148    423,799 
Operating lease liability   131,752    126,516 
Finance leases payable   148,779    105,126 
Promissory note   330,505    - 
Total current liabilities   4,746,149    4,208,231 
           
Line of credit – net   3,147,348    2,997,348 
Operating lease liability – net   1,335,738    1,372,349 
Finance leases payable – net   469,968    315,234 
Notes payable - related party   641,844    641,844 
Total long-term liabilities   5,594,898    5,326,775 
           
Total Liabilities   10,341,047    9,535,006 
           
Commitments and contingencies          
           
Stockholders’ Equity:          
Series A Preferred stock, $0.00001 par value; 120,000 shares authorized; 23,400 issued as of April 30, 2020 and January 31, 2020, 0 and 0 shares outstanding as of April 30, 2020 and January 31, 2020   -    - 
Preferred stock, $0.00001 par value; 19,880,000 shares authorized; no shares issued and outstanding   -    - 
Common stock, $0.00001 par value; 250,000,000 shares authorized; 31,991,241 and 31,866,241 shares issued and outstanding as of April 30, 2020 and January 31, 2020   321    321 
Additional paid in capital   16,722,457    16,695,352 
Accumulated deficit   (15,237,908)   (16,144,110)
Less: Treasury stock, 230,000 shares at cost, respectively   (149,500)   (149,500)
Total Stockholders’ Equity   1,335,370    402,063 
Total Liabilities and Stockholders’ Equity  $11,676,417   $9,937,069 

 

See accompanying notes to the condensed consolidated financial statements

 

 F-2 

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

    For the Three Months Ended  
    April 30, 2020     April 30, 2019  
             
Sales-net of slotting fees and discounts   $ 11,100,919     $ 7,364,824  
                 
Cost of sales     7,373,319       4,933,770  
                 
Gross profit     3,727,600       2,371,054  
                 
Operating expenses:                
Research and development     29,481       25,326  
General and administrative     2,722,165       1,866,162  
Total operating expenses     2,751,646       1,891,488  
                 
Income from operations     975,954       479,566  
                 
Other expenses                
Interest     (64,402 )     (116,612 )
Amortization of debt discount     (5,350 )     (7,288 )
Total other expenses     (69,752 )     (123,900 )
                 
Net income before income tax provision     906,202       355,666  
                 
Income tax provision     -       -  
                 
Net income     906,202       355,666  
                 
Net income per common share                
– basic   $ 0.03     $ 0.01  
– diluted   $ 0.03     $ 0.01  
                 
Weighted average common shares outstanding                
– basic     31,991,241       31,866,240  
– diluted     33,946,276       32,098,426  

 

See accompanying notes to the condensed consolidated financial statements

 

 F-3 

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(unaudited)

 

For the Period from February 1, 2020 through April 30, 2020

 

    Series A Preferred Stock     Common Stock     Treasury Stock     Additional
Paid In
    Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity  
                                                                         
Balance,
February 1, 2020
    -     $ -       31,991,241     $ 321       (230,000 )   $ (149,500 )   $ 16,695,352     $ (16,144,110 )   $ 402,063  
                                                                         
Stock options issued for services     -       -       -       -       -       -       27,105       -       27,105  
                                                                         
Net income     -       -       -       -       -       -       -       906,202       906,202  
Balance,
April 30, 2020
    -     $ -       31,991,241     $ 321       (230,000 )   $ (149,500 )   $ 16,722,457     $ (15,237,908 )   $ 1,335,370  

 

For the Period from February 1, 2019 through April 30, 2019

 

    Series A Preferred Stock     Common Stock     Treasury Stock     Additional
Paid In
    Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                                                         
Balance,
February 1, 2019
    -     $ -       31,866,241     $ 320       (230,000 )   $ (149,500 )   $ 16,547,287     $ (17,676,804 )   $ (1,278,697 )
                                                                         
Stock options issued for services     -       -       -       -       -       -       17,257       -       17,257  
                                                                         
Net income     -       -       -       -       -       -       -       355,666       355,666  
Balance,
April 30, 2019
    -     $ -       31,866,241     $ 320       (230,000 )   $ (149,500 )   $ 16,564,544     $ (17,321,138 )   $ (905,774 )

 

See accompanying notes to the condensed consolidated financial statements

 

 F-4 

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

    For the Three Months Ended  
    April 30, 2020     April 30, 2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income   $ 906,202     $ 355,666  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation     159,793       180,485  
Amortization of debt discount     5,350       7,288  
Share-based compensation     27,105       17,257  
Amortization of right of use assets     33,796       10,658  
Changes in operating assets and liabilities:                
Accounts receivable     (239,379 )     363,046  
Inventories     65,764       (63,584 )
Prepaid expenses     (9,766 )     (98,651 )
Accounts payable and accrued expenses     278,175       (87,411 )
Operating lease liability     (31,375 )     (9,851 )
Net Cash Provided by Operating Activities     1,195,665       674,903  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Cash paid for fixed assets     (105,616 )     (242,820 )
Net Cash Used in Investing Activities     (105,616 )     (242,820 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Repayment of term loan     (125,001 )     (325,001 )
Proceeds from promissory note     330,505       -  
Borrowings (repayments) of line of credit, net     150,000       (15,865 )
Repayment of capital lease obligations     (25,208 )     (14,121 )
Net Cash Provided by (Used in) Financing Activities     330,296       (354,987 )
                 
