UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarter ended: OctoberJuly 31, 20222023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to ____________

 

Commission File Number: 001-40597

 

MamaMancini’s Holdings,Mama’s Creations, Inc.

(Exact name of Registrant as specified in its charter)

 

Nevada 27-0607116
(State or other jurisdiction of incorporation) (IRS Employer ID No.)

 

25 Branca Road

East Rutherford, NJ 07073

(Address of principal executive offices and zip Code)

 

(201) 531-1212

(Registrant’s telephone number, including area code)

 

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

 

Title of Each Class Trading Symbol Name of Each Exchange on which registered
Common Stock, par value $0.00001 MMMBMAMA NASDAQ Capital Market

 

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

 

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

 

Large accelerated filerAccelerated filer
    
Non-accelerated filerSmaller reporting company
    
  Emerging Growth Company

 

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

 

As of December 12, 2022,September 11, 2023, there were 36,317,85737,443,387 shares outstanding of the registrant’s common stock.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
Cautionary Statement Regarding Forward-Looking Statements1
 PART I – FINANCIAL INFORMATION 
 PART I – FINANCIAL INFORMATION
   
Item 1.Financial Statements.F-1
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.12
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk.65
   
Item 4.Controls and Procedures.65
   
 PART II – OTHER INFORMATION 
   
Item 1.Legal Proceedings.Legal Proceedings.76
   
Item 1A.Risk Factors.Risk Factors.76
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.713
   
Item 3.Defaults Upon Senior Securities.713
   
Item 4.Mine Safety Disclosures.713
Item 5.Other Information7
   
Item 6.Exhibits.Exhibits.814
   
Signatures15

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act. The forward-looking statements involve substantial risks and uncertainties. All statements, other than statements related to present facts or current conditions or of historical facts, contained in this report, including statements regarding our strategy, future operations, future financial position, future revenues, and projected costs, prospects, plans and objectives of management, are forward-looking statements. Accordingly, these statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in them. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include:

 the impacts of the COVID-19 pandemic on our business, financial condition and results of operations, and our inability to mitigate such impacts;
Signatures9the adequacy of our liquidity to pursue our business objectives;
reliance on a limited number of customers;
loss or retirement of key executives, including prior to identifying a successor;
adverse economic conditions or intense competition;
pricing pressures in the market and lack of control over the pricing of raw materials and freight;
entry of new competitors and products;
adverse federal, state and local government regulation (including, but not limited to, the Food and Drug Administration);
liability related to the consumption of our products
ability to secure placement of our products in key retail locations;
our ability to integrate acquisitions and related businesses including Chef Inspirational Foods, LLC;
wage and price inflation;
maintenance of quality control; and
issues related to the enforcement of our intellectual property rights.

 

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to “Item 1A. Risk Factors” in this report and “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K, and to subsequent reports and registration statements filed from time to time with the SEC. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.

1

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

MAMAMANCINI’S HOLDINGS, INC.Mama’s Creations, Inc.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OctoberJuly 31, 20222023

 

 Page(s)
  
Condensed Consolidated Balance Sheets as of OctoberJuly 31, 20222023 (unaudited) and January 31, 20222023F-2
  
Condensed Consolidated Statements of Operations for the Three and NineSix Months Ended OctoberJuly 31, 20222023 and 20212022 (unaudited)F-3
  
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Period from August 1,Three and Six Months Ended July 31, 2023 and 2022 through October 31, 2022 and the Period from August 1, 2021 through October 31, 2021 (unaudited)F-4
  
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Period from February 1, 2022 through October 31, 2022 and the Period from February 1, 2021 through October 31, 2021 (unaudited)F-5
Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended OctoberJuly 31, 2023 and 2022 and 2021 (unaudited)F-6
  
Notes to Condensed Consolidated Financial Statements (unaudited)F-7

F-1

 

 

MamaMancini’s Holdings,Mama’s Creations, Inc.

Condensed Consolidated Balance Sheets

 

        
 October 31, 2022  January 31, 2022  

July 31, 2023

  January 31, 2023 
 (unaudited)     (Unaudited)   
Assets:                
                
Current Assets:                
Cash $3,479,287  $850,598  $5,560,176  $4,378,383 
Accounts receivable, net  6,892,699   7,627,717   8,843,756   6,832,046 
Inventories  3,563,959   2,890,793 
Prepaid expenses  380,135   269,209 
Inventories, net  3,308,513   3,635,881 
Prepaid expenses and other current assets  474,301   828,391 
Total current assets  14,316,080   11,638,317   18,186,746   15,674,701 
                
Property and equipment, net  3,579,437   3,678,532 
Intangibles, net  1,617,693   1,984,979 
Property, plant, and equipment, net  4,067,648   3,423,096 
Intangible assets, net  5,754,182   1,502,510 
Goodwill  8,633,334   8,633,334   8,633,334   8,633,334 
Operating lease right of use assets, net  3,323,390   3,596,317   3,124,449   3,236,690 
Deferred tax asset  350,895   448,501   67,908   717,559 
Equity method investment in Chef Inspirational  1,290,464   - 
Equity method investment  -   1,343,486 
Deposits  52,249   52,249   65,410   53,819 
Total Assets $33,163,542  $30,032,229  $39,899,677  $34,585,195 
                
Liabilities and Stockholders’ Equity:                
                
Liabilities:                
Current Liabilities:                
Accounts payable and accrued expenses $8,065,749  $6,479,140  $8,872,582  $9,063,256 
Term loan, net of debt discount of $48,726 and $57,771, respectively  1,502,998   1,235,333 
Operating lease liability  378,223   292,699 
Term loan, net of debt discount of $49,022 and $60,082, respectively  1,502,702   1,491,642 
Operating lease liabilities  414,937   391,802 
Finance leases payable  180,085   218,039   335,119   182,391 
Promissory note – related party  839,170   759,917 
Series B Preferred Shares to be issued, net  185,000   - 
Promissory notes – related parties  1,950,000   750,000 
Total current liabilities  11,151,225   8,985,128   13,075,340   11,879,091 
                
Line of credit  990,000   765,000   500,000   890,000 
Operating lease liability – net of current  2,992,603   3,339,255 
Operating lease liabilities – net of current  2,739,208   2,897,205 
Finance leases payable – net of current  295,805   376,132   906,476   248,640 
Promissory note – related party, net of current  2,250,000   2,250,000 
Promissory notes – related parties, net of current  3,000,000   1,500,000 
Term loan – net of current  5,043,104   6,206,896   3,879,318   4,655,181 
Total long-term liabilities  11,571,512   12,937,283   11,025,002   10,191,026 
                
Total Liabilities  22,722,737   21,922,411   24,100,342   22,070,117 
                
Commitments and contingencies (Note 10)  -     
Commitments and contingencies (Notes 10 and 11)  -   - 
                
Stockholders’ Equity:                
Series A Preferred stock, $0.00001 par value; 120,000 shares authorized; 23,400 issued as of October 31, 2022 and January 31, 2022, 0 shares outstanding as of October 31, 2022 and January 31, 2022  -   - 
Series B Preferred stock, $0.00001 par value; 200,000 shares authorized; 47,200 and 0 issued and outstanding as of October 31, 2022 and January 31, 2022  -   - 
Series A Preferred stock, $0.00001 par value; 120,000 shares authorized; 23,400 issued as of July 31, 2023 and January 31, 2023, respectively, 0 shares outstanding as of July 31, 2023 and January 31, 2023, respectively  -   - 
Series B Preferred stock, $0.00001 par value; 200,000 shares authorized; 0 and 54,600 issued and outstanding as of July 31, 2023 and January 31, 2023 respectively  -   - 
Preferred stock, $0.00001 par value; 19,680,000 shares authorized; no shares issued and outstanding  -   -   -   - 
Preferred stock, value  -   - 
        
Common stock, $0.00001 par value; 250,000,000 shares authorized; 36,317,857 and 35,758,792 shares issued and outstanding as of October 31, 2022 and January 31, 2022  364   359 
Common stock, $0.00001 par value; 250,000,000 shares authorized; 37,343,387 and 36,317,857 shares issued and outstanding as of July 31, 2023 and January 31, 2023  374   364 
Additional paid in capital  22,472,793   20,587,789   22,912,383   22,724,440 
Accumulated deficit  (11,882,852)  (12,328,830)  (6,963,922)  (10,060,226)
Less: Treasury stock, 230,000 shares at cost, respectively  (149,500)  (149,500)
Less: Treasury stock, 230,000 shares at cost  (149,500)  (149,500)
Total Stockholders’ Equity  10,440,805   8,109,818   15,799,335   12,515,078 
Total Liabilities and Stockholders’ Equity $33,163,542  $30,032,229  $39,899,677  $34,585,195 

 

See accompanying notes to the condensed consolidated financial statementsstatements.

 

F-2

 

MamaMancini’s Holdings,Mama’s Creations, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

                 2023  2022  2023  2022 
 

For the Three Months Ended
October 31,

 

For the Nine Months Ended
October 31,

  

For the Three Months Ended

July 31,

 

For the Six Months Ended

July 31,

 
 2022  2021  2022  2021  2023  2022  2023  2022 
                  
Sales-net of slotting fees and discounts $25,693,913  $10,852,682  $70,370,967  $33,230,666 
Net sales $24,790,085  $22,846,474  $47,910,901  $44,677,054 
                                
Costs of sales  19,129,707   8,206,939   57,384,953   24,006,920   17,283,847   20,119,862   34,033,663   38,090,179 
                                
Gross profit  6,564,206   2,645,743   12,986,014   9,223,746   7,506,238   2,726,612   13,877,238   6,586,875 
                                
Operating expenses:                                
Research and development  24,432   33,866   92,759   87,843   94,871   41,792   166,056   68,327 
General and administrative  5,041,213   2,610,676   11,965,016   7,697,590 
Selling, general and administrative  5,135,537   3,516,115   9,492,568   7,088,870 
Total operating expenses  5,065,645   2,644,542   12,057,775   7,785,433   5,230,408   3,557,907   9,658,624   7,157,197 
                                
Income from operations  1,498,561   1,201   928,239   1,438,313 
Income (loss) from operations  2,275,830   (831,295)  4,218,614   (570,322)
                                
Other income (expenses)                                
Interest  (183,844)  (8,731)  (447,159)  (26,710)
Interest, net  (181,658)  (139,064)  (359,052)  (263,315)
Amortization of debt discount  (3,015)  -   (9,670)  -   (5,530)  (3,015)  (11,060)  (6,655)
Other income  -   -   2,596   37,704   7,449   2,596   27,449   2,596 
Total other income (expenses)  (186,859)  (8,731)  (454,233)  10,994 
Total other expenses  (179,739)  (139,483)  (342,663)  (267,374)
                                
Net income (loss) before income tax provision and income from equity method investment  1,311,702   (7,530)  474,006   1,449,307   2,096,091   (970,778)  3,875,951   (837,696)
                                
Income from equity method investment in Chef Inspirational  71,924   -   90,464   - 
Income tax benefit (provision)  (285,686)  2,075   (106,079)  (391,313)
Income from equity method investment  77,584   18,540   223,342   18,540 
Income tax (provision) benefit  (429,764)  208,992   (954,456)  179,607 
                                
Net income (loss)  1,097,940   (5,455)  458,391   1,057,994   1,743,911   (743,246)  3,144,837   (639,549)
                                
Less: Class B preferred dividends  (12,413)  -   (12,413)  - 
Less: series B preferred dividends  (21,233)  -   (48,533)  - 
                                
Net income (loss) available to common stockholders  1,085,527  $(5,455) $445,978  $1,057,994 
Net Income available to common stockholders  1,722,678   (743,246)  3,096,304   (639,549)
                                
Net income (loss) per common share                                
– basic $0.03  $(0.00) $0.01  $0.03  $0.05  $(0.02) $0.09  $(0.02)
– diluted $0.03  $(0.00) $0.01  $0.03  $0.05  $(0.02) $0.08  $(0.02)
                                
Weighted average common shares outstanding                                
– basic  36,317,857   35,728,821   36,020,209   35,683,484   36,855,181   35,811,087   36,628,429   35,785,719 
– diluted  36,614,635   35,728,821   36,348,534   36,176,949   37,490,567   35,811,087   37,195,314   35,785,719 

 

See accompanying notes to the condensed consolidated financial statementsstatements.

 

F-3

 

 

MamaMancini’s Holdings,Mama’s Creations, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

For the Period from AugustMay 1, 20222023 through OctoberJuly 31, 20222023

 

                                             
  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, August 1, 2022  -  $-         -  $-   36,317,857  $364   (230,000) $(149,500) $21,326,367  $(12,968,379) $   8,208,852 
                                             
Stock options issued for services  -   -   -   -   -   -   -   -   15,955   -   15,955 
                                             
Common stock issued for services  -   -   -   -   -   -   -   -   7,671   -   7,671 
                                             
Issuance of Preferred B Shares, net of issuance costs  -   -   47,200   -   -   -   -   -   1,122,800   -   1,122,800 
                                             
Series B Preferred dividend  -   -   -   -   -   -   -   -   -   (12,413)  (12,413)
                                             
Net income  -   -   -   -   -   -   -   -   -   1,097,940   1,097,940 
Think                                            
Balance, October 31, 2022  -  $-       47,200  $-   36,317,857  $364   (230,000) $(149,500) $22,472,793  $(11,882,852) $10,440,805 
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
  

Series A

Preferred Stock

  Series B Preferred Stock  Common Stock  Treasury Stock  

Additional

Paid In

  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
Balance, May 1, 2023  -  $-   54,600  $-   36,484,777  $366   (230,000) $(149,500) $22,799,322  $(8,686,600) $13,963,588 
                                             
Stock based compensation  -   -   -   -   19,960   -   -   -   104,789   -   104,789 
                                             
Stock issued for the exercise of options and warrants  -   -   -   -   19,650   -   -   -   8,280   -   8,280 
                                             
Conversion of series B preferred stock to common stock  -   -   (54,600)  -   819,000   8   -   -   (8)  -   - 
                                             
Series B Preferred dividend  -   -   -   -   -   -   -   -   -   (21,233)  (21,233)
                                             
Net income  -   -   -   -   -   -   -   -   -   1,743,911   1,743,911 
                                             
Balance, July 31, 2023  -  $-   -  $-   37,343,387  $374   (230,000) $(149,500) $22,912,383  $(6,963,922) $15,799,335 

 

For the Period from AugustMay 1, 20212022 through OctoberJuly 31, 20212022

                                     
  

Series A

Preferred Stock

  Common Stock  Treasury Stock  

Additional

Paid In

  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
                            
Balance, August 1, 2021  -  $-   35,725,041  $359   (230,000) $(149,500) $20,555,657  $(11,013,455) $    9,393,061 
                                     
Common stock issued for services  -   -   -   -   -   -   18,933   -   18,933 
                                     
Stock options issued for services  -   -   -   -   -   -   748   -   748 
                                     
Stock issued for the exercise of options  -   -   26,751   -   -   -   -   -   - 
                                     
Net loss  -   -   -   -   -   -   -   (5,455)  (5,455)
Balance, October 31, 2021  -  $-   35,751,792  $359   (230,000) $(149,500) $20,575,338  $(11,018,910) $9,407,287 

See accompanying notes to the condensed consolidated financial statements

  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, May 1, 2022  -  $-   35,774,468  $359   (230,000) $(149,500) $20,587,789  $(12,225,133) $8,213,515 
                                     
Stock issued for the exercise of options  -   -   41,417   -   -   -   26,250   -   26,250 
                                     
Stock options issued for services  -   -   -   -   -   -   12,333   -   12,333 
                                     
Stock issued for the acquisition of equity investment in Chef Inspirational  -   -   501,972   5   -   -   699,995   -   700,000 
                                     
Net loss  -   -   -   -   -   -   -   (743,246)  (743,246)
                                     
Balance, July 31, 2022  -  $-   36,317,857  $364   (230,000) $(149,500) $21,326,367  $(12,968,379) $8,208,852 

 

F-4

 

 

MamaMancini’s Holdings, Inc.For the Period from February 1, 2023 through July 31, 2023

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
  

Series A

Preferred Stock

  Series B Preferred Stock  Common Stock  Treasury Stock  

Additional

Paid In

  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
Balance, February 1, 2023  -  $-   54,600  $-   36,317,857  $364   (230,000) $(149,500) $22,724,440  $(10,060,226) $12,515,078 
                                             
Stock based compensation  -   -   -   -   19,960   -   -   -   160,173   -   160,173 
                                             
Stock issued for the exercise of options and warrants  -   -   -   -   186,570   2   -   -   27,778   -   27,780 
                                             
Conversion of series B preferred stock to common stock  -   -   (54,600)  -   819,000   8   -   -   (8)  -   - 
                                             
Series B Preferred dividend  -   -   -   -   -   -   -   -   -   (48,533)  (48,533)
                                             
Net income  -   -   -   -   -   -   -   -   -   3,144,837   3,144,837 
                                             
Balance, July 31, 2023  -  $-   -  $-   37,343,387  $374   (230,000) $(149,500) $22,912,383  $(6,963,922) $15,799,335 

 

For the Period from February 1, 2022 through OctoberJuly 31, 2022

 

                                             
  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 options issued for services  -   -   -   -   -   -   -   -   28,288   -   28,288 
                                             
Common stock issued for services  -   -   -   -   -   -   -   -   7,671   -   7,671 
                                             
Stock issued for the exercise of options  -   -   -   -   57,093   -   -   -   26,250   -   26,250 
                                             
Stock issued for the acquisition of equity investment in Chef Inspirational  -   -   -   -   501,972   5   -   -   699,995   -   700,000 
                                             
Issuance of Preferred B Shares, net of issuance costs  -   -   47,200   -   -   -   -   -   1,122,800   -   1,122,800 
                                             
Series B Preferred dividend  -   -   -   -   -   -   -   -   -   (12,413)  (12,413)
                                             
Net income  -   -   -   -   -   -   -   -   -   458,391   458,391 
                                             
Balance, October 31, 2022  -  $-       47,200  $-   36,317,857  $364   (230,000) $(149,500) $22,472,793  $(11,882,852) $10,440,805 
  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, 2022  -  $-   35,758,792  $359   (230,000) $(149,500) $20,587,789  $(12,328,830) $8,109,818 
Beginning balance, value  -  $-   35,758,792  $359   (230,000) $(149,500) $20,587,789  $(12,328,830) $8,109,818 
                                     
Stock issued for the exercise of options  -   -   57,093   -   -   -   26,250   -   26,250 
                                     
Stock options issued for services  -   -   -   -   -   -   12,333   -   12,333 
                                     
Stock issued for the acquisition of equity investment in Chef Inspirational  -   -   501,972   5   -   -   699,995   -   700,000 
                                     
Net loss  -   -   -   -   -   -   -   (639,549)  (639,549)
Net income (loss)  -   -   -   -   -   -   -   (639,549)  (639,549)
                                     
Balance, July 31, 2022  -  $-   36,317,857  $364   (230,000) $(149,500) $21,326,367  $(12,968,379) $8,208,852 
Ending balance, value  -  $-   36,317,857  $364   (230,000) $(149,500) $21,326,367  $(12,968,379) $8,208,852 

 

ForSee accompanying notes to the Period from February 1, 2021 through October 31, 2021condensed consolidated financial statements.

                                     
  

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 
                                     
Common stock issued for services  -   -   -   -   -   -   18,933   -   18,933 
                                     
Stock options issued for services  -   -   -   -   -   -   1,534   -   1,534 
                                     
Stock issued for the exercise of options  -   -   148,061   2   -   -   19,078   -   19,080 
                                     
Net income  -   -   -   -   -   -   -   1,057,994   1,057,994 
Net income (loss)  -   -   -   -   -   -   -   1,057,994   1,057,994 
Balance, October 31, 2021  -  $-   35,751,792  $359   (230,000) $(149,500) $20,575,338  $(11,018,910) $9,407,287 

 

F-5

 

MamaMancini’s Holdings,Mama’s Creations, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

         2023  2022 
 For the Nine Months Ended October 31,  For the Six Months Ended July 31, 
 2022  2021  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income $458,391  $1,057,994 
Net income (loss) $3,144,837  $(639,549)
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation  678,710   572,238   511,589   401,126 
Amortization of debt discount  9,670   -   11,060   6,655 
Amortization of right of use assets  272,927   163,141   112,241   182,862 
Amortization of intangibles  367,286   -   303,949   230,156 
Share-based compensation  35,959   20,467 
Stock-based compensation  110,173   12,333 
Allowance for obsolete inventory  93,238   - 
Change in deferred tax asset  97,606   383,313   649,651   (188,080)
Income from equity method investment in Chef Inspirational  (90,464)  - 
Income from equity method investment  (223,342)  (18,540)
Paid in kind interest  -   53,356 
Changes in operating assets and liabilities:                
Allowance for doubtful accounts  140,442   - 
Accounts receivable  735,018   12,445   1,126,867   749,959 
Inventories  (673,166)  (419,527)  234,130   (1,302,933)
Prepaid expenses  (111,551)  (75,184)
Prepaid expenses and other current assets  346,709   (248,113)
Security deposits  -   (2,979)  (17,941)  - 
Accounts payable and accrued expenses  1,664,762   562,095   (3,049,114)  1,170,280 
Operating lease liability  (261,128)  (141,206)  (134,862)  (176,534)
Net Cash Provided by Operating Activities  3,184,020   2,132,797   3,359,627   232,978 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Cash paid for fixed assets  (507,547)  (657,607)  (252,853)  (305,547)
Cash paid for investment in Chef Inspirational  (500,000)  - 
Cash paid for investment in Chef Inspirational Foods, LLC, net  (645,641)  (500,000)
Net Cash (Used in) Investing Activities  (1,007,547)  (657,607)  (898,494)  (805,547)
      -         
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds in advance of preferred stock offering  185,000   -   -   515,000 
Proceeds from preferred stock offering  1,180,000   - 
Payment of stock offering costs  (57,200)  - 
Repayment of term loan  (905,172)  -   (775,863)  (517,241)
Borrowings of line of credit, net  225,000   - 
(Repayment) borrowings of line of credit, net  (390,000)  1,725,000 
Repayment of finance lease obligations  (190,349)  (144,910)  (92,724)  (130,626)
Payment of Preferred B dividends  (11,313)  - 
Payment of Series B Preferred dividends  (48,533)  - 
Proceeds from exercise of options  26,250   19,080   27,780   26,250 
Net Cash Provided by (Used in) Financing Activities  452,216   (125,830)
Net Cash (Used in) Provided by Financing Activities  (1,279,340)  1,618,383 
                
Net Increase in Cash  2,628,689   1,349,360   1,181,793   1,045,814 
                
Cash - Beginning of Period  850,598   3,190,560   4,378,383   850,598 
                
Cash - End of Period $3,479,287  $4,539,920  $5,560,176  $1,896,412 
                
SUPPLEMENTARY CASH FLOW INFORMATION:                
Cash Paid During the Period for:                
Income taxes $9,170  $6,830  $112,500  $- 
Interest $369,400  $28,748  $313,488  $182,873 
                
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Conversion of series b preferred stock to common stock $8  $- 
Finance lease asset additions $72,068  $128,050  $903,288  $34,268 
Operating lease asset additions $-  $347,585 
Related party debt incurred for purchase of Chef Inspirational Foods, LLC $2,700,000   - 
Non-cash consideration paid in common stock for equity investment in Chef Inspirational $700,000  $-  $-  $700,000 
Preferred B accrued dividends $1,100  $- 
Settlement of liability in common stock $50,000  $- 

 

See accompanying notes to the condensed consolidated financial statementsstatements.

 

F-6

 

 

MamaMancini’s Holdings,Mama’s Creations, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

OctoberJuly 31, 20222023

Note 1 - Nature of Operations and Basis of Presentation

 

Nature of Operations

 

MamaMancini’s Holdings,Mama’s Creations, Inc. (the(together with its subsidiaries, 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 CompanyOur subsidiary, MamaMancini’s Inc., a Delaware Corporation (“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,meals, single-size Pasta Bowls,pasta bowls, bulk deli, and packaged refrigerated and frozenprotein products. The Company’sMamas products were submitted to the United States Department of Agriculture (the “USDA”) and approved as all natural. The USDA defines all natural as a product that contains no artificial ingredients, coloring ingredients or chemical preservatives and is minimally processed. The Company’s customers are located throughout the United States, with large concentrations in the Northeast and Southeast.

 

On December 29, 2021, the Company made two acquisitions which expandexpanded the Company’s core product lines, occasions, and access to specific cohorts and markets. T&L Creative Salads, Inc. (“T&L”) and Olive Branch, LLC (“OB”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.Food and Drug Administration (“FDA”). Olive Branch started operations six years ago asoffers a separate company to concentrate on sellingfull line of olives, olive mixes, and savory products to a limited number of large retail customers,food chains and club stores, delis, bagel stores, caterers and provision distributors, primarily in pre-packaged containers.

 

On June 28, 2022, the Company acquired a 24% minority interest in Chef Inspirational Foods, Inc.LLC (“CIF”), a leading developer, innovator, marketer and sales company selling fresh and frozen prepared foods, for an investment of $1.2 million, at an implied enterprise value for CIF of $5million. The investment consistsconsisted 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 June 28, 2022. The acquisition of the interest in CIF is beingwas accounted for under the equity method of accounting for investments.investments up until the Company acquired the remaining interest of CIF (the “CIF Acquisition”). On June 28, 2023, the Company completed the acquisition of the remaining 76% of CIF, in accordance with the terms of the Membership Interest Purchase Agreement dated June 28, 2023 by and among the Company, Siegel Suffolk Family, LLC, and R&I Loeb Family, LLC (the “Sellers”). Per the terms of the Membership Interest Purchase Agreement the purchase price was $3.65 million, including $950 thousand in cash at closing and $2.7 million in a promissory note. The promissory note requires a principal payment of $1.2 million in cash on the first anniversary of the closing date, and a payment of $1.5 million in common stock of the Company on the second anniversary of the closing date.

 

The following presents the unaudited results of operations for the period February 1, 2023 through June 28, 2022 (acquisition date) through October 31, 20222023 of CIF.

 Schedule of Results of Operations

  For the Period
June 28, 2022
through
October 31, 2022
 
Revenues $11,628,434 
Net income $370,167 

Note 2 – Business Acquisitions

The Company accounts for acquisitions in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. ASC 805 specifies criteria to be used in determining whether intangible assets acquired in a business combination must be recognized and reported separately from goodwill. Amounts assigned to goodwill and other identifiable intangible assets are based on independent appraisals or internal estimates.

  For the Period
February 1, 2023
through
June 28, 2023
 
Revenues $13,720,817 
Net income $930,592 

 

On December 23, 2021,July 31, 2023, MamaMancini’s Holdings, Inc. filed an amendment to the Company announcedArticles of Incorporation with the signingSecretary of definitive agreements for two acquisitions – T&L and OB, which are gourmet food manufacturers based in New York. The closing of these transactions was completed on December 29, 2021. The Company acquired 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 anniversaryState of the closing, together with accrued interestState of Nevada to change the Company’s name from “MamaMancini’s Holdings, Inc.” to “Mama’s Creations, Inc.” (the “Name Change”). The Name Change, which was approved by the Company’s stockholders at a rate of three and one-half (3.5%) per annum. The holder ofits annual meeting on July 31, 2023, did not alter the Note is T&L Acquisition Corp., a wholly-owned subsidiaryvoting powers or relative rights of the Company is guaranteed byCommon Stock, reflects the Company. The holder has a rightevolution 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 long-term acquisition note from M&T Bank (see below). Anthony Morello, Jr. will remain as CEO of T&L Acquisition Corp.

On December 29, 2021, the Company entered intofrom its origins as a Multiple Disbursement Term Loan (“Loan”) with M&T Bankhome style, old world Italian food company to a broader provider of all-natural specialty prepared refrigerated foods for sale in retailers around the original principal amount of $7,500,000 payable in monthly installments over a 60-month amortization period.country. The Maturity Date ofCompany also amended and restated its Amended and Restated Bylaws, solely to reflect the Loan is January 17, 2027. Interest is payable onname change (as amended, 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“Second Amended 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 FloorRestated Bylaws”).

All of the proceeds of the Loan were utilized to fund the acquisition of T&L and OB.

 

F-7

 

For the three months ended October 31, 2022, T&L had revenue and net income before taxes of approximately $12.6 million and approximately $1.7 million, respectively. For the three months ended October 31, 2022, OB had revenue and net income before taxes of approximately $1.8 million and approximately $257,100, respectively. For the nine months ended October 31, 2022, T&L had revenue and net income before taxes of approximately $30.7 million and approximately $1.7 million respectively. For the nine months ended October 31, 2022, OB had revenue and net income before taxes of approximately $5.0 million and approximately $305,200, respectively. These amounts are included in the condensed statements of operations for the three and nine months ended October 31, 2022.

The following presents the unaudited pro-forma combined results of operations for the three and nine months ended October 31, 2021 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

  

For the Three
Months Ended
October 31, 2021

  

For the Nine
Months Ended
October 31, 2021

 
Revenues $18,737,715  $48,228,884 
Net income $281,716  $1,469,571 
Net income per share - basic $0.01  $0.04 
Weighted average number of shares outstanding  35,728,821   35,683,484 

The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations are not intended to present actual results that would have been attained had the acquisitions been completed as of February 1, 2021 or to project potential operating results as of any future date or for any future periods.

ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquirer (if any) at the acquisition date, measured at their fair values as of that date. ASC 805 also requires the acquirer to recognize contingent consideration (if any) at the acquisition date, measured at its fair value at that date.

The following summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:

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.

F-8

The intangible assets acquired include the trademarks and customer relationships.

The allocation of purchase price is still deemed to be a preliminary allocation because of potential changes in the valuation of intangibles and the acquired fixed assets.

The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. All of the goodwill is deductible for tax purposes.

 

Note 32 - Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed consolidated financial statements and related notesaccompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAPU.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements of the Company and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of July 31, 2023, and the results of its operations and its cash flows for the periods presented. The unaudited Condensed Consolidated Financial Statements herein should be read together with the historical consolidated financial statements of the Company for the years ended January 31, 2023 and 2022 included in our 2023 Form 10-K. Operating results for the three and six months ended July 31, 2023 are not necessarily indicative of the results that may be expected for the year ending January 31, 2024.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The unaudited interim financial information furnished herein reflects all adjustments, consisting solely of normal recurring items, which in the opinion of management are necessary to fairly state the financial position of the Company and the results of its operations for the periods presented. This report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended January 31, 2022 filed on May 27, 2022. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The condensed consolidated balance sheet at January 31, 2022 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods presented are not necessarily indicative of results for the year ending January 31, 2023.

Principles of Consolidation

The condensed consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods. All inter-company balances and transactions have been eliminated.

Use of Estimates

 

The preparation of condensed consolidated financial statementsCondensed Consolidated Financial Statements in conformityaccordance with U.S. generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statementsCondensed Consolidated Financial Statements and accompanying notes. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Such estimates and assumptions impact, among others, the following: allowance for doubtful accounts, inventory obsolescence, purchase price accounting and the fair value of share-based payments.stock-based payments, valuation of the acquisition of the remaining interest of CIF (which was accounted for as an asset acquisition as substantially all of the fair value is concentrated in customer relationships), inventory reserves, 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 condensed consolidated financial statements,Condensed Consolidated Financial Statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.

 

Risks and Uncertainties

 

The Company operates in an industry that is subject to intense competition and 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.

F-9

 

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

 

Cash

 

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at OctoberJuly 31, 20222023 and January 31, 2022.2023.

 

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 October 31, 2022, the Company had approximately $2.8 million in cash balances that exceed federally insured limits.

 

F-8

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 OctoberJuly 31, 20222023 and January 31, 2022,2023, the reserve for uncollectible accounts was approximately $246,67893,000 and $2,000233,000, respectively. During the three and six months ended July 31, 2023 the Company wrote off approximately $140,000 accounts that were deemed to be uncollectible.

 

Inventories

 

Inventories are statedThe Company values its inventory at the lower of cost or net realizable value using(“NRV”) and include direct material, direct labor, warehousing, and overhead costs. NRV is defined as the estimated selling prices less the costs of completion, disposal, and transportation. The cost of inventory is determined on the first-in, first-out (FIFO) valuation method. Inventory was comprisedbasis. Inventories have been reduced by an allowance for excess, obsolete and unsaleable inventories. The allowance is an estimate based on management’s review of the following at Octoberinventories on hand compared to estimated future usage and sales. The reserve for obsolescence as of July 31, 20222023 and January 31, 2022:2023 was approximately $126,000 and $32,000, respectively.

 

Inventories by major category are as follows:

Schedule of Inventories

  October 31, 2022  January 31, 2022 
Raw Materials $1,840,274  $1,854,156 
Work in Process  135,206   244,974 
Finished goods  1,588,479   791,663 
Inventories $3,563,959  $2,890,793 
  

July 31, 2023

  January 31, 2023 
Raw materials and packaging $1,495,179  $1,883,270 
Work in process  200,437   98,910 
Finished goods  1,612,897   1,653,701 
Total $3,308,513  $3,635,881 

 

Property, Plant and Equipment

 

Property, plant, 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 2-7 years
Furniture and fixtures 3-5 years
Leasehold improvements -**

 

(*)Amortized on a straight-line basis over the remaining lease term ofat the lease ortime the estimated useful lives,asset was placed in service, whichever period is shorter.

 

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

 

F-10

Goodwill and Other Intangible Assets

 

SoftwareGoodwill

 

The Company accounts for acquired internal-use software licenses and certain costs withinGoodwill represents the scopeexcess of ASC 350-40, Intangibles - Goodwill and Other - Internal-Use Software as intangible assets. The Company capitalized $87,639 of costs incurred in the year ended January 31, 2021 to implement cloud computing arrangements. Acquired internal-use software licenses are amortizedpurchase price over the termfair values of the arrangement on a straight-line basis to the line item within the condensed consolidated statementsunderlying net assets 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 three and nine months ended October 31, 2022, the Company recorded amortization of $35,410 and $66,512, 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

The Company does not amortize goodwill or indefinite-lived intangible assets.acquired business. The Company tests goodwill for impairment annually ason an annual basis during the fourth quarter of January 31its fiscal year, or immediately if an event occurs or circumstances changeconditions indicate that indicatesuch impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overall financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of an such impact.

If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determinevalue and 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.necessary to perform goodwill impairment process.

 

As of OctoberJuly 31, 2022,2023 and January 31, 2023, there were no impairment losses recognized for goodwill.

 

F-9

Other IntangiblesIntangible Assets

 

Other intangiblesintangible assets 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 three and nine months ended October 31, 2022, the Company recognized amortization of $101,360 and $300,774 related to other intangible assets, respectively.

F-11

Fair Value of Financial Instruments

 

For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amount of the Company’s short-term financial instruments approximates fair value due to the relatively short period to maturity for these instruments.

 

Research and Development

 

Research and development is expensed as incurred. Research and development expenses for the three months ended OctoberJuly 31, 20222023 and 20212022 were $24,43294,871 and $33,86641,792, respectively. Research and development expenses for the ninesix months ended OctoberJuly 31, 20222023 and 20212022 were $92,759166,056 and $87,84368,327, respectively.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with FASB Topic 606, Revenue from Contracts with Customers (Topic 606).

 

The Company’s sales predominantly are generated from the sale of finished products to customers, containwhich contains 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 and accepted 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. The Company elected to treat shipping and handling activities as fulfillment activities, and the related costs are recorded as selling expenses in selling, general and administrative expenses on the condensed consolidated statements of operations.

 

The Company promotes its products with advertising, consumer incentives and trade promotions. These programs include discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. Customer trade promotion and consumer incentive activities are recorded as a reduction to the transaction price based on amounts estimated as being due to customers and consumers at the end of a period. The Company derives these estimates principally on historical utilization and redemption rates. The Company does not receive a distinct service in relation to the advertising, consumer incentives and trade promotions.promotions and as a result, these incentives and promotions are accounted for as a reduction of the transaction price.

 

Payment terms in the Company’s invoices are based on the billing schedule established in contracts and purchase orders with customers. The Company recognizes the related trade receivable when the goods are shipped.received by the customer.

F-12

 

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

 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
 For the Three Months Ended  For the Three Months Ended 
 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
Gross Sales $26,044,732  $11,165,524  $25,414,735  $23,631,857 
Less: Slotting, Discounts, Allowances  350,819   312,842   624,650   785,383 
Net Sales $25,693,913  $10,852,682  $24,790,085  $22,846,474 

 

  October 31, 2022  October 31, 2021 
  For the Nine Months Ended 
  October 31, 2022  October 31, 2021 
Gross Sales $72,025,181  $34,373,119 
Less: Slotting, Discounts, Allowances  1,654,214   1,142,453 
Net Sales $70,370,967  $33,230,666 
F-10

  July 31, 2023  July 31, 2022 
  For the Six Months Ended 
  July 31, 2023  July 31, 2022 
Gross Sales $49,014,645  $45,980,449 
Less: Slotting, Discounts, Allowances  1,103,744   1,303,395 
Net Sales $47,910,901  $44,677,054 

 

Disaggregation of Revenue from Contracts with Customers. The following table disaggregates gross revenue by significant geographic area for the three months ended OctoberJuly 31, 20222023 and 2021:2022:

Schedule of Disaggregates Gross Revenue by Significant Geographic Area

 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
 For the Three Months Ended  For the Three Months Ended 
 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
Northeast $10,326,572  $3,542,894  $9,385,210  $9,066,443 
Southeast  7,396,600   4,338,967   7,191,911   6,857,963 
Midwest  3,449,245   1,155,233   3,987,565   2,560,178 
West  2,452,946   952,910   2,693,758   2,543,230 
Southwest  2,419,369   1,175,520   2,156,291   2,604,043 
Total revenue $26,044,732  $11,165,524 
Total gross sales $25,414,735  $23,631,857 

 

The following table disaggregates gross revenue by significant geographic area for the ninesix months ended OctoberJuly 31, 20222023 and 2021:2022:

 

 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
 For the Nine Months Ended  For the Six Months Ended 
 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
Northeast $29,453,025  $10,270,568  $17,951,303  $17,755,723 
Southeast  19,549,838   13,220,822   13,887,317   12,365,760 
Midwest  9,670,751   3,515,194   8,254,563   5,384,977 
West  6,931,914   3,818,925   4,615,326   5,442,086 
Southwest  6,419,653   3,547,610   4,306,136   5,031,903 
Total revenue $72,025,181  $34,373,119 
Total gross sales $49,014,645  $45,980,449 

Cost of Sales

 

Cost of sales represents costs directly related to the production and manufacturing of the Company’s products. Costs include product development,production costs, freight-in, packaging, and print production costs.

 

F-13

Advertising

 

Costs incurred for producing and communicating advertising for the Company are charged to operationsselling, general and administrative expenses as incurred. Producing and communicating advertisingAdvertising expenses for the three months ended OctoberJuly 31, 2023 and 2022 and 2021 were approximately $99,73695,000 and $196,495119,000 respectively. Producing and communicating advertisingAdvertising expenses for the ninesix months ended OctoberJuly 31, 20222023 and 20212022 were $400,655304,000 and $441,556307,000, 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-basedstock-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-basedStock-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-basedstock-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-basedstock-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, or research and development, depending on the nature of the services provided, in the condensed consolidated statements of operations. Share-basedStock-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction inof additional paid in capital.

 

For the three months ended October 31, 2022 and 2021, share-based compensation amounted to $23,626 and $19,681, respectively.

For the nine months ended October 31, 2022 and 2021, share-based compensation amounted to $35,959 and $20,467, respectively.

F-14F-11

 

 

For the ninethree months ended OctoberJuly 31, 2023 and 2022, stock-based compensation related to options amounted to approximately $18,000and 2021,$12,000, respectively.

For the six months ended July 31, 2023 and 2022, stock-based compensation related to options amounted to approximately $41,000 and $12,000, respectively.

For the three and six months ended July 31, 2023, the Company issued 19,960 shares valued at approximately $50,000 to certain employees as compensation.

For the six months ended July 31, 2023 and 2022, when computing fair value of share-basedstock-based payments, the Company has considered the following variables:

 Schedule of Fair Value of Share-Based Payments

  OctoberJuly 31, 20222023  OctoberJuly 31, 20212022 
Risk-free interest rate  2.77N/A%  N/A2.77%
Expected life of grants  6.5 yearsN/A   N/A7.5 years
Expected volatility of underlying stock  85.74N/A%N/A
Dividends  -85.74%
Dividends  N/A 0%

 

The expected option term is computed using the “simplified” method as permitted under the provisions of ASC 718-10-S99. The Company uses the simplified method to calculate expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

The expected stock price volatility for the Company’s stock options was estimated using the historical volatilities of the Company’s common stock. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods.

Earnings (Loss) Per Share

 

EarningsBasic net income per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the termstockholders excludes dilution and is used to refer to either earnings or loss per share. EPS is computed pursuant to Section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs 260-10-45-10 through 260-10-45-16, basic EPS shall be computed by dividing 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 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 computation. The dilutive effect of stock options, or warrants.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 if-converted method.

 

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

 Schedule of Earnings Per Share, Basic and Diluted

  October 31, 2022  October 31, 2021 
  For the Three Months Ended 
  October 31, 2022  October 31, 2021 
Numerator:        
Net income (loss) attributable to common stockholders $1,085,527   (5,455)
Effect of dilutive securities:      
         
Diluted net income (loss) $1,085,527  $(5,455)
         
Denominator:        
Weighted average common shares outstanding - basic  36,317,857   35,728,821 
Dilutive securities (a):        
Series B Preferred  -   - 
Options  296,778   - 
Warrants  -   - 
         
Weighted average common shares outstanding and assumed conversion – diluted  36,614,635   35,728,821 
         
Basic net income (loss) per common share $0.03  $(0.00)
         
Diluted net income (loss) per common share $0.03  $(0.00)
         
(a) - Anti-dilutive securities excluded:        
Series B Preferred shares  708,000   - 
Options  30,000   - 
Warrants  11,800   - 
  July 31, 2023  July 31, 2022 
  For the Three Months Ended 
  July 31, 2023  July 31, 2022 
Numerator:        
Net (loss) income attributable to common stockholders $1,722,678   (743,246)
Effect of dilutive securities:  21,233    
         
Diluted net income (loss) $1,743,911  $(743,246)
         
Denominator:        
Weighted average common shares outstanding – basic  36,855,181   35,811,087 
Dilutive securities (a):        
Restricted stock  251,017   - 
Options  384,369     
       - 
         
Weighted average common shares outstanding and assumed conversion – diluted  37,490,567   35,811,087 
         
Basic net (loss) income per common share $0.05  $(0.02)
         
Diluted net (loss) income per common share $0.05  $(0.02)
         
(a) – Anti-dilutive securities excluded:  -   689,000 

 

F-15F-12

 

 

  October 31, 2022  October 31, 2021 
  For the Nine Months Ended 
  October 31, 2022  October 31, 2021 
Numerator:        
Net income attributable to common stockholders $445,978   1,057,994 
Effect of dilutive securities:      
         
Diluted net income $445,978  $1,057,994 
         
Denominator:        
Weighted average common shares outstanding - basic  36,020,209   35,683,484 
Dilutive securities (a):        
Series B Preferred  -   - 
Options  328,324   493,465 
Warrants  -   - 
         
Weighted average common shares outstanding and assumed conversion – diluted  36,348,534   36,176,949 
         
Basic net income per common share $0.01  $0.03 
         
Diluted net income per common share $0.01  $0.03 
         
(a) - Anti-dilutive securities excluded:        
Series B Preferred shares  708,000   - 
Options  30,000   - 
Warrants  11,800   - 
Anti-dilutive securities  11,800   - 
  July 31, 2023  July 31, 2022 
  For the Six Months Ended 
  July 31, 2023  July 31, 2022 
Numerator:        
Net (loss) income attributable to common stockholders $3,096,304   (639,549)
Effect of dilutive securities:  48,533    
         
Diluted net income $3,144,837  $(639,549)
         
Denominator:        
Weighted average common shares outstanding – basic  36,628,429   35,785,719 
Dilutive securities (a):        
Restricted stock  222,280   - 
Options  344,605   - 
       - 
         
Weighted average common shares outstanding and assumed conversion – diluted  37,195,314   35,785,719 
         
Basic net (loss) income per common share $0.09  $(0.02)
         
Diluted net income (loss) per common share $0.08  $(0.02)
         
(a) – Anti-dilutive securities excluded:  -   689,000 

 

Income Taxes

 

Income taxes are provided in accordance with ASC 740, “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the period of deferred tax assets and liabilities.

 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of OctoberJuly 31, 20222023 and January 31, 2022,2023, the Company recognized a deferred tax asset of $350,89567,908 and $448,501717,559, respectively, which is included in other long-term assets on the condensed consolidated balance sheets. The Company regularly evaluates the need for a valuation allowance related to the deferred tax asset.

 

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported income, total assets, or stockholders’ equity as previously reported.

Recent Accounting Pronouncements

In May 2021, the FASB issued accounting standards update ASU 2021-04, “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company adopted the new standard on February 1, 2022 and the adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements.

 

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard is not expected to have a significant impact on itsthe Company’s consolidated financial statements and intends to adopt the standard as of January 1, 2024.statements.

F-13

 

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

 

F-16

Note 4 -3 – Property Plant and Equipment:

 

Property plant and equipment on OctoberJuly 31, 20222023 and January 31, 20222023 are as follows:

 Schedule of Property and Equipment

 October 31, 2022  January 31, 2022  

July 31, 2023

  January 31, 2023 
Machinery and Equipment $5,311,531  $4,934,855  $3,669,137  $5,387,255 
Furniture and Fixtures  281,781   233,615   236,645   284,781 
Leasehold Improvements  3,473,116   3,346,610   2,841,159   3,480,061 
Property and Equipment, Gross  9,066,428   8,515,080   6,746,941   9,152,097 
Less: Accumulated Depreciation  5,486,991   4,836,548   2,679,293   5,729,001 
Property and Equipment, Net $3,579,437  $3,678,532 
Total $4,067,648  $3,423,096 

 

Depreciation expense charged to income for the three months ended OctoberJuly 31, 20222023 and 20212022 amounted to $277,584263,176 and $145,506192,297, respectively. Depreciation expense charged to income for the ninesix months ended OctoberJuly 31, 20222023 and 20212022 amounted to $678,710511,589 and $572,238401,126, respectively.

 

Note 4 – Acquisition of CIF

As described in Note 1, on June 28, 2023, the Company completed the CIF Acquisition. The acquisition of the remaining interest in CIF was accounted for as an asset acquisition as substantially all of the fair value was concentrated in customer relationships. CIF’s assets (except for cash and working capital) were measured and recognized as an allocation of the transaction price based on their relative fair values as of the transaction date. The fair value of total consideration was $5,216,828. The following table is a summary of the purchase price calculation.

Schedule of Purchase Price Calculation

Cash transferred upon acquisition950,000
Related party debt issued upon acquisition2,700,000
Sub-total3,650,000
Carrying value of the Company’s equity method investment in CIF1,566,828
Total purchase price5,216,828

The allocation of the purchase price was as follows (amounts in thousands):

Schedule of Allocation of Purchase Price

     
Cash and cash equivalents $304,359 
Net working capital (excluding cash)  356,848 
Customer relationships  4,555,621 
Net assets acquired $5,216,828 

Note 5 – Intangibles,Intangible assets, net

 

Intangibles,Intangible assets, net consisted of the following at OctoberJuly 31, 2022:2023:

 Schedule of Intangibles Assets

  

Gross

Carrying

Amount

  

Accumulated

Amortization

  

Net Carrying

Amount

  

Weighted

Average

Remaining

Life (years)

 
Software $87,639  $(87,639) $-   - 
Customer relationships  6,417,621   (700,666)  5,716,955   3.79 
Tradename and trademarks  79,000   (41,773)  37,227   1.41 
  $6,584,260  $(830,078) $5,754,182     

  

Gross
Carrying
Amount

  Accumulated
Amortization
  Net Carrying
Amount
  

Weighted
Average
Remaining
Life

 
Software $87,639  $(73,815) $13,824   0.06 
Customer relationships  1,862,000   (315,054)  1,546,946   4.13 
Tradename and trademarks  79,000   (22,077)  56,923   2.16 
  $2,028,639  $(410,946) $1,617,693     
F-14

 

Intangibles, net consisted of the following at January 31, 2022:2023:

 

 

Gross
Carrying
Amount

  Accumulated
Amortization
  Net Carrying
Amount
  Weighted
Average
Remaining
Life
  

Gross

Carrying

Amount

 

Accumulated

Amortization

 

Net Carrying

Amount

 

Weighted

Average

Remaining

Life

 
Software $87,639  $(7,303) $80,336   2.91  $87,639  $(87,639) $-   - 
Customer relationships  1,862,000   (33,976)  1,828,024   4.87   1,862,000   (409,776)  1,452,224   3.41 
Tradename and trademarks  79,000   (2,381)  76,619   2.91   79,000   (28,714)  50,286   1.91 
 $2,028,639  $(43,660) $1,984,979      $2,028,639  $(526,129) $1,502,510     

As described in Note 1 and 4, on June 28, 2023, the Company completed the CIF Acquisition which resulted in the recognition of Customer relationships in the amount of $4,555,621.

 

Amortization expense for the three and ninesix months ended OctoberJuly 31, 2023 was $202,053 and $303,949, respectively.

Amortization expense for the three and six months ended July 31, 2022 was $137,131116,986 and $367,286230,156, respectively.

 

We expect the estimated aggregate amortization expense for each of the five succeeding fiscal years to be as follows:

 Schedule of Estimated Aggregate Amortization Expense

     
2023 (remaining) $115,184 
2024  402,133 
2025  400,782 
2026  374,216 
2027  325,378 
Total $1,617,693 

F-17

     
2024 (Remaining) $768,954 
2025  1,538,766 
2026  1,513,238 
2027  1,466,741 
2028  466,483 
Total $5,754,182 

Note 6 - Related Party Transactions

WWS, Inc.

Alfred D’Agostino, a director of the Company, is an affiliate of WWS, Inc.

For the three months ended October 31, 2022 and 2021, the Company recorded $12,000 in commission expense from WWS, Inc. generated sales. For the nine months ended October 31, 2022 and 2021, the Company recorded $36,000 in commission expense from WWS, Inc. generated sales.

 

Promissory Note – Related Party

 

Upon consummation of the acquisition of T&L and Olive Branch on December 29, 2021, the Company executed a $3,000,000 promissory note with the sellers. 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. As of OctoberJuly 31, 20222023 and January 31, 2022,2023, the outstanding balance under the note includingwas $2,250,000, respectively, of which $750,000 is recorded as Promissory notes – related parties and $1,500,000 is recorded as Promissory notes – related parties, net of current in the Company’s Condensed Consolidated Balance Sheets. For the three and six months ended July 31, 2023 interest expense for this note was $20,137 and $39,451 respectively. For the three and six months ended July 31, 2022 interest expense for this note was $27,237 and $53,356 respectively. As of July 31, 2023 and January 31, 2023, accrued interest was $3,089,17046,140 and $3,009,917, respectively. Interest expense related to this note was $25,897 and $79,253 for the three and nine months ended October 31, 2022, respectively. As of October 31, 2022 and January 31, 2022, accrued interest was $89,170 and $9,9176,688, respectively.

 

As part of the purchase price of the remaining interest in CIF, the Company agreed to pay $600,000 to each Seller in cash by bank check(s) or wire transfer(s), without interest, on the first anniversary of the closing date and $750,000 shall be paid by the Company to each seller in common stock of the Company, without interest, on the second anniversary of the Closing Date. As of July 31, 2023 $1,200,000 is recorded as Promissory notes – related parties and $1,500,000 is recorded as Promissory notes – related parties, net of current in the Company’s Condensed Consolidated Balance Sheet.

F-15

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., CEOPresident of T&L Acquisition Corp., a 100% owned subsidiary of the Company.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 and other ancillary charges pursuant to the lease for the three and ninesix months ended OctoberJuly 31, 2023 was $105,691 and $171,299, respectively. Rent expense and other ancillary charges pursuant to the lease for the three and six months ended July 31, 2022 was $65,608 and $196,824131,216, respectively.

 

Chef Inspirational Foods, Inc.LLC – Related Party

 

As noted above in Note 1, the Company acquiredowned a 24% minority interest in Chef Inspirational Foods, Inc. (“CIF”)CIF (until June 28, 2023). DuringFor the threeperiod from May 1, 2023 to June 28,2023 and nine months ended October 31, 2022, T&Lthe period from February 1, 2023 to June 28, 2023, the Company recorded sales of $5,388,6114,349,203 and $7,339,50210,889,277 with CIF, respectively,CIF. As of which $1,258,015 was outstanding and included in accountsJanuary 31, 2023, the Company had an account receivable on the accompanying condensed consolidated balance sheets at October 31, 2022. During the three and nine months ended October 31, 2022, OB recorded commission expensewith CIF of $75,4651,449,009. On June 28, 2023 the Company acquired the remaining interest in CIF (refer to Note 1 and $80,565 based on its transactions with CIF, respectively, of which $53,392 was due to CIF and is included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets at October 31, 2022.4).

Other Related Party Transactions

During the nine months ended October 31, 2022, the members of the board of directors and the CFO exercised 130,000 options at an average exercise price of $1.03 per share in exchange for 57,093 shares of common stock. During the nine months ended October 31, 2021, six employees exercised 200,000 options with an average exercise price of $0.81 in exchange for 148,061 shares of common stock.

Note 7 - Loan and Security AgreementAgreements

 

M&T Bank

 

Effective, January 4, 2019, theThe Company obtainedhas a $3.5 million working capital line of credit with M&T Bank at LIBOR plus four points(the “Credit Agreement”) with a two-year expiration. On January 29, 2020, the facility was amended to increase the total available balance toborrowings of $4.05.5 million as well as extendmillion. On July 18, 2023 the maturity date to June 30, 2022. On June 11, 2021, the line was amended to increase the available borrowings to $4.5 million andCompany extended the maturity date to June 30, 2023. On October 26, 2022,of the working capital line was amended to increase the available borrowings to $5.5 million and extended the maturity date to from June 30, 2024 to October 31, 2025, interest. 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 BorrowerAgreement) as of the date of any advance under the LoanCredit Agreement as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.25, but less than or equal to 2.50, 4.123.87 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, 3.623.37 percentage points above one-day SOFR; or (iii) 1.50 or less, 3.122.87 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. As part of the extension in June 2021 the Company incurred financing fees of $5,000. These fees are recorded as deferred financing fees and are included in prepaid expenses and other current assets on the balance sheet. These fees are amortized over the remaining life of the line of credit. As of October 31, 2022 and January 31, 2022, there were unamortized fees of $2,917 and $3,542, respectively. The facilityCredit Agreement is supportedsecured 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 as of OctoberJuly 31, 2022. The covenants were waived by the bank as of2023 and January 31, 2022.2023. 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.maturity. The outstanding balance on the line of credit was $990,000500,000 and $765,000890,000 as of OctoberJuly 31, 20222023 and January 31, 2022,2023, respectively. During the three months ended OctoberJuly 31, 20222023 and 2021,2022, the Company incurred interest of $33,76026,244 and $032,943, respectively, pursuant to M&T Bank forborrowings under the line of credit agreement, respectively.Credit Agreement. During the ninesix months ended OctoberJuly 31, 20222023 and 2021,2022, the Company incurred interest of $79,73246,776 and $049,053, respectively, pursuant to M&T Bank forborrowings under the line of credit agreement, respectively.Credit Agreement.

 

F-18

As discussed above in Note 2, onOn December 29, 2021, the Company entered into a loanMultiple Disbursement Term Loan with M&T Bank, which was amended and restated on October 26, 2022, for the original principal amount of $7,500,000payable in equal monthly principal installments over a 60-month amortization period (the “Acquisition Note”“Term Loan Agreement”). The Maturity Datematurity date of the Acquisition NoteTerm Loan Agreement is January 17, 2027. Interest is payable on the unpaid Principal Amount ofprincipal under the Acquisition NoteTerm Loan Agreement 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 BorrowerTerm Loan Agreement) as of the date of any advance under the Acquisition NoteTerm Loan Agreement as follows: if the Senior Funded Debt/EBITDA ratio is: (i) greater than 2.00 but less than or equal to 2.25, 3.874.12 percentage point(s) above one-day (i.e., overnight) applicablethe Variable Loan Rate (as defined in the agreement); (ii) greater than 1.50 but less than or equal to 2.25, 3.373.62 percentage points above Variable Loan Rate; or (iii) less than or equal to 1.50, or less, 2.873.12 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 the foregoing margins shall be applied to the Variable Loan Rates.Rates The Company recorded a debt. All disbursements available under the Term Loan Agreement have been previously made. As of July 31, 2023, the outstanding balance and unamortized discount of the Term Loan Agreement was $58,750 in relation to the debt. For the three and nine months ended October 31, 2022, the Company recorded $3,0155,431,042 and $9,04549,022 in accretion of the debt discount,, respectively. As of OctoberJanuary 31, 2022,2023, the outstanding balance and unamortized discount of the Acquisition Note was $6,594,8286,206,905 and $48,726, respectively. As of January 31, 2022, the outstanding balance and unamortized discount of the Acquisition Note was $7,500,000 and $57,77160,082, respectively. During the three and ninesix months ended OctoberJuly 31, 2023, the Company incurred interest of $117,606 and $237,315 for the Acquisition Note, respectively. During the three and six months ended July 31, 2022, the Company incurred interest of $114,40873,484 and $233,572148,606 for the Acquisition Note, respectively.

 

F-16

Note 8 - Concentrations

 

Revenues

 

DuringFor the threesix months ended OctoberJuly 31, 2023, the Company’s revenue was concentrated in three customers that accounted for approximately 22%, 13%, and 11% of gross revenue, respectively. For the six months ended July 31, 2022, and 2021 the Company’s concentrationrevenue was concentrated in three customers that accounted for approximately 24%, 13%, and 12% respectively, of revenue is as follows:

Schedule of Concentration of Revenue

  For the Three Months
Ended
 
  October 31,
2022
  October 31,
2021
 
       
Customer        
A  28%  -*%
B  13%  23%
C  8%  13%
D  7%  -*%
E  5%  29%

Notes:

*% - Not a customer during the period

A - These amounts are sales from Chef Inspiration Foods, a related party.gross revenue.

 

For the three months ended OctoberJuly 31, 2022,2023, the largest 3Company’s revenue was concentrated in three customers representthat accounted for approximately 2818%, 1317%, and 8% totaling 4910% of gross sales with the largest 5 customers representing 61% of gross sales in the same period.revenue, respectively. For the three months ended OctoberJuly 31, 2021,2022, the Company’s revenue was concentrated in three largest customers representedthat accounted for approximately 2923%, 2314%, and 12% and 13% totaling 65%respectively, of gross sales.revenue.

 

During the nine months ended October 31, 2022 and 2021 the Company’s concentration of revenue is as follows:Receivables

  For the Nine
Months Ended
 
  October 31,
2022
  October 31,
2021
 
       
Customer        
A  26%  -*%
B  13%  20%
C  10%  32%
D  7%  -*%
E  6%  11%

Notes:As of July 31, 2023 one customer represented approximately 40

*% - Not a customer during the period

A - These amounts are sales from Chef Inspiration Foods, a related party.

F-19

For% of the nine months ended Octobertotal gross outstanding receivables. As of January 31, 2022, the largest 32023, three customers representrepresented approximately 2620%, 13% and 10% of gross sales with the largest 5 customers representing 62% of gross sales in the same period. For the nine months ended October 31, 2021, the three largest customers represented 31%, 2215% and 11%, totaling 64% of gross sales.

As of October 31, 2022, five customers represented approximately 1846%,13%, 13%, 4% and 6% totaling 54% of total gross outstanding receivables, respectively. As of October 31, 2021, these three customers represented approximately 26%, 17% and 14% of total gross outstanding receivables, respectively.

 

Note 9 - Stockholders’ Equity

 

Preferred Stock and Series BA Preferred Stock

 

The Company is authorized to issue 20,000,000 shares of Preferred Stock, $0.00001 par value per share. The Company has designated 120,000 shares of Preferred Stock as Series A Convertible Preferred stock. As of July 31, 2023 and January 31, 2023, no shares of Series A Convertible Preferred Stock are issued and outstanding. The Company has designated 200,000 shares of preferred stock, $0.00001 par value per share, for each of the Series B Preferred. Preferred Stock.

Series B Preferred Stock

The holders of the Series B Preferred Stock shall be entitled to receive, upon liquidation, dissolution or winding up of the Company, the original issue price, plus any dividends declared but unpaid or the amount of cash, securities or other property to which such holder would be entitled to receive with respect to such shares of Series B Preferred Stock if such shares had been converted to common stock immediately prior to such liquidation.

 

Holders of the Series B Preferred Stock arewere entitled to receive cumulative cash dividends at an annual rate of eight percent (8%). Holders of the Series B Preferred Stock shall havehad no voting rights.Each share of Series B Preferred Stock shall bewas convertible, at the option of the holder, into shares of common stock at a rate of 1 share of Series B Preferred Stock into 15 shares of common stock. DuringThe Company was able to force conversion at $2.00 per share of Common Stock at any time after six (6) months after issue if the three and nineCommon Stock has a closing price of $2.00 or higher in any 20 consecutive trading days. After 18 months, ended October 31, 2022, the Company declared dividends of $12,413, of whichcould force holders to convert at a 20% discount to the most recent 20-day average closing price per share. The Company paid $11,313.also has the right to cause a conversion following a Fundamental Change.

 

On September 13, 2022, the Company closed the first round of the Series B Preferred Stock offering with the sale of 47,200 shares, raising gross proceeds of $1,180,000. On November 17, 2022, the company held a final closing of its offering of Series B Preferred Stock, wherein it sold an additional 7,400 shares of Series B. Preferred Stock for gross proceeds of $185,000

 

As of January 31, 2023 there were 54,600 shares of Series B Preferred Stock outstanding. On June 22, 2023, all the holders of the Series B Preferred Stock converted the shares of Series B Preferred Stock into 819,000 shares of Common Stock of the Company. As of July 31, 2023, no shares of Series B Preferred Stock remain outstanding.

During the three months ended July 31, 2023 and 2022, the Company paid dividends of $21,233 and $0, respectively.

During the six months ended July 31, 2023 and 2022, the Company paid dividends of $48,533 and $0 respectively.

F-17

Restricted Stock Units

 

During the ninesix months ended OctoberJuly 31, 2022,2023, the Company awarded the CEO a grant of 147,05939,733 restricted stock units (“RSUs”) to certain employees with aan aggregate grant date fair value of $200,00070,000. 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 areis satisfied, the RSUs will vest during September 2023, September 2024, September 2025 and September 2026. As of October 31, 2022, there were 147,059 unvested shares.

During the three and nine months ended October 31, 2022, the Company recognized share-based compensation related to restricted stock units of an aggregate of $7,671and unrecognized share-based compensation of $192,329.in equal installments over a three-year period.

 

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
  

Restricted

Stock Units

 

Weighted Average

Exercise Price

 
Unvested – February 1, 2022  14,000  $2.83 
Unvested – February 1, 2023  367,647  $1.36 
Granted  147,059  $1.36   39,773  $1.76 
Vested  -  $-   -  $- 
Forfeited  (14,000) $2.83   -  $- 
Outstanding – October 31, 2022  147,059  $1.36 
Outstanding – July 31, 2023  407,420  $1.40 

 

ForDuring the three and ninesix months ended OctoberJuly 31, 2021,2023, the Company recognized share-basedstock-based compensation related to restricted stock units of an aggregate of $37,083 and $18,93369,612, respectively, which was recorded to selling, general and administrative expense on the Condensed Consolidated Statement of Operations, and there was unrecognized stock-based compensation of $449,960 as of July 31, 2023 related to future vesting of restricted stock units.

F-20

 

Options

 

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

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 – October 31, 2022  689,000  $0.77 
Exercisable – October 31, 2022  539,000  $0.57 
  Options  

Weighted Average

Exercise Price

  

Weighted

Average

Remaining

Contractual Life

(in years)

  

 

 

Aggregate Intrinsic Value

 
Outstanding – February 1, 2023  689,000  $0.77   2.95  $544,760 
Granted  -  $-         
Exercised  206,000  $0.40         
Expired/forfeited  -   -         
Outstanding – July 31, 2023  483,000  $0.92   2.68  $1,347,410 
Exercisable – July 31, 2023  370,500  $0.75   1.55  $1,096,535 

 

During the three months ended July 31, 2023, there were 6,000

Summary options exercised at a weighted average exercise price of Option Outstanding$1.38 per share and Exercisable 

   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 1.48  689,000   2.57  $0.77   539,000  $0.57 

At October 31, 2022,resulted in the total intrinsic valueissuance of options outstanding and exercisable was6,000 shares of common stock. The Company received $257,3798,280. for the exercise of these options.

 

During the ninesix months ended OctoberJuly 31, 2022, the members of the board of directors and the CFO exercised2023, there were 130,000206,000 options exercised at ana weighted average exercise price of $1.000.40 per share and resulted in exchange forthe issuance of 57,093172,920 shares of common stock. The Company received $27,780

During for the nine months ended October 31, 2021, seven employees exercisedexercise of these options, as a totalportion of 200,000the options at an average exercise price of $0.81 per share for aggregate proceeds of $19,080 in exchange for 148,061 shares of common stock.were cashless exercised.

 

For the threesix months ended OctoberJuly 31, 20222023 and 2021,2022, the Company recognized share-basedstock-based compensation related to options of an aggregate of $15,95540,561 and $74812,333, respectively, which is included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations. For the nine months ended October 31, 2022 and 2021, the Company recognized share-based compensation related to options of an aggregate of $28,288 and $1,534, respectively, which is included in general and administrative expenses on the accompanying condensed consolidated statements of operations. At OctoberJuly 31, 2022,2023, there was unrecognized share-basedstock-based compensation related to the issuance of options of $144,11579,928.

 

F-18

Warrants

 

In conjunction with the Series B Preferred offering, the placement agent received one warrant for every $100 invested. The fair value of the warrants as of grant date was $16,520 and was valued using a Black-Scholes option pricing model using the following assumptions:

Schedule of Warrants Fair Value Assumption

September 13,
2022
Risk-free interest rate3.58%
Expected life of grants5 years
Expected volatility of underlying stock82.52%
Dividends0%

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

Schedule of Warrants Activity

  Warrants  Weighted Average
Exercise Price
 
Outstanding – February 1, 2022  -  $- 
Exercisable – February 1, 2022  -  $- 
Granted  11,800  $2.25 
Exercised  -  $- 
Outstanding – October 31, 2022  11,800  $2.25 
Exercisable – October 31, 2022  11,800  $2.25 
  Warrants  Weighted Average Exercise Price 
Outstanding – February 1, 2023  13,650  $2.25 
Exercisable – February 1, 2023  13,650  $2.25 
Granted  -  $ 
Exercised  13,650  $- 
Outstanding – July 31, 2023  -  $- 
Exercisable – July 31, 2023  -  $- 

 

ScheduleDuring the three months ended July 31, 2023, the Company issued 13,650 shares of Warrants Outstanding and Exercisablecommon stock upon the cashless exercise of the warrants.

   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   11,800   4.87  $2.25   11,800  $2.25 

At October 31, 2022, the total intrinsic value of warrants outstanding and exercisable was $0.

F-21

Note 10 - Commitments and Contingencies

Insurance Claim

The Company maintains insurance for both property damage and business interruption relating to catastrophic events, such as fires. Insurance recoveries received for property damage and business interruption in excess of the net book value of damaged assets, clean-up and demolition costs, and post-event costs are recognized as income in the period received or committed when all contingencies associated with the recoveries are resolved. Gains on insurance recoveries related to business interruption are recorded within “Cost of sales” and any gains or losses related to property damage are recorded within “Other income (expense)” on the condensed consolidated statements of income.

On December 7, 2020, the Company experienced a fire at its plant in a spiral oven. The spiral oven was rebuilt and was fully put back into service in late February 2021. The estimated loss was approximately $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 nine months ended October 31, 2021, the Company received $152,850 relating to business interruption insurance which was recorded as a component of costs of sales on the condensed 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 nine months ended October 31, 2022.

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, dated January 1, 2009, with Daniel Dougherty (the “Agreement”“License Agreement”). Under the terms of the License Agreement the Licensorlicensor shall exclusively 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 Licenseethe Company to develop Licensor Products that are acceptable to Licensee.the Company. 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 andthe License Agreement.

 

The Exclusive Termexclusive term began on January 1, 2009 (the “Effective Date”) and ends on the 50th anniversary of the Effective Date.

 

The Royalty Rate shall be:royalty rate payable by the Company is: 6% of net sales up to $500,000 of net sales (as defined in the agreement) for each Agreement year;year under the License Agreement; 4% of Net Salesnet sales from $500,000 up to $2,500,000 of Net Salesnet sales for each Agreement year;year under the License Agreement; 2% of Net Salesnet sales from $2,500,000 up to $20,000,000 of Net Salesnet sales for each Agreement year;year under the License Agreement; and 1% of Net Salesnet sales in excess of $20,000,000 of Net Salesnet sales for each Agreement year.year under the License Agreement.

F-22

 

In order to continue the Exclusive term,exclusivity, the Company shall pay a minimum royalty with respect to the preceding Agreement year as follows:of $125,000 each year.

 Schedule of Royalty Minimum Payment by Preceding Agreement Year

Agreement Year Minimum Royalty
to be Paid with
Respect to Such
Agreement Year
 
1st and 2nd $- 
3rd and 4th $50,000 
5th, 6th and 7th $75,000 
8th and 9th $100,000 
10th and thereafter $125,000 

 

The Company incurred approximately $116,912129,000 and $99,457125,000 of royalty expenses for the three months ended OctoberJuly 31, 20222023 and 2021,2022, respectively. The Company incurred approximately $391,887318,000 and $391,433275,000 of royalty expenses for the ninesix months ended OctoberJuly 31, 20222023 and 2021,2022, respectively. Royalty expenses are included in selling, general and administrative expenses on the condensed consolidated statementsCondensed Consolidated Statements 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, 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 nine months ended October 31, 2022, the Company paid Spartan $36,000 upon the consummation of CIF purchase.

AGES 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.

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 shall be responsible for payment of all expenses relating to the proposed offering, including but not limited to costs associated with the registration of any Common Stock which may be issued upon conversion of the Series B Convertible Preferred Stock.

Series B Preferred Shares to be Issued

During October 2022, the Company received net proceeds of $185,000 from accredited investors pursuant to the above Offering which has yet to close and the shares have yet to be issued. The funds received are to be used for working capital purposes. The outstanding amount as of October 31, 2022 was $185,000 and is shown as “Liability for Series B Preferred Shares to be issued, net” on the accompanying condensed consolidated balance sheets. On November 17, 2022, the Company held a final closing of its offering of Series B Preferred Stock, wherein it sold an additional 7,400 shares of Series B Preferred Stock for gross proceeds of $185,000.

F-23

Appointment of Chief Executive Officer

On June 21, 2022, the Board approved the appointment of Mr. Adam L. Michaels as the Company’s Chief Executive Officer and member of the Board of Directors, effective as of September 6, 2022. As compensation for his services, the Company shall pay Mr. Michaels an annual base salary of $325,000 for a 5-year period ending September 5, 2027. In addition to his base salary, Mr. Michaels is eligible for an annual bonus and equity awards. These equity awards include annual restricted stock units, sign on stock units, performance stock units and profit-sharing units which will vest as defined in the employment agreement.

Appointment of Chief Financial Officer

On September 12, 2022, the Board approved the appointment of Mr. Anthony J. Gruber as the Company’s Chief Financial Officer, effective as of September 12, 2022. As compensation for his services, the Company shall pay Mr. Gruber an annual base salary of $250,000 for a 5-year period ending September 11, 2027. In addition to his base salary, Mr. Gruber is eligible for an annual bonus and equity awards. These equity awards include performance stock units which will vest as defined in the employment agreement.Operations.

 

Note 11 –Leases

We account for leases in accordance with ASC 842 “Leases” (“ASC 842”). We determine whether an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys the right to control the use of an identified fixed asset explicitly or implicitly for a period of time in exchange for consideration.

We have operating leases for offices and other facilities used for our operations. We also have finance leases comprised primarily of machinery and equipment. Our leases have remaining lease terms of approximately 1 year to 8.25 years.

F-19

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

Schedule of Supplemental Cash Flow and Other Information Related to Leases

  July 31, 2023  July 31, 2022 
Cash paid for amounts included in the measurement of lease liabilities        
Operating cash flows from operating leases $(134,862) $(176,534)
Financing cash flows from finance leases  (92,724)  (130,626)

The following table shows the weighted average lease term and weighted average discount rate for our ROU assets:

  July 31, 2023  January 31, 2023 
Weighted average remaining lease term (in years)        
Operating leases  7.00   7.50 
Finance leases  4.28   2.60 
         
Weighted average discount rate:        
Operating leases  4.85%  4.85%
Finance Leases  5.86%  3.41%

Maturities of lease liabilities for each of the succeeding fiscal years are as follows:

Schedule of Future Minimum Payments Required Under Maturities of Lease Liabilities

For the Twelve months ended January 31,   
2024 $486,910 
2025  951,205 
2026  847,464 
2027  691,145 
2028  713,501 
Thereafter  1,454,059 
Total lease payments $5,144,284 
Less: amounts representing interest  (748,544)
Total lease obligations $4,395,740 

Note 12 - Income TaxesTax Provision

 

The Company’s effective tax rate for the three and ninesix months ending OctoberJuly 31, 20222023 is 21.819.8%% and 22.423.2%%, respectively.. Differences with statutory rate primarily relate to state taxes. Deferred tax assets are net operating loss carryforwards and other assets.

 

Deferred taxes are caused primarily by net operating loss carryforwards. U.S. Tax Legislation enacted in 2017 (the “TCJA”) has significantly changed certain aspects of U.S. federal income taxation. Net Operating Losses (“NOLs”) generated in 2017 and prior years can be carried forward for 20 years. NOLs generated in 2018 – 2020, as enacted by the CARES Act, can be carried forward indefinitely. However, NOLs generated in 2021 are also carried forward indefinitely but limited to 80% of taxable income.income.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. There was no valuation allowance as of OctoberJuly 31, 20222023 or January 31, 2022.2023.

 

The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

 

The actual yearly tax rate will vary due to numerous factors, such as level and geographic mix of income and losses, acquisitions, investments, intercompany transactions, our stock price, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework and other laws and accounting rules in various jurisdictions

Note 12 – Subsequent Events

On November 17, 2022, the Company held a final closing of its offering of Series B Preferred Stock, wherein it sold an additional 7,400 shares of Series B Preferred Stock for gross proceeds of $185,000.jurisdictions.

 

F-24F-20

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD- LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” DETAILED IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K, OTHER PRIOR COMPANY FILINGS AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.

 

Results of Operations for the Quarter ended OctoberThree Months Ended July 31, 20222023 and 20212022

 

The following table sets forth the summary of the condensed consolidated statements of operations for the quarterthree months ended OctoberJuly 31, 20222023 and 2021:2022:

 

 For the Three Months Ended  For the Three Months Ended 
 October 31, 2022  October 31, 2021  July 31, 2023  July 31, 2022 
          
Sales - Net of Slotting Fees and Discounts $25,693,913  $10,852,682 
Net Sales $24,790,085  $22,846,474 
Cost of Sales $17,283,847  $20,119,862 
Gross Profit $6,564,206  $2,645,743  $7,506,238  $2,726,612 
Operating Expenses $(5,065,645) $(2,644,542) $5,230,408  $3,557,907 
Other Expenses $(186,859) $(8,731) $(179,739) $(139,483)
Income Tax Benefit (Provision) $(285,686) $2,075 
Income from equity method investment in Chef Inspirational $71,924  $- 
Income Tax (Provision) Benefit $(429,764) $208,992 
Income from equity method investment in Chef Inspirational Foods, LLC $77,584  $18,540 
Net Income (Loss) $1,097,940  $(5,455) $1,743,911  $(743,246)

 

For the quartersthree months ended OctoberJuly 31, 20222023 and 2021,2022, the Company reported net income (loss) of $1,097,940$1,743,911 and $(5,455)a net loss of $(743,246), respectively. The change in net income (loss) between the quarterthree months ended OctoberJuly 31, 20222023 and 20212022 reflects strong sales, andsuccessful pricing actions, same-customer cross-selling, product additions, normalization of costs for commodities, and as other materials, and freight as well asefficiencies and other improvements in manufacturing efficiencies.execution.

 

Sales:Net sales: Net Sales net of slotting fees and discounts increased by approximately 137%9% to $25,693,913$24,790,085 during the quarterthree months ended OctoberJuly 31, 2022,2023, from $10,852,682$22,846,474 during the quarterthree months ended OctoberJuly 31, 2021. Sales included the third full quarter from2022. The increase in sales is due to both volume gains and successful pricing actions. Volume gains were driven by the acquisition of T&L Creative Salads, Inc.new customers, same-customer cross-selling, the acquisition of CIF, and Olive Branch LLC in December 2021. During the quarter ended October 31, 2022, MamaMancini’s Inc. and T&L Salads continued to successfully accelerate product portfolio synergies by adding new T&L products to existing MamaMancini’s customers in both club stores and retail chains in addition to increasing the average SKU’s carried per location.additions.

 

Cost of sales: Cost of sales decreased by approximately 14% to $17,283,847 during the three months ended July 31, 2023, from $20,119,862 during the three months ended July 31, 2022. The decrease in cost of sales is due to improvements in procurement and manufacturing efficiencies and normalization of costs for commodities.

Gross Profit:Profit Margin: The gross profit margin was 26%30% and 24%12% for the quartersthree months ended OctoberJuly 31, 20222023 and 2021,2022, respectively. The quarterchange in gross profits between the three months ended OctoberJuly 31, 2023 and 2022 marks the returnis due to normalcy of target margins based on improvedsuccessful pricing actions, improvements in procurement, manufacturing and strong sales growth. The Company continues to identify procurementlogistics efficiencies and cost savings through stronger buying power created through the acquisitionsnormalization of T&L Creative Salads and Olive Branch.costs for commodities.

 

Operating Expenses: Operating expenses increased by 92%47% during the quarterthree months ended OctoberJuly 31, 2022,2023, as compared to the quarterthree months ended OctoberJuly 31, 2021.2022. Operating expenses decreasedincreased as a percentage of sales to 20%21% in 20222023 compared to 24%16% in 2021.2022. The $2,421,103$1,672,501 increase in total operating expenses is primarily attributable to the following:

 

Payroll and Related Expenses roseinclusive of stock-based compensation increased by $659,941approximately $1,000,000 related to executive and office hires;
Insurance Expenses increased by approximately $395,000 due to the executive hires, incremental costs associated withgrowth of the Company and increases in coverage, including enhanced cyber security;
Professional fees and director fees increased by approximately $135,000 due to the growth of the Company and the use of consultants for upgrades for manufacturing efficiencies as well as information technology integration;
Amortization of intangible assets increased by approximately $85,000 due to the acquisition of T&L Creative Salads management and office salaries;CIF;
  
Commission Expenses rose $253,144and Royalty Expenses decreased by approximately $39,000 due to increased sales;

Allowance for Doubtful Accounts rose by $245,354 due to our anticipation of increasing macroeconomic risk;

Professional Fees rose $158,448 due to higher third-party accounting and technical expertise and auditing fees related toproduct mix sold during the additional complexity of the acquisitions;period; and
  
Freight charges rose $110,153related expenses decreased by approximately $220,000 due to increased Finished Goods transportation rate increasesthe addition of dedicated logistics employees and fuel surcharges.capabilities

2

 

Other Income (Expenses):Expenses: Other expenses increased by $178,128$40,256 to $186,859$179,739 for the quarterthree months ended OctoberJuly 31, 20222023 as compared to $8,731 during$139,483 for the quarterthree months ended OctoberJuly 31, 2021.2022. For the quarterthree months ended OctoberJuly 31, 2022,2023, other income (expenses) consisted of $183,844$181,658 in interest expense on the Company’s financing arrangements and $5,530 in amortization of debt discount partially offset by $7,449 in other income. For the three months ended July 31, 2022, other expenses consisted of $139,064 in interest expense incurred on the Company’s financing arrangements and $3,015 in amortization of debt discount. For the three months ended October 31, 2021,discount and other expenses consistedincome of $8,731 in interest expense incurred on the Company’s financing arrangements.$2,596.

 

1

Results of Operations for the NineSix Months ended OctoberEnded July 31, 20222023 and 20212022

 

The following table sets forth the summary of the condensed consolidated statements of operations for the ninesix months ended OctoberJuly 31, 20222023 and 2021:2022:

 

  For the Nine Months Ended 
  October 31, 2022  October 31, 2021 
       
Sales - Net of Slotting Fees and Discounts $70,370,967  $33,230,666 
Gross Profit $12,986,014  $9,223,746 
Operating Expenses $(12,057,775) $(7,785,433)
Other Income (Expenses) $(454,233) $10,994 
Income Tax Provision $(106,079) $(391,313)
Income from equity method investment in Chef Inspirational $90,464  $- 
Net Income $458,391  $1,057,994 
  For the Six Months Ended 
  July 31, 2023  July 31, 2022 
       
Net Sales $47,910,901  $44,677,054 
Cost of Sales $34,033,663  $38,090,179 
Gross Profit $13,877,238  $6,586,875 
Operating Expenses $9,658,624  $7,157,197 
Other Expenses $(342,663) $(267,374)
Income Tax (Provision) Benefit $(954,456) $179,607 
Income from equity method investment in Chef Inspirational Foods, LLC $223,342  $18,540 
Net Income (Loss) $3,144,837  $(639,549)

 

For the ninesix months ended OctoberJuly 31, 20222023 and 2021,2022, the Company reported net income of $458,391$3,144,837 and $1,057,994,a net loss of $(639,549), respectively. The change in net income between the ninesix months ended OctoberJuly 31, 2023 and 2022 and 2021 reflects the challengesstrong sales, successful pricing actions, same-customer cross-selling, product additions, normalization of cost inflation ofcosts for commodities, packagingas well as other materials, and freight outpacing price increases from February through July 2022 offset by cost normalizationefficiencies and improved pricing models from August through October 2022.other improvements in manufacturing execution.

 

Net Sales: Net Sales,sales, net of slotting fees and discounts increased by approximately 112%7% to $70,370,967$47,910,901 during the ninesix months ended OctoberJuly 31, 2022,2023, from $33,230,666$44,677,054 during the ninesix months ended OctoberJuly 31, 2021. Sales included the first full nine months from2022. The increase in sales is due to both volume gains as well as successful pricing actions. Volume gains were driven by the acquisition of T&L Creative Salads, Inc.new customers, same-customer cross-selling, the acquisition of CIF, and Olive Branch LLC in December 2021. Sales for MamaMancini’s, Inc. grew moderately across all channelsproduct additions.

Cost of sales: Cost of sales decreased by approximately 11% to $34,033,663 during the ninesix months ended OctoberJuly 31, 2022 versus2023, from $38,090,179 during the prior year comparative period. During the ninesix months ended OctoberJuly 31, 2022, MamaMancini’s Inc.2022. The decrease in cost of sales is due to improvements in procurement and T&L Salads continued to gain product portfolio synergies by adding new products to existing customers in both club storesmanufacturing efficiencies and retail chains.normalization of costs for commodities.

 

Gross Profit:Profit Margin: The gross profit margin was 18%29% and 15% for the ninesix months ended OctoberJuly 31, 2023 and 2022, compared to 28% forrespectively. The change in gross profits between the quarter ended October 31, 2021. The T&L Creative Salads and Olive Branch LLC acquisition created a different financial model with lower gross margin percentage yet comparable Operating Income margins. In addition, for the first six months inflationended July 31, 2023 and 2022 is due to successful pricing actions, improvements in procurement, manufacturing and logistics efficiencies and normalization of raw materials, packaging and freight costs temporarily out-paced price increases which dissipated in the final 3 months of the quarter.for commodities.

 

Operating Expenses: Operating expenses increased by 55%35% during the ninesix months ended OctoberJuly 31, 2022,2023, as compared to the ninesix months ended OctoberJuly 31, 2021.2022. Operating expenses decreasedincreased as a percentage of sales to 17%20% in 20222023 compared to 23%16% in 2021.2022. The $4,272,342$2,501,427 increase in total operating expenses is primarily attributable to the following:

 

Payroll and Related Expenses roseinclusive of stock-based compensation increased by $1,198,146approximately $1.7 million related to the acquisition of T&L Creative Salads managementexecutive and office salaries, newly hired executives, additional accounting staff at MamaMancini’s and severance pay;hires;
  
Freight charges rose $611,733Insurance Expenses increased by approximately $469,000 due to increased Finished Goods transportation ratethe growth of the Company and increases and fuel surcharges;in coverage, including enhanced cyber security;
  
Professional Fees rose $571,496fees and director fees increased by approximately $111,000 due to one-time legal fees associated with investment in Chef Inspirational Foods, higher Auditing Feesthe growth of the Company and third-party accounting/technical expertise relatedthe use of consultants for upgrades for manufacturing efficiencies as well as information technology integration;
Amortization of intangible assets increased by approximately $74,000 due to the additional complexityacquisition of the acquisitions;CIF;
  
Commission and Royalty Expenses rose $480,986increased by approximately $133,000 due to increased sales; and
  
Insurance Expenses rose $310,627Freight related expenses decreased by approximately $460,000 due to account for the acquisitionaddition of T&L Creative Saladsdedicated logistics employees and Olive Branch LLC.capabilities;

 

Other Income (Expenses):Expenses: Other expenses changedincreased by $465,227$75,289 to $(454,233)$342,663 for the ninesix months ended OctoberJuly 31, 20222023 as compared to income of $10,994 during$267,374 for the ninesix months ended OctoberJuly 31, 2021.2022. For the ninesix months ended OctoberJuly 31, 2022,2023, other income (expenses) consisted of $447,259$359,052 in interest expense on the Company’s financing arrangements $9,670and $11,060 in amortization of debt discount and $2,596 ofpartially offset by $27,449 in other income. For the ninesix months ended OctoberJuly 31, 2021,2022, other income (expenses)expenses consisted of $(26,710)$263,315 in interest expense incurred on the Company’s financing arrangements which was offset by the net insurance proceeds relating to the property damage claimand $6,655 in amortization of $37,704.debt discount and $2,596 of other income.

 

2

Liquidity and Capital Resources

We finance our operations with internally generated funds, supplemented by credit arrangements with third parties and, potentially, capital market financing.

3

Working Capital

 

The following table summarizes total current assets, liabilities and working capital at OctoberJuly 31, 20222023 compared to January 31, 2022:2023:

 

 October 31,
2022
  January 31,
2022
  Change  

July 31,

2023

  January 31, 2023  Change 
Current Assets $14,316,080  $11,638,317  $2,677,763  $18,186,746  $15,674,701  $2,512,045 
Current Liabilities $11,151,225  $8,985,128  $2,166,097   13,075,340   11,879,091   1,196,249 
Working Capital $3,164,855  $2,653,189  $511,666  $5,111,406  $3,795,610  $1,315,796 

 

As of OctoberJuly 31, 2022,2023, we had working capital of $3,164,855$5,111,406 as compared to working capital of $2,653,189$3,795,610 as of January 31, 2022,2023, an increase of $511,666.$1,315,796. The increase in working capital is primarily attributable to an increase in cash of $2,628,689,approximately $1,200,000, and an increase of inventoriesaccounts receivables of $673,166 based on robust sales increases,approximately $2,000,000, partially offset by an increase in prepaid expensesrelated party promissory notes of $110,926 andapproximately $1,200,000, a decreasesdecrease in the short term portioninventory of finance lease payable of $37,954 offset by better cash managementapproximately $327,000 and a decrease in accounts receivableprepaid expenses and other current assets of $735,018, an increase$354,000.

Long Term Requirements

As discussed above, as of July 31, 2023, we have $500,000 outstanding under our Credit Agreement and $5,431,042 outstanding under our Term Loan Agreement, each with M&T Bank. The Credit Agreement and Term Loan Agreement have maturity dates of October 31, 2025 and January 17, 2027, respectively. In addition to a principal payment in accounts payableDecember 2023, we will be required to make two additional payments of $750,000 (plus accrued interest) on each of December 29, 2024 and accrued liabilities2025 pursuant to promissory notes issued to the sellers of $1,586,609, an increaseT&L and Olive Branch, as discussed in Item 1. Note 6. We also have operating leases for offices and other facilities used for our operations, and finance leases comprised primarily of machinery and equipment, as discussed in Note 11. Our Farmingdale, NY lease term is through November 30, 2031, with the term loanoption to extend the lease for two additional ten-year terms with base rent of $267,665, an increase in$20,200 per month through December 31, 2026, increasing after that date to $23,567 through the short term portionend of the operatinginitial lease payableterm, refer to Item 1. Note 6 for additional information.

Cash Flows

The following table summarizes the key components of $85,524, an increase inour cash flows for the related party promissory note of $79,253six months ended July 31, 2023 and the receipt of proceeds from the Series B Preferred Stock to be issued of $185,000.2022.

  For the Six Months Ended July 31, 
  2023  2022 
  USD  USD 
Net cash provided by operating activities $3,359,627  $232,978 
Net cash (used in) investing activities  (898,494)  (805,547)
Net cash (used in) provided by financing activities  (1,279,340)  1,618,383 
Net changes in cash  1,181,793   1,045,814 
Cash, beginning of period  4,378,383   850,598 
Cash, end of period $5,560,176  $1,896,412 

 

Net cash provided by operating activities for the ninesix months ended OctoberJuly 31, 20222023 was $3,184,020$3,359,627 compared to net cash provided by operating activities for the ninesix months ended OctoberJuly 31, 20212022 of $2,132,797.$232,978. The net income (loss) for the ninesix months ended OctoberJuly 31, 2023 and 2022 was $3,144,837 and 2021 was $458,391 and $1,057,994,$(639,549), respectively. During the ninesix months ended OctoberJuly 31, 2023, net income was affected by non-cash adjustments of $1,568,559 and by changes in operating activities which used cash of $(1,353,769). During the six months ended July 31, 2022, net income was affected by non-cash adjustments to net income of $1,371,694 and$679,868 offset by changes in operating activities which provided cash of $1,353,935. During the nine months ended October 31, 2021, net income was affected by adjustments to net income of $1,139,159 offset by changes in operating activities which used cash of $64,356.$192,659.

 

Net cash used in investing activities for the ninesix months ended OctoberJuly 31, 20222023 was $1,007,547$(898,494) as compared to $657,607$(805,547) for the ninesix months ended OctoberJuly 31, 2021,2022, respectively. For the ninesix months ended OctoberJuly 31, 2022,2023, the Company used cash of $507,547$252,853 to purchase new machinery and equipment. In addition, the Company paid cash of $500,000equipment and used $645,641 for the acquisition of a 24% minoritythe remaining interest in Chef Inspirational Foods, Inc.of CIF. For the ninesix months ended OctoberJuly 31, 2021,2022, the cash used in investing activities of $305,547 was to purchase new machinery and equipment.equipment and $500,000 was used to purchase a 24% interest in CIF.

 

Net cash provided by all financing activities for the nine months ended October 31, 2022 was $452,216 as compared to $125,830 used in financing activities for the ninesix months ended OctoberJuly 31, 2021.2023 was $(1,279,340) as compared to $1,618,383 provided by financing activities for the six months ended July 31, 2022. During the ninesix months ended OctoberJuly 31, 2022,2023, the Company received net proceedshad repayments of $225,000$390,000 from borrowings pursuant to the line of credit, which were offset by payments of the acquisition related term loan and finance lease payments of $905,172$775,863, and $190,349, respectively, and payment of offering costs of $57,200.$92,724, respectively. In addition, during the ninesix months ended OctoberJuly 31, 2022,2023, the Company received proceeds of $26,250$27,780 for the exercise of options and $1,365,000 from the first and second tranches of the sale of Series B Convertible Preferred Stock, of which $185,000 was received in advance of share issuance.options. During the ninesix months ended OctoberJuly 31, 2022,2023, the Company paid dividends on the Series B Preferred stock of $11,313. $48,533. During the ninesix months ended OctoberJuly 31, 2021,2022, the Company received net proceeds of $19,080$1,725,000 from borrowings pursuant to the line of credit and $515,000 from the exercisesale of options. These cash in-flowsSeries B Preferred Stock, which were offset by payments of $144,910 paid forthe term loan and finance lease payments.payments of $517,241 and $130,626, respectively.

4

 

Although the expected revenue growth and control of expenses lead management to believe that it is probable that the Company’s cash resources will be sufficient to meet its cash requirements through December 12, 2023,at least the next twelve months, based on current and projected levels of operations, the Company may require additional funding to finance growth andor achieve its strategic objectives. If such financing is required, there can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In the event funding is not available on reasonable terms, the Company might be required to change its growth strategy and/or seek funding on an alternative basis, but there is no guarantee it will be able to do so.

 

3

Recent Accounting Pronouncements

 

In May 2021, the FASB issued accounting standards update ASU 2021-04, “Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options”, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company adopted the new standard on February 1, 2022 and the adoptionAs of the new standard did not have afiling date of this report, there were no significant impact on the Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accountingchanges in our critical accounting estimates from those discussed in our 2023 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of January 1, 2024.

Management does not believe that any recentlypronouncements issued but not yet effective accounting pronouncements, when adopted will have a material effect onthat may impact the accompanying condensedCompany’s consolidated financial statements.position, earnings, cash flows or disclosures.”

 

Critical Accounting Estimates and Policies

 

Our condensed consolidated financial statements and related public financial information are based onAs of the applicationfiling date of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information containedthis report, there were no significant changes in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use ofcritical accounting estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 3 of our condensed 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 ondiscussed in our consolidated results2023 Form 10-K. See Note 2 of operations, financial position or liquidityNotes to Unaudited Condensed Consolidated Financial Statements for the periods presented in this report.

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

4

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: allowance for doubtful accounts, inventory obsolescence and the fair value of share-based payments.

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

Intangible Assets

Software

The Company accounts for acquired internal-use software licenses and certain costs within the scope of ASC 350-40, Intangibles - Goodwill and Other - Internal-Use Software as intangible assets. The Company capitalized $87,639 of costs incurred in the nine months ended October 31, 2022 to implement cloud computing arrangements. Acquired internal-use software licenses are amortized over the term of the arrangement on a straight-line basis to the line item within the condensed consolidated statements of operations that reflects the nature of the license.

Additionally, the Company evaluates its accounting for fees paid in an agreement to determine whether it includes a license to internal-use software. If the agreement includes a software license, the Company accounts for the software license as an intangible asset. Acquired software licenses are recognized and measured at cost, which includes the present value of the license obligation if the license is to be paid for over time. If the agreement doespronouncements issued but not include a software license, the Company accounts for the arrangement as a service contract (hosting arrangement) and hosting costs are generally expensed as incurred.

Goodwill

The Company does not amortize goodwill or indefinite-lived intangible assets. The Company tests goodwill for impairment annually as of April 30 or if an event occurs or circumstances change that indicate that the fair value of the entity, or the reporting unit, may be below its carrying amount (a “triggering event”). Whenever events or circumstances change, entities have the option to first make a qualitative evaluation about the likelihood of goodwill impairment. If impairment is deemed more likely than not, management would perform the two-step goodwill impairment test. Otherwise, the two-step impairment test is not required. In assessing the qualitative factors, the Company assessed relevant events and circumstancesyet adopted that may impact the fair value and the carrying amount of the reporting unit. The identification of the relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgements and assumptions. The judgement and assumptions include the identification of macroeconomic conditions, industry and market considerations, overallCompany’s consolidated financial performance, Company specific events and share price trends, an assessment of whether each relevant factor will impact the impairment test positively or negatively, and the magnitude of an such impact.position, earnings, cash flows.

If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

Management evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated remaining useful life.

Other Intangibles

Amortizable intangible assets, including tradenames and trademarks, are amortized on a straight-line basis over 3 years. Customer relationships are amortized on a straight-line basis over 4 to 5 years.

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Revenue Recognition

The Company recognizes revenue in accordance with FASB Topic 606, Revenue from Contracts with Customers (Topic 606).

The Company’s sales predominantly are generated from the sale of finished products to customers, contain a single performance obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Typically, this occurs when the goods are shipped to the customer. Revenues are recognized in an amount that reflects the net consideration the Company expects to receive in exchange for the goods. The Company reports all amounts billed to a customer in a sale transaction as revenue. Under the new revenue guidance, the Company elected to treat shipping and handling activities as fulfilment activities, and the related costs are recorded as selling expenses in general and administrative expenses on the condensed consolidated statement of operations.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans in accordance with ASC 718.

The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

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

When computing fair value of share-based payments, the Company has considered the following variables:

The risk-free interest rate assumption is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant.
The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110.
The term is the life of the grant.
The expected volatility was estimated using the historical volatilities of the Company’s common stock.
The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%.

Advertising

Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Smaller reporting companies are not required to provide the information required by this item.Not applicable.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Based on evaluationThe Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the 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 ofamended (the “Exchange Act”) is recorded, processed, summarized and reported within the end oftime periods specified in the period covered by this Form 10-Q,SEC’s rules and forms. Our 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 our Chief Executive Officer and Chief Financial Officer, who serves as our principal executive officer and our principal financial officer, respectively, 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.

As of July 31, 2023, we evaluated, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as definedwere effective, at the reasonable assurance level, in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensureensuring that information required to be disclosed by us in reportthe reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’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.

As of period covered by this Quarterly Report on Form 10-Q, we have concluded that our internal control over financial reporting was not effective including the following material weakness:

1)Lacked sufficient accounting staff to appropriately segregate duties and leverage decision makers to consolidate new entities and complete timely reporting of financial data;

2)Lacked sufficient orientation and experience with new ERP systems platform which hindered productivity and required additional supervision delaying timely reporting of financial statements.

(b) Remedial Measures

On September 19, 2022, the Company hired a well-qualified Chief Financial Officer (Anthony Gruber), with significant experience in financial reporting and controls, who reports to the Chief Executive Officer. Effective December 12, 2022, the Company has additionally hired a well-qualified and experienced Corporate Controller with substantial public company experience. The CFO and Controller will be leading a thorough review of the Company’s financial and disclosure controls. In addition, they will focus on the completion of the implementation of the Company’s new financial reporting system.

(c) Changes in Internal Control over Financial Reporting

 

Other than the above, thereThere were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act Rule 13a-15, that occurred during our most recently completed fiscallast quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, we may be involved in litigation incidental to the conduct of our business. We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

Smaller reporting companiesIn addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations which are discussed below and under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended January 31, 2023.

Risks Related to our Business

We have a limited history of profitability.

Since inception on February 22, 2010 and through January 31, 2023, we had raised approximately $22,724,000 in capital. During this same period, we have recorded net accumulated losses totaling $(10,060,226). As of January 31, 2023, we had working capital of $3,795,610. our net income (loss) for the two most recent fiscal years ended January 31, 2023 and January 31, 2022 have been $2,302,674 and $(251,926). Our ability to achieve continued profitability depends upon many factors, including our ability to develop and commercialize products. There can be no assurance that we will be able to achieve growth and profitability consistent with historical performance.

We will need additional capital, which may be difficult to raise for a variety of reasons.

While we believe that we have adequate financing to execute our current growth plan, in the case that we exceed our expected growth, we will need to raise additional capital and/or significantly cut expenses and overhead in order to operate the business through such date. Currently, we have no plan to raise additional capital, and our access to funding is always uncertain. There is no assurance that additional equity or debt financing will be available to us when needed, on acceptable terms or even at all. In the event that we are not able to secure financing, we may have to scale back our development plans or operations.

The majority of our business depends on a limited number of principal customers.

Because we depend on a limited number of customers for a significant portion of our sales, a loss of a small number of these customers could materially adversely affect our business and financial condition. During the twelve months ended January 31, 2023, the Company earned revenues from two customers representing approximately 25%, and 13% of gross sales. As of January 31, 2023, three customers represented approximately 20%, 15% and 11%, of total gross outstanding receivables, respectively. During the twelve months ended January 31, 2022, the Company earned revenues from three customers representing approximately 26%, 21% and 11% of gross sales. As of January 31, 2022, three customers represented approximately 11%, 10% and 7% of total gross outstanding receivables. If these principal customers cease ordering products from us, our business could be materially adversely affected.

Competitive product and pricing pressures in the food industry and the financial condition of customers and suppliers could adversely affect our ability to gain or maintain market share and/or profitability.

We currently operate in the highly competitive food industry, competing with other companies that have varying abilities to withstand changing market conditions. Any significant change in our relationship with a major customer, including changes in product prices, sales volume, or contractual terms may impact financial results. Such changes may result because our competitors may have substantial financial, marketing, and other resources that may change the competitive environment. If we are unable to establish economies of scale, marketing expertise, product innovation, and category leadership positions to respond to changing market trends, or if we are unable to increase prices while maintaining a customer base, our profitability and volume growth could be impacted in a materially adverse way. The success of our business depends, in part, upon the financial strength and viability of our suppliers and customers. The financial condition of those suppliers and customers is affected in large part by conditions and events that are beyond our control. A significant deterioration of their financial condition would adversely affect our financial results.

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We face competition from companies who produce similar products and other prepared foods, many of whom have longer operating histories or who have substantially more financial resources.

Many of our competitors have been in business for a significantly longer period of time than we have and have learned manufacturing techniques which can aid in efficiently producing their products. Additionally, many of these companies have successfully acquired a loyal customer base that would be difficult for us to compete with. Such customers may be unwilling to purchase our products due to brand loyalty or uncertainty in the highly competitive market in which we compete. In addition, if we gain traction in our particular niche of creating gourmet prepared foods, major food companies with substantial marketing and financial resources may attempt to compete more directly with us. In the event that such large companies do directly compete with us, our business may be adversely affected.

Our operations are subject to regulation by the U.S. Food and Drug Administration (“FDA”), U.S. Department of Agriculture (“USDA”), Federal Trade Commission (“FTC”) and other governmental entities and such regulations are subject to change from time to time which could impact how we manage our production and sale of products. Federal budget cuts could result in furloughs for government employees, including inspectors and reviewers for our supplier’s plants and products which could materially impact our ability to manufacture regulated products.

Our food products which are manufactured in facilities that are subject to extensive regulation by the FDA, the USDA and other national, state, and local authorities. For example, 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’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 the Company change its existing recipes to include ingredients that do not meet the USDA’s definition/ of “all natural”, our results of operations could be adversely affected.

The FTC and other authorities regulate how we market and advertise our products, and 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.

The need for and effect of product recalls could have a material adverse impact on our business.

If any of our products become misbranded or adulterated, we may need to conduct a product recall. The scope of such a recall could result in significant costs incurred as a result of the recall, potential destruction of inventory, and lost sales. Should consumption of any product cause injury and/or illness, we also may be liable for monetary damages as a result of one or more product liability judgments against us. A significant product recall or product liability case could cause a loss of consumer confidence in our food products and could have a material adverse effect on the value of our brand, results of operations and prospects.

We may be subject to significant liability if the consumption of any of our products causes illness or physical harm.

The sale of food products for human consumption involves the risk of injury or illness to consumers. Such injuries or illness may result from inadvertent mislabeling, tampering or product contamination or spoilage. Under certain circumstances, we may be required to recall or withdraw products, which may have a material adverse effect on our business. Even if a situation does not necessitate a recall or market withdrawal, product liability claims may be asserted against us. If the consumption of any of our products causes, or is alleged to have caused, a health-related illness, we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful, the negative publicity surrounding any assertion that our products caused illness or physical harm could adversely affect our reputation with existing and potential distributors, retailers and consumers and our corporate image and brand equity. Moreover, claims or liabilities of this sort might not be covered by insurance or by any rights of indemnity or contribution that we may have against others. A product liability judgment against us or a product recall or market withdrawal could have a material adverse effect on our business, reputation and operating results.

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The impact of various food safety issues, environmental, legal, tax, and other regulations and related developments could adversely affect our sales and profitability.

Our products are subject to numerous food safety and other laws and regulations regarding the manufacturing, marketing, and distribution of food products, particularly the USDA, and state and local agencies. These regulations govern matters such as ingredients, advertising, taxation, relations with distributors and retailers, health and safety matters, and environmental concerns. The ineffectiveness of our or our manufacturer’s planning and policies with respect to these matters, and the need to comply with new or revised laws or regulations with regard to licensing requirements, trade and pricing practices, environmental permitting, or other food or safety matters, or new interpretations or enforcement of existing laws and regulations, as well as any related litigation, may have a material adverse effect on our sales and profitability.

Increases in the cost and restrictions on the availability of raw materials could adversely affect our financial results.

Our products include agricultural commodities such as tomatoes, onions, and meats and other items such as spices and flour, as well as packaging materials such as plastic, metal, paper, fiberboard, and other materials and inputs such as water, in order to manufacture products. The availability or cost of such commodities may fluctuate widely due to government policy and regulation, crop failures or shortages due to plant disease or insect and other pest infestation, weather conditions, potential impact of climate change, increased demand for biofuels, or other unforeseen circumstances. To the extent that any of the foregoing or other unknown factors increase the prices of such commodities or materials and we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes, the results of its operations could be materially and adversely affected. Similarly, if supplier arrangements and relationships result in increased and unforeseen expenses, our financial results could be materially and adversely impacted.

Disruption of our supply chain could adversely affect our business.

Damage or disruption to our manufacturing or distribution capabilities due to weather, natural disaster, fire, terrorism, pandemic, strikes, the financial and/or operational instability of key suppliers, distributors, warehousing and transportation providers, or brokers, or other reasons could impair our ability to manufacture or sell our products. To the extent that we are unable to, or cannot financially mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is sourced from a single location, our business and results of operations may be materially adversely affected, and additional resources could be required to restore our supply chain.

Higher energy costs and other factors affecting the cost of producing, transporting, and distributing our products could adversely affect our financial results.

Rising fuel and energy costs may have a significant impact on our cost of operations, including the manufacture, transportation, and distribution of products. Fuel costs may fluctuate due to a number of factors outside of our control, including government policy and regulation and weather conditions. Additionally, we may be unable to maintain favorable arrangements with respect to the manufacturing costs of our products as a result of the rise in costs of procuring raw materials and transportation by our manufacturers. This may result in increased expenses and negatively affect operations.

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

During the course of testing our disclosure controls and procedures and internal control over financial reporting, we may identify and disclose material weaknesses or significant deficiencies in internal control over financial reporting that will have to be remedied. Implementing any appropriate changes to our internal control may require specific compliance training of our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of our internal control over financial reporting, and any failure to maintain that adequacy or inability to produce accurate financial statements on a timely basis could result in our financial statements being unreliable, increase our operating costs and materially impair our ability to operate our business.

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Failure to achieve and maintain effective internal control over financial reporting could result in a loss of investor confidence in our financial reports and could have a material adverse effect on our stock price. Additionally, failure to maintain effective internal control over our financial reporting could result in government investigation or sanctions by regulatory authorities.

Global economic uncertainties continue to affect consumers’ purchasing habits and customer financial stability, which may affect sales volume and profitability on some of our products and have other impacts that we cannot fully predict.

As a result of continuing global economic uncertainties, price-conscious consumers may replace their purchases of our premium and value-added products with lower-cost alternatives, which could affect the price and volume of some of these products. The volume or profitability of our products may be adversely affected if consumers are reluctant to pay a premium for higher quality foods or if they replace purchases of our products with cheaper alternatives. Additionally, distributors and retailers may become more conservative in response to these conditions and seek to reduce their inventories. Our results of operations depend upon, among other things, our ability to maintain and increase sales volume with our existing distributors and retailers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Prolonged unfavorable economic conditions may have an adverse effect on our sales and profitability.

We rely on key personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

Our success depends in large part upon the informationabilities and continued service of our executive officers and other key employees, particularly Mr. Adam L. Michaels, our Chief Executive Officer and Chairman and Anthony Gruber, our Chief Financial Officer. There can be no assurance that we will be able to retain the services of such officers and employees. Our failure to retain the services of our key personnel could have a materially adverse effect on our business. In order to support our projected growth, we will be required to effectively recruit, hire, train and retain additional qualified management personnel. Our inability to attract and retain necessary personnel could have a materially adverse effect on our business.

The failure of new product or packaging introductions to gain trade and consumer acceptance and address changes in consumer preferences could adversely affect our sales.

Our success is dependent upon anticipating and reacting to changes in consumer preferences, including health and wellness. There are inherent marketplace risks associated with new product or packaging introductions, including uncertainties about trade and consumer acceptance. Moreover, success is dependent upon our ability to identify and respond to consumer trends through innovation. We may be required to increase expenditures for new product development and there is no guarantee that we will be successful in developing new products or improving upon products already in existence. Additionally, our new products may not achieve consumer acceptance and could materially negatively impact sales.

Changes in our promotional activities may impact, and may have a disproportionate effect on, our overall financial condition and results of operations.

We offer a variety of sales and promotion incentives to our customers and to consumers, such as price discounts, consumer coupons, volume rebates, cooperative marketing programs, slotting fees and in-store displays. Our net sales may periodically be influenced by the introduction and discontinuance of sales and promotion incentives. Reductions in overall sales and promotion incentives could impact our net sales and affect our results of operations in any particular fiscal quarter.

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We may not be able to successfully implement our growth strategy on a timely basis or at all.

Our future success depends, in large part, on our ability to implement our growth strategy of expanding distribution and improving placement of our products, attracting new consumers to our brand and introducing new product lines and product extensions. Our ability to implement this item.growth strategy depends, among other things, on our ability to:

enter into distribution and other strategic arrangements with third-party retailers and other potential distributors of our products;
continue to compete in conventional grocery and mass merchandiser retail channels in addition to the natural and organic channel;
secure shelf space in key supermarket locations;
increase our brand awareness;
expand and maintain brand loyalty; and
develop new product lines and extensions.

We may not be able to successfully implement our growth strategy. Our sales and operating results will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

We are currently selling products in supermarkets in the United States. If we are unable to expand into mass-market retailers or sell products in a greater number of supermarkets, we will fall short of our projections and our business and financial condition would be adversely affected.

As a smaller supplier, we may not sell in enough bulk in certain stores and as such our products may not be placed in the most ideal locations to catch the attention of end consumers. If we are unable to gain significant sales growth, our products may never be displayed in the most attractive locations in stores and our sales may suffer.

We may be unable to successfully execute our identified growth strategies or other growth strategies that we determine to pursue.

We currently have a limited corporate infrastructure. In order to pursue growth strategies, we will need to continue to build our infrastructure and operational capabilities. Our ability to do any of these successfully could be affected by any one or more of the following factors:

our ability to raise substantial amounts of additional capital if needed to fund the implementation of our business plan;
our ability to execute our business strategy;
the ability of our products to achieve market acceptance;
our ability to manage the expansion of our operations and any acquisitions we may make, which could result in increased costs, high employee turnover or damage to customer relationships;
our ability to attract and retain qualified personnel;
our ability to manage our third-party relationships effectively; and
our ability to accurately predict and respond to the rapid market changes in our industry and the evolving demands of the markets we serve.

Our failure to adequately address any one or more of the above factors could have a significant impact on our ability to implement our business plan and our ability to pursue other opportunities that arise.

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We may be unable to maintain quality control.

Although we have entered into raw material supply agreements specifying certain minimum acceptable quality standards, there is no assurance that our current quality assurance procedures will be able to effectively monitor compliance. Additionally, in the event that we expand our operations and increase our output volume, including securing third-party manufacturers, there is no assurance that we will be able to adequately maintain quality controls or that our current manufacturing process is scalable.

There may be products liability and other legal claims.

We currently carry products liability insurance policy. Although we believe that the amount of insurance coverage is sufficient for our operations, there is no assurance that the coverage will be adequate.

Our brand and reputation may suffer from real or perceived issues involving the labeling and marketing of our products as “natural.”

Although the FDA and USDA have each issued statements regarding the appropriate use of the word “natural,” there is no single, U.S. government-regulated definition of the term “natural” for use in the food industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against a number of food companies that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the claim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the part of consumers in the truthfulness of our labeling or ingredient claims would be difficult and costly to overcome and may significantly reduce our brand value. Uncertainty as to the ingredients used in our products, regardless of the cause, may have a substantial and adverse effect on our brand and our business, results of operations and financial condition.

Our finished goods inventory is located in a small number of warehouse facilities. Any damage or disruption at a storage facility would have an adverse effect on our business, results of operations and financial condition.

Our finished goods inventory is located in a small number of warehouse facilities. A natural disaster, fire, power interruption, work stoppage or other unanticipated catastrophic event at these facilities would significantly disrupt our ability to deliver our products and operate our business. If any material amount of our inventory were damaged, we would be unable to meet our contractual obligations and, as a result, our business, results of operations and financial condition would suffer.

We may be unable to defend our intellectual property.

Our business could be adversely affected if we are unable to adequately protect our intellectual property. Our current intellectual property consists of trade secret recipes and cooking processes for our products and trademarks. 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. We may, however, not be able to secure significant protection for service marks or trademarks that we obtain. Our inability to protect our intellectual property from others may impede our brand identity and could lead to consumer confusion.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our services and brand.

Our business is largely based upon our recipes which are trade secrets and are not patentable. We may be unable to keep other companies from copying our recipes, or we may be subject to legal actions alleging intellectual property infringement, unfair competition or similar claims against us. Companies may have intellectual property rights covering aspects of our technologies or businesses. Defending ourselves against intellectual property infringement or similar claims would be expensive and would divert management’s attention. Additionally, there is no assurance that we would be successful in defending ourselves against such claims.

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Risks Related To Our Securities

We currently have a limited trading volume, which can result in higher price volatility for, and reduced liquidity of, our common stock.

Our shares of common stock traded on the OTCQB from 2013 to July 2021 and on the NASDAQ Capital Market from July 2021 to the present date. While we have upgraded our listing, historically there has been limited daily volume of trading in our common stock, which has limited the overall and perceived liquidity of our common stock on that market.

A more active trading market for our shares may never develop or be sustained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market increases price volatility and reduces the liquidity of our common stock. As long as this condition continues, the sale of a significant number of shares of common stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered and, if an active market for our common stock does not develop, it may be difficult to sell shares without depressing the market price for the shares, or at all. In addition, in the event that an active trading market does not develop, the price of our common stock may not be a reliable indicator of the fair value of our common stock.

Furthermore, if our common stock ceases to be listed on the NASDAQ Capital Market, holders may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock, and the market value of our common stock would likely decline.

You may experience dilution of your ownership interest because of the future issuance of additional shares of our common stock and our preferred stock.

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 270,000,000 shares of capital stock consisting of 20,000,000 shares of preferred stock, par value $0.00001 per share and 250,000,000 shares of common stock, par value $0.00001 per share.

We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise prices) below the price at which shares of our common stock are trading.

The concentration of our capital stock ownership with insiders could limit your ability to influence the outcome of key transactions, including a change of control.

Our directors, executive officers and founding shareholders, in the aggregate, beneficially own approximately 23.4% of the outstanding shares of our common stock, based on the number of shares outstanding as of April 26, 2023. These stockholders are able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may have interests that differ from yours and may vote in a manner that is adverse to your interests. This concentration of ownership may have the effect of deterring, delaying or preventing a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

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If and when a larger trading market for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired them.

The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

variations in our revenue and operating expenses;
market conditions in our industry and the economy as a whole;
actual or expected changes in our growth rates or our competitors’ growth rates;
announcements of innovations or new products or services by us or our competitors;
announcements by the government relating to regulations that govern our industry;
sales of our common stock or other securities by us or in the open market; and
changes in the market valuations of other comparable companies.

In addition, if the market for food industry stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition.

We do not expect to pay dividends.

We have never declared or paid any cash dividends or distributions on our common stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. If the Company does not pay dividends, the Company’s common stock may be less valuable because a return on an investor’s investment will only occur if the Company’s stock price appreciates.

If securities or industry analysts do not publish research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the period between February 1, 2022 and December 12, 2022,six months ended July 31, 2023, the Company issued the following shares which were not registered:had no sales of unregistered securities.

Common Stock

The Company issued 566,064 shares of common stock to seven holders. Of these issuances, 501,972 shares were issued in connection with an acquisition and the remaining 64,093 shares were issued upon the exercise of certain stock options and pursuant to employment agreements.

Series B Preferred Stock

The Company issued 54,600 shares of series B Preferred Stock for gross proceeds of $1,360,000.

The proceeds of these sales will be utilized for general working capital and acquisitions.

 

Item 3. Defaults upon Senior Securities.

 

There has been no material default in payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

There is no other information required to be disclosed under this item which was not previously disclosed.

713

 

Item 6. Exhibits.

 

Exhibit

No.

 Description
 
31.13.1 Articles of Incorporation of Mama’s Creations, Inc. (incorporated by reference from Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed on May 24, 2011).
3.2Certificate of Amendment to Certificate of Incorporation of Mama’s Creations, Inc. (incorporated by reference from Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on March 8, 2013).
3.3Second Amended and Restated Series A Convertible Preferred Stock Certificate of Designation (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 10, 2015).
3.4Series B Preferred Stock Certificate of Designation (incorporated by reference from Exhibit 3.4 to the Company’s Registration Statement on Form S-3 filed on June 2, 2023).
3.5Second Amended and Restated Bylaws of Mama’s Creations, Inc. (incorporated by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on August 1, 2023).
10.1Membership Interest Purchase Agreement dated June 28, 2023 by and among the Company, Siegel Suffolk Family, LLC, R&I Loeb Family, LLC, Jeffrey Siegel, and Ronald Loeb (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 29, 2023).
10.2Letter Amendment to the Revolving Line of Credit Loan by and between M&T Bank, the Company and T&L Acquisition Corp.*
31.1Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
31.2 
31.2Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
32.1 
32.1Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2 
32.2Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS Inline XBRL Instance Document**
101.INS101.SCH Inline XBRL Instance Document**
101.SCHInline 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)

 

* Filed herewith.

** Furnished herewith.

 

814

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 MAMAMANCINI’S HOLDINGS,MAMA’S CREATIONS, INC.
   
Date: DecemberSeptember 12, 20222023By:/s/ Adam L. Michaels
 Name:Adam L. Michaels
 Title:Chief Executive Officer
  (Principal Executive Officer)
By:/s/ Anthony Gruber
Name:Anthony Gruber
Title:Chief Financial Officer (Principal Financial Officer)

915