10-K
1
form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the year ended January 31, 2021
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
MAMAMANCINI’S
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
25
Branca Road
East
Rutherford, NJ 07073
(Address
of Principal Executive Offices)
(Former
name or former address, if changed since last report)
(201)
531-1212
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on which registered
Common Stock, par value $0.00001 MMMB OTCQB
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Emerging Growth Company [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant has
filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on July 31, 2020, based on
a closing price of $1.56 was approximately $14,922,636.
As
of April 19, 2021, the registrant had 35,608,474 shares of its common stock, 0.00001 par value per share, issued and outstanding.
Documents
Incorporated by Reference: None.
Table
of Contents
PART I 3
ITEM 1. BUSINESS. 3
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments. 9
Item 2. Properties. 9
Item 3. Legal Proceedings. 9
Item 4. Mine Safety Disclosures. 9
Item 6. Selected Financial Data. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 16
Item 8. Financial Statements. 17
Item 9A. Controls and Procedures. 17
Item 9B. Other Information. 18
PART III 19
Item 10. Directors, Executive Officers and Corporate Governance. 19
Item 11. Executive Compensation. 26
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. 33
Item 15. Exhibits, Financial Statements Schedules 34
SIGNATURES 35
FORWARD
LOOKING STATEMENTS
Included
in this Form 10-K are “forward-looking” statements, as well as historical information. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking
statements will prove to be correct. Our actual results could differ materially from those anticipated in forward- looking statements
as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements
include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,”
“should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected
in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure
you that actual results will be consistent with these forward-looking statements. We undertake no obligation to update or revise these
forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence
of unanticipated events or otherwise.
PART
I
Item
1. Business.
Our
History
MamaMancini’s
Holdings, Inc. (formerly Mascot Properties, Inc.) was incorporated in the State of Nevada on July 22, 2009. Mascot Properties, Inc.’s
(“Mascot”) activities since its inception consisted of trying to locate real estate properties to manage, primarily related
to student housing, and services which included general property management, maintenance and activities coordination for residents. Mascot
did not have any significant development of such business and did not derive any revenue. Due to the lack of results in its attempt to
implement its original business plan, management determined it was in the best interests of the shareholders to look for other potential
business opportunities.
On
February 22, 2010, MamaMancini’s LLC was formed as a limited liability company under the laws of the state of New Jersey in order
to commercialize our initial products. On March 5, 2012, the members of MamaMancini’s, LLC, holders of 4,700 units (the “Units”)
of MamaMancini’s LLC, exchanged the Units for 15,000,000 shares of common stock and those certain options to purchase an additional
223,404 shares of MamaMancini’s Inc. (the “Exchange”). Upon consummation of the Exchange, MamaMancini’s LLC ceased
to exist and all further business has been and continues to be conducted by MamaMancini’s Inc.
On
January 24, 2013, Mascot, Mascot Properties Acquisition Corp, a Delaware corporation and wholly-owned subsidiary of the Company (“Merger
Sub”), MamaMancini’s Inc., a privately-held Delaware Corporation headquartered in New Jersey (“Mama’s”)
and David Dreslin, an individual (the “Majority Shareholder”), entered into an Acquisition Agreement and Plan of Merger (the
“Agreement”) pursuant to which the Merger Sub was merged with and into Mama’s, with Mama’s surviving as a wholly-owned
subsidiary of the Company (the “Merger”). The transaction (the “Closing”) took place on January 24, 2013 (the
“Closing Date”). Mascot acquired, through a reverse triangular merger, all of the outstanding capital stock of Mama’s
in exchange for issuing Mama’s shareholders (the “Mama’s Shareholders”), pro-rata, a total of 20,054,000 shares
of the Company’s common stock. As a result of the Merger, the Mama’s Shareholders became the majority shareholders of Mascot.
Immediately following the Closing of the Agreement, Mascot changed its business plan to that of Mama’s. On March 8, 2013, Mascot
received notice from the Financial Industry Regulatory Authority (“FINRA”) that its application to change its name and symbol
had been approved and effective Monday, March 11, 2013, Mascot began trading under its new name, “MamaMancini’s Holdings,
Inc.” (“MamaMancini’s” or the “Company”) and under its new symbol, “MMMB”.
