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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarter ended:
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:
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (IRS Employer ID No.) |
(Address of principal executive offices and zip Code)
(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 | ||
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.
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.
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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging Growth Company |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of June 14, 2022, there were 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. | 1 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 5 | |
| Item 4. | Controls and Procedures. | 6 | |
| 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. | 7 | |
| Signatures | 8 | ||
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MAMAMANCINI’S HOLDINGS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2022
| F-1 |
MamaMancini’s Holdings, Inc.
Condensed Consolidated Balance Sheets
| April 30, 2022 | January 31, 2022 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Operating lease right of use assets, net | ||||||||
| Deferred tax asset | ||||||||
| Deposits | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Term loan, net of debt discount of $ | ||||||||
| Operating lease liability | ||||||||
| Finance leases payable | ||||||||
| Promissory note – related party | ||||||||
| Total current liabilities | ||||||||
| Line of credit | ||||||||
| Operating lease liability – net of current | ||||||||
| Finance leases payable – net of current | ||||||||
| Promissory note – related party, net of current | ||||||||
| Term loan – net of current | ||||||||
| Total long-term liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders’ Equity: | ||||||||
| Series A Preferred stock, $ par value; shares authorized; issued as of April 30, 2022 and January 31, 2022, and shares outstanding as of April 30, 2022 and January 31, 2022 | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding | ||||||||
| Common stock, $par value; shares authorized; and shares issued and outstanding as of April 30, 2022 and January 31, 2022 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less: Treasury stock, shares at cost, respectively | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
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, | ||||||||
| 2022 | 2021 | |||||||
| Sales-net of slotting fees and discounts | $ | $ | ||||||
| Costs of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Other Income (Expense) | ||||||||
| Interest | ( | ) | ( | ) | ||||
| Amortization of debt discount | ( | ) | ||||||
| Other income | ||||||||
| Total other income (expense) | ( | ) | ||||||
| Net income before income tax provision | ||||||||
| Income tax provision | ( | ) | ( | ) | ||||
| Net income | $ | $ | ||||||
| Net income per common share | ||||||||
| – basic | $ | $ | ||||||
| – diluted | $ | $ | ||||||
| Weighted average common shares outstanding | ||||||||
| – basic | ||||||||
| – diluted | ||||||||
See accompanying notes to the condensed consolidated financial statements
| F-3 |
MamaMancini’s Holdings, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
For the Period from February 1, 2022 through April 30, 2022
| 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, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock issued for the exercise of options | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance, April 30, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
For the Period from February 1, 2021 through April 30, 2021
| 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, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||
| Stock issued for the exercise of options | - | - | ||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance, April 30, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
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, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right of use assets | ||||||||
| Amortization of intangibles | ||||||||
| Share-based compensation | ||||||||
| Change in deferred tax asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash (Used in) Provided by Operating Activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for fixed assets | ( | ) | ( | ) | ||||
| Net Cash (Used in) Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayment of term loan | ( | ) | ||||||
| Borrowings of line of credit, net | ||||||||
| Repayment of capital lease obligations | ( | ) | ( | ) | ||||
| Proceeds from exercise of options | ||||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Net Increase in Cash | ||||||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements
| F-5 |
MamaMancini’s Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
April 30, 2022
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 large concentrations in the Northeast and Southeast.
On December 29, 2021, the Company made two acquisitions which expand the Company’s core product lines, and access to specific markets. TL Creative Salads, Inc. (“TL”) and Olive Branch, LLC (“OB”), are related premier gourmet food manufacturers based in New York. TL offers a full line of foods for retail food chains and club stores, delis, bagel stores, caterers and provision distributors. TL uses high-quality meats, seafood and vegetables, prepared to meet the standards set forth by the USDA and the FDA. Olive Branch started operations six years ago as a separate company to concentrate on selling olives, olive mixes, and savory products to a limited number of large retail customers, primarily in pre-packaged containers.
Note 2 – Business Acquisitions
The Company accounts for acquisitions in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.
