UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarter ended: April 30, 2021

 

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 ID No.)

 

25 Branca Road

East Rutherford, NJ 07073

(Address of principal executive offices and zip Code)

 

(201) 531-1212

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

As of June 14, 2021, there were 35,668,874 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	6
Item 4.	Controls and Procedures.	6
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	7
Item 1A.	Risk Factors.	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	7
Item 3.	Defaults Upon Senior Securities.	7
Item 4.	Mine Safety Disclosures.	7
Item 5.	Other Information	7
Item 6.	Exhibits.	8
Signatures		9

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

MAMAMANCINI’S HOLDINGS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2021

 

	Page(s)
Condensed Consolidated Balance Sheets as of April 30, 2021 (unaudited) and January 31, 2021	F-2
Condensed Consolidated Statements of Income for the Three Months Ended April 30, 2021 and 2020 (unaudited)	F-3
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Period from February 1, 2021 through April 30, 2021 (unaudited)	F-4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2021 and 2020 (unaudited)	F-5
Notes to Condensed Consolidated Financial Statements (unaudited)	F-6

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Balance Sheets

 

		April 30, 2021				January 31, 2021
			(unaudited)
Assets
Current Assets:
Cash		$	4,243,356			$	3,190,560
Accounts receivable, net			3,719,745				3,973,793
Inventories			1,438,469				1,195,211
Prepaid expenses			504,434				519,887
Total current assets			9,906,004				8,879,451
Property and equipment, net			3,134,235				2,963,602
Intangibles			87,639				87,639
Operating lease right of use assets, net			1,633,577				1,352,483
Deferred tax asset, net			497,024				744,973
Deposits			20,177				20,177
Total Assets		$	15,278,656			$	14,048,325
Liabilities and Stockholders’ Equity
Liabilities:
Current Liabilities:
Accounts payable and accrued expenses		$	4,046,073			$	3,707,111
Operating lease liability			174,612				147,684
Finance leases payable			185,177				190,554
Total current liabilities			4,405,862				4,045,349
Operating lease liability – net			1,478,481				1,218,487
Finance leases payable – net			433,462				474,743
Total long-term liabilities			1,911,943				1,693,230
Total Liabilities			6,317,805				5,738,579
Commitments and contingencies
Stockholders’ Equity:
Series A Preferred stock, $0.00001 par value; 120,000 shares authorized; 23,400 issued as of April 30, 2021 and January 31, 2021, 0 and 0 shares outstanding as of April 30, 2021 and January 31, 2021			-				-
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; 35,668,874 and 35,603,731 shares issued and outstanding as of April 30, 2021 and January 31, 2021			358				357
Additional paid in capital			20,555,373				20,535,793
Accumulated deficit			(11,445,380	)			(12,076,904	)
Less: Treasury stock, 230,000 shares at cost, respectively			(149,500	)			(149,500	)
Total Stockholders’ Equity			8,960,851				8,309,746
Total Liabilities and Stockholders’ Equity		$	15,278,656			$	14,048,325

 

See accompanying notes to the condensed consolidated financial statements

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Income

(unaudited)

 

		For the Three Months Ended
		April 30, 2021				April 30, 2020
Sales-net of slotting fees and discounts		$	10,313,400			$	10,834,941
Costs of sales			6,969,047				7,373,319
Gross profit			3,344,353				3,461,622
Operating expenses:
Research and development			23,436				29,481
General and administrative			2,468,718				2,456,187
Total operating expenses			2,492,154				2,485,668
Income from operations			852,199				975,954
Other income (expenses)
Interest			(10,430	)			(64,402	)
Amortization of debt discount			-				(5,350	)
Other income			37,704				-
Total other income (expenses)			27,274				(69,752	)
Net income before income tax provision			879,473				906,202
Income tax provision			247,949				-
Net income		$	631,524			$	906,202
Net income per common share
– basic		$	0.02			$	0.03
– diluted		$	0.02			$	0.03
Weighted average common shares outstanding
– basic			35,622,060				31,991,241
– diluted			36,191,451				33,946,276

 

See accompanying notes to the condensed consolidated financial statements

 

 

MamaMancini’s Holdings, Inc.