On
November 1, 2017, MamaMancini’s, Joseph Epstein Food Enterprises, Inc., a New Jersey corporation (“JEFE”), and MMMB
Acquisition, Inc., a Nevada corporation and wholly owned subsidiary of MamaMancini’s (“Merger Sub”), completed a merger
transaction whereby JEFE merged with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly owned subsidiary
of MamaMancini’s. Under the terms of the Merger Agreement and in connection with the merger, the Company acquired all assets of
JEFE. The consideration for the transaction was (a) the extinguishment of the Inter-Company Loan between the parties, (b) the assumption
by the Company of all JEFE accounts payable and accrued expenses (c) assumption by the Company of certain third-party loans to JEFE totaling
approximately $782,000 and (d) indemnification of Carl Wolf with respect to his collateralization of a bank loan to JEFE in the amount
of approximately $250,000. As a result of the transaction, (i) the Company became the sole shareholder of JEFE, which became a wholly-owned
subsidiary of the Company. No cash or stock was exchanged in connection with the transaction.
Our
Company
MamaMancini’s
roots go back to our founder Dan Dougherty, whose grandmother Anna “Mama” Mancini emigrated from Bari, Italy to Bay Ridge,
Brooklyn in 1921. Our products were developed using her old-world Italian recipes that were handed down to her grandson, Dan Dougherty.
Today we market a line of all-natural specialty prepared, frozen and refrigerated foods for sale in retailers around the country. Our
primary products include beef and turkey meatballs, meat loaf, chicken, sausage-related products and pasta entrees, all with slow cooked
Italian Sauce.
Our
products are all natural, contain a minimum number of ingredients and are generally derived from the original recipes of Anna “Mama”
Mancini. Our products appeal to health-conscious consumers who seek to avoid artificial flavors, synthetic colors and preservatives that
are used in many conventional packaged foods.
The
United States Department of Agriculture (the “USDA”) defines all natural 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. The Food and Safety and Inspection Service (“FSIS”) Food Standards and Labeling Policy Book (2003)
requires meat and poultry labels to include a brief statement directly beneath or beside the “natural” Label claim that “explains
what is meant by the term natural i.e., that the product is a natural food because it contains no artificial ingredients and is only
minimally processed”. The term “natural” may be used on a meat label or poultry label if the product does not contain
any artificial flavor or flavoring, coloring ingredient, chemical preservative, or any other artificial or synthetic ingredient. Additionally,
the term “all natural” can be used if the FSIS approves your product and label claims. The Company’s product and label
claims have been approved by the FSIS to contain the all-natural label.
Additionally,
the Company has recently commenced marketing of certain “meatless” versions of its product line under a Trademark Licensing
Agreement with Beyond Meat, Inc.
Our
products are principally sold to supermarkets and mass-market retailers. We currently have 29 different product offerings which
are packaged in different sized retail and bulk packages. Our products are principally sold in multiple sections of the supermarket,
including hot bars, salad bars, prepared foods (meals), sandwich, as well as cold deli and foods-to-go sections. Our products are also
sold in the frozen food and fresh meat sections. We sell directly to both food retailers and food distributors.
Finally,
we also sell our products on QVC through live on-air offerings, auto ship programs and for everyday purchases on their web site. QVC
is the world’s largest direct to consumer marketer.
During
the year ended January 31, 2021, the Company earned revenues from two customers representing approximately 41% and 13%
of gross sales. During the year ended January 31, 2021, these two customers represented approximately 23% and 14%
of total gross outstanding receivables, respectively. During the year ended January 31, 2020, the company earned revenues from three
customers representing approximately 46%, 11% and 10% of gross sales. As of January 31, 2020, three customers represented approximately
34%, 16% and 8% of total gross outstanding receivables, respectively.
The
Company continually reviews its accounts in order to focus on maximum performance, and as a result periodically eliminates under-performing
accounts.