On
December 23, 2021, the Company announced the signing of definitive agreements for two acquisitions –TL and OB, which are gourmet
food manufacturers based in New York. The closing of these transactions was completed on December 29, 2021. The Company acquired TL
and OB for a combined purchase price of $
On
December 29, 2021, the Company entered into a Multiple Disbursement Term Loan (“Loan”) with MT Bank for the original
principal amount of $
All of the proceeds of the Loan were utilized to fund the acquisition of TL and OB.
| F-6 |
For
the three months ended April 30, 2022, TL had revenue and income before taxes of approximately $
The following presents the unaudited pro-forma combined results of operations of TL and OB with the Company as if the entities were combined on February 1, 2021.
| For the Three Months Ended April 30, 2021 | ||||
| Revenues | $ | |||
| Net income | $ | |||
| Net income per share - basic | $ | |||
| Weighted average number of shares outstanding | ||||
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of February 1, 2021 or to project potential operating results as of any future date or for any future periods.
ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.
The following summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:
| Assets: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Inventories | ||||
| Fixed assets, net | ||||
| Intangibles | ||||
| Total identified assets acquired | $ | |||
| Liabilities: | ||||
| Accounts payable and accrued expenses | $ | |||
| Total liabilities assumed | ||||
| Total net assets acquired | $ | |||
The acquisition method of accounting requires extensive use of estimates and judgments to allocate the considerations transferred to the identifiable tangible and intangible assets acquired and liabilities assumed. The amounts used in computing the purchase price differ from the amounts in the purchase agreements due to fair value measurement conventions prescribed by accounting standards.
| F-7 |
The intangible assets acquired include the trademarks and customer relationships.
The allocation of purchase price is still deemed to be a preliminary allocation because of potential changes in the valuation of intangibles and the acquired fixed assets.
The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. All of the goodwill is deductible for tax purposes.
Note 3 - 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 interim 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, 2022 filed on May 27, 2022. 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, 2022 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, 2023.
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, purchase price accounting 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.
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.
| F-8 |
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
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. At April 30, 2022, the Company had approximately $
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, 2022 and January
31, 2022, the Company had reserves of $
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, 2022 and January 31, 2022:
| April 30, 2022 | January 31, 2022 | |||||||
| Raw Materials | $ | $ | ||||||
| Work in Process | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
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 | ||
| Furniture and fixtures | ||
| Leasehold improvements | * |
| (*) |
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.
| F-9 |
Intangible Assets
Software
The
Company accounts for acquired internal-use software licenses and certain costs within the scope of ASC 350-40, Intangibles - Goodwill
and Other - Internal-Use Software as intangible assets. The Company capitalized $
Additionally, the Company evaluates its accounting for fees paid in an agreement to determine whether it includes a license to internal-use software. If the agreement includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the agreement does not include a software license, the Company accounts for the arrangement as a service contract (hosting arrangement) and hosting costs are generally expensed as incurred.
Goodwill
The Company does not amortize goodwill or indefinite-lived intangible assets. The Company tests goodwill for impairment annually as of January 31 or if an event occurs or circumstances change that indicate that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of an such impact.
If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.
As of April 30, 2022, there were no impairment losses recognized for goodwill.
Other Intangibles
Other intangibles consist of trademarks, trade names and customer relationships. Intangible asset lives for financial statement reporting of amortization are:
| Tradenames and trademarks | ||
| Customer relationships |
During
the three months ended April 30, 2022, the Company recognized amortization of $
| F-10 |
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, 2022 and 2021 were $
Revenue Recognition
The Company recognizes revenue in accordance with FASB Topic 606, Revenue from Contracts with Customers (Topic 606).
