UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
☒
Quarterly report pursuant to Section 13For the quarterly period ended September 30, 2017March 31, 2022
☐
Transition report pursuant to Section 13 or 15(d) of the Exchange ActFor the transition period from _________ to _________..
Commission File Number: 0-9376
INNOVATIVE FOOD HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida (State or Other Jurisdiction of Incorporation or Organization) | 20-1167761 (IRS Employer I.D. No.) |
28411 Race Track Rd.
Bonita Springs, Florida 34135
(Address of Principal Executive Offices)
(239) 596-0204
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES☒NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES☒NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check One):
Large Accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☒ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Regulation 12b-2 of the Exchange Act): YES☐NO ☒
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 35,086,659 shares of common stock issued and 32,595,54746,649,123 shares of common stock outstanding as of November 9, 2017.May 13, 2022.
INNOVATIVE FOOD HOLDINGS, INC.
TABLE OF CONTENTS TO FORM 10-Q
Page | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | 3 | |
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
Item 2. | 24 | |
Item 4. | 31 | |
PART II. | OTHER INFORMATION | |
Item 1. | 32 | |
Item 2. | 32 | |
Item 3. | 32 | |
Item 4. | 32 | |
Item 5. | 32 | |
Item 6. | 33 | |
34 |
PART I. FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Innovative Food Holdings, Inc.
Condensed Consolidated Balance SheetSheets
March 31, | December 31, | |||||||||||||||
September 30, | December 31, | 2022 | 2021 | |||||||||||||
2017 | 2016 | (unaudited) | ||||||||||||||
ASSETS | (unaudited) | |||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 4,337,662 | $ | 3,764,053 | $ | 3,111,168 | $ | 6,122,671 | ||||||||
Accounts receivable, net | 2,417,104 | 1,538,395 | 3,422,003 | 3,256,764 | ||||||||||||
Inventory | 983,733 | 815,033 | 3,209,945 | 3,109,984 | ||||||||||||
Other current assets | 64,367 | 55,393 | 389,513 | 314,107 | ||||||||||||
Due from related parties | - | - | ||||||||||||||
Total current assets | 7,802,866 | 6,172,874 | 10,132,629 | 12,803,526 | ||||||||||||
Property and equipment, net | 1,988,055 | 2,068,110 | 8,094,038 | 8,186,227 | ||||||||||||
Investment | 201,525 | 208,983 | ||||||||||||||
Intangible assets, net | 1,419,233 | 707,684 | ||||||||||||||
Investments | 286,725 | 286,725 | ||||||||||||||
Right to use assets, operating leases, net | 199,474 | 232,381 | ||||||||||||||
Right to use assets, finance leases, net | 680,358 | 669,039 | ||||||||||||||
Other amortizable intangible assets, net | 61,987 | 72,218 | ||||||||||||||
Goodwill and other unamortizable intangible assets | 1,532,822 | 1,532,822 | ||||||||||||||
Total assets | $ | 11,411,679 | $ | 9,157,651 | $ | 20,988,033 | $ | 23,782,938 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 2,088,148 | $ | 3,119,533 | $ | 4,473,440 | $ | 5,702,905 | ||||||||
Accrued liabilities - related parties | - | 65,000 | ||||||||||||||
Accrued interest | 15,674 | 626,873 | 42,794 | 29,349 | ||||||||||||
Notes payable - related party, current portion | - | 164,650 | ||||||||||||||
Deferred revenue | 1,250,944 | 1,631,406 | ||||||||||||||
Line of Credit | 2,000,000 | 2,000,000 | ||||||||||||||
Notes payable - current portion, net of discount | 547,183 | 1,424,432 | 412,491 | 412,961 | ||||||||||||
Lease liability - operating leases, current | 63,361 | 74,088 | ||||||||||||||
Lease liability - finance leases, current | 182,664 | 159,823 | ||||||||||||||
Contingent liability - current portion | 200,000 | - | 187,000 | 187,000 | ||||||||||||
Total current liabilities | 2,851,005 | 5,400,488 | 8,612,694 | 10,197,532 | ||||||||||||
Contingent liability - long term | 200,000 | - | ||||||||||||||
Other long-term liabilities | 200,000 | - | ||||||||||||||
Note payable - long term portion, net of discount | 918,646 | 1,137,811 | ||||||||||||||
Lease liability - operating leases, non-current | 136,113 | 158,293 | ||||||||||||||
Lease liability - finance leases, non-current | 478,262 | 499,240 | ||||||||||||||
Contingent liability - long-term | 108,600 | 108,600 | ||||||||||||||
Note payable - long term portion, net | 5,319,914 | 5,409,172 | ||||||||||||||
Total liabilities | 4,169,651 | 6,538,299 | 14,655,583 | 16,372,837 | ||||||||||||
Stockholders’ equity | ||||||||||||||||
Common stock: $0.0001 par value; 500,000,000 shares authorized; 35,086,659 and 25,301,816 shares issued, and 32,595,547 and 24,568,157 shares outstanding at September 30, 2017 and December 31, 2016, respectively | 3,506 | 2,528 | ||||||||||||||
Commitments & Contingencies (see note 16) | ||||||||||||||||
Stockholders' equity | ||||||||||||||||
Common stock: $0.0001 par value; 500,000,000 shares authorized; 49,343,846 and 48,879,331 shares issued, and 46,506,266 and 46,041,751 shares outstanding at March 31, 2022 and December 31, 2021, respectively | 4,931 | 4,885 | ||||||||||||||
Additional paid-in capital | 35,931,641 | 33,974,470 | 41,815,390 | 41,662,710 | ||||||||||||
Treasury stock: 2,276,703 and 519,254 shares outstanding at September 30, 2017 and December 31, 2016, respectively | (992,313 | ) | (174,949 | ) | ||||||||||||
Treasury stock: 2,623,171 and 2,623,171 shares outstanding at March 31, 2022 and December 31, 2021, respectively. | (1,141,370 | ) | (1,141,370 | ) | ||||||||||||
Accumulated deficit | (27,700,806 | ) | (31,182,697 | ) | (34,346,501 | ) | (33,116,124 | ) | ||||||||
Total stockholders’ equity | 7,242,028 | 2,619,352 | ||||||||||||||
Total stockholders' equity | 6,332,450 | 7,410,101 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 11,411,679 | $ | 9,157,651 | ||||||||||||
Total liabilities and stockholders' equity | $ | 20,988,033 | $ | 23,782,938 |
See notes to these unaudited condensed consolidated financial statements.
Innovative Food Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
For the Three | For the Three | |||||||
Months Ended | Months Ended | |||||||
March 31 | March 31 | |||||||
2022 | 2021 | |||||||
Revenue | $ | 15,643,111 | $ | 12,180,899 | ||||
Cost of goods sold | 11,917,179 | 8,878,914 | ||||||
Gross margin | 3,725,932 | 3,301,985 | ||||||
Selling, general and administrative expenses | 5,172,426 | 4,850,828 | ||||||
Total operating expenses | 5,172,426 | 4,850,828 | ||||||
Operating loss | (1,446,494 | ) | (1,548,843 | ) | ||||
Other income (expense:) | ||||||||
Impairment of investment | - | (209,850 | ) | |||||
Gain on interest rate swap | 294,000 | - | ||||||
Other leasing income | 5,090 | 5,140 | ||||||
Interest expense, net | (82,973 | ) | (90,318 | ) | ||||
Total other income (expense) | 216,117 | (295,028 | ) | |||||
Net loss before taxes | (1,230,377 | ) | (1,843,871 | ) | ||||
Provision for income taxes | - | - | ||||||
Net loss | $ | (1,230,377 | ) | $ | (1,843,871 | ) | ||
Net loss per share – basic and diluted | $ | (0.03 | ) | $ | (0.05 | ) | ||
Weighted average shares outstanding – basic and diluted | 46,256,160 | 35,872,143 |
For the Three | For the Three | For the Nine | For the Nine | |||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | 10,495,637 | $ | 9,094,443 | $ | 30,494,462 | $ | 25,413,011 | ||||||||
Cost of goods sold | 7,052,018 | 6,404,185 | 20,585,273 | 17,979,553 | ||||||||||||
Gross margin | 3,443,619 | 2,690,258 | 9,909,189 | 7,433,458 | ||||||||||||
Selling, general and administrative expenses | 1,894,588 | 1,702,425 | 6,269,386 | 5,245,178 | ||||||||||||
Total operating expenses | 1,894,588 | 1,702,425 | 6,269,386 | 5,245,178 | ||||||||||||
Operating income | 1,549,031 | 987,833 | 3,639,803 | 2,188,280 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense, net | 16,139 | 121,226 | 157,912 | 365,764 | ||||||||||||
Total other (income) expense | 16,139 | 121,226 | 157,912 | 365,764 | ||||||||||||
Net income before taxes | 1,532,892 | 866,607 | 3,481,891 | 1,822,516 | ||||||||||||
Income tax expense | - | - | - | - | ||||||||||||
Net income from continuing operations | $ | 1,532,892 | $ | 866,607 | $ | 3,481,891 | $ | 1,822,516 | ||||||||
Net income from discontinued operations | - | - | - | 4,447,279 | ||||||||||||
Consolidated net income | $ | 1,532,892 | $ | 866,607 | $ | 3,481,891 | $ | 6,269,795 | ||||||||
Net income per share from continuing operations - basic | $ | 0.047 | $ | 0.035 | $ | 0.117 | $ | 0.073 | ||||||||
Net income per share from discontinued operations - basic | $ | - | $ | $ | - | $ | 0.178 | |||||||||
Net income per share from continuing operations - diluted | $ | 0.046 | $ | 0.030 | $ | 0.113 | $ | 0.066 | ||||||||
Net income per share from discontinued operations - diluted | $ | - | $ | - | $ | - | $ | 0.139 | ||||||||
Weighted average shares outstanding - basic | 32,333,108 | 25,047,134 | 29,779,904 | 24,980,317 | ||||||||||||
Weighted average shares outstanding - diluted | 33,476,756 | 31,619,778 | 30,842,167 | 32,044,762 |
See notes to these unaudited condensed consolidated financial statements.