Industry
Overview
Our
products are considered specialty prepared foods, in that they are all natural, taste great, are authentic Italian and are made with
high quality ingredients. The market for specialty and prepared foods spans several sections of the supermarket, including frozen, deli-
prepared foods, and the specialty meat segment of the meat department.
Our
Strengths
We
believe that the following strengths differentiate our products and our brand:
Customers/Management
Our
Growth Strategy
We
are actively executing a strategy to build our brand’s reputation, grow sales and improve our product and operating margins by
pursuing the following growth initiatives:
● “Club Stores”. The Company is aggressively pursuing sales to “Club Stores”.
Pricing
Our
pricing strategy focuses on being competitively priced with other premium brands. Since our products are positioned in the authentic
premium prepared food category, we maintain prices competitive with those of similar products and prices slightly higher than those in
the commodity prepared foods section. This pricing strategy also provides greater long-term flexibility as we grow our product line through
the growth curve of our products. Current typical retail prices for 16 oz. packages range from $4.99 to $7.99, and $5.99 to $9.99 per
pound for prepared food products sold to delis or hot bars. Increases in raw materials costs, among other factors, may lead to us consider
price increases in the future.
Suppliers/Manufacturers
As
of January 31, 2021, approximately 70% of our products are internally produced by the Company’s wholly-owned subsidiary,
Joseph Epstein Food Enterprises, Inc (“JEFE”). Approximately 10% are manufactured on an outsourced basis. None of our raw
materials or ingredients are directly grown or produced by us. From time-to-time we negotiate with other manufacturers to supplement
the Company’s manufacturing capability. We currently purchase modest quantities from other manufacturers. All of the raw materials
and ingredients in our products are readily available and are readily ascertainable by our suppliers. We have not experienced any material
shortages of ingredients or other products necessary to our operations and do not anticipate such shortages in the foreseeable future.
Sales/Brokers
Our
products are sold primarily through a commission broker network. We sell to large retail chains who direct our products to their own
warehouses or to large food distributors.
The
Company increased its sales management efforts with the result that the Company is now actively soliciting business with almost every
major retail supermarket chain in the country. MamaMancini’s products are currently sold nationwide, with its greatest concentration
in the Northeast and Southeast. In April 2019, the Company initiated a major sales effort into the food service, convenience store, export
and special projects areas.
Marketing
The
majority of our marketing activity has been generated through promotional discounts, consumer trial, consumer product tastings and demonstrations,
in-store merchandising and signage, couponing, word of mouth, consumer public relations, social media, special merchandising events with
retailers and consumer advertising.
Based
on the Company’s metrics for determining brand awareness, which includes market studies and analysis of consumer recognition of
the MamaMancini’s brand, the Company believes that brand awareness for MamaMancini’s has grown in the past 12 months.
Investments
- Meatball Obsession
During
2011 the Company acquired a 34.62% interest in Meatball Obsession, LLC (“MO”) for a total investment of $27,032. This investment
is accounted for using the equity method of accounting. Accordingly, investments are recorded at acquisition cost plus the Company’s
equity in the undistributed earnings or losses of the entity. At December 31, 2011 the investment was written down to $0 due to losses
incurred by MO. The Company’s ownership interest in MO has decreased due to dilution. At January 31, 2021 and 2020, the
Company’s ownership interest in MO was 12% and 12%, respectively. One of our directors, Steven Burns, serves as the Chairman of
the Board of Directors of Meatball Obsession. As of December 31, 2019, MO had wound down and ceased operations. Major accounts were transitioned
to MamaMancini’s as a part of the wind down.
Competition
The
gourmet and specialty pre-packaged and frozen food industry has many large competitors specializing in various types of cuisine from
all over the world. Our product lines are currently concentrated on Italian specialty foods. While it is our contention that our competition
is much more limited than the entire frozen and pre-packaged food industry based on our products’ niche market, there can be no
assurances that we do not compete with the entire frozen and pre-packaged food industry. We believe our principal competitors include
Quaker Maid, Hormel, Rosina Company, Inc., Casa Di Bertacchi, Inc., Farm Rich, Inc., Mama Lucia, Buona Vita, Inc., Taylor Farms and Kings
Command.