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. 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 condensed consolidated statements 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 recognizes the related trade receivable when the goods are shipped.
| F-11 |
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, 2022 | April 30, 2021 | |||||||
| Gross Sales | $ | $ | ||||||
| Less: Slotting, Discounts, Allowances | ||||||||
| Net Sales | $ | $ | ||||||
Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant geographic area for the three months ended April 30, 2022 and 2021:
| For the Three Months Ended | ||||||||
| April 30, 2022 | April 30, 2021 | |||||||
| Northeast | $ | $ | ||||||
| Southeast | ||||||||
| Midwest | ||||||||
| West | ||||||||
| Southwest | ||||||||
| Total revenue | $ | $ | ||||||
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, 2022 and 2021 were $
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 statements 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, 2022 and 2021, share-based compensation amounted to $ and $, respectively.
| F-12 |
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.
| For the Three Months Ended | ||||||||
| April 30, 2022 | April 30, 2021 | |||||||
| Numerator: | ||||||||
| Net income attributable to common stockholders | $ | |||||||
| Effect of dilutive securities: | ||||||||
| Diluted net income | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average common shares outstanding - basic | ||||||||
| Dilutive securities (a): | ||||||||
| Series A Preferred | ||||||||
| Options | ||||||||
| Warrants | ||||||||
| Weighted average common shares outstanding and assumed conversion – diluted | ||||||||
| Basic net income per common share | $ | $ | ||||||
| Diluted net income per common share | $ | $ | ||||||
| (a) - Anti-dilutive securities excluded: | ||||||||
Income Taxes
Income taxes are provided in accordance with ASC 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. As of April 30, 2022 and January 31, 2022, the Company recognized a deferred tax asset of $
| F-13 |
Recent Accounting Pronouncements
In May 2021, the FASB issued accounting standards update ASU 2021-04, “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company adopted the new standard on February 1, 2022 and the adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of January 1, 2024.
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.
| F-14 |
Note 4 - Property and Equipment:
Property and equipment on April 30, 2022 and January 31, 2022 are as follows:
| April 30, 2022 | January 31, 2022 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Furniture and Fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Less: Accumulated Depreciation | ||||||||
| $ | $ | |||||||
Depreciation
expense charged to income for the three months ended April 30, 2022 and 2021 amounted to $
Note 5 – Intangibles, net
Intangibles, net consisted of the following at April 30, 2022:
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Life | |||||||||||||
| Software | $ | $ | ( | ) | $ | |||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Tradename and trademarks | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
Intangibles, net consisted of the following at January 31, 2022:
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Life | |||||||||||||
| Software | $ | $ | ( | ) | $ | |||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Tradename and trademarks | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
Amortization
expense for the three months ended April 30, 2022 was $
We expect the estimated aggregate amortization expense for each of the five succeeding fiscal years to be as follows:
| 2023 (remaining) | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ |
| F-15 |
Note 6 - Related Party Transactions
WWS, Inc.
Alfred D’Agostino, a director of the Company, is an affiliate of WWS, Inc.
For
the three months ended April 30, 2022 and 2021, the Company recorded $
Promissory Note – Related Party
Upon
consummation of the acquisition of TL, the Company executed a $
Lease – Related Party
The
Company leases a fully contained facility in Farmingdale, NY from 148 Allen Blvd LLC for production and distribution of TL Creative
Salads and Olive Branch products. 148 Allen Blvd LLC is owned by Anthony Morello, Jr., CEO of TL Acquisition Corp., a
Other Related Party Transactions
During
the three months ended April 30, 2022 and 2021, the Company reimbursed an entity
During the three months ended April 30, 2022, the CFO exercised options on a cashless basis in exchange for shares of common stock.
Note 7 - Loan and Security Agreement
MT Bank
Effective,
January 4, 2019, the Company obtained a $
| F-16 |
As
discussed above in Note 2, on December 29, 2021, the Company entered into a loan with MT Bank for the original principal amount
of $
| F-17 |
Note 8 - Concentrations
Revenues
During
the three months ended April 30, 2022, the Company earned revenues from three customers representing approximately
| F-18 |
Note 9 - Stockholders’ Equity
Options
| Options | Weighted Average Exercise Price | |||||||
| Outstanding – January 31, 2022 | $ | |||||||
| Exercisable – January 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ( | ) | $ | |||||
| Outstanding – April 30, 2022 | $ | |||||||
| Exercisable – April 30, 2022 | $ | |||||||
| 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 | |||||||||||||||||
| $ | – | $ | $ | |||||||||||||||||||
At April 30, 2022, the total intrinsic value of options outstanding and exercisable was $and $, respectively.
