UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 2013
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: 333-150029
MamaMancini’s Holdings, Inc.
(Exact name of Registrant as specified in its charter)
| Nevada | 27-067116 | |
| (State or other jurisdiction | (IRS Employer | |
| of incorporation) | I.D. 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)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 14, 2013, there were 22,613,028 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements. | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 5 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 11 |
| Item 4. | Controls and Procedures. | 11 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 12 |
| Item 1A. | Risk Factors. | 12 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 12 |
| Item 3. | Defaults Upon Senior Securities. | 12 |
| Item 4. | Mine Safety Disclosures. | 12 |
| Item 5. | Other Information. | 12 |
| Item 6. | Exhibits. | 12 |
| Signatures | 13 | |
| 2 |
PART I - FINANCIAL INFORMATION
MAMAMANCINI’S HOLDINGS, INC
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
| 3 |
MamaMancini’s Holdings, Inc.
Condensed Consolidated Financial Statements
June 30, 2013
Table of Contents
| 4 |
See accompanying notes to financial statements
| F-1 |
See accompanying notes to financial statements
| F-2 |
See accompanying notes to financial statements
| F-3 |
See accompanying notes to financial statements
| F-4 |
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Note 1 Nature of Operations and Basis of Presentation
Nature of Operations
MamaMancini’s Holdings, Inc. (the “Company”), (formerly known as Mascot Properties, Inc.) was organized on July 22, 2009 as a Nevada corporation.
Current Business of the Company
The Company is a manufacturer and distributor of a line of beef meatballs with sauce, turkey meatballs with sauce, Italian sausage with sauce and other similar Italian meats with sauces. The Company’s customers are located throughout the United States, with a large concentration in the Northeastern and Southeastern United States regions.
Mergers
On January 24, 2013, the Company, 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 (“MamaMancini’s”) and 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 MamaMancini’s, with MamaMancini’s surviving as a wholly-owned subsidiary of the Company (the “Merger”). The Company acquired, through a reverse triangular merger, all of the outstanding capital stock of MamaMancini’s in exchange for issuing MamaMancini’s shareholders (the “MamaMancini’s Shareholders”), pro-rata, a total of 20,054,000 shares of the Company’s common stock. Immediately after the Merger was consummated, and further to the Agreement, the majority shareholders and certain affiliates of the Company cancelled a total of 103,408,000 shares of the Company’s common stock held by them (the “Cancellation”). In consideration of the Cancellation of such common stock, the Company paid the Majority Shareholder in aggregate of $295,000 and 800,000 shares of common stock and released the other affiliates from certain liabilities. In addition, the Company has agreed to spinout to the Majority Shareholder all assets related to the Company’s real estate management business within 30 days after the closing. As a result of the Merger and the Cancellation, the MamaMancini’s Shareholders became the majority shareholders of the Company.
The consolidated financial statements presented for all periods through and including June 30, 2013 are those of MamaMancini’s. As a result of this Merger, the equity sections of MamaMancini’s for all prior periods presented reflect the recapitalization described above and are consistent with the June 30, 2013 balance sheet presented for the Company.
Since the transaction is considered a reverse acquisition and recapitalization, the presentation of pro-forma financial information was not required.
Basis of Presentation
The condensed consolidated financial statements and accompanying footnotes are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
| F-5 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
The unaudited 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 December 31, 2012 filed on April 16, 2013. 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. Accordingly, footnote disclosure, which would substantially duplicate the disclosure contained in the Company’s Form 10-K for the year ended December 31, 2012 has been omitted. The results of operations for the interim periods presented are not necessarily indicative of results for the entire year ending December 31, 2013.
Note 2 Summary of Significant Accounting Policies
Principles of consolidation
All significant intercompany accounts and transactions have been eliminated in consolidation.
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 bad debt, inventory obsolescence, the fair value of share-based payments.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
Risks and uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the grocery industry, (ii) general economic conditions in the various local markets in which the Company competes, including the 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.
Reclassifications
Certain amounts in the prior year have been reclassified to conform to the current year presentation.
| F-6 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
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 June 30, 2013 and December 31, 2012.
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.
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. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, which is the face amount of the receivable net of the allowance for doubtful accounts. As of June 30, 2013 and December 31, 2012, the Company had reserves of $2,000.
Inventories
Inventories are stated at average cost using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following at June 30, 2013 and December 31, 2012:
| June 30, 2013 | December 31, 2012 | |||||||
| Finished goods | $ | 91,044 | $ | 76,570 | ||||
Depreciation
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful lives.
Asset lives for financial statement reporting of depreciation are:
| Machinery and equipment | 2-7 years |
| Vehicles | 3-5 years |
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.
Stock Issuance Costs
Stock Issuance costs are capitalized as incurred. Upon the completion of the offering, the stock issuance costs are reclassified to equity. Offering costs recorded to equity for the six months ended June 30, 2013 and year ended December 31, 2012 were$0 and $1,088,964, respectively.
| F-7 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Research and Development
Research and development is expensed as incurred. Research and development expenses for the six months ended June 30, 2013 and 2012 were $7,138 and $41,043, respectively.
Shipping and Handling Costs
The Company classifies freight billed to customers as sales revenue and the related freight costs as cost of sales.
Revenue Recognition
The Company records revenue for products when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured. There is no stated right of return for products.
The Company meets these criteria upon shipment.
Expenses such as slotting fees and sales discounts are accounted for as a direct reduction of revenues as follows:
| Six
Months Ended June 30, 2013 | Six
Months Ended June 30, 2012 | |||||||
| Gross Sales | $ | 3,716,948 | $ | 2,532,753 | ||||
| Less: Slotting, Discounts, Allowances | 244,396 | 120,789 | ||||||
| Net Sales | $ | 3,472,552 | $ | 2,411,964 | ||||
Cost of sales
Cost of sales represents costs directly related to the production and manufacturing of the Company’s products. Costs include product development, freight, packaging, and print production costs.
Advertising
Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred. Producing and communicating advertising expenses for the six months ended June 30, 2013 and 2012 were $810,722 and $657,107, respectively.
Stock-based compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Accounting for Stock-Based 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 accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services”.
| F-8 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
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 Statement of Operations. For the six months ended June 30, 2013 and 2012 share based compensation amounted to $156,104 and $213,971, respectively. The $213,971 recorded for the six months ended June 30, 2012 was a direct cost of the stock offering and has been recorded as a reduction in additional paid in capital.
For the six months ended June 30, 2013, 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 risk free rate used was 0.68%. |
| ● | 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. Therefore the expected dividend rate was $0. |
| ● | The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110. |
| ● | The expected volatility was bench marked against similar companies in a similar industry. The expected volatility used was 144%. |
| ● | The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%. |
For the six months ended June 30, 2012, 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 risk free rate used had a range of 0.75%-1.01%. |
| ● | 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. Therefore the expected dividend rate was $0. |
| F-9 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
| ● | The expected warrant term is the life of the warrant. |
| ● | Given the Company was privately held, expected volatility was bench marked against similar companies in a similar industry. The expected volatility used was 128%. |
| ● | The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%. |
Earnings per share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had the following potential common stock equivalents at June 30, 2013:
| Common stock warrants, exercise price of $1.00 | 505,400 | |||
| Common stock options, exercise price of $1.00 | 491,404 | |||
| Total common stock equivalents | 996,804 |
The Company had the following potential common stock equivalents at June 30, 2012:
| Common stock options, exercise price of $1.00 | 223,404 | |||
| Total common stock equivalents | 223,404 |
Since the Company reflected a net loss during the three and six months ended June 30, 2013 and 2012, the effect of considering any common stock equivalents, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. 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.