Innovative Food Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Three | For the Three | |||||||
Months Ended | Months Ended | |||||||
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (1,230,377 | ) | $ | (1,843,871 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Impairment of investment | - | 209,850 | ||||||
Depreciation and amortization | 138,361 | 135,854 | ||||||
Amortization of right-of-use asset | 19,691 | 22,929 | ||||||
Amortization of prepaid loan fees | 3,088 | 3,088 | ||||||
Stock based compensation | 152,726 | 157,791 | ||||||
(Recovery) Provision for doubtful accounts | (1,115 | ) | 2,721 | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net | (164,124 | ) | 533,252 | |||||
Inventory and other current assets, net | (175,367 | ) | 658,428 | |||||
Accounts payable and accrued liabilities | (1,216,020 | ) | (1,561,858 | ) | ||||
Deferred revenue | (380,462 | ) | (1,784,265 | ) | ||||
Contingent liabilities | - | (8,000 | ) | |||||
Operating lease liability | (19,691 | ) | (22,929 | ) | ||||
Net cash used in operating activities | (2,873,290 | ) | (3,497,010 | ) | ||||
Cash flows from investing activities: | ||||||||
Acquisition of property and equipment | (4,760 | ) | (4,612 | ) | ||||
Net cash used in investing activities | (4,760 | ) | (4,612 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from Payroll Protection Plan Loan | - | 1,669,929 | ||||||
Principal payments on debt | (92,816 | ) | (107,168 | ) | ||||
Principal payments financing leases | (40,637 | ) | (35,068 | ) | ||||
Net cash (used in) provided by financing activities | (133,453 | ) | 1,527,693 | |||||
Decrease in cash and cash equivalents | (3,011,503 | ) | (1,973,929 | ) | ||||
Cash and cash equivalents at beginning of period | 6,122,671 | 5,060,015 | ||||||
Cash and cash equivalents at end of period | $ | 3,111,168 | $ | 3,086,086 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 84,961 | $ | 83,275 | ||||
Taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Increase in right to use assets & liabilities – operating leases | $ | - | $ | 17,814 | ||||
Decrease in right to use assets & liabilities – operating leases | $ | 13,216 | $ | - | ||||
Increase in right to use assets & liabilities – finance leases | $ | 42,500 | $ | - |
For the Nine | For the Nine | |||||||
Months Ended | Months Ended | |||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 3,481,891 | $ | 6,269,795 | ||||
Gain on sale of discontinued operations | - | (7,201,196 | ) | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 409,283 | 409,228 | ||||||
Stock based compensation | 315,968 | 673,523 | ||||||
Stock based compensation for TFD employees | - | 1,028,908 | ||||||
Amortization of discount on notes payable | 185,018 | 277,529 | ||||||
Allowance for doubtful accounts | - | 11,963 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable, net | (878,709 | ) | (237,265 | ) | ||||
Deferred revenue | - | 289,254 | ||||||
Inventory and other current assets, net | (177,674 | ) | 81,012 | |||||
Accounts payable and accrued expenses - related party | - | (146,018 | ) | |||||
Accounts payable and accrued liabilities | (1,199,680 | ) | 197,603 | |||||
Accrued liabilities - related party | (65,000 | ) | - | |||||
Due from related party | - | 110 | ||||||
Contingent liability | - | (91,000 | ) | |||||
Net cash provided by operating activities | 2,071,097 | 1,563,446 | ||||||
Cash flows from investing activities: | ||||||||
Cash decrease due to sale of discontinued operations | - | (470,482 | ) | |||||
Acquisition of property and equipment | (40,777 | ) | (10,512 | ) | ||||
Cash paid in the acquisition of Oasis | (300,000 | ) | - | |||||
Net cash (used in) investing activities | (340,777 | ) | (480,994 | ) | ||||
Cash flows from financing activities: | ||||||||
Common stock sold for exercise of warrants | 196,741 | - | ||||||
Payments made on revolving credit facilities | - | (841,831 | ) | |||||
Purchase of stock options from officers, directors, and employees | (163,925 | ) | - | |||||
Cash received from exercise of stock options | 70,000 | - | ||||||
Purchase of treasury stock | (505,660 | ) | (14,850 | ) | ||||
Borrowings on revolving credit facilities | - | 805,959 | ||||||
Principal payments on debt | (746,941 | ) | (1,021,829 | ) | ||||
Principal payments capital leases | (6,926 | ) | (8,094 | ) | ||||
Net cash (used in) financing activities | (1,156,711 | ) | (1,080,645 | ) | ||||
Increase in cash and cash equivalents | 573,609 | 1,807 | ||||||
Cash and cash equivalents at beginning of period | 3,764,053 | 2,137,289 | ||||||
Cash and cash equivalents at end of period | $ | 4,337,662 | $ | 2,139,096 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 64,198 | $ | 96,318 | ||||
Taxes | $ | - | $ | - | ||||
Common stock issued for conversion of note payable by related party | $ | 164,650 | $ | - | ||||
Equipment acquired under capital lease | $ | - | $ | 9,217 | ||||
Fair value of 25,000 shares of common stock issued to a service provider, previously accrued | $ | - | $ | 34,000 |
See notes to these unaudited condensed consolidated financial statements.
Innovative Food Holdings, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
Additional | ||||||||||||||||||||||||||||
Common Stock | Paid-in | Treasury Stock | Accumulated | |||||||||||||||||||||||||
Amount | Value | Capital | Amount | Value | Deficit | Total | ||||||||||||||||||||||
Balance - December 31, 2020 | 38,209,060 | $ | 3,817 | $ | 37,415,155 | 2,623,171 | $ | (1,141,370 | ) | $ | (32,399,793 | ) | $ | 3,877,809 | ||||||||||||||
Fair value of vested stock and stock options | 286,254 | 29 | 157,762 | - | - | - | 157,791 | |||||||||||||||||||||
Net loss for the three months ended March 31, 2021 | - | - | - | - | - | (1,843,871 | ) | (1,843,871 | ) | |||||||||||||||||||
Balance - March 31, 2021 (unaudited) | 38,495,314 | $ | 3,846 | $ | 37,572,917 | 2,623,171 | $ | (1,141,370 | ) | $ | (34,243,664 | ) | $ | 2,191,729 | ||||||||||||||
Balance - December 31, 2021 | 48,879,331 | 4,885 | 41,662,710 | 2,623,171 | (1,141,370 | ) | (33,116,124 | ) | 7,410,101 | |||||||||||||||||||
Fair value of vested stock and stock options | 464,515 | 46 | 152,680 | - | - | - | 152,726 | |||||||||||||||||||||
Net loss for the three months ended March 31, 2022 | - | - | - | - | - | (1,230,377 | ) | (1,230,377 | ) | |||||||||||||||||||
Balance - March 31, 2022 (unaudited) | 49,343,846 | $ | 4,931 | $ | 41,815,390 | 2,623,171 | $ | (1,141,370 | ) | $ | (34,346,501 | ) | $ | 6,332,450 |
See notes to these unaudited condensed consolidated financial statements.
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
1. BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Innovative Food Holdings, Inc., and its wholly owned subsidiaries, some of which are non-operating, Artisan Specialty Foods, Inc. (“Artisan”), Food Innovations, Inc. (“Food Innovations” or “FII”FII”), Food New Media Group, Inc. (“FNM”), Oasis Sales Corp. (“Oasis”), Organic Food Brokers, Inc.LLC (“OFB”), Gourmet Food ServiceFoodservice Group, Inc. (“GFG”), Gourmet Foodservice Group Warehouse, Inc. (“GFW”), Gourmeting, Inc. (“Gourmeting”), The Haley Food Group, Inc. (“Haley”), Oasis Sales Corp. (“Oasis”), 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.), (“Gourmet”), Innovative Food Properties, LLC (“IFP”), Plant Innovations, Inc. (“Plant Innovations”), Innovative Gourmet, LLC (“Innovative Gourmet” or “igourmet”), Food Funding, LLC (“Food Funding”), Logistics Innovations, LLC (L Innovations”), M Innovations, LLC (“M Innovations”), MI Foods, LLC (“MIF”), M Foods Innovations, LLC (“M Foods”), P Innovations, LLC (“P Innovations”), PlantBelly, LLC (“PlantBelly”), Innovative Foods, Inc. (“IFI”) and Innovative Gourmet Partnerships, LLC (“IGP”), and collectively with IVFH and theits other subsidiaries, the “Company” or “IVFH”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All material intercompany transactions have been eliminated upon consolidation of these entities.
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company, in accordance with generally accepted accounting principles pursuant to Regulation S-X of the Securities and Exchange Commission and with the instructions to Form 10-Q. Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company’s audited financial statements and related notes as contained in Form 10-K for the year ended December 31, 2016.2021. In the opinion of management, the interim unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of the operations for the three and nine months ended September 30, 2017March 31, 2022 are not necessarily indicative of the results of operations to be expected for the full year.
2. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Our business is currently conducted by our wholly-ownedwholly owned subsidiaries, some of which are non-operating, Artisan Specialty Foods, Inc. (“Artisan”), Food Innovations, FNM, OFB, GFG,Inc. (“FII”), Food New Media Group, Inc. (“FNM”), Organic Food Brokers, LLC (“OFB”), Gourmet Foodservice Group, Inc. (“GFG”), Gourmet Foodservice Group Warehouse, Inc. (“GFW”), Gourmeting, Inc. (“Gourmeting”), Haley Food Group, Inc. (“Haley”), Oasis Sales Corp. (“Oasis”), 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.), (“Gourmet”), Innovative Food Properties, LLC (“IFP”), Plant Innovations, Inc. (“Plant Innovations”), Innovative Gourmet, LLC (“Innovative Gourmet” or “igourmet”), Food Funding, LLC (“Food Funding”), Logistics Innovations, LLC (L Innovations”), M Innovations, LLC (“M Innovations” or “Mouth”), MI Foods, LLC (“MIF”), M Foods Innovations, LLC (“M Foods”), P Innovations, LLC (“P Innovations”), PlantBelly, LLC (“PlantBelly”), Innovative Foods, Inc. (“IFI”) and Innovative Gourmet (collectivelyPartnerships, LLC (“IGP”), and collectively with IVFH and its other subsidiaries, the “Company” or “IVFH”). have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All material intercompany transactions have been eliminated upon consolidation of these entities.
Overall, our business activities are focused around the creation and growth of a platform which provides distribution or the enabling of distribution of high quality, unique specialty food and food related products ranging from specialty foodservice products to Consumer PackagedConsumer-Packaged Goods (“CPG”) products through a variety of sales channels. Since its incorporation, the Company primarily through FII’s relationship with US Foods, Inc.channels ranging from national partnership based and regionally based foodservice related sales channels to e-commerce sales channels offering products both direct to consumers (“U.S. Foods” or “USF”D2C”), has been in the and direct to business of providing premium restaurants and other foodservice establishments, within 24 – 72 hours, with the freshest origin-specific perishable, and healthcare products shipped directly from our network of vendors and from our warehouses. Our customers include restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses. Gourmet has been in the business of providing specialty food e-commerce consumers, through its own website at www.forethegourmet.com and through www.amazon.com, with unique specialty gourmet food products shipped directly from our network of vendors and from our warehouses within 24 – 72 hours. GFG is focused on expanding the Company’s program offerings to additional customers.(“B2B”). In our business model, we receive orders from our customers and then work closely with our suppliers and our warehouse facilities to have the orders fulfilled. In order to maintain freshness and quality, we carefully select our suppliers based upon, among other factors, their quality, uniqueness, reliability and access to overnight courier services.
FII, through its relationship with the producers, growers, and makers of thousands of unique specialty foodservice products and through its relationship with US Foods, Inc. (“U.S. Foods” or “USF”), has been in the business of providing premium restaurants, within 24 – 72 hours, with the freshest origin-specific perishable, and healthcare products shipped directly from our network of vendors and from our warehouses. Our customers include restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses.
Gourmet has been in the business of providing specialty food via e-commerce through its own website at www.forthegourmet.com and through other ecommerce channels, with unique specialty gourmet food products shipped directly from our network of vendors and from our warehouses within 24 – 72 hours.
Artisan is a supplier of over 1,500 niche gourmetunique specialty foodservice products to over 500 customers such as chefs, restaurants, etc. in the Greater Chicago area. area and serves as a national fulfillment center for certain of the Company’s other subsidiaries.
GFG is focused on expanding the Company’s program offerings to additional specialty foodservice customers.
Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ private label food service opportunities with the intent of helping them launch and commercialize new products in the broadline foodservice industry. industry and assists in the enabling of the distribution of products via national broadline food distributors.
IFP was formed to hold the Company’s real estate holdings including the recently acquired facility in Mountaintop, Pennsylvania.
