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 - Leases
Note 9 - Concentrations
Note 10 - Stockholders' Deficit
Note 11 - Commitments and Contingencies
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 2019-10-31

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: October 31, 2019

 

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(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

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 December 9, 2019, there were 31,991,241 shares outstanding of the registrant’s common stock.

 

 

 

   
 

 

TABLE OF CONTENTS

 

 

 2 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Balance Sheets

 

   October 31, 2019   January 31, 2019 
   (unaudited)     
Assets          
           
Current Assets:          
Cash  $610,574   $609,409 
Accounts receivable, net   3,297,769    2,698,562 
Other receivable   163,983    - 
Inventories   1,651,324    1,396,400 
Prepaid expenses   348,038    155,178 
Total current assets   6,071,688    4,859,549 
           
Property and equipment, net   2,846,254    2,884,594 
           
Operating lease right of use assets, net   1,524,083    - 
           
Deposits   20,177    20,177 
Total Assets  $10,462,202   $7,764,320 
           
Liabilities and Stockholders’ Equity (Deficit)          
           
Liabilities:          
Current Liabilities:          
Accounts payable and accrued expenses  $3,484,903   $3,061,932 
Term loan   500,000    500,000 
Operating lease liability   126,546    - 
Finance leases payable   102,937    53,730 
Total current liabilities   4,214,386    3,615,662 
           
Term loan – net   899,053    1,914,401 
Line of credit – net   2,897,348    2,612,034 
Operating lease liability – net   1,403,187    - 
Finance leases payable – net   343,324    162,527 
Notes payable - related party   641,844    641,844 
Total long-term liabilities   6,184,756    5,330,806 
           
Total Liabilities   10,399,142    8,946,468 
           
Commitments and contingencies          
           
Stockholders’ Equity (Deficit):          
Series A Preferred stock, $0.00001 par value; 120,000 shares authorized; 23,400 issued as of October 31, 2019 and January 31, 2019, 0 and 0 shares outstanding as of October 31, 2019 and January 31, 2019   -    - 
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 October 31, 2019 and January 31, 2019   321    320 
Additional paid in capital   16,669,905    16,547,287 
Accumulated deficit   (16,457,666)   (17,580,255)
Less: Treasury stock, 230,000 shares at cost, respectively   (149,500)   (149,500)
Total Stockholders’ Equity (Deficit)   63,060    (1,182,148)
Total Liabilities and Stockholders’ Equity (Deficit)  $10,462,202   $7,764,320 

 

See accompanying notes to the condensed consolidated financial statements

 

 F-1 
 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

  

For the Three Months Ended

October 31,

  

For the Nine Months Ended

October 31,

 
   2019   2018   2019   2018 
                 
Sales-net of slotting fees and discounts  $9,267,036   $8,242,847   $24,731,305   $21,625,671 
                     
Costs of sales   6,366,084    5,555,359    16,767,903    14,047,647 
                     
Gross profit   2,900,952    2,687,488    7,963,402    7,578,024 
                     
Operating expenses:                    
Research and development   32,744    31,628    82,579    98,807 
General and administrative   2,364,608    2,119,751    6,446,715    6,259,769 
Total operating expenses   2,397,352    2,151,379    6,529,294    6,358,576 
                     
Income from operations   503,600    536,109    1,434,108    1,219,448 
                     
Other expenses                    
Interest   (89,635)   (159,688)   (293,531)   (648,969)
Amortization of debt discount   (5,350)   (20,073)   (17,988)   (100,325)
Total other expenses   (94,985)   (179,761)   (311,519)   (749,294)
                     
Net income   408,615    356,348    1,122,589    470,154 
                     
Less: preferred dividends   -    -    -    - 
                     
Net income available to common stockholders  $408,615   $356,348   $1,122,589   $470,154 
                     
Net income per common share                    
– basic  $0.01   $0.01   $0.04   $0.01 
– diluted  $0.01   $0.01   $0.04   $0.01 
                     
Weighted average common shares outstanding                    
– basic   31,991,241    31,866,241    31,935,837    31,836,178 
– diluted   32,091,210    32,489,369    32,035,806    32,459,307 

 

See accompanying notes to the condensed consolidated financial statements

 

 F-2 
 

 

MamaMancini’s Holdings, Inc.

