UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended January 31 2020, 2023
OR
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
MAMAMANCINI’S HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 27-0607116 | |||
(State or other jurisdiction of | (Commission | (I.R.S. Employer | ||
incorporation or organization) | File Number) | Identification Number) |
25 Branca Road
East Rutherford, NJ07073
(Address of Principal Executive Offices)
(Former name or former address, if changed since last report)
(201)531-1212
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:None
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 |
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] ☐ No [X] ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] ☐ No [X] ☒
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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. (Check one):
Large accelerated filer | Accelerated filer | Emerging Growth Company | ||
Non-accelerated filer | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] ☐ No [X] ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on July 31, 2019,29, 2022, based on a closing price of $0.47$1.46 was approximately $7,099,468.$28,822,546.
As of April 23, 2020,26, 2023, the registrant had 31,991,241 shares of its common stock, 0.00001 par value per share, issued and outstanding.
Documents Incorporated by Reference: None.None.
Table of Contents
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FORWARD LOOKING STATEMENTS
Included in this Form 10-K are “forward-looking” statements,“forward-looking statements”, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward- lookingforward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
Our History
MamaMancini’s Holdings, Inc. (formerly Mascot Properties, Inc.) (the “Company” or “MamaMancini’s”) was incorporated in the State of Nevada on July 22, 2009. Mascot Properties, Inc.’s (“Mascot”) activities since its inception consisted of trying to locate real estate properties to manage, primarily related to student housing, and services which included general property management, maintenance and activities coordination for residents. Mascot did not have any significant development of such business and did not derive any revenue. Due to the lack of results in its attempt to implement its original business plan, management determined it was in the best interests of the shareholders to look for other potential business opportunities.
On February 22, 2010, MamaMancini’s LLC was formed as a limited liability company under the laws of the state of New Jersey in order to commercialize our initial products. On March 5, 2012, the members of MamaMancini’s LLC, holders of 4,700 units (the “Units”) of MamaMancini’s LLC, exchanged the Units for 15,000,000 shares of common stock and those certain options to purchase an additional 223,404 shares of MamaMancini’s Inc. (the “Exchange”). Upon consummation of the Exchange, MamaMancini’s LLC ceased to exist and all further business has been and continues to be conducted by MamaMancini’s Inc.
On January 24, 2013, Mascot, Mascot Properties Acquisition Corp, a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), MamaMancini’s Inc., a privately-held Delaware Corporation headquartered in New Jersey (“Mama’s”) and David Dreslin, an individual (the “Majority Shareholder”), entered into an Acquisition Agreement and Plan of Merger (the “Agreement”) pursuant to which the Merger Sub was merged with and into Mama’s, with Mama’s surviving as a wholly-owned subsidiary of the Company (the “Merger”). The transaction (the “Closing”) took place on January 24, 2013 (the “Closing Date”). Mascot acquired, through a reverse triangular merger, all of the outstanding capital stock of Mama’s in exchange for issuing Mama’s shareholders (the “Mama’s Shareholders”), pro-rata, a total of 20,054,000 shares of the Company’s common stock. As a result of the Merger, the Mama’s Shareholders became the majority shareholders of Mascot. Immediately following the Closing of the Agreement, Mascot changed its business plan to that of Mama’s. On March 8, 2013, Mascot received notice from the Financial Industry Regulatory Authority (“FINRA”) that its application to change its name and symbol had been approved and effective Monday, March 11, 2013, Mascot began trading under its new name, “MamaMancini’s Holdings, Inc.” (“MamaMancini’s” or the “Company”) and under its new symbol, “MMMB”.
On November 1, 2017, MamaMancini’s, Joseph Epstein Food Enterprises, Inc., a New Jersey corporation (“JEFE”), and MMMB Acquisition, Inc., a Nevada corporation and wholly owned subsidiary of MamaMancini’s (“Merger Sub”), completed a merger transaction whereby JEFE merged with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly owned subsidiary of MamaMancini’s. Under the terms of the Merger Agreement and in connection with the merger, the Company acquired all assets of JEFE. The consideration for the transaction was (a) the extinguishment of the Inter-Company Loan between the parties, (b) the assumption by the Company of all JEFE accounts payable and accrued expenses (c) assumption by the Company of certain third-party loans to JEFE totaling approximately $782,000 and (d) indemnification of Carl Wolf with respect to his collateralization of a bank loan to JEFE in the amount of approximately $250,000. As a result of the transaction, (i) the Company became the sole shareholder of JEFE, which became a wholly-owned subsidiary of the Company.Company. No cash or stock was exchanged in connection with the transaction.
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On December 23, 2021, the Company announced the signing of definitive agreements for two acquisitions – T&L Creative Salads, Inc. (“T&L” or “T&L Creative Salads”) and Olive Branch, LLC (“OB” or “Olive Branch”), which are related gourmet food manufacturers based in New York. The closing of these transactions occurred and was completed on December 29, 2021. The Company acquired T&L and OB for a combined purchase price of $14.0 million, including $11.0 million in cash at closing and $3.0 million in a promissory note (the “Note”). The promissory note requires annual principal payments of $750,000 payable on each anniversary of the closing, together with accrued interest at a rate of three and one-half (3.5%) per annum. The Note holder is T&L Acquisition Corp, a wholly-owned subsidiary of the Company, and it is guaranteed by the Company. The Note holder has a right of set-off against the balance due for any matters which are the subject of an indemnification under the transaction agreements. The cash payment was funded through cash on hand and a $7.5 million acquisition loan from M&T Bank (see below). Anthony Morello, Jr. remained as President of T&L.
On December 29, 2021, the Company entered into a Multiple Disbursement Term Loan (the “Loan”) with M&T Bank for the original principal amount of $7,500,000 payable in monthly installments over a 60-month period. The maturity date of the Loan is January 17, 2027. Interest is payable on the principal amount of the Loan at a variable rate per annum based on the Company’s Senior Funded Debt/EBITDA Ratio (as defined in the Credit Agreement between the Company and M&T Bank) established with respect to the Borrower as of the date of any advance under the Loan as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.00 but less than or equal to 2.50, 4.12 percentage point(s) above one-day (i.e., overnight) Secured Overnight Financing Rate (“SOFR”) (as defined); (ii) greater than 1.50 but less than or equal to 2.00, 3.62 percentage points above one-day SOFR; or (iii) 1.50 or less, 3.12 percentage points above one-day SOFR. In all events set forth at subsections (i) through (iii) in the preceding sentence, if SOFR shall at any time be less than 0.25%, one-day SOFR shall be deemed to be 0.25% and the foregoing margins shall be applied to the SOFR Index Floor.
All of the proceeds of the Loan were utilized to fund the acquisition of T&L and OB.
On June 28, 2022, the Company acquired a 24% minority interest in Chef Inspirational Foods, LLC (“CIF”), a leading developer, innovator, marketer and sales company selling prepared foods, for an investment of $1.2 million. The investment consists of $500,000 in cash and $700,000 in the Company’s common stock. The Company also was granted the option to purchase the remaining seventy-six percent (76%) interest in CIF within one year of June 28, 2022. The option purchase price is an additional $3.8 million, of which $3.5 million would be paid in cash and $300,000 in common stock, which would be paid within a two-year period from the date of the option exercise.
Our Company
MamaMancini’s roots go back to our founder Dan Dougherty, whose grandmother Anna “Mama” Mancini emigrated from Bari, Italy to Bay Ridge, Brooklyn in 1921. Our products were developed using her old-world Italian recipes that were handed down to her grandson, Dan Dougherty. Today we market a line of all-natural specialty prepared frozen and refrigerated foods for sale in retailers around the country. Our primary products include beef and turkey meatballs, meat loaf, chicken, sausage-related products and pasta entrees, all with slow cooked Italian Sauce.entrees.
Our products are all natural, contain a minimum number of ingredients and are generally derived from the original recipes of Anna “Mama” Mancini. Our products appeal to health-conscious consumers who seek to avoid artificial flavors, synthetic colors and preservatives that are used in many conventional packaged foods.
The United States Department of Agriculture (the “USDA”) defines all natural“all natural” as a product that contains no artificial ingredients, coloring ingredients or chemical preservatives and is minimally processed. The Company’sMamaMancini’s products were submitted to the USDA and approved as all natural. The Food and Safety and Inspection Service (“FSIS”) Food Standards and Labeling Policy Book (2003) requires meat and poultry labels to include a brief statement directly beneath or beside the “natural” Labellabel claim that “explains what is meant by the term natural i.e., that the product is a natural food because it contains no artificial ingredients and is only minimally processed”. The term “natural” may be used on a meat label or poultry label if the product does not contain any artificial flavor or flavoring, coloring ingredient, chemical preservative, or any other artificial or synthetic ingredient. Additionally, the term “all natural” can be used if the FSIS approves your product and label claims. The Company’s product and label claims have been approved by the FSIS to contain the all-natural label.
Additionally, the Company has recently commenced marketing of certain “meatless” versions of its product line under a Trademark Licensing Agreement with Beyond Meat, Inc.
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Our products are principally sold to supermarkets, club chains, and mass-market retailers. We currently have 26 differentmore than 50 product offerings across our beef, chicken, salad and olive portfolios which are packaged in different sized retail and bulk packages. Our products are principally sold in multiple sectionsthe deli section of the supermarket, including hot bars, salad bars, prepared foods (meals), sandwich, as well as cold deli and foods-to-go sections. Our products are also sold in the frozen food and fresh meat sections.section. We sell directly to both food retailers and food distributors.
Finally, we also sell our products on QVC through live on-air offerings, auto ship programs and for everyday purchases on their web site. QVC is the world’s largest direct to consumer marketer.
On December 29, 2021 MamaMancini’s made two acquisitions which expand the company’s core product lines, and access to specific markets. T &L Creative Salads and Olive Branch, are related premier gourmet food manufacturers based in New York. T&L offers a full line of protein, salad and sandwich products for retail food chains and club stores, delis, bagel stores, caterers and provision distributors. T&L uses high-quality meats, seafood and vegetables, prepared to meet the standards set forth by the USDA and the FDA.
During
T&L sales are spearheaded by a line of chicken products, including grilled and breaded chicken breasts as well as chicken strips. T&L’s SQF level 2 state-of-the-art USDA facility in Farmingdale, New York has positioned it to expand its operations nationally into MamaMancini’s network of retailers and club stores. T&L actively sells its salads and prepared products to over 250 delis, bagel shops, smaller retail accounts and food distributors in the year ended January 31, 2020,New York metropolitan area, representing over 35% of T&L’s current sales volume.
Olive Branch started operations six years ago as a separate company to concentrate on selling olives, olive mixes, and savory products to a limited number of large retail customers, primarily in pre-packaged containers. Olive Branch products are manufactured at the same facility as T&L in Farmingdale, NY.
On June 28, 2022, the Company earned revenues from three customers representing approximately 46%, 11%acquired a 24% minority interest in CIF, a leading developer, innovator, marketer and 10% of gross sales. During the year ended January 31, 2020, these three customers represented approximately 34%, 16% and 8% of total gross outstanding receivables, respectively. During the year ended January 31, 2019, thesales company earned revenues from two customers representing approximately 50% and 10% of gross sales. As of January 31, 2019, three customers represented approximately 44%, 19% and 13% of total gross outstanding receivables, respectively.selling prepared foods.
The Company continually reviews its accounts in order to focus on maximum performance, and as a result periodically eliminates under-performing accounts.
Industry Overview
Our products are considered specialty prepared foods, in that they are all natural, taste great, are authentic Italian and are made with high quality ingredients. The market for specialty and prepared foods spans several sections of the supermarket, including frozen, deli- prepareddeli-prepared foods, and the specialty meat segment of the meat department.
Our Strengths
We believe that the following strengths differentiate our products and our brand:brands:
● | Authentic recipes and great taste.Our MamaMancini’s products are founded upon Anna “Mama” Mancini’s old-world Italian recipes. We believe the authenticity of our products has enabled us to build and maintain loyalty and trust among our current customers and will help us attract new customers. Additionally, we continuously receive positive customer testimonials regarding the great taste and quality of our products. | |
● | Healthy and convenient.Our products are made only from high quality natural ingredients, including domestic inspected beef, whole |
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Great value.We strive to provide our customers with a great tasting | ||
● | New products and innovation. Since our inception, we have continued to introduce new and innovative products. While we pride | |
● | Key Market Concentration. Through the acquisition of T&L Creative Salads, MamaMancini’s is deeply established in the New York-New Jersey-Connecticut tristate metro market with strong new distribution to deli’s, independent end retailers, bagel shops and provision distributors. MamaMancini’s products will fit well into the needs of this market and gives us the opportunity to extend the brand. In addition, our legacy MamaMancini’s national distribution footprint allows our T&L and Olive Branch products to gain broader national distribution. |
Customers/Management
● | Strong consumer loyalty.Many of our consumers are loyal and enthusiastic brand advocates. Our consumers trust us to deliver great-tasting products made with all-natural ingredients. Consumers have actively communicated with us through our website and/or social media channels. We believe that this consumer interaction has generated interest in our products and has inspired enthusiasm for our brand. We also believe that enthusiasm for our products has led and will continue to lead to repeat purchases and new consumers trying our products. | |
● | Experienced leadership.We have a proven and experienced senior management team. |
Our Growth Strategy
We are actively executing a strategy to build our brand’s reputation, grow sales and improve our product and operating margins by pursuing the following growth initiatives:
● | Build Breadth & Depth of Distribution: MamaMancini’s, T&L Creative Salads & Olive Branch are still underpenetrated in existing sales channels, under-SKU’d in existing stores and have the potential to enter new channels. We will leverage our strong brand, superior quality and high-touch service to list more of our items in existing customers as well as enter new customers. In addition, we will be leveraging our existing customer relationships to cross-sell our newly acquired brands, thereby driving larger consumer baskets, expanding promotional opportunities, and driving down freight charges, as we are shipping more Mama’s items to the same locations. |
● | Launch Consumer-Driven Innovation: As we become even more consumer-focused, we seek to understand consumers’ unmet Deli needs. We will passionately understand our consumers and develop incremental sales opportunities. We will seek to develop products that capture incremental occasions, incremental consumer groups and incremental sales channels. For example, our new Meatballs in a Cup offering (1) provides for a “new for us” snacking occasion incremental to our current meal offerings, (2) provides an attraction to a younger on-the-go consumer audience, and (3) provides for an incremental sales channel with entry into the Convenience Store channel. |
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Pricing
Our pricing strategy focuses on being competitively priced with other premium brands. Since our products are positioned in the authentic premium prepared food category, we maintain prices competitive with those of similar products and prices slightly higher than those in the commodity prepared foods section. This pricing strategy also provides greater long-term flexibility as we grow our product line through the growth curve of our products. Current typical retail prices for 16 oz. packages range from $4.99 to $7.99, and $5.99 to $9.99, per pound for prepared food products sold to delis or hot bars. Increases in raw materialsmaterial costs, among other factors, may lead us to us consider price increases in the future.
Suppliers/Manufacturers
As of January 31, 2020,2023, approximately 90% of our products are internally produced by the Company’s wholly-owned subsidiary, Joseph Epstein Food Enterprises, Inc (“JEFE”). Approximately 10% are manufactured on an outsourced basis.in our East Rutherford, NJ or Farmingdale, NY Facilities. None of our raw materials or ingredients are directly grown or produced by us. From time-to-time we negotiate with other manufacturers to supplement the Company’s manufacturing capability. We currently purchase modest quantities from other manufacturers. All of the raw materials and ingredients in our products are readily available and are readily ascertainable by our suppliers. We have not experienced any material shortages of ingredients or other products necessary to our operations and do not anticipate such shortages in the foreseeable future.
Sales/Brokers
Sales/Brokers
Our products are sold primarily through a commission broker network. We sell to large retail chains who direct our products to their own warehouses or to large food distributors.
The Company increased its sales management efforts with the result that the Company is now actively soliciting business with almost every major retail supermarket chain in the country. MamaMancini’s products are currently sold nationwide, with its greatest concentration in the Northeast and Southeast. In April 2019, the Company initiated a major sales effort into the food service, convenience store, export and special projects areas.
Marketing
The majority of our marketing activity has been generated through promotional discounts, consumer trial,trials, consumer product tastings and demonstrations, in-store merchandising and signage, couponing, word of mouth, consumer public relations, social media, special merchandising events with retailers and consumer advertising.
Based on the Company’s metrics for determining brand awareness, which includes market studies and analysis of consumer recognition of the MamaMancini’s brand, the Company believes that brand awareness for MamaMancini’s has grown in the past 12 months.
Investments - Meatball ObsessionCompetition
During 2011 the Company acquired a 34.62% interest in Meatball Obsession, LLC (“MO”) for a total investment of $27,032. This investment is accounted for using the equity method of accounting. Accordingly, investments are recorded at acquisition cost plus the Company’s equity in the undistributed earnings or losses of the entity. At December 31, 2011 the investment was written down to $0 due to losses incurred by MO. The Company’s ownership interest in MO has decreased due to dilution. At January 31, 2020 and 2019, the Company’s ownership interest in MO was 12% and 12%, respectively. One of our directors, Steven Burns, serves as the Chairman of the Board of Directors of Meatball Obsession. As of December 31, 2019, MO had wound down and ceased operations. Major accounts were transitioned to MamaMancini’s as a part of the wind down.
Competition
The gourmet and specialty pre-packaged and frozen food industry has many large competitors specializing in various types of cuisine from all over the world. Our product lines are currently concentrated on Italian specialty foods. While it is our contention that our competition is much more limited than the entire frozen and pre-packaged food industry based on our products’ niche market, there can be no assurances that we do not compete with the entire frozen and pre-packaged food industry. We believe our principal competitors include Quaker Maid, Hormel, Rosina Company, Inc., Casa Di Bertacchi, Inc., Farm Rich, Inc., Mama Lucia, Buona Vita, Inc., Taylor Farms, Kings Command, DeLallo Foods, and Kings Command.Gourmet Boutique.
Intellectual Property
Our current intellectual property consists of trade secret recipes and cooking processes for our products and four trademarks for “MamaMancini’s”, “Mac N’ Mamas”, “Sunday Dinner” and “The Meatball Lovers Meatball”, “The Original Meatball in a Cup”, and “Mac N’ Mamas”. The recipes and use of the trademarks have been assigned in perpetuity to the Company.
We rely on a combination of trademark, copyright and trade secret laws to establish and protect our proprietary rights. We will also use technical measures to protect our proprietary rights.
Royalty Agreement
In accordance with a Development and License Agreement (the “Development and License Agreement”) entered into on January 1, 2009 with Dan Dougherty relating to the use of his grandmother’s recipes for the products to be created by MamaMancini’s,Mama’s, Mr. Dougherty granted us a 50-year exclusive license (subject to certain minimum payments being made), with a 25-year extension option, to use and commercialize the licensed items. Under the terms of the Development and License Agreement, Mr. Dougherty shall develop 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”). Mr. Dougherty shall work with us to develop Licensor Products that are acceptable to us. Upon acceptance of a Licensor Product by us, Mr. Dougherty’s trade secret recipes, formulas methods and ingredients for the preparation and production of such Licensor Products shall be subject to the Development and License Agreement. In connection with the Development and License Agreement, we pay Mr. Dougherty a royalty fee on net sales.
USDA approval / approval/Regulations
Our food products, which are manufactured both in our own manufacturing facilities and in third-party facilities, are subject to various federal, state and local regulations and inspection, and to extensive regulations and inspections regarding sanitation, quality, packaging and labeling. In order to distribute and sell our products outside the State of New Jersey, the third-party food processing facilities must meet the standards promulgated by the U.S. Department of Agriculture (the “USDA”). Our manufacturing processing facilities and products are subject to periodic inspection by federal, state, and local authorities. In January 2011, the FDA’sFood and Drug Administration’s (“FDA”) Food Safety Modernization Act was signed into law. The law will increaseincreased the number of inspections at food facilities in the U.S. in an effort to enhance the detection of food borne illness outbreaks and order recalls of tainted food products. The facilities in which our products are manufactured are inspected regularly and comply with all the requirements of the FDA and USDA.
We are subject to the Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, packaging, and safety of food. Under this program, the FDA regulates manufacturing practices for foods through, among other things, its current “good manufacturing practices” regulations, or GMP’s, and specifies the recipes for certain foods. Specifically, the USDA defines “all natural” as a product that contains no artificial ingredients, coloring ingredients or chemical preservatives and is minimally processed. The Company’sMama’s products were submitted to the USDA and approved as “all natural”. However, should the USDA change their definition of “all natural” at some point in the future, or should MamaMancini’sMama’s change theirits existing recipes to include ingredients that do not meet the USDA’s definition of “all natural”, our results of operations could be adversely affected.
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The FTC and other authorities regulate how we market and advertise our products, and we are currently in compliance with all regulations related thereto, although we could be the target of claims relating to alleged false or deceptive advertising under federal and state laws and regulations. Changes in these laws or regulations or the introduction of new laws or regulations could increase the costs of doing business for us or our customers or suppliers or restrict our actions, causing our results of operations to be adversely affected.
Quality Assurance
We take precautions designed to ensure the quality and safety of our products. In addition to routine third-party inspections of our manufacturing facilities, we have instituted regular audits to address topics such as allergen control, ingredient, packaging and product specifications and sanitation. Under the FDA Food Modernization Act, both our own manufacturing facilities and each of our contract manufacturers are required to have a hazard analysis critical control points plan that identifies critical pathways for contaminants and mandates control measures that must be used to prevent, eliminate or reduce relevant food-borne hazards.
Our manufacturing facility isfacilities are certified in the Safe Quality Food Program. These standards are integrated food safety and quality management protocols designed specifically for the food sector and offer a comprehensive methodology to manage food safety and quality simultaneously. Certification provides an independent and external validation that a product, process or service complies with applicable regulations and standards.
We work with suppliers who assure the quality and safety of their ingredients. These assurances are supported by our purchasing contracts or quality assurance specification packets, including affidavits, certificates of analysis and analytical testing, where required. The quality assurance staff within our manufacturing facilityfacilities and within our contract manufacturers conduct periodic on-site routine audits of critical ingredient suppliers.
Where You Can Find More Information
The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Smaller reporting companies are not required to provide the information required by this item. Notwithstanding, in addition to risk factors highlighted in previous reports, the Company adds the following additional risk factor:
We could be substantially affected by the Coronavirus (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 have declared states of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. While allThe loss of our operations are located in the United States, we participate in a national supply chain,largest customers would significantly reduce our revenue 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 our ability to conduct normal business operations, which could adversely affect our results of operations.
During the year ended January 31, 2023 two customers represented approximately 37% or our gross revenues and during the year ended January 31, 2022 three customers represented approximately 58% of our gross revenue. The loss of our largest customers would significantly reduce our revenue, which would have a material adverse effect on our results of operations. We can provide no assurance that these customers will continue to place orders in the future.
We depend on the services of key personnel, and may not be able to operate and grow our business effectively if we lose their services or are unable to attract qualified personnel in the future.
We rely heavily on our senior management team, due to their broad experience with consumer focused companies, to identify internal expansion and external growth companies. Our ability to retain senior management and other key personnel is therefore very important to our future success. We have employment agreements with our senior management, but these employment agreements do not ensure that they will not voluntarily terminate their employment with us. In addition, our key personnel are subject to non-solicitation and confidential information restrictions. We do not have key man insurance for any of our current management or other key personnel. The loss of any key personnel would require the remaining key personnel to divert immediate attention to seeking a replacement. Competition for senior management personnel is intense, and fit is important to us. Our inability to find a suitable replacement for any departing executive officer or key employee on a timely basis could adversely affect our ability to operate and grow our business.