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

(unaudited)

 

For the Period from February 1, 2021 through April 30, 2021

 

		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, 2021			-			$	-				35,603,731			$	357				(230,000	)		$	(149,500	)		$	20,535,793			$	(12,076,904	)		$	(8,309,746	)
Stock options issued for services			-				-				-				-				-				-				501				-				501
Stock options issued exercise of options			-				-				65,143				1				-				-				19,079				-				19,080
Net income			-				-				-				-				-				-				-				631,524				631,524
Balance, April 30, 2021			-			$	-				35,668,874			$	358				(230,000	)		$	(149,500	)		$	20,555,373			$	(11,445,380	)		$	8,960,851

 

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

 

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

 

See accompanying notes to the condensed consolidated financial statements

 

 

MamaMancini’s Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

		For the Three Months Ended
		April 30, 2021				April 30, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	631,524			$	906,202
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			183,761				159,793
Amortization of debt discount			-				5,350
Share-based compensation			501				27,105
Amortization of right of use assets			43,621				33,796
Change in deferred tax asset			247,949				-
Changes in operating assets and liabilities:
Accounts receivable			254,048				(239,379	)
Inventories			(243,258	)			65,764
Prepaid expenses			15,453				(9,766	)
Accounts payable and accrued expenses			338,962				278,175
Operating lease liability			(37,793	)			(31,375	)
Net Cash Provided by Operating Activities			1,434,768				1,195,665
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for fixed assets			(354,394	)			(105,616	)
Net Cash Used in Investing Activities			(354,394	)			(105,616	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of term loan			-				(125,001	)
Proceeds from promissory note			-				330,505
Borrowings of line of credit, net			-				150,000
Repayment of finance lease obligations			(46,658	)			(25,208	)
Proceeds from exercise of options			19,080				-
Net Cash Used in Financing Activities			(27,578	)			330,296
Net Increase in Cash			1,052,796				1,420,345
Cash - Beginning of Period			3,190,560				393,683
Cash - End of Period		$	4,243,356			$	1,814,028
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash Paid During the Period for:
Income taxes		$	-			$	-
Interest		$	10,430			$	67,265
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Finance lease asset additions		$	-			$	223,598

 

See accompanying notes to the condensed consolidated financial statements

 

 

MamaMancini’s Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

April 30, 2021

 

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.

 

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 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, 2021 filed on April 21, 2021. 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, 2021 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, 2022.

 

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 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.

 

 

Risks and Uncertainties

 

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

 

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

 

Cash

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at April 30, 2021 and January 31, 2021.

 

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, 2021, the Company had $3,975,358 in cash balances that exceed federally insured limits.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. The Company determines if receivables are past due based on days outstanding, and amounts are written off when determined to be uncollectible by management. As of April 30, 2021 and January 31, 2021, the Company had reserves of $2,000.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following at April 30, 2021 and January 31, 2021:

 

		April 30, 2021				January 31, 2021
Raw Materials		$	764,545			$	746,013
Work in Process			132,498				88,955
Finished goods			541,426				360,243
		$	1,438,469			$	1,195,211

 

Property and Equipment

 

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

 

Asset lives for financial statement reporting of depreciation are:

 

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

 

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

 

 

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

 

Intangible Assets

 

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 year ended January 31, 2021 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. The Company did not record amortization for the software license since the license has yet to be implemented as of April 30, 2021.

 

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.

 

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.

 

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.

 

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, 2021 and 2020 were $23,436 and $29,481, respectively.

 

Shipping and Handling Costs

 

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

 

 

Revenue Recognition

 

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 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 recognizes the related trade receivable when the goods are shipped.

 

Expenses such as slotting fees, sales discounts, promotions and allowances are accounted for as a direct reduction of revenues as follows (see Note 11):

 

		For the Three Months Ended
		April 30, 2021				April 30, 2020
Gross Sales		$	10,748,166			$	11,241,304
Less: Slotting, Discounts, Promotions and Allowances			434,766				406,363
Net Sales		$	10,313,400			$	10,834,941

 

 

Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant geographic area for the three months ended April 30, 2021 and 2020:

 

		For the Three Months Ended
		April 30, 2021				April 30, 2020
Northeast		$	3,422,669			$	3,890,119
Southeast			3,801,029				2,967,346
Midwest			1,027,649				1,285,655
West			1,557,111				1,824,215
Southwest			939,708				1,273,969
Total revenue		$	10,748,166			$	11,241,304

 

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, 2021 and 2020 were $126,180 and $115,970 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 recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

 

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

 

For the three months ended April 30, 2021 and 2020, share-based compensation amounted to $501 and $27,105, respectively.