Penalties and interest assessed by income taxing authorities are included in general and administrative expenses.
| F-10 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Recent accounting pronouncements
There are no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements.
Note 3 Going Concern
As reflected in the accompanying consolidated financial statements, the Company has a net loss and net cash used in operations of $1,364,460 and $1,571,870, respectively, for the six months ended June 30, 2013.
The ability of the Company to continue its operations is dependent on Management’s plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence.
The Company may require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future if it does not receive the anticipated additional funding. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. These conditions raise substantial doubt about our ability to continue as a going concern. In that event, the Company would be required to change its growth strategy and seek funding on that basis, if at all.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 Property, Plant and Equipment:
Property, plant and equipment on June 30, 2013 and December 31, 2012 are as follows:
| June 30, 2013 | December 31, 2012 | |||||||
| Machinery and Equipment | $ | 97,775 | $ | 39,627 | ||||
| Vehicles | 18,889 | - | ||||||
| 116,664 | 39,627 | |||||||
| Less: Accumulated Depreciation | 31,928 | 22,176 | ||||||
| $ | 84,736 | $ | 17,451 | |||||
Depreciation expense charged to income for the six months ended June 30, 2013 and 2012 amounted to $9,752 and $5,806 respectively.
| F-11 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Note 5 Credit Line
On October 13, 2010 the Company signed a revolving note (the “Note”) with Provident Bank (the “Bank”). The outstanding balance of this Note is currently limited to $500,000 (originally $1,000,000) and expired August 31, 2012. On November 16, 2012, the maturity date of the Note was extended to January 1, 2013, on January 7, 2013 was further extended to May 1, 2013, on May 1, 2013 was further extended to July 1, 2013 with a reduction of Note principal limited to $500,000 and on July 3, 2013 was further extended to September 1, 2013 with a reduction of Note principal limited to $400,000. The outstanding balance accrues interest at a variable rate of 1.00% over the Wall Street Journal prime rate with a floor of 4.50% per annum. (Starting July 2013 the interest rate floor increased to 5%) Interest is payable monthly and the rate as of June 30, 2013 and December 31, 2012 was 4.50% and 4.50%, respectively.
Advances are limited to 80% of eligible receivables (75 days from invoice) and 35% of finished goods inventory. (Starting July 2013 advances are limited to 70% of eligible receivables) Inventory advances shall be capped at $250,000. Concentrations from any one customer exceeding 30% of total accounts receivable will be excluded from the borrowing base availability. The note is secured by accounts receivable, inventory, financial instruments, equipment, general intangibles and investment property and personal and unconditional guarantees of two of the shareholders of the Company.
The balance outstanding on the revolving note at June 30, 2013 and December 31, 2012 was $350,000 and $200,000, respectively.
The Company is currently in negotiations to refinance a $1,500,000 credit line and has already executed a non-binding term sheet.
Note 6 Investment in LLC
During 2010, the Company advanced $20,090 to an individual. There was an implied agreement that the advance would convert into an equity interest in a new entity.
During 2011 the Company acquired a 34.62% interest in Meatball Obsession, LLC (“MO”) for a total investment of $27,032, which includes the conversion of the $20,090 advance above. 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 brought down to $0 due to losses incurred by MO.
During 2012 the Company’s ownership interest in MO fell to 28% due to dilution.
During 2013 the Company’s ownership interest in MO fell to 24% due to dilution.
During the six months ending June 30, 2013 and 2012, sales to MO were $60,208 and $32,509, respectively. At June 30, 2013 and December 31, 2012 the accounts receivable balance from MO was $36,243 and $13,893.
During the six months ended June 30, 2013, the Company loaned MO $30,000 for working capital purposes. The loan is non-interest bearing, unsecured and was due on June 19, 2013. The balance on the loan at June 30, 2013 was $30,000. The loan was paid in full on July 8, 2013.
| F-12 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Summarized financial information for Meatball Obsession, LLC is as follows:
| Balance Sheet Data | ||||||||
| June 30, 2013 | December 31, 2012 | |||||||
| Assets | ||||||||
| Cash | $ | 32,314 | $ | 117,777 | ||||
| Accounts receivable | 5,649 | 5,234 | ||||||
| Inventory | 13,259 | 14,935 | ||||||
| Property & equipment, net | 155,922 | 75,861 | ||||||
| Other assets | 55,111 | 60,370 | ||||||
| Total Assets | $ | 262,256 | $ | 274,177 | ||||
| Liabilities and Members’ Equity | ||||||||
| Accounts payable | $ | 44,356 | $ | 25,731 | ||||
| Other current liabilities | 75,394 | 8,354 | ||||||
| Total Current Liabilities | 119,750 | 34,085 | ||||||
| Members’ Equity | 142,507 | 240,092 | ||||||
| Total Liabilities and Members’ Equity | $ | 262,256 | $ | 274,177 | ||||
| Statement of Operations Data | ||||||||
| June 30, 2013 | June 30, 2012 | |||||||
| Revenues | $ | 261,360 | $ | 129,095 | ||||
| Cost of goods sold | 99,334 | 59,227 | ||||||
| Expenses | 355,853 | 365,890 | ||||||
| Net operating loss | (193,827 | ) | (296,022 | ) | ||||
| Other income (expenses) | (3,758 | ) | (819 | ) | ||||
| Net loss | $ | (197,585 | ) | $ | (296,841 | ) | ||
Note 7 Related Party Transactions
Supply Agreement
On March 1, 2010, the Company entered into a five year agreement with a Manufacturer (the “Manufacturer”) who is a related party. The Manufacturer is owned by the CEO and President of the Company. Under the terms of the agreement, the Company grants to the Manufacturer a revocable license to use the Company’s recipes, formulas, methods and ingredients for the preparation and production of Company’s products, for manufacturing the Company’s product and all future improvements, modifications, substitutions and replacements developed by the Company. The Manufacturer in turn grants the Company the exclusive right to purchase the product. Under the terms of the agreement the Manufacturer agrees to manufacture, package, and store the Company’s products and the Company has the right to purchase products from one or more other manufacturers, distributors or suppliers. The agreement contains a perpetual automatic renewal clause for a period of one year after the expiration of the initial term. During the renewal period either party may cancel the contract with written notice nine months prior to the termination date.
Under the terms of the agreement if the Company specifies any change in packaging or shipping materials which results in the manufacturer incurring increased expense for packaging and shipping materials or in the Manufacturer being unable to utilize obsolete packaging or shipping materials in ordinary packaging or shipping, the Company agrees to pay as additional product cost the additional cost for packaging and shipping materials and to purchase at cost such obsolete packaging and shipping materials. If the Company requests any repackaging of the product, other than due to defects in the original packaging, the Company will reimburse the Manufacturer for any labor costs incurred in repackaging. Per the agreement, all product delivery shipping costs are the expense of the Company.
| F-13 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
During the six months ended June 30, 2013 and 2012, the Company purchased substantially all of it’s inventory from the Manufacturer. At June 30, 2013 and December 31, 2012, the Company has a deposit on inventory in the amount of $84,227 and $192,956, respectfully, to this Manufacturer.