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

(unaudited)

 

For the Period from August 1, 2019 through October 31, 2019

 

    Series A
Preferred Stock
    Common Stock     Treasury Stock     Additional
Paid In
    Accumulated    

Stockholders’

Equity

 
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     (Deficit)  
                                                       
Balance,
August 1, 2019
    -     $         -       31,991,241     $ 321       (230,000 )   $ (149,500 )   $ 16,642,259     $ (16,866,281 )   $  (373,201 )
                                                                         
Stock options issued for services     -       -       -       -       -       -       27,646       -       27,646  
                                                                         
Net income     -       -       -       -       -       -       -       408,615       408,615  
Balance,
October 31, 2019
         -     $ -         31,991,241     $ 321         (230,000 )   $   (149,500 )   $   16,669,905     $ (16,457,666 )   $   63,060  

 

For the Period from August 1, 2018 through October 31, 2018

 

    Series A
Preferred Stock
    Common Stock     Treasury Stock     Additional
Paid In
    Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                                       
Balance,
August 1, 2018
    -     $          -       31,866,241     $ 320       (230,000 )   $ (149,500 )   $ 16,463,956     $ (18,016,497 )   $  (1,701,721 )
                                                                         
Share-based compensation     -       -       -       -       -       -       48,876       -       48,876  
                                                                         
Net income     -       -       -       -       -       -       -       356,348       356,348  
Balance,
October 31, 2018
        -     $ -         31,866,241     $ 320         (230,000 )   $   (149,500 )   $   16,512,832     $ (17,660,149 )   $ (1,296,497 )

 

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, 2019 through October 31, 2019

 

    Series A
Preferred Stock
    Common Stock     Treasury Stock     Additional
Paid In
    Accumulated    

Stockholders’

Equity

 
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     (Deficit)  
                                                       
Balance,
February 1, 2019
    -     $ -       31,866,241     $ 320       (230,000 )   $ (149,500 )   $ 16,547,287     $ (17,580,255 )   $  (1,182,148 )
                                                                         
Stock options issued for services     -       -       -       -       -       -       50,744       -       50,744  
                                                                         
Common stock issued for services     -       -       125,000       1       -       -       71,874       -       71,875  
                                                                         
Net income     -       -       -       -       -       -       -       1,122,589       1,122,589  
Balance,
October 31, 2019
        -     $         -         31,991,241     $ 321         (230,000 )   $   (149,500 )   $   16,669,905     $ (16,457,666 )   $ 63,060  

 

For the Period from February 1, 2018 through October 31, 2018

 

    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, 2018
    -     $ -       31,753,437     $ 319       (230,000 )   $ (149,500 )   $ 16,344,794     $ (18,130,303 )   $  (1,934,690 )
                                                                         
Share-based compensation     -       -       -       -       -       -       128,039       -       128,039  
                                                                         
Common stock issued for the exercise of options     -       -       40,000       -       -       -       40,000       -       40,000  
                                                                         
Common stock issued for the exercise of warrants     -       -       72,804       1       -       -       (1 )     -       72,804  
                                                                         
Net income     -       -       -       -       -       -       -       470,154       470,154  
Balance,
October 31, 2018
        -     $       -         31,866,241     $ 320         (230,000 )   $   (149,500 )   $   16,512,832     $ (17,660,149 )   $ (1,296,497 )

 

See accompanying notes to the condensed consolidated financial statements

 