 

For the three months ended April 30, 2021 and 2020, when computing fair value of share-based payments, the Company has considered the following variables:

 

		April 30, 2021				April 30, 2020
Risk-free interest rate			N/A				0.37	%
Expected life of grants			N/A				3.5 years
Expected volatility of underlying stock			N/A				125	%
Dividends			N/A				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 Per Share

 

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

 

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

 

		For the Three Months Ended
		April 30, 2021				April 30, 2020
Numerator:
Net income attributable to common stockholders		$	631,524				906,202
Effect of dilutive securities:			—				—
Diluted net income		$	631,524			$	906,202
Denominator:
Weighted average common shares outstanding - basic			35,622,060				31,991,241
Dilutive securities (a):
Series A Preferred			-				-
Options			569,392				468,161
Warrants			-				1,486,874
Weighted average common shares outstanding and assumed conversion – diluted			36,191,451				33,946,276
Basic net income per common share		$	0.02			$	0.03
Diluted net income per common share		$	0.02			$	0.03
(a) - Anti-dilutive securities excluded:			-				-

 

 

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. As of April 30, 2021 and January 31, 2021, the Company recognized a deferred tax asset of $497,024 and $744,973, respectively, which is included in other long-term assets on the condensed consolidated balance sheets. The Company regularly evaluates the need for a valuation allowance related to the deferred tax asset.

 

The Company is no longer subject to tax examinations by tax authorities for years prior to 2019.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2019, 2020 or 2021. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

 

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

 

Related Parties

 

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

 

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

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements.

 

 

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

 

Subsequent Events

 

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

 

Note 3 - Property and Equipment:

 

Property and equipment on April 30, 2021 and January 31, 2021 are as follows:

 

		April 30, 2021				January 31, 2021
Machinery and Equipment		$	4,099,534			$	3,787,321
Furniture and Fixtures			133,593				113,112
Leasehold Improvements			3,141,973				3,120,273
			7,375,100				7,020,706
Less: Accumulated Depreciation			4,240,865				4,057,104
		$	3,134,235			$	2,963,602

 

Depreciation expense charged to income for the three months ended April 30, 2021 and 2020 amounted to $183,761 and $159,793, respectively.

 

Note 4 - Related Party Transactions

 

WWS, Inc.

 

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

 

For the three months ended April 30, 2021 and 2020, the Company recorded $12,000 in commission expense from WWS, Inc. generated sales.

 

Other Related Party Transactions

 

During the three months ended April 30, 2021 and 2020, the Company reimbursed an entity 100% owned by the CEO of the Company for certain investor relation conference expenses totaling $4,517 and $14,570, respectively.

 

Note 5 - Loan and Security Agreement

 

M&T Bank

 

Effective, January 4, 2019, the Company entered into a $2.5 million five-year note with M&T Bank at LIBOR plus four points with repayments in equal payments over 60 months. The 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 $0 as of April 30, 2021 and January 31, 2021. The outstanding balance on the term loan was $0 as of April 30, 2021 and January 31, 2021.

 

 

Effective, January 4, 2019, the Company has arranged a $3.5 million working capital line of credit with M&T Bank at LIBOR plus four points with a two-year expiration. On January 29, 2020, the facility was amended to increase the total available balance to $4.0 million as well as extend the maturity date to June 30, 2022. On June 11, 2021, the facility was amended to increase the total available balance to $4.5 million as well as extend the maturity date to June 30, 2023. The facility is supported by a first priority security interest in all of the Company’s business assets and is further subject to various affirmative and negative financial covenants and a limited Guaranty by the Company’s Chief Executive Officer, Carl Wolf. Advances under the line of credit are limited to eighty percent (80%) of eligible accounts receivable (which is subject to an agreed limitation and is further subject to certain asset concentration provisions) and fifty percent (50%) of eligible inventory (which is subject to an agreed dollar limitation). All advances under the line of credit are due upon maturity. The outstanding balance on the line of credit was $0 as of April 30, 2021 and January 31, 2021.

 

During the three months ended April 30, 2021 and 2020, the Company paid total interest of $0 and $43,080 to M&T Bank for the above agreements, respectively.