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Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and liquidity. Disruptionsits financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”), was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”), as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. If any of our supply chain andcounterparties to any such instruments were to be placed into receivership, we may be unable to access such funds. In addition, if any parties with whom we conduct business operations,are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties’ ability to pay their obligations to us or to our suppliers’ or customers’ supply chainsenter into new commercial arrangements requiring additional payments to us could be adversely affected. In this regard, counterparties to SVB credit agreements and business operations, could include disruptionsarrangements, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts from the closure of supplierSVB and manufacturer facilities, interruptionsuncertainty remains over liquidity concerns in the supplybroader financial services industry. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.
Inflation and rapid increases in interest rates have led to a decline in the trading value of raw materialspreviously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and components, personnel absences, or restrictionsFederal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the shipmentsale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediate liquidity may exceed the capacity of such program. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking relationships as we believe necessary or appropriate, our suppliers’access to funding sources and other credit arrangements in amounts adequate to finance or customers’ products, any of which could have adverse ripple effects oncapitalize our manufacturing outputcurrent and delivery schedule. If we need to close any of our facilities or a critical number of our employees become too ill to work, our production abilityprojected future business operations could be materially adversely affectedsignificantly impaired by factors that affect us, the financial institutions with which we have arrangements directly, or the financial services industry or economy in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, or any other, pandemic, demand for our productsgeneral. These factors could also be materially adversely affected in a rapid manner. Global health concerns,include, among others, events such as COVID-19, could also result in social, economic, and laborliquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the countries and localitiesfinancial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or our suppliers and customers operate. Anybusiness relationships, but could also include factors involving financial markets or the financial services industry generally.
The results of events or concerns that involve one or more of these uncertaintiesfactors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, the following:
●Delayed access to deposits or other financial assets or the uninsured loss of deposits or other financial assets;
●Loss of access to revolving existing credit facilities or other working capital sources and/or the inability to refund, roll over or extend the maturity of, or enter into new credit facilities or other working capital resources;
●Potential or actual breach of contractual obligations that require us to maintain letters or credit or other credit support arrangements; or
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In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by parties with whom we conduct business, which in turn, could have a material adverse effect on our current and/or projected business financial condition oroperations and results of operations.operations and financial condition. For example, a party with whom we conduct business may fail to make payments when due, default under their agreements with us, become insolvent or declare bankruptcy. Any bankruptcy or insolvency, or the failure to make payments when due, of any counterparty of ours, or the loss of any significant relationships, could result in material losses to us and may material adverse impacts on our business.
Item 1B. Unresolved Staff Comments.
Not applicable.
Our principal executive office is located at 25 Branca Road East Rutherford, NJ 07073. We currently lease 24,213 square feet of space located in East Rutherford, NJ from Joseph Branca Partnership, Ltd for a current rental of $15,996$17,655 per month. The lease term runs through March 31, 2024 with renewal options through March 31, 2029. In addition, we lease an additional 1,0776,072 square feet of space at 355 Murray Hill Parkway from CLN Associates, LLC for a current rental of $1,817$9,032 per month. We currently lease 20,188 square feet in a fully contained facility at 148 Allen Boulevard, Farmingdale, NY from 148 Allen Blvd LLC for production and distribution of T&L Creative Salads and Olive Branch products. This property is owned by Anthony Morello, Jr., President of T&L as well as individuals related to Mr. Morello. This lease term is through November 30, 2031 with the option to extend the lease for two additional ten-year terms with current rent of $20,200 per month.
We are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations.material litigation. 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 Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) Market Information
Our shares of common stock are currently quoted on the OTCQBNASDAQ under the symbol “MMMB” The following table sets forth (i) the intra-day high and low sales price per share for our common stock, as reported on the OTCQB for the fiscal years endedperiod from February 2021 to July 2022 and NASDAQ for the period from July 2022 to January 31, 2020 and January 31, 2019.2023. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Fiscal Year Ended January 31, 2020 | High | Low | ||||||||||||||
Fiscal Year Ended January 31, 2022 | High | Low | ||||||||||||||
First Quarter | $ | 0.84 | $ | 0.64 | $ | 3.15 | $ | 1.82 | ||||||||
Second Quarter | $ | 0.69 | $ | 0.43 | $ | 3.35 | $ | 2.20 | ||||||||
Third Quarter | $ | 0.82 | $ | 0.38 | $ | 2.80 | $ | 2.21 | ||||||||
Fourth Quarter | $ | 1.50 | $ | 0.57 | $ | 2.75 | $ | 1.73 |
Fiscal Year Ended January 31, 2019 | High | Low | ||||||||||||||
Fiscal Year Ended January 31, 2023 | High | Low | ||||||||||||||
First Quarter | $ | 1.47 | $ | 1.10 | $ | 2.03 | $ | 1.00 | ||||||||
Second Quarter | $ | 1.14 | $ | 0.86 | $ | 1.58 | $ | 1.03 | ||||||||
Third Quarter | $ | 0.93 | $ | 0.65 | $ | 1.74 | $ | 1.13 | ||||||||
Fourth Quarter | $ | 0.93 | $ | 0.60 | $ | 2.06 | $ | 1.52 |
The market price of our common stock, like that of other early stage companies, is highly volatile and is subject to fluctuations in response to variations in operating results, announcements of new products, or other events or factors. Our stock price may also be affected by broader market trends unrelated to our performance.
(b) Holders
As of April 23, 2020,26, 2023, there were approximately 10269 record holders of our common stock and there were 31,991,24136,317,857 shares of our common stock issued and outstanding. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers or other nominees. Please see SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT for information related to the holdings of certain beneficial owners and management of the Company.
(c) Dividends
Series A Preferred Stock. The holders of the Series A Convertible Preferred were entitled to receive dividends at a rate of eight percent (8%) per annum payable quarterly in cash or Company Common Stock at the option of the holder. All outstanding shares of Series A Convertible Preferred Stock automatically converted to Company Common Stock on July 27, 2017February 13, 2020 and no shares of Series A Preferred Stock are currently issued and outstanding.
Series B Preferred Stock. The holders of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, an accruing cumulative dividend, in preference to any dividend on the Common Stock, at an annual rate of eight percent (8%) of the Original Purchase Price, payable monthly. As of January 31, 2023 there are 54,600 shares of Series B Preferred stock issued and outstanding.
Common Stock.The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, general economic conditions, and other pertinent conditions. We have not paid any cash dividends to the holders of our Common Stock and it is not our present intention to pay any cash dividends on our Common Stock in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
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(d) Securities Authorized for Issuance under Equity Compensation Plans
At the present time, we have 450,000 shares of common stock authorized for issuance under ourThe following table provides information concerning equity compensation plan. For more information on our equity compensation plan please refer toarrangements as of January 31, 2023:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity compensation plans approved by security holders(1) | 1,058,647 | $ | 0.98 | 3,811,928 |
(1) Consists of the Current Report on Form 8-K filed with the SecuritiesMamaMancini’s Holdings 2021 Incentive Stock and Exchange Commission on June 5, 2013.Award Plan.
Recent Sales of Unregistered Securities
Below is a list of securities sold by us from February 1, 20192022 through January 31, 20202023 which were not registered under the Securities Act.
Common Stock:
Name of Purchaser | Issue Date | Security | Shares | Consideration | ||||||
4/26/2022 | Common | 15,675 | Compensation | |||||||
Siegel Suffolk Family LLC | 6/ | Common | ||||||||
R&I Loeb Family LLC | 6/29/2022 | Common | 250,986 | Acquisition |
The securities issued in the abovementioned transactions were issued in connection with a Consulting Agreement and wereprivate placements exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act.Act and Rule 506 of Regulation D.
During the quarter ended January 31, 2023, the Company did not repurchase any Company securities.
Item 6. Selected Financial Data.[Reserved]
Pursuant to permissive authority under Regulation S-K, Rule 301, we have omitted Selected Financial Data.
Item 7. 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- LOOKINGFORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.
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Results of Operations for the Year endedYears Ended January 31, 20202023 and 20192022
The following table sets forth the summary of the consolidated statements of operations for the yearyears ended January 31, 20202023 and 2019:2022:
Year Ended | For the Years Ended | |||||||||||||||
January 31, 2020 | January 31, 2019 | January 31, 2023 | January 31, 2022 | |||||||||||||
(As Revised) | ||||||||||||||||
Sales - Net of Slotting Fees and Discounts | $ | 34,837,447 | $ | 28,474,374 | $ | 93,187,621 | $ | 47,083,740 | ||||||||
Gross Profit | $ | 11,071,310 | $ | 9,893,885 | $ | 19,418,262 | $ | 11,853,873 | ||||||||
Operating Expenses | $ | (8,987,886 | ) | $ | (8,425,370 | ) | $ | (16,596,608 | ) | $ | (11,771,106 | ) | ||||
Other Expenses | $ | (550,730 | ) | $ | (1,015,016 | ) | $ | (653,362 | ) | $ | (38,221 | ) | ||||
Net Income | $ | 1,532,694 | $ | 453,499 | ||||||||||||
Income Tax Benefit (Provision) | $ | (9,104 | ) | $ | (296,472 | ) | ||||||||||
Income from equity method investment in Chef Inspirational | $ | 143,486 | $ | - | ||||||||||||
Net Income (Loss) | $ | 2,302,674 | $ | (251,926 | ) |
For the yearyears ended January 31, 20202023 and 2019,2022, the Company reported a net income (loss) of $1,532,694$2,302,674 and $453,499,$(251,926), respectively. The change in net income (loss) between the yearyears ended January 31, 20202023 and 2019 was primarily attributable to an increase2022 reflects strong sales and same-customer product additions, normalization of costs for commodities, other materials, freight as well as improvements in sales of 22% in addition to a decrease in other expenses.manufacturing efficiencies.
Sales:Sales, net of slotting fees and discounts increased by approximately 22%98% to $34,837,447$93,187,621 during the year ended January 31, 2020,2023, from $28,474,374$47,083,740 during the year ended January 31, 2019. In addition, during the year ended January 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%2022. Sales for the year ended January 31, 2020 compared to 35% for2023 include a full year of operations of T&L Creative Salads and Olive Branch. For the year ended January 31, 2019. During2022 T&L Creative Salads and Olive Branch included the yearperiod beginning December 29, 2021 to January 31, 2022.
Gross Profit: The gross profit margin was 21% and 25% for the years ended January 31, 2020,2023 and 2022, respectively. The Company continues to identify procurement efficiencies and cost savings through stronger buying power created through the acquisitions of sales included an increase in depreciation expense of approximately $255,000 (thereby reducing gross margin by approximately 1%) related to the significant plant capacity additions during the last 12 months. Gross margin also decreased slightly due to a change in product mix. In future periods the Company expects sales to increase from the current quarter level which should increase gross profit margin as plant efficiencies should take effect.T&L Creative Salads and Olive Branch.
Operating Expenses: Operating expenses increased by 7%41% during the year ended January 31, 2020,2023, as compared to the year ended January 31, 2019.2022. Operating expenses decreased as a percentage of sales from 30%to 18% in 20192023 compared to 26%25% in 2020.2022. The $562,516$4,825,502 increase in total operating expenses is primarily attributable to the following increases in operating expenses:following:
● | |
● | Commission Expenses rose by approximately $650,000 due to increased |
● | Freight related expenses rose by approximately $650,000 due to the increase in |
● | |
● | Allowance for Doubtful Accounts rose by $233,000 due to |
These expense increases were offset by decreases in the following as well as minimal decreases in other expense categories:
| |
|
Other Expense:Income (Expenses): Other expenses decreasedincreased by $464,286$615,141 to $550,730$653,362 for the year ended January 31, 20202023 as compared to $1,015,016 during$38,221 for the year ended January 31, 2019.2022. For the year ended January 31, 2020,2023, other income (expenses) consisted of $633,889 in interest expense on the Company’s financing arrangements and $22,121 in amortization of debt discount. For the year ended January 31, 2022, other expenses consisted of $482,995$73,487 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $67,735arrangements offset by other income of amortization expense related to the debt discount. For year ended January 31, 2019, other expenses consisted of $881,702 in interest expense incurred on the Company’s financing arrangements. In addition, the Company recorded $133,314 of amortization expense related to the debt discount.$37,704.
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Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at January 31, 20202023 compared to January 31, 2019:2022:
January 31, 2020 | January 31, 2019 | Increase | ||||||||||||||||||||||
(As Revised) | January 31, 2023 | January 31, 2022 | Change | |||||||||||||||||||||
Current Assets | $ | 5,620,255 | $ | 4,763,000 | $ | 857,255 | $ | 15,674,701 | $ | 11,638,317 | $ | 4,036,384 | ||||||||||||
Current Liabilities | $ | 4,208,231 | $ | 3,615,662 | $ | 592,569 | 11,879,091 | 8,985,128 | 2,893,963 | |||||||||||||||
Working Capital | $ | 1,412,024 | $ | 1,147,338 | $ | 264,686 | $ | 3,795,610 | $ | 2,653,189 | $ | 1,142,421 |
As of January 31, 2020,2023, we had working capital of $1,412,024$3,795,610 as compared to a working capital of $1,147,338$2,653,189 as of January 31, 2019,2022, an increase of $264,686.$1,142,421. The increase in working capital is primarily attributable to an increase in accounts receivablecash of $1,077,063$3,527,785, an increase of inventories of $745,088 based on robust sales increases, and an increase in prepaid expenses and other current assets of $97,090. These amounts were$174,460 partially offset by better cash management which resulted in a decrease in cashaccounts receivable of $215,726,$562,671 and an increase in accounts payable and accrued expensesliabilities of $490,858 and a $177,912 increase in the current portion of lease obligations.$2,192,359.
Net cash provided by operating activities for the year ended January 31, 2020 and 20192023 was $1,814,689 and $1,443,408, respectively. The$5,509,162 compared to net income for the year ended January 31, 2020 and 2019 was $1,532,694 and $453,499, respectively.
Net cash used in all investingprovided by operating activities for the year ended January 31, 20202022 of $909,841. The net income (loss) for the years ended January 31, 2023 and 2022 was $268,106$2,302,674 and $(251,926), respectively. During the year ended January 31, 2023, net income was affected by non-cash adjustments of $1,715,397 and by changes in operating activities which provided cash of $1,490,965. During the year ended January 31, 2022, net income was affected by adjustments to net income of $1,345,727 offset by changes in operating activities which used cash of $183,960.
Net cash used in investing activities for the years ended January 31, 2023 was $1,093,214 as compared to $1,033,724$11,270,957 for the year ended January 31, 2019, respectively,2022, respectively. For the year ended January 31, 2023, the Company used cash of $593,214 to acquirepurchase new machinery and equipment. In addition, the Company paid cash of $500,000 for the acquisition of a 24% minority interest in Chef Inspirational Foods, LLC. For the year ended January 31, 2022, the cash used in investing activities of $862,415 was to purchase 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$10,408,542 for the year ended January 31, 2020 was $1,762,399 as compared to $381,597acquisition of T&L and Olive Branch.
Net cash used in financing activities for the year ended January 31, 2019.2023 was $888,037 as compared to $8,021,154 provided by financing activities for the year January 31, 2022. During the year ended January 31, 2020,2023, the Company’sCompany received net proceeds of $125,000 from borrowings on itspursuant to the line of credit increasedwhich were offset by $385,314 overpayments of the prior year.term loan, related party loan, and finance lease payments of $1,293,095, $750,000, and $235,208, respectively. In addition, during the year ended January 31, 2023, the Company received proceeds of $26,250 for the exercise of options and $1,365,000 from the sale of Series B Convertible Preferred Stock. During the year ended January 31, 2023, the Company paid offering costs of $64,600 and dividends on the Series B Preferred stock of $34,070. During the year ended January 31, 2022, the Company received proceeds of $19,080 from the exercise of options, $7,500,000 from borrowings from a term loan, and $765,00 from borrowings from a line of credit. These cash in-flows were offset by payments on its term loan of $2,058,337 and $89,376$199,176 paid for capitalfinance lease payments. During the year ended January 31, 2019, the Company received proceeds of $40,000 received from the exercise of options, proceeds of $213,250 from capital-leaseback transactionspayments and proceeds of $2.8 million from the term loan. These net proceeds were offset by $7,812 of repayments on a related party notes payable, repayment of notes payable totaling $2,130,625, $120,446 for payment of debt issuance costs, net repayments of the line of credit of $90,356, payments of term loan of $1,058,615 and $26,993$63,750 paid for capital lease payments.in financing fees.
As reflected in the accompanying consolidated financial statements, the Company has net income and net cash provided by operations of $1,532,694 and $1,814,689, respectively, for the year ended January 31, 2020.
Although the expected revenue growth and control of expenses leadslead management to believe that it is probable that the Company’s cash resources will be sufficient to meet ourits cash requirements through the fiscal year ending January 31, 2021,April 26, 2024, based on current and projected levels of operations, the Company may require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. ThereIf 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 thatthe event funding is not available on reasonable terms, the Company wouldmight be required to change its growth strategy andand/or seek funding on thatan alternative basis, thoughbut there is no guarantee it will be able to do so.
Recent Accounting Pronouncements
In February 2016,May 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued accounting standards update ASU 2016-02,“Leases (Topic 842),” which will require recognition on the balance sheet for the rights and obligations created by leases with terms greater than twelve months. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance at the beginning of its first quarter of fiscal 2020 and utilized the transition option which does not require application of the guidance to comparative periods in the year of adoption. The primary effect of adoption of ASU 2016-02 is recording right-of-use assets and corresponding lease obligations for operating leases. The adoption had a material impact on the Company’s consolidated balance sheets, but not on the consolidated statements of income or cash flows.
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 Company is currently evaluating the impact of the new standard.
In July 2017, the FASB issued ASU 2017-11,2021-04, “Earnings Per Share (Topic 260), Distinguishing Liabilities from EquityDebt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 480)718), and Derivatives and Hedging (Topic 815)Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): I.Issuer’s Accounting for Certain Financial Instruments with Down Round Features; II. ReplacementModifications or Exchanges of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic EntitiesFreestanding Equity-Classified Written Call Options”, to clarify and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity ofreduce diversity in an issuer’s accounting for certain financial instruments with down round features. Down round features are featuresmodifications or exchanges of certain equity-linked instruments (or embedded features)freestanding equity-classified written call options (for example, warrants) that result in the strike price being reduced on the basis of the pricing of futureremain equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrumentclassified after modification or conversion option. Part II of this update addresses the difficulty of navigating Topic 480,Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests.exchange. The amendments in Part II of this update do not haveASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an accounting effect.interim period. The Company adopted the new standard on February 1, 2022 and the adoption of the new standard did not have a significant impact on itsthe Company’s consolidated financial statements.
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In June 2018,August 2020, the FASB issued ASU No. 2020-06, Accounting Standards Update (ASU) No. 2018-07,Compensation – Stock Compensation (Topic 718): Improvementsfor Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to Nonemployee Share-Based Payment Accounting. Underperform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard companies will no longeron its financial statements and intends to adopt the standard as of February 1, 2024.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be requiredrecognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after the grant date.that reporting unit. ASU 2018-072017-04 is effective for annual reporting periods beginning after December 15, 2018,2022, including any interim reporting periods within that reporting period. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606,Revenue from Contracts with Customers(as described above under “Revenue Recognition”). The adoption of the new standard did not have a significant impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact of this update on its consolidated financial statements.
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 theincome 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 periodsimpairment tests within those annual periods. The Company is currently evaluatingperiods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. In February 2022, we elected to early adopt ASU 2017-04, and the potentialadoption had no impact of this guidance on itsour consolidated financial statements. We will perform future goodwill impairment tests according to ASU 2017-04.
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 (“US GAAP”). US 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 US 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 23 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.
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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 principlesUS GAAP 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.
LeasesGoodwill
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 guidanceGoodwill 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 reportedamortized in accordance with US GAAP. Instead, goodwill is reviewed annually for impairment.
Our annual assessment date is January 31. An interim impairment test would be required whenever events or circumstances make it more likely than not that an impairment may have occurred. The goodwill impairment test compares the legacy accounting guidance under ASC Topic 840,Leases.
As partfair value of a reporting unit with its carrying amount. We would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill. Additionally, we consider income tax effects from any tax-deductible goodwill on the carrying amount of the adoptionreporting unit when measuring the Company electedgoodwill impairment loss, if applicable.
We have the practical expedients permitted underoption to perform a qualitative assessment to determine whether it is necessary to perform the transition guidance withinquantitative goodwill impairment test. However, we may elect to perform the new standard,quantitative goodwill impairment test even if no indications of a potential impairment exist.
Our goodwill was $8,633,334 at January 31, 2023.
For our annual goodwill impairment tests as of January 31, 2023, we performed a qualitative assessment which amongindicated that it was more likely than not that the fair values of our reporting units exceeded their respective carrying values and, therefore, did not result in an impairment. In addition, we do not believe we are currently at risk of goodwill impairment. Our qualitative assessments considered several factors including (i) the business enterprise value and the excess of the fair value over carrying value, (ii) macroeconomic conditions, (iii) industry and market considerations including industry revenue, EBITDA margins, and multiples based on business enterprise value to revenues and to EBITDA, and (iv) the recent financial performance and budget, as well as other things, allowedfactors.
Management evaluates the Company to:remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.
Other Intangibles
Amortizable intangible assets, including tradenames and trademarks, are amortized on a straight-line basis over 3 years. Customer relationships are amortized on a straight-line basis over 4 to 5 years.
Revenue Recognition
In May 2014, theThe Company recognizes revenue in accordance with FASB issued ASU 2014-09,Topic 606, 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.
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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 toreceived by the customer. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods. The transaction price is adjusted for estimates of known or expected variable consideration, which includes consumer incentives, trade promotions, and allowances, such as coupons, discounts, rebates, volume-based incentives, cooperative advertising, and other programs. 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 fulfillmentfulfilment 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 onuses the grant date, which are based on the estimated number of awards that are ultimately expectedBlack-Scholes option-pricing model 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 atdetermine the fair value of equity-based grants, excluding restricted stock. In estimating fair value, management is required to make certain assumptions and estimates such as 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 terminationexpected life of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the natureunits, volatility of the services provided,Company’s future share price, risk-free rates, future dividend yields and estimated forfeitures at the initial grant date. Changes in the consolidated statement of operations. Share-based payments issuedassumptions used 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 computingestimate fair value of share-based payments, the Company has considered the following variables:could result in materially different results.
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 7A. Qualitative And Quantitative and Qualitative Disclosures About Market Risk.Risk
SmallerWe are a smaller reporting companiescompany as defined in Regulation S-K of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required byunder this item.
Our consolidated financial statements appear at the end of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are no reportable events under this item for the year ended January 31, 2020.2023.
Item 9A. Controls and Procedures.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have concluded that our disclosureDisclosure controls and procedures (as defined in Rules 13a-15(c)are the Company’s controls and 15d-15(e) under the Exchange Act)other procedures that are not effectivedesigned to ensure that information required to be disclosed by us in reportthe reports that we file or submit under the Securities Exchange Act of 1934 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.
On April 26, 2023, the Company evaluated, with the participation of its management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, at the reasonable assurance level, in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’sSEC’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 officerthe Chief Executive Officer and chief financial officer,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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(b) MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
ThisThe Company’s management is responsible for establishing and maintaining adequate internal controlscontrol over financial reporting as defined in Rule 13a-15(f) and disclosure controls. Internal Control Over Financial Reporting15d-15(f) under the Securities Exchange Act of 1934.