Due (to) from Manufacturer
During the six months ended June 30, 2013 and year ending December 31, 2012,the Manufacturer received payments on behalf of the Company for the Company’s customer invoices and the Manufacturer incurred expenses on behalf of the Company for shared administrative expenses and salary expenses. At June 30, 2013 and December 31, 2012 the amount due from the Manufacturer is as follows:
| June 30, 2013 | December 31, 2012 | |||||||
| Customer receipts collected by Manufacturer on behalf of Company | $ | 575,255 | $ | 301,447 | ||||
| Shared expenses paid by Manufacturer on behalf of the Company | (197,347 | ) | (142,247 | ) | ||||
| Due (to) from Manufacturer | $ | 377,908 | $ | 159,200 | ||||
Note 8 Concentrations
Revenues
For the six months ended June 30, 2013 and 2012, the Company had the following concentrations of revenues with customers:
| Customer | June 30, 2013 | June 30, 2012 | ||
| A | 16% | 13% | ||
| B | 15% | 8% | ||
| C | 23% | 44% | ||
| E | 10% | 4% | ||
| H | 10% | 11% |
Accounts Receivable
As of June 30, 2013 and December 31, 2012, the Company had the following concentrations of accounts receivable with customers:
| Customer | June 30, 2013 | December 31, 2012 | ||
| A | 8% | 13% | ||
| B | 27% | 30% | ||
| C | 22% | 20% | ||
| D | 5% | 3% |
Cost of Sales
For the six months ended June 30, 2013 and 2012, the Company had the following concentrations of purchases from vendors:
| Vendor | June 30, 2013 | June 30, 2012 | ||
| A (Related Party) | 100% | 100% |
| F-14 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Note 9 Stockholders’ Equity
(A) Common Stock Transactions
2013
As a result of the reverse merger (see Note 1) the Company had a deemed issuance of 800,000 shares of common stock.
(B) Options
The following is a summary of the Company’s option activity:
| Options | Weighted Average Exercise Price | ||||||||
| Outstanding – January 01, 2012 | - | $ | - | ||||||
| Exercisable – January 01, 2012 | - | $ | - | ||||||
| Granted | 223,404 | $ | 1.00 | ||||||
| Exercised | - | $ | - | ||||||
| Forfeited/Cancelled | - | $ | - | ||||||
| Outstanding – December 31, 2012 | 223,404 | $ | 1.00 | ||||||
| Exercisable – December 31, 2012 | 223,404 | $ | 1.00 | ||||||
| Granted | 318,000 | $ | 1.00 | ||||||
| Exercised | - | $ | - | ||||||
| Forfeited/Cancelled | - | $ | - | ||||||
| Outstanding – June 30, 2013 | 541,404 | $ | 1.00 | ||||||
| Exercisable – June 30, 2013 | 423,532 | $ | 1.00 | ||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||
| Range
of exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||
| $ | 1.00 | 541,404 | 4.35 years | $ | 1.00 | 423,532 | $ | 1.00 | ||||||||||
At June 30, 2013 and December 31, 2012, the total intrinsic value of options outstanding and exercisable was $541,404 and $0, respectively.
| F-15 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
(C) Warrants
The following is a summary of the Company’s warrant activity:
| Warrants | Weighted
Average Exercise Price | |||||||
| Outstanding – January 01, 2012 | - | $ | - | |||||
| Exercisable – January 01, 2012 | - | $ | - | |||||
| Granted | 505,400 | $ | 1.00 | |||||
| Exercised | - | $ | - | |||||
| Forfeited/Cancelled | - | $ | - | |||||
| Outstanding – December 31, 2012 | 505,400 | $ | 1.00 | |||||
| Exercisable – December 31, 2012 | 505,400 | $ | 1.00 | |||||
| Granted | - | $ | - | |||||
| Exercised | - | $ | - | |||||
| Forfeited/Cancelled | - | $ | - | |||||
| Outstanding – June 30, 2013 | 505,400 | $ | 1.00 | |||||
| Exercisable – June 30, 2013 | 505,400 | $ | 1.00 | |||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||
| Range
of exercise price | Number Outstanding | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||
| $ | 1.00 | 505,400 | 4.04 years | $ | 1.00 | 505,400 | $ | 1.00 | ||||||||||
At June 30, 2013 and December 31, 2012, the total intrinsic value of warrants outstanding and exercisable was $505,400 and $0, respectively.
Note 10 Commitments and Contingencies
Litigations, 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. However, 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 affect on its business, financial condition or operating results.
Licensing and Royalty Agreements
On March 1, 2010, the Company was assigned a Development and License agreement (“the Agreement”). Under the terms of the Agreement the Licensor shall develop for the Company a line of beef meatballs with sauce, Italian sausage with sauce and other similar Italian meats with sauces for commercial manufacture, distribution and sale (each a “Licensor Product” and collectively the “Licensor Products”). Licensor shall work with Licensee to develop Licensor Products that are acceptable to Licensee. Upon acceptance of a Licensor Product by Licensee, Licensor’s trade secret recipes, formulas methods and ingredients for the preparation and production of such Licensor Products (the “Recipes”) shall be subject to this Development and License Agreement.
| F-16 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
The term of the Agreement (the “Term”) shall consist of the Exclusive Term and the Non-Exclusive Term. The 12-month period beginning on each January 1 and ending on each December 31 is referred to herein as an “Agreement Year.”
The Exclusive Term began on January 1, 2009 (the “Effective Date”) and ends on the 50th anniversary of the Effective Date, unless terminated or extended as provided herein. Licensor, at its option, may terminate the Exclusive Term by notice in writing to Licensee, delivered between the 60th and the 90th day following the end of any Agreement Year if, on or before the 60th day following the end of such Agreement Year, Licensee has not paid Licensor Royalties with respect to such Agreement Year at least equal to the minimum royalty (the “Minimum Royalty”) for such Agreement Year. Subject to the foregoing sentence, and provided Licensee has not breached this Agreement and failed to cure such breach in accordance herewith, Licensee may extend the Exclusive Term for an additional twenty five (25) years, by notice in writing to Licensor, delivered on or before the 50th anniversary of the Effective Date.
The Non-Exclusive Term begins upon expiration of the Exclusive Term and continues indefinitely thereafter, until terminated by Licensor due to a material breach hereof by Licensee that remains uncured after notice and opportunity to cure in accordance herewith, or until terminated by Licensee.
Either party may terminate this Agreement in the event that the other party materially breaches its obligations and fails to cure such material breach within sixty (60) days following written notice from the non-breaching party specifying the nature of the breach. The following termination rights are in addition to the termination rights provided elsewhere in this
Under the terms of the Agreement the Company is required to pay quarterly royalty fees as follows:
During the Exclusive Term and the Non-Exclusive Term the Company will pay a royalty equal to the royalty rate (the “Royalty Rate”), multiplied by Company’s “Net Sales”. As used herein, “Net Sales” means gross invoiced sales of Products, directly or indirectly to unrelated third parties, less (a) discounts (including cash discounts), and retroactive price reductions or allowances actually allowed or granted from the billed amount (collectively “Discounts”); (b) credits, rebates, and allowances actually granted upon claims, rejections or returns, including recalls (voluntary or otherwise) (collectively, “Credits”); (c) freight, postage, shipping and insurance charges; (d) taxes, duties or other governmental charges levied on or measured by the billing amount, when included in billing, as adjusted for rebates and refunds; and (e) provisions for uncollectible accounts determined in accordance with reasonable accounting methods, consistently applied.
