# Mama's Creations, Inc.: Form 10-Q for the period ended Oct 31, 2023

- Company: [Mama's Creations, Inc.](/companies/mama.md) (CIK 1520358)
- Form: 10-Q
- Filed: 2023-12-12
- Accepted by EDGAR: Dec 12, 2023, 16:16 ET
- Period: 2023-10-31
- Accession: 0001628280-23-041309
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1520358/000162828023041309/mama-20231031.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1520358/000162828023041309/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-08-01 to 2023-10-31 | $28.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-02-01 to 2023-10-31 | $76.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-08-01 to 2023-10-31 | $20.0m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-02-01 to 2023-10-31 | $54.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-08-01 to 2023-10-31 | $8.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-02-01 to 2023-10-31 | $22.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-08-01 to 2023-10-31 | $124.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-02-01 to 2023-10-31 | $290.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-08-01 to 2023-10-31 | $2.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-02-01 to 2023-10-31 | $6.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-08-01 to 2023-10-31 | $568.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-02-01 to 2023-10-31 | $1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-08-01 to 2023-10-31 | $2.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-02-01 to 2023-10-31 | $5.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-08-01 to 2023-10-31 | $0.05 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-02-01 to 2023-10-31 | $0.14 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-08-01 to 2023-10-31 | $0.05 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-02-01 to 2023-10-31 | $0.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-08-01 to 2023-10-31 | 37,646,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-02-01 to 2023-10-31 | 37,088,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-02-01 to 2023-10-31 | $4.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-02-01 to 2023-10-31 | $671.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-10-31 | $5.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-31 | $20.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-31 | $42.5m | us-gaap:Assets |
| Current liabilities | at 2023-10-31 | $14.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-31 | $24.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-10-31 | $18.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 16,816 characters.

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

### Results of Operations for the Three Months Ended October 31, 2023 and 2022

The following table sets forth the summary of the condensed consolidated statements of operations for the three months ended October 31, 2023 and 2022 (in thousands):

|  | For the Three Months Ended October 31, 2023 | October 31, 2022 |
| --- | ---: | ---: |
| Net sales | $28,648 | $25,694 |
| Cost of Sales | $20,013 | $19,130 |
| Gross Profit | $8,635 | $6,564 |
| Operating Expenses | $5,928 | $5,065 |
| Other Expenses | $(130) | $(187) |
| Income Tax (Provision) Benefit | $(568) | $(286) |
| Income from equity method investment in Chef Inspirational Foods, LLC | $— | $72 |
| Net Income | $2,009 | $1,098 |

For the three months ended October 31, 2023 and 2022, the Company reported net income of approximately $2.0 million and $1.1 million, respectively. The change in net income between the three months ended October 31, 2023 and 2022 reflects strong sales, successful pricing actions, same-customer cross-selling, product additions, normalization of costs for commodities and other materials, freight efficiencies, and other improvements in manufacturing execution.

*Net sales:* Net Sales increased by approximately 11.5% to $28.6 million during the three months ended October 31, 2023, from $25.7 million during the three months ended October 31, 2022. The increase in sales is due to both volume gains and successful pricing actions. Volume gains were driven by increased demand at existing customers, the acquisition of new customers, same-customer cross-selling, the acquisition of CIF, and product additions.

*Cost of sales:* Cost of sales increased by approximately 5% to $20.0 million or 70% of Net Sales during the three months ended October 31, 2023, from $19.1 million or 74% of Net Sales during the three months ended October 31, 2022. The decrease in cost of sales as a percentage of Net Sales is due to improvements in procurement and manufacturing efficiencies and normalization of costs for commodities.

*Gross Profit Margin:* The gross profit margin was 30% and 26% for the three months ended October 31, 2023 and 2022, respectively. The change in gross profits between the three months ended October 31, 2023 and 2022 is due to successful pricing actions, improvements in procurement, manufacturing and logistics efficiencies and normalization of costs for commodities.

*Operating Expenses:* Operating expenses increased by 17% during the three months ended October 31, 2023, as compared to the three months ended October 31, 2022. Operating expenses increased as a percentage of Net Sales to 21% in the third quarter of fiscal 2024 compared to 20% in the same period of fiscal 2023. The $0.9 million increase in total operating expenses is primarily attributable to the following:

- Payroll and Related Expenses inclusive of stock-based compensation increased by approximately $714 thousand related to executive and office hires;
- Advertising expenses increased by approximately $274 thousand due to new strategies and enhanced focus to drive increased velocities of our existing products
- Amortization of intangible assets increased by approximately $251 thousand due to the acquisition of CIF;
- Professional fees and director fees increased by approximately $166 thousand due to the growth of the Company and the use of consultants for upgrades for manufacturing efficiencies as well as information technology integration (including ERP implementation);
- Freight related expenses decreased by approximately $265 thousand due to the addition of dedicated logistics employees and capabilities; and
- Bad debt expense decreased by approximately $237 thousand due to new management procedures related to accounts receivables in the prior year.

*Other Expenses:* Other expenses decreased by approximately $57 thousand to $130 thousand for the three months ended October 31, 2023 as compared to $187 thousand for the three months ended October 31, 2022. For the three months ended October 31, 2023, other expenses consisted of approximately $124 thousand in interest expense on the Company’s financing arrangements and approximately $6 thousand in amortization of debt discount. For the three months ended October 31, 2022, other expenses consisted of approximately $184 thousand in interest expense incurred on the Company’s financing arrangements and approximately $3 thousand in amortization of debt discount.

### Results of Operations for the Nine Months Ended October 31, 2023 and 2022

The following table sets forth the summary of the condensed consolidated statements of operations for the nine months ended October 31, 2023 and 2022 (in thousands):

|  | For the Nine Months Ended October 31, 2023 | October 31, 2022 |
| --- | ---: | ---: |
| Net Sales | $76,559 | $70,371 |
| Cost of Sales | $54,047 | $57,385 |
| Gross Profit | $22,512 | $12,986 |
| Operating Expenses | $15,587 | $12,057 |
| Other Expenses | $(473) | $(454) |
| Income Tax (Provision) Benefit | $(1,522) | $(106) |
| Income from equity method investment in Chef Inspirational Foods, LLC | $223 | $90 |
| Net Income (Loss) | $5,153 | $459 |

For the nine months ended October 31, 2023 and 2022, the Company reported net income of approximately $5.2 million and $459 thousand, respectively. The change in net income between the nine months ended October 31, 2023 and 2022 reflects strong sales, successful pricing actions, same-customer cross-selling, product additions, normalization of costs for commodities, as well as other materials, freight efficiencies, and other improvements in manufacturing execution.

*Net Sales:* Net sales increased by approximately 9% to $76.6 million during the nine months ended October 31, 2023, from $70.4 million during the nine months ended October 31, 2022. The increase in sales is due to both volume gains as well as successful pricing actions. Volume gains were driven by increased demand at existing customers, acquisition of new customers, same-customer cross-selling, the acquisition of CIF, and product additions.

*Cost of sales:* Cost of sales decreased by approximately 6% to $54.0 million during the nine months ended October 31, 2023, from $57.4 million during the nine months ended October 31, 2022. The decrease in cost of sales is due to improvements in procurement and manufacturing efficiencies and normalization of costs for commodities.

*Gross Profit Margin:* The gross profit margin was 29% and 18% for the nine months ended October 31, 2023 and 2022, respectively. The change in gross profits between the nine months ended October 31, 2023 and 2022 is due to successful pricing actions, improvements in procurement, manufacturing and logistics efficiencies and normalization of costs for commodities.

*Operating Expenses:* Operating expenses increased by 29% during the nine months ended October 31, 2023, as compared to the nine months ended October 31, 2022. Operating expenses increased as a percentage of sales to 20% in the nine months ended October 31, 2023 compared to 17% in the same period ended October 31, 2022. The $3.5 million increase in total operating expenses is primarily attributable to the following:

- Payroll and related expenses inclusive of stock-based compensation increased by approximately $2.46 million related to executive and office hires;
- Insurance expenses increased by approximately $487 thousand due to the growth of the Company and increases in coverage, including enhanced cyber security;
- Amortization of intangible assets increased by approximately $325 thousand due to the acquisition of CIF;
- Professional fees and director fees increased by approximately $277 thousand due to the growth of the Company, the use of consultants to upgrade manufacturing efficiencies as well as information technology integration (including ERP implementation);
- Advertising expenses increased by approximately $278 thousand due to new strategies and enhanced focus to drive increased velocities of our existing products
- Commission and royalty expenses increased by approximately $224 thousand due to increased sales; and
- Freight related expenses decreased by approximately $724 thousand due to the addition of dedicated logistics employees and capabilities; and
- Bad debt expense decreased by approximately $237 thousand due to new management procedures related to accounts receivables in the prior year.

*Other Expenses:* Other expenses increased by approximately $19 thousand to $473 thousand for the nine months ended October 31, 2023 as compared to $454 thousand for the nine months ended October 31, 2022. For the nine months ended October 31, 2023, other income (expenses) consisted of $483 thousand in interest expense on the Company’s financing arrangements and $17 thousand in amortization of debt discount, partially offset by $27 thousand in other income. For the nine months ended October 31, 2022, other expenses consisted of $447 thousand in interest expense incurred on the Company’s financing arrangements and $10 thousand in amortization of debt discount and $3 thousand of other income.

### Liquidity and Capital Resources

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

#### Working Capital

The following table summarizes total current assets, liabilities and working capital at October 31, 2023 compared to January 31, 2023 (in thousands):

|  | October 31, 2023 | January 31, 2023 | Change |
| --- | ---: | ---: | ---: |
| Current Assets | $20,338 | $15,674 | $4,664 |
| Current Liabilities | 14,341 | 11,879 | 2,462 |
| Working Capital | $5,997 | $3,795 | $2,202 |

As of October 31, 2023, we had working capital of approximately $6.0 million as compared to working capital of approximately $3.8 million as of January 31, 2023, an increase of approximately $2.2 million. The increase in working capital is primarily attributable to an increase in cash of approximately $1.2 million, and an increase of accounts receivables of approximately $4.3 million, partially offset by an increase in related party promissory notes of approximately $1.2 million, a decrease in inventory of approximately $1.1 million and an increase in accounts payable and accrued expenses of approximately $1.0 million.

#### Long Term Requirements

As of October 31, 2023, we have $0 outstanding under our Credit Agreement and $4.9 million outstanding under our Term Loan Agreement, with M&T Bank. The Term Loan Agreement has a maturity date of January 17, 2027. In addition we have payments of $750,000 (plus accrued interest) due on December 29, 2023, 2024, and 2025 pursuant to promissory notes issued to the sellers of T&L and Olive Branch, as discussed in Item 1. Note 6. In addition we have a promissory note of $2.7 million with the sellers of CIF (as discussed in Note 1). Of the $2.7 million, a payment of $1.2 million is due on June 28, 2024, and $1.5 million is payable in common stock on June 28, 2025. We also have operating leases for offices and other facilities used for our operations, and finance leases comprised primarily of machinery and equipment, as discussed in Note 11.

#### Cash Flows

The following table summarizes the key components of our cash flows for the nine months ended October 31, 2023 and 2022 (in thousands).

|  | For the Nine Months Ended October 31, 2023 USD | 2022 USD |
| --- | ---: | ---: |
| Net Cash Provided by Operating Activities | $4,878 | $3,185 |
| Net Cash (Used in) Investing Activities | (1,317) | (1,008) |
| Net Cash (Used in) Provided by Financing Activities | (2,314) | 452 |
| Net changes in cash | 1,247 | 2,629 |
| Cash, beginning of period | 4,378 | 851 |
| Cash, end of period | $5,625 | $3,480 |

Net cash provided by operating activities for the nine months ended October 31, 2023 was approximately $4.9 million compared to net cash provided by operating activities for the nine months ended October 31, 2022 of approximately $3.2 million. The net income for the nine months ended October 31, 2023 and 2022 was approximately $5.2 million and $459 thousand, respectively. During the nine months ended October 31, 2023, net income was affected by non-cash adjustments of approximately $2.1 million and by changes in operating activities which used cash of approximately $2.3 million. During the nine months ended October 31, 2022, net income was affected by non-cash adjustments of approximately $1.4 million offset by changes in operating activities which provided cash of $1.4 million.

Net cash used in investing activities for nine months ended October 31, 2023 was approximately $1.3 million as compared to approximately $1.0 million for the nine months ended October 31, 2022, respectively. For the nine months ended October 31, 2023, the Company used cash of $671 thousand to purchase new machinery and equipment and used approximately $646 thousand for the acquisition of the remaining interest of CIF. For the nine months ended October 31, 2022, the cash used in investing activities of $508 thousand was to purchase new machinery and equipment and $500 thousand was used to purchase a 24% interest in CIF.

Net cash used in financing activities for the nine months ended October 31, 2023 was approximately $2.3 million as compared to approximately $452 thousand provided by financing activities for the nine months ended October 31, 2022. During the nine months ended October 31, 2023, the Company had repayments of approximately $890 thousand from borrowings pursuant to the line of credit, payments of the term loan and finance lease payments of approximately $1.3 million, and $175 thousand, respectively. In addition, during the nine months ended October 31, 2023, the Company received proceeds of $65 thousand for the exercise of options. During the nine months ended October 31, 2023, the Company paid dividends on the Series B Preferred stock of approximately $49 thousand. During the nine months ended October 31, 2022, the Company received net proceeds of approximately $225 thousand from borrowings pursuant to the line of credit and approximately $1.4 million from the sale of Series B Preferred Stock, which were offset by payments of the term loan and finance lease payments of approximately $905 thousand and $191 thousand, respectively.

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

### Recent Accounting Pronouncements

As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our 2023 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures.”

### Critical Accounting Estimates and Policies

As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our 2023 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows.

## Market risk

As filed, 187 characters.

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

## Controls and procedures

As filed, 3,021 characters.

#### Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, who serves as our principal executive officer and our principal financial officer, respectively, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

As of October 31, 2023, we evaluated, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

#### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15, that occurred during our last quarter to which this Quarterly Report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 34,064 characters.

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

### Risks Related to our Business

### We have a limited history of profitability.

Since inception on February 22, 2010 and through January 31, 2023, we had raised approximately $22.7 million in capital. During this same period, we have recorded net accumulated losses totaling approximately $10.1 million. As of January 31, 2023, we had working capital of approximately $3.8 million. Our net income (loss) for the two most recent fiscal years ended January 31, 2023 and January 31, 2022 have been $2.3 million and $(252) thousand. Our ability to achieve continued profitability depends upon many factors, including our ability to develop and commercialize products. There can be no assurance that we will be able to achieve growth and profitability consistent with historical performance.

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

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

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

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

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

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

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

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

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

Our food products which are manufactured in facilities that are subject to extensive regulation by the FDA, the USDA and other national, state, and local authorities. For example, we are subject to the Food, Drug and Cosmetic Act and regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, packaging, and safety of food. Under this program, the FDA regulates manufacturing practices for foods through, among other things, its current “good manufacturing practices” regulations, or GMP’s, and specifies the recipes for certain foods. Specifically, the USDA defines “all natural” as a product that contains no artificial ingredients, coloring ingredients or chemical preservatives and is minimally processed. The Company’s products were submitted to the USDA and approved as “all natural”. However, should the USDA change their definition of “all natural” at some point in the future, or should the Company change its existing recipes to include ingredients that do not meet the USDA’s definition/ of “all natural”, our results of operations could be adversely affected.

The FTC and other authorities regulate how we market and advertise our products, and we could be the target of claims relating to alleged false or deceptive advertising under federal and state laws and regulations. Changes in these laws or regulations or the introduction of new laws or regulations could increase the costs of doing business for us or our customers or suppliers or restrict our actions, causing our results of operations to be adversely affected.

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

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

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

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

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

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

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

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

### Disruption of our supply chain could adversely affect our business.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

### We may be unable to maintain quality control.

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

### There may be products liability and other legal claims.

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

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

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

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

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

### We may be unable to defend our intellectual property.

Our business could be adversely affected if we are unable to adequately protect our intellectual property. Our current intellectual property consists of trade secret recipes and cooking processes for our products and trademarks. We rely on a combination of trademark, copyright and trade secret laws to establish and protect our proprietary rights. We will also use technical measures to protect our proprietary rights. We may, however, not be able to secure significant protection for service marks or trademarks that we obtain. Our inability to protect our intellectual property from others may impede our brand identity and could lead to consumer confusion.

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

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

### Risks Related To Our Securities

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

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

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

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

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

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

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

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

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

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

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

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

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

### We do not expect to pay dividends.

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

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

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

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

Filed Dec 12, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-041309. Last ingested by Listed: Oct 30, 2026, 12:04 ET. No prices; not investment advice.