 F-4 
 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   For the Nine Months Ended 
   October 31, 2019   October 31, 2018 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $1,122,589   $470,154 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   495,005    511,878 
Amortization of debt discount   17,988    100,325 
Share-based compensation   67,857    128,039 
Amortization of right of use assets   75,747    - 
Changes in operating assets and liabilities:          
Accounts receivable   (599,207)   (138,596)
Other receivable   (163,983)   - 
Inventories   (254,924)   (180,569)
Prepaid expenses   (138,098)   57,495 
Accounts payable and accrued expenses   422,971    699,699 
Current portion of operating lease liability   (70,097)   - 
Net Cash Provided by Operating Activities   975,848    1,648,425 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for fixed assets   (163,186)   (1,026,386)
Net Cash Used in Investing Activities   (163,186)   (1,026,386)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Repayment of note payable – related party   -    (7,812)
Borrowings from term loan   41,917    300,000 
Repayment of term loan   (1,075,253)   (174,155)
Repayment of note payable   -    (600,000)
Borrowings (repayments) of line of credit, net   285,314    (467,087)
Proceeds from capital lease   -    213,250 
Repayment of capital lease obligations   (63,475)   (16,343)
Debt extension fees   -    (31,125)
Proceeds from exercise of options   -    40,000 
Net Cash Used in Financing Activities   (811,497)   (743,272)
           
Net Increase (Decrease) in Cash   1,165    (121,233)
           
Cash - Beginning of Period   609,409    581,322 
           
Cash - End of Period  $610,574   $460,089 
           
SUPPLEMENTARY CASH FLOW INFORMATION:          
Cash Paid During the Period for:          
Income taxes  $-   $- 
Interest  $363,519   $302,034 
           
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Operating lease liability  $1,599,830   $- 
Finance lease asset additions  $293,479   $30,000 
Accrued interest on note payable reclassified to principal  $-   $392,702 
Common stock issued for services to be rendered  $71,875   $- 

 

See accompanying notes to the condensed consolidated financial statements

 

 F-5 
 

 

MamaMancini’s Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

October 31, 2019

 

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 customers are located throughout the United States, with a large concentration in the Northeast and Southeast. The Company announced in October that it developed Plant Based Meatballs using Beyond Beef as its primary ingredient and signed an agreement with Beyond Meat. The Company expects to begin selling these products in the current quarter.

 

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, 2019 filed on April 23, 2019. 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, 2019 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, 2020.

 

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.

 

Following the closing of the merger with Joseph Epstein Food Enterprises, Inc. (“JEFE”) on November 1, 2017, the financial statements of JEFE are consolidated with that of the Company. The prior period financial statements included in the condensed consolidated financial statements have been adjusted to reflect this transaction.

 

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 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.

 

 F-6 
 

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.

 

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 October 31, 2019 and January 31, 2019.

 

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 October 31, 2019 and January 31, 2019, 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 October 31, 2019 and January 31, 2019:

 

   October 31, 2019   January 31, 2019 
Raw Materials  $928,965   $556,703 
Work in Process   -    38,769 
Finished goods   722,359    800,928 
   $1,651,324   $1,396,400 

 

 F-7 
 

 

Property and Equipment

 

Property and equipment are recorded at cost. 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.

 

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 condensed 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 January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the condensed consolidated balance sheet in the amount of $1,556,873 related to the operating lease for office and warehouse space. Results for the nine months ended October 31, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the legacy accounting guidance under ASC Topic 840, Leases.

 

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 7. 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 October 31, 2019 and 2018 were $32,744 and $31,628, respectively. Research and development expenses for the nine months ended October 31, 2019 and 2018 were $82,579 and $98,807, 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.

 

 F-8 
 

 

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.

 

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 Nine Months Ended 
   October 31, 2019   October 31, 2018 
Gross Sales  $25,176,596   $21,942,660 
Less: Slotting, Discounts, Allowances   445,291    316,989 
Net Sales  $24,731,305   $21,625,671 

 

 F-9 
 

 

Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant geographic area for the nine months ended October 31, 2019 and 2018:

 

   For the Nine Months Ended 
   October 31, 2019   October 31, 2018 
Northeast  $8,266,248   $6,549,036 
Southeast   5,982,856    4,948,924 
Midwest   3,607,441    3,667,795 
West   4,241,811    4,012,664 
Southwest   3,078,240    2,764,241 
Total revenue  $25,176,596   $21,942,660 

 

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 October 31, 2019 and 2018 were $517,940 and $339,987, respectively. Producing and communicating advertising expenses for the nine months ended October 31, 2019 and 2018 were $1,274,735 and $1,246,170, 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 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 October 31, 2019, share-based compensation amounted to $37,914 relating to shares of common stock and options issued to employees and consultants for services.