Net Increase in Cash     1,420,345       77,096  
                 
Cash - Beginning of Period     393,683       609,409  
                 
Cash - End of Period   $ 1,814,028     $ 686,505  
              -  
SUPPLEMENTARY CASH FLOW INFORMATION:                
Cash Paid During the Period for:                
Income taxes   $ -     $ -  
Interest   $ 67,265     $ 151,968  
                 
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Operating lease liability   $ -     $ 1,599,830  
Finance lease asset additions   $ 223,598     $ 54,163  

 

See accompanying notes to the condensed consolidated financial statements

 

 F-5 

 

 

MamaMancini’s Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

April 30, 2020

 

Note 1 - Nature of Operations and Basis of Presentation

 

Nature of Operations

 

MamaMancini’s Holdings, Inc. (the “Company”), (formerly known as Mascot Properties, Inc.) was organized on July 22, 2009 as a Nevada corporation. The Company has a year-end of January 31.

 

The Company is a manufacturer and distributor of beef meatballs with sauce, turkey meatballs with sauce, beef meat loaf, chicken parmesan and other similar meats and sauces. In addition, the Company continues to diversify its product line by introducing new products such as ready to serve dinners, single-size Pasta Bowls, bulk deli, packaged refrigerated and frozen products. The Company’s products were submitted to the United States Department of Agriculture (the “USDA”) and approved as all natural. The USDA defines all natural as a product that contains no artificial ingredients, coloring ingredients or chemical preservatives and is minimally processed. The Company’s customers are located throughout the United States, with a large concentration in the Northeast and Southeast.

 

Note 2 - Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

 

The unaudited financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended January 31, 2020 filed on April 23, 2020. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet at January 31, 2020 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods presented are not necessarily indicative of results for the year ending January 31, 2021.

 

Principles of Consolidation

 

The condensed consolidated financial statements include all accounts of the entities as of the reporting period ending date(s) and for the reporting period(s). All inter-company balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: allowance for doubtful accounts, inventory obsolescence and the fair value of share-based payments.

 

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 condensed 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.

 

 F-6 

 

 

Risks and Uncertainties

 

The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.

 

The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the grocery industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices pertaining to food and beverages in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.

 

Cash

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at April 30, 2020 and January 31, 2020.

 

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. As of April 30, 2020 and January 31, 2020, the Company had reserves of $2,000.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following at April 30, 2020 and January 31, 2020:

 

    April 30, 2020     January 31, 2020  
Raw Materials   $ 735,082     $ 893,204  
Work in Process     35,250       37,764  
Finished goods     410,321       315,449  
    $ 1,180,653     $ 1,246,417  

 

Property and Equipment

 

Property and equipment are recorded at cost net of depreciation. Depreciation expense is computed using straight-line methods over the estimated useful lives.

 

Asset lives for financial statement reporting of depreciation are:

 

Machinery and equipment   2-7 years
Furniture and fixtures   3 years
Leasehold improvements   *

 

(*) Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever period is shorter.

 

 F-7 

 

 

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the consolidated statements of operations.

 

Leases

 

In February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.

 

On February 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the consolidated balance sheet in the amount of $1,599,830 related to the operating lease for office and warehouse space.

 

As part of the adoption the Company elected the practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to:

 

  1. Not separate non-lease components from lease components and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component.
     
  2. Not to apply the recognition requirements in ASC 842 to short-term leases.
     
  3. Not record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered immaterial.

 

Refer to Note 8. Leases for additional disclosures required by ASC 842.

 

Fair Value of Financial Instruments

 

For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.

 

Research and Development

 

Research and development is expensed as incurred. Research and development expenses for the three months ended April 30, 2020 and 2019 were $29,481 and $25,326, respectively.

 

Shipping and Handling Costs

 

The Company classifies freight billed to customers as sales revenue and the related freight costs as general and administrative expenses.

 

Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements under Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients. This update clarifies the objectives of collectability, sales and other taxes, noncash consideration, contract modifications at transition, completed contracts at transition and technical correction. The amendments in this update affect the guidance in ASU 2014-09. In September 2017, the FASB issued additional amendments providing clarification and implementation guidance.

 

 F-8 

 

 

The Company adopted this guidance and related amendments as of the first quarter of fiscal 2019, applying the full retrospective transition method. As the underlying principles of the new standard, relating to the measurement of revenue and the timing of recognition, are closely aligned with the Company’s current business model and practices, the adoption of ASU 2014-09 did not have a material impact on the consolidated financial statements. In addition, the adoption of ASC 606 did not impact the previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

 

The Company’s sales predominantly are generated from the sale of finished products to customers, contain a single performance obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs when the goods are shipped to the customer. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods. The Company reports all amounts billed to a customer in a sale transaction as revenue. Under the new revenue guidance, the Company elected to treat shipping and handling activities as fulfillment activities, and the related costs are recorded as selling expenses in general and administrative expenses on the consolidated statement of operations.

 

The Company promotes its products with advertising, consumer incentives and trade promotions. These programs include discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the transaction price based on amounts estimated as being due to customers and consumers at the end of a period. The Company derives these estimates principally on historical utilization and redemption rates. The Company does not receive a distinct service in relation to the advertising, consumer incentives and trade promotions.

 

Payment terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers. The Company generally recognizes the related trade receivable when the goods are shipped.

 

Expenses such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows:

 

    For the Three Months Ended  
    April 30, 2020     April 30, 2019  
Gross Sales   $ 11,241,304     $ 7,456,956  
Less: Slotting, Discounts, Allowances     140,385       92,132  
Net Sales   $ 11,100,919     $ 7,364,824  

 

Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant geographic area for the three months ended April 30, 2020 and 2019:

 

    For the Three Months Ended  
    April 30, 2020     April 30, 2019  
Northeast   $ 3,238,759     $ 2,396,830  
Southeast     3,367,612       1,861,809  
Midwest     1,536,749       987,186  
West     1,824,215       1,260,184  
Southwest     1,273,969       950,947  
Total revenue   $ 11,241,304     $ 7,456,956  

 

 F-9 

 

 

Cost of Sales

 

Cost of sales represents costs directly related to the production and manufacturing of the Company’s products. Costs include product development, freight-in, packaging, and print production costs.

 

Advertising

 

Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred. Producing and communicating advertising expenses for the three months ended April 30, 2020 and 2019 were $381,948 and $342,822, respectively.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”), which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans in accordance with ASC 718.

 

The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

 

Share-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the condensed consolidated statement of operations. Share-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction in additional paid in capital.

 

For the three months ended April 30, 2020 and 2019, share-based compensation amounted to $27,105 and $17,257, respectively.

 

For the three months ended April 30, 2020 and 2019, when computing fair value of share-based payments, the Company has considered the following variables:

 

    April 30, 2020     April 30, 2019  
Risk-free interest rate     0.37 %     2.29 %
Expected life of grants     3.5 years       3.5 years  
Expected volatility of underlying stock     125 %     150 %
Dividends     0 %     0 %

 

The expected option term is computed using the “simplified” method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

The expected stock price volatility for the Company’s stock options was estimated using the historical volatilities of the Company’s common stock. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.

 

 F-10 

 

 

Earnings (Loss) Per Share

 

Earnings per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income attributable to common stockholders per common share.

 

    For the Three Months Ended  
    April 30, 2020     April 30, 2019  
Numerator:            
Net income attributable to common stockholders   $ 906,202       335,666  
Effect of dilutive securities:            
                 
Diluted net income   $ 906,202     $ 335,666  
                 
Denominator:                
Weighted average common shares outstanding - basic     31,991,241       31,866,240  
Dilutive securities (a):                
Series A Preferred     -       -  
Options     468,161       108,854  
Warrants     1,486,874       123,332  
                 
Weighted average common shares outstanding and assumed conversion – diluted     33,946,276       32,098,426  
                 
Basic net income per common share   $ 0.03     $ 0.01  
                 
Diluted net income per common share   $ 0.03     $ 0.01  
                 
(a) - Anti-dilutive securities excluded:     -       3,106,167  

 

Income Taxes

 

Income taxes are provided in accordance with ASC No. 740, “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the period of deferred tax assets and liabilities.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

The Company is no longer subject to tax examinations by tax authorities for years prior to 2017.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

 

 F-11 

 

 

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to the income tax provision.

 

Related Parties

 

The Company follows subtopic ASC 850-10 for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Recent Accounting Pronouncements

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The adoption of the new standard did not have a significant impact on its condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of the new standard did not have a significant impact on its condensed consolidated financial statements.

 

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed consolidated financial statements.

 

 F-12 

 

 

Subsequent Events

 

The Company evaluates subsequent events and transactions that occur after the balance sheet date for potential recognition or disclosure. Any material events that occur between the balance sheet date and the date that the financial statements were issued are disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at the balance sheet date.

 

Note 3 - Property and Equipment:

 

Property and equipment on April 30, 2020 and January 31, 2020 are as follows:

 

   April 30, 2020   January 31, 2020 
Machinery and Equipment  $3,453,251   $3,176,638 
Furniture and Fixtures   107,256    89,443 
Leasehold Improvements   2,968,650    2,933,865 
    6,529,157    6,199,946 
Less: Accumulated Depreciation   3,553,896    3,394,103 
   $2,975,261   $2,805,843 

 

Depreciation expense charged to income for the three months ended April 30, 2020 and 2019 amounted to $159,793 and $180,485, respectively.

 

Note 4 - Investment in Meatball Obsession, LLC

 

During 2011, the Company acquired a 34.62% interest in Meatball Obsession, LLC (“MO”) for a total investment of $27,032. This investment is accounted for using the equity method of accounting. Accordingly, investments are recorded at acquisition cost plus the Company’s equity in the undistributed earnings or losses of the entity.

 

At December 31, 2011, the investment was written down to $0 due to losses incurred by MO.

 

The Company’s ownership interest in MO has decreased due to dilution. At April 30, 2020 and January 31, 2020, the Company’s ownership interest in MO was 0% and 12%, respectively. As of December 31, 2019, MO had wound down and ceased operations. Major accounts were transitioned to the Company as a part of the wind down.

 

Note 5 - Related Party Transactions

 

Meatball Obsession, LLC

 

A current director of the Company is the chairman of the board and shareholder of Meatball Obsession LLC (“MO”).

 

For the three months ended April 30, 2020 and 2019, the Company generated approximately $0 and $29,338 in revenues from MO, respectively.

 

As of April 30, 2020 and January 31, 2020, the Company had a receivable of $0 and $1,604 due from MO, respectively.

 

WWS, Inc.

 

Alfred D’Agostino and Tom Toto, two directors of the Company, are affiliates of WWS, Inc.

 

For the three months ended April 30, 2020 and 2019, the Company recorded $12,000 and $12,000 in commission expense from WWS, Inc. generated sales, respectively.

 

Notes Payable – Related Party

 

During the year ended January 31, 2016, the Company received aggregate proceeds of $125,000 from notes payable with the CEO of the Company. The notes bear interest at a rate of 4% per annum and matured on December 31, 2016. The notes were subsequently extended until January 2024. As of April 30, 2020 and January 31, 2020, the outstanding principal balance of the notes was $109,844.

 

 F-13 

 

 

The Company received advances from the CEO of the Company which bear interest at 8%. The advances are due on January 2024. At April 30, 2020 and January 31, 2020, there was $400,000 of principal outstanding.

 

The Company received advances from an entity 100% owned by the CEO of the Company, which bear interest at 8%. The advances are due on January 2024. At April 30, 2020 and January 31, 2020, there was $132,000 of principal outstanding, respectively.

 

For the three months ended April 30, 2020 and 2019, the Company recorded interest expense of $11,775 and $10,888, respectively, related to the above related party notes payable. At April 30, 2020 and January 31, 2020, there was $2,863 of accrued interest on the above related party notes.

 

Other Related Party Transactions

 

The Company reimbursed an entity 100% owned by the CEO of the Company for certain investor relation conference expenses totaling $14,570.  

 

Note 6 - Loan and Security Agreement

 

M&T Bank

 

Effective, January 4, 2019, the Company entered into a $2.5 million five-year note with M&T Bank at LIBOR plus four points with repayments in equal payments over 60 months. The new facility is supported by a first priority security interest in all of the Company’s business assets and is further subject to various affirmative and negative financial covenants and a limited Guaranty by the Company’s Chief Executive Officer, Carl Wolf. The Company recorded $89,321 as a debt discount and will be amortized over the remaining life of the note using the effective interest method. There was unamortized debt discount of $12,514 and $17,864 as of April 30, 2020 and January 31, 2020, respectively. The outstanding balance on the term loan was $316,662 and $441,663 as of April 30, 2020 and January 31, 2020, respectively.

 

Effective, January 4, 2019, the Company has arranged a new $3.5 million working capital line of credit with M&T Bank at LIBOR plus four points with a two-year expiration. On January 29, 2020, the facility was amended to increase the total available balance to $4.0 million as well as extend the maturity date to June 30, 2022. The facility is supported by a first priority security interest in all of the Company’s business assets and is further subject to various affirmative and negative financial covenants and a limited Guaranty by the Company’s Chief Executive Officer, Carl Wolf. Advances under the line of credit are limited to eighty percent (80%) of eligible accounts receivable (which is subject to an agreed limitation and is further subject to certain asset concentration provisions) and fifty percent (50%) of eligible inventory (which is subject to an agreed dollar limitation). All advances under the line of credit are due upon maturity. The outstanding balance on the line of credit was $3,147,348 and $2,997,348 as of April 30, 2020 and January 31, 2020, respectively.

 

Future maturities of all debt (excluding debt discount discussed above in Notes 5 and 6) are as follows:

 

For the Twelve Months Ending April 30,    
2021  $647,167 
2022   - 
2023   3,147,348 
2024   641,844 
   $4,436,359 

 

Note 7 – Promissory Note

 

On April 21, 2020, the Company entered into a term note with its principal bank, M&T, with a principal amount of $330,000 pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note. The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first six months of interest deferred. Beginning in November 2020, the Company will make 18 equal monthly payments of principal and interest with the final payment due in April 2022. The PPP Term Note may be accelerated upon the occurrence of an event of default.

 

 F-14 

 

 

The Company returned the $330,505 received from the Paycheck Protection Program on May 6, 2020, inclusive of interest.

 

Note 8 - Leases

 

The Company determines if an arrangement contains a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

 

The Company’s leases consist of leaseholds on office space, manufacturing space and machinery and equipment. The Company utilized a portfolio approach in determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing rates.

 

The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. These operating leases contain renewal options for periods ranging from three to five years that expire at various dates with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities.

 

Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient noted above. 

 

The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.

 

The components of lease expense were as follows:

 

   For the Three Months
Ended
   For the Three Months
Ended
 
   April 30, 2020   April 30, 2019 
Finance lease          
Depreciation of assets  $32,389   $16,567 
Interest on lease liabilities   7,827    7,167 
Operating leases   78,183    62,991 
Short-term lease   -    2,087 
Total net lease cost  $118,399   $88,812 

 

 F-15 

 

 

Supplemental balance sheet information related to leases was as follows:

 

   April 30, 2020   January 31, 2020 
Operating leases:           
Operating lease ROU assets  $1,456,998   $1,490,794 
           
Current operating lease liabilities, included in current liabilities  $131,752   $126,516 
Noncurrent operating lease liabilities, included in long-term liabilities   1,335,738    1,372,349 
Total operating lease liabilities  $1,467,490   $1,498,865 
           
Finance leases          
Property and equipment, at cost  $773,867   $550,269 
Accumulated depreciation   163,655    131,266 
Property and equipment, net  $610,212   $419,003 
           
Current obligations of finance lease liabilities, included in current liabilities  $148,779   $105,126 
Finance leases, net of current obligations, included in long-term liabilities   469,968    315,234 
Total finance lease liabilities  $618,747   $420,360 

 

Supplemental cash flow and other information related to leases was as follows:

 

   For the Three Months Ended April 30, 2020   For the Three Months Ended April 30, 2019 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows from operating leases  $31,375   $807 
Financing cash flows from finance leases   25,208    14,121 
           
ROU assets obtained in exchange for lease liabilities:          
Operating leases  $-   $1,599,830 
Finance leases   223,598    54,163 
           
Weighted average remaining lease term (in years):          
Operating leases   7.6    9.7 
Finance leases   4.0    3.2 
           
Weighted average discount rate:          
Operating leases   6.54%   6.54%
Finance leases   4.96%   7.17%

 

For the Twelve Months Ending April 30,    
2021  $405,100 
2022   408,696 
2023   372,872 
2024   314,943 
2025   279,198 
Thereafter   833,867 
Total lease payments  $2,614,676 
Less: amounts representing interest   (528,439)
Total lease obligations  $2,086,237 

 

 F-16 

 

 

Note 9 - Concentrations

 

Revenues

 

During the three months ended April 30, 2020, the Company earned revenues from three customers representing approximately 44%, 10% and 10% of gross sales. As of April 30, 2020, these three customers represented approximately 40%, 16% and 9% of total gross outstanding receivables, respectively. During the three months ended April 30, 2019, the Company earned revenues from three customers representing approximately 44%, 12% and 10% of gross sales. As of April 30, 2019, three customers represented approximately 45%, 14% and 12% of total gross outstanding receivables, respectively.

 

Note 10 - Stockholders’ Equity

 

(A) Options

 

The following is a summary of the Company’s option activity:

 

   Options   Weighted Average Exercise Price 
Outstanding – January 31, 2020   914,000   $0.77 
Exercisable – January 31, 2020   779,000   $0.71 
Granted   7,500   $1.16 
Exercised   -   $- 
Forfeited/Cancelled   -   $- 
Outstanding – April 30, 2020   921,500   $0.70 
Exercisable – April 30, 2020   846,500   $0.72 

  

   Options Outstanding       Options Exercisable   
Exercise Price  Number Outstanding   Weighted Average Remaining Contractual Life (in years)   Weighted Average Exercise Price   Number Exercisable   Weighted Average Exercise Price 
$ 0.39 – 1.38   921,500    2.38   $0.70    846,500   $0.72 

 

At April 30, 2020, the total intrinsic value of options outstanding and exercisable was $825,286 and $748,949, respectively.

 

During the three months ended April 30, 2020, the Company issued to 7,500 options to an employee. The options have an exercise price of $1.16 per share, a term of 5 years, and 2-year vesting. The options have an aggregated fair value of approximately $7,617 that was calculated using the Black-Scholes option-pricing model based on the assumptions discussed above in Note 2.

 

For the three months ended April 30, 2020 and 2019, the Company recognized share-based compensation related to options of an aggregate of $27,105 and $17,257, respectively. At April 30, 2020, unrecognized share-based compensation was $27,723.

 

(B) Warrants

 

The following is a summary of the Company’s warrant activity:

 

   Warrants  

Weighted Average

Exercise Price

 
         
Outstanding – January 31, 2020   6,056,664   $1.21 
Exercisable – January 31, 2020   6,056,664   $1.21 
Granted   -   $- 
Exercised   -   $- 
Forfeited/Cancelled   -   $- 
Outstanding – April 30, 2020   6,056,664   $1.21 
Exercisable – April 30, 2020   6,056,664   $1.21 

 

 F-17 

 

 

Warrants Outstanding  Warrants Exercisable 
Exercise Price  Number Outstanding   Weighted Average Remaining Contractual Life (in years)   Weighted Average Exercise Price   Number Exercisable   Weighted Average Exercise Price
$ 1.00 – 1.50   6,056,664    0.62   $1.21    6,056,664   $1.21 

 

At April 30, 2020, the total intrinsic value of warrants outstanding and exercisable was $3,633,998 and $3,633,998, respectively.

 

Note 11 - Commitments and Contingencies

 

Litigations, Claims and Assessments

 

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.

 

Licensing and Royalty Agreements

 

On March 1, 2010, the Company was assigned a Development and License agreement (the “Agreement”). Under the terms of the Agreement the Licensor shall develop for the Company a line of beef meatballs with sauce, turkey meatballs with sauce and other similar meats and sauces for commercial manufacture, distribution and sale (each a “Licensor Product” and collectively the “Licensor Products”). Licensor shall work with Licensee to develop Licensor Products that are acceptable to Licensee. Upon acceptance of a Licensor Product by Licensee, Licensor’s trade secret recipes, formulas methods and ingredients for the preparation and production of such Licensor Products (the “Recipes”) shall be subject to this Development and License Agreement.

 

The Exclusive Term began on January 1, 2009 (the “Effective Date”) and ends on the 50th anniversary of the Effective Date.

 

The Royalty Rate shall be: 6% of net sales up to $500,000 of net sales for each Agreement year; 4% of Net Sales from $500,000 up to $2,500,000 of Net Sales for each Agreement year; 2% of Net Sales from $2,500,000 up to $20,000,000 of Net Sales for each Agreement year; and 1% of Net Sales in excess of $20,000,000 of Net Sales for each Agreement year.

 

In order to continue the Exclusive term, the Company shall pay a minimum royalty with respect to the preceding Agreement year as follows:

 

Agreement Year 

Minimum

Royalty

to be Paid with

Respect to Such

Agreement Year

 
1st and 2nd  $- 
3rd and 4th  $50,000 
5th, 6th and 7th  $75,000 
8th and 9th  $100,000 
10th and thereafter  $125,000 

 

 F-18 

 

 

The Company incurred $161,627 and $116,466 of royalty expenses for the three months ended April 30, 2020 and 2019, respectively. Royalty expenses are included in general and administrative expenses on the condensed consolidated statement of operations.

 

Agreements with Placement Agents and Finders

 

The Company entered into a fourth Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective April 1, 2015 (the “Spartan Advisory Agreement”). Pursuant to the Spartan Advisory Agreement, the Company shall pay to Spartan a non-refundable monthly fee of $10,000 through October 1, 2015. The monthly fee shall survive any termination of the Agreement. Additionally, (i) if at least $4,000,000 is raised in the Financing, the Company shall pay to Spartan a non-refundable fee of $5,000 per month from November 1, 2015 through October 2017; and (ii) if at least $5,000,000 is raised in the Financing, the Company shall pay to Spartan a non-refundable fee of $5,000 per month from November 1, 2017 through October 2019. If $10,000,000 or more is raised in the Financing, the Company shall issue to Spartan shares of its common stock having an aggregate value of $5,000 (as determined by reference to the average volume weighted average trading price for the last five trading days of the immediately preceding month) on the first day of each month during the period from November 1, 2015 through October 1, 2019.

 

The Company, upon closing of the Financing, shall pay consideration to Spartan, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the Financing and 3% of the aggregate gross proceeds raised in the Financing for expenses incurred by Spartan. The Company shall grant and deliver to Spartan at the closing of the Financing, for nominal consideration, five-year warrants to purchase a number of shares of the Company’s common stock equal to 10% of the number of shares of common stock (and/or shares of common stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold at such closing. The warrants shall be exercisable at any time during the five-year period commencing on the closing to which they relate at an exercise price equal to the purchase price per share of common stock paid by investors in the Financing or, in the case of exercisable, convertible, or exchangeable securities, the exercise, conversion or exchange price thereof. If the Financing is consummated by means of more than one closing, Spartan shall be entitled to the fees provided herein with respect to each such closing.