The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the | |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the | ||
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the |
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange ActBecause of 1934, as amended, is appropriately recorded, processed, summarized and reported within the specified time periods.
Management has conducted anits inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with policies or procedures.
Management assessed the effectiveness of ourits internal control over financial reporting as of January 31, 2020, based on2023. In making this assessment, they used the framework established in Internal Control-Integrated Framework issuedcriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
Based on this assessment,our evaluation under such framework, our management concluded that as of the period covered by this Annual Report on Form 10-K, it had material weaknesses in its internal control procedures.
As of period covered by this Annual Report on Form 10-K, we have concluded that our internal control over financial reporting was ineffective. The Company’s assessment identified certain material weaknesses which are set forth below:
Functional Controls and Segregation of Duties
Because of the Company’s limited resources, there are limited controls over information processing.
There is an inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.
Accordingly, as the result of identifying the above material weakness we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.
Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for the Company’s business operations.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is appropriately recorded, processed, summarized and reported within the specified time periods.
Management has conducted an evaluation of the effectiveness of our internal control over financial reportingeffective as of January 31, 2020, based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).2023.
Based on this assessment, management concluded that as of the period covered by this Annual Report on Form 10-K, it had material weaknesses in its internal control procedures.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report herein.
(c) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
We are committed to improving our financial organization. As partdescribed above, in the fourth quarter of this commitment,fiscal 2023, we will createcompleted the remediation of a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us by preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Management believes that preparing and implementing sufficient written policies and checklists will remedy the material weaknesses pertaining to insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, including:
We intend to consider the results of our remediation efforts and related testing as part of our year-end 2019 assessment of the effectiveness of our internal control over financial reporting.
Subsequentreporting relating to January 31, 2020, we intendthe lack sufficient accounting staff to continueappropriately segregate duties and leverage decision makers to undertakeconsolidate new entities and complete timely reporting of financial data and the following stepslack of sufficient orientation and experience with new ERP systems platform which hindered productivity and required additional supervision delaying timely reporting of financial statements. There were no other changes in our internal control over financial reporting during the fourth quarter of fiscal 2023 that have materially affected, or are reasonably likely to address the deficiencies stated above:materially affect, our internal control over financial reporting.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
None.Not applicable.
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Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
The following table discloses our directors and executive officers as of April 23, 2020.26, 2023.
Name | Age | Position | ||
Chief Executive Officer and Chairman of the Board of Directors | ||||
Matthew Brown | President and Director | |||
Chief Financial Officer | ||||
Steven Burns | Executive Vice President and Director | |||
Alfred D’Agostino | Director | |||
Thomas Toto | Director | |||
Dean Janeway | Director | |||
Michael Stengel | 66 | Director | ||
Meghan Henson | 53 | Director | ||
Shirley Romig | 45 | Director |
Carl WolfAdam Michaels has over 35 years of experience in the management and operations of companies in the food industry. Mr. Wolf has served aswas appointed Chief Executive Officer and a member of the Board of Directors of the Company effective September 6, 2022 and was appointed Chairman of the Board effective February 1, 2023.
Mr. Michaels is an experienced food industry executive and former management consultant. Prior to MamaMancini’s, Adam worked at Mondelez International, a multinational food and beverage company. Over the past nine years, he held numerous roles with increasing responsibility at Mondelez across Supply Chain, Commercial Sales & Marketing, and Strategy. Adam was most recently responsible for M&A and Commercial activities within North American Ventures – a business unit comprised of MamaMancini’s from February 2010 through the Present. Mr. Wolfsmaller, high-growth brands. Before joining Mondelez, Adam was the founder, majority shareholder, Chairman of the Board, and CEO of Alpine Lace Brands, Inc., a NASDAQ-listed public company with over $125 million in wholesale sales. He also founded, managed, and sold MCT Dairies, Inc.,Principal at Booz & Company, a $60 million international dairy component resource company. Other experiencemanagement consulting firm, for seven years, where he specialized in the food industry includes his role as Co-chairman of SaratogaFood & Beverage Company,sector.
Adam holds an MBA in Marketing & Management from Columbia Business School and a publicly traded (formerly NASDAQ: TOGA) bottled water and fresh juice company prior to its successful sale to a private equity firm. Mr. Wolf served an advisor to Mamma Sez Biscotti, a snack and bakery product company (which was soldBSE in a later period to Nonnis, the largest biscotti company in the United States) from 2002 to 2004. Previously he served as Director and on the Audit and Development committees of American Home Food Products, Inc. a publicly-traded marketer Artisanal Brand Cheeses, from 2007 to 2009. Mr. Wolf also served as Chairman of the Board of Media Bay, which was a NASDAQ-listed public company which ally traded direct seller of spoken word through its audio book club and old-time radio classic activities and download spoken content, from 2002 to 2004.
Mr. Wolf received his B.A. in 1965 from Rutgers University (Henry Rutgers Scholar) and his M.B.A. in 1966Bioengineering from the University of Pittsburgh (with honors).Pennsylvania.
In evaluatingThe Board determined that Mr. Wolf’s specific experience, qualifications, attributes and skills in connection with his appointmentMichaels is qualified to our board, we took into account his numerous years of experience in the food industry,serve as a serial entrepreneur in growing business,director given his knowledgeextensive Food & Beverage experience, corporate strategy background, understanding of publicly traded companies,consumer insights & analytics, and his proven track record of success in such endeavors.prior work accelerating brands across their growth lifecycles.
Matthew Brownhas over 2030 years of experience in the sales and marketing of products in the food industry. Beginning in February 2010 through the present, he has served as President of MamaMancini’s. From April 2001 until January of 2012, he served as the President of Hors D’oeuvres Unlimited, overseeing the day to day operations of their food manufacturing business. He previously worked as a marketing associate from September 1993 to December 1998 at Kraft Foods, Inc., where he dealt with numerous aspects of the company’s marketing of their food products.
Mr. Brown received his B.A. from the University of Michigan in 1991 and his M.B.A. from the University of Illinois in 1993.
In evaluating Mr. Brown’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of experience in sales and marketing, and his proven track record of success in such endeavors.
Lawrence MorgensteinAnthony J. Gruber has beenserved since September 2022 as the Company’s Chief Financial Officer. Mr. Gruber served as Chief Financial Officer from 2019 to 2021 of De’Longhi America, Inc., an appliance manufacturer known for its espresso machines, which is the North American subsidiary of the Italian parent, De’Longhi S.p.A. He successfully restructured the Finance function for the 120-employee company with annual revenues of approximately $400 million.
From 2018-2019, he served as Chief Financial Officer of LBM Advantage, Inc., a member-owned lumber and building materials buying cooperative with 500+ members and revenues of approximately $2.2 billion.
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From 2014-2017, he served as Vice President Finance and Chief Financial Officer of Richemont North America, Inc., which is the Company since April 1, 2018.North American subsidiary of the Swiss-based luxury goods company, with 2017 revenues of approximately $2.0 billion and 2000 employees. Richemont’s Brands include Cartier, Chloe, Dunhill, MontBlanc and Piaget, among others.
From 2005-2014, he served as the Chief Financial Officer of Montblanc North America, LLC, prior to its integration into Richemont North America Inc. He previously served as a Senior Accountant with Ernst & Young LLP.
Mr. Gruber earned a BS, Accounting from the University of Bridgeport, Bridgeport, CT and has been previously employed as Controller for Emerging Power, Inc. from July 7, 2016 through January 12, 2018. He was also employed by Elaut USA, Inc. from April 4, 2013 through July 3, 2016. He was controller of Mama Mia Produce from March 2010 to April 2013. Mr. Morgenstein was Corporate Controller & VP of Finance. Mr. Morgenstein holds a BS in Economics from Rider University in 1972. He further holds an MBA from Rutgers University GSB in 1976.Certified Public Accountant since 1993.
Steven Burnshas been Executive Vice President of the Company since 2019 and has served as a director of the Company from February 2010 through the present. Mr. Beginning in June 2011 and still presently, he serves as the Chairman of the Board of Directors of Meatball Obsession, LLC. Mr. Burns1, 2020. He has over 2030 years of experience in the investment, management and operations of various companies. Additionally, beginning in 2006transformation across industries including high quality and still Presently he works as the President and CEO of Point Prospect, Inc., where he oversees the day to day operations of the company, which primarily deal with investments andhealthy food services, in real estate, clean and efficient energy sources high-quality and healthy food services, and healthcare technology. Mr. Burns has served as a director of Mama Mancini’s from February 2010 through the present. Prior to that, for a period of 24 years he worked at and was senior executive at Accenture where he led the U.S. Health Insurance Industry Program comprised of approximately 600 professionals. He also has sat on various financial committees and boards of directors throughout his career.
Mr. Burns received his B.S. in Business Management from Boston College in 1982.
In evaluating Mr. Burns’ specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of experience in serving on board of directors, his knowledge of running and managing companies, and his proven track record of success in such endeavors.
Alfred D’Agostinohas over 3435 years of experience in the management and ownership of food brokerage and food distribution companies. Mr. D’Agostino has served as a director of MamaMancini’s from February 2010 through the Present. Beginning in March 2001 and still presently, he serves as the President for World WideWorldWide Sales Inc., a perishable food broker that services the New York / New Jersey Metropolitan and Philadelphia marketplace. Prior to this he worked from September 1995 until February 2001 as Vice- President of the perishable business unit at Marketing Specialists, a nationwide food brokerage. Previously, from February 1987 until August 1995 he worked as a Partner for the perishable division of Food Associates until its merger with Merket Enterprises.
In evaluating Mr. D’Agostino’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of experience in the food brokerage and other food related industries, his knowledge of running and managing companies, and his proven track record of success in such endeavors.
Mr. D’Agostino received his B.S. in Business Management from the City College of New York in 1974.
Thomas Toto has over 33 years of experience in the management and ownership of food brokerage and food distribution companies. Mr. Toto has served as a director of MamaMancini’s from February 2010 through the Present. Beginning in June 2009 and still presently, he serves as the Senior Business manager for World Wide Sales Inc., a perishable food broker that services the New York / New Jersey Metropolitan and Philadelphia marketplace. Prior to this he worked from September 2007 until May 2009 as a Division President for DCI Cheese Co., a company that imported and distributed various kinds of cheeses. Previously from March 1993 until September 2007 he was the President and owner of Advantage International Foods Corporation, where he ran the day-to-day operations of importing and distributing cheeses around the world.
Mr. Toto received his B.A. from Seton Hall University in 1976 and his M.B.A. from Seton Hall University in 1979.
In evaluating Mr. Toto’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of experience in the food brokerage and other food related industries, his knowledge of running and managing companies, and his proven track record of success in such endeavors.
Dean Janewayhas served as a director of MamaMancini’s since 2012. Mr. Janeway is an executive with more than 40 years of broad leadership skills and extensive experience in the areas of corporate strategy, business development, operational oversight and financial management. From 1966 through 2011, Mr. Janeway served in various positions at Wakefern Food Corp., the largest retailer- owned cooperative in the United States. From 1966 through 1990, Mr. Janeway advanced through various positions of increasing responsibility including positions in Wakefern’s accounting, merchandising, dairy-deli, and frozen foods divisions. From 1990 through 1995 Mr. Janeway provided oversight for all of Wakefern’s procurement, marketing, merchandising, advertising and logistics divisions. From 1995 until his retirement in 2011, Mr. Janeway served as President and Chief Operating Officer of “Wakefern” providing primary oversight for the company’s financial and treasury functions, human resources, labor relations, new business development, strategic acquisitions, government relations, corporate social responsibility, sustainability initiatives and member relations. Mr. Janeway previously served as the chairman for the National Grocers Association from 1993 through 2001. From 2009 through the present, Mr. Janeway has served as the Chairman of the Foundation for the University of Medicine and Dentistry of New Jersey.
The Board of Directors determined that Mr. Janeway’s qualifications to serve as a director include his notable business and leadership experience in the all areas of management, particularly in the food industry. He also has experience in the area of wholesale distribution, due to his past position at Wakefern and his knowledge of running and managing companies and his proven track record of success in such endeavors will be invaluable to the Company going forward.
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Mr. Janeway received his B.A. in Marketing from Rutgers University, and his M.B.A from Wharton School of Business, University of Pennsylvania.
Family RelationshipsMichael Stengel is a tenured hospitality industry veteran, bringing over 40 years of executive leadership experience with Marriott International to the MamaMancini’s Board of Directors. At Marriott, he was instrumental to the Company’s convention network strategy, overseeing 135 Convention venues including the Gaylord Brand. Michael, as Senior Vice President of Gaylord Hotels and The Convention Resort Network (CRN) at Marriott, oversaw significant food and beverage operations within his portfolio of managed hotels and being responsible for well over $1.5 billion in revenue. Mr. Stengel has had direct responsibility for P&L operations for numerous enterprises and is completely familiar with financial management of public companies.
Mr. Matthew Brown,Stengel has received a B.S. Law and Justice from Rowan University, a Cornell University Hospitality Certificate, and an executive MBA with Marriott sponsor by the University of Maryland.
The Board determined that Mr. Stengel’s qualifications to serve as a director include his multi-faceted financial responsibility and experience in the food and hospitality business and his success in building organizations into large-scale, highly profitable operations.
Thomas Toto has over 30 years of experience in the management and ownership of food brokerage and food distribution companies. Mr. Toto has served as a director of MamaMancini’s from February 2010 through the Present. From June 2009 to May 2022, he served as the Senior Business manager for World Wide Sales Inc., a perishable food broker that services the New York / New Jersey Metropolitan and Philadelphia marketplace. Prior to this he worked from September 2007 until May 2009 as a Division President for DCI Cheese Co., a company that imported and distributed various kinds of cheeses. Previously from March 1993 until September 2007 he was the President and owner of Advantage International Foods Corporation, where he ran the day-to-day operations of importing and distributing cheeses around the world.
Mr. Toto received his B.A. from Seton Hall University in 1976 and his M.B.A. from Seton Hall University in 1979.
In evaluating Mr. Toto’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his numerous years of experience in the food brokerage and other food related industries, his knowledge of running and managing companies, and his proven track record of success in such endeavors.
Meghan Henson is an experienced senior human resources executive with experience across several industries. She has served since 2020 as Executive Vice President, Chief OperatingHuman Resources Officer isof Avantor, Radnor, PA. Previously, she served as Chief Human Resources Officer of XPO Logistics, Greenwich, CT from 2016-2020. She served as Executive Vice President, Chief Human Resources Officer, Chubb Insurance, Warren, NJ from 2013-2016 after serving in various Human Resources leadership roles with PepsiCo from 2004-2013. Prior to PepsiCo, she served as Senior Manager, Human Capital for Deloitte Consulting from 2001-2004 and Manager, HR and Change Management for Towers Perrin (now Willis Towers Watson) from 1997-2001. She holds an MBA with emphasis in Organizational Behavior from the son-in-lawUniversity of Mr. Carl Wolf, our Chief Executive Officer.Michigan and a Bachelor of Arts, Political Science and East Asian Studies at the University of Wisconsin. During her tenure at the University of Wisconsin, she was elected Student Body President.
The board determined that Ms. Henson’s breadth of executive experience and expertise in leading human resources functions for large companies would provide valuable insight to the board.
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Shirley Romig has two decades of experience in operationalizing growth strategies and leading transformational initiatives in complex consumer and technology organizations. Most recently, Ms. Romig was the CEO and Co-Founder of Mixo Group, Inc., a digital creator platform for the $1.7T food market. Previously, she was Vice President with Lyft, leading Global Operations, East and Canada from 2019 to 2022. From 2017-2019, Ms. Romig led six lines of businesses at Equinox Fitness Clubs as Group Vice President. From 2016-2017, Ms. Romig was the Head of Retail Strategy for SapientRazorfish, a global digital agency. From 2013 to 2015, Ms. Romig was the Senior Vice President of Corporate Strategy with HBC responsible for implementation of growth initiatives across Saks Fifth Avenue, Saks OFF 5th, Lord & Taylor and Hudson’s Bay in Canada. Ms. Romig also served as a Vice President for Saks Incorporated where she led the company’s omnichannel transformation work and launched Saksoff5th.com as well as numerous growth initiatives for Saks.com. Earlier in her career, Ms. Romig worked in equity research and digital and strategy consulting. Ms. Romig also serves on the Board of Directors for Lovesac, a publicly traded home furnishings company as the Chair of the Nominating and Governance Committee. Ms. Romig holds an M.B.A. from the Darden School of Business and a Bachelor of Science from the McIntire School of Commerce, both at the University of Virginia.
In nominating Ms. Romig as a director, the board considered her expertise in leading transformational initiatives across a number of industries, background in growth strategy implementation and public company experience.
Board Committees and Charters
Our board of directors has established the following committees: an audit committee, a compensation committee and a nominating/corporate governance committee. Copies of each committee’s charter are posted on our website, www.mamamancini’s.com.www.mamamancinis.com. Our board of directors may from time to time establish other committees.
Audit Committee
The purpose of the Audit Committee is to oversee the processes of accounting and financial reporting of the Company and the audits and financial statements of the Company. The Audit Committee’s primary duties and responsibilities are to:
● | Monitor the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance. | |
● | Monitor the independence and performance of the Company’s independent auditors and the Company’s accounting personnel. | |
● | Provide an avenue of communication among the independent auditors, management, the Company’s accounting personnel, and the Board. | |
● | Appoint and provide oversight for the independent auditors engaged to perform the audit of the financial statements. | |
● | Discuss the scope of the independent auditors’ examination. | |
● | Review the financial statements and the independent auditors’ report. | |
● | Review areas of potential significant financial risk to the Company. |
● | Monitor compliance with legal and regulatory requirements. | |
● | Solicit recommendations from the independent auditors regarding internal controls and other matters. | |
● | Make recommendations to the Board. | |
● | Resolve any disagreements between management and the auditors regarding financial | |
● | Prepare the report required by Item 407(d) of Regulation S-K, as required by the rules of the Securities and Exchange Commission (the “SEC”). | |
● | Perform other related tasks as requested by the Board. |
The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the organization. The Committee has the ability to retain, at the Company’s expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties.
Our Audit Committee consists of Mr. BurnsMessrs. Toto, Stengel, and Mr. Toto.D’Agostino. Mr. Toto serves as the ChairmanChairperson of our Audit Committee. Mr. Burns is our Audit Committee financial expert as currently defined under applicable SEC rules.
People and Compensation Committee
The People and Compensation Committee’s responsibilities include, but are not limited to, the responsibilities which are required under the corporate governance rules of NASDAQ, including the responsibility to determine compensation of the Chairman of the Board, the Chief Executive Officer (“CEO”), the President and all other executive officers. The Compensation Committee’s actions shall generally be related to overall considerations, policies and strategies.
The following are specific duties and responsibilities of the Compensation Committee:
● | Review the competitiveness of the Company’s executive compensation programs to ensure (a) the attraction and retention of corporate officers, (b) the motivation of corporate officers to achieve the Company’s business objectives, and (c) the alignment of the interests of key leadership with the long-term interests of the Company’s stockholders. | |
● | Review and determine the annual salary, bonus, stock options, other equity-based incentives, and other benefits, direct and indirect, of the Company’s executive officers, including development of an appropriate balance between short-term pay and long-term incentives while focusing on long-term stockholder interests. | |
● | Determine salary increases and bonus grants for the Chairman of the Board, the CEO, the President and all other executive officers of the Company. | |
● | Review and approve corporate goals and objectives for purposes of bonuses and long- term incentive plans. | |
● | Review and approve benefit plans, including equity incentive plans, and approval of individual grants and awards. | |
● | Review and approve employment or other agreements relating to compensation for the Chairman of the Board, the CEO, the President and the other executive officers of the Company. | |
● | Review and discuss with management the Company’s Compensation Discussion and Analysis (“CD |
● |
If required by SEC rules, provide a People and Compensation Committee Report on executive compensation to be included in the Company’s annual proxy statement in accordance with applicable SEC rules. | ||
● | Perform an annual evaluation of the performance of the Chairman of the Board, the CEO, the President and the other executive officers. | |
● | Perform an annual review of non-employee director compensation programs and recommend changes thereto to the Board when appropriate. | |
● | Plan for executive development and succession. | |
● | Review and approve all equity-based compensation plans and amendments thereto, subject to any stockholder approval under the listing standards of NASDAQ. |
● | ||
Recommend an appropriate method by which stockholder concerns about compensation may be communicated by stockholders to the Committee and, as the Committee deems appropriate, to respond to such stockholder concerns. | ||
● | Perform such duties and responsibilities as may be assigned by the Board to the Committee under the terms of any executive compensation plan, incentive compensation plan or equity-based plan. | |
● | Review risks related to the Company’s compensation policies and practices and review and discuss, at least annually, the relationship between the Company’s risk management policies and practices, corporate strategy and compensation policies and practices. |
Our People and Compensation Committee consists of Mr.Ms. Henson and Messrs D’Agostino, Janeway and Mr. Janeway. Mr. D’AgostinoToto. Ms. Henson serves as the ChairmanChairperson of our People and Compensation Committee.
Nominating/Corporate Governance Committee
The Nominating/Corporate Governance Committee’s responsibilities include, but are not limited to, the responsibilities which are required under the corporate governance rules of NASDAQ, including the responsibilities to identify individuals who are qualified to become directors of the Company, consistent with criteria approved by the Board, and make recommendations to the Board of nominees, including Stockholder Nominees (nominees whether by appointment or election at the Annual Meeting of Stockholders) to serve as a directors of the Company. To fulfill its purpose, the responsibilities and duties of the Nominating/Corporate Governance Committee are as follows:
● | Evaluate, in consultation with the Chairman of the Board and Chief Executive Officer (“CEO”), the current composition, size, role and functions of the Board and its committees to oversee successfully the business and affairs of the Company in a manner consistent with the Company’s Corporate Governance Guidelines, and make recommendations to the Board for approval. | |
● | Determine, in consultation with the Chairman of the Board and CEO, director selection criteria consistent with the Company’s Corporate Governance Guidelines and conduct searches for prospective directors whose skills and attributes reflect these criteria. | |
● | Assist in identifying, interviewing and recruiting candidates for the Board. | |
● | Evaluate, in consultation with the Chairman of the Board and CEO, nominees, including nominees nominated by stockholders in accordance with the provisions of the Company’s Bylaws, and recommend nominees for election to the Board or to fill vacancies on the Board. |
● |
Before recommending an incumbent, replacement or additional director, review his or her qualifications, including capability, availability to serve, conflicts of interest, and other relevant factors. | ||
● | Evaluate, in consultation with the Chairman of the Board and CEO and make recommendations to the Board concerning the appointment of directors to Board committees and the selection of the Chairman of the Board and the Board committee chairs consistent with the Company’s Corporate Governance Guidelines. | |
● | Determine the methods and execution of the annual evaluations of the Board’s and each Board committee’s effectiveness and support the annual performance evaluation process. | |
● | Evaluate and make recommendations to the Board regarding director retirements, director re-nominations and directors’ changes in circumstances in accordance with the Company’s Corporate Governance Guidelines. | |
● | Review and make recommendations to the Board regarding policies relating to directors’ compensation, consistent with the Company’s Corporate Governance Guidelines. |
● | ||
As set forth herein, monitor compliance with, and at least annually evaluate and make recommendations to the Board regarding, the Company’s Corporate Governance Guidelines and overall corporate governance of the Company. | ||
● | Assist the Board and the Company’s officers in ensuring compliance with an implementation of the Company’s Corporate Governance Guidelines. | |
● | Develop and implement continuing education programs for all directors, including orientation and training programs for new directors. | |
● | Annually evaluate and make recommendations to the Board regarding the Committee’s performance and adequacy of this Charter. | |
● | Review the Code of Ethics periodically and propose changes thereto to the Board, if appropriate. | |
● | Review requests from outside the Committee for any waiver or amendment of the Company’s Code of Business Conduct and Ethics and recommend to the Board whether a particular waiver should be granted or whether a particular amendment should be adopted. | |
● | Oversee Committee membership and qualifications and the performance of members of the Board. | |
● | Review and recommend changes in (i) the structure and operations of Board Committees, and (ii) Committee reporting to the Board. | |
● | Make recommendations annually to the Board as to the independence of directors under the Corporate Governance Guidelines. | |
● | Review and make recommendations to the Board regarding the position the Company should take with respect to any proposals submitted by stockholders for approval at any annual or special meeting of stockholders. | |
● | Regularly report on Committee activities and recommendations to the Board. | |
● | Perform any other activities consistent with this Charter, the Company’s Certificate of Incorporation and Bylaws, as amended from time to time, the NASDAQ company guide, and any governing law, as the Board considers appropriate and delegates to the Committee. |
Our Nominating/Corporate Governance Committee consists of Ms. Henson, Ms. Romig and Messrs. Janeway and Stengel. Mr. Janeway and Mr. D’Agostino, with Mr. Janeway servingserves as the Chairman.Chairperson.