The Royalty Rate shall be: 6% of net sales up to $500,000 of net sales for each Agreement year; 4% of Net Sales from $500,000 up to $2,500,000 of Net Sales for each Agreement year; 2% of Net Sales from $2,500,000 up to $20,000,000 of Net Sales for each Agreement year; and 1% of Net Sales in excess of $20,000,000 of Net Sales for each Agreement year.
In order to continue the Exclusive term, the Company shall pay a minimum royalty with respect to the preceding Agreement year as follows:
| Agreement Year | Minimum Royalty to be Paid with Respect to Such Agreement Year | |||
| 1st and 2nd | $ | - | ||
| 3rd and 4th | $ | 50,000 | ||
| 5th, 6th and 7th | $ | 75,000 | ||
| 8th and 9th | $ | 100,000 | ||
| 10th and thereafter | $ | 125,000 | ||
| F-17 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
The Company incurred $118,122 and $86,461 of royalty expenses for the six months ended June 30, 2013 and 2012, respectively. Royalty expenses are included in general and administrative expenses on the Statement of Operations.
Agreements with Placement Agents and Finders
The Company entered into a Financial Advisory and Investment Banking Agreement with Spartan Capital Securities, LLC (“Spartan”) effective December 1, 2011 (the “Spartan Advisory Agreement”). Pursuant to the Spartan Advisory Agreement, Spartan will act as the Company’s exclusive financial advisor and placement agent to assist the Company in connection with a best efforts private placement (the “Financing”) of up to $6 million of the Company’s equity and/or debt securities and/or convertible instruments (the “Securities”).
The Company upon closing of the Financing shall pay consideration to Spartan, in cash, a fee in an amount equal to 10% of the aggregate gross proceeds raised in the Financing. The Company shall grant and deliver to Spartan at the closing of the Financing, for nominal consideration, five year warrants (the “Warrants”) to purchase a number of shares of the Company’s Common Stock equal to 10% of the number of shares of Common Stock (and/or shares of Common Stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold at such closing. The Warrants shall be exercisable at any time during the five year period commencing on the closing to which they relate at an exercise price equal to the purchase price per share of Common Stock paid by investors in the Financing or, in the case of exercisable, convertible, or exchangeable securities, the exercise, conversion or exchange price thereof. If the Financing is consummated by means of more than one closing, Spartan shall be entitled to the fees provided herein with respect to each such closing.
Along with the above fees, the Company shall pay up to $40,000 for expenses incurred by Spartan in connection with this Financing, together with cost of background checks on the officers and directors of the Company.
During the year ended 2012 the Company paid to Spartan fees of $505,400 and issued Spartan 505,400 five year warrants with an exercise price of $1.00.
During the six months ended June 30, 2013 the Company paid to Spartan fees of $25,000 for future services. This payment is classified in the Balance sheet as a prepaid expense at June 30, 2013.
Supply Agreement
On October 3, 2011, the Company entered into a five year agreement with a non-related party manufacturer. Under the terms of the agreement, the Company grants to the manufacturer a revocable license to use the Company’s recipes, formulas, methods and ingredients for the preparation and production of Company’s products, for manufacturing the Company’s product and all future improvements, modifications, substitutions and replacements developed by the Company. The manufacturer in turn grants the Company the exclusive right to purchase the product. Under the terms of the agreement the manufacturer agrees to manufacture, package, and store the Company’s products and the Company has the right to purchase products from one or more other manufacturers, distributors or suppliers. The agreement contains a perpetual automatic renewal clause for a period of year after the expiration of the initial term. During the renewal period either party may cancel the contract with written notice nine months prior to the termination date.
| F-18 |
MamaMancini’s Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 2013
Under the terms of the agreement if the Company specifies any change in packaging or shipping materials which results in the manufacturer incurring increased expense for packaging and shipping materials or in the manufacturer being unable to utilize obsolete packaging or shipping materials in ordinary packaging or shipping, the Company agrees to pay as additional product cost the additional cost for packaging and shipping materials and to purchase at cost such obsolete packaging and shipping materials. If the Company requests any repackaging of the product, other than due to defects in the original packaging, the Company will reimburse the manufacturer for any labor costs incurred in repackaging. Per the agreement all product delivery shipping costs are the expense of the Company.
Under the terms of the agreement, the Company is required to acquire and install production equipment at the manufacturer’s facility to be used solely for the manufacturing of the Company’s products. The manufacturer will bear all costs of operating and maintaining the production equipment during the period in which the manufacturer is manufacturing products pursuant to the agreement. The production equipment shall be owned by the Company.
In March 2012, the agreement was terminated and production equipment held by the manufacturer was returned to the Company.
Note 11 Subsequent Event
The Company has evaluated all events that occurred after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent events to be disclosed as follow.
From July 1, 2013 through August 13, 2013, the Company issued 1,759,028 shares of common stock to investors in exchange for $2,638,500 in proceeds in connection with the private placement of the Company’s stock. The Company incurred approximately $398,143 in stock issuance costs in conjunction with the placement.
The Company is currently in negotiations to refinance a $1,500,000 credit line and has already executed a non-binding term sheet.
| F-19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This quarterly report on Form 10-Q and other reports (collectively, the “Filings”) filed by MamaMancini’s Holdings, Inc. (“MamaMancini’s” or the “Company”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on April 16, 2013, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.
Results of Operations for the three months ended June 30, 2013 and 2012
The following table sets forth the summary income statement for the three months ended June 30, 2013 and 2012:
| Three Months Ended | ||||||||
| June 30, 2013 | June 30, 2012 | |||||||
| Sales - Net of slotting fees and discounts(1) | $ | 1,700,388 | $ | 1,274,763 | ||||
| Gross Profit | $ | 514,502 | $ | 405,068 | ||||
| Operating Expenses | $ | (1,266,049 | ) | $ | (867,393 | ) | ||
| Other Income (Expense) | $ | (1,525 | ) | $ | (2,418 | ) | ||
| Net Loss | $ | (753,072 | ) | $ | (464,743 | ) | ||
| 5 |
Slotting fees are required in new placements with some, but not a majority of supermarket chains that the Company does business with. They are negotiated with each chain depending upon the expected return to the Company. We believe that we have successfully negotiated such slotting fees to a relatively low expense. We have taken into account future fees currently being negotiated in preliminary negotiations for new placements. We do not believe our size or financial limitations are an impediment to being able to pay such slotting fees. Slotting fee costs are an expense in growing the business as are other marketing and sales costs and the Company has accounted for these fees in assessing its estimated working capital for the next twelve months.