Intellectual
Property
Our
current intellectual property consists of trade secret recipes and cooking processes for our products and four trademarks for “MamaMancini’s”,
“Mac N’ Mamas”, “Sunday Dinner” and “The Meatball Lovers Meatball”. The recipes and use of
the trademarks have been assigned in perpetuity to the Company.
We
rely on a combination of trademark, copyright and trade secret laws to establish and protect our proprietary rights. We will also use
technical measures to protect our proprietary rights.
Royalty
Agreement
In
accordance with a Development and License Agreement (the “Development and License Agreement”) entered into on January 1,
2009 with Dan Dougherty relating to the use of his grandmother’s recipes for the products to be created by MamaMancini’s,
Mr. Dougherty granted us a 50-year exclusive license (subject to certain minimum payments being made), with a 25-year extension option,
to use and commercialize the licensed items. Under the terms of the Development and License Agreement, Mr. Dougherty shall develop a
line of beef meatballs with sauce, turkey meatballs with sauce and other similar meats and sauces for commercial manufacture, distribution
and sale (each a “Licensor Product” and collectively the “Licensor Products”). Mr. Dougherty shall work with
us to develop Licensor Products that are acceptable to us. Upon acceptance of a Licensor Product by us, Mr. Dougherty’s trade secret
recipes, formulas methods and ingredients for the preparation and production of such Licensor Products shall be subject to the Development
and License Agreement. In connection with the Development and License Agreement, we pay Mr. Dougherty a royalty fee on net sales.
USDA
approval / Regulations
Our
food products, which are manufactured both in our own manufacturing facilities and in third-party facilities, are subject to various
federal, state and local regulations and inspection, and to extensive regulations and inspections, regarding sanitation, quality, packaging
and labeling. In order to distribute and sell our products outside the State of New Jersey, the third-party food processing facilities
must meet the standards promulgated by the U.S. Department of Agriculture (the “USDA”). Our manufacturing processing facilities
and products are subject to periodic inspection by federal, state, and local authorities. In January 2011, the FDA’s Food Safety
Modernization Act was signed into law. The law will increase the number of inspections at food facilities in the U.S. in an effort to
enhance the detection of food borne illness outbreaks and order recalls of tainted food products. The facilities in which our products
are manufactured are inspected regularly and comply with all the requirements of the FDA and USDA.
We
are subject to the Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program
governs, among other things, the manufacturing, composition and ingredients, packaging, and safety of food. Under this program, the FDA
regulates manufacturing practices for foods through, among other things, its current “good manufacturing practices” regulations,
or GMP’s, and specifies the recipes for certain foods. Specifically, the USDA defines “all natural” as a product that
contains no artificial ingredients, coloring ingredients or chemical preservatives and is minimally processed. The Company’s products
were submitted to the USDA and approved as “all natural”. However, should the USDA change their definition of “all
natural” at some point in the future, or should MamaMancini’s change their 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 are currently in compliance with all regulations
related thereto, although we could be the target of claims relating to alleged false or deceptive advertising under federal and state
laws and regulations. Changes in these laws or regulations or the introduction of new laws or regulations could increase the costs of
doing business for us or our customers or suppliers or restrict our actions, causing our results of operations to be adversely affected.
Quality
Assurance
We
take precautions designed to ensure the quality and safety of our products. In addition to routine third-party inspections of our manufacturing
facilities, we have instituted regular audits to address topics such as allergen control, ingredient, packaging and product specifications
and sanitation. Under the FDA Food Modernization Act, both our own manufacturing facilities and each of our contract manufacturers are
required to have a hazard analysis critical control points plan that identifies critical pathways for contaminants and mandates control
measures that must be used to prevent, eliminate or reduce relevant food-borne hazards.
Our
manufacturing facility is certified in the Safe Quality Food Program. These standards are integrated food safety and quality management
protocols designed specifically for the food sector and offer a comprehensive methodology to manage food safety and quality simultaneously.
Certification provides an independent and external validation that a product, process or service complies with applicable regulations
and standards.