During the three months ended April 30, 2022, the CFO exercised options at an average exercise price of $per share on a cashless basis in exchange for shares of common stock.
During
the three months ended April 30, 2021, six employees exercised a total of options at an average exercise price of $ per share
for aggregate proceeds of $
For the three months ended April 30, 2022 and 2021, the Company recognized share-based compensation related to options of an aggregate of $ and $, respectively. At April 30, 2022, there was unrecognized share-based compensation.
| F-19 |
Note 10 - Commitments and Contingencies
Insurance Claim
The Company maintains insurance for both property damage and business interruption relating to catastrophic events, such as fires. Insurance recoveries received for property damage and business interruption in excess of the net book value of damaged assets, clean-up and demolition costs, and post-event costs are recognized as income in the period received or committed when all contingencies associated with the recoveries are resolved. Gains on insurance recoveries related to business interruption are recorded within “Cost of sales” and any gains or losses related to property damage are recorded within “Other income (expense)” on the condensed consolidated statements of income.
On
December 7, 2020, the Company experienced a fire at its plant in a spiral oven. The spiral oven was rebuilt and was fully put back
into service in late February 2021. The estimated loss was approximately $
Litigation, 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:
| F-20 |
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 | $ | |||
| 5th, 6th and 7th | $ | |||
| 8th and 9th | $ | |||
| 10th and thereafter | $ | |||
The
Company incurred $
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, if the Company enters
into a change of control transaction during the term of the agreement through October 1, 2022,
Note 11 – Income Taxes
The Company’s effective tax rate for the three months ending April 30, 2022 is 22.08%. Differences with statutory rate primarily relate to state taxes. Deferred tax assets are net operating loss carryforwards and other assets.
Deferred taxes are caused primarily by net operating
loss carryforwards. U.S. Tax Legislation enacted in 2017 (the “TCJA”) has significantly changed certain aspects of U.S. federal
income taxation.
In assessing the realization of deferred tax
assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in making this assessment. There was
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
The actual yearly tax rate will vary due to numerous factors, such as level and geographic mix of income and losses, acquisitions, investments, intercompany transactions, our stock price, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework and other laws and accounting rules in various jurisdictions
| F-21 |
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 Quarter ended April 30, 2022 and 2021
The following table sets forth the summary of the condensed consolidated statements of operations for the quarter ended April 30, 2022 and 2021:
| For the Three Months Ended | ||||||||
| April 30, 2022 | April 30, 2021 | |||||||
| Sales - Net of Slotting Fees and Discounts | $ | 21,830,580 | $ | 10,313,400 | ||||
| Gross Profit | $ | 3,860,263 | $ | 3,344,353 | ||||
| Operating Expenses | $ | (3,599,290 | ) | $ | (2,492,154 | ) | ||
| Other Income (Expenses) | $ | (127,891 | ) | $ | 27,274 | |||
| Income Tax Provision | $ | (29,385 | ) | $ | (247,949 | ) | ||
| Net Income | $ | 103,697 | $ | 631,524 | ||||
For the quarters ended April 30, 2022 and 2021, the Company reported net income of $103,697 and $631,524, respectively. The change in net income between the quarter ended April 30, 2022 and 2021 reflects continued downward pressure on gross margin percentage from inflated materials and freight expenses, increased interest costs associated with acquisitions.
Sales: Sales, net of slotting fees and discounts increased by approximately 112% to $21,830,580 during the quarter ended April 30, 2022, from $10,313,400 during the quarter ended April 30, 2021. Sales included the first full quarter from the acquisition of TL Creative Salads, Inc. and Olive Branch LLC in December 2021. Sales for MamaMancini’s, Inc. also rose modestly during the three months ended April 30, 2022 versus the prior year comparative period. During the quarter, MamaMancini’s Inc. and TL Salads were quickly able to gain product portfolio synergies by adding new products to existing customers, particularly in club stores.
