THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO
THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE
FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
THESE FORWARD- LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG
OTHERS, THOSE LISTED UNDER "FORWARD-LOOKING STATEMENTS" AND "RISK FACTORS"
DETAILED IN PRIOR COMPANY FILINGS AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.
Results of Operations for the Three Months ended July 31, 2020 and 2019
The following table sets forth the summary statements of operations for the
three months ended July 31, 2020 and 2019:
Three Months Ended
July 31, 2020 July 31, 2019
Sales - Net of Slotting Fees and Discounts $ 10,384,484 $ 8,099,445
Gross Profit $ 3,214,081 $ 2,691,396
Operating Expenses $ (2,407,316 ) $ (2,240,454 )
Other Expenses $ (66,998 ) $ (92,634 )
Net Income $ 739,767 $ 358,308For the three months ended July 31, 2020 and 2019, the Company reported net
income of $739,767 and $358,308, respectively. The change in net income between
the three months ended July 31, 2020 and 2019 was primarily attributable to an
increase in sales of 28% and an increase in gross profit (32% of sales as
discussed below) and in addition to a decrease in interest expense and only a
modest increase in operating expenses (23% of sales as discussed below).
Sales: Sales, net of slotting fees and discounts increased by approximately 28%
to $10,384,484 during the three months ended July 31, 2020, from $8,099,445
during the three months ended July 31, 2019. During the three months ended July
31, 2020, the Company was able to increase its sales through new customers as
well as its existing customer base.
Gross Profit: The gross profit margin was 32% for the three months ended July
31, 2020 compared to 33% for the three months ended July 31, 2019. Gross margin
decreased due to short term higher beef raw material prices, partially offset by
plant operating efficiencies.
Operating Expenses: Operating expenses increased by 7% during the three months
ended July 31, 2020, as compared to the three months ended July 31, 2019.
Operating expenses decreased as a percentage of sales from 28% in 2019 to 23% in
2020. The $166,862 increase in total operating expenses is primarily
attributable to the following increases in operating expenses:
? Postage and freight of $46,936 due to increased sales and slightly lower
freight costs over the prior year.
? Professional fees of $34,153 due to an increase in investor relations
activities.
? Commission expense of $87,141 directly related to increased sales.
? Payroll and related expenses of $83,653 due to the addition of a Senior
Executive in February 2020.
2
These expense increases were offset by a decrease in the following as well as
minimal decreases in other expense categories:
? Advertising and promotion of $125,821 due to lower promotional expenses for
merchandising, offset by higher spending on a Sirius Radio Campaign.
Other Expense: Other expenses decreased by $25,636 to $66,998 for the three
months ended July 31, 2020 as compared to $92,634 during the three months ended
July 31, 2019. For three months ended July 31, 2020, other expenses consisted of
$61,648 in interest expense incurred on the Company's financing arrangements. In
addition, the Company recorded $5,350 of amortization expense related to the
debt discount. For three months ended July 31, 2019, other expenses consisted of
$87,284 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.
Results of Operations for the Six Months ended July 31, 2020 and 2019
The following table sets forth the summary statements of operations for the six
months ended July 31, 2020 and 2019:
Six Months Ended
July 31, 2020 July 31, 2019
Sales - Net of Slotting Fees and Discounts $ 21,485,403 $ 15,464,269
Gross Profit $ 6,941,681 $ 5,062,450
Operating Expenses $ (5,158,962 ) $ (4,131,942 )
Other Expenses $ (136,750 ) $ (216,534 )
Net Income $ 1,645,969 $ 713,974For the six months ended July 31, 2020 and 2019, the Company reported net income
of $1,645,969 and $713,974, respectively. The change in net income between the
six months ended July 31, 2020 and 2019 was primarily attributable to an
increase in sales of 39% and an increase in gross profit (32% of sales as
discussed below) in addition to a decrease in interest expense offset by only
modest increases in operating expenses (24% of sales as discussed below).
Sales: Sales, net of slotting fees and discounts increased by approximately 39%
to $21,485,403 during the six months ended July 31, 2020, from $15,464,269
during the six months ended July 31, 2019. During the six months ended July 31,
2020, the Company was able to increase its sales through new customers as well
as its existing customer base.