OFB and Oasis arefunction as outsourced national sales and brand management teams for emerging organic and specialty food CPG companies of a variety of sizes and business stages, and provideprovides emerging and unique CPG specialty food brands with distribution and shelf placement access in keyall of the major metro markets in the food retail food industry. FNM provides value-added, synergistic, seed and early stage capital to food related businesses including foodtech, foodservice products, and CPG companies. Through its temperature controlled warehouse, Gourmet Foodservice Warehouse fulfills
igourmet has been in the business of providing D2C specialty food product ordersvia e-commerce through its own website at www.igourmet.com and through other channels such as www.amazon.com, www.ebay.com, and www.walmart.com. In addition, igourmet.com offers a line of B2B specialty foodservice items. Products are primarily shipped directly from igourmet.com’s approximately 100,000 square feet warehouse in Pennsylvania via igourmet.com owned trucks and via third party carrier directly to thousands of customers nationwide.
Mouth.com (www.mouth.com) is an online retailer of specialty foods, monthly subscription boxes and curated gift boxes to thousands of consumers and corporate customers across the United States. Mouth sources high quality specialty foods crafted in the US by independent and small batch makers, and expertly curates them into standout food gifts for both consumers and corporate customers. Mouth also has launched a private label brand, including several award-winning products.
P Innovations focus is to leverage acquired assets to expand the Company’s wholesalesubscription-based e-commerce business activities and direct to consumer customers.
Plant Innovations is focused on plant-based D2C brands and online retail within the e-commerce space.
L Innovations provides 3rd party warehouse and fulfillment services out of its location at the Company’s PA facility.
Use of Estimates
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates include certain assumptions related to doubtful accounts receivable, stock-based services, valuation of financial instruments, and income taxes. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accounts subject to estimate and judgements are accounts receivable reserves, income taxes, intangible assets, contingent liabilities, operating and equity basedfinance right to use assets and liabilities, and equity-based instruments. Actual results may differ from these estimates under different assumptions or conditions. We believe our estimates have not been materially inaccurate in past years, and our assumptions are not likely to change in the foreseeable future.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Innovative Food Holdings, Inc., and its wholly owned operating subsidiaries, Artisan, Food Innovations,FII, FNM, OFB, GFG, GFW, Gourmeting, Haley, Oasis, GFG,Innovative Gourmet, Foodservice Warehouse, Inc., Gourmeting, Inc., Haley,Food Funding, IFP, L Innovations, M Innovations, P Innovations, MIF, M Foods, PlantBelly, Plant Innovations, IFI, IGP, and Gourmet. All accounts of FD have been included under discontinued operations. All material intercompany transactions have been eliminated upon consolidation of these entities.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash in investments with credit quality institutions. At times, such investments may be in excess of applicable government mandated insurance limit. At September 30, 2017March 31, 2022 and December 31, 2016,2021, trade receivables from the Company’s largest customer amounted to 49%33% and 44%46%, respectively, of total trade receivables.
The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. At March 31, 2022 and December 31, 2021, the total cash in excess of these limits was $1,388,422 and $4,555,032, respectively.
Leases
The Company accounts for leases in accordance with Financial Accounting Standards Board (“FASB”) ASC 842, “Leases”. The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the consolidated balance sheet. Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within current and long-term liabilities.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
Revenue Recognition
The Company recognizes revenue upon product delivery. All of our products are shipped either same day or overnight or through longer shipping terms to the customer and the customer takes title to product and assumes risk and ownership of the product when it is delivered. Shipping charges to customers and sales taxes collectible from customers, if any, are included in revenues.
For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board “FASB”(“FASB”) Accounting Standards Codification “ASC” 605-15-05. ASC 605-15-05 requires that four basic criteria(“ASC”) Topic 606“Revenue from Contracts with Customers”. A five-step analysis must be met beforeas outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4)when (or as) performance obligations are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Warehouse and logistic services revenue is primarily comprised of inventory management, order fulfilment and warehousing services. Warehouse & logistics services revenues are recognized at the point in time when the services are rendered to the customer.
Deferred Revenue
Certain customer arrangements in the Company's business such as gift cards and e-commerce subscription purchases result in deferred revenues when cash payments are received in advance of performance. Gift cards issued by the Company generally have an expiration of five years from date of purchase. The Company records a liability for unredeemed gift cards and advance payments for monthly club memberships, as cash is received, and the liability is reduced when the card is redeemed or product delivered.
The following table represents the changes in deferred revenue as reported on the Company’s consolidated balance sheets:
Balance as of December 31, 2020 | $ | 2,917,676 | ||
Cash payments received | 591,886 | |||
Net sales recognized | (2,376,151 | ) | ||
Balance as of March 31, 2021 (unaudited) | $ | 1,133,411 |
Balance as of December 31, 2021 |
| $ | 1,631,406 |
|
Cash payments received |
|
| 700,582 |
|
Net sales recognized |
|
| (1,081,044 | ) |
Balance as of March 31, 2022 (unaudited) |
| $ | 1,250,944 |
|
Disaggregation of Revenue
The following table represents a disaggregation of revenue for the three months ended March 31, 2022 and 2021:
Three Months Ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
(unaudited) | (unaudited) | |||||||
Specialty foodservice | $ | 11,540,835 | $ | 6,827,927 | ||||
E-Commerce | 3,612,344 | 4,979,938 | ||||||
National Brand Management | 284,147 | 225,594 | ||||||
Logistics | 205,785 | 147,440 | ||||||
Total | $ | 15,643,111 | $ | 12,180,899 |
Cost of goods sold
We have included in cost of goods sold all costs which are directly related to the generation of revenue. These costs include primarily the cost of food and raw materials, packing and handling, shipping, and delivery costs.
We have also included all payroll costs as cost of goods sold in our leasing and logistics services business.
Basic and Diluted Earnings Per Share
Basic net income (loss)earnings per share is based on the weighted average number of shares outstanding during the period, while fully-diluted net income (loss)earnings per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. Potentially dilutive securities consist of options and warrants to purchase common stock, and convertible debt. Basic and diluted net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period.
The Company uses the treasury stock method to calculate the impact of outstanding stock options and warrants. Stock options and warrants for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per common share and, accordingly, are excluded from the calculation.
Dilutive shares at September 30, 2017:March 31, 2022:
Stock Options
The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company: Company at March 31, 2022:
Weighted | Weighted | |||||||||||||||||||
Average | Average | |||||||||||||||||||
Remaining | Remaining | |||||||||||||||||||
Exercise | Exercise | Number | Contractual | Exercise | Number | Contractual | ||||||||||||||
Price | Price | of Options | Life (years) | Price | of Options | Life (years) | ||||||||||||||
$ | 0.35 | 470,000 | 0.31 | 0.60 | 50,000 | 3.75 | ||||||||||||||
$ | 0.57 | 225,000 | 0.25 | 0.62 | 360,000 | 1.75 | ||||||||||||||
$ | 1.31 | 200,000 | 0.69 | 0.85 | 540,000 | 1.75 | ||||||||||||||
$ | 1.42 | 100,000 | 0.72 | 1.00 | 50,000 | 3.75 | ||||||||||||||
$ | 1.43 | 50,000 | 1.25 | 1.20 | 1,100,000 | 1.59 | ||||||||||||||
$ | 1.46 | 100,000 | 0.75 | |||||||||||||||||
$ | 1.60 | 310,000 | 0.25 | |||||||||||||||||
$ | 1.70 | 75,000 | 0.54 | |||||||||||||||||
$ | 1.90 | 190,000 | 1.60 | |||||||||||||||||
$ | 2.00 | 50,000 | 0.54 | |||||||||||||||||
$ | 2.40 | 20,000 | 0.67 | |||||||||||||||||
$ | 2.50 | 37,500 | 0.54 | |||||||||||||||||
$ | 3.40 | 30,000 | 0.67 | |||||||||||||||||
$ | 3.50 | 37,500 | 0.54 | |||||||||||||||||
1,895,000 | 0.57 | 2,100,000 | 1.76 |
Restricted Stock Awards
At March 31, 2022, there are a total of 300,000 unvested restricted stock awards remaining.remaining from grants in a prior year. Those 300,000 restricted stock awards will vest as follows: 125,000 restricted stock awards will vest contingent upon the attainment of a stock price of $2.00 per share for 20 straight trading days, and an additional 175,000 restricted stock awards will vest contingent upon the attainment of a stock price of $3.00 per share for 20 straight trading days.
Stock Grants
During the ninethree months ended September 30, 2017,March 31, 2022, the Company recognized expenseincurred obligations to issue the following shares of $240,208 forcommon stock pursuant to compensation agreements: an aggregate of 25,812 shares of common stock to board members; and an aggregate total of 438,703 shares of common stock to Executive Officers. Some of these shares or other shares owned by the vesting of restricted stock awards,Company’s employees are included in a 10b5-1 selling plan.
The Company charged the same amount of expense that would have been recognized had the RSUs not been replaced by the restricted$152,726 to operations in connection with stock awards. As the restricted stock awards were not in placegrants during the ninethree months ended September 30, 2016, there was no such cost during that period.
Dilutive shares at September 30, 2016:March 31, 2021:
Stock Options
The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company: Company at March 31, 2021:
Weighted | Weighted | |||||||||||||||||||
Average | Average | |||||||||||||||||||
Remaining | Remaining | |||||||||||||||||||
Exercise | Exercise | Number of | Contractual | Exercise | Number | Contractual | ||||||||||||||
Prices | Options | Life (years) | ||||||||||||||||||
$ | 0.350 | 1,170,000 | 1.17 | |||||||||||||||||
$ | 0.380 | 92,500 | 0.50 | |||||||||||||||||
$ | 0.400 | 275,000 | 0.51 | |||||||||||||||||
$ | 0.450 | 92,500 | 0.50 | |||||||||||||||||
$ | 0.474 | 92,500 | 0.50 | |||||||||||||||||
$ | 0.480 | 92,500 | 0.50 | |||||||||||||||||
$ | 0.570 | 225,000 | 1.51 | |||||||||||||||||
$ | 1.310 | 75,000 | 2.17 | |||||||||||||||||
Price | Price | of Options | Life (years) | |||||||||||||||||
$ | 1.440 | 15,000 | 0.34 | 0.60 | 50,000 | 4.75 | ||||||||||||||
$ | 1.460 | 100,000 | 2.00 | 0.62 | 360,000 | 2.75 | ||||||||||||||
$ | 1.600 | 310,000 | 1.51 | 0.85 | 540,000 | 2.75 | ||||||||||||||
$ | 1.900 | 15,000 | 1.34 | 1.00 | 50,000 | 4.75 | ||||||||||||||
$ | 2.000 | 500,000 | 0.67 | 1.10 | 75,000 | 0.12 | ||||||||||||||
$ | 2.400 | 20,000 | 1.92 | 1.20 | 1,050,000 | 2.60 | ||||||||||||||
$ | 3.400 | 30,000 | 1.92 | 1.50 | 125,000 | 0.75 | ||||||||||||||
3,105,000 | 1.07 | 2,250,000 | 2.57 |
The Company charged the amount of $36,080 to operations in connection with stock options during the three months ended March 31, 2021.
Restricted Stock Awards
At September 30, 2016, the Company had issuedMarch 31, 2021 there are 300,000 unvested restricted stock units (“RSUs”) for the potential issuance of shares of the Company’s commonawards remaining from grants in a prior year. Those 300,000 restricted stock for the purpose of aligning executives and employees of the Company and for the purpose of compensation for serving as members of the Board of Directors of the Company and for the purposes of retaining qualified personnel at compensation levels that otherwise would not be available should the company have been required to pay certain salaries in cash only. Certain of the RSUs were issued to members of the board of directors of the Company (“Board RSUs”); certain RSUs were issued to the executive officers of the Company (“Executive RSUs”); certain RSUs were issued to employees of the Company (“Employee RSUs”); and certain RSUs were issued to employees of The Fresh Diet (“FD RSUs”).