For the three months ended June 30, 2013 and 2012, the Company reported a net loss of $(753,072) and $(464,743), respectively. The change in net loss between the three months ended June 30, 2013 and 2012 was primarily attributable to following significant events:
| ● | The Company commenced operations during 2010 and has experienced significant growth in sales for the comparable periods. The Company has sold into approximately 17,000 retail and grocery locations at June 30, 2013 as compared to approximately 12,000 at June 30, 2012. The Company has reinvested proceeds to further develop brand awareness. |
| ● | Advertising and promotional expense increased by $64,000. |
| ● | Payroll and related expenses increased by $65,000. |
| ● | Stock based compensation increased by $156,000. |
| ● | Trade show and Travel expenses increased by $33,000. |
| ● | Commission expenses increased by $7,500. |
| ● | Royalty expenses increased by $7,500. |
| ● | Professional fees increased by $130,000. |
| ● | Postage and freight increased by $12,000. |
| ● | Marketing research costs decreased by $52,000. |
| ● | Product development costs decreased by $35,000 |
Sales: Sales, net of slotting fees and discounts increased by approximately 33% to $1,700,388 during the three months ended June 30, 2013, from $1,274,763 during the corresponding three months ended June 30, 2012. The increase in sales is primarily related to the company executing on their expansion strategy. The Company has sold into approximately 17,000 retail and grocery locations at June 30, 2013 as compared to approximately 12,000 at June 30, 2012.
Gross Profit: The gross profit margin decreased by approximately 1.5% of sales during the three months ended June 30, 2013 as compared to the three months ended June 30, 2012. This decrease is primarily attributable to slotting fees and discounts.
Operating Expenses: Operating expenses increased by 46% during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. The $398,656 increase in operating expenses is primarily attributable the following approximate increases in operating expenses: advertising and promotional expenses of $64,000 related to a new radio advertising campaign and special promotions, payroll and related expense of $65,000 as compensation to three new members of management and a new sales representative, stock based compensation of $156,000 as a result of stock options issued during the quarter, trade show and travel expenses of $33,000 related to the increased cost of more members of the Company traveling and attending more trade shows as sales increased, royalties of $7,500 related to increased sales, professional fees of $130,000 due to the cost of being a public company and the reverse merger, postage and freight of $12,000 due to higher sales slightly offset by some customers picking up their product in lieu of having it shipped to them, and commission expenses of $7,500 related to increased sales. These expense increases were offset by decreases in the following expenses: Marketing research costs decreased by $52,000 due to the Company electing not to spend on research for the three months ending on June 30, 2013; and product development costs decreased by $35,000 due to the Company electing not to spend on product development costs for the three months ending on June 30, 2013.
| 6 |
Other Income (Expense): Other expenses decreased by $893 to $(1,525) for the three months ended June 30, 2013 as compared to $(2,418) during the three months ended June 30, 2012. For the three months ended June 30, 2013 other expenses consisted of $1,525 in interest expense incurred on the company’s line of credit. For the three months ended June 30, 2012 other expenses consisted of $2,418 in interest expense incurred on the company’s line of credit.
Results of Operations for the six months ended June 30, 2013 and 2012
The following table sets forth the summary income statement for the six months ended June 30, 2013 and 2012:
| Six Months Ended | ||||||||
| June 30, 2013 | June 30, 2012 | |||||||
| Sales - Net of slotting fees and discounts(1) | $ | 3,472,552 | $ | 2,411,964 | ||||
| Gross Profit | $ | 1,004,564 | $ | 757,998 | ||||
| Operating Expenses | $ | (2,365,249 | ) | $ | (1,612,626 | ) | ||
| Other Income (Expense) | $ | (3,775 | ) | $ | (10,272 | ) | ||
| Net Loss | $ | (1,364,460 | ) | $ | (864,900 | ) | ||
Slotting fees are required in new placements with some, but not a majority of supermarket chains that the Company does business with. They are negotiated with each chain depending upon the expected return to the Company. We believe that we have successfully negotiated such slotting fees to a relatively low expense. We have taken into account future fees currently being negotiated in preliminary negotiations for new placements. We do not believe our size or financial limitations are an impediment to being able to pay such slotting fees. Slotting fee costs are an expense in growing the business as are other marketing and sales costs and the Company has accounted for these fees in assessing its estimated working capital for the next twelve months.
For the six months ended June 30, 2013 and 2012, the Company reported a net loss of $(1,364,460) and $(864,900), respectively. The change in net loss between the six months ended June 30, 2013 and 2012 was primarily attributable to following significant events:
| ● | The Company commenced operations during 2010 and has experienced significant growth in sales for the comparable periods. The Company has sold into approximately 17,000 retail and grocery locations at June 30, 2013 as compared to approximately 12,000 at June 30, 2012. The Company has reinvested proceeds to further develop brand awareness. |
| ● | Advertising and promotional expense increased by $160,000. |
| ● | Payroll and related expenses increased by $190,000. |
| ● | Stock based compensation increased by $156,000. |
| ● | Directors fees increased $15,000 |
| ● | Trade show and Travel expenses increased by $28,000. |
| ● | Commission expenses increased by $17,000. |
| ● | Royalty expenses increased by $32,000. |
| ● | Professional fees increased by $132,000. |
| ● | Postage and freight increased by $35,000. |
| ● | Public relations expenses increased $24,000. |
| ● | Marketing research costs decreased by $52,000. |
| ● | Product development costs decreased by $35,000 |
| 7 |
Sales: Sales, net of slotting fees and discounts increased by approximately 44% to $3,472,522 during the six months ended June 30, 2013, from $2,411,964 during the corresponding six months ended June 30, 2012. The increase in sales is primarily related to the company executing on their expansion strategy. The Company has sold into approximately 17,000 retail and grocery locations at June 30, 2013 as compared to approximately 12,000 at June 30, 2012.
Gross Profit: The gross profit margin decreased by approximately 2.5% of sales during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012. This decrease is primarily attributable to slotting fees and discounts.
Operating Expenses: Operating expenses increased by 46.7% during the six months ended June 30, 2013, as compared to the three months ended June 30, 2012. The $752,623 increase in operating expenses is primarily attributable the following approximate increases in operating expenses: advertising and promotional expenses of $160,000 related to a new radio advertising campaign and special promotions, payroll and related expense of $190,000 as compensation to three new members of management and a new sales representative, stock based compensation of $156,000 as a result of stock options issued during the period, Director’s fees of $15,000, trade show and travel expenses of $28,000 related to the increased cost of more members of the Company traveling and attending more trade shows as sales increased, royalties of $32,000 related to increased sales, professional fees of $132,000 due to the cost of being a public company and the reverse merger, postage and freight of $35,000 due to higher sales slightly offset by some customers picking up their product in lieu of having it shipped to them, public relations expenses of $24,000 because the Company needed the exposure to enhance sales, and commission expenses of $17,000 related to increased sales. These expense increases were offset by decreases in the following expenses: Marketing research costs decreased by $52,000 due to the Company deciding not to spend on marketing research costs during the six months ending on June 30, 2013; and product development costs decreased by $35,000 due to the Company electing not to spend on product development costs in the six months ending on June 30, 2013.
Other Income (Expense): Other expenses decreased by $6,497 to $(3,775) for the six months ended June 30, 2013 as compared to $(10,272) during the six months ended June 30, 2012. For the six months ended June 30, 2013 other expenses consisted of $3,775 in interest expense incurred on the company’s line of credit. For the six months ended June 30, 2012 other expenses consisted of $10,272 in interest expense incurred on the company’s line of credit.
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at June 30, 2013 compared to December 31, 2012:
| Period ended | ||||||||||||
| June 30, 2013 | December 31, 2012 | Increase/(Decrease) | ||||||||||
| Current Assets | $ | 1,545,467 | $ | 2,964,630 | $ | (1,419,163 | ) | |||||
| Current Liabilities | $ | 680,711 | $ | 529,233 | $ | 151,478 | ||||||
| Working Capital | $ | 864,756 | $ | 2,435,397 | $ | (1,570,641 | ) | |||||
As of June 30, 2013, we had working capital of $864,756 as compared to working capital of $2,435,397 as of December 31, 2012, a decrease of $1,570,641. The decrease in working capital is primarily attributable to net cash used in operating activities during the six months ended June 30, 2013. During the year ended December 31, 2012 the Company raised net proceeds of the $4,403,158 from the sale of 5,054,000 shares of common stock which was used to fund operations during the first and second quarter 2013.
| 8 |
Net cash (used in) operating activities for the six months ended June 30, 2013 and 2012 was $(1,571,870) and $(433,739), respectively. The Net Loss for the six months ended June 30, 2013 and 2012 was $(1,364,460) and $(864,900), respectively.
Net cash used in all investing activities for the six months ended June 30, 2013 was $(402,037) as compared to $(10,000) for the six months ended June 30, 2012. The Company paid $295,000 for the acquisition of a company $77,000 for machinery and equipment and loaned $30,000 to a related party on a short term basis during the six months ended June 30, 2013. In July 2013 this loan was paid back. The Company paid $10,000 for machinery and equipment during the six months ended June 30, 2012.
Net cash provided by financing activities for six months ended June 30, 2013 was $150,000 as compared to $1,799,075 for the six months ended June 30, 2012. During the six months ended June 30, 2013 the Company received advances from the Company credit line in the amount of $150,000. During the six months ended June 30, 2012 the Company received net proceeds of $2,099,075 from the sale of common stock and paid down the Company credit line in the amount of $300,000.
The Company believes that our existing available cash along with the net proceeds from the issuance of securities from the fourth quarter of 2012 and capital raise in 2013 will enable the Company to meet the working capital requirements for at least 12 months. The estimated working capital requirement for the next 12 months is $2,200,000 with an estimated burn rate of $183,000 per month. The Company continues to explore potential expansion opportunities in the industry in order to boost sales while leveraging distribution systems to consolidate lower costs.
As reflected in the accompanying financial statements, the Company has a net loss and net cash used in operations of $1,364,460 and $1,571,870, respectively, for the six months ended June 30, 2013.
The ability of the Company to continue its operations is dependent on Management’s plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence.
The Company may require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, though there is no guarantee it will be able to do so.
Our auditor has expressed substantial doubt about our ability to continue as a going concern. Our plan regarding these matters is to raise additional debt and/or equity financing to allow us the ability to cover our current cash flow requirements and meet our obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms. In the event that we are unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, we may seek protection under bankruptcy laws. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. During the Third Quarter 2013, Management has begun to raise capital through debt and/or equity financing. The Company intends to utilize the capital in order further advertise and market the Company’s brand and to assist in penetrating additional distribution channels.
| 9 |
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements.
Critical Accounting Policies
Our 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 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 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 financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: allowance for bad debt, inventory obsolescence, 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 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.
Stock-Based Compensation - The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Accounting for Stock-Based Compensation” established 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 accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
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.
| 10 |
Share based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Share based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. 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 Statement of Operations.
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 term is the contractual term of the option/warrant. |
| ● | Given the Company was privately held and the company does not have significant history expected volatility was benchmarked against similar companies in a similar industry. |
Revenue recognition - The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition and records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured. There is no stated right of return for products. Sales are recognized upon shipment of products to customers.
Advertising - Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred.
Off Balance Sheet Arrangements:
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 11 |
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.
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on April 16, 2013.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There have been no unregistered sales of equity securities not otherwise reported on a Current Report on Form 8-K for the period ended June 30, 2013.
Item 3. Defaults upon Senior Securities.
There has been no default in payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
Item 4. Mine Safety Disclosure.
Not applicable.
There is no other information required to be disclosed under this item which was not previously disclosed.
| Exhibit No. | Description | |
| 31.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* | |
| 31.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002* | |
| 32.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 32.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 101.INS | XBRL Instance Document** | |
| 101.SCH | XBRL Taxonomy Extension Schema Document** | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
| * | Filed herewith. |
| ** | In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”. |
| 12 |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MAMAMANCINI’S HOLDINGS, INC. | ||
| Date: August 14, 2013 | By: | /s/ Carl Wolf |
| Name: | Carl Wolf | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| (Principal Financial Officer) | ||
| (Principal Accounting Officer) | ||
| 13 |
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Carl Wolf, certify that:
| 1. | I have reviewed this Form 10-Q of MamaMancini’s Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 14, 2013 | By: | /s/ Carl Wolf |
| Carl Wolf | ||
| Principal
Executive Officer MamaMancini’s Holdings, Inc. |
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Carl Wolf, certify that:
| 1. | I have reviewed this Form 10-Q of MamaMancini’s Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 14, 2013 | By: | /s/ Carl Wolf |
| Carl Wolf | ||
| Principal
Financial Officer MamaMancini’s Holdings, Inc. |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of MamaMancini’s Holdings, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2013, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Carl Wolf, Principal Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended June 30, 2013, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended June 30, 2013, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 14, 2013 | By: | /s/ Carl Wolf |
| Carl Wolf | ||
| Principal Executive
Officer MamaMancini’s Holdings, Inc. |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of MamaMancini’s Holdings, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2013, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Carl Wolf, Principal Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | Such Quarterly Report on Form 10-Q for the period ended June 30, 2013, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in such Quarterly Report on Form 10-Q for the period ended June 30, 2013, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 14, 2013 | By: | /s/ Carl Wolf |
| Carl Wolf | ||
|
Principal Financial Officer |
|
Subsequent Event
|
6 Months Ended |
|---|---|
|
Jun. 30, 2013
|
|
| Subsequent Events [Abstract] | |
| Subsequent Event |
Note 11 Subsequent Event
The Company has evaluated all events that occurred after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent events to be disclosed as follow.
From July 1, 2013 through August 13, 2013, the Company issued 1,759,028 shares of common stock to investors in exchange for $2,638,500 in proceeds in connection with the private placement of the Company’s stock. The Company incurred approximately $398,143 in stock issuance costs in conjunction with the placement.
The Company is currently in negotiations to refinance a $1,500,000 credit line and has already executed a non-binding term sheet. |
|
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
| Income Statement [Abstract] | ||||
| Sales - net of slotting fees and discounts | $ 1,700,388 | $ 1,274,763 | $ 3,472,552 | $ 2,411,964 |
| Cost of sales | 1,185,886 | 869,695 | 2,467,988 | 1,653,966 |
| Gross profit | 514,502 | 405,068 | 1,004,564 | 757,998 |
| Operating expenses | ||||
| Research and development | 3,995 | 41,043 | 7,138 | 41,043 |
| General and administrative expenses | 1,262,054 | 826,350 | 2,358,111 | 1,571,583 |
| Total operating Expenses | 1,266,049 | 867,393 | 2,365,249 | 1,612,626 |
| Loss from operations | (751,547) | (462,325) | (1,360,685) | (854,628) |
| Other income (expenses) | ||||
| Interest expense | (1,525) | (2,418) | (3,775) | (10,272) |
| Total other income (expense) | (1,525) | (2,418) | (3,775) | (10,272) |
| Net loss | $ (753,072) | $ (464,743) | $ (1,364,460) | $ (864,900) |
| Net loss per common share - basic and diluted | $ (0.04) | $ (0.03) | $ (0.07) | $ (0.05) |
| Weighted average common shares outstanding - basic and diluted | 20,854,000 | 16,930,154 | 20,747,923 | 15,965,077 |
|
Property Plant and Equipment
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
Jun. 30, 2013
|
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property Plant and Equipment |
Note 4 Property, Plant and Equipment:
Property, plant and equipment on June 30, 2013 and December 31, 2012 are as follows:
Depreciation expense charged to income for the six months ended June 30, 2013 and 2012 amounted to $9,752 and $5,806 respectively. |
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|
Stockholders' Equity (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
Jun. 30, 2013
|
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Option Activity |
The following is a summary of the Company’s option activity:
|
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| Summary of Option Outstanding and Exercisable |
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| Schedule of Warrants Activity |
The following is a summary of the Company’s warrant activity:
|
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| Schedule of Warrants Outstanding and Exercisable |
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|
Summary of Significant Accounting Policies (Policies)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2013
|
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Principles of consolidation |
Principles of consolidation
All significant intercompany accounts and transactions have been eliminated in consolidation. |
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| Use of Estimates |
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 bad debt, inventory obsolescence, 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. |
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| Risks and Uncertainties |
Risks and uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the grocery industry, (ii) general economic conditions in the various local markets in which the Company competes, including the 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. |
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| Reclassifications |
Reclassifications
Certain amounts in the prior year have been reclassified to conform to the current year presentation. |
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| Cash |
Cash
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. The Company held no cash equivalents at June 30, 2013 and December 31, 2012.
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. |
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| Accounts Receivable and Allowance for Doubtful Accounts |
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. The maximum accounting loss from the credit risk associated with accounts receivable is the amount of the receivable recorded, which is the face amount of the receivable net of the allowance for doubtful accounts. As of June 30, 2013 and December 31, 2012, the Company had reserves of $2,000. |
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| Inventories |
Inventories
Inventories are stated at average cost using the first-in, first-out (FIFO) valuation method. Inventory was comprised of the following at June 30, 2013 and December 31, 2012:
|
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| Depreciation |
Depreciation
Property and equipment are recorded at cost. Depreciation expense is computed using straight-line methods over the estimated useful lives.
Asset lives for financial statement reporting of depreciation are:
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| Fair Value of Financial Instruments |
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. |
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| Stock Issuance Costs |
Stock Issuance Costs
Stock Issuance costs are capitalized as incurred. Upon the completion of the offering, the stock issuance costs are reclassified to equity. Offering costs recorded to equity for the six months ended June 30, 2013 and year ended December 31, 2012 were$0 and $1,088,964, respectively. |
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| Research and Development |
Research and Development
Research and development is expensed as incurred. Research and development expenses for the six months ended June 30, 2013 and 2012 were$7,138 and $41,043, respectively. |
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| Shipping and Handling Costs |
Shipping and Handling Costs
The Company classifies freight billed to customers as sales revenue and the related freight costs as cost of sales. |
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| Revenue Recognition |
Revenue Recognition
The Company records revenue for products when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured. There is no stated right of return for products.
The Company meets these criteria upon shipment.
Expenses such as slotting fees and sales discounts are accounted for as a direct reduction of revenues as follows:
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| Cost of Sales |
Cost of sales
Cost of sales represents costs directly related to the production and manufacturing of the Company’s products. Costs include product development, freight, packaging, and print production costs. |
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| Advertising |
Advertising
Costs incurred for producing and communicating advertising for the Company are charged to operations as incurred. Producing and communicating advertising expenses for the six months ended June 30, 2013 and 2012 were$810,722 and $657,107, respectively. |
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| Stock-Based Compensation |
Stock-based compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Accounting for Stock-Based 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 accounts for share based payments to non-employees in accordance with ASC 505-50 “Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling Goods or Services”.
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 Statement of Operations. For the six months ended June 30, 2013 and 2012 share based compensation amounted to $156,104 and $213,971, respectively. The $213,971 recorded for the six months ended June 30, 2012 was a direct cost of the stock offering and has been recorded as a reduction in additional paid in capital.
For the six months ended June 30, 2013, 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 risk free rate used was 0.68%.
● 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. Therefore the expected dividend rate was $0.
● The expected option term is computed using the “simplified” method as permitted under the provisions of Staff Accounting Bulletin (“SAB”) 110.
● The expected volatility was bench marked against similar companies in a similar industry. The expected volatility used was 144%.
● The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%.
For the six months ended June 30, 2012, 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 risk free rate used had a range of 0.75%-1.01%.
● 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. Therefore the expected dividend rate was $0.
● The expected warrant term is the life of the warrant.
● Given the Company was privately held, expected volatility was bench marked against similar companies in a similar industry. The expected volatility used was 128%.
● The forfeiture rate is based on the historical forfeiture rate for the Company’s unvested stock options, which was 0%. |
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| Earnings Per Share |
Earnings per share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss), adjusted for changes in income or loss that resulted from the assumed conversion of convertible shares, by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
The Company had the following potential common stock equivalents at June 30, 2013:
The Company had the following potential common stock equivalents at June 30, 2012:
Since the Company reflected a net loss during the three and six months ended June 30, 2013 and 2012, the effect of considering any common stock equivalents, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented. |
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| Income Taxes |
Income Taxes
Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. 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.
Penalties and interest assessed by income taxing authorities are included in general and administrative expenses. |
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| Recent Accounting Pronouncements |
Recent accounting pronouncements
There are no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements. |
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Schedule of Warrants Outstanding and Exercisable (Details) (USD $)
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6 Months Ended |
|---|---|
|
Jun. 30, 2013
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|
| Equity [Abstract] | |
| Range of Exercise Price | $ 1.00 |
| Number of Warrants Outstanding | 505,400 |
| Weighted Average Remaining Contractual Life (in Years) | 4 years 15 days |
| Weighted Average Exercise Price, Warrants Outstanding | $ 1.00 |
| Number of Warrants Exercisable | 505,400 |
| Weighted Average Exercise Price, Warrants Exercisable | $ 1.00 |
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Summary of Financial Information (Details) (USD $)
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3 Months Ended | 6 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|
|
Jun. 30, 2013
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Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
Dec. 31, 2011
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|
| Cash | $ 184,254 | $ 1,371,841 | $ 184,254 | $ 1,371,841 | $ 2,008,161 | $ 16,505 |
| Accounts receivable | 644,541 | 644,541 | 463,565 | |||
| Inventory | 91,044 | 91,044 | 76,570 | |||
| Property & equipment, net | 84,736 | 84,736 | 17,451 | |||
| Total Assets | 1,630,203 | 1,630,203 | 2,982,081 | |||
| Total Current Liabilities | 680,711 | 680,711 | 529,233 | |||
| Members' Equity | 949,492 | 949,492 | 2,452,848 | 49,313 | ||
| Total Liabilities and Members' Equity | 1,630,203 | 1,630,203 | 2,982,081 | |||
| Expenses | 1,266,049 | 867,393 | 2,365,249 | 1,612,626 | ||
| Net operating loss | (751,547) | (462,325) | (1,360,685) | (854,628) | ||
| Other income (expenses) | (1,525) | (2,418) | (3,775) | (10,272) | ||
| Net loss | (753,072) | (464,743) | (1,364,460) | (864,900) | (1,999,623) | |
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Meatball Obsession, LLC [Member]
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| Cash | 32,314 | 32,314 | 117,777 | |||
| Accounts receivable | 5,649 | 5,649 | 5,234 | |||
| Inventory | 13,259 | 13,259 | 14,935 | |||
| Property & equipment, net | 155,922 | 155,922 | 75,861 | |||
| Other assets | 55,111 | 55,111 | 60,370 | |||
| Total Assets | 262,256 | 262,256 | 274,177 | |||
| Accounts payable | 44,356 | 44,356 | 25,731 | |||
| Other current liabilities | 75,394 | 75,394 | 8,354 | |||
| Total Current Liabilities | 119,750 | 119,750 | 34,085 | |||
| Members' Equity | 142,507 | 142,507 | 240,092 | |||
| Total Liabilities and Members' Equity | 262,256 | 262,256 | 274,177 | |||
| Revenues | 261,360 | 129,095 | ||||
| Cost of goods sold | 99,334 | 59,227 | ||||
| Expenses | 355,853 | 365,890 | ||||
| Net operating loss | (193,827) | (296,022) | ||||
| Other income (expenses) | (3,758) | (819) | ||||
| Net loss | $ (197,585) | $ (296,841) | ||||
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Summary of Significant Accounting Policies (Details Narrative) (USD $)
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1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|---|
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Aug. 13, 2013
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Dec. 31, 2012
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|
| Accounting Policies [Abstract] | ||||||
| Cash equivalents | $ 0 | $ 0 | $ 0 | |||
| Accounts receivable reserves | 2,000 | 2,000 | 2,000 | |||
| Stock offering cost recorded | 398,143 | 0 | 414,925 | 1,088,964 | ||
| Research and development expense | 3,995 | 41,043 | 7,138 | 41,043 | ||
| Advertising expenses | 810,722 | 657,107 | ||||
| Share based compensation | 156,104 | |||||
| Reduction in additional paid in capital | 213,971 | |||||
| Assumption risk-free interest rate of option in effect at the time of the grant | 0.68% | |||||
| Assumption risk-free interest rate of option in effect at the time of the grant minimum | 0.75% | |||||
| Assumption risk-free interest rate of option in effect at the time of the grant maximum | 1.01% | |||||
| Expected common stock dividend rate | $ 0 | $ 0 | ||||
| The expected volatility | 144.00% | 128.00% | ||||
| Historical forfeiture rate for unvested stock option | 0.00% | 0.00% | ||||
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Nature of Operations and Basis of Presentation (Details Narrative) (USD $)
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0 Months Ended |
|---|---|
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Jan. 24, 2013
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| Nature Of Operations And Basis Of Presentation | |
| Number of shares issued in exchange for acquisition | 20,054,000 |
| Number of shares cancelled | 103,408,000 |
| Aggregate amount paid in cancellation to majority shareholders | $ 295,000 |
| Stock issued for consideration of common stock cancellation for majority shareholders | 800,000 |
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Summary of Option Outstanding and Exercisable (Details) (USD $)
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6 Months Ended | ||
|---|---|---|---|
|
Jun. 30, 2013
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Dec. 31, 2012
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Dec. 31, 2011
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|
| Equity [Abstract] | |||
| Range of exercise price | $ 1.00 | ||
| Number of Options Outstanding | 541,404 | 223,404 | |
| Weighted Average Remaining Contractual Life (in years), Options Outstanding | 4 years 4 months 6 days | ||
| Weighted Average Exercise Price, Options Outstanding | $ 1.00 | $ 1.00 | |
| Number of Options Exercisable | 423,532 | 223,404 | |
| Weighted Average Exercise Price, Options Exercisable | $ 1.00 | $ 1.00 |
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Property Plant and Equipment (Details Narrative) (USD $)
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6 Months Ended | |
|---|---|---|
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Jun. 30, 2013
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Jun. 30, 2012
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| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 9,752 | $ 5,806 |
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Related Party Transactions - Schedule of Amount Due from Manufacturer (Details) (USD $)
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6 Months Ended | 12 Months Ended |
|---|---|---|
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Jun. 30, 2013
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Dec. 31, 2012
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|
| Related Party Transactions [Abstract] | ||
| Customer receipts collected by Manufacturer on behalf of Company | $ 575,255 | $ 301,447 |
| Shared expenses paid by Manufacturer on behalf of the Company | (197,347) | (142,247) |
| Due (to) from Manufacturer | $ 377,908 | $ 159,200 |
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Commitments and Contingencies (Details Narrative) (USD $)
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6 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
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Jun. 30, 2013
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Jun. 30, 2012
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Dec. 31, 2012
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Jun. 30, 2013
Spartan Capital Securities, LLC [Member]
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Dec. 31, 2012
Spartan Capital Securities, LLC [Member]
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Jun. 30, 2013
Year 1 [Member]
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Jun. 30, 2013
Year 2 [Member]
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Jun. 30, 2013
Year 2 [Member]
Maximum [Member]
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Jun. 30, 2013
Year 3 [Member]
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Jun. 30, 2013
Year 3 [Member]
Maximum [Member]
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Jun. 30, 2013
Year 4 [Member]
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| Percentage of royalty rate on net sales | 6.00% | 4.00% | 2.00% | 1.00% | |||||||
| Royalty net sales | $ 500,000 | $ 500,000 | $ 2,500,000 | $ 2,500,000 | $ 20,000,000 | $ 20,000,000 | |||||
| Royalty expenses | 118,122 | 86,461 | |||||||||
| Proceeds form private placements | 6,000,000 | ||||||||||
| Percentage of fee equal to aggregate gross proceeds | 10.00% | ||||||||||
| Percentage of common stock issuable | 10.00% | ||||||||||
| Payment of maximum amount paid for consideration of expenses incurred by Spartan | 40,000 | ||||||||||
| Spartan fee paid amount | $ 25,000 | $ 505,400 | |||||||||
| Number of warrants issued | 505,400 | ||||||||||
| Warrants Remaining Contractual Life | 5 years | ||||||||||
| Warrants exercise price | 1.00 | ||||||||||
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Summary of Significant Accounting Policies - Schedule of Common Stock Equivalents (Details)
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Jun. 30, 2013
|
Jun. 30, 2012
|
|---|---|---|
| Accounting Policies [Abstract] | ||
| Common stock warrants, exercise price of $1.00 | 505,400 | |
| Common stock options, exercise price of $1.00 | 491,404 | 223,404 |
| Total common stock equivalents | 996,804 | 223,404 |