We
work with suppliers who assure the quality and safety of their ingredients. These assurances are supported by our purchasing contracts
or quality assurance specification packets, including affidavits, certificates of analysis and analytical testing, where required. The
quality assurance staff within our manufacturing facility and within our contract manufacturers conduct periodic on-site routine audits
of critical ingredient suppliers.
Where
You Can Find More Information
The
public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at
the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Item
1A. Risk Factors
Smaller
reporting companies are not required to provide the information required by this item. Notwithstanding, in addition to risk factors highlighted
in previous reports, the Company adds the following additional risk factor:
We
could be substantially affected by the Coronavirus (COVID-19) pandemic
In
December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China, and has since spread to a number of
other countries, including the United States. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.
In addition, as of the time of the filing of this Annual Report on Form 10-K, several states in the United States have declared states
of emergency, and several countries around the world, including the United States, have taken steps to restrict travel. While all of
our operations are located in the United States, we participate in a national supply chain, and the existence of a worldwide pandemic,
the fear associated with COVID-19, or any, pandemic, and the reactions of governments around the world in response to COVID-19, or any,
pandemic, to regulate the flow of labor and products and impede the travel of personnel, may impact our ability to conduct normal business
operations, which could adversely affect our results of operations and liquidity. Disruptions to our supply chain and business operations,
or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier
and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the
shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our manufacturing
output and delivery schedule. If we need to close any of our facilities or a critical number of our employees become too ill to work,
our production ability could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business
consequences due to COVID-19, or any other, pandemic, demand for our products could also be materially adversely affected in a rapid
manner. Global health concerns, such as COVID-19, could also result in social, economic, and labor instability in the countries and localities
in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business,
financial condition or results of operations.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
Our
principal executive office is located at 25 Branca Road East Rutherford, NJ 07073. We currently lease 24,213 square feet of space located
in East Rutherford, NJ from Joseph Branca Partnership, Ltd for a current rental of $17,454 per month. The lease term runs through
March 31, 2024 with renewal options through March 31, 2029. In addition, we lease an additional 1,077 square feet of space at 355 Murray
Hill Parkway from CLN Associates, LLC for a current rental of $1,817 per month.
Item
3. Legal Proceedings.
We
are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries,
threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s
subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a)
Market Information
Our
shares of common stock are currently quoted on the OTCQB under the symbol “MMMB” The following table sets forth (i) the intra-day
high and low sales price per share for our common stock, as reported on the OTCQB, for the fiscal years ended January 31, 2021 and January
31, 2020. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Fiscal Year Ended January 31, 2021 High Low
Fiscal Year Ended January 31, 2020 High Low
The
market price of our common stock, like that of other early stage companies, is highly volatile and is subject to fluctuations in response
to variations in operating results, announcements of new products, or other events or factors. Our stock price may also be affected by
broader market trends unrelated to our performance.
(b)
Holders
As
of April 9, 2021, there were approximately 103 record holders of our common stock and there were 35,608,474 shares of our common stock
issued and outstanding. This figure does not take into account those shareholders whose certificates are held in the name of broker-dealers
or other nominees. Please see SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT for information related to the holdings
of certain beneficial owners and management of the Company.
(c)
Dividends
Preferred
Stock. The holders of the Series A Convertible Preferred were entitled to receive dividends at a rate of eight percent (8%) per annum
payable quarterly in cash or Company Common Stock at the option of the holder. All outstanding shares of Series A Convertible Preferred
Stock automatically converted to Company Common Stock on July 27, 2017 and no shares of Preferred Stock are currently issued and outstanding.
Common
Stock. The declaration of any future cash dividends is at the discretion of our board of directors and depends upon our earnings,
if any, our capital requirements and financial position, general economic conditions, and other pertinent conditions. We have not paid
any cash dividends to the holders of our Common Stock and it is not our present intention to pay any cash dividends on our Common Stock
in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
(d)
Securities Authorized for Issuance under Equity Compensation Plans
At
the present time, we have 450,000 shares of common stock authorized for issuance under our equity compensation plan. For more information
on our equity compensation plan please refer to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June
5, 2013.