 

For the three months ended October 31, 2018, share-based compensation amounted to $48,876 relating to options issued to employees and consultants for services.

 

For the nine months ended October 31, 2019, share-based compensation amounted to $67,857 relating to shares of common stock and options issued to employees and consultants for services.

 

For the nine months ended October 31, 2018, share-based compensation amounted to $128,039 relating to options issued to employees and consultants for services.

 

 F-10 
 

 

For the nine months ended October 31, 2019 and 2018, when computing fair value of share-based payments, the Company has considered the following variables:

 

    October 31, 2019     October 31, 2018  
Risk-free interest rate     1.52 - 2.29 %     1.99 - 2.78 %
Expected life of grants     3 - 3.5 years       1.95 - 3 years  
Expected volatility of underlying stock     127 - 150 %     101 - 172 %
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.

 

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 (loss) attributable to common stockholders per common share.

 

   For the Three Months Ended 
   October 31, 2019   October 31, 2018 
Numerator:        
Net income attributable to common stockholders  $408,615   $356,348 
Effect of dilutive securities:        
           
Diluted net income  $408,615   $356,348 
           
Denominator:          
Weighted average common shares outstanding - basic   31,991,241    31,866,241 
Dilutive securities (a):          
Series A Preferred   -    - 
Options   99,969    156,462 
Warrants   -    466,667 
           
Weighted average common shares outstanding and assumed
conversion – diluted
   32,091,210    32,489,369 
           
Basic net income per common share  $0.01   $0.01 
           
Diluted net income per common share  $0.01   $0.01 
           
(a) - Anti-dilutive securities excluded:   6,579,164    3,074,904 

 

 F-11 
 

 

   For the Nine Months Ended 
   October 31, 2019   October 31, 2018 
Numerator:        
Net income attributable to common stockholders  $1,122,589   $470,154 
Effect of dilutive securities:   -    - 
           
Diluted net income  $1,122,589   $470,154 
           
Denominator:          
Weighted average common shares outstanding - basic   31,935,837    31,836,178 
Dilutive securities (a):          
Series A Preferred   -    - 
Options   99,969    156,462 
Warrants   -    466,667 
           
Weighted average common shares outstanding and assumed conversion – diluted   32,035,806    32,459,307 
           
Basic net income per common share  $0.04   $0.01 
           
Diluted net income per common share  $0.04   $0.01 
           
(a) - Anti-dilutive securities excluded:   6,579,164    3,074,904 

 

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.

 

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.

 

 F-12 
 

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers (as described above under “Revenue Recognition”). 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 Company is currently evaluating this guidance and the impact of this update 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 condensed consolidated financial statements.

 

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 October 31, 2019 and January 31, 2019 are as follows:

 

   October 31, 2019   January 31, 2019 
Machinery and Equipment  $3,088,390   $2,662,403 
Furniture and Fixtures   89,443    81,099 
Leasehold Improvements   2,917,282    2,894,949 
    6,095,115    5,638,451 
Less: Accumulated Depreciation   3,248,861    2,753,857 
   $2,846,254   $2,884,594 

 

Depreciation expense charged to income for the three months ended October 31, 2019 and 2018 amounted to $124,953 and $174,045, respectively. Depreciation expense charged to income for the nine months ended October 31, 2019 and 2018 amounted to $495,005 and $511,878, respectively.

 

 F-13 
 

 

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 October 31, 2019 and January 31, 2019, the Company’s ownership interest in MO was 12% and 12%, respectively.

 

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 October 31, 2019 and 2018, the Company generated $20,474 and $40,401 in revenues from MO, respectively. For the nine months ended October 31, 2019 and 2018, the Company generated $53,723 and $81,111 in revenues from MO, respectively.

 

As of October 31, 2019 and January 31, 2019, the Company had a receivable of $27,060 and $57,374 due from MO, respectively.

 

WWS, Inc.

 

A current director of the Company is the president of WWS, Inc.

 

For the three months ended October 31, 2019 and 2018, the Company recorded $6,000 and $12,000 in commission expense from WWS, Inc. generated sales, respectively. For the nine months ended October 31, 2019 and 2018, the Company recorded $30,000 and $36,000 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 October 31, 2019 and January 31, 2019, the outstanding principal balance of the notes was $109,844.