Gross Profit: The gross profit margin was 32% for the six months ended July 31,
2020 compared to 33% for the six months ended July 31, 2019. Gross margins
decreased due to short term higher beef raw material prices, offset by higher
plant operations efficiency.
Operating Expenses: Operating expenses increased by 25% during the six months
ended July 31, 2020, as compared to the six months ended July 31, 2019.
Operating expenses decreased as a percentage of sales from 27% in 2019 to 24% in
2020. The $1,027,020 increase in total operating expenses is primarily
attributable to the following increases in operating expenses:
? Postage and freight of $391,551 due to increased sales and change of customer
mix;
? Professional fees of $158,948 due to an increase in investor relations and
investment banking activities;
? Commission expense of $207,895 directly related to increased sales; and
? Payroll and related expenses of $157,044 due to the addition of a Senior
Executive in February 2020.
3
These expense increases were offset by decrease in the following as well as
minimal decreases in other expense categories:
? Advertising and promotion of $82,752 due to lower promotional expenses for
merchandising activity related to higher sales, and increased spending on a
Sirius Radio advertising campaign.
Other Expense: Other expenses decreased by $79,784 to $136,750 for the six
months ended July 31, 2020 as compared to $216,534 during the six months ended
July 31, 2019. For six months ended July 31, 2020, other expenses consisted of
$126,050 in interest expense incurred on the Company's financing arrangements.
In addition, the Company recorded $10,700 of amortization expense related to the
debt discount. For six months ended July 31, 2019, other expenses consisted of
$203,896 in interest expense incurred on the Company's financing arrangements.
In addition, the Company recorded $12,638 of amortization expense related to the
debt discount.
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working
capital at July 31, 2020 compared to January 31, 2020:
July 31, 2020 January 31, 2020 Increase
Current Assets $ 6,507,508 $ 5,620,255 $ 887,253
Current Liabilities $ 3,076,516 $ 4,208,231 $ 1,131,715
Working Capital $ 3,430,992 $ 1,412,024 $ 2,018,968As of July 31, 2020, we had working capital of $3,430,992 as compared to a
working capital of $1,412,024 as of January 31, 2020, an increase of $2,018,968.
In addition to the increase in sales and net income, the increase in working
capital is primarily attributable to an increase in cash of $1,304,903, an
increase in inventories of $512,344, an increase in prepaid expenses of $4,366,
a decrease in accounts payable and accrued expenses $982,317 and a net decrease
of $149,398 in the current portion of lease and debt obligations. These amounts
were offset by a decrease in accounts receivable of $934,360.
Net cash provided by operating activities for the six months ended July 31, 2020
and 2019 was $1,465,898 and $889,577, respectively. Cash provided by operations
is primarily attributable to the net income for the six months ended July 31,
2020 and 2019 of $1,645,969 and $713,974, respectively.
Net cash used in all investing activities for the six months ended July 31, 2020
was $189,287 as compared to $89,525 for the six months ended July 31, 2019,
respectively, to acquire new machinery and equipment and leasehold improvements.
Our capital expenditures are attributed to a Plant Expansion Project in progress
since mid-2017 to expand plant capacity and efficiency to meet growing demand.
Net cash provided by all financing activities for the six months ended July 31,
2020 was $28,292 as compared to $774,234 used in financing activities for the
six months ended July 31, 2019. During the six months ended July 31, 2020, the
Company received proceeds of $330,505 from the Paycheck Protection Program
promissory note and proceeds of $1,484,303 from the exercise of options and
warrants. 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 line of credit of $500,000, payments on its term loan of $250,002, payments
of $641,844 on the related party loans and $64,165 paid for capital lease
payments. During the six months ended July 31, 2019, the Company made net
borrowings on the line of credit of $65,314. These cash in-flows were offset by
payments of term loan of $808,335 and $31,213 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 $1,645,969 and $1,465,898,
respectively, for the six months ended July 31, 2020.
Although the expected revenue growth and control of expenses lead management to
believe that it is probable that the Company's cash resources will be sufficient
to meet its cash requirements through the fiscal year ending January 31, 2021
based on current and projected levels of operation, 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.