Gross Profit: The gross profit margin was 18% for the quarter ended April 30, 2022 compared to 32% for the quarter ended April 30, 2021. The TL Creative Salads and Olive Branch LLC acquisition created a different financial model with lower gross margin percentage. In addition, continued inflation of raw materials, packaging and freight costs have out-paced price increases in the quarter. Management believes the balance between inflationary costs and price increases will begin to balance in the quarter ended July 31, 2022 and gross profits will begin to return to targeted levels.
Operating Expenses: Operating expenses increased by 44% during the quarter ended April 30, 2022, as compared to the quarter ended April 30, 2021. Operating expenses decreased as a percentage of sales to 16% in 2022 compared to 24% in 2021. The $1,107,136 increase in total operating expenses is primarily attributable to the following:
| ● | Freight charges rose $298,237 due to increased Finished Goods transportation rate increases and fuel surcharges; |
| ● | Advertising and Promotion expenses rose $60,840 based on key promotions primarily at club stores; |
| ● | Payroll and Related Expenses rose by $363,592 related to the acquisition of TL Creative Salads management and office salaries, additional accounting staff at MamaMancini’s and severance pay expenses; |
| ● | Professional Fees rose $134,288 due to higher Auditing Fees related to the additional complexity of the acquisitions and added third-party accounting and technical expertise to augment staffing shortfalls; and |
| ● | Insurance Expenses rose $104,531 to account for the acquisition of TL Creative Salads and Olive Branch LLC. |
Other Income (Expenses): Other expenses increased by $155,165 to $127,891 for the quarter ended April 30, 2022 as compared to income of $27,274 during the quarter ended April 30, 2021. For the quarter ended April 30, 2022, other income (expenses) consisted of $124,251 in interest expense on the Company’s financing arrangements and $3,640 in amortization of debt discount. For the three months ended April 30, 2021, other income (expenses) consisted of $(10,430) in interest expense incurred on the Company’s financing arrangements which was offset by the net insurance proceeds relating to the property damage claim of $37,704.
| 1 |
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at April 30, 2022 compared to January 31, 2022:
| April 30, 2022 | January 31, 2022 | Change | ||||||||||
| Current Assets | $ | 14,586,983 | $ | 11,638,317 | $ | 2,948,666 | ||||||
| Current Liabilities | $ | 10,394,514 | $ | 8,985,127 | $ | 1,409,387 | ||||||
| Working Capital | $ | 4,192,469 | $ | 2,653,190 | $ | 1,539,279 | ||||||
As of April 30, 2022, we had working capital of $4,192,469 as compared to working capital of $2,653,190 as of January 31, 2022, an increase of $1,539,279. The increase in working capital is primarily attributable to an increase in cash of $70,662, an increase in accounts receivable of $1,370,867 and increase of inventories of $1,277,898 based on robust sales increases, an increase in prepaid expenses of $229,239 and increases in the short term portion of lease payables of $52,312 offset by an increase in accounts payable and accrued liabilities of $1,069,320 and increases in the term loan of $261,635.
Net cash used in operating activities for the quarter ended April 30, 2022 was $1,343,013 compared to net cash provided by operating activities for the quarter ended April 30.2021 of $1,434,768. The net income for the quarter ended April 30, 2022 and 2021 was $103,697 and $631,524, respectively. During the three months ended April 30, 2022, net income was affected by adjustments to net income of $445,950 and offset by changes in operating activities which used cash of $1,898,393. During the three months ended April 30, 2021, net income was affected by adjustments to net income of $475,832 and changes in operating activities which provided cash of $327,412.
Net cash used in investing activities for the quarter ended April 30, 2022 was $174,007 as compared to $354,394 for the quarter ended April 30, 2021, respectively. For the quarters ended April 30, 2022 and 2021, the cash used in investing activities was to purchase new machinery and equipment.