BOARD DIVERSITY MATRIX
On August 6, 2021, the SEC approved Nasdaq Listing Rule 5605(f) regarding board diversity. Under the rule, NASDAQ-listed companies must include at least one diverse director prior to August 6, 2023 and at least two diverse directors by August 6, 2026. The composition of our Board does currently include two individuals who are diverse under the Nasdaq Listing Rule 5605(f), as presented in the below Board Diversity Matrix. Under Nasdaq Listing Rule 5605(f) directors who self-identify as (i) female, (ii) an underrepresented minority or (iii) LGBTQ+ are defined as being diverse. The following chart summarizes certain self-identified personal characteristics of our directors, in accordance with Nasdaq Listing Rule 5605(f) Each term used in the table has the meaning given to it in the rule and related instructions.
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Board Diversity Matrix (As of April 26, 2023) | ||||||||||||
Total Number of Directors | 9 | |||||||||||
Female | Male | Non-Binary | Did Not Disclose Gender | |||||||||
Part I: Gender Identity | ||||||||||||
Directors | 2 | 7 | — | — | ||||||||
Part II: Demographic Background | ||||||||||||
African American or Black | — | — | — | — | ||||||||
Alaskan Native or Native American | — | — | — | — | ||||||||
Asian | 1 | — | — | — | ||||||||
Hispanic or Latinx | — | — | — | — | ||||||||
Native Hawaiian or Pacific Islander | — | — | — | — | ||||||||
White | 1 | 7 | — | — | ||||||||
Two or More Races or Ethnicities | — | — | — | — | ||||||||
LGBTQ+ | — | |||||||||||
Did Not Disclose Demographic Background | — | |||||||||||
Directors who are Military Veterans | — |
Code of Business Conduct and Ethics
Effective January 21, 2014, the Board of Directors (the “Board”) of MamaMancini’s Holdings, Inc. (the “Company”) adopted a Code of Ethics (the “Code of Ethics”) applicable to the Company and all subsidiaries and entities controlled by the Company and the Company’s directors, officers and employees. Compliance with the Code of Ethics is required of all Company personnel at all times. The Company’s senior management is charged with ensuring that the Code of Ethics and the Company’s corporate policies will govern, without exception, all business activities of the Company. The Code of Ethics addresses, among other things, the use and protection of Company assets and information, avoiding conflicts of interest, corporate opportunities and transactions with business associates and document retention.
Involvement in Certain Legal Proceedings
During the past five years no director, person nominated to become a director, executive officer, promoter or control person of the Company has: (i) had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or (iv) been found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Compliance withDelinquent Section 16(A) of the Exchange Act16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the period covered by this Annual Report on Form 10-K, were timely.
Legal Proceedings
There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.
26 |
Item 11. Executive Compensation.Compensation
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended January 31, 20202023 and January 31, 2019.2022.
Name and Principal Position | Year(5) | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Totals ($) | Year(5) | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Totals ($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Carl Wolf | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CEO/Chairman(1) | 2020 | $ | 190,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 190,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Former CEO/Chairman(1) | 2023 | $ | 142,167 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 142,167 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | $ | 215,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 215,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adam L. Michaels CEO/Chairman (2) | 2023 | 135,417 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 135,417 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | $ | 180,500 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 180,500 | 2022 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Matt Brown | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
President(2) | 2020 | $ | 211,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 211,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
President(3) | 2023 | $ | 213,000 | 0 | 0 | 0 | 0 | 0 | 11,800 | $ | 224,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | $ | 180,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 180,000 | 2022 | $ | 216,153 | 25,000 | 0 | 0 | 0 | 0 | 0 | $ | 241,153 | |||||||||||||||||||||||||||||||||||||||||||||||||
Lawrence Morgenstein CFO(3) | 2020 | $ | 132,000 | 0 | 0 | 4,058 | 0 | 0 | 0 | $ | 136,058 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Steven Burns | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive VP (4) | 2023 | $ | 227,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 227,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | $ | 130,000 | 28,332 | $ | 158,332 | 2022 | $ | 229,000 | 25,000 | 0 | 0 | 0 | 0 | 0 | $ | 254,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lawrence Morgenstein | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CFO(5) | 2023 | $ | 137,666 | 6,000 | 0 | 0 | 0 | 0 | 2,673 | $ | 146,339 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | $ | 125,781 | 0 | 0 | 0 | 0 | 0 | $ | 125,781 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Anthony Gruber | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CFO(6) | 2023 | $ | 93,750 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 93,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | $ | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 |
|
2020 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
STOCK AWARDS
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable I | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) I | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) (9) | Number of Shares or Units of Stock That Have Not Vested ($) (h) | Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j) | |||||||||||||||||||||||||
Carl Wolf | ||||||||||||||||||||||||||||||||||
Chief Executive Officer(1) | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Matthew Brown | ||||||||||||||||||||||||||||||||||
President(2) | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Steven Burns | ||||||||||||||||||||||||||||||||||
Executive Vice President; Director(3) | 50,000 | 0 | 0 | $ | 0.39 | 4/13/2021 | ||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 1.05 | 6/27/2022 | |||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||
25,000 | 25,000 | 0 | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||
Alfred D’Agostino | �� | |||||||||||||||||||||||||||||||||
Director(4) | 50,000 | 0 | 0 | $ | 0.39 | 4/13/2021 | ||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 1.05 | 6/27/2022 | |||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||
25,000 | 25,000 | 0 | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||
Thomas Toto | ||||||||||||||||||||||||||||||||||
Director(5) | 50,000 | 0 | 0 | $ | 0.39 | 4/13/2021 | ||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 1.05 | 6/27/2022 | |||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||
25,000 | 25,000 | 0 | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||
Dean Janeway | ||||||||||||||||||||||||||||||||||
Director(6) | 50,000 | 0 | 0 | $ | 0.39 | 4/13/2021 | ||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 1.05 | 6/27/2022 | |||||||||||||||||||||||||||||
25,000 | 0 | 0 | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||
25,000 | 25,000 | 0 | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||
Lawrence Morgenstein(7) | ||||||||||||||||||||||||||||||||||
Chief Financial Officer | 7,500 | 0 | �� | 0 | $ | 0.733 | 9/30/2023 | |||||||||||||||||||||||||||
5,000 | 2,500 | 0 | $ | 0.749 | 4/1/2024 | |||||||||||||||||||||||||||||
2,500 | 5,000 | 0 | $ | 0.70 | 10/1/2024 | |||||||||||||||||||||||||||||
Brent Smith(8) | 6,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
12,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
Chris Styler(8) | 18,000 | - | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
6,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
Dan Mancini (Dougherty)(8) | 18,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
25,000 | 25,000 | 0 | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||
Emma Rosario(8) | 3,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
6,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
Eric Felice(8) | 12,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
24,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
Joe Smith(8) | 18,000 | - | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
30,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
John Kaminsky(8) | 6,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
6,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
Pete de Pasquale(8) | 6,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
Priscilla Goldman(8) | 6,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
Rich Franco(8) | 6,000 | 0 | 0 | $ | 0.60 | 5/2/2021 | ||||||||||||||||||||||||||||
6,000 | 0 | 0 | $ | 1.38 | 11/2/2022 | |||||||||||||||||||||||||||||
Scott Shaffer(8) | 18,000 | 0 | 0 | $ | 0.60 | 5/2/2021 |
Mr. Wolf was appointed as Chief Executive Officer of the Company on January 24, 2013 and resigned effective September 5, 2022. | ||
2. | Mr. Michaels was appointed Chief Executive Officer of the Company on September 6, 2022. He was later appointed Chairman of the Board on February 1, 2023 upon Mr. Wolf’s resignation as Chairman of the Board on the close of business on January 31, 2023. | |
3. | Mr. Brown was appointed | |
Mr. Burns was appointed | ||
5. | ||
Mr. Morgenstein was appointed Chief Financial Officer on April 1, 2018 and served in that capacity until September 6, 2022, and left the Company’s employ effective January 31, 2023. | ||
27 |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
STOCK AWARDS
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name (a) | Number of Securities Underlying Unexercised Options (#) Exercisable (b) | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price ($) | Option Expiration Date (f) | Number of Shares or Units of Stock That Have Not Vested (#) (g) | Number of Shares or Units of Stock That Have Not Vested ($) (h) | Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i) | Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j) | |||||||||||||||||||||||||||
Carl Wolf | ||||||||||||||||||||||||||||||||||||
Former Chief Executive Officer | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Adam L. Michaels | ||||||||||||||||||||||||||||||||||||
CEO/Chairman (2) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Matthew Brown | ||||||||||||||||||||||||||||||||||||
President | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Steven Burns | ||||||||||||||||||||||||||||||||||||
Executive Vice President; Director | 50,000 | — | — | $ | 0.39 | 4/13/2023 | ||||||||||||||||||||||||||||||
25,000 | — | — | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||||
50,000 | — | — | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||||
Alfred D’Agostino | ||||||||||||||||||||||||||||||||||||
Director | 50,000 | — | — | $ | 0.39 | 4/13/2023 | ||||||||||||||||||||||||||||||
25,000 | — | — | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||||
50,000 | — | — | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||||
Thomas Toto | ||||||||||||||||||||||||||||||||||||
Director | 50,000 | — | — | $ | 0.39 | 4/13/2023 | ||||||||||||||||||||||||||||||
25,000 | — | — | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||||
50,000 | — | — | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||||
Dean Janeway | ||||||||||||||||||||||||||||||||||||
Director | 50,000 | — | — | $ | 0.39 | 4/13/2023 | ||||||||||||||||||||||||||||||
25,000 | — | — | $ | 0.80 | 9/3/2023 | |||||||||||||||||||||||||||||||
50,000 | — | — | $ | 0.52 | 7/30/2024 | |||||||||||||||||||||||||||||||
Lawrence Morgenstein | ||||||||||||||||||||||||||||||||||||
Former Chief Financial Officer | 7,500 | — | — | $ | 0.73 | 11/30/2023 | ||||||||||||||||||||||||||||||
7,500 | — | — | $ | 0.74 | 3/31/2024 | |||||||||||||||||||||||||||||||
7,500 | — | — | $ | 0.70 | 9/30/2024 | |||||||||||||||||||||||||||||||
7,500 | — | — | $ | 1.16 | 3/31/2025 |
28 |
DIRECTOR COMPENSATION
Our executive officers who are members of our board of directors and the directors who are not considered independent under the corporate governance rules of the New York Stock ExchangeNASDAQ Markets do not receive compensation from us for their service on our board of directors. Accordingly, Mr. WolfBurns, Mr. Michaels, and Mr. Brown do not receive compensation from us for their service on our board of directors. Only those directors who are considered independent directors under the corporate governance rules of the New York Stock ExchangeNASDAQ Markets receive compensation from us for their service on our board of directors. Mr. Burns, Mr. D’Agostino, Mr. Toto, andMr. Stengel, Mr. Janeway, Ms. Henson, and Ms. Romig are to be paid $10,000$40,000 per annum for their service as members of the board, payable quarterly in Company common stock.quarterly.
In June 2017, each of our directors were granted stock options to purchase 25,000 shares of the Company’s common stock at an exercise of $1.05. All such options vested quarterly over a one-year period and expire 5 years from the date of grant.
In September 2018, each of our directors were granted stock options to purchase 25,000 shares of the Company’s common stock at an exercise of $0.80. All such options vested quarterly over a one-year period and expire 5 years from the date of grant.
There is no formal arrangement with our board of directors for the granting of options. There is no assurance that the Company will continue to issue options to the board of directors or on what terms such issuance would occur. In addition, our Lead Director, Steven Burns was paid $58,000 in cash compensation for the year ended January 31, 2019 for his additional services in that capacity.
We also reimburse all of our directors for reasonable expenses incurred to attend board of director or committee meetings.
The following Director Compensation Table sets forth the compensation of our directors for the fiscal years ending January 31, 20192023 and 2018.2022.
Name and Principal Position (a) | Year (b) | Salary ($) (b) | Bonus ($) | Stock Awards ($) (b) | Option Awards ($) (b) | Non-Equity Incentive Plan Compensation ($) (b) | All Other Compensation ($) (b) | Total ($) | Year | Fees earned or paid in cash ($) (b) | Stock Awards ($) (c) | Option Awards ($) (d) | Non-Equity Incentive Plan Compensation ($) (e) | All Other Compensation ($) (f) | Total ($) (g) | ||||||||||||||||||||||||||||||||||||||||||
Director | 2020 | $ | 51,600 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 69,876 | 2023 | 19,456 | 0 | 0 | 0 | 0 | 19,456 | |||||||||||||||||||||||||||||||||||
Steven Burns (1) | 2019 | $ | 58,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 75,876 | ||||||||||||||||||||||||||||||||||||||||||
Carl Wolf (1) | 2022 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Director | 2020 | $ | 10,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 27,876 | 2023 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
Alfred D’Agostino (2) | 2019 | $ | 10,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 27,876 | ||||||||||||||||||||||||||||||||||||||||||
Steven Burns (2) | 2022 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Director | 2020 | $ | 10,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 27,876 | 2023 | 38,000 | 0 | 0 | 0 | 0 | 38,000 | |||||||||||||||||||||||||||||||||||
Thomas Toto (3) | 2019 | $ | 10,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 27,876 | ||||||||||||||||||||||||||||||||||||||||||
Alfred D’Agostino (3) | 2022 | 39,500 | 0 | 0 | 0 | 0 | 39,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Director | 2020 | $ | 10,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 27,876 | 2023 | 38,000 | 0 | 0 | 0 | 0 | 38,000 | |||||||||||||||||||||||||||||||||||
Dean Janeway (4) | 2019 | $ | 10,000 | $ | 0 | $ | 0 | $ | 17,876 | $ | 0 | $ | 0 | $ | 27,876 | ||||||||||||||||||||||||||||||||||||||||||
Thomas Toto (4) | 2022 | 39,500 | 0 | 0 | 0 | 0 | 39,500 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Director | 2023 | 38,000 | 0 | 0 | 0 | 0 | 38,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dean Janeway (5) | 2022 | 39,500 | 0 | 0 | 0 | 39,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Director | 2023 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Meghan Henson (6) | 2022 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Director | 2023 | 38,000 | 0 | 0 | 0 | 0 | 38,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Michael Stengel (7) | 2022 | 34,500 | 0 | 0 | 0 | 0 | 34,500 |
1. | Mr. Wolf was appointed as a director of the Company on January 24, 2013 and resigned effective January 31, 2023. |
2. | Mr. Burns was appointed as a director of the Company on January 24, 2013. |
Mr. D’Agostino was appointed as a director of the Company on January 24, 2013. | |
Mr. Toto was appointed as a director of the Company on January 24, 2013. | |
Mr. Janeway was appointed as a director of the Company on January 24, 2013. | |
6. | Ms Henson was appointed as a director of the Company on November 21, 2022. |
7. | Mr. Stengel was appointed as a director of the Company on June 24, 2021. |
8. | Ms. Romig was appointed as a director of the Company on March 9, 2023. |
29 |
Employment Agreements
Carl Wolf
On March 5, 2012, MamaMancini’s entered into an Employment Agreement with Mr. Carl Wolf as Chief Executive Officer for a term of 3 years. Mr. Wolf’s employment agreement automatically renews for successive one-year terms, unless the Company gives written notice of non-renewal not less than six (6) months prior to an anniversary date or until terminated as set forth herein. Mr. Wolf’s employment agreement was renewed for a period of one year on March 5, 2020.2022. As compensation for his services Mr. Wolf receives a base salary of $190,000Wolf’s compensation was increased to $215,000 per year.year effective November 1, 2017. Such base salary is reviewed yearly with regard to possible increase. In addition, Mr. Wolf is eligible to receive an annual bonus as determined by the Board. As part of the agreement, Mr. Wolf is subject to confidentiality provisions regarding MamaMancini’s, and certain covenants not to compete. Mr. Wolf is also entitled to receive certain Termination Payments (as defined Section 11.1 ofPayments. Mr. Wolf’s Employment Agreement) in the event his employment is terminated in conjunction with the following:Company terminated effective January 31, 2023. Upon Mr. Wolf’s termination he was entitled to receive a termination payment of $240,000, which was paid in February 2023.
(1) Termination Payment equals: (i) any unpaid Base Salary through the dateAdam L. Michaels
On September 6, 2022, MamaMancini’s entered into an employment agreement with Adam L. Michaels as Chief Executive Officer of termination, (ii) any BonusMamaMancini’s for an initial term of five (5) years at an initial base salary of $325,000 per year and is eligible for a year-end bonus of up to $650,000 (with a minimum cash bonus of $135,000 for the fiscal year in which such termination occurs prorated asended January 31, 2023). He is also eligible to receive Annual Restricted Stock Units, Sign-on Restricted Stock Units and Sign-on Stock Performance Stock Units. As part of the date of termination, (iii) accruedagreement, Mr. Michaels is subject to confidentiality and unpaid vacation pay for the year in which such termination occurs prorated as of the date of termination, (iv) any sums due under any ofnon-solicitation provisions regarding MamaMancini’s, benefit plans, and (v) any unreimbursed expenses incurred by the Employee on MamaMancini’s behalf.certain covenants not to compete.
Matthew Brown
On March 5, 2012, MamaMancini’s entered into an employment agreement with Mr. Matthew Brown as President of MamaMancini’s for an initial term of 3 years. Mr. Brown’s employment agreement automatically renews for successive one-year terms, unless the Company gives written notice of non-renewal not less than six (6) months prior to an anniversary date or until terminated as set forth herein. Mr. Brown’s employment agreement was renewed for a period of one year on March 5, 2020.2022. As compensation for his services, Mr. Brown receives a base salary of $186,000$216,000 per year. Such base salary is reviewed yearly with regard to possible increase. In addition, Mr. Brown is eligible to receive an annual bonus as determined by the Board. As part of the agreement, Mr. Brown is subject to confidentiality provisions regarding MamaMancini’s, and certain covenants not to compete. Mr. Brown is also entitled to receive certain Termination Payments (as defined in Section 11.1 of Mr. Brown’s Employment Agreement) in the event his employment is terminated in conjunction with the following:Payments.
(1) Termination Payment equals: (i) any unpaid Base Salary through the date of termination, (ii) any Bonus for the year in which such termination occurs prorated as of the date of termination, (iii) accrued and unpaid vacation pay for the year in which such termination occurs prorated as of the date of termination, (iv) any sums due under any of MamaMancini’s benefit plans, and (v) any unreimbursed expenses incurred by the Employee on the MamaMancini’s behalf.
Lawrence MorgensteinAnthony Gruber
On April 1, 2018September 19, 2022, MamaMancini’s entered into an employment agreement with Lawrence MorgensteinAnthony Gruber as Chief Financial Officer of MamaMancini’s for an initial term of one year. Unless terminated, Mr. Morgenstein’s employment agreement automatically renews for successive one-year terms. As compensation for his services, Mr. Morgenstein receives afive (5) years at an initial base salary of $125,000$250,000 per year and is eligible for a year-end bonus of up to $25,000. Such base salary$125,000. He is reviewed yearly with regardalso eligible to possible increase. In addition, Mr. Morgenstein was initially granted an option to acquire 30,000 shares of Company Commonreceive Sign-on Stock vesting 7,500 shares per half year.Performance Stock Units. As part of the agreement, Mr. MorgensteinGruber is subject to confidentiality and non-solicitation provisions regarding MamaMancini’s, and certain covenants not to compete.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding shares of common stock as of April 15, 202026, 2023 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly and the shareholders listed possess sole voting and investment power with respect to the shares shown.
Name of Beneficial Owner(1) | Shares | Percent (2) | ||||||
5% or Greater Stockholders | ||||||||
Alta Fox Capital Management, LLCet al | 1,785,382 | (10) | 5.58 | % | ||||
Named Executive Officers and Directors | ||||||||
Carl Wolf | 7,426,886 | (3) | 22.67 | % | ||||
Matthew Brown | 5,589,181 | (4) | 17.41 | % | ||||
Lawrence Morgenstein | 15,000 | (5) | * | |||||
Steven Burns | 1,509,643 | (6) | 4.68 | % | ||||
Alfred D’Agostino | 994,501 | (7) | 3.09 | % | ||||
Thomas Toto | 904,443 | (8) | 2.82 | % | ||||
Dean Janeway | 449,336 | (9) | 1.39 | % | ||||
All executive officers and directors as a group (7 persons) | 16,888,990 | 50.12 | %(2) | |||||
*Less than 1% |
Name of Beneficial Owner(1) | Number of Shares Beneficially Owned | Percent of class(2) | ||||||
5% or Greater Stockholders (other than Executive Officers and Directors) | ||||||||
Carl Wolf | 7,223,248 | (3) | 19.89 | % | ||||
Executive Officers and Directors | ||||||||
Matthew Brown | 5,629,921 | (4) | 15.50 | % | ||||
Adam L. Michaels | 100,049 | (5) | * | |||||
Anthony Gruber | 0 | * | ||||||
Steven Burns | 1,434,801 | (6) | 3.94 | % | ||||
Alfred D’Agostino | 989,205 | (7) | 2.72 | % | ||||
Thomas Toto | 846,110 | (8) | 2.33 | % | ||||
Dean Janeway | 341,003 | (9) | * | |||||
Michael Stengel | 5,000 | (10) | * | |||||
Meghan Henson | 0 | * | ||||||
Shirley Romig | 0 | * | ||||||
All executive officers and directors as a group (10 persons) | 9,346,089 | 23.43 | %(2) |
*Less than 1%
30 |
(1) | Beneficial ownership is determined in accordance with Rule 13d-3(a) of the Exchange Act and generally includes voting or investment power with respect to securities. In determining beneficial ownership of our Common Stock, the number of shares shown includes shares which the beneficial owner may acquire upon exercise of debentures, warrants and options which may be acquired within 60 days. In determining the percent of Common Stock owned by a person or entity on April | |
(2) | Figures may not add up due to rounding of percentages. |
(3) |
The amount includes 6,170,356 shares held jointly with Ms. Marion F. Wolf and | ||
(4) | ||
(5) | Includes 100,049 shares | |
(6) | ||
This amount includes | ||
(7) | This amount includes | |
(8) | This amount includes | |
(9) | This amount includes | |
(10) |
General
The Company is authorized to issue an aggregate number of 270,000,000 shares of capital stock, of which 20,000,000120,000 shares are Series A Preferred stock, $0.00001 par value per share, 200,000 shares are Series B Preferred stock, $0.00001 par value per share, 19,680,000 shares are preferred stock, $0.00001 par value per share and 250,000,000 shares are common stock, $0.00001 par value per share.