4
Recent Accounting Pronouncements
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740):
Intra-Entity Transfers of Assets Other than Inventory", which eliminates the
exception that prohibits the recognition of current and deferred income tax
effects for intra-entity transfers of assets other than inventory until the
asset has been sold to an outside party. The updated guidance is effective for
annual periods beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption of the update is permitted. The
adoption of the new standard did not have a significant impact on the Company's
condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic
820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement". This update is to improve the effectiveness of disclosures in the
notes to the financial statements by facilitating clear communication of the
information required by U.S. GAAP that is most important to users of each
entity's financial statements. The amendments in this update apply to all
entities that are required, under existing U.S. GAAP, to make disclosures about
recurring or nonrecurring fair value measurements. The amendments in this update
are effective for all entities for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. The adoption of the new
standard did not have a significant impact on the Company's condensed
consolidated financial statements.
In August 2019, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") ASU 2018-15, "Customer's Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract". The amendments in this update align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. The Company adopted this guidance on
February 1, 2020 on a prospective basis. The adoption of this guidance did not
have a material impact on the condensed consolidated financial statements.
In December 2019, the FASB issued authoritative guidance intended to simplify
the accounting for income taxes (ASU 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes"). This guidance eliminates certain
exceptions to the general approach to the income tax accounting model and adds
new guidance to reduce the complexity in accounting for income taxes. This
guidance is effective for annual periods after December 15, 2020, including
interim periods within those annual periods. The Company is currently evaluating
the potential impact of this guidance on its consolidated financial statements.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, when adopted, will have a material effect on the
accompanying consolidated financial statements.
Critical Accounting Policies
Our condensed consolidated financial statements and related public financial
information are based on the application of accounting principles generally
accepted in the United States ("GAAP"). GAAP requires the use of estimates;
assumptions, judgments and subjective interpretations of accounting principles
that have an impact on the assets, liabilities, revenues and expense amounts
reported. These estimates can also affect supplemental information contained in
our external disclosures including information regarding contingencies, risk and
financial condition. We believe our use of estimates and underlying accounting
assumptions adhere to GAAP and are consistently and conservatively applied. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may
differ materially from these estimates under different assumptions or
conditions. We continue to monitor significant estimates made during the
preparation of our financial statements.
Our significant accounting policies are summarized in Note 2 of our condensed
consolidated financial statements.
5
COVID-19 Pandemic
In December 2019, an outbreak of a novel strain of coronavirus (COVID-19)
originated in Wuhan, China, and has since spread to a number of other countries,
including the United States. On March 11, 2020, the World Health Organization
characterized COVID-19 as a pandemic. In addition, as of the time of the filing
of this Annual Report on Form 10-K, several states in the United States,
including New Jersey, where the Company is headquartered, have declared states
of emergency, and several countries around the world, including the United
States, have taken steps to restrict travel. While all of the Company's
operations are located in the United States, it participates in a global supply
chain, and the existence of a worldwide pandemic, the fear associated with
COVID-19, or any pandemic, and the reactions of governments around the world in
response to COVID-19, or any, pandemic, to regulate the flow of labor and
products and impede the travel of personnel, may impact its ability to conduct
normal business operations, which could adversely affect the Company's results
of operations and liquidity. Disruptions to the Company's supply chain and
business operations, or to its suppliers' or customers' supply chains and
business operations, could include disruptions from the closure of supplier and
manufacturer facilities, interruptions in the supply of raw materials and
components, personnel absences, or restrictions on the shipment of its
suppliers' or customers' products, any of which could have adverse ripple
effects on the Company's manufacturing output and delivery schedule. If the
Company needs to close any of its facilities or a critical number of our
employees become too ill to work, the production ability could be materially
adversely affected in a rapid manner. Similarly, if the Company's customers
experience adverse business consequences due to COVID-19, or any other pandemic,
demand for its products could also be materially adversely affected in a rapid
manner. Global health concerns, such as COVID-19, could also result in social,
economic, and labor instability in the countries and localities in which the
Company or its suppliers and customers operate. Any of these uncertainties could
have a material adverse effect on the business, financial condition or results
of operations. In addition, a catastrophic event that results in the destruction
or disruption of the Company's data centers or its critical business or
information technology systems would severely affect the ability to conduct
normal business operations and, as a result, the operating results would be
adversely affected.
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).
© Edgar Online, source Glimpses
MAMA'S CREATIONS, INC. 