 

The Company received advances from the CEO of the Company which bear interest at 8%. The advances are due on January 2024. At October 31, 2019 and January 31, 2019, 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 October 31, 2019 and January 31, 2019, there was $132,000 of principal outstanding, respectively.

 

For the three months ended October 31, 2019 and 2018, the Company recorded interest expense of $11,775 and $6,185, respectively, related to the above related party notes payable. For the nine months ended October 31, 2019 and 2018, the Company recorded interest expense of $34,544 and $38,872, respectively, related to the above related party notes payable. At October 31, 2019 and January 31, 2019, there was $2,485 and $48,141 of accrued interest on the above related party notes, respectively.

 

 F-14 
 

 

Note 6 - Loan and Security Agreement

 

M&T Bank

 

Effective, January 4, 2019, the Company also 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 $67,611 and $85,599 as of October 31, 2019 and January 31, 2019, respectively. The outstanding balance on the term loan was $1,466,664 and $2,500,000 as of October 31, 2019 and January 31, 2019, 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. 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. 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 $2,897,348 and $2,612,034 as of October 31, 2019 and January 31, 2019, respectively.

 

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

 

For the Years Ending October 31,      
2020   $ 500,004  
2021     3,397,352  
2022     466,656  
2023     -  
2024     641,844  
    $ 5,005,856  

 

Note 7 - 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.

 

 F-15 
 

 

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:

 

   Nine Months Ended
October 31, 2019
 
Finance leases:     
Depreciation of assets  $74,354 
Interest on lease liabilities   22,227 
Operating leases   194,116 
Short-term lease   7,653 
Total net lease cost  $298,350 

 

Supplemental balance sheet information related to leases was as follows:

 

   October 31, 2019 
Operating leases:     
Operating lease ROU assets  $1,524,083 
      
Current operating lease liabilities, included in current liabilities  $126,546 
Noncurrent operating lease liabilities, included in long-term liabilities   1,403,187 
Total operating lease liabilities  $1,529,733 
      
Finance leases:     
Property and equipment, at cost  $550,269 
Accumulated depreciation   131,266 
Property and equipment, net  $419,003 
      
Current obligations of finance leases, included in current portion of long-term debt  $102,937 
Finance leases, net of current obligations, included in long-term debt   343,324 
Total finance lease liabilities  $446,261 

 

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

 

   Nine Months Ended
October 31, 2019
 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows from operating leases  $70,097 
Financing cash flows from finance leases   63,475 
      
ROU assets obtained in exchange for lease liabilities:     
Operating leases  $1,599,830 
Finance leases   93,479 
      
Weighted average remaining lease term (in years):     
Operating leases   8.8 
Finance leases   3.8 
      
Weighted average discount rate:     
Operating leases   6.54%
Finance leases   5.85%

 

 F-16 
 

 

Total future minimum payments required under the lease obligations as of October 31, 2019 are as follows:

 

Twelve Months Ending October 31,    
2020  $354,898 
2021   361,960 
2022   360,511 
2023   272,345 
2024   257,720 
Thereafter   935,731 
Total lease payments  $2,543,165 
Less: amounts representing interest   (595,167)
Total lease obligations  $1,947,998 

 

Note 9 - Concentrations

 

Revenues

 

During the nine months ended October 31, 2019, the Company earned revenues from three customers representing approximately 47%, 10% and 10% of gross sales. As of October 31, 2019, these three customers represented approximately 41%, 14% and 6% of total gross outstanding receivables, respectively. During the nine months ended October 31, 2018, the Company earned revenues from one customer representing approximately 52% of gross sales. As of October 31, 2018, this one customer represented approximately 50% of total gross outstanding receivables.

 

Note 10 - Stockholders’ Deficit

 

Common Stock

 

On June 1, 2019, the Company issued 125,000 shares of its common stock to a consultant for services to be rendered. At the date of grant, the shares had a fair value of $71,875 and is included in prepaid expenses on the unaudited condensed consolidated balance sheets. During the three and nine months ended October 31, 2019, the Company recorded $10,268 and $17,113 of stock-based compensation related to these shares.