 

Note 6 – Promissory Note

 

On April 21, 2020, the Company entered into a term note with its principal bank, M&T, with a principal amount of $330,505 pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note. The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first six months of interest deferred. The Company returned the $330,505 received from the Paycheck Protection Program on May 6, 2020, inclusive of interest.

 

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.

 

On March 1, 2021, the Company amended its existing lease with the landlord for a new premise with a greater square footage. Upon cancellation of the existing lease, the Company wrote-off the net right of use asset and corresponding lease liability of $22,870. The Company recorded a right of use asset and related liability of $347,585 for the new space which will be occupied over a 60-month period.

 

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

 

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

 

 

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

 

The components of lease expense were as follows:

 

		For the Three Months Ended				For the Three Months Ended
		April 30, 2021				April 30, 2020
Finance lease
Depreciation of assets		$	30,963			$	32,389
Interest on lease liabilities			10,430				7,827
Operating leases			88,508				78,183
Short-term lease			-				-
Total net lease cost		$	129,901			$	118,399

 

Supplemental balance sheet information related to leases was as follows:

 

		April 30, 2021				January 31, 2021
Operating leases:
Operating lease ROU assets		$	1,633,577			$	1,352,483
Current operating lease liabilities, included in current liabilities		$	174,612			$	147,684
Noncurrent operating lease liabilities, included in long-term liabilities			1,478,481				1,218,487
Total operating lease liabilities		$	1,653,093			$	1,366,171
Finance leases
Property and equipment, at cost		$	951,656			$	951,656
Accumulated depreciation			(291,333	)			(260,370	)
Property and equipment, net		$	660,323			$	691,286
Current obligations of finance lease liabilities, included in current liabilities		$	185,177			$	190,554
Finance leases, net of current obligations, included in long-term liabilities			433,462				474,743
Total finance lease liabilities		$	618,639			$	665,297

 

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

 

		For the Three Months Ended April 30, 2021				For the Three Months Ended April 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	37,793			$	31,375
Financing cash flows from finance leases			46,658				25,208
ROU assets obtained in exchange for lease liabilities:
Operating leases		$	347,585			$	-
Finance leases			-				223,598
Weighted average remaining lease term (in years):
Operating leases			7.3				7.6
Finance leases			3.7				4.0
Weighted average discount rate:
Operating leases			5.58	%			6.54	%
Finance leases			4.57	%			4.96	%

 

 

Total future minimum payments required under the lease obligations as of April 30, 2021 are as follows:

 

For the Twelve Months Ending January 31,
2022 (Remaining)		$	360,042
2023			450,051
2024			438,907
2025			414,986
2026			330,646
Thereafter			678,179
Total lease payments		$	2,672,811
Less: amounts representing interest			(432,180	)
Total lease obligations		$	2,240,631

 

Note 8 - Concentrations

 

Revenues

 

During the three months ended April 30, 2021, the Company earned revenues from three customers representing approximately 31%, 19% and 11% of gross sales. As of April 30, 2021, these three customers represented approximately 33%, 14% and 16% of total gross outstanding receivables, respectively. During the three months ended April 30, 2020, the Company earned revenues from three customers representing approximately 44%, 10% and 10% of gross sales. As of April 30, 2020, these three customers represented approximately 40%, 16% and 9% of total gross outstanding receivables, respectively.

 

Note 9 - Stockholders’ Equity

 

Options

 

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

 

		Options				Weighted Average Exercise Price
Outstanding – January 31, 2021			869,000			$	0.70
Exercisable – January 31, 2021			859,000			$	0.70
Granted			-			$	-
Exercised			(84,000	)		$	0.86
Forfeited/Cancelled			-			$	-
Outstanding – April 30, 2021			785,000			$	0.68
Exercisable – April 30, 2021			782,500			$	0.68

 

				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			785,000			3.06			$	0.68			782,500		$	0.68

 

 

At April 30, 2021, the total intrinsic value of options outstanding and exercisable was $1,588,091 and $1,584,241, respectively.

 

During the three months ended April 30, 2021, six employees exercised a total of 84,000 options at an average exercise price of $0.86 per share for aggregate proceeds of $19,080. No options were exercised during the three months ended April 30, 2020.