Common Stock
The Company is authorized to issue 250,000,000 shares of common stock, $0.00001 par value per share. At April 15, 2020,26, 2023, we have 31,991,241had 36,317,857 shares of common stock issued and outstanding.
Each share of common stock has one (1) vote per share for all purposes. Our common stock does not provide any preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stockholders are not entitled to cumulative voting for purposes of electing members to our board of directors.
Preferred Stock
The Company is authorized to issue 20,000,000120,000 shares ofare Series A Preferred stock, $0.00001 par value per share, 200,000 shares are Series B Preferred stock, $0.00001 par value per share, and 19,680,000 preferred stock, $0.00001 par value per share.
The Company has designated 120,000 shares of preferred stock as Series A Convertible Preferred stock. AsAll of April 15, 2020, nothe shares of the Company’s previously issued Series A Convertible Preferred Stock are issuedwere converted as of February 13, 2020 and none remain outstanding. The Series A Convertible Preferred Stock shares were convertible, at the option of the holder, into shares of Company Common Stock at a conversion price of $0.675 (subject to adjustment) based upon the stated value of the Series A Convertible Preferred Stock.
DividendsIn the year ended January 31, 2023, the Company sold 54,600 shares of Series B Preferred Stock for gross proceeds of $1,365,000.
The holders of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, an accruing cumulative dividend, in preference to any dividend on the Common Stock, at an annual rate of eight percent (8%) of the Original Purchase Price, payable monthly.
Shares of Series B Preferred may be converted into Common Stock at a rate of 1 share of Series B Preferred Stock into 15 shares of Common Stock at any time at the option of the holder. The Company can force conversion at $2.00 per share of Common Stock at any time after six (6) months after issue if the Common Stock has a closing price of $2.00 or higher in any 30 consecutive trading days. After 18 months, the Company can force holders to convert at a 20% discount to the most recent 20-day average closing price per share. The Company also has the right to cause a conversion following a Fundamental Change.
31 |
At any time on or after the date six (6) months after the Original Issue Date, the Company shall have the right, at its option, to give notice of its election to redeem all outstanding shares of Series B Preferred Stock at the Redemption Price in effect on the date selected by the Company. “Redemption Price” shall mean (i) for the period from and after six (6) months from the Original Issue Date until eighteen (18) months from the Original Issue Date, $2.50 plus accrued and unpaid dividends; (ii) for the period from and after the second anniversary of the Original Issue Date until the day immediately preceding the third anniversary of the Original Issue Date, $3.00 plus accrued and unpaid dividends; and (iii) from and after the third anniversary of the Original Issue Date, $3.50 plus accrued and unpaid dividends.
Dividends
Preferred Stock. The holders of the Series A Convertible Preferred were entitled to receive dividends at a rate of either percent (8%) per annum payable quarterly in cash or Company Common Stock at the option of the holder. We have not paid any cash dividends to theThe holders of our Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, an accruing cumulative dividend, in preference to any dividend on the Common Stock, at an annual rate of eight percent (8%) of the Original Purchase Price, payable monthly.
Common Stock. During the fiscal year ended January 31, 2020, no dividends were paid on the Company’s Series A Preferred Stock.
Common Stock.The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends on our Common Stock in the foreseeable future, but rather to reinvest earnings, if any, in our business operations. We have not paid any cash dividends to the holders of our Common Stock.
Warrants
As of April 15, 2020,26, 2023, there are 13,650 outstanding warrants to purchase 6,056,664 of our common shares. All of the warrants are exercisable for a term of five years with an exercise price of $1.00 per share (which expire between June 10, 2020 and April 30, 2021)
Options
As of April 15, 2020,26, 2023, there outstanding options to purchase 914,000689,000 shares of Company Common Stock. Of this amount, 30,000 optionsStock at $1.21prices ranging from $0.39 to $1.48 per share expire on March 31, 2021, 200,000 options at $0.39 per share expire on April 13, 2021, 12,000 options at $0.49 per share expire on February 1, 2021, 117,000 options at $0.60 per share expire on May 2, 2021, 100,000 options at $1.05 per share expire on June 27, 2022, 90,000 options at $1.38 per share expire on November 5, 2022, 100,000 options at $0.80 expire on September 3, 2023, 250,000 options at $0.52 expire on July 31, 2024, 7,500 options at $0.70 expire on October 1, 2024 and 7,500 options at $0.74 expire on March 31, 2024.share.
M&T Bank Facility
Effective, January 4, 2019, the Company has arranged a new $3.5 million working capital line of credit with M&T Bank at LIBOR plus four points with a two-year expiration. On January 29, 2020, the facility was amended to increase the total available balance to $4.0 million as well as extend the maturity date to June 30, 2022. The Company also arranged a $2.5 million five-year note with M&T Bank at LIBOR plus four points with repayments in equal payments over 60 months. The new financing replaced the Company’s then-existing Senior Note from Manatuck Hill Partners (which was due on May 1, 2019) in the amount of approximately $1.2 million; working capital and term loans in the amount of approximately $2.8 million payable to EGC and a $250,000 term loan payable to Valley National Bank. 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). The new facility is supported by a first priority security interest in all of the Company’s business assets and is further subject to various affirmative and negative financial covenants and a limited Guaranty by the Company’s Chief executive Officer, Carl Wolf.
The effect of the financing as well as an amendment to certain related party financing to notes maturing January 2024 is to reclassify approximately $3.4 million from short-term liabilities to long-term loans. The Company estimates it initially will be paying a 6.5% per annum interest rate on the new financing, versus an average of over 12.5% per annum on the prior financing it replaces.
The Company recorded a one-time charge of $121,500 for termination of its existing loans in the month of January 2019 and will also amortize origination fees of $89,000 on the new facility.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Two or our directors, Thomas TotoWe currently lease 20,188 square feet in a fully contained facility at 184 Allen Boulevard, Farmingdale, NY from 148 Allen Blvd LLC for production and Alfred D’Agostino, work for World Wide Sales, Inc. (“World Wide Sales”), a perishable food broker that services the New York / New Jersey Metropolitandistribution of T&L Creative Salads and Philadelphia marketplace. Mr. D’AgostinoOlive Branch products. This property is theowned by Anthony Morello, Jr., President of World Wide Sales. PursuantT&L, as well as individuals related to an informal arrangement,Mr. Morello. During the years ended January 31, 2022 and 2021, we paid $242,400 and $20,200, respectively, in rent under this lease.
Upon consummation of the acquisition of T&L, the Company has agreed to pay World Wide Salesexecuted a $3,000,000 promissory note with the greatersellers. The promissory note requires annual principal payments of $4,000 or 3% sales commission$750,000 payable on net sales (sales less any promotions, credits, allowance,each anniversary of the closing, together with accrued interest at a rate of three and short pay) to supermarket chains headquartered inone-half (3.5%) per annum. As of January 31, 2023 and January 31, 2022, the New York Metropolitan area per month. To date, World Wide Sales has never been paid in excessoutstanding balance under the note was $2,250,000 and $3,009,917, respectively. For the year ended January 31, 2023 and January 31, 2022 interest expense for this note was $101,771 and $9,917 respectively. As of $4,000 in any month.January 31, 2023 and January 31, 2022, accrued interest was $6,688 and $9,917, respectively.
Director Independence
Our board of directors has determined that each of Mr. Burns, Mr.Messrs. D’Agostino, Mr. Toto, Janeway, Henson, Romig, and Mr. JanewayStengel is an independent director within the meaning of the applicable rules of the SEC and the New York Stock Exchange,NASDAQ Markets and that each of them is also an independent director under Rule 10A-3 of the Exchange Act for the purpose of audit committee membership. In addition, our board of directors has determined that Mr. BurnsStengel is an audit committee financial expert within the meaning of the applicable rules of the SEC and the New York Stock Exchange.NASDAQ Markets.
32 |
Item 14. Principal Accounting Fees and Services.
Audit Fees
Audit Fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. This category includes fees related to the performance of audits and attest services not required by statute or regulations, and accounts consultations regarding the application of US GAAP to proposed transactions. The aggregate Audit Feesaudit fees billed for the fiscal years ended January 31, 20202023 and January 31, 2019,2022, were $56,920$191,655 and $41,000,$63,350, respectively.
Audit Related Fees
The aggregate fees billed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements, other than those previously reported in this Item 14, for the fiscal yearyears ended January 31, 20202023 and January 31, 20192022 were $0$62,948 and $0, respectively.
Tax Fees
Tax Fees consist of the aggregate fees billed for professional services rendered by our principal accountsaccountants for tax compliance, tax advice, and tax planning. These services include preparation forof federal and state income tax returns. The aggregate Tax Feestax fees billed for the years ended January 31, 20202023 and January 31, 20192022 were $7,500$25,555 and $7,500,$12,500, respectively.
All Other Fees
All Other Fees consists of all other fees for services rendered by our principal accountant. For the years ended January 31, 2023 and January 31, 2022, there were no such services or fees billed.
Audit Committee Pre-Approval Policies and Procedures
Effective May 6, 2003, the SEC adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
● | approved by our audit committee; or | |
● | entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. |
Our Audit Committee pre-approved all services provided by our independent auditors for the period covered by this Annual Report on Form 10-K.
33 |
Item 15. Exhibits, Financial Statements Schedules
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
34 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MAMAMANCINI’S HOLDINGS, INC. | ||
Date: April | By: | /s/ |
Name: | ||
Title: | Chief Executive Officer (Principal Executive Officer) | |
By: | /s/ | |
Name: | ||
Title: | Chief Financial Officer (Principal Financial Officer) |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Adam Michaels and Anthony Gruber as his or her true and lawful attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Adam L. Michaels | Chief Executive Officer, Chairman of the | April 26, 2023 | ||
Adam L. Michaels | Board of Directors | |||
/s/ Matthew Brown | President, Director | April 26, 2023 | ||
Matthew Brown | ||||
/s/ Anthony Gruber | Chief Financial Officer | April 26, 2023 | ||
Anthony Gruber | ||||
/s/ Steven Burns | Director | April 26, 2023 | ||
Steven Burns | ||||
/s/ Alfred D’Agostino | Director | April 26, 2023 | ||
Alfred D’Agostino | ||||
/s/ Tom Toto | Director | April 26, 2023 | ||
Tom Toto | ||||
/s/ Dean Janeway | Director | April 26, 2023 | ||
Dean Janeway | ||||
/s/ | April | |||
26, 2023 | ||||
Meghan Henson | ||||
/s/ | April | |||
/s/ | April | |||
35 |
MAMAMANCINI’S HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
January 31, 20202023
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of MamaMancini’s Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MamaMancini’s Holdings, Inc. (the Company) as of January 31, 20202023 and 2019,2022, and the related consolidated statements of operations, changes in stockholders’ equity, (deficit), and cash flows for each of the years in the two-year period ended January 31, 2020,2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of January 31, 20202023 and 2019,2022, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2020,2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Rosenberg Rich Baker Berman, P.A.Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. We have served as the Company’s auditor since 2011.determined that there are no critical audit matters.
/s/ Rosenberg Rich Baker Berman, P.A. | |
We have served as the Company’s auditor since 2011. | |
Somerset, New Jersey | |
April 26, 2023 |
Somerset, New Jersey
April 23, 2020
F-2 |
Consolidated Balance Sheets
January 31, 2020 | January 31, 2019 | January 31, 2023 | January 31, 2022 | |||||||||||||
(As Revised) | ||||||||||||||||
Assets | ||||||||||||||||
Assets: | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash | $ | 393,683 | $ | 609,409 | $ | 4,378,383 | $ | 850,598 | ||||||||
Accounts receivable, net | 3,727,887 | 2,650,824 | 6,832,046 | 7,627,717 | ||||||||||||
Inventories | 1,246,417 | 1,347,589 | ||||||||||||||
Prepaid expenses | 252,268 | 155,178 | ||||||||||||||
Inventories, net | 3,635,881 | 2,890,793 | ||||||||||||||
Prepaid expenses and other current assets | 828,391 | 269,209 | ||||||||||||||
Total current assets | 5,620,255 | 4,763,000 | 15,674,701 | 11,638,317 | ||||||||||||
Property and equipment, net | 2,805,843 | 2,884,594 | 3,423,096 | 3,678,532 | ||||||||||||
Intangibles, net | 1,502,510 | 1,984,979 | ||||||||||||||
Goodwill | 8,633,334 | 8,633,334 | ||||||||||||||
Operating lease right of use assets, net | 1,490,794 | - | 3,236,690 | 3,596,317 | ||||||||||||
Deferred tax asset | 717,559 | 448,501 | ||||||||||||||
Equity method investment | 1,343,486 | - | ||||||||||||||
Deposits | 20,177 | 20,177 | 53,819 | 52,249 | ||||||||||||
Total Assets | $ | 9,937,069 | $ | 7,667,771 | $ | 34,585,195 | $ | 30,032,229 | ||||||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||
Liabilities: | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 3,552,790 | $ | 3,061,932 | $ | 9,063,256 | $ | 6,479,140 | ||||||||
Term loan | 423,799 | 500,000 | ||||||||||||||
Term loan, net of debt discount of $60,082 and $57,771, respectively | 1,491,642 | 1,235,333 | ||||||||||||||
Operating lease liability | 126,516 | - | 391,802 | 292,699 | ||||||||||||
Finance leases payable | 105,126 | 53,730 | 182,391 | 218,039 | ||||||||||||
Promissory note – related party | 750,000 | 759,917 | ||||||||||||||
Total current liabilities | 4,208,231 | 3,615,662 | 11,879,091 | 8,985,128 | ||||||||||||
Term loan – net | - | 1,914,401 | ||||||||||||||
Line of credit – net | 2,997,348 | 2,612,034 | ||||||||||||||
Operating lease liability – net | 1,372,349 | - | ||||||||||||||
Finance leases payable – net | 315,234 | 162,527 | ||||||||||||||
Notes payable - related party | 641,844 | 641,844 | ||||||||||||||
Line of credit | 890,000 | 765,000 | ||||||||||||||
Operating lease liability – net of current | 2,897,205 | 3,339,255 | ||||||||||||||
Finance leases payable – net of current | 248,640 | 376,132 | ||||||||||||||
Promissory note – related party, net of current | 1,500,000 | 2,250,000 | ||||||||||||||
Term loan – net of current | 4,655,181 | 6,206,896 | ||||||||||||||
Total long-term liabilities | 5,326,775 | 5,330,806 | 10,191,026 | 12,937,283 | ||||||||||||
Total Liabilities | 9,535,006 | 8,946,468 | 22,070,117 | 21,922,411 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Commitments and contingencies (Note 10) | - | - | ||||||||||||||
Stockholders’ Equity (Deficit): | ||||||||||||||||
Series A Preferred stock, $0.00001 par value; 120,000 shares authorized; 23,400 issued as of January 31, 2020 and 2019, 0 and 0 shares outstanding as of January 31, 2020 and 2019 | - | - | ||||||||||||||
Preferred stock, $0.00001 par value; 19,880,000 shares authorized; no shares issued and outstanding | - | - | ||||||||||||||
Common stock, $0.00001 par value; 250,000,000 shares authorized; 31,991,241 and 31,866,241 shares issued and outstanding as of January 31, 2020 and 2019 | 321 | 320 | ||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Series A Preferred stock, $ | par value; shares authorized; issued as of January 31, 2023 and January 31, 2022, shares outstanding as of January 31, 2023 and January 31, 2022- | - | ||||||||||||||
Series B Preferred stock, $ | par value; shares authorized; and issued and outstanding as of January 31, 2023 and January 31, 2022- | - | ||||||||||||||
Preferred stock, $ | par value; shares authorized; shares issued and outstanding- | - | ||||||||||||||
Common stock, $ | par value; shares authorized; and shares issued and outstanding as of January 31, 2023 and January 31, 2022364 | 359 | ||||||||||||||
Additional paid in capital | 16,695,352 | 16,547,287 | 22,724,440 | 20,587,789 | ||||||||||||
Accumulated deficit | (16,144,110 | ) | (17,676,804 | ) | (10,060,226 | ) | (12,328,830 | ) | ||||||||
Less: Treasury stock, 230,000 shares at cost, respectively | (149,500 | ) | (149,500 | ) | ||||||||||||
Total Stockholders’ Equity (Deficit) | 402,063 | (1,278,697 | ) | |||||||||||||
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 9,937,069 | $ | 7,667,771 | ||||||||||||
Less: Treasury stock, | shares at cost(149,500 | ) | (149,500 | ) | ||||||||||||
Total Stockholders’ Equity | 12,515,078 | 8,109,818 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 34,585,195 | $ | 30,032,229 |
See accompanying notes to the consolidated financial statementsstatements.
F-3 |
Consolidated Statements of Operations
For the Years Ended | 2023 | 2022 | ||||||||||||||
January 31, 2020 | January 31, 2019 | For the Years Ended January 31, | ||||||||||||||
(As Revised) | 2023 | 2022 | ||||||||||||||
Sales-net of slotting fees and discounts | $ | 34,837,447 | $ | 28,474,374 | $ | 93,187,621 | $ | 47,083,740 | ||||||||
Costs of sales | 23,766,137 | 18,580,489 | 73,769,359 | 35,229,867 | ||||||||||||
Gross profit | 11,071,310 | 9,893,885 | 19,418,262 | 11,853,873 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 114,626 | 130,920 | 135,141 | 120,692 | ||||||||||||
General and administrative | 8,873,260 | 8,294,450 | 16,461,467 | 11,650,414 | ||||||||||||
Total operating expenses | 8,987,886 | 8,425,370 | 16,596,608 | 11,771,106 | ||||||||||||
Income from operations | 2,083,424 | 1,468,515 | 2,821,654 | 82,767 | ||||||||||||
Other expenses | ||||||||||||||||
Other income (expenses) | ||||||||||||||||
Interest | (482,995 | ) | (881,702 | ) | (633,889 | ) | (73,487 | ) | ||||||||
Amortization of debt discount | (67,735 | ) | (133,314 | ) | (22,121 | ) | (2,438 | ) | ||||||||
Total other expenses | (550,730 | ) | (1,015,016 | ) | ||||||||||||
Other income | 2,648 | 37,704 | ||||||||||||||
Total other income (expenses) | (653,362 | ) | (38,221 | ) | ||||||||||||
Net income before income tax provision | 1,532,694 | 453,499 | ||||||||||||||
Net income before income tax provision and income from equity method investment | 2,168,292 | 44,546 | ||||||||||||||
Income from equity method investment | 143,486 | - | ||||||||||||||
Income tax provision | - | - | (9,104 | ) | (296,472 | ) | ||||||||||
Net income | 1,532,694 | 453,499 | ||||||||||||||
Net income (loss) | 2,302,674 | (251,926 | ) | |||||||||||||
Net income per common share | ||||||||||||||||
Less: series B preferred dividends | (34,070 | ) | - | |||||||||||||
Net income (loss) available to common stockholders | 2,268,604 | $ | (251,926 | ) | ||||||||||||
Net income (loss) per common share | ||||||||||||||||
– basic | $ | 0.05 | $ | 0.01 | $ | 0.06 | $ | (0.01 | ) | |||||||
– diluted | $ | 0.04 | $ | 0.01 | $ | 0.06 | $ | (0.01 | ) | |||||||
Weighted average common shares outstanding | ||||||||||||||||
– basic | 31,949,803 | 31,843,755 | 36,093,858 | 35,702,197 | ||||||||||||
– diluted | 34,339,256 | 32,521,821 | 37,313,178 | 35,702,197 |
See accompanying notes to the consolidated financial statementsstatements.
F-4 |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Period from February 1, 20182022 through January 31, 20202023
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, 2018 | - | $ | - | 31,753,437 | $ | 319 | (230,000 | ) | $ | (149,500 | ) | $ | 16,344,794 | $ | (18,130,303 | ) | $ | (1,934,690 | ) | |||||||||||||||||
Stock options issued for services | - | - | - | - | - | - | 162,494 | - | 162,494 | |||||||||||||||||||||||||||
Common stock issued for the exercise of options | - | - | 40,000 | - | - | - | 40,000 | - | 40,000 | |||||||||||||||||||||||||||
Common stock issued for the exercise of warrants | - | - | 72,804 | 1 | - | - | (1 | ) | - | - | ||||||||||||||||||||||||||
Net income (As Revised) | - | - | - | - | - | - | - | 453,499 | 453,499 | |||||||||||||||||||||||||||
Balance, January 31, 2019 (As Revised) | - | - | 31,866,241 | 320 | (230,000 | ) | (149,500 | ) | 16,547,287 | (17,676,804 | ) | (1,278,697 | ) | |||||||||||||||||||||||
Common stock issued for services | - | - | 125,000 | 1 | - | - | 71,874 | - | 71,875 | |||||||||||||||||||||||||||
Stock options issued for services | - | - | - | - | - | - | 76,191 | - | 76,191 | |||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | 1,532,694 | 1,532,694 | |||||||||||||||||||||||||||
Balance, January 31, 2020 | - | $ | - | 31,991,241 | $ | 321 | (230,000 | ) | $ | (149,500 | ) | $ | 16,695,352 | $ | (16,144,110 | ) | $ | 402,063 |
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||
Series A | Series B | Additional | ||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||
Balance, February 1, 2022 | - | $ | - | - | $ | - | 35,758,792 | $ | 359 | (230,000 | ) | $ | (149,500 | ) | $ | 20,587,789 | $ | (12,328,830 | ) | $ | 8,109,818 | |||||||||||||||||||||||
Stock based compensation | - | - | - | - | - | - | - | - | 110,006 | - | 110,006 | |||||||||||||||||||||||||||||||||
Stock issued for the exercise of options | - | - | - | - | 57,093 | - | - | - | 26,250 | - | 26,250 | |||||||||||||||||||||||||||||||||
Stock issued for the acquisition of equity investment | - | - | - | - | 501,972 | 5 | - | - | 699,996 | - | 700,000 | |||||||||||||||||||||||||||||||||
Issuance of Preferred B Shares, net of issuance costs | - | - | 54,600 | - | - | - | - | 1,300,399 | - | 1,300,400 | ||||||||||||||||||||||||||||||||||
Series B Preferred dividend | - | - | - | - | - | - | - | - | - | (34,070 | ) | (34,070 | ) | |||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | - | 2,302,674 | 2,302,674 | |||||||||||||||||||||||||||||||||
Balance, January 31, 2023 | - | $ | - | 54,600 | $ | - | 36,317,857 | $ | 364 | (230,000 | ) | $ | (149,500 | ) | $ | 22,724,440 | $ | (10,060,226 | ) | $ | 12,515,078 |
For the Period from February 1, 2021 through January 31, 2022
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
Series A Preferred Stock | Common Stock | Treasury Stock | Additional Paid In | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
Balance, February 1, 2021 | - | $ | - | 35,603,731 | $ | 357 | (230,000 | ) | $ | (149,500 | ) | $ | 20,535,793 | $ | (12,076,904 | ) | $ | 8,309,746 | ||||||||||||||||||
Balance | - | $ | - | 35,603,731 | $ | 357 | (230,000 | ) | $ | (149,500 | ) | $ | 20,535,793 | $ | (12,076,904 | ) | $ | 8,309,746 | ||||||||||||||||||
Stock options issued for services | - | - | - | - | - | - | 1,863 | - | 1,863 | |||||||||||||||||||||||||||
Common stock issued for services | - | - | 7,000 | - | - | - | 31,055 | - | 31,055 | |||||||||||||||||||||||||||
Common stock issued for exercise of options | - | - | 148,061 | 2 | - | - | 19,078 | - | 19,080 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (251,926 | ) | (251,926 | ) | |||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | (251,926 | ) | (251,926 | ) | |||||||||||||||||||||||||
Balance, January 31, 2022 | - | $ | - | 35,758,792 | $ | 359 | (230,000 | ) | $ | (149,500 | ) | $ | 20,587,789 | $ | (12,328,830 | ) | $ | 8,109,818 | ||||||||||||||||||
Balance | - | $ | - | 35,758,792 | $ | 359 | (230,000 | ) | $ | (149,500 | ) | $ | 20,587,789 | $ | (12,328,830 | ) | $ | 8,109,818 |
See accompanying notes to the consolidated financial statementsstatements.