 

(A) Options

 

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

 

   Options  

Weighted

Average

Exercise Price

 
Outstanding – January 31, 2019   649,000   $0.77 
Exercisable – January 31, 2019   521,500   $0.71 
Granted   265,000   $0.53 
Exercised   -   $- 
Forfeited/Cancelled   -   $- 
Outstanding – October 31, 2019   914,000   $0.70 
Exercisable – October 31, 2019   679,000   $0.71 

 

    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    914,000    2.86   $0.70    679,000   $0.71 

 

 F-17 
 

 

At October 31, 2019 the total intrinsic value of options outstanding and exercisable was $86,480 and $63,980, respectively.

 

During the nine months ended October 31, 2019, the Company issued to 265,000 options to the members of the Board of Directors and an employee. The options have an exercise price range of $0.52 to $0.70 per share, a term of 5 years, and 1-year vesting. The options have an aggregated fair value of approximately $94,374 that was calculated using the Black-Scholes option-pricing model based on the assumptions discussed above in Note 2.

 

During the nine months ended October 31, 2018, 40,000 options were exercised by the option holders. The Company issued 40,000 shares of common stock as a result of this exercise and received proceeds of $40,000. No options were exercised during the nine months ended October 31, 2019.

 

For the nine months ended October 31, 2019 and 2018, the Company recognized share-based compensation related to options of an aggregate of $50,744 and $128,039, respectively. At October 31, 2019, unrecognized share-based compensation was $72,658.

 

(B) Warrants

 

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

 

   Warrants  

Weighted

Average

Exercise Price

 
         
Outstanding – January 31, 2019   6,245,331   $1.04 
Exercisable – January 31, 2019   6,245,331   $1.04 
Granted   -   $- 
Exercised   -   $- 
Forfeited/Cancelled   (188,667)  $- 
Outstanding – October 31, 2019   6,056,664   $1.02 
Exercisable – October 31, 2019   6,056,664   $1.02 

 

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

 
                      
$ 0.67 – 1.50    6,056,664    1.12   $1.02    6,056,664   $1.02 

 

At October 31, 2019, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

 

During the nine months ended October 31, 2019, no warrants were exercised by the warrant holders.

 

During the nine months ended October 31, 2018, 467,496 warrants were exercised by the warrant holders on a cashless basis. The Company issued 72,804 shares of common stock as a result of this exercise.

 

 F-18 
 

 

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 

 

The Company incurred $98,656 and $105,834 of royalty expenses for the three months ended October 31, 2019 and 2018. The Company incurred $319,502 and $306,690 of royalty expenses for the nine months ended October 31, 2019 and 2018. Royalty expenses are included in general and administrative expenses on the 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.

 

 F-19 
 

 

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”).

 

 F-20 
 

 

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 October 31, 2019 and 2018

 

The following table sets forth the summary statements of operations for the three months ended October 31, 2019 and 2018:

 

   Three Months Ended 
   October 31, 2019   October 31, 2018 
Sales - Net of Slotting Fees and Discounts  $9,267,036   $8,242,847 
Gross Profit  $2,900,952   $2,687,488 
Operating Expenses  $(2,397,352)  $(2,151,379)
Other Expenses  $(94,985)  $(179,761)
Net Income  $408,615   $356,348 

 

For the three months ended October 31, 2019 and 2018, the Company reported a net income of $408,615 and $356,348, respectively. The change in net income between the three months ended October 31, 2019 and 2018 was primarily attributable to an increased gross profit, lower interest and amortization expenses in 2019.

 

Sales: Sales, net of slotting fees and discounts increased by approximately 12% to $9,267,036 during the three months ended October 31, 2019, from $8,242,847 during the three months ended October 31, 2018. Sales increased from sales with existing customers as well as new customers.

 

Gross Profit: The gross profit margin was 31% for the three months ended October 31, 2019 compared to 33% for the three months ended October 31, 2018. During the three months ended October 31, 2019, cost of sales included an increase in depreciation expense of approximately $123,400 (thereby reducing gross margin by approximately 1%) related to the significant plant capacity additions during the last 12 months. Gross margin also decreased slightly due to a change in product mix. In future periods the Company expects sales to increase from the current quarter level which should increase gross profit margin as plant efficiencies should take effect.