Recent
Sales of Unregistered Securities
Below
is a list of securities sold by us from February 1, 2020 through January 31, 2021 which were not registered under the Securities Act.
Common
Stock:
The
Company issued an aggregate of 3,612,490 shares during this period, 3,588,490 of which were the result of the exercise
of outstanding warrants and 24,000 which resulted from the exercise of stock options.
The
securities issued in the abovementioned transactions were issued in connection with a Consulting Agreement and were exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the terms of Section 4(2) of that Act.
Item
6. Selected Financial Data.
Pursuant
to permissive authority under Regulation S-K, Rule 301, we have omitted Selected Financial Data.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE
FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD- LOOKING STATEMENTS. THESE RISKS AND OTHER
FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED
ELSEWHERE IN THIS REPORT.
Results
of Operations for the Year ended January 31, 2021 and 2020
The
following table sets forth the summary statements of operations for the year ended January 31, 2021 and 2020:
Year Ended
Income tax benefit $ 744,973 $ -
For the year ended January 31, 2021 and 2020,
the Company reported a net income of $4,067,206 and $1,532,694, respectively. The change in net income between the year ended January
31, 2021 and 2020 was primarily attributable an increase in sales of 21% and increased gross profit margins (31% of sales as discussed
below) in addition to a decrease in interest expense and a small decrease in operating expenses as a percentage of sales (23%
of sales, a 0.3% decrease from the prior year, as discussed below). During the year ended January 31, 2021, the Company also recorded
an income tax benefit of $744,973 which significantly increased its net income compared to $0 for the year ended January 31 , 2020.
Sales: Sales, net of slotting fees and discounts
increased by approximately 21% to $40,758,605 during the year ended January 31, 2021, from $33,570,465 during the year ended January 31,
2020. In addition, during the year ended January 31, 2021, the Company was able to increase its sales through new customers as well as
its existing customer base. COVID-19 had the effect of, consumer hoarding of food and increasing inventory build at retailers in the first
quarter of the year but slowed new placements in the third quarter. The Company expects new placements to revert back to normal levels
in the second and third quarter of the fiscal year ended January 31, 2022.
Gross Profit: The gross profit margin was 31%
for the year ended January 31, 2021 compared to 30% for the year ended January 31, 2020. Gross margins increased as a percentage of sales,
due to increased plant efficiencies and process improvements offset by short term higher beef raw material prices in the Spring and Summer.
Operating Expenses: Operating expenses increased
by 17% during the year ended January 31, 2021, as compared to the year ended January 31, 2020. Operating expenses remained consistent
as a percentage of sales of 23% in 2020 and 2021. The $1,360,556 increase in total operating expenses is primarily attributable to the
following increases in operating expenses:
● Commission expense of $331,182 due to increased sales;
● Royalty expenses of $76,261 due to the increase in sales; and
These
expense increases were offset by decreases in the following as well as minimal decreases in other expense categories:
Other
Expense: Other expenses decreased by $395,115 to $155,615 for the year ended January 31, 2021 as compared to $550,730 during
the year ended January 31, 2020. For year ended January 31, 2021, other expenses consisted of $137,751 in interest expense incurred on
the Company’s financing arrangements. In addition, the Company recorded $17,864 of amortization expense related to the debt discount.
For year ended January 31, 2020, other expenses consisted of $482,995 in interest expense incurred on the Company’s financing arrangements.
In addition, the Company recorded $67,735 of amortization expense related to the debt discount.
Liquidity
and Capital Resources
The
following table summarizes total current assets, liabilities and working capital at January 31, 2021 compared to January 31, 2020:
As
of January 31, 2021, we had working capital of $4,834,102 as compared to a working capital of $1,412,024 as of January 31, 2020, an increase
of $3,422,078. In addition to the increase in sales and net income, the increase in working capital is
primarily attributable to an increase in cash of $2,796,877, an increase in receivables of $245,906, an increase in prepaid expenses
of $267,619, and a net decrease of $317,203 in the current portion of lease and debt obligations. These amounts were offset by a decrease
in inventories of $51,206 and an increase in accounts payable and accrued expenses $154,321.