 

For the three months ended April 30, 2021 and 2020, the Company recognized share-based compensation related to options of an aggregate of $501 and $27,105, respectively. At April 30, 2021, unrecognized share-based compensation was $1,432.

 

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 is approximately $656,700 which includes loss of business, the rebuild of the spiral oven, additional expenses to clean plant and lost material and packaging. During the three months ended April 30, 2021, the Company received $67,426 relating to business interruption insurance which was recorded as a component of costs of sales on the condensed consolidated statement of income. The Company received the remaining amount of proceeds for the property damage claim, resulting in other income of $91,312. This amount was offset by repairs and maintenance expense of $12,475 as well as the costs of additions and parts of the oven and roof totaling $47,669. The insurance claim remains open in order for the Company to review for additional business income losses.

 

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: 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 $148,436 and $161,627 of royalty expenses for the three months ended April 30, 2021 and 2020, respectively. Royalty expenses are included in general and administrative expenses on the condensed consolidated statement of operations.

 

Agreements with Placement Agents and Finders

 

The Company entered into a fourth Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective April 1, 2015 (the “Spartan Advisory Agreement”). Pursuant to the Spartan Advisory Agreement, 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 Agreements

 

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

 

The Company entered into an Advisory Agreement with B. Riley Securities, Inc. effective September 25, 2020 (the “B. Riley Advisory Agreement”). Pursuant to the agreement, the Company shall pay to B. Riley a non-refundable fee of $175,000 upon delivery of a fairness opinion in the event a transaction has value over $50 million ($125,000 if a transaction has a value less than $50 million). In addition, additional fees may be paid to B. Riley based on the terms of the agreement and transactions consummated. 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 potential purchasers or targets, (iii) soliciting proposals from purchasers or targets, (iv) assisting the Company with strategic introductions and negotiations, (v) evaluating proposals, and (vi) other financial advisory and investment banking services (collectively, the “B. Riley Advisory Services”).

 

 

Note 11 – Impact on Previously Issued Financial Statements

 

During the audit for the year ended January 31, 2021, the Company identified and recorded a prior period adjustment related to promotion expenses that should have been recorded in the year ended January 31, 2021 as an offset to revenue as discussed in the Company’s revenue recognition policy instead of general and administrative expenses as originally recorded.

 

In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements the Company determined that previously issued financial statements for the three months ended April 30, 2020 should be revised to reflect the correction of these errors. The impact on the the three months ended April 30,2020, was reflected as an adjustment of $265,978 which resulted in a decrease in Sales net of slotting fees and corresponding decrease in General and administrative expenses.

 

As a result of the aforementioned correction of accounting errors, the relevant financial statements have been revised as follows:

 

		For the three months ended April 30, 2020
		As Previously Reported				Adjustments				As Revised
Statement of Income
Sales – net of slotting fees and discounts		$	11,100,919			$	(265,978	)		$	10,834,941
Gross profit			3,727,600				(265,978	)			3,461,622
General and administrative expenses			2,722,165				(265,978	)			2,456,187
Operating expenses			2,751,646				(265,978	)			2,485,668
Income from operations			975,954				-				975,954
Net income		$	906,202			$	-			$	906,202
Basic and diluted income per share		$	0.03			$	-				0.03

 

 

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 STATEMENS” AND “RISK FACTORS” DETAILED IN PRIOR COMPANY FILINGS AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.

 

Results of Operations for the Three Months ended April 30, 2021 and 2020

 

The following table sets forth the summary statements of operations for the three months ended April 30, 2021 and 2020:

 

		Three Months Ended
		April 30, 2021				April 30, 2020
						(as revised)
Sales - Net of Slotting Fees and Discounts		$	10,313,400			$	10,834,941
Gross Profit		$	3,344,353			$	3,461,622
Operating Expenses		$	(2,492,154	)		$	(2,485,668	)
Other Income (Expenses)		$	27,274			$	(69,752	)
Income Tax Provision		$	(247,949	)		$	-
Net Income		$	631,524			$	906,202

 

For the three months ended April 30, 2021 and 2020, the Company reported a net income of $631,524 and $906,202, respectively. The change in net income between the three months ended April 30, 2021 and 2020 was mainly the result of a decrease in gross profit of $117,269 (discussed below) and the income tax provision of $247,949 recorded during the three months ended April 30, 2021 compared to $0 during the three months ended April 30, 2020.