F-5 |
Consolidated Statements of Cash Flows
For the Year Ended | 2023 | 2022 | ||||||||||||||
January 31, 2020 | January 31, 2019 | For the Years Ended January 31, | ||||||||||||||
(As Revised) | 2023 | 2022 | ||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income | $ | 1,532,694 | $ | 453,499 | ||||||||||||
Net income (loss) | $ | 2,302,674 | $ | (251,926 | ) | |||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 640,246 | 679,005 | 920,718 | 779,442 | ||||||||||||
Provision for doubtful accounts | 233,000 | - | ||||||||||||||
Amortization of debt discount | 67,735 | 133,314 | 22,121 | 2,437 | ||||||||||||
Amortization of right of use assets | 359,627 | 190,798 | ||||||||||||||
Amortization of intangibles | 482,469 | 43,660 | ||||||||||||||
Share-based compensation | 93,862 | 162,494 | 110,006 | 32,918 | ||||||||||||
Amortization of right of use assets | 109,036 | - | ||||||||||||||
Change in deferred tax asset | (269,058 | ) | 296,472 | |||||||||||||
Income from equity method investment | (143,486 | ) | - | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (1,077,063 | ) | 433,891 | 562,671 | (938,409 | ) | ||||||||||
Inventories | 101,172 | (523,313 | ) | (745,088 | ) | (474,527 | ) | |||||||||
Prepaid expenses | (42,886 | ) | 106,802 | (174,460 | ) | 254,220 | ||||||||||
Security deposits | (1,570 | ) | (32,072 | ) | ||||||||||||
Accounts payable and accrued expenses | 490,858 | (2,284 | ) | 2,192,359 | 1,175,677 | |||||||||||
Operating lease liability | (100,965 | ) | - | (342,947 | ) | (168,849 | ) | |||||||||
Net Cash Provided by Operating Activities | 1,814,689 | 1,443,408 | 5,509,036 | 909,841 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Cash paid for fixed assets | (268,106 | ) | (1,033,724 | ) | (593,214 | ) | (862,415 | ) | ||||||||
Net Cash Used in Investing Activities | (268,106 | ) | (1,033,724 | ) | ||||||||||||
Cash paid for equity method investment | (500,000 | ) | - | |||||||||||||
Acquisition of companies – net of cash acquired | - | (10,408,542 | ) | |||||||||||||
Net Cash (Used in) Investing Activities | (1,093,214 | ) | (11,270,957 | ) | ||||||||||||
- | ||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Repayment of note payable – related party | - | (7,812 | ) | |||||||||||||
Proceeds from series b preferred stock offering | 1,365,000 | - | ||||||||||||||
Payment of stock offering costs | (64,600 | ) | - | |||||||||||||
Borrowings from term loan | - | 2,800,000 | - | 7,500,000 | ||||||||||||
Cash paid for financing fees | (27,314 | ) | (63,750 | ) | ||||||||||||
Repayment of term loan | (2,058,337 | ) | (1,058,615 | ) | (1,293,095 | ) | - | |||||||||
Repayment of note payable | - | (2,130,625 | ) | |||||||||||||
Borrowings (repayments) of line of credit, net | 385,314 | (90,356 | ) | |||||||||||||
Proceeds from capital lease | - | 213,250 | ||||||||||||||
Repayment of capital lease obligations | (89,376 | ) | (26,993 | ) | ||||||||||||
Debt issuance costs | - | (120,446 | ) | |||||||||||||
Borrowings of line of credit, net | 125,000 | 765,000 | ||||||||||||||
Repayment of term loan - related party | (750,000 | ) | - | |||||||||||||
Repayment of finance lease obligations | (235,208 | ) | (199,176 | ) | ||||||||||||
Payment of Series B Preferred dividends | (34,070 | ) | - | |||||||||||||
Proceeds from exercise of options | - | 40,000 | 26,250 | 19,080 | ||||||||||||
Net Cash Used in Financing Activities | (1,762,399 | ) | (381,597 | ) | ||||||||||||
Net Cash (Used in) Provided by Financing Activities | (888,037 | ) | 8,021,154 | |||||||||||||
Net Increase (Decrease) in Cash | (215,726 | ) | 28,087 | 3,527,785 | (2,339,962 | ) | ||||||||||
Cash - Beginning of Period | 609,409 | 581,322 | 850,598 | 3,190,560 | ||||||||||||
Cash - End of Period | $ | 393,683 | $ | 609,409 | $ | 4,378,383 | $ | 850,598 | ||||||||
- | ||||||||||||||||
SUPPLEMENTARY CASH FLOW INFORMATION: | ||||||||||||||||
Cash Paid During the Period for: | ||||||||||||||||
Income taxes | $ | - | $ | - | $ | 31,647 | $ | - | ||||||||
Interest | $ | 548,894 | $ | 638,029 | $ | 633,827 | $ | 52,221 | ||||||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||
Operating lease liability | $ | 1,599,830 | $ | - | ||||||||||||
Finance lease asset additions | $ | 293,479 | $ | 30,000 | $ | 72,068 | $ | 128,050 | ||||||||
Accrued interest on note payable reclassified to principal | $ | - | $ | 392,702 | ||||||||||||
Common stock issued for services to be rendered | $ | 71,875 | $ | - | ||||||||||||
Operating lease asset additions | $ | - | $ | 2,457,502 | ||||||||||||
Related party loan to finance acquisition | $ | - | $ | 3,000,000 | ||||||||||||
Non-cash consideration paid in common stock for equity method investment | $ | 700,000 | $ | - | ||||||||||||
Non-cash deposits on prepaid additions | $ | 384,722 |
See accompanying notes to the consolidated financial statementsstatements.
F-6 |
Notes to Consolidated Financial Statements
January 31, 20202023
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 CompanyMamaMancini’s Inc. (“Mamas”) is a marketer, manufacturer and distributor of beef meatballs with sauce, turkey meatballs with sauce, beef meat loaf, sausage & peppers, chicken parmesan and other similar meats and sauces. In addition, the Company continues to diversify its product line by introducing new products such as ready to serve dinners, single-size Pasta Bowls, bulk deli, packaged refrigerated and frozen products. The Company’s customers are located throughoutMamas products were submitted to the United States withDepartment 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.
On December 29, 2021, the Company made two acquisitions which expand the Company’s core product lines, and access to specific markets. T&L Creative Salads, Inc. (“T&L”) and Olive Branch, LLC (“OB” or “Olive Branch”), are related premier gourmet food manufacturers based in New York. T&L offers a full line of foods for retail food chains and club stores, delis, bagel stores, caterers and provision distributors. T&L uses high-quality meats, seafood and vegetables, prepared to meet the standards set forth by the USDA and the FDA. Olive Branch started operations six years ago as a separate company to concentrate on selling olives, olive mixes, and savory products to a limited number of large concentrationretail customers, primarily in pre-packaged containers.
On June 28, 2022, the Company acquired a 24% minority interest in Chef Inspirational Foods, LLC (“CIF”), a leading developer, innovator, marketer and sales company selling prepared foods, for an investment of $1.2 million. The investment consists of $500,000 in cash and $700,000 in the Northeast and Southeast.Company’s common stock. The Company announcedalso was granted the option to purchase the remaining seventy-six percent (76%) interest in October that it developed Plant Based Meatballs using Beyond Beef as its primary ingredientCIF within one year of June 28, 2022. The option purchase price is an additional $3.8 million, of which $3.5 million would be paid in cash and signed an agreement with Beyond Meat.$300,000 in common stock, which would be paid within a two-year period from June 28, 2023. The Company expects to begin selling these productsacquisition of the interest in CIF is being accounted for under the current quarter.equity method of accounting for investments.
The following presents the unaudited results of operations for the period June 28, 2022 (acquisition date) through January 31, 2023 of CIF.
Schedule of Results of Operations
For the Period June 28, 2022 through January 31, 2023 | ||||
Revenues | $ | 18,238,335 | ||
Net income | $ | 597,858 |
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“USU.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries.subsidiaries as of the reporting period ending dates and for the reporting periods. All material intercompany balances and transactions have been eliminated in consolidation.
Principles of Consolidation
F-7 |
The 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 principlesGAAP 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 andpurchase price accounting, the fair value of share-based payments.payments, inventory reserves, impairment of goodwill and intangible assets, and estimates for unrealized returns, discounts, and other allowances that are netted against revenue.
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 changechanges 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
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 January 31, 20202023 and 2019.January 31, 2022.
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 January 31, 2023, the Company had approximately $3.5 million 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 January 31, 20202023 and 2019,January 31, 2022, the reserve for uncollectible accounts was approximately $233,000 and $2,000, respectively.
Inventories
The Company had reserves of $2,000.
Inventories
Inventories are statedvalues its inventory at the lower of cost or net realizable value using(“NRV”). NRV is defined as estimated selling prices less costs of completion, disposal, and transportation. The cost of inventory is determined on the first-in, first-out (FIFO) valuation method. Inventory was comprisedbasis. The Company regularly reviews inventory quantities on-hand and records a provision for excess and obsolete inventory based primarily on selling prices, indications from customers based upon current price negotiations and purchase orders. In addition, and as necessary, specific reserves for future known or anticipated events may be established.
Inventories by major category are as follows:
Schedule of the followingInventories
January 31, 2023 | January 31, 2022 | |||||||
Raw Materials | $ | 1,883,270 | $ | 1,854,156 | ||||
Work in Process | 98,910 | 244,974 | ||||||
Finished goods | 1,653,701 | 791,663 | ||||||
Total | $ | 3,635,881 | $ | 2,890,793 |
The reserve for obsolescence at January 31, 20202023 and 2019:January 31, 2022 was $32,433 and $64,034, respectively.
January 31, 2020 | January 31, 2019 | |||||||
(As Revised) | ||||||||
Raw Materials | $ | 893,204 | $ | 556,703 | ||||
Work in Process | 37,764 | 38,769 | ||||||
Finished goods | 315,449 | 752,117 | ||||||
$ | 1,246,417 | $ | 1,347,589 |
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:
Schedule of Property and Equipment Estimated Useful Lives
Machinery and equipment | ||
Furniture and fixtures | 3 - 5years | |
Leasehold improvements | -* |
(*) | Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever period is shorter. |
(*) 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.
LeasesIntangible Assets
In February 2016,Software
The Company accounts for acquired internal-use software licenses and certain costs within the FASB issued ASU 2016-02 “scope of ASC 350-40, Leases” (Topic 842) which amended guidance for lease arrangements to increase transparencyIntangibles - Goodwill and comparability by providing additional information to usersOther - Internal-Use Software as intangible assets. The Company capitalized $87,639 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 liabilitycosts incurred 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, 20202021 to implement cloud computing arrangements. Acquired internal-use software licenses are presentedamortized 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. In November 2021, the Company finalized the implementation process and began to use the software license. During the years ended January 31, 2023 and 2022, the Company recorded amortization of $80,336 and $7,303, respectively.
Additionally, the Company evaluates its accounting for fees paid in an agreement to determine whether it includes a license to internal-use software. If the agreement includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the agreement does not include a software license, the Company accounts for the arrangement as a service contract (hosting arrangement) and hosting costs are generally expensed as incurred.
Goodwill
Goodwill is the excess of the consideration paid for a business over the fair value of the identifiable net assets acquired. Goodwill and other indefinite lived intangible assets are not amortized. Instead, these assets are reviewed annually (or more frequently under ASC 842, while priorvarious conditions) for impairment. The Company has the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, the Company may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.
F-9 |
When performing its quantitative annual, or interim, goodwill impairment test the Company is comparing the fair value of its reporting units with their carrying amounts. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount of its reporting unit when measuring the goodwill impairment loss, if applicable. The fair value of the reporting units is estimated using discounted cash flow methodologies, as well as considering third party market value indicators. The Company’s use of a discounted cash flow methodology includes estimates of future revenue based upon budgets and projections. The Company also develops estimates for future levels of gross and operating profits and projected capital expenditures. The Company’s methodology also includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors. Calculating the fair value requires significant estimates and assumptions by management. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, the Company may be required to record impairments to its goodwill in future periods and such impairments could be material.
Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period amounts were not adjustedto determine whether events and circumstances continue to be reported in accordance withsupport an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.
As of January 31, 2023, there were no impairment losses recognized for goodwill.
Other Intangibles
Other intangibles consist of trademarks, trade names and customer relationships. Intangible asset lives for financial statement reporting of amortization are:
Schedule of Other Intangible Assets Impairment Losses Recognized for Goodwill
Tradenames and trademarks | 3 years | |
Customer relationships | 4 - 5 years |
During the legacy accounting guidance under ASC Topic 840,Leases.
As part of the adoptionyear ended January 31, 2023 and 2022, the Company elected the practical expedients permitted under the transition guidance within the new standard, which amongrecognized amortization of $402,133 and $36,357 respectively related to other things, allowed the Company to:intangible assets.
Refer to Note 7. Leases for additional disclosures required by ASC 842.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.
Research and Development
Research and development is expensed as incurred. Research and development expenses for the years ended January 31, 20202023 and 20192022 were $114,626$135,141 and $130,920,$120,692, respectively.
Shipping and Handling CostsRevenue Recognition
The Company classifies freight billed to customers as salesrecognizes revenue and the related freight costs as general and administrative expenses.
Revenue Recognition
In May 2014, thein accordance with FASB issued ASU 2014-09,Topic 606, 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 toreceived by 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, theThe 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 statementstatements 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.
F-10 |
Payment terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers. The Company generally recognizes the related trade receivable when the goods are shipped.received by the customer.
Expenses such as slotting fees, sales discounts, and allowances are accounted for as a direct reduction of revenues as follows:
Schedule of Expenses of Slotting Fees, Sales Discounts and Allowances are Accounted as Direct Reduction of Revenues
For the Years Ended | January 31, 2023 | January 31, 2022 | ||||||||||||||
January 31, 2020 | January 31, 2019 | For the Years Ended | ||||||||||||||
(As Revised) | January 31, 2023 | January 31, 2022 | ||||||||||||||
Gross Sales | $ | 35,455,541 | $ | 28,904,449 | $ | 95,420,129 | $ | 48,798,656 | ||||||||
Less: Slotting, Discounts, Allowances | 618,094 | 430,075 | ||||||||||||||
Less: Slotting, Discounts, and Allowances | 2,232,508 | 1,714,916 | ||||||||||||||
Net Sales | $ | 34,837,447 | $ | 28,474,374 | $ | 93,187,621 | $ | 47,083,740 |
Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant geographic area for the years ended January 31, 20202023 and 2019:2022:
Schedule of Disaggregates Gross Revenue by Significant Geographic Area
For the Year Ended | January 31, 2023 | January 31, 2022 | ||||||||||||||
January 31, 2020 | January 31, 2019 | For the Years Ended | ||||||||||||||
(As Revised) | January 31, 2023 | January 31, 2022 | ||||||||||||||
Northeast | $ | 11,857,813 | $ | 8,339,738 | $ | 40,382,360 | $ | 16,119,490 | ||||||||
Southeast | 8,523,577 | 8,134,168 | 27,014,357 | 17,546,606 | ||||||||||||
Midwest | 5,024,197 | 6,013,536 | 14,928,517 | 4,917,263 | ||||||||||||
West | 5,823,215 | 4,135,590 | 6,274,633 | 5,358,105 | ||||||||||||
Southwest | 4,226,739 | 2,281,417 | 6,820,262 | 4,857,192 | ||||||||||||
Total revenue | $ | 35,455,541 | $ | 28,904,449 | $ | 95,420,129 | $ | 48,798,656 |
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
Advertising
Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred. Producing and communicating advertising expenses for the years ended January 31, 20202023 and 20192022 were $1,698,181approximately $693,000 and $1,729,448,$735,000, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation”(“ASC 718”), which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans in accordance with ASC 718.
The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.
Share-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statementstatements 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.
F-11 |
For the yearsyear ended January 31, 20202023 and 2019,2022, share-based compensation amounted to $93,862$ and $162,494, respectively, relating to shares of common stock and options issued to employees and consultants for services.$ , respectively.
Schedule of Fair Value of Share-Based Payments
January 31, 2020 | January 31, 2019 | |||||||
Risk-free interest rate | 1.52 – 2.29 | % | 1.99 - 2.78 | % | ||||
Expected life of grants | 3 – 3.25 years | 2 - 3 years | ||||||
Expected volatility of underlying stock | 127 - 150 | % | 154 - 172 | % | ||||
Dividends | 0 | % | 0 | % |
January 31, 2023 | January 31, 2022 | |||||||
Risk-free interest rate | % | N/A | ||||||
Expected life of grants | years | N/A | ||||||
Expected volatility of underlying stock | % | N/A | ||||||
Dividends | % | N/A |
The expected option term is computed using the “simplified” method“simplified method” for “plain vanilla” options 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 (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earningsBasic net income or loss per share. EPSshare attributable to common stockholders excludes dilution and is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing net income availableor loss attributable to common stockholders (the numerator)during the period by the weighted-averageweighted average number of common shares outstanding (the denominator) during the period. Income availableDiluted net income or loss per share reflects potential dilution and is computed by dividing net income (loss) attributable to common stockholders shall be computed by deducting both the dividends declared inweighted average number of common shares outstanding during 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 denominatorwhich is increased to includeby the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued duringissued. However, if the period to reflecteffect of any additional securities are anti-dilutive (i.e., resulting in a higher net income per share or lower net loss per share), they are excluded from the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement,dilutive net income or loss computation. The dilutive effect of stock options, warrants, and restricted stock is calculated using the treasury-stock method and the dilutive effect of the Series B Preferred stock is calculated using the treasury or warrants.if-converted method.
F-12 |
The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss) attributable to common stockholders per common share.
Schedule of Earnings Per Share, Basic and Diluted
January 31, 2023 | January 31, 2022 | |||||||
For the Years Ended | ||||||||
January 31, 2023 | January 31, 2022 | |||||||
Numerator: | ||||||||
Net income (loss) attributable to common stockholders | $ | 2,268,604 | (251,926 | ) | ||||
Effect of dilutive securities: | (34,070 | ) | — | |||||
Diluted net income (loss) | $ | 2,234,534 | $ | (251,926 | ) | |||
Denominator: | ||||||||
Weighted average common shares outstanding - basic | 36,093,858 | 35,702,197 | ||||||
Dilutive securities (a): | ||||||||
Series B Preferred | 819,000- | - | ||||||
Options | 355,432 | - | ||||||
Restricted Stock | 44,888 | |||||||
Warrants | - | - | ||||||
Weighted average common shares outstanding and assumed conversion – diluted | 37,313,178 | 35,702,197 | ||||||
Basic net income (loss) per common share | $ | 0.06 | $ | (0.01 | ) | |||
Diluted net income (loss) per common share | $ | 0.06 | $ | (0.01 | ) | |||
(a) - Anti-dilutive securities excluded: | ||||||||
Options | 150,000 | 669,000 | ||||||
Warrants | 13,650 | - |
For the Years Ended | ||||||||
January 31, 2020 | January 31, 2019 | |||||||
(As Revised) | ||||||||
Numerator: | ||||||||
Net income attributable to common stockholders | $ | 1,532,694 | $ | 453,499 | ||||
Effect of dilutive securities: | — | — | ||||||
Diluted net income | $ | 1,532,694 | $ | 453,499 | ||||
Denominator: | ||||||||
Weighted average common shares outstanding - basic | 31,949,803 | 31,843,755 | ||||||
Dilutive securities (a): | ||||||||
Series A Preferred | - | - | ||||||
Options | 397,664 | 136,400 | ||||||
Warrants | 1,991,789 | 541,666 | ||||||
Weighted average common shares outstanding and assumed conversion – diluted | 34,339,256 | 32,521,821 | ||||||
Basic net income per common share | $ | 0.05 | $ | 0.01 | ||||
Diluted net income per common share | $ | 0.04 | $ | 0.01 | ||||
(a) - Anti-dilutive securities excluded: | - | 3,098,667 |
Income Taxes
The Company follows the asset and liability method of accounting for incomeIncome taxes under FASBare provided in accordance with ASC 740, “Accounting for Income Taxes”.” A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax assets and liabilities are recognized forexpense (benefit) results from the estimated future tax consequences attributable to differences betweennet change during the financial statement carrying amountsperiod of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities ofliabilities.
Deferred tax assets are reduced by a change in tax rates is recognized in incomevaluation allowance when, in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurementopinion of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must bemanagement, it is more likely than not tothat some portion or all of the deferred tax assets will not be sustained upon examination by taxing authorities. There were no unrecognizedrealized. Deferred tax benefits asassets are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of January 31, 2020.2023 and January 31, 2022, the Company recognized a deferred tax asset of $717,559 and $448,501, respectively, which is included in other long-term liabilities or other long-term assets on the consolidated balance sheets. The Company recognizes accrued interest and penaltiesregularly evaluates the need for a valuation allowance related to unrecognizedthe deferred tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at January 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.asset.
The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company is no longer subject to tax examinations by tax authorities for years prior to 2017.
Related Parties
The Company follows subtopic ASC 850-10 for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Pronouncements
In February 2016,May 2021, the FASB issued accounting standards update ASU 2016-02,2021-04, “LeasesEarnings Per Share (Topic 842)260),” Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, which will require recognition on the balance sheetto clarify and reduce diversity in an issuer’s accounting for the rights and obligations created by leases with terms greater than twelve months.modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The new standard isamendments in this ASU are effective for fiscal yearspublic and interim periods within thosenonpublic entities for fiscal years beginning after December 15, 2018,2021, and interim periods with early adoption permitted. The Company adopted this guidance at the beginning of its first quarter of fiscal 2020 and utilized the transition option which does not require application of the guidance to comparative periods in the year of adoption. The primary effect of adoption of ASU 2016-02 is recording right-of-use assets and corresponding lease obligations for operating leases. The adoption had a material impact on the Company’s consolidated balance sheets, but not on the consolidated statements of income or cash flows.
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 periodsyears beginning after December 15, 2019, including interim periods within those fiscal years.2021. Early adoption of the update is permitted.permitted, including adoption in an interim period. The Company is currently evaluating the impact ofadopted the new standard.
In July 2017,standard on February 1, 2022 and the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480,Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. The adoption of the new standard did not have a significant impact on itsthe Company’s consolidated financial statements.