Net
cash provided by operating activities for the year ended January 31, 2021 and 2020 was $3,698,540 and $1,814,689, respectively.
The net income for the year ended January 31, 2021 and 2020 was $4,067,206 and $1,532,694, respectively.
Net
cash used in all investing activities for the year ended January 31, 2021 was $451,940 as compared to $268,106 for the year ended
January 31, 2020, respectively, to acquire new machinery and equipment and leasehold improvements. Our capital expenditures are attributed
to a Plant Expansion Project in progress since mid-2017 to expand plant capacity and efficiency to meet growing demand. During the year
ended January 31, 2021, the Company also paid $32,567 for the acquisition of intangibles.
Net
cash used in all financing activities for the year ended January 31, 2021 was $449,723 as compared to $1,762,399 for the year ended January
31, 2020. During the year ended January 31, 2021, the Company received proceeds of $330,505 from the Paycheck Protection Program promissory
note and net proceeds of $3,787,582 from the exercise of options and warrants. These cash in-flows were offset by payments on its line
of credit of $2,997,348, payments on its term loan of $441,663, payments of $641,844 on the related party loans and $156,450 paid for
finance lease payments. The Company returned the $330,505 received from the Paycheck Protection Program in May 2020. During the
year ended January 31, 2020, the Company made net borrowings on the line of credit of $385,314. These cash in-flows were offset by net
payments of term loan of $2,058,337 and $89,376 paid for capital lease payments.
As
reflected in the accompanying consolidated financial statements, the Company has net income and net cash provided by operations of $4,067,206
and $3,698,540, respectively, for the year ended January 31, 2021.
Although
the expected revenue growth and control of expenses lead management to believe that it is probable that the Company’s cash resources
will be sufficient to meet its cash requirements through the fiscal year ending January 31, 2022 based on current and projected levels
of operations, the Company may require additional funding to finance growth and achieve its strategic objectives. If such financing is
required, there can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In the
event funding is not available on reasonable terms, the Company might be required to change its growth strategy and/or seek funding on
an alternative basis, but there is no guarantee it will be able to do so. Because of the rapidly changing environment in response to
COVID-19, the current expectations of the Company may be altered as conditions change.
Recent
Accounting Pronouncements
In
October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers
of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods
beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The
adoption of the new standard did not have a significant impact on the Company’s condensed consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial
statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s
financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures
about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of the new standard did not have a significant
impact on the Company’s condensed consolidated financial statements.
In
August 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU
2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”.
The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is
a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The
Company adopted this guidance on February 1, 2020 on a prospective basis. Since
the adoption of ASU 2018-15 on February 1, 2020, the Company evaluates upfront costs including implementation, set-up or other costs
(collectively, implementation costs) for hosting arrangements under the internal-use software framework. Costs related to preliminary
project activities and post implementation activities are expensed as incurred, whereas costs incurred in the development stage are generally
capitalized. Capitalized implementation costs are amortized on a straight-line basis over the expected term of the hosting arrangement,
which includes consideration of the non-cancellable contractual term and reasonably certain renewals.
In
December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general
approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance
is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently
evaluating the potential impact of this guidance on its condensed consolidated financial statements.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect
on the accompanying consolidated financial statements.
Critical
Accounting Policies
Our
consolidated financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations
of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also
affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial
condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively
applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant
estimates made during the preparation of our financial statements.
Our
significant accounting policies are summarized in Note 2 of our consolidated financial statements. While all these significant accounting
policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined
to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater
degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated
results of operations, financial position or liquidity for the periods presented in this report.
We
believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements:
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such
estimates and assumptions impact, among others, the following: allowance for doubtful accounts, inventory obsolescence and the fair value
of share-based payments.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered
in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results
could differ significantly from our estimates.
Leases
In
February 2016, the FASB issued ASU 2016-02 “Leases” (Topic 842) which amended guidance for lease arrangements to increase
transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing
activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection
of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to
recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
On
February 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and recognized a right of use (“ROU”)