Stock Grants
During the three months ended March 31, 2021, the Company incurred obligations to issue the following shares of common stock pursuant to compensation agreements: an aggregate total of 50,070 shares of common stock to board members and an aggregate total of 236,184 shares to Executive Officers. Some of these shares or other shares owned by the Company’s employees are included in a 10b5-1 plan. The Company estimated thatcharged the stock-price goalsamount of the Company’s$121,711 to operations in connection with stock price closing above $2.00 per share for 20 straight days have a 90% likelihood of achievement, and these RSUs were valued at 90% of their face value; the Company also estimated that the likelihood of the Company’s stock closing above $3.00 per share for 20 straight days is 70%, and these RSUs were valued at 70% of their face value.
Significant Recent Accounting Pronouncements
In May 2017,December 2019, the FASB issued ASU No. 2017-09, Stock Compensation - Scope of Modification2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which provides guidance on which changesis intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the terms or conditions of a share-based payment award require an entitygeneral principles in Topic 740 and also clarifies and amends existing guidance to apply modification accounting. The ASU requires that an entity should account for the effects of a modification unless the fair value (or calculated value or intrinsic value, if used), vesting conditions and classification (as equity or liability) of the modified award are all the same as for the original award immediately before the modification. The ASU becomesimprove consistent application. This guidance is effective for the Company on January 1, 2018,fiscal years, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in any interim period. The Company is currently assessing the impact that this standard will have on any awards that are modified once this standard is adopted.
In August 2020, the Company hasFASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting models for convertible debt instruments and convertible Preferred Stock. As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related EPS guidance. This standard is effective for us on January 1, 2022; adoption of this standard did not completed its evaluation, the Company currently believes that the impact to revenuehave a material effect on our consolidated financial statements and expense recognized will not be material to any of the years presented.related disclosures.
Management does not believe that any other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.
3. ACCOUNTS RECEIVABLE
At March 31, 2022 and December 31, 2021, accounts receivable consists of:
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Accounts receivable from customers | $ | 3,795,831 | $ | 3,632,695 | ||||
Allowance for doubtful accounts | (373,828 | ) | (375,931 | ) | ||||
Accounts receivable, net | $ | 3,422,003 | $ | 3,256,764 |
During the Oasis Asset Purchase Agreement, effective January 1, 2017,three months ended March 31, 2022 the Company through its wholly-owned subsidiary Oasis Sales Corp., purchased certain assets of Oasis Sales and Marketing, L.L.C., a California limited liability company. The purchase price consisted of $300,000 cash; a two-year promissory note incredited the amount of $100,000, and$1,115 to bad debt expense due to a structured equity instrument (the “SEI”) inbad debt recovery; during the previous period the Company charged the amount of $200,000. In addition, the Company is contingently liable for certain performance-based payments over the twenty-four months following the acquisition date up$2,721, to a maximum of $400,000 (“Earnout Payments”). The SEI is recorded as Other Long Term Liabilities on the Company’s balance sheet at September 30, 2017. The SEI can be paid in cash or shares of the Company’s stock at the Company’s option, at any time, or is automatically payable via the issuance of 200,000 shares of the Company’s stock if the Company’s shares close above $1.00 for ten consecutive days. The Company believes it is likely that the Earnout Payments will be made, and accordingly has recorded the entire amount of $400,000 as a contingent liability on its balance sheet at September 30, 2017. The amount of $800,000 was allocated to customer lists, an intangible asset with a useful life of 60 months; and the amount of $200,000 was allocated to a non-compete agreement, an intangible asset with a useful life of 48 months. A total of $52,500 and $157,500 was amortized to operations during the three and nine months ended September 30, 2017, respectively. The Company has presented preliminary estimates of the fair value of the intangible assets acquired. The Company is in the process of finalizing its review and evaluation of the related valuation assumptions supporting its fair value estimates of acquired intangible assets; therefore, the estimates used herein are subject to change. This may result in adjustments to the values presented.bad debt expense.
4. DISCONTINUED OPERATIONS
For the Nine Months Ended | ||||
September 30, | ||||
2016 | ||||
Revenue | $ | 2,389,950 | ||
Cost of goods sold | 1,764,834 | |||
Gross margin | 625,116 | |||
Selling, general and administrative expenses | 3,368,213 | |||
Total operating expenses | 3,368,213 | |||
Operating loss | (2,743,097 | ) | ||
Other (income) expense: | ||||
Gain on sale of discontinued operations | (7,201,196 | ) | ||
Interest expense, net | 10,820 | |||
Total other (income) expense | (7,190,376 | ) | ||
Income from discontinued operations, net of tax | $ | 4,447,279 |
February 22, 2016 | ||||
Receivable due from buyer, net of reserve of $8,700,000 | $ | - | ||
Net proceeds from sale of assets and liabilities | - | |||
Assets sold | (6,225,073 | ) | ||
Liabilities sold | 13,426,269 | |||
Net liabilities sold | 7,201,196 | |||
Gain on sale | 7,201,196 | |||
Loss from discontinued operations before income tax | (2,753,917 | ) | ||
Income tax expense | - | |||
Income from discontinued operations | $ | 4,447,279 |
September 30, 2017 | December 31, 2016 | |||||||
Accounts receivable from customers | $ | 2,422,540 | $ | 1,546,518 | ||||
Allowance for doubtful accounts | (5,436 | ) | (8,123 | ) | ||||
Accounts receivable, net | $ | 2,417,104 | $ | 1,538,395 |
Inventory consists primarily of specialty food products. At September 30, 2017March 31, 2022 and December 31, 2016,2021, inventory consisted of the following:
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Finished Goods Inventory | $ | 3,209,945 | $ | 3,109,984 |
September 30, 2017 | December 31, 2016 | |||||||
Finished Goods Inventory | $ | 983,733 | $ | 815,033 |
5. PROPERTY AND EQUIPMENT
Acquisition of Building
The Company owns a building and property located at 28411 Race Track Road, Bonita Springs, Florida 34135. The property consists of approximately 1.1 acres of land and approximately 10,000 square feet of combined office and warehouse space, and was purchased as part of a bank short sale. The Company moved its operations to these premises on July 15, 2013. The purchase price of the property was $792,758.
On May 14, 2015, the Company purchased a building and property located at 2528 S. 27th Avenue, Broadview, Illinois 60155. The property consists of approximately 1.33 acres of land and approximately 28,711 square feet of combined office and warehouse space. The purchase price of $914,350 was initially financed primarily by a draw-down of $900,000 on the Company’s credit facility with Fifth Third Bank.Bank, National Association (“Fifth Third Bank”). On May 29, 2015, a permanent financing facility was provided by Fifth Third Bank in the form of a loan in the amount of $980,000. $900,000 of this amount was used to pay the balance of the credit facility; the additional $80,000 was used for refrigeration and other improvements at the property. The interest on the loan is at the LIBOR rate plus 3.0%. The building is used for office and warehouse space primarily for the Company’s Artisan subsidiary. DuringWe have also recently completed an additional property improvement and upgrade buildout at the twelve months ended December 31, 2015,Artisan building which include a fully functional commercial test kitchen and training center and conference room. The test kitchen and training room is used by Artisan and other subsidiaries of the Company paidfor the purposes of new product testing and development and approval, Quality Assurance and Quality Control as well as sales presentations and customer demonstrations. In addition, we added a totalpackaging room to the Artisan building, which is built to FDA, FSMA and SQF food safety standards and purchased new, technologically advanced semi-automated fillers for the packaging room. The packaging room addition will allow for expansion of $474,301 for various buildingprivate label product lines as well as packing of organic, non-GMO, diet specific and other specialty foods. The test kitchen, packaging room and additional improvements furniture, fixtures, and equipment related to this property. were financed by a loan from Fifth Third Bank.
Depreciation on the building and the related improvements, furniture, fixtures, and equipment began when Artisanthe Company occupied the facility in October, 2015.
On November 8, 2019 the Company, through a newly formed wholly-owned subsidiary, purchased a logistics and warehouse facility (the “Facility”) for $4.5 million. The Facility is approximately 200,000 square feet and is situated on approximately 15 acres in Mountain Top, Pennsylvania. The Facility’s appraised value by a third party appraisal firm in 2022 was $16,400,000. Related to the Facility purchase, the Company entered into a commercial loan agreement for both the purchase price and planned improvements to the Facility. The amount of the loan was $5,500,000, of which $3,600,000 had been utilized at December 31, 2021 in connection with the purchase of the Facility; the lender is Fifth Third Bank and the loan is secured by a mortgage on the property and other Company assets. The interest on the loan is LIBOR plus 2.75%, with interest only payments due through September 30, 2020, thereafter with principal amortized over 20 years with the balance due at maturity on September 2, 2025. Related to Facility purchase, the Company also acquired certain leases from certain tenants of the Facility, all of which were in good standing at the time of purchase. Depreciation on the building began when the Company commenced recognizing revenue from leasing and logistics services associated with the Facility. On October 5, 2020, the Company completed work to upgrade the Facility at a cost of $2,231,458 in order to better support the Company’s focus on e-commerce and logistics. Of the build out costs, $1,900,000 was funded by the loan described below (See Note 13).
The following table summarizes property and equipment at September 30, 2017March 31, 2022 and December 31, 2016, was as follows:2021:
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Land | $ | 1,256,895 | $ | 1,256,895 | ||||
Building | 7,191,451 | 7,191,451 | ||||||
Computer and Office Equipment | 598,326 | 593,566 | ||||||
Warehouse Equipment | 376,667 | 376,667 | ||||||
Furniture and Fixtures | 944,233 | 944,233 | ||||||
Vehicles | 109,441 | 109,441 | ||||||
Total before accumulated depreciation | 10,477,013 | 10,472,253 | ||||||
Less: accumulated depreciation | (2,382,975 | ) | (2,286,026 | ) | ||||
Total | $ | 8,094,038 | $ | 8,186,227 |
September 30, 2017 | December 31, 2016 | |||||||
Land | $ | 385,523 | $ | 385,523 | ||||
Building | 1,326,165 | 1,326,165 | ||||||
Computer and Office Equipment | 497,191 | 466,177 | ||||||
Warehouse Equipment | 226,953 | 226,953 | ||||||
Furniture, Fixtures | 464,502 | 454,743 | ||||||
Vehicles | 40,064 | 40,064 | ||||||
Total before accumulated depreciation | 2,940,398 | 2,899,625 | ||||||
Less: accumulated depreciation | (952,343 | ) | (831,515 | ) | ||||
Total | $ | 1,988,055 | $ | 2,068,110 |
Depreciation and amortization expense for property and equipment amounted to $41,700$96,949 and $37,807$100,164 for the three months ended September 30, 2017March 31, 2022 and 2016,2021, respectively. Depreciation
6. RIGHT TO USE ASSETS AND LEASE LIABILITIES – OPERATING LEASES
The Company has operating leases for offices, warehouses, vehicles, and amortizationoffice equipment. The Company’s leases have remaining lease terms of 1 year to 3 years, some of which include options to extend.
The Company’s lease expense for propertythe three months ended March 31, 2022 and equipment2021 was entirely comprised of operating leases and amounted to $120,832$23,244 and $120,017$26,855, respectively.
The Company’s ROU asset amortization for the ninethree months ended September 30, 2017March 31, 2022 and 2016,2021 was $19,691 and $22,929, respectively.