In June 2018,August 2020, the FASB issued ASU No. 2020-06, Accounting Standards Update (ASU) No. 2018-07,Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accountingfor Convertible Instruments and Contracts in an Entity’s Own Equity . Under(“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the new standard, companies will no longer benumber of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to value non-employee awards differently from employee awards. Companiesperform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 isbe effective for annual reporting periodsthe Company’s fiscal years beginning after December 15, 2018, including2023, and interim reporting periods within that reporting period.those fiscal years. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606,Revenue from Contracts with Customers(as described above under “Revenue Recognition”). The adoption of the new standard did not have a significant impact on its 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, 2019,2020, and interim periods within those fiscal years. The Company is currently evaluating this guidance andEntities can elect to adopt the impact of this update on its 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 theincome 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.through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the potential impact of this guidancethe pending adoption of the new standard on its consolidated financial statements.statements and intends to adopt the standard as of January 1, 2024.
Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.
Subsequent Events
F-13 |
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2022, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. In February 2022, we elected to early adopt ASU 2017-04, and the adoption had no impact on our consolidated financial statements. We will perform future goodwill impairment tests according to ASU 2017-04.
Note 3 – Business Acquisitions
The Company evaluates subsequent eventsaccounts for acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill.
On December 23, 2021, the Company announced the signing of definitive agreements for two acquisitions – T&L and OB, which are gourmet food manufacturers based in New York. The closing of these transactions that occur afterwas completed on December 29, 2021. The Company acquired T&L and OB for a combined purchase price of $14.0 million, including $11.0 million in cash at closing and $3.0 million in a promissory note. The promissory note requires annual principal payments of $750,000 payable on each anniversary of the closing, together with accrued interest at a rate of three and one-half (3.5%) per annum. The holder of the Note is T&L Acquisition Corp., a wholly-owned subsidiary of the Company, and is guaranteed by the Company. The holder has a right of set-off against the balance sheetdue for any matters which are the subject of an indemnification under the transaction agreements. The cash payment was funded through cash on hand and a $7.5 million long-term acquisition note from M&T Bank (see below). Anthony Morello, Jr. remained as President of T&L.
On December 29, 2021, the Company entered into a Multiple Disbursement Term Loan (the “Loan”) with M&T Bank for the original principal amount of $7,500,000 payable in monthly installments over a 60-month amortization period. The Maturity Date of the Loan is January 17, 2027. Interest is payable on the unpaid principal amount of the Loan at a variable rate per annum based on the Company’s Senior Funded Debt/EBITDA Ratio (as defined in the Credit Agreement between Borrower and Bank) established with respect to the Borrower as of the date for potential recognitionof any advance under the Loan as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.25 but less than or disclosure. Any materialequal to 2.50, 4.12 percentage point(s) above one-day (i.e., overnight) SOFR (as defined); (ii) greater than 1.50 but less than or equal to 2.25, 3.62 percentage points above one-day Secured Overnight Financing Rate (“SOFR”); or (iii) 1.50 or less, 3.12 percentage points above one-day SOFR. In all events that occur betweenset forth at subsections (i) through (iii) in the balance sheet datepreceding sentence, if SOFR shall at any time be less than 0.25%, one-day SOFR shall be deemed to be 0.25% and the foregoing margins shall be applied to the SOFR Index Floor.
All of the proceeds of the Loan were utilized to fund the acquisition of T&L and OB. During the year ended January 31, 2022, the Company incurred approximately $748,000 in transaction costs for professional fees and other expenses, which are included in General and administration operating expenses on the Consolidated Statements of Operations. Of these fees, approximately $401,000 was paid to Spartan Capital Securities, LLC.
The following presents the unaudited pro-forma combined results of operations for the year ended January 31, 2022 of T&L and OB with the Company as if the entities were combined on February 1, 2021.
Schedule of Pro-forma Combined Results of Operation
F-14 |
For the Year Ended January 31, 2022 | ||||
Revenues | $ | 76,914,679 | ||
Net income | $ | 62,304 | ||
Net income per share - basic | $ | 0.00 | ||
Weighted average number of shares outstanding | 35,702,197 |
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of February 1, 2021 or to project potential operating results as of any future date or for any future periods.
ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the financial statements were issued are disclosedacquisition date as subsequent events, while the financial statements are adjusteddate the acquirer achieves control. ASC 805 requires an acquirer to reflectrecognize the assets acquired, the liabilities assumed, and any conditions that existednoncontrolling interest in the acquirer (if any) at the balance sheetacquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.
The following summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:
Schedule of Asset Acquired and Liabilities Assumed
Assets: | ||||
Cash | $ | 591,458 | ||
Accounts receivable | 2,715,515 | |||
Inventories | 1,221,055 | |||
Fixed assets, net | 503,907 | |||
Intangibles | 10,574,334 | |||
Total identified assets acquired | $ | 15,606,269 |
Liabilities: | ||||
Accounts payable and accrued expenses | $ | 1,606,269 | ||
Total liabilities assumed | 1,606,269 | |||
Total net assets acquired | $ | 14,000,000 |
The acquisition method of accounting requires extensive use of estimates and judgments to allocate the considerations transferred to the identifiable tangible and intangible assets acquired and liabilities assumed. The amounts used in computing the purchase price differ from the amounts in the purchase agreements due to fair value measurement conventions prescribed by accounting standards.
The intangible assets acquired include the trademarks and customer relationships.
Goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. All of the goodwill is deductible for tax purposes.
Note 34 - Property and Equipment:
Property and equipment on January 31, 20202023 and January 31, 20192022 are as follows:
Schedule of Property and Equipment
January 31, 2020 | January 31, 2019 | January 31, 2023 | January 31, 2022 | |||||||||||||
Machinery and Equipment | $ | 3,176,638 | $ | 2,662,403 | $ | 5,387,255 | $ | 4,934,855 | ||||||||
Furniture and Fixtures | 89,443 | 81,099 | 284,781 | 233,615 | ||||||||||||
Leasehold Improvements | 2,933,865 | 2,894,949 | 3,480,061 | 3,346,610 | ||||||||||||
6,199,946 | 5,638,451 | |||||||||||||||
Property and Equipment, Gross | 9,152,097 | 8,515,080 | ||||||||||||||
Less: Accumulated Depreciation | 3,394,103 | 2,753,857 | 5,729,001 | 4,836,548 | ||||||||||||
$ | 2,805,843 | $ | 2,884,594 | |||||||||||||
Total | $ | 3,423,096 | $ | 3,678,532 |
F-15 |
Depreciation expense charged to income for the year ended January 31, 2023 and 2022 amounted to $920,718 and $779,442, respectively.
Note 5 – Intangibles, net
Intangibles, net consisted of the following at January 31, 2023:
Schedule of Intangibles Assets
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Life (years) | |||||||||||||
Software | $ | 87,639 | $ | (87,639 | ) | $ | - | - | ||||||||
Customer relationships | 1,862,000 | (409,776 | ) | 1,452,224 | 3.41 | |||||||||||
Tradename and trademarks | 79,000 | (28,714 | ) | 50,286 | 1.91 | |||||||||||
$ | 2,028,639 | $ | (526,129 | ) | $ | 1,502,510 |
Intangibles, net consisted of the following at January 31, 2022:
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Life | |||||||||||||
Software | $ | 87,639 | $ | (7,303 | ) | $ | 80,336 | 2.91 | ||||||||
Customer relationships | 1,862,000 | (33,976 | ) | 1,828,024 | 4.87 | |||||||||||
Tradename and trademarks | 79,000 | (2,381 | ) | 76,619 | 2.91 | |||||||||||
$ | 2,028,639 | $ | (43,660 | ) | $ | 1,984,979 |
Amortization expense for the years ended January 31, 20202023 and 2019 amounted to $640,246January 31, 2022 was $482,469 and $679,005,$43,660, respectively.
Note 4 - Investment in Meatball Obsession, LLC
During 2011,We expect the Company acquired a 34.62% interest in Meatball Obsession, LLC (“MO”)estimated aggregate amortization expense for a total investment of $27,032. This investment is accounted for using the equity method of accounting. Accordingly, investments are recorded at acquisition cost plus the Company’s equity in the undistributed earnings or losseseach of the entity.five succeeding fiscal years to be as follows:
At December 31, 2011, the investment was written down to $0 due to losses incurred by MO.
The Company’s ownership interest in MO has decreased due to dilution. At January 31, 2020 and 2019, the Company’s ownership interest in MO was 12% and 12%, respectively. AsSchedule of December 31, 2019, MO had wound down and ceased operations. Major accounts were transitioned to the Company as a part of the wind down.Estimated Aggregate Amortization Expense
2024 | $ | 402,133 | ||
2025 | 400,782 | |||
2026 | 374,216 | |||
2027 | 325,379 | |||
Total | $ | 1,502,510 |
Note 56 - Related Party Transactions
Meatball Obsession, LLCPromissory Note – Related Party
A current directorUpon consummation of the acquisition of T&L, the Company isexecuted a $3,000,000 promissory note with the chairmansellers. The promissory note requires annual principal payments of $750,000 payable on each anniversary of the boardclosing, together with accrued interest at a rate of three and shareholder of Meatball Obsession LLC (“MO”one-half (3.5%).
For the years ended January 31, 2020 and 2019, the Company generated $53,984 and $106,596 in revenues from MO, respectively.
per annum. As of January 31, 20202023 and January 31, 2019,2022, the Company had a receivable of $1,604outstanding balance under the note was $ and $57,374 due from MO,$ , respectively.
WWS, Inc.
Alfred D’Agostino and Tom Toto, two directors of the Company, are affiliates of WWS,Inc.
For the yearsyear ended January 31, 20202023 and 2019,January 31, 2022 interest expense for this note was $101,771 and $9,917 respectively. As of January 31, 2023 and January 31, 2022, accrued interest was $6,688 and $9,917, respectively.
F-16 |
Lease – Related Party
The Company leases a fully contained facility in Farmingdale, NY from 148 Allen Blvd LLC for production and distribution of T&L Creative Salads and Olive Branch products. 148 Allen Blvd LLC is owned by Anthony Morello, Jr., President of T&L and various individuals related to Mr. Morello. This lease term is through November 30, 2031 with the option to extend the lease for two additional ten-year terms with base rent of $20,200 per month through December 31, 2026, increasing after that date to $23,567 through the end of the initial lease term. The exercise of optional renewal is uncertain and therefore excluded from the calculation of the right of use asset. Rent expense pursuant to the lease for the year ended January 31, 2023 and January 31, 2022 was $262,432 and $26,432, respectively.
Chef Inspirational Foods, LLC
As noted above in Note 1, the Company acquired a 24% minority interest in Chef Inspirational Foods, Inc. (“CIF”). For the period from June 28, 2022 to January 31, 2023, T&L recorded $48,000sales of $ with CIF, of which $ was outstanding and $48,000included in commission expense from WWS, Inc. generated sales, respectively.
Notes Payable – Related Party
accounts receivable on the accompanying consolidated balance sheet at January 31, 2023. During the year ended January 31, 2016, the Company received aggregate proceeds of $125,000 from notes payable with the CEO of the Company. The notes bear interest at a rate of 4% per annum and matured on December 31, 2016. The notes were subsequently extended until January 2024. As of January 31, 2020 and 2019, the outstanding principal balance of the notes was $109,844.
The Company received advances from the CEO of the Company which bear interest at 8%. The advances are due on January 2024. At January 31, 2020 and 2019, there was $400,000 of principal outstanding.
The Company received advances from an entity 100% owned by the CEO of the Company, which bear interest at 8%. The advances are due on January 2024. At January 31, 2020 and 2019, there was $132,000 of principal outstanding, respectively.
For the years ended January 31, 2020 and 2019,2023, the Company recorded interest expensecommission expenses and consulting services expenses of $44,131$423,638 based on its transactions with CIF, of which $111,459 was due to CIF and $45,150, respectively, related tois included in accounts payable and accrued expenses on the above related party notes payable. As ofaccompanying consolidated balance sheets at January 31, 2020 and 2019, there was $2,863 and $48,141 of accrued interest on the above related party notes, respectively.2023.
Note 67 - Loan and Security Agreement
M&T Bank
Effective, January 4, 2019, the Company entered into a $2.5 million five-year note with M&T Bank at LIBOR plus four points with repayments in equal payments over 60 months. The new facility is supported by a first priority security interest in all of the Company’s business assets and is further subject to various affirmative and negative financial covenants and a limited Guaranty by the Company’s Chief Executive Officer, Carl Wolf. The Company recorded $89,321 as a debt discount and will be amortized over the remaining life of the note using the effective interest method. There was unamortized debt discount of $17,864 and $85,599 as of January 31, 2020 and 2019, respectively. The outstanding balance on the term loan was $441,663 and $2,500,000 as of January 31, 2020 and 2019, respectively.
Effective, January 4, 2019, the Company has arranged a new $3.5 million working capital line of credit with M&T Bank at LIBOR plus four points with a two-year expiration. On January 29, 2020, the facility wasCompany amended its working capital line with M&T Bank to increase the total available balance to $4.0$4.0 million as well as extend the maturity date to June 30, 2022.2022. On June 11, 2021, the line was amended to increase the available borrowings to $4.5 million and extended the maturity date to June 30, 2023. On October 26, 2022, the line was amended to increase the available borrowings to $5.5 million and extended the maturity date to June 30, 2024, interest is payable on the unpaid principal amount of the Loan at a variable rate per annum based on the Company’s Senior Funded Debt/EBITDA Ratio (as defined in the Credit Agreement between Borrower and Bank) established with respect to the Borrower as of the date of any advance under the Loan as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.25 but less than or equal to 2.50, 4.12 percentage point(s) above one-day (i.e., overnight) SOFR (as defined); (ii) greater than 1.50 but less than or equal to 2.25, 3.62 percentage points above one-day SOFR; or (iii) 1.50 or less, 3.12 percentage points above one-day SOFR. In all events set forth at subsections (i) through (iii) in the preceding sentence, if SOFR shall at any time be less than 0.25%, one-day SOFR shall be deemed to be 0.25% and the foregoing margins shall be applied to the SOFR Index Floor. 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. The Company was in compliance with the covenants and a limited Guarantyas of January 31, 2023. The covenants were waived by the Company’s Chief Executive Officer, Carl Wolf. bank as of January 31, 2022. Advances under the line of credit are limited to eighty percent (80%) of eligible accounts receivable (which is subject to an agreed limitation and is further subject to certain asset concentration provisions) and fifty percent (50%) of eligible inventory (which is subject to an agreed dollar limitation). All advances under the line of credit are due upon maturity. The outstanding balance on the line of credit was $2,997,348$890,000 and $2,612,034$765,000 as of January 31, 20202023 and 2019,January 31, 2022, respectively. During the years ended January 31, 2023 and 2022, the Company incurred interest of $131,761 and $1,161 to M&T Bank for the line of credit agreement, respectively.
Future maturities of all debt (excluding debt discountAs discussed above in Notes 5 and 6) are as follows:
For the Years Ending January 31, | ||||
2021 | $ | 441,663 | ||
2022 | - | |||
2023 | 2,997,348 | |||
2024 | 641,844 | |||
$ | 4,080,855 |
Note 7 - Leases
The2, on December 29, 2021, the Company determines if an arrangement containsentered into a lease at inception. ROU assets represent the right to use an underlying assetloan with M&T Bank for the lease term and lease liabilities representoriginal principal amount of $7,500,000 payable in equal monthly principal installments over a 60-month amortization period (the “Acquisition Note”). The Maturity Date of the obligation to make lease payments arising fromAcquisition Note is January 17, 2027. Interest is payable on the lease. ROU assets and liabilities are recognizedunpaid Principal Amount of the Acquisition Note at the lease commencement datea variable rate per annum based on the estimated present valueCompany’s Senior Funded Debt/EBITDA Ratio (as defined in the Credit Agreement between Borrower and Bank) established with respect to the Borrower as of lease payments over the lease term.
The Company’s leases consistdate of leaseholds on office space, manufacturing spaceany advance under the Acquisition Note as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.00 but less than or equal to 2.25, 3.87 percentage point(s) above one-day (i.e., overnight) applicable Variable Loan Rate (as defined in the agreement); (ii) greater than 1.50 but less than or equal to 2.25, 3.37 percentage points above Variable Loan Rate; or (iii) 1.50 or less, 2.87 percentage points above applicable Variable Loan Rate. In all events set forth at subsections (i) through (iii) in the preceding sentence, if SOFR shall at any time be less than 0.25%, one-day SOFR shall be deemed to be 0.00% and machinery and equipment.the foregoing margins shall be applied to the Variable Loan Rates. The Company utilizedrecorded a portfolio approachdebt discount of $58,750 in determining the discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and the Company’s estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. The Company also considered its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating the incremental borrowing rates.
The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. These operating leases contain renewal options for periods ranging from three to five years that expire at various dates with no residual value guarantees. Future obligations relatingrelation 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:
Year Ended January 31, 2020 | ||||
Finance leases: | ||||
Depreciation of assets | $ | 100,703 | ||
Interest on lease liabilities | 23,130 | |||
Operating leases | 257,763 | |||
Short-term lease | 7,653 | |||
Total net lease cost | $ | 389,249 |
Supplemental balance sheet information related to leases was as follows:
January 31, 2020 | ||||
Operating leases: | ||||
Operating lease ROU assets | $ | 1,490,794 | ||
Current operating lease liabilities, included in current liabilities | $ | 126,516 | ||
Noncurrent operating lease liabilities, included in long-term liabilities | 1,372,349 | |||
Total operating lease liabilities | $ | 1,498,865 | ||
Finance leases: | ||||
Property and equipment, at cost | $ | 550,269 | ||
Accumulated depreciation | 131,266 | |||
Property and equipment, net | $ | 419,003 | ||
Current obligations of finance leases, included in current portion of long-term debt | $ | 105,126 | ||
Finance leases, net of current obligations, included in long-term debt | 315,234 | |||
Total finance lease liabilities | $ | 420,360 |
Supplemental cash flow and other information related to leases was as follows:
Year Ended January 31, 2020 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 100,965 | ||
Financing cash flows from finance leases | 92,928 | |||
ROU assets obtained in exchange for lease liabilities: | ||||
Operating leases | $ | 1,599,830 | ||
Finance leases | 293,479 | |||
Weighted average remaining lease term (in years): | ||||
Operating leases | 7.8 | |||
Finance leases | 3.6 | |||
Weighted average discount rate: | ||||
Operating leases | 6.54 | % | ||
Finance leases | 5.67 | % |
Total future minimum payments required under the lease obligations as of January 31, 2020 are as follows:
Twelve Months Ending January 31, | ||||
2021 | $ | 353,082 | ||
2022 | 364,988 | |||
2023 | 340,957 | |||
2024 | 268,254 | |||
2025 | 243,344 | |||
Thereafter | 886,833 | |||
Total lease payments | $ | 2,457,458 | ||
Less: amounts representing interest | (538,233 | ) | ||
Total lease obligations | $ | 1,919,225 |
Note 9 - Concentrations
Revenues
Duringdebt. For the year ended January 31, 2020,2023, the Company earned revenues from three customers representing approximately 46%, 11% and 10%recorded $22,121 in amortization of gross sales. During the year endeddebt discount. As of January 31, 2020, these three customers represented approximately 34%2023, the outstanding balance and unamortized discount of the Acquisition Note was $6,206,905 and $60,082, 16%respectively. As of January 31, 2022, the outstanding balance and 8%unamortized discount of total gross outstanding receivables,the Acquisition Note was $7,500,000 and $57,771, respectively. During the year ended January 31, 2019,2023, the company earned revenues fromCompany incurred interest of $412,825 for the Acquisition Note.
F-17 |
Note 8 - Concentrations
Revenues
For the year ended January 31, 2023, the Company’s revenue was concentrated in two customers representingthat accounted for approximately 50%25% and 10%13%, respectively, of gross sales. revenue. For the year ended January 31, 2022, the Company’s revenue was concentrated in three customers that accounted for approximately 26%, 21%, and 11% respectively, of gross revenue.
As of January 31, 2019,2023, three customers represented approximately 44%20%, 19%15%, and 13%11%, totaling 46% of total gross outstanding receivables, respectively. As of January 31, 2022, three customers represented approximately 10%, 7% and 11% of total gross outstanding receivables, respectively.
Note 109 - Stockholders’ DeficitEquity
CommonPreferred Stock and Series A Preferred Stock
On June 1, 2019,The Company is authorized to issue 20,000,000 shares of preferred stock, $ par value per share. The Company has designated shares of preferred stock as Series A Convertible Preferred stock. As of January 31, 2023 and 2022, shares of Series A Convertible Preferred Stock are issued and outstanding.
Series B Preferred
The Company has designated issued 125,000the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of itsSeries B Preferred Stock if such shares had been converted to common stock immediately prior to such liquidation. shares of preferred stock, $ par value per share, for each of the Series B Preferred. The holders of the Series B Preferred Stock shall be entitled to receive, upon liquidation, dissolution or winding up of the Company,
Holders of the Series B Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of eight percent (8%). Holders of the Series B Preferred Stock shall have no voting rights. Each share of Series B Preferred Stock shall be convertible, at the option of the holder, into shares of common stock at a consultantrate of 1 share of Series B Preferred Stock into 15 shares of common stock.
On September 13, 2022, the Company closed the first round of the Series B Preferred Stock offering with the sale of 1,180,000. shares, raising gross proceeds of $
On November 17, 2022, the Company held a final closing of its offering of Series B Preferred Stock, wherein it sold an additional services to be rendered. At the dategross proceeds of grant, the shares had a fair value of $71,875 and is included in prepaid expenses on the consolidated balance sheets. $185,000. shares of Series B Preferred Stock for During the year ended January 31, 2020,2023, the Company recorded $17,671paid dividends of stock-based$34,070.
Restricted Stock Units
During the year ended January 31, 2023, the Company awarded the CEO a grant of restricted stock units (“RSUs”) with a grant date fair value of $ . The RSUs will be expensed over the requisite service period. The terms of the RSUs include vesting provisions based solely on continued service. If the service criteria are satisfied, the RSUs will vest during September 2023, September 2024, September 2025 and September 2026. As of January 31, 2023, there were unvested shares.
F-18 |
The following is a summary of the Company’s restricted stock units activity:
Schedule of Restricted Stock Option Activity
Restricted Stock Units | Weighted Average Exercise Price | |||||||
Unvested – February 1, 2022 | 14,000 | $ | 2.83 | |||||
Granted | 367,647 | $ | 1.36 | |||||
Vested | - | $ | - | |||||
Forfeited | (14,000 | ) | $ | 2.83 | ||||
Outstanding – January 31, 2023 | 367,647 | $ | 1.36 |
During the year ended January 31, 2023, the Company recognized share-based compensation related to these shares.restricted stock units of an aggregate of $ , which was recorded to general and admirative expense on the statement of operations, and unrecognized share-based compensation of $.
(A) OptionsFor the year ended January 31, 2022, the Company recognized share-based compensation related to restricted stock units of an aggregate of $ , which was recorded to general and admirative expense on the statement of operations.