 

If the Company enters into a change of control transaction during the term of the agreement through October 1, 2022, the Company shall pay to Spartan a fee equal to 3% of the consideration paid or received by the Company and/or its stockholders in such transaction.

 

Advisory Agreement

 

The Company entered into an Advisory Agreement with Spartan effective June 1, 2019 (the “Advisory Agreement”). Pursuant to the agreement, the Company shall pay to Spartan a non-refundable monthly fee of $5,000 over a 21-month period. Additionally, the Company granted Spartan 125,000 shares of common stock which are considered fully-paid and non-assessable upon execution of the agreement. During the term or this Agreement, the Consultant will provide non-exclusive consulting services related to general corporate matters, including, but not limited to (i) advice and input with respect to raising capital and potential M&A transactions, (ii) identifying suitable personal for management and Board positions (iii) developing corporate structure and finance strategies, (iv) assisting the Company with strategic introductions, (v) assisting management with enhancing corporate and shareholder value, and (vi) introducing the Company to potential investors (collectively, the “Advisory Services”). The advisory agreement was terminated according to its terms on March 31, 2020.

 

Note 12 – Subsequent Events

 

The Company has evaluated subsequent events through the date the financial statements were available to be issued. Based on this evaluation, the Company has identified the following reportable subsequent events other than those disclosed elsewhere in these financials.

 

In May 2020, a warrant holder converted 80,000 warrants on a cashless basis into 36,757 shares of common stock.

 

In May 2020, a warrant holder exercised 148,148 warrants at $1.00 per share into 148,148 shares of common stock. The Company received aggregate proceeds of $148,148 upon exercise.

 

In June 2020, two employees exercised a total of 12,000 options at an exercise price of $0.60 for aggregate proceeds of $7,200.

 

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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 PRIOR COMPANY FILINGS AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.

 

Results of Operations for the Three Months ended April 30, 2020 and 2019

 

The following table sets forth the summary statements of operations for the three months ended April 30, 2020 and 2019:

 

   Three Months Ended 
   April 30, 2020   April 30, 2019 
Sales - Net of Slotting Fees and Discounts  $11,100,919   $7,364,824 
Gross Profit  $3,727,600   $2,371,054 
Operating Expenses  $(2,751,646)  $(1,891,488)
Other Expenses  $(69,752)  $(123,900)
Net Income  $906,202   $355,666 

 

For the three months ended April 30, 2020 and 2019, the Company reported net income of $906,202 and $355,666, respectively. The change in net income between the three months ended April 30, 2020 and 2019 was primarily attributable to an increase in sales of 51% and an increase in gross profit (34% of sales as discussed below) in addition to a decrease in interest expense offset by increases in operating expenses.

 

Sales: Sales, net of slotting fees and discounts increased by approximately 51% to $11,100,919 during the three months ended April 30, 2020, from $7,364,824 during the three months ended April 30, 2019. During the three months ended April 30, 2020, the Company was able to increase its sales through new customers as well as its existing customer base.

 

Gross Profit: The gross profit margin was 34% for the three months ended April 30, 2020 compared to 32% for the three months ended April 30, 2019. Gross margin increased due to higher plant operations and efficiency and a change in product mix.

 

Operating Expenses: Operating expenses increased by 45% during the three months ended April 30, 2020, as compared to the three months ended April 30, 2019. Operating expenses decreased as a percentage of sales from 26% in 2019 to 25% in 2020. The $860,158 increase in total operating expenses is primarily attributable to the following increases in operating expenses:

 

Postage and freight of $344,615 due to increased sales and change of customer mix;
   
Professional fees of $124,795 due to an increase in investor relations and investment banking activities, including a non-recurring expense of $52,289 for the termination of such services with an investment banker;
   
Commission expense of $120,754 directly related to increased sales;
   
Payroll and related expenses of $73,391 due to the addition of a Senior Executive in 2020;
   
Royalties of $45,161 due to directly related to increased sales; and
   
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Advertising and promotion of $40,194 due to higher promotional expenses for merchandising activity related to higher sales, and increased Sirius Radio advertising campaign.

 

Other Expense: Other expenses decreased by $54,148 to $69,752 for the three months ended April 30, 2020 as compared to $123,900 during the three months ended April 30, 2019. For three months ended April 30, 2020, other expenses consisted of $64,402 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $5,350 of amortization expense related to the debt discount. For three months ended April 30, 2019, other expenses consisted of $116,612 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $7,288 of amortization expense related to the debt discount.

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, liabilities and working capital at April 30, 2020 compared to January 31, 2020:

 

   April 30, 2020   January 31, 2020   Increase 
Current Assets  $7,223,981   $5,620,255   $1,603,726 
Current Liabilities  $4,746,149   $4,208,231   $537,918 
Working Capital  $2,477,832   $1,412,024   $1,065,808 

 

As of April 30, 2020, we had working capital of $2,477,832 as compared to a working capital of $1,412,024 as of January 31, 2020, an increase of $1,065,808. In addition to the increase in sales and net income, the increase in working capital is primarily attributable to an increase in cash of $1,420,345, an increase in accounts receivable of $239,379 and an increase in prepaid expenses of $9,766. These amounts were offset by a decrease in inventories of $65,764, an increase in accounts payable and accrued expenses of $278,175 and a $259,743 net increase in the current portion of lease and debt obligations.

 

Net cash provided by operating activities for the three months ended April 30, 2020 and 2019 was $1,195,665 and $674,903, respectively. Cash provided by operations is primarily attributable to the net income for the three months ended April 30, 2020 and 2019 of $906,202 and $355,666, respectively. 

 

Net cash used in all investing activities for the three months ended April 30, 2020 was $105,616 as compared to $242,820 for the three months ended April 30, 2019, respectively, to acquire new machinery and equipment and leasehold improvements. Our capital expenditures are attributed to a Plant Expansion Project in progress since mid-2017 to expand plant capacity and efficiency to meet growing demand.

 

Net cash provided by all financing activities for the three months ended April 30, 2020 was $330,296 as compared to $354,987 used in financing activities for the three months ended April 30, 2019. During the three months ended April 30, 2020, the Company received proceeds of $330,505 from the Paycheck Protection Program promissory note and the Company’s net borrowings on its line of credit increased by $150,000 over the prior year comparable period. The Company returned the $330,505 received from the Paycheck Protection Program in May 2020. These cash in-flows were offset by payments on its term loan of $125,001 and $25,208 paid for capital lease payments. During the three months ended April 30, 2019, the Company made net repayments of the line of credit of $15,865, payments of term loan of $325,001 and $14,121 paid for capital lease payments.

 

As reflected in the accompanying consolidated financial statements, the Company has net income and net cash provided by operations of $906,202 and $1,195,665, respectively, for the three months ended April 30, 2020.

 

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 the fiscal year ending January 31, 2021, the Company may require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, though there is no guarantee it will be able to do so. Because of the rapidly changing environment in response to COVID-19, the current expectations of the Company may be altered as conditions change.

 

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Recent Accounting Pronouncements

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The adoption of the new standard did not have a significant impact on its condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of the new standard did not have a significant impact on its condensed consolidated financial statements.

 

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

 

Critical Accounting Policies

 

Our condensed consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). 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 GAAP and are consistently and conservatively 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 condensed consolidated financial statements.

 

COVID-19 Pandemic

 

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States, including New Jersey, where the Company is headquartered, have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. While all of the Company’s operations are located in the United States, it participates in a global supply chain, and the existence of a worldwide pandemic, the fear associated with COVID-19, or any pandemic, and the reactions of governments around the world in response to COVID-19, or any, pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact its ability to conduct normal business operations, which could adversely affect the Company’s results of operations and liquidity. Disruptions to the Company’s supply chain and business operations, or to its suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of its suppliers’ or customers’ products, any of which could have adverse ripple effects on the Company’s manufacturing output and delivery schedule. If the Company needs to close any of its facilities or a critical number of our employees become too ill to work, the production ability could be materially adversely affected in a rapid manner. Similarly, if the Company’s customers experience adverse business consequences due to COVID-19, or any other pandemic, demand for its products could also be materially adversely affected in a rapid manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities in which the Company or its suppliers and customers operate. Any of these uncertainties could have a material adverse effect on the business, financial condition or results of operations. In addition, a catastrophic event that results in the destruction or disruption of the Company’s data centers or its critical business or information technology systems would severely affect the ability to conduct normal business operations and, as a result, the operating results would be adversely affected.

 

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Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Based on evaluation as of the end of the period covered by this Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the period between February 1, 2020 and June 9, 2020 the Company had the following transactions in its common stock:

 

In May 2020, a warrant holder converted 80,000 warrants on a cashless basis into 36,757 shares of common stock.

 

In May 2020, a warrant holder exercised 148,148 warrants at $1.00 per share into 148,148 shares of common stock. The Company received aggregate proceeds of $148,148 upon exercise.

 

In June 2020, two employees exercised a total of 12,000 options at an exercise price of $0.60 for aggregate proceeds of $7,200.

 

Item 3. Defaults upon Senior Securities.

 

There has been no default in payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. 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**

 

* Filed herewith.

** Furnished herewith.

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  MAMAMANCINI’S HOLDINGS, INC.
     
Date: June 15, 2020 By: /s/ Carl Wolf
  Name: Carl Wolf
  Title: Chief Executive Officer
   

(Principal Executive Officer)

 

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