Net cash provided by all financing activities for the quarter ended April 30, 2022 was $1,587,682 as compared to $27,578 used by financing activities for the quarter ended April 30, 2021. During the three months ended April 30, 2022, the Company received net proceeds of $1,775,000 from borrowings pursuant to the line of credit which were offset by payments of the acquisition related term loan and finance lease payments of $129,310 and $58,008, respectively. During the three months ended April 30, 2021, the Company received proceeds of $19,080 from the exercise of options. These cash in-flows were offset by payments of $46,658 paid for finance lease payments.
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 June 16, 2024, based on current and projected levels of operations, the Company may require additional funding to finance growth and achieve its strategic objectives. If such financing is required, there can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In the event funding is not available on reasonable terms, the Company might be required to change its growth strategy and/or seek funding on an alternative basis, but there is no guarantee it will be able to do so. Because of the rapidly changing environment in response to COVID-19, the current expectations of the Company may be altered as conditions change.
Recent Accounting Pronouncements
In May 2021, the FASB issued accounting standards update ASU 2021-04, “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company adopted the new standard on February 1, 2022 and the adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements.
| 2 |
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of January 1, 2024.
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 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 3 of our consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Use of Estimates
The preparation of 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.
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.
| 3 |
Intangible Assets
Software
The Company accounts for acquired internal-use software licenses and certain costs within the scope of ASC 350-40, Intangibles - Goodwill and Other - Internal-Use Software as intangible assets. The Company capitalized $87,639 of costs incurred in the quarter ended April 30, 2022 to implement cloud computing arrangements. Acquired internal-use software licenses are amortized over the term of the arrangement on a straight-line basis to the line item within the consolidated statements of operations that reflects the nature of the license.
Additionally, the Company evaluates its accounting for fees paid in an agreement to determine whether it includes a license to internal-use software. If the agreement includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the agreement does not include a software license, the Company accounts for the arrangement as a service contract (hosting arrangement) and hosting costs are generally expensed as incurred.
Goodwill
The Company does not amortize goodwill or indefinite-lived intangible assets. The Company tests goodwill for impairment annually as of April 30 or if an event occurs or circumstances change that indicate that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of an such impact.
If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.
Other Intangibles
Amortizable intangible assets, including tradenames and trademarks, are amortized on a straight-line basis over 3 years. Customer relationships are amortized on a straight-line basis over 4 to 5 years.
| 4 |
Revenue Recognition
The Company recognizes revenue in accordance with FASB Topic 606, Revenue from Contracts with Customers (Topic 606).
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 fulfilment activities, and the related costs are recorded as selling expenses in general and administrative expenses on the consolidated statement of operations.
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.
When computing fair value of share-based payments, the Company has considered the following variables:
| ● | The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. |
| ● | The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future. |
| ● | The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110. |
| ● | The term is the life of the grant. |
| ● | The expected volatility was estimated using the historical volatilities of the Company’s common stock. |
| ● | The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%. |
Advertising
Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Smaller reporting companies are not required to provide the information required by this item.
| 5 |
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.
As of period covered by this Quarterly Report on Form 10-Q, we have concluded that our internal control over financial reporting was not effective including the following material weakness:
1)
2) |
Lacked sufficient accounting staff to appropriately segregate duties and leverage decision makers to consolidate new entities and complete timely reporting of financial data
Lacked sufficient orientation and experience with new ERP systems platform which hindered productivity and required additional supervision delaying timely reporting of financial statements. |
Management is in the process of implementing the Management Remediation Initiatives (the “Initiatives”) detailed in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on May 27, 2022. Management believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on our financial results. However, management believes that without the implementation of the Initiatives, such matters could result in a material misstatement in our financial statements in future periods.
(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 February 1, 2022 and April 30, 2022, the Company had no sales of unregistered securities.
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.
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Item 6. Exhibits.
* 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 14, 2022 | By: | /s/ Carl Wolf |
| Name: | Carl Wolf | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
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