Right to use assets – operating leases are summarized below:
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Office | $ | 138,496 | $ | 148,529 | ||||
Warehouse equipment | 49,131 | 55,047 | ||||||
Office equipment | 11,847 | 12,677 | ||||||
Vehicles | - | 16,128 | ||||||
Right of use assets - operating leases, net | $ | 199,474 | $ | 232,381 |
Operating lease liabilities are summarized below:
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Office | $ | 138,496 | $ | 148,529 | ||||
Warehouse equipment | 49,131 | 55,047 | ||||||
Office equipment | 11,847 | 12,677 | ||||||
Vehicles | - | 16,128 | ||||||
Lease liability | $ | 199,474 | $ | 232,381 | ||||
Less: current portion | (63,361 | ) | (74,088 | ) | ||||
Lease liability, non-current | $ | 136,113 | $ | 158,293 |
Maturity analysis under these lease agreements are as follows:
For the period ended March 31, 2023 | $ | 74,849 | ||
For the period ended March 31, 2024 | 71,116 | |||
For the period ended March 31, 2025 | 68,055 | |||
For the period ended March 31, 2026 | 7,057 | |||
For the period ended March 31, 2027 | - | |||
Total | $ | 221,077 | ||
Less: Present value discount | (21,603 | ) | ||
Lease liability | $ | 199,474 |
7. RIGHT TO USE ASSETS – FINANCING LEASES
The Company has financing leases for vehicles and warehouse equipment. See note 14. Right to use asset – financing leases are summarized below:
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Vehicles | 404,858 | 362,358 | ||||||
Warehouse Equipment | 555,416 | 555,416 | ||||||
Total before accumulated depreciation | 960,274 | 917,774 | ||||||
Less: accumulated depreciation | (279,916 | ) | (248,735 | ) | ||||
Total right to use assets - financing leases, net | $ | 680,358 | $ | 669,039 |
Depreciation expense for right to use assets for the three months ended March 31, 2022 and 2021 was $31,181 and $32,820, respectively.
8. INVESTMENTS
The Company has made investments in certain early stage food related companies which it expects can benefit from synergies with the Company’s various operating businesses. At September 30, 2017,March 31, 2022 and 2021 the Company has investments in threeseven food related companies in the aggregate amount of $201,525.$286,725. The Company does not have significant influence over the operations of these companies.
The Company’s investments may take the form of debt, equity, or equity in the future including convertible notes and other instruments which provide for future equity under various scenarios including subsequent financings or initial public offerings. The Company has evaluated the guidance in ASC No. 325-20, “Investments – Other”, in determining to account for the investment using the cost method since the equity securities are not marketable and do not give the Company significant influence.
During the three months ended March 31, 2021, the founder of one of the food related companies it invests in. passed away in an untimely tragic accident, and as a result the food related company ceased operations and the Company recognized an impairment in the amount of $209,850 in connection with that investment.
9. INTANGIBLE ASSETS
The Company acquired certain intangible assets pursuant to the acquisition ofacquisitions through Artisan, Oasis, (see note 3),Innovative Gourmet, OFB, Haley, and OFB, and the acquisition of certainM Innovations. These assets of The Haley Group, LLC. The following is the net book value of these assets:
September 30, 2017 | ||||||||||||
Accumulated | ||||||||||||
Gross | Amortization | Net | ||||||||||
Trade Name | $ | 217,000 | $ | - | $ | 217,000 | ||||||
Non-Compete Agreement | 444,000 | (281,500 | ) | 162,500 | ||||||||
Customer Relationships | 1,930,994 | (1,042,261 | ) | 888,733 | ||||||||
Goodwill | 151,000 | - | 151,000 | |||||||||
Total | $ | 2,742,994 | $ | (1,323,761 | ) | $ | 1,419,233 |
December 31, 2016 | ||||||||||||
Accumulated | ||||||||||||
Gross | Amortization | Net | ||||||||||
Trade Name | $ | 217,000 | $ | - | $ | 217,000 | ||||||
Non-Compete Agreement | 244,000 | (244,000 | ) | - | ||||||||
Customer Relationships | 1,130,994 | (791,310 | ) | 339,684 | ||||||||
Goodwill | 151,000 | - | 151,000 | |||||||||
Total | $ | 1,742,994 | $ | (1,035,310 | ) | $ | 707,684 |
As detailed in ASC 350 “Intangibles - Goodwill and Other”, the Company tests for goodwill impairment in the fourth quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. As detailed in ASC 350-20-35-3A, in performing its testing for goodwill impairment, management has completed a qualitative analysis to determine whether it was more likely than not that the fair value of athe Company’s reporting unit is less than its carrying amount, including goodwill. To complete this review, management followed the steps in ASC 350-20-35-3C to evaluate the fair value of goodwill and considered all known events and circumstances that might trigger an impairment of goodwill.
COVID-19 has had a material negative impact on some of the Company’s foodservice customers. In an effort to limit the spread of the virus, federal, state and local governments have implemented measures that have resulted in the closure of non-essential businesses in many of the markets the Company serves, which has forced its customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations. These actions have led to a significant decrease in demand for certain of the Company’s foodservice products. The analysis completed in 2016 determinedadverse impact to the Company’s foodservice customer base was a triggering event and accordingly, as required by ASC 350, the Company performed interim goodwill and long-lived asset quantitative impairment tests during the first quarter of 2020. While the triggering event was a result of the negative impact related to foodservice customers, the applicable accounting rules then required an impairment test targeted specifically to any available carrying value of goodwill or intangible assets. During the first quarter of 2020, the Company performed the impairment tests on certain intangible assets and goodwill pursuant to the acquisitions through Artisan, Oasis, Innovative Gourmet and M Innovations; the intangible assets acquired pursuant to the acquisitions of OFB and Haley were fully amortized at the time of the impairment test.
Long-lived Impairment Test
Long-lived assets, including other intangible assets, were tested for recoverability at the asset group level. The Company estimated the net undiscounted cash flows expected to be generated from the asset group over the expected useful life of the asset group’s primary asset. Key assumptions include future revenues, growth rates, estimates of future levels of gross profit and operating profit and projected capital expenditures necessary to maintain the operating capacity of each asset group. As a result of the impairment test, it was calculated that therethe net carrying values of other intangible assets exceeded the undiscounted cash flows for each of the Company’s asset groups by a total of $1,048,692, and the Company was norequired by the applicable accounting rules to record an impairment charge to goodwill assets.operations during the year ended December 31, 2020. At March 31, 2022 and December 31, 2021, the net carrying value of other intangible assets on the Company’s balance sheet was $1,594,809 and $1,605,040, respectively.
The Company acquired certain intangible assets pursuant to the acquisitions through Artisan, Oasis, Innovative Gourmet, OFB, Haley, and M Innovations. The following is the net book value of these assets:
March 31, 2022 (unaudited) | ||||||||||||
Accumulated | ||||||||||||
Gross | Amortization and Impairment | Net | ||||||||||
Non-Compete Agreement - amortizable | $ | 505,900 | $ | (505,900 | ) | $ | - | |||||
Customer Relationships - amortizable | 3,068,034 | (3,068,034 | ) | - | ||||||||
Trade Name | 1,532,822 | - | 1,532,822 | |||||||||
Internally Developed Technology - amortizable | 875,643 | (875,643 | ) | - | ||||||||
Goodwill | 650,243 | (650,243 | ) | - | ||||||||
Website - amortizable | 84,000 | (22,013 | ) | 61,987 | ||||||||
Total | $ | 6,716,642 | $ | (5,121,833 | ) | $ | 1,594,809 |
December 31, 2021 | ||||||||||||
Accumulated | ||||||||||||
Cost | Amortization | Net | ||||||||||
Non-Compete Agreement - amortizable | $ | 505,900 | $ | (505,900 | ) | $ | - | |||||
Customer Relationships - amortizable | 3,068,034 | (3,068,034 | ) | - | ||||||||
Trade Name | 1,532,822 | - | 1,532,822 | |||||||||
Internally Developed Technology | 875,643 | (875,643 | ) | - | ||||||||
Goodwill | 650,243 | (650,243 | ) | - | ||||||||
Website | 84,000 | (11,782 | ) | 72,218 | ||||||||
Total | $ | 6,716,642 | $ | (5,111,602 | ) | $ | 1,605,040 |
Total amortization expense for the three months ended March 31, 2022 and 2021 was $10,231 and $2,870, respectively.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2017March 31, 2022 and December 31, 20162021 are as follows:
September 30, 2017 | December 31, 2016 | March 31, 2022 | December 31, 2021 | |||||||||||||
Trade payables | $ | 1,921,920 | $ | 1,547,603 | ||||||||||||
Accrued costs of discontinued operations | 18,765 | 1,478,887 | ||||||||||||||
(unaudited) | ||||||||||||||||
Trade payables and accrued liabilities | $ | 4,213,969 | $ | 5,414,731 | ||||||||||||
Accrued payroll and commissions | 147,463 | 93,043 | 259,471 | 288,174 | ||||||||||||
Total | $ | 2,088,148 | $ | 3,119,533 | $ | 4,473,440 | $ | 5,702,905 |
11. ACCRUED INTEREST
At September 30, 2017,March 31, 2022, accrued interest on a notenotes outstanding was $15,674.$42,794. During the three and nine months ended September 30, 2017,March 31, 2022 and 2021, the Company paid cash for interest in the aggregate amount of $17,480$84,961 and $59,432,$83,275, respectively.