 

Operating Expenses: Operating expenses increased by 11% during the three months ended October 31, 2019, as compared to the three months ended October 31, 2018. Operating expenses decreased as a percentage of sales from 26% in 2018 to 25% in 2019. The $245,973 increase in total operating expenses is primarily attributable to the following approximate increases in operating expenses:

 

Advertising of $177,953 due to higher promotional expenses for merchandising activity, Club Store demos, successful Sirius Radio advertising campaign and one-time coupon activity;
   
Postage and freight of $105,536 due to higher volume;
   
Professional fees of $29,832 due to sales consulting and investor relations activity; and
   
Trade show and travel expenses of $24,044 related to additional show activity in October 2019.

 

 3 
 

 

These expense increases were offset by decreases in the following as well as minimal decreases in other expense categories:

 

Insurance expense of $43,878 due to an overall decrease in workers’ compensation premiums;
   
Payroll and related expenses of $27,703 decreased due to a reduction in headcount as a result of the implementation of new equipment; and
   
Other general and administrative of $21,410 decreased due to management’s commitment to substantially reduce expenses.

 

Other Expense: Other expenses decreased by $84,776 to $94,985 for the three months ended October 31, 2019 as compared to $179,761 during the three months ended October 31, 2018. For three months ended October 31, 2019, other expenses consisted of $89,635 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 the three months ended October 31, 2018, other expenses consisted of $159,688 in interest expense incurred on the Company’s finance arrangements. In addition, the Company recorded $20,073 of amortization expense related to the debt discount and finance arrangements.

 

Results of Operations for the Nine Months ended October 31, 2019 and 2018

 

The following table sets forth the summary statements of operations for the nine months ended October 31, 2019 and 2018:

 

    Nine Months Ended  
    October 31, 2019     October 31, 2018  
Sales - Net of Slotting Fees and Discounts   $ 24,731,305     $ 21,625,671  
Gross Profit   $ 7,963,402     $ 7,578,024  
Operating Expenses   $ (6,529,294 )   $ (6,358,576 )
Other Expenses   $ (311,519 )   $ (749,294 )
Net Income   $ 1,122,589     $ 470,154  

 

For the nine months ended October 31, 2019 and 2018, the Company reported a net income of $1,122,589 and $470,154, respectively. The change in net income between the nine months ended October 31, 2019 and 2018 was primarily attributable to an increase in sales of 15% in addition to a decrease in other expenses.

 

Sales: Sales, net of slotting fees and discounts increased by approximately 14% to $24,731,305 during the nine months ended October 31, 2019, from $21,625,671 during the nine months ended October 31, 2018. In addition, during the nine months ended October 31, 2019, 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 32% for the nine months ended October 31, 2019 compared to 35% for the nine months ended October 31, 2018. During the nine months ended October 31, 2019, cost of sales included an increase in depreciation expense of approximately $280,000 (thereby reducing gross margin by approximately 1%) related to the significant plant capacity additions during the last 12 months. Gross margin also decreased slightly due to a change in product mix. In future periods the Company expects sales to increase from the current quarter level which should increase gross profit margin as plant efficiencies should take effect.

 

Operating Expenses: Operating expenses increased by 3% during the nine months ended October 31, 2019, as compared to the nine months ended October 31, 2018. Operating expenses decreased as a percentage of sales from 29% in 2018 to 26% in 2019. The $170,718 increase in total operating expenses is primarily attributable to the following approximate increases in operating expenses:

 

Postage and freight of $403,398 due to higher charges from freight carriers and increased sales;
   
Commission expense of $58,023 due to increased sales with existing clients as well as the addition of new clients;
   
Professional fees of $43,272 due to investor relations and investment banking activities; and
   
Advertising of $28,565 due to higher promotional expenses for merchandising activity, Club Store demos, successful Sirius Radio advertising campaign and one-time coupon activity;

 

 4 
 

 

These expense increases were offset by decreases in the following as well as minimal decreases in other expense categories:

 

Stock-based compensation for services rendered by employees and consultants decreased by $60,182 compared to the prior period; and
   
Insurance expense of $22,046 due to an overall decrease in workers’ compensation premiums.

 

Other Expense: Other expenses decreased by $437,775 to $311,519 for the nine months ended October 31, 2019 as compared to $749,294 during the nine months ended October 31, 2018. For nine months ended October 31, 2019, other expenses consisted of $293,531 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $17,988 of amortization expense related to the debt discount. For the nine months ended October 31, 2018, other expenses consisted of $648,969 in interest expense incurred on the Company’s finance arrangements. In addition, during the nine months ended October 31, 2018, the Company recorded $100,325 of amortization expense related to the debt discount and finance arrangements. During the nine months ended October 31, 2018, the Company also incurred non-recurring interest charges of approximately $112,500 in relation to the extension of the Manatuck note and the corresponding accounting for debt modification which resulted in additional interest expense, finance charges and the write-off of debt discount related to prior debt which is included in interest expense.

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, liabilities and working capital at October 31, 2019 compared to January 31, 2019:

 

   October 31, 2019   January 31, 2019   Increase/(Decrease) 
Current Assets  $6,071,688   $4,859,549   $1,212,139 
Current Liabilities  $4,214,386   $3,615,662   $598,724 
Working Capital  $1,857,302   $1,243,887   $613,415 

 

As of October 31, 2019, we had working capital of $1,857,302 as compared to a working capital of $1,243,887 as of January 31, 2019, an increase of $613,415. The increase in working capital is primarily attributable to an increase in inventories of $254,924, an increase in accounts receivable of $599,207, an increase in other receivables of $163,983 and an increase in prepaid expenses of $192,860. These amounts were offset by an increase in accounts payable and accrued expenses of $422,971 and a $175,753 increase in the current portion of lease obligations.

 

Net cash provided by operating activities for the nine months ended October 31, 2019 and 2018 was $975,848 and $1,648,425, respectively. The net income for the nine months ended October 31, 2019 and 2018 was $1,122,589 and $470,154, respectively.

 

Net cash used in all investing activities for the nine months ended October 31, 2019 was $163,186 as compared to $1,026,386 for the nine months ended October 31, 2018, 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 used by all financing activities for the nine months ended October 31, 2019 was $811,497 as compared to $743,272 provided by financing activities for the nine months ended October 31, 2018. During the nine months ended October 31, 2019, the Company made net borrowings on the line of credit of $285,314. These cash in-flows were offset by net payments of term loan of $1,033,336 and $63,475 paid for capital lease payments. During the nine months ended October 31, 2018, the Company received proceeds of $40,000 received from the exercise of options, proceeds of $213,250 from a capital-leaseback transaction and proceeds of $300,000 from term loan. These net proceeds were offset by $7,812 of repayments on a related party notes payable, net repayments on the line of credit of $467,087, $174,155 paid for repayments on a term loan, $16,343 paid for capital lease payments, $31,125 for payment of debt issuance costs, and net payments of $600,000 of the note payable to Manatuck Hill Partners, respectively.

 

 5 
 

 

As reflected in the accompanying condensed consolidated financial statements, the Company has a net income and net cash provided by operations of $1,122,589 and $975,848, respectively, for the nine months ended October 31, 2019.

 

Although the expected revenue growth and control of expenses leads management to believe that it is probable that the Company’s cash resources will be sufficient to meet our cash requirements through the fiscal year ending January 31, 2020, 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.

 

Recent Accounting Pronouncements

 

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 Company is currently evaluating this guidance and the impact of this update 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 condensed 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.

 

Other than the adoption of FASB ASU 2016-02, “Leases” (Topic 842), there have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our January 31, 2019 Annual Report.

 

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).

 

 6 
 

 

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 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.

 

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 August 1, 2019 and December 1, 2019 the Company issued no shares of its Common Stock.

 

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.

 

 7 
 

 

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.

 

 8 
 

 

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: December 9, 2019 By: /s/ Carl Wolf
  Name: Carl Wolf
  Title: Chief Executive Officer
    (Principal Executive Officer)

 

 9