Options
Summary of Option Activity
Options | Weighted Average Exercise Price | |||||||
Outstanding – February 1, 2022 | 669,000 | $ | 0.66 | |||||
Exercisable – February 1, 2022 | 666,500 | $ | 0.65 | |||||
Granted | 150,000 | $ | 1.48 | |||||
Exercised | (130,000 | ) | $ | 1.00 | ||||
Outstanding – January 31, 2023 | 689,000 | $ | 0.77 | |||||
Exercisable – January 31, 2023 | 539,000 | $ | 0.57 |
Options | Weighted Average Exercise Price | |||||||
Outstanding – January 31, 2018 | 866,000 | $ | 0.87 | |||||
Exercisable – January 31, 2018 | 699,000 | $ | 0.78 | |||||
Granted | 130,000 | $ | 0.89 | |||||
Exercised | (40,000 | ) | $ | 1.00 | ||||
Forfeited/Cancelled | (307,000 | ) | $ | 0.98 | ||||
Outstanding – January 31, 2019 | 649,000 | $ | 0.77 | |||||
Exercisable – January 31, 2019 | 521,500 | $ | 0.71 | |||||
Granted | 265,000 | $ | 0.53 | |||||
Exercised | - | $ | - | |||||
Forfeited/Cancelled | - | $ | - | |||||
Outstanding – January 31, 2020 | 914,000 | $ | 0.70 | |||||
Exercisable – January 31, 2020 | 779,000 | $ | 0.73 |
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 | |||||||||||||
$ | – | $ | 539,000 | $ | 0.57 |
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.39 – 1.38 | 914,000 | 2.61 | $ | 0.70 | 779,000 | $ | 0.73 |
At January 31, 2020,2023, the total intrinsic value of options outstanding and exercisable was $721,446$ and $592,519,$ , respectively.
During the year ended January 31, 2020, the Company issued to 265,000 options to2023, the members of the Boardboard of Directorsdirectors and an employee. Thethe former CFO exercised options have anat a weighted average exercise price range of $0.52 to $0.74$ per share a termin exchange for shares of 5 years, and 1-year vesting.common stock. The options have an aggregated fair valueCompany received $26,250 for the exercise of approximately $94,374 that was calculated using the Black-Scholes option-pricing model based on the assumptions discussed above in Note 2.these options.
During the year ended January 31, 2019, 40,0002022, eight employees exercised a total of options were exercised by the option holders. The Company issued 40,000 sharesat an exercise price range of common stock as a result of this exercise and received$ to $ per share for aggregate proceeds of $40,000. No options were exercised during the year ended January 31, 2020.$19,080.
For the years ended January 31, 20202023 and 2019,2022, the Company recognized share-based compensation related to options of an aggregate of $76,191$ and $162,494, respectively.$ , respectively, which is included in general and administrative expenses on the accompanying consolidated statements of operations. At January 31, 2020,2023, there was unrecognized share-based compensation of $ .
Warrants
In conjunction with the Series B Preferred offering, the placement agent received one warrant for every $$47,211.$ and was valued using a Black-Scholes option pricing model using the following assumptions: invested. The fair value of the warrants as of grant date was
Schedule of Warrants Fair Value Assumption
September 13, 2022 | ||||
Risk-free interest rate | 3.58 | % | ||
Expected life | 5 years | |||
Expected volatility of underlying stock | 82.52 | % | ||
Dividends | 0 | % |
(B) Warrants
The following is a summary of the Company’s warrant activity:
Schedule of Warrants Activity
Warrants | Weighted Average Exercise Price | |||||||
Outstanding – January 31, 2018 | 7,061,399 | $ | 1.06 | |||||
Exercisable – January 31, 2018 | 7,061,399 | $ | 1.06 | |||||
Granted | - | $ | - | |||||
Exercised | (482,734 | ) | $ | 1.00 | ||||
Forfeited/Cancelled | (333,334 | ) | $ | 1.50 | ||||
Outstanding – January 31, 2019 | 6,245,331 | $ | 1.04 | |||||
Exercisable – January 31, 2019 | 6,245,331 | $ | 1.04 | |||||
Granted | - | $ | - | |||||
Exercised | - | $ | - | |||||
Forfeited/Cancelled | (188,667 | ) | $ | 1.57 | ||||
Outstanding – January 31, 2020 | 6,056,664 | $ | 1.00 | |||||
Exercisable – January 31, 2020 | 6,056,664 | $ | 1.00 |
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 1.00 | 6,056,664 | 0.87 | $ | 1.00 | 6,056,664 | $ | 1.00 |
Warrants | Weighted Average Exercise Price | |||||||
Outstanding – February 1, 2022 | - | $ | - | |||||
Exercisable – February 1, 2022 | - | $ | - | |||||
Granted | 13,650 | $ | 2.25 | |||||
Exercised | - | $ | - | |||||
Outstanding – January 31, 2023 | 13,650 | $ | 2.25 | |||||
Exercisable – January 31, 2023 | 13,650 | $ | 2.25 |
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||
$ | 2.25 | $ | 13,650 | $ | 2.25 |
At January 31, 2020,2023, the total intrinsic value of warrants outstanding and exercisable was $2,967,765 and $2,967,765, respectively.$ .
During the year ended January 31, 2020, no warrants were exercised by the warrant holders.
During the year ended January 31, 2019, 482,734 warrants were exercised by the warrant holders on a cashless basis. The Company issued 72,804 shares of common stock as a result of this exercise.
Note 1110 - Commitments and Contingencies
Litigations,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 consolidated statements of income.
On December 7, 2020, the Company experienced a fire at its plant in a spiral oven. The spiral oven was rebuilt and was fully put back into service in late February 2021. The estimated loss was approximately $656,700 which included loss of business, the rebuild of the spiral oven, additional expenses to clean plant and lost material and packaging. During the year ended January 31, 2022, the Company received $152,850 relating to business interruption insurance which was recorded as a component of costs of sales on the consolidated statements 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. No additional proceeds were received or costs incurred during the year ended January 31, 2023.
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%6% of net sales up to $500,000$500,000 of net sales for each Agreement year; 4%4% of Net Sales from $500,000$500,000 up to $2,500,000$2,500,000 of Net Sales for each Agreement year; 2%2% of Net Sales from $2,500,000$2,500,000 up to $20,000,000$20,000,000 of Net Sales for each Agreement year; and 1%1% of Net Sales in excess of $20,000,000$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:of $125,000 each year.
Agreement Year | Minimum Royalty to be Paid with Respect to Such Agreement Year | |||
1stand 2nd | $ | - | ||
3rdand 4th | $ | 50,000 | ||
5th, 6th and 7th | $ | 75,000 | ||
8thand 9th | $ | 100,000 | ||
10thand thereafter | $ | 125,000 |
The Company incurred $463,540$584,337 and $413,497$562,491 of royalty expenses for the yearsyear ended January 31, 20202023 and 2019.2022, respectively. Royalty expenses are included in general and administrative expenses on the consolidated statementstatements of operations.
Agreements with Placement Agents and Finders
Spartan Capital, LLC
The Company entered into a fourth Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective April 1, 2015 (the “Spartan Advisory Agreement”). Pursuant to the Spartan Advisory Agreement, the Company shall pay to Spartan a non-refundable monthly fee of $10,000 through October 1, 2015. The monthly fee shall survive any termination of the Agreement. Additionally, (i) if at least $4,000,000 is raised in the Financing, the Company shall pay to Spartan a non-refundable fee of $5,000 per month from November 1, 2015 through October 2017; and (ii) if at least $5,000,000 is raised in the Financing, the Company shall pay to Spartan a non-refundable fee of $5,000 per month from November 1, 2017 through October 2019. If $10,000,000 or more is raised in the Financing, the Company shall issue to Spartan shares of its common stock having an aggregate value of $5,000 (as determined by reference to the average volume weighted average trading price for the last five trading days of the immediately preceding month) on the first day of each month during the period from November 1, 2015 through October 1, 2019.
The Company, upon closing of the Financing, shall pay consideration to Spartan, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the Financing and 3% of the aggregate gross proceeds raised in the Financing for expenses incurred by Spartan. The Company shall grant and deliver to Spartan at the closing of the Financing, for nominal consideration, five-year warrants to purchase a number of shares of the Company’s common stock equal to 10% of the number of shares of common stock (and/or shares of common stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold at such closing. The warrants shall be exercisable at any time during the five-year period commencing on the closing to which they relate at an exercise price equal to the purchase price per share of common stock paid by investors in the Financing or, in the case of exercisable, convertible, or exchangeable securities, the exercise, conversion or exchange price thereof. If the Financing is consummated by means of more than one closing, Spartan shall be entitled to the fees provided herein with respect to each such closing.
If the Company enters into a change of control transaction during the term of the agreement through October 1, 2022, the Company shall pay to Spartan a fee equal to 3% of the consideration paid or received by the Company and/or its stockholders in such transaction. Upon consummation of the acquisition of T&L and OB in December 2021, the Company paid Spartan $401,322 pursuant to the advisory agreement. Based on this agreement with Spartan, during the year ended January 31, 2023, the Company paid Spartan $ upon the consummation of CIF purchase.
Advisory AgreementAGES Financial Services. Ltd.
On July 6, 2022, the Company executed a Proposed Offering Engagement Letter with AGES Financial Services. Ltd. (“AGES”) to act as a non-exclusive (i) dealer-manager, (ii) placement agent and/or (iii) financial advisor for a proposed issuance, or series of issuances, for up to $5,000,000 of the Company’s Series B Convertible Preferred Stock (“Proposed Offering”) in a private placement to be conducted by the Company pursuant to the exemption from the registration requirements of the Securities Act provided by Rule 506(b) of Regulation D promulgated by the Commission under the Securities Act of 1933, as amended. Unless terminated prior to December 31, 2022, the period of the Engagement runs from July 5, 2022 through December 31, 2022.
F-21 |
In consideration for its services in the Proposed Offering, AGES shall be entitled a cash fee equal to four percent (4%) of the net dollar amount received by the Company from investors sourced by AGES plus five-year warrants to buy Common Stock of the Company at the rate of 1 warrant for every $100 of such net dollar amount. The Company entered into an Advisory Agreement with Spartan effective June 1, 2019 (the “Advisory Agreement”). Pursuantshall be responsible for payment of all expenses relating 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,proposed offering, including but not limited to (i) advice and inputcosts associated 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) assistingthe registration of any Common Stock which may be issued upon conversion of the Series B Convertible Preferred Stock. For the year ended January 31, 2023 the Company paid AGES $64,600.
Note 11 –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 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 strategic introductions, (v) assisting management with enhancing corporate and shareholder value, and (vi) introducingsimilar characteristics when calculating the incremental borrowing rates.
The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise that option. These operating leases contain renewal options for periods ranging from three to potential investors (collectively,five years that expire at various dates with no residual value guarantees. Future obligations relating to the “Advisory Services”)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.
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.
On March 1, 2021, the Company amended an 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 advisory agreementCompany recorded a right of use asset and related liability of $328,148 for the new space which will be occupied over a 60-month period.
On December 29, 2021, the Company entered into a new right of use obligation with a related party (See Note 6) for office, manufacturing, and storage space in Farmingdale, New York. In connection with this lease, the Company recorded a right of use asset and corresponding lease liability of $2,129,084.
The components of lease expense were as follows:
Schedule of Components of Lease Expense
January 31, 2023 | January 31, 2022 | |||||||
Finance Leases | ||||||||
Depreciation of Assets | 127,511 | 145,066 | ||||||
Interest on lease liabilities | 37,657 | 33,675 | ||||||
Operating Leases | 545,017 | 355,786 | ||||||
Total net lease cost | 710,185 | 534,527 |
F-22 |
Supplemental balance sheet information related to leases was terminated accordingas follows:
Schedule of Supplemental Balance Sheet Information Related to its terms on March 31, 2020.Leases
January 31, 2023 | January 31, 2022 | |||||||
Operating Leases | ||||||||
Operating lease ROU assets | $ | 3,236,690 | $ | 3,596,317 | ||||
Current operating lease liabilities, included in current liabilities | $ | 391,802 | $ | 292,699 | ||||
Noncurrent operating lease liabilities, included in long-term liabilities | 2,897,205 | 3,339,255 | ||||||
Total operating lease liabilities | $ | 3,289,007 | $ | 3,631,954 | ||||
Finance Leases | ||||||||
Property and equipment at cost | $ | 916,906 | $ | 1,079,706 | ||||
Accumulated depreciation | (353,233 | ) | (405,436 | ) | ||||
Property and equipment, net | $ | 563,673 | $ | 674,270 | ||||
Current obligations of finance lease liabilities, included in current liabilities | $ | 182,391 | $ | 218,039 | ||||
Finance leases, net of current obligations, included in long-term liabilities | 248,640 | 376,132 | ||||||
Total finance lease liabilities | $ | 431,031 | $ | 594,171 |
Supplemental cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow and Other Information Related to Leases
January 31, 2023 | January 31, 2022 | |||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 342,947 | $ | 168,849 | ||||
Financing cash flows from finance leases | 235,208 | 199,176 | ||||||
ROU assets obtained in exchange for lease liabilities | ||||||||
Operating leases | $ | - | $ | 2,457,502 | ||||
Finance leases | 72,068 | 128,050 | ||||||
Weighted average remaining lease term (in years) | ||||||||
Operating leases | 7.50 | 8.50 | ||||||
Finance leases | 2.60 | 3.08 | ||||||
Weighted average discount rate: | ||||||||
Operating leases | 4.85 | % | 4.85 | % | ||||
Finance Leases | 3.41 | % | 4.45 | % |
Schedule of Future Minimum Payments Required Under Lease Obligations
For the Twelve months ended January 31, | ||||
2024 | $ | 730,493 | ||
2025 | 706,153 | |||
2026 | 605,547 | |||
2027 | 478,037 | |||
2028 | 502,983 | |||
Thereafter | 1,331,256 | |||
Total lease payments | $ | 4,354,469 | ||
Less: amounts representing interest | (249,709 | ) | ||
Total lease obligations | $ | 4,104,760 |
F-23 |
Note 12 - Income Tax Provision (Benefit)
The income tax provision consists of the following:
Schedule of Components of Income Tax Expense
Income tax provision / (benefit) consists of the following:
January 31, 2020 | January 31, 2019 | |||||||||||||||
(As Revised) | January 31, 2023 | January 31, 2022 | ||||||||||||||
Federal | ||||||||||||||||
Current | $ | - | $ | - | $ | 112,892 | $ | - | ||||||||
Deferred | (323,546 | ) | (159,228 | ) | (183,565 | ) | 32,224 | |||||||||
State and Local | ||||||||||||||||
Current | 165,266 | |||||||||||||||
Deferred | (352,350 | ) | (224,720 | ) | (85,489 | ) | 264,248 | |||||||||
Change in valuation allowance | 675,896 | 383,948 | ||||||||||||||
Income tax provision (benefit) | $ | - | $ | - | ||||||||||||
Income tax provision | $ | 9,104 | $ | 296,472 |
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Bill”) was signed into law. Prior to the enactment of the Tax Reform Bill, the Company measured its deferred tax assets at the federal rate of 34%. The Tax Reform Bill reduced the federal tax rate to 21% resulting in the re-measurement of the deferred tax asset as of January 31, 2018. Beginning January 1, 2018, the lower tax rate of 21% will be used to calculate the amount of any federal income tax due on taxable income earned during 2019.
The Company hashad U.S. federal net operating loss carryovers (NOLs) of approximately $9.5$2.7 million and $10.8$5.4 million at January 31, 20202023 and 2019,2022, respectively, available to offset taxable income through 2034. If not used, these NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations. The Company plans on undertaking a detailed analysis of any historical and/or current Section 382 ownership changes that may limit the utilization of the net operating loss carryovers. The Company also has New Jersey State Net Operating Loss carry oversNOLs of $8.8approximately $8.8 million and $10.0$10.0 million at January 31, 20202023 and 2019,2022, respectively, available to offset future taxable income through 2035.2035.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After considerationThere was no valuation allowance as of all the information available, Management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended January 31, 20202023 and 2019, the change in the valuation allowance was $675,896 and $383,948, respectively.2022.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other expenses – Interest” in the statementconsolidated statements of operations. Penalties would be recognized as a component of “General and administrative.”
No interest or penalties on unpaid tax were recorded during the years ended January 31, 20202023 and 2019,2022, respectively. As of January 31, 20202023 and 2019, 2022, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.
F-24 |
The Company’s deferred tax assets (liabilities)and liabilities consisted of the effects of temporary differences attributable to the following:
Schedule of Deferred Tax Assets and Liabilities
Deferred Tax Assets | Year Ended January 31, 2020 | Year Ended January 31, 2019 | Year Ended January 31, 2023 | Year Ended January 31, 2022 | ||||||||||||
(As Revised) | ||||||||||||||||
Net operating loss carryovers | $ | 2,071,751 | $ | 2,820,660 | $ | 607,351 | $ | 1,152,434 | ||||||||
Share-based compensation | 32,362 | 6,854 | ||||||||||||||
Acquisition costs | 108,028 | 88,109 | ||||||||||||||
Capitalized start-up and organization costs | 23,740 | 27,843 | ||||||||||||||
Right of use liability | 819,916 | 798,015 | ||||||||||||||
Inventory | 27,057 | 21,945 | ||||||||||||||
Interest limitation | - | 16,224 | ||||||||||||||
Bad debt | 49,030 | - | ||||||||||||||
Other | - | 18,354 | ||||||||||||||
Total deferred tax assets | 2,071,751 | 2,820,660 | 1,667,484 | 2,129,778 | ||||||||||||
Valuation allowance | (2,177,802 | ) | (2,853,698 | ) | ||||||||||||
Deferred tax asset, net of valuation allowance | (106,051 | ) | (33,038 | ) | ||||||||||||
Deferred Tax Liabilities | ||||||||||||||||
Other deferred tax liabilities | 106,051 | 33,038 | ||||||||||||||
Fixed assets | 65,578 | 812,528 | ||||||||||||||
Intangibles | 77,479 | - | ||||||||||||||
Right of use asset | 806,868 | 868,749 | ||||||||||||||
Total deferred tax liabilities | $ | 106,051 | $ | 33,038 | 949,925 | 1,681,277 | ||||||||||
Net deferred tax asset (liability) | $ | - | $ | - | ||||||||||||
Net deferred tax asset | $ | 717,559 | $ | 448,501 |
The expected tax expenseprovision (benefit) based on the statutory rate is reconciled with actual tax expense benefitprovision (benefit) as follows:
Schedule of Effective Income Tax Rate Reconciliation
Year Ended January 31, 2020 | Year Ended January 31, 2019 | |||||||||||||||
(As Revised) | Year Ended January 31, 2023 | Year Ended January 31, 2022 | ||||||||||||||
US Federal statutory rate | (21.00 | )% | (21.00 | )% | 21.00 | % | 21.00 | % | ||||||||
State income tax, net of federal benefit | (8.98 | ) | (8.98 | ) | 3.4 | 1.08 | ||||||||||
Deferred tax adjustment | (0.57 | ) | (4.26 | ) | ||||||||||||
Change in valuation allowance | 33.72 | 30.52 | ||||||||||||||
Other permanent differences | (3.17 | ) | 3.72 | |||||||||||||
Adjustments to deferred tax assets | (24 | ) | 627.47 | |||||||||||||
Non-deductible expenses | - | 16.00 | ||||||||||||||
Income tax provision (benefit) | - | % | - | % | 0.4 | % | 665.55 | % |
Note 13 – Revision of Prior Year Financial Statements
The Company’s corrections of the prior year financial statements were a result of the following:
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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 fiscal year ended January 31, 2019 should be revised to reflect the correction of these errors.
As a result of the aforementioned correction of accounting errors, the relevant financial statements have been revised as follows:
Effects on respective financial statements are as noted below:
January 31, 2019 | ||||||||||||
As Previously Reported | Adjustment | As Revised | ||||||||||
Balance Sheet | ||||||||||||
Current Assets | ||||||||||||
Accounts receivable | $ | 2,698,562 | $ | (47,738 | ) | $ | 2,650,824 | |||||
Inventories | 1,396,400 | (48,811 | ) | 1,347,589 | ||||||||
Total Current Assets | 4,859,549 | (96,549 | ) | 4,763,000 | ||||||||
Total Assets | $ | 7,764,320 | $ | (96,549 | ) | $ | 7,667,771 | |||||
Stockholders’ Deficit | ||||||||||||
Accumulated deficit | $ | (17,580,255 | ) | $ | (96,549 | ) | $ | (17,676,804 | ) | |||
Total Stockholders’ Deficit | (1,182,148 | ) | (96,549 | ) | (1,278,697 | ) | ||||||
Total Liabilities and Stockholders’ Deficit | 7,764,320 | (96,549 | ) | 7,667,771 |
For the year ended January 31, 2019 | ||||||||||||
As Previously Reported | Adjustments | As Revised | ||||||||||
Statement of Operations | ||||||||||||
Sales – net of slotting fees and discounts | $ | 28,522,112 | $ | (47,738 | ) | $ | 28,474,374 | |||||
Cost of sales | 18,531,678 | 48,811 | 18,580,489 | |||||||||
Gross profit | 9,990,434 | (96,549 | ) | 9,893,885 | ||||||||
Income from operations | 1,565,064 | (96,549 | ) | 1,468,515 | ||||||||
Net income | 550,048 | (96,549 | ) | 453,499 | ||||||||
Net income attributable to common stockholders | $ | 550,048 | $ | (96,549 | ) | $ | 453,499 | |||||
Basic and diluted income per share | $ | 0.02 | $ | (0.01 | ) | 0.01 | ||||||
Statements of Cash Flows | ||||||||||||
Net income | $ | 550,048 | $ | (96,549 | ) | $ | 453,499 | |||||
Accounts receivable | 386,153 | 47,738 | 433,891 | |||||||||
Inventories | (572,124 | ) | 48,811 | (523,313 | ) | |||||||
Net Cash Provided by Operating Activities | 1,443,408 | - | 1,443,408 |
For the year ended January 31, 2019 | ||||||||||||
As Previously Reported | Adjustments | As Revised | ||||||||||
Statement of Stockholders’ Deficit | ||||||||||||
Net income | $ | 550,048 | $ | (96,549 | ) | $ | 453,499 | |||||
Accumulated deficit ending balance | $ | (17,580,255 | ) | $ | (96,549 | ) | $ | (17,676,804 | ) | |||
Total stockholders’ deficit ending balance | $ | (1,182,148 | ) | $ | (96,549 | ) | $ | (1,278,697 | ) |
Note 14– Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were available to be issued. Based on this evaluation, the Company has identified the following reportable subsequent events other than those disclosed elsewhere in these financials.
In 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.
On April 21, 2020, the Company was advised that its principal bank, M&T, had approved a $330,000 loan under the Paycheck Protection Program (PPP) pursuant to the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law on March 27, 2020.
As a U.S. small business, MamaMancini’s has qualified for the PPP, which allows businesses and nonprofits with fewer than 500 employees to obtain loans of up to $10 million to incent companies to maintain their workers as they manage the business disruptions caused by the COVID-19 pandemic.
The Loan, evidenced by a promissory note to M&T Bank as lender, has a term of two years, is unsecured, and is guaranteed by the Small Business Administration (SBA). The loan bears interest at a fixed rate of one percent per annum, with the first six months of interest and principal deferred. Some or all of the Loan may be forgiven if at least 75 percent of the Loan proceeds are used by MamaMancini’s to cover payroll costs, including benefits and if the Company maintains its employment and compensation within certain parameters during the eight-week period following the loan origination date and complies with other relevant conditions. As written in the CARES Act, MamaMancini’s expects to utilize these funds to cover payroll costs to allow for continuous, high-quality operations.
Other than the above-stated Subsequent Event, the Company has evaluated the existence of events and transactions subsequent to the balance sheet date through the date the consolidated financial statements were issued and has determined that there were no significant subsequent events or transactions that would require recognition or disclosure in the financial statements.
F-25 |