 

Sales: Sales, net of slotting fees and discounts decreased by approximately 5% to $10,313,400 during the three months ended April 30, 2021, from $10,834,941 during the three months ended April 30, 2020. The decrease was mainly attributable to the prior year’s increase in sales due to inventory stocking of major national accounts during the early stages of the COVID-19 pandemic.

 

Gross Profit: The gross profit margin was 32% for the three months ended April 30, 2021 compared to 32% for the three months ended April 30, 2020.

 

Operating Expenses: Operating expenses increased by less than 1% during the three months ended April 30, 2021, as compared to the three months ended April 30, 2020. Operating expenses increased as a percentage of sales to 24% in 2021 compared to 23% in 2020. The $6,486 increase in total operating expenses is primarily attributable to the following increases in operating expenses:

 

●	Payroll and related expenses of $66,568 due to bonuses paid to executives;
●	Director fees of $23,972 due to the increase in the number of directors and increase in compensation to each director; and
●	Insurance expense of $23,580 due to an increase in costs of coverage of the director and officer policies and an increase in umbrella policy.

 

 

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

 

●	Professional fees of $77,089 due to reduced consulting and investment banker expenses; and
●	Stock compensation decreased by $26,604 due to a decrease in awards and vesting during the current period.

 

Other Income (Expenses): Other income (expenses) increased by $97,026 to income of $27,274 for the three months ended April 30, 2021 as compared to expenses of $(69,752) during the three months ended April 30, 2020. 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. For three months ended April 30, 2020, other expenses consisted of $(64,402) in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $(5,350) of amortization expense related to the debt discount.

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, liabilities and working capital at April 30, 2021 compared to January 31, 2021:

 

		April 30, 2021				January 31, 2021				Change
Current Assets		$	9,906,004			$	8,879,451			$	1,026,553
Current Liabilities		$	4,405,862			$	4,045,349			$	360,513
Working Capital		$	5,500,142			$	4,834,102			$	666,040

 

As of April 30, 2021, we had working capital of $5,500,142 as compared to a working capital of $4,834,102 as of January 31, 2021, an increase of $666,040. The increase in working capital is primarily attributable to an increase in cash of $1,052,796 and an increase in inventory of $243,258. These amounts were offset by a decrease in accounts receivable of $254,048 and an increase in accounts payable and accrued expenses of $338,962 and current portion of lease obligations of $21,551.

 

Net cash provided by operating activities for the three months ended April 30, 2021 and 2020 was $1,434,768 and $1,195,665, respectively. The net income for the three months ended April 30, 2021 and 2020 was $631,524 and $906,202, respectively.

 

Net cash used in all investing activities for the three months ended April 30, 2021 was $354,394 as compared to $105,616 for the three months ended April 30, 2020, 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 in all financing activities for the three months ended April 30, 2021 was $27,578 as compared to $330,296 provided for the three months ended April 30, 2020. 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. During the three months ended April 30, 2020, the Company received proceeds of $330,505 from the Paycheck Protection Program promissory note and the Company’s net borrowings on its line of credit increased by $150,000 over the prior year comparable period. The Company returned the $330,505 received from the Paycheck Protection Program in May 2020. These cash in-flows were offset by payments on its term loan of $125,001 and $25,208 paid for capital lease payments.

 

As reflected in the accompanying consolidated financial statements, the Company has net income and net cash provided by operations of $631,524 and $1,434,768, respectively, for the three months ended April 30, 2021.

 

 

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 14, 2022 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 December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying 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 2 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.

 

 

Leases

 

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

 

On February 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”) asset and liability in the consolidated balance sheet in the amount of $1,599,830 related to the operating lease for office and warehouse space. Results for the year ended January 31, 2020 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.

 

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.

 

 

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.

 

Off Balance Sheet Arrangements:

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Based on evaluation as of the end of the period covered by this Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are 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 February 1, 2021 and April 30, 2021, the Company had the following transactions in its common stock:

 

On April 28, 2021, five employees exercised a total of 84,000 options at an average exercise price of $0.86 for aggregate proceeds of $19,080 in exchange for 65,143 shares of the Company’s 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.

 

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.

 

 

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, 2021	By:	/s/ Carl Wolf
	Name:	Carl Wolf
	Title:	Chief Executive Officer
		(Principal Executive Officer)