12. REVOLVING CREDIT FACILITIES
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13. NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
September 30, 2017 | December 31, 2016 | |||||||
Term loan dated as of August 5, 2016 in the original amount of $1,200,000 payable to Fifth Third Bank. This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of LIBOR plus 4.5%. Principal payments in the amount of $66,667 are due monthly along with accrued interest beginning September 5, 2016. The entire principal balance and all accrued interest is due on the maturity date of February 5, 2018. During the twelve months ended December 31, 2016, the Company transferred principal in the amount of $1,200,000 from the line of credit facility with Fifth Third Bank into this term loan. During the three months ended September 30, 2017, the Company made principal and interest payments on this loan in the amounts of $200,000 and $5,594, respectively. During the nine months ended September 30, 2017, the Company made principal and interest payments on this loan in the amounts of $600,000 and $24,187, respectively. | $ | 314,033 | $ | 914,033 | ||||
Secured mortgage note payable for the acquisition of land and building in Bonita Springs, Florida in the amount of $546,000. Principal payments of $4,550 and interest at the rate of Libor plus 3% are due monthly. The balance of the principal amount will be due February 28, 2018. During the three months ended September 30, 2017, the Company made payments of principal and interest on this note in the amounts of $13,650 and $3,288, respectively. During the nine months ended September 30, 2017, the Company made payments of principal and interest on this note in the amounts of $40,950 and $9,663, respectively. | 295,750 | 336,700 | ||||||
Secured mortgage note payable for the acquisition of land and building in Broadview, Illinois in the amount of $980,000. Payments of $8,167 including principal and interest at the rate of LIBOR plus 2.75% are due monthly through April 2020, the remaining principal balance in the amount of $490,000 will be due May 29, 2020. During the three months ended September 30, 2017, the Company made payments of principal and interest on this note in the amounts of $24,500 and $7,845, respectively. During the nine months ended September 30, 2017, the Company made payments of principal and interest on this note in the amounts of $73,500 and $22,919, respectively. | 751,333 | 824,833 | ||||||
A total of 16 convertible notes payable in the aggregate amount of $627,565 (the “Convertible Notes Payable”). Certain of the Convertible Notes Payable contain cross default provisions, and are secured by subordinated interest in a majority of the Company’s assets. The Convertible Notes Payable bear interest at the rate of 1.9% per annum; principal and accrued interest are convertible into common stock of the Company at a conversion price of $0.25 per share; however, the interest may be paid in cash by the Company and certain limited amounts of principle may also be prepaid in cash. Effective May 13, 2014, the due date of these notes was extended from May 15, 2014 to December 31, 2015, and a discount to the notes in the aggregate amount of $712,565 was recorded to recognize the value of the beneficial conversion feature embedded in the extension of the term of the notes. In March 2015 the notes were further extended to January 1, 2016. On September 30, 2015, the notes in the amount of $627,565 were further extended to July 1, 2017, and a discount in the amount of $627,565 was recorded to recognize the value of the beneficial conversion featured embedded in the extension of the term of the notes. During the three and nine months ended September 30, 2017, $0 and $185,018, respectively, of this discount was charged to operations. During the three and nine months ended September 30, 2017, the Company accrued interest in the amount of $0 and $179,304, respectively, on these notes. During the three months ended June 30, 2017, holders of the Convertible Notes Payable converted principal in the amount of $627,565 and accrued interest in the amount of $528,242 into an aggregate of 1,155,807 shares of common stock, and accrued interest in the amount of $86,089 was forgiven. The amount of $86,809 is recorded as a decrease in interest expense during the three and six months ended June 30, 2017. | - | 627,565 | ||||||
A convertible note payable in the amount of $20,000 The Note was due in January 2006 and the Company is currently accruing interest on this note at 1.9%. The principal is convertible into common stock of the Company at a conversion price of $0.25 per share. During the three and nine months ended September 30, 2017, the Company accrued interest in the amount of $93 and $279, respectively, on this note. | 20,000 | 20,000 |
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Secured mortgage note payable for the acquisition of land and building in Bonita Springs, Florida in the amount of $546,000. Principal payments of $4,550 plus interest at the rate of Libor plus 3% are due monthly. The balance of the principal amount was originally due February 28, 2018. On March 23, 2018 and effective February 26, 2018, this note was amended and renewed in the amount of $273,000, with monthly payments of principal and interest of $4,550 payable through the maturity date of February 28, 2023. During the three months ended March 31, 2022, the Company made payments of principal and interest on this note in the amounts of $13,650 and $504, respectively; and during the three months ended March 31, 2021, the Company made payments of principal and interest on this note in the amounts of $13,650 and $927, respectively. | $ | 54,600 | $ | 68,250 | ||||
Secured mortgage note payable for the acquisition of land and building in Broadview, Illinois in the amount of $980,000. Principal payments of $8,167 plus interest at the rate of LIBOR plus 2.75% are due monthly through April 2020, the remaining principal balance in the amount of $490,000 was originally due May 29, 2020. Effective May 29, 2020, the note was amended and renewed such that principal payments of $8,303 plus accrued interest were due beginning June 29, 2020 and continuing for sixty months; the entire principal balance and all accrued interest will be due on May 29, 2025. During the three months ended March 31, 2022, the Company made payments of principal and interest on this note in the amounts of $24,500 and $2,476, respectively; and during the three months ended March 31, 2021, the Company made payments of principal and interest on this note in the amounts of $24,500 and $3,212, respectively. | 326,665 | 351,165 | ||||||
Promissory note dated March 22, 2019 in the original amount of $391,558 (the “Artisan Equipment Loan”) payable to Fifth Third Bank. This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of 5.20%. The entire principal balance and all accrued interest is due on the maturity date of March 21, 2024. Monthly payments in the amount of $7,425 including principal and interest commenced in April, 2019. During the year ended December 31, 2019, equipment financed under the Artisan Equipment Loan in the amount of $33,075 was returned for credit. During the three months ended March 31, 2022, the Company made payments of principal and interest on this loan in the amounts of $18,235 and $2,159, respectively; and during the three months ended March 31, 2021, the Company made payments of principal and interest on this loan in the amounts of $17,313 and $3,081, respectively. | 153,911 | 172,146 | ||||||
A note payable in the amount of $20,000. The Note was due in January 2006 and the Company is currently accruing interest on this note at 1.9%. During the three months ended March 31, 2022 and 2021, the Company accrued interest in the amount of $94 and $93, respectively, on this note; at March 31, 2022 and 2021, accrued interest on this note was $17,817 and $17,438 respectively. | 20,000 | 20,000 | ||||||
Vehicle acquisition loan dated December 6, 2018 in the original amount of $51,088, payable in sixty monthly installments of $955 including interest at the rate of 4.61% maturing November 5, 2023. During the three months ended March 31, 2022, the Company made principal and interest payments in the amount of $2,663 and $232, respectively, on this loan; and during the three months ended March 31, 2021, the Company made principal and interest payments in the amount of $2,505 and $360, respectively. | 18,351 | 20,984 |
September 30, 2017 | December 31, 2016 | |||||||
Unsecured note to Sam Klepfish for $164,650 which may not be prepaid without Mr. Klepfish’s consent, originally carrying an interest rate of 8% per annum and no due date. As of July 1, 2014, the interest rate was reduced to 1.9% and as of November 17, 2014 the interest rate was further reduced to 0%. During the three months ended December 31, 2015, interest in the amount of $54,150 was capitalized, and the aggregate principal amount of $164,650 was extended to July 1, 2017. This note and accrued interest are convertible into common stock of the Company at a conversion price of $0.25 per share. During the three months ended March 31, 2017, the entire principal balance of this note in the amount of $164,650 was converted into 658,600 shares of the Company’s common stock. | - | 164,650 | ||||||
Unsecured promissory note in the amount of $100,000 dated January 1, 2017 bearing interest at the rate of 2.91% per annum issued in connection with the Oasis acquisition. Payments in the amount of $4,297 consisting of principal and interest are to be made monthly beginning February 15, 2017 for twenty-four months until paid in full. During the three and nine months ended September 30, 2017, the Company made principal payments on this note in the amount of $12,361 and $530, respectively; during the three and nine months ended September 30, 2017, the Company made interest payments on this note in the amount of rest payments on this note in the amounts of $32,496, and $1,880, respectively. | 67,504 | - | ||||||
Capital lease obligations under a lease agreement for a forklift payable in thirty-six monthly installments of $274 including interest at the rate of 4.46%. During the three and nine months ended September 30, 2017, the Company made principal payments in the amount of $778 and $2,307, respectively. During the three and nine months ended September 30, 2017, the Company made interest payments on this lease obligation in the amounts of $45 and $159, respectively. | 3,471 | 5,778 | ||||||
Capital lease obligations under a lease agreement for a forklift payable in thirty-six monthly installments of $579 including interest at the rate of 4.83%. During the three and nine months ended September 30, 2017, the Company made principal payments in the amounts of $1,558 and $4,617, respectively. During the three and nine months end September 30, 2017, the Company made interest payments on this lease obligation in the amounts of $178 and $591, respectively. | 13,738 | 18,354 | ||||||
Total | $ | 1,465,829 | $ | 2,911,913 | ||||
Less: Discount | - | (185,020 | ) | |||||
Net | $ | 1,465,829 | $ | 2,726,893 | ||||
Current maturities, net of discount | $ | 547,183 | $ | 1,589,082 | ||||
Long-term portion, net of discount | 918,646 | 1,137,811 | ||||||
Total | $ | 1,465,829 | $ | 2,726,893 |
For the Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Discount on Notes Payable amortized to interest expense: | $ | - | $ | 92,509 |
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Discount on Notes Payable amortized to interest expense: | $ | 185,018 | $ | 277,527 |
Secured mortgage facility in the amount of $5,500,000 with Fifth Third Bank for the acquisition of land and building in Mountaintop, Pennsylvania dated November 8, 2019 (the “Fifth Third Mortgage Facility”). The Fifth Third Mortgage Facility is secured by the assets acquired. During the year ended December 31, 2019, the Company drew down $3,600,000 of this facility. During the year ended December 31, 2020, the Company drew down an additional $1,900,000 of this facility. The interest rate is LIBOR plus 2.75% with interest only due through September 30, 2020, thereafter with principal amortized at a 20 years amortization rate and the balance due on the maturity date of September 2, 2025. The Company prepaid loan fees in connection with this loan in the amount of $72,916 which are considered a discount to the loan and are being amortized over the term of the note; $3,088 of this discount was amortized to interest expense during each of the three months ended March 31, 2022 and 2021. During the three months ended March 31, 2022 the Company made principal and interest payments in the amount of $33,800 and $37,800, respectively, on this loan. During the three months ended March 31, 2021, the Company paid principal and interest in the amount of $49,200 and $38,980, respectively, on this loan. The Company also has in place an interest rate swap agreement (the “Fifth Third Interest Rate Swap”) with Fifth Third bank in connection with the Fifth Third Mortgage Facility. Pursuant to the Fifth Third Interest Rate Swap, the Company pays an additional base rate of 0.59% reduced by the difference between an initial LIBOR rate of 0.1513% and the month-end LIBOR rate. During the three months ended March 31, 2022 and 2021, the Company paid additional interest in the amount of $5,632 and $6,094, respectively, pursuant to the Fifth Third Interest Rate Swap. On March 28, 2022 the Interest Rate Swap was terminated. Upon termination the Company received a cash payment of $294,000, which is reflected as a gain on the interest rate swap on the statement of operations for the three months ended March 31, 2022. | 5,201,800 | 5,235,600 | ||||||
Total | 5,775,328 | 5,868,145 | ||||||
Discount | (42,923 | ) | (46,012 | ) | ||||
Net of discount | $ | 5,732,405 | $ | 5,822,133 | ||||
Current portion | $ | 455,414 | $ | 458,973 | ||||
Long-term maturities | 5,319,914 | 5,409,172 | ||||||
Total | $ | 5,775,328 | $ | 5,868,145 |
Aggregate maturities of long-term notes payable as of September 30, 2017March 31, 2022 are as follows:
For the period ended March 31,
2023 | $ | 455,415 | ||
2024 | 388,838 | |||
2025 | 309,908 | |||
2026 | 4,621,167 | |||
2027 | - | |||
Total | $ | 5,775,328 |
14. LEASE LIABILITIES - FINANCING LEASES
March 31, 2022 | December 31, 2021 | |||||||
(unaudited) | ||||||||
Financing lease obligation under a lease agreement for a forklift dated July 12, 2021 in the original amount of $16,070 payable in thirty-six monthly installments of $489 including interest at the rate of 6.01%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $1,269 and $198, respectively. | $ | 12,319 | $ | 13,588 | ||||
Financing lease obligation under a lease agreement for a pallet truck dated July 15, 2021 in the original amount of $5,816 payable in thirty-six monthly installments of $177 including interest at the rate of 6.01%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $459 and $72, respectively. | 4,459 | 4,918 | ||||||
Financing lease obligation under a lease agreement for warehouse furniture and equipment truck dated October 14, 2020 in the original amount of $514,173 payable in sixty monthly installments of $9,942 including interest at the rate of 6.01%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amount of $23,944 and $5,882, respectively. During the three months ended March 31, 2021, the Company made principal and interest payments on this lease obligation in the amount of $22,552 and $7,274, respectively. | 375,744 | 399,688 | ||||||
Financing lease obligation under a lease agreement for a truck dated March 31, 2020 in the original amount of $152,548 payable in eighty-four monthly installments of $2,188 including interest at the rate of 5.44%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $4,980 and $1,584, respectively. During the three months ended March 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $4,716 and $1,847, respectively. | 113,040 | 118,020 | ||||||
Financing lease obligation under a lease agreement for a truck dated November 5, 2018 in the original amount of $128,587 payable in seventy monthly installments of $2,326 including interest at the rate of 8.33%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,630 and $1,346, respectively. During the three months ended March 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $5,182 and $1,795, respectively. | 60,896 | 66,526 | ||||||
Financing lease obligation under a lease agreement for a truck dated August 23, 2019 in the original amount of $80,413 payable in eighty-four monthly installments of $1,148 including interest at the rate of 5.0%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $2,751 and $692, respectively. During the three months ended March 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $2,618 and $826, respectively. | 53,572 | 56,323 | ||||||
Financing lease obligation under a lease agreement for a truck dated February 4, 2022 in the original amount of $42,500 payable in twenty-four monthly installments of $1,963 including interest at the rate of 10.1%. During the three months ended March 31, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $1,604 and $359, respectively. | 40,896 | - | ||||||
Total | $ | 660,926 | $ | 659,063 | ||||
Current portion | $ | 182,664 | $ | 159,823 | ||||
Long-term maturities | 478,262 | 499,240 | ||||||
Total | $ | 660,926 | $ | 659,063 |
2018 | $ | 547,183 | ||
2019 | 177,038 | |||
2020 | 609,933 | |||
2021 | 54,600 | |||
2022 | 54,600 | |||
Thereafter | 22,475 | |||
Total | $ | 1,465,829 |
Aggregate maturities of lease liabilities – financing leases as of March 31, 2022 are as follows:
For the period ended March 31,
2023 | $ | 182,665 | ||
2024 | 193,226 | |||
2025 | 160,994 | |||
2026 | 96,069 | |||
2027 | 27,972 | |||
Thereafter | - | |||
Total | $ | 660,926 |
15. RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2022:
Vesting of shares to officers
During the three months ended March 31, 2022 in connection with stock based compensation based upon the terms of employment agreements with its employees and compensation agreements with the Company’s independent board members, the Company charged to operations the amount of $10,000 for the vesting of a total of 25,812 shares of common stock issuable to two of its independent board members, and $140,400 for the vesting of a total of 438,703 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreements. The Company acquired options to purchase 100,000 shares of the Company’s common stock from a director for $33,000, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.
For the three months ended March 31, 2021:
Vesting of shares to officers
During the three months ended March 31, 2021 in connection with stock based compensation based upon the terms of employment agreements with its employees and compensation agreements with the Company’s independent board members, the Company issued 210,520 RSUs in satisfactioncharged to operations the amount of this liability. Also at December 31, 2015,$22,500 for the vesting of a total of 50,070 shares of common stock issuable to two of its independent board members, and $99,211 for the vesting of a total of 236,184 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreements. The Company had an accrued liabilityalso recognized non-cash compensation in the amount of $157,780 representing 244,620 RSUs to be issued to officers and employees as a bonus for services performed in 2015;$36,080 during the three months ended March 31, 2016, the Company issued an aggregate of 244,620 RSUs2021 in satisfaction of this liability.
16. COMMITMENTS AND CONTINGENT LIABILITIES
Contingent Liability
Pursuant to the Oasis acquisition,igourmet Asset Purchase Agreement, the Company is contingently liable forrecorded contingent liabilities in the original amount of $787,800. This amount relates to certain performance-based payments over the twenty-four months following the acquisition date. Thedate as well as to certain additional liabilities that the Company believes it is likely that these payments will be made,has evaluated and accordinglyhas recorded on a contingent basis. During the entireyear ended December 31, 2018, the Company reduced this amount by $392,900 as the performance goals for the first year were not met. During the year ended December 31, 2019, the Company reduced this amount by $132,300 as the performance goals for the second year were not met. During the year ended December 31, 2019, the Company paid the amount of $400,000$39,000 in connection with the additional liabilities. During the three months ended March 31, 2022 and 2021, the Company paid the amount of $0 and $8,000, respectively, in connection with the additional liabilities. At March 31, 2022 and December 31, 2021, the amount of $67,000 remains on the Company’s consolidated balance sheet as a current contingent liability, and $108,600 and $108,600, respectively, as a long term contingent liability.
Pursuant to the Mouth Foods LLC Asset Acquisition, the Company recorded contingent liabilities in the amount of $240,576. These amounts relate to the estimate of certain performance-based payments following the acquisition date as well as to certain additional liabilities that the Company has evaluated and has recorded on its balance sheet at acquisition. $200,000a contingent basis. During the year ended December 31, 2019, the Company paid the amount of this amount$120,576 in connection with these liabilities. At March 31, 2022 and December 31, 2021, $120,000 is classified as a current liabilitycontingent liability.
License Agreements
In May 2019, the Company entered into a royalty-based license agreement, through December 31, 2022 with a lifestyle brand, which provides the exclusive right, with certain carve-outs and $200,000limitations, to sell and promote branded gift baskets for certain channels including: retail, warehouse club stores, certain of the Company’s current e-commerce channels, and other e-commerce channels such as amazon.com (the “May 2019 License Agreement”). Pursuant to the May 2019 License Agreement, the Company paid an initial royalty deposit in the amount of $50,000 towards the minimum royalty, which is classified as other current assets on the Company’s balance sheet at December 31, 2019. Future royalty amounts owed for minimum payments in connection with the May 2019 License Agreement will be deducted from this deposit. The royalty rate is 5% of net sales, and the Company is required, with certain exceptions and exclusions, to make minimum royalty payments of $100,000 through the end of 2020, $110,000 in 2021, and $125,000 in 2022. As of March 31, 2022, the Company has made the required minimum royalty payments.
Litigation
On September 16, 2019, an action (the “PA Action”) was filed in the Court of Common Pleas of Philadelphia County, Trial Division, against, among others, the Company and its wholly-owned subsidiaries, Innovative Gourmet LLC and Food Innovations, Inc. Since that time, other parties involved in the incident have joined as plaintiffs in the PA Action. The complaint in the PA Action alleges, inter alia, wrongful death and negligence by a long term liability at September 30, 2017.driver employed by Innovative Gourmet and indicates a demand and offer to settle for 50 million dollars. We expect that should a settlement occur the amount to resolve the Action would be substantially lower. The Company and its subsidiaries had auto and umbrella insurance policies, among others, that were in effect for the relevant period The Company and its subsidiaries’ insurers have agreed to defend the Company and its subsidiaries in the PA Action (and the related action), subject to a reservation of rights. The Company believes that the likely outcome would result in the liabilities being covered by its insurance carriers. However, if the Company was found responsible for damages in excess of its available insurance coverage, such damages in excess of the coverage could have a material adverse effect on the Company’s operations. On July 16, 2020, the court granted the Company's motion to stay the case through the final adjudication of an additional pending legal proceeding against the driver in connection with the events related to the case. Because the statute of limitations on the incident has now run, it is not anticipated that any new plaintiffs involved in the incident will come forward against the Company and its subsidiaries.
From time to time, the Company has become and may become involved in variouscertain lawsuits and legal proceedings which arise in the ordinary course of business.business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. 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 our business.
17. EQUITY
Common Stock
At September 30, 2017March 31, 2022 and December 31, 2016,2021, a total of 2,491,112 and 733,6592,837,580 shares respectively, are deemed issued but not outstanding by the Company. These include 2,276,7032,623,171 shares of treasury stock as of September 30, 2017 and 519,254 shares of treasury stock as of December 31, 2016.stock.
Three months ended September 30, 2017:March 31, 2022:
During the three months ended March 31, 2022 in connection with stock based compensation based upon the terms of employment agreements with its employees and compensation agreements with the Company’s independent board members, the Company issued 274,783charged to operations the amount of $10,000 for the vesting of a total of 25,812 shares of common stock issuable to two of its independent board members, and $140,400 for cashthe vesting of $68,697 pursuant to the exercise of warrants.
Three months ended March 31, 2021:
During the three months ended March 31, 2021 in connection with stock based compensation based upon the terms of employment agreements with its employees and compensation agreements with the Company’s independent board members, the Company charged to operations the amount of $240,208 to additional paid-in capital representing$22,500 for the vesting of restricteda total of 50,070 shares of common stock awards issuedissuable to officers.two of its independent board members, and $99,211 for the vesting of a total of 236,184 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreements. The Company also recognized non-cash compensation in the amount of $36,080 during the three months ended March 31, 2021 in connection with stock options issuable to management and board members.
Options
Range of exercise Prices | Number of warrants Outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price of outstanding Warrants | Number of warrants Exercisable | Weighted average exercise price of exercisable Warrants | |||||||||||||||||
$ | 0.010 | 700,000 | 2.63 | $ | 0.01 | 700,000 | $ | 0.01 | ||||||||||||||
700,000 | 2.63 | $ | 0.01 | 700,000 | $ | 0.01 |
Number of | Weighted Average | |||||||
Warrants | Exercise Price | |||||||
Warrants outstanding at December 31, 2016 | 3,537,284 | $ | 0.45 | |||||
Granted | - | - | ||||||
Exercised | (2,837,284 | ) | $ | 0.56 | ||||
Cancelled / Expired | - | - | ||||||
Warrants outstanding at September 30, 2017 | 700,000 | $ | 0.01 |
The following table summarizes the options outstanding at March 31, 2022 and the related prices for the options to purchase shares of the Company’s common stock issued by the Company:
Weighted | Weighted | |||||||||||||||||||||
Weighted | average | average | ||||||||||||||||||||
average | exercise | exercise | ||||||||||||||||||||
Range of | Number of | Remaining | price of | Number of | price of | |||||||||||||||||
exercise | options | contractual | outstanding | options | exercisable | |||||||||||||||||
Prices | Outstanding | life (years) | Options | Exercisable | Options | |||||||||||||||||
$ | 0.35 | 470,000 | 0.31 | $ | 0.35 | 470,000 | $ | 0.35 | ||||||||||||||
$ | 0.57 | 225,000 | 0.25 | $ | 0.57 | 225,000 | $ | 0.57 | ||||||||||||||
$ | 1.31 | 200,000 | 0.69 | $ | 1.31 | 200,000 | $ | 1.31 | ||||||||||||||
$ | 1.42 | 100,000 | 0.72 | $ | 1.42 | 100,000 | $ | 1.42 | ||||||||||||||
$ | 1.43 | 50,000 | 1.25 | $ | 1.43 | 50,000 | $ | 1.50 | ||||||||||||||
$ | 1.46 | 100,000 | 0.75 | $ | 1.46 | 100,000 | $ | 1.46 | ||||||||||||||
$ | 1.60 | 310,000 | 0.25 | $ | 1.60 | 310,000 | $ | 1.60 | ||||||||||||||
$ | 1.70 | 75,000 | 0.54 | $ | 1.70 | 75,000 | $ | 1.70 | ||||||||||||||
$ | 1.90 | 190,000 | 1.60 | $ | 1.90 | 190,000 | $ | 1.90 | ||||||||||||||
$ | 2.00 | 50,000 | 0.54 | $ | 2.00 | 50,000 | $ | 2.00 | ||||||||||||||
$ | 2.40 | 20,000 | 0.67 | $ | 2.40 | 20,000 | $ | 2.40 | ||||||||||||||
$ | 2.50 | 37,500 | 0.54 | $ | 2.50 | 37,500 | $ | 0.79 | ||||||||||||||
$ | 3.40 | 30,000 | 0.67 | $ | 3.40 | 30,000 | $ | 3.40 | ||||||||||||||
$ | 3.50 | 37,500 | 0.54 | $ | 3.50 | 37,500 | $ | 3.50 | ||||||||||||||
1,895,000 | 0.57 | $ | 1.25 | 1,895,000 | $ | 1.25 |
Weighted | Weighted | ||||||||||||||||||||||
Weighted | average | average | |||||||||||||||||||||
average | exercise | exercise | |||||||||||||||||||||
Range of | Number of | Remaining | price of | Number of | price of | ||||||||||||||||||
exercise | options | contractual | outstanding | options | exercisable | ||||||||||||||||||
Prices | Outstanding | life (years) | Options | Exercisable | Options | ||||||||||||||||||
$ | 0.60 | 50,000 | 3.75 | $ | 0.60 | 31,250 | $ | 0.60 | |||||||||||||||
$ | 0.62 | 360,000 | 1.75 | $ | 0.62 | 360,000 | $ | 0.62 | |||||||||||||||
$ | 0.85 | 540,000 | 1.75 | $ | 0.85 | 540,000 | $ | 0.85 | |||||||||||||||
$ | 1.00 | 50,000 | 3.75 | $ | 1.00 | 31,250 | $ | 1.00 | |||||||||||||||
$ | 1.20 | 1,100,000 | 1.59 | $ | 1.20 | 1,075,000 | $ | 1.20 | |||||||||||||||
2,100,000 | 1.76 | $ | 0.99 | 2,037,500 | $ | 0.99 |
Transactions involving stock options are summarized as follows:
Number of Shares | Weighted Average Exercise Price | |||||||
Options outstanding at December 31, 2021 | 2,100,000 | $ | 0.99 | |||||
Granted | - | $ | - | |||||
Exercised | - | $ | - | |||||
Cancelled / Expired | - | $ | - | |||||
Options outstanding at March 31, 2022 (unaudited) | 2,100,000 | $ | 0.99 | |||||
Options exercisable at March 31, 2022 (unaudited) | 2,037,500 | $ | 0.99 |
Number of Shares | Weighted Average Exercise Price | |||||||
Options outstanding at December 31, 2016 | 2,445,000 | $ | 1.01 | |||||
Granted | 650,000 | $ | 1.73 | |||||
Exercised | (200,000 | ) | $ | 0.35 | ||||
Cancelled / Expired | (1,000,000 | ) | $ | 1.18 | ||||
Options outstanding at September 30, 2017 | 1,895,000 | $ | 1.25 |
Aggregate intrinsic value of options outstanding and exercisable at September 30, 2017March 31, 2022 and 20162021 was $339,700 and $737,905, respectively.$0. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $0.91$0.30 and $0.48$0.43 as of September 30, 2017March 31, 2022 and 2016,2021, respectively, and the exercise price multiplied by the number of options outstanding.
During the three months ended September 30, 2017March 31, 2022 and 2016,2021, the Company charged a total of $0$2,326 and $4,983,$36,080, respectively, to operations related to recognized stock-based compensation expense for employee and board member stock options. During the nine months ended September 30, 2017 and 2017,
18. SUBSEQUENT EVENTS
On April 26, 2022, the Company chargedengaged a total of $8,707 and $14,814, respectively, to operations related to recognized stock-based compensation expenseconsultant for employee stock options.
September 30, | ||||||||
2017 | 2016 | |||||||
RSUs expense – Continuing operations | $ | - | $ | 190,692 | ||||
RSUs expense – Discontinued operations | - | - | ||||||
Total | $ | - | $ | 190,692 |
September 30, | ||||||||
2017 | 2016 | |||||||
RSUs expense – Continuing operations | $ | - | $ | 658,709 | ||||
RSUs expense – Discontinued operations | - | 813,908 | ||||||
Total | $ | - | $ | 1,472,617 |
ITEM 2 - MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto, as well as all other related notes, and financial and operational references, appearing elsewhere in this document.
Certain information contained in this discussion and elsewhere in this report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that act. The safe harbor created by the Private Securities Litigation Reform Act will not apply to certain “forward looking statements” because we issued “penny stock” (as defined in Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3(a)(51-1) under the Exchange Act) during the three year period preceding the date(s) on which those forward looking statements were first made, except to the extent otherwise specifically provided by rule, regulation or order of the Securities and Exchange Commission. We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to have been made in this Report or which are otherwise made by or on our behalf. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “explore”, “consider”, “anticipate”, “intend”, “could”, “estimate”, “plan”, “propose” or “continue” or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. Factors that may affect our results include, but are not limited to, the risks and uncertainties associated with:
● | Our ability to raise capital necessary to sustain our anticipated operations and implement our business plan, |
● | Our ability to implement our business plan, |
● | Our ability to generate sufficient cash to pay our lenders and other creditors, |
● | Our dependence on one major customer, |
● | Our ability to employ and retain qualified management and employees, |
● | Our dependence on the efforts and abilities of our current employees and executive officers, |
● | Changes in government regulations that are applicable to our current or anticipated business, |
● | Changes in the demand for our services and different food trends, |
● | The degree and nature of our competition, |
● | The lack of diversification of our business plan, |
● | The general volatility of the capital markets and the establishment of a market for our shares, and |
● | Disruption in the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future attacks, police and military activities overseas and other disruptive worldwide political and economic events, health pandemics, rising inflation and environmental weather conditions. |
We are also subject to other risks detailed from time to time in our other filings with Securities and Exchange Commissionthe SEC and elsewhere in this report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Critical Accounting Policy and Estimates
Use of Estimates in the Preparation of Financial Statements
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates include certain assumptions related to doubtful accounts receivable, stock-based services, valuation of financial instruments, operating right of use assets and liabilities, and income taxes. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accounts subject to estimate and judgements are accounts receivable reserves, income taxes, intangible assets, contingent liabilities, and equity basedequity-based instruments. Actual results may differ from these estimates under different assumptions or conditions. We believe our estimates have not been materially inaccurate in past years, and our assumptions are not likely to change in the foreseeable future.
Provision for Doubtful Accounts Receivable
The Company maintained an allowance in the amount of $5,436$373,828 for doubtful accounts receivable at September 30, 2017,March 31, 2022, and $56,371$375,931 at September 30, 2016.December 31, 2021. The Company has an operational relationship of several years with our major customers, and we believe this experience provides us with a solid foundation from which to estimate our expected losses on accounts receivable. Should our sales mix change or if we develop new lines of business or new customers, these estimates and our estimation process will change accordingly. These estimates have been accurate in the past.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the United States of America. The estimated fair values approximate their carrying value because of the short-term maturity of these instruments or the stated interest rates are indicative of market interest rates. These fair values have historically varied due to the market price of the Company’s stock at the date of valuation. Generally, these
Income Taxes
The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities increased asare recognized for the pricefuture tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the condensed consolidated balance sheet. Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within accrued liabilities.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s stock increased (with resultant gain), and decreased as the Company’s stock decreased (yielding a loss). In December 2012,leases do not provide an implicit rate, the Company removed these liabilities from its balance sheet by reclassifying them as equity.
Background
We were initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation. From June 1979 through February 2003, we were either inactive or involved in discontinued business ventures. We changed our name to Fiber Application Systems Technology, Ltd in February 2003. In January 2004, we changed our state of incorporation by merging into Innovative Food Holdings, Inc. (IVFH)(“IVFH”), a Florida corporation formed for that purpose. As a result of the merger, we changed our name to that of Innovative Food Holdings, Inc. In January 2004, we also acquired Food Innovations, Inc. (“FII” or “Food Innovations”), a Delaware corporation, for 500,000 shares of our common stock.
On May 18, 2012, the Company executed a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Artisan Specialty Foods, Inc., an Illinois corporation (“Artisan”), from its owner, Mr. David Vohaska. The purchase price was $1.2 million, with up to another $300,000 (with a fair value of $131,000) payable in the event certain financial milestones were met over the next one or two years. Those milestones have been met. The purchase price was primarily financed via a loan from Alpha Capital in the principal amount of $1,200,000. The loan was repaid in November 2013 via the issuance of a loan from Fifth Third Bank which has been paid in full. Prior to the acquisition, Artisan was a supplier and had sold products to the Company.
On June 30, 2014, pursuant to a purchase agreement, effective June 30, 2014, the Company purchased 100% of the membership interest of Organic Food Brokers, LLC, a Colorado limited liability company (“OFB”).
Pursuant to an Asset Purchase Agreement dated as of Contents
On August 15, 2014, pursuant to a merger agreement, (the “Fresh Diet Merger Agreement”), the Company acquired The Fresh Diet, Inc. (“The Fresh Diet” or “FD”FD”) through a reverse triangular merger as the registrant created a subsidiary corporation (FD Acquisition Corp) that merged with and into FD with FD being the surviving corporation and becoming a wholly-owned subsidiary of the Company. The purchase price consisted of 10,000,000 shares of the Company’s common stock valued at $14,000,000. The majority of FD’s current liabilities consisted of approximately $3.8 million of deferred revenues and approximately $2.1 million in short term commercial loans and there were additional ordinary course of business expenses such as trade payables, payroll and sales taxes which varied from month to month. In addition, it had some long term obligations the bulk of which consisted of interest free loans from FD’s former shareholders in the amount of approximately $2.2 million which were not due for three years. Prior to the merger FD had purchased an immaterial amount of product from the Company. FD operated as an independent subsidiary subject to oversight of its board of directors and the Company’s President and CEO.. Effective February 23, 2016, the Company closed a transaction to sell 90% of our ownership in FD to New Fresh Co., LLC, a Florida limited liability company controlled by the former founder of FD who was appointed Interim CEO of FD on February 9, 2016. Thefor consideration to Innovative Food Holdings consistedconsisting primarily of a restructuring of our loans, which includes the ability to convert to additional amounts of FD under certain circumstances. Aside from payments related to previously accrued liabilities there wereThere is no continuing cash inflows or outflows from or to the discontinued operations.
Effective January 24, 2018, pursuant to an asset acquisition agreement (the “igourmet Asset Acquisition Agreement”), our wholly-owned subsidiary, Innovative Gourmet, LLC acquired substantially all of the assets and certain liabilities of igourmet LLC and igourmet NY LLC, privately-held New York limited liability companies located in West Pittston, Pennsylvania and engaged in the sale, marketing, and distribution of specialty food and specialty food items through www.igourmet.com, online marketplaces, additional direct-to-consumer platforms, distribution to foodservice, retail stores and other wholesale accounts, pursuant to the terms of an Asset Purchase Agreement. The consideration for and in connection with the acquisition consisted of: (i) $1,500,000, which satisfied or reduced secured, priority and administrative debt of Sellers; (ii) in connection with and prior to the acquisition, our wholly-owned subsidiary, Food Funding, LLC (“Food Funding”), funded advances of $325,000 to Sellers on a secured basis, pursuant to certain loan documents and as bridge loans, which loans were reduced by the proceeds of the Asset Purchase Agreement; (iii) the purchase for $200,000 of certain debt owed by Sellers, to be paid out of, if available, Innovative Gourmet’s cash flow; (iv) potential contingent liability allocation for a percentage of Sellers’ approximately $2,300,000 of certain debt, not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay; and (v) additional purchase price consideration of (a) up to a maximum of $1,500,000, if EBITDA of Innovative Gourmet reaches $800,00 in 2018, (b) up to a maximum of $1,750,000, if EBITDA of Innovative Gourmet in 2019 exceeds its EBITDA in 2018 by at least 20% and if its EBITDA reaches $5,000,000; and (c) up to a maximum of $2,125,000, if EBITDA of Innovative Gourmet in 2020 exceