Mama's Creations, Inc. (MAMA) FY 2025 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Overview

Mama’s Creations, Inc. (“Mama’s,” “Mama’s Creations” or the “Company”) is a leading marketer and manufacturer of fresh deli prepared foods, found in over 10,000 grocery, mass, club and convenience stores nationally. The Company’s broad product portfolio, born from MamaMancini’s rich history in Italian foods, now consists of a variety of high-quality, fresh, clean and easy to prepare foods to address the needs of both our consumers and retailers. Our vision is to become a one-stop-shop deli solutions platform, leveraging vertical integration and a diverse family of brands to offer a wide array of prepared foods to meet the changing demands of the modern consumer.

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Results of Operations for the Years Ended January 31, 2025 and 2024

The following table sets forth the summary of the consolidated statements of operations for the years ended January 31, 2025 and 2024 (in thousands):

For the years ended January 31, 2025 and 2024, the Company reported net income of approximately $3.7 million and $6.6 million, respectively. The change in net income between the years ended January 31, 2025 and 2024 reflects strong revenue growth offset by manufacturing inefficiencies related to the capital improvement project at the Company's Farmingdale, New York facility and increased costs of commodities, primarily the cost of chicken, and other materials.

Net Sales: Net Sales increased by approximately 19% to $123.3 million for the year ended January 31, 2025, from $103.3 million for the year ended January 31, 2024. The increase is due to higher volume of sales of existing products due to higher production capacity, introductions at new customers, introduction of new products at existing customers and successful pricing actions to recover the increased cost of commodities.

Gross Profit: The gross profit margin was 25% and 29% for the years ended January 31, 2025 and 2024, respectively. The decrease in gross profit margin is due to inefficiencies related to the capital improvement project at the Company's Farmingdale, New York facility and increased costs of commodities, primarily chicken, and other materials.

Operating Expenses: Operating expenses increased by 20% during the year ended January 31, 2025, as compared to the year ended January 31, 2024. Operating expenses as a percentage of sales remained relatively consistent at 21% in both fiscal year 2025 and 2024. The approximate $4.2 million increase in total operating expenses is primarily attributable to the following:

•Advertising expenses increased by approximately $1.1 million due to new digital strategies and an enhanced focus on marketing to help drive increased velocities of our existing products;

•One-time legal settlement expense of approximately $900 thousand, due to the Settlement Agreement with directors;

•Commission and royalty expenses rose by approximately $568 thousand due to increased sales;

•Professional fees increased by approximately $474 thousand due to increased corporate activity due to the growth of the Company and fees associated with Sarbanes-Oxley 404(b) implementation;

•Amortization of intangible assets increased by approximately $463 thousand due to the CIF Acquisition in the prior fiscal year;

•Office and computer-related expenses increased by approximately $300 thousand due to growth of the company, increased office space, and investment in new software to drive efficiencies;

•Travel-related expenses increased by approximately $170 thousand, due to a larger sales team and increased travel to national retailers;

•Freight-related expenses increased by approximately $71 thousand due to increased sales offset by load-sharing between the Company's two manufacturing facilities; and

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•Insurance expenses decreased by approximately $204 thousand due to consolidation of policies.

Other Income (Expenses): Other expenses decreased by approximately $373 thousand to approximately $171 thousand for the year ended January 31, 2025, as compared to approximately $544 thousand for the year ended January 31, 2024. The decrease is mainly due to a decrease in net interest expense of approximately $290 thousand, which was a result of lower debt balances outstanding as well as higher interest earned on Company cash balances.

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 January 31, 2025 compared to January 31, 2024 (in thousands):

As of January 31, 2025, we had working capital of approximately $4.9 million as compared to working capital of approximately $6.9 million as of January 31, 2024, a decrease of approximately $2.0 million. The decrease in working capital is primarily attributable to a decrease in cash of approximately $3.9 million, which was used to purchase approximately $5.1 million of property plant and equipment, an increase in operating lease liabilities of approximately $414 thousand, and an increase in Promissory notes – related parties of approximately $300 thousand, offset by an increase in inventory of approximately $1.5 million due to increased sales, and a decrease in accounts payable and accrued expenses of approximately $373 thousand due to lower accrued taxes.

Long-term Requirements:

As of January 31, 2025, we have $0 outstanding under our Line of Credit Agreement, with a maximum capacity of $5.5 million, and approximately $2.9 million outstanding under our Term Loan Agreement with M&T Bank (the "Term Loan Agreement"). The Term Loan Agreement has a maturity date of January 17, 2027. In addition, we have payments of $750 thousand (plus accrued interest) due on December 29, 2025 pursuant to promissory notes issued to the sellers of T&L Creative Salads ("T&L") and Olive Branch LLC ("Olive Branch"), as discussed in Item 8, Note 6. In addition, we have a promissory note with a balance of $1.5 million with the sellers of CIF as discussed in Item 8, Note 6. This note 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 Item 8, Note 11.

Cash Flows:

The following table summarizes the key components of our cash flows for the years ended January 31, 2025 and January 31, 2024 (in thousands).

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Net cash provided by operating activities for the year ended January 31, 2025 was approximately $5.2 million compared to net cash provided by operating activities for the year ended January 31, 2024 of approximately $11.6 million. Net income for the years ended January 31, 2025 and 2024 was approximately $3.7 million and $6.6 million, respectively. During the year ended January 31, 2025, net income was affected by non-cash adjustments of approximately $2.9 million and by changes in operating activities which used cash of approximately $1.4 million. During the year ended January 31, 2024, net income was affected by non-cash adjustments of approximately $2.8 million and changes in operating activities which provided cash of approximately $2.2 million.

Net cash used in investing activities for the years ended January 31, 2025 was approximately $5.1 million as compared to approximately $1.4 million for the year ended January 31, 2024. For the year ended January 31, 2025, the Company used cash of approximately $5.1 million to purchase new machinery and equipment. For the year ended January 31, 2024, the cash used in investing activities consisted of approximately $786 thousand to purchase new machinery and equipment and $646 thousand for the acquisition of the remaining interest in CIF.

Net cash used in financing activities for the year ended January 31, 2025 was approximately $4.0 million as compared to $3.5 million for the year ended January 31, 2024. During the year ended January 31, 2025, the Company had payments on the term loan, related party loans, and finance lease liabilities of approximately $1.7 million, $2.0 million, and $397 thousand, respectively. During the year ended January 31, 2024, the Company had payments on the term loan, line of credit, related party loans, and finance lease liabilities of approximately $1.7 million, $890 thousand, $750 thousand, and $272 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 and achieve its strategic objectives. If such financing is required, there can be no assurance that financing will be available in amounts or on 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

See Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding recently issued accounting pronouncements.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires us to make estimates and judgments that affect the amounts reported in the consolidated financial statements and related notes. Critical accounting estimates are those estimates that, in accordance with GAAP, involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our consolidated financial statements. Management has determined that our most critical accounting estimates are those relating to the fair value of stock-based compensation, impairment of goodwill and intangible assets, and estimates for unrealized returns, discounts, and other allowances that are netted against revenue. Although we believe that the estimates we use are reasonable, actual results reported in future periods could differ materially from those estimates. The following is a summary of certain accounting estimates we consider critical. For further discussion about our accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements appearing elsewhere in this Annual Report.

Goodwill

Goodwill is the excess of the consideration paid for a business over the fair value of the identifiable net assets acquired. Goodwill and other indefinite lived intangible assets are not amortized. Instead, these assets are reviewed at least annually for impairment. The Company has the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, the Company may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist.

When performing its quantitative annual goodwill impairment test, the Company is comparing the fair value with its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the fair value; however, the loss recognized would not exceed the total amount of goodwill. Additionally, the Company considers income tax effects from any tax-deductible goodwill on the carrying amount when measuring the

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goodwill impairment loss, if applicable. The fair value is estimated using discounted cash flow methodologies, as well as considering third party market value indicators. The Company’s use of a discounted cash flow methodology includes estimates of future revenue based upon budgets and projections. The Company also develops estimates for future levels of gross and operating profits and projected capital expenditures. The Company’s methodology also includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors. Calculating the fair value requires significant estimates and assumptions by management. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, the Company may be required to record impairments to its goodwill in future periods and such impairments could be material.

As of January 31, 2025, there were no impairment losses recognized for goodwill.

Other Intangibles

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

Revenue Recognition

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

The Company’s sales are primarily generated from the sale of finished products to customers. Revenue is recognized when the performance obligation is satisfied, and the promised goods have been transferred. Control transfers when the product is shipped or delivered based upon applicable shipping terms. For each contract, the Company considers the transfer of product to be the performance obligation. Although some payment terms may be extended, generally the Company’s payment terms are approximately 15- 30 days. Accordingly, there is no significant financing components to consider when determining the transaction price. The Company elected to treat shipping and handling activities as fulfillment activities, and the related costs are recorded as selling expenses in selling, general and administrative expenses on the Consolidated Statements of Operations.

The Company promotes its products with trade incentives and promotions. These programs include discounts, slotting fees, coupons, rebates, in-store display incentives and volume-based incentives. The trade incentives and promotions are recorded as a reduction to the transaction price based on amounts estimated as being due to customers at the end of the period. The Company derives these estimates based on historical experience. The Company does not receive a distinct service in relation to the trade incentives and promotions. The Company’s contracts are all short term in nature; therefore, there are no unsatisfied performance obligations requiring disclosure as of January 31, 2025.

Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model or Monte Carlo simulation to determine the fair value of equity-based grants, excluding restricted stock. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of the Company’s future share price, risk-free rates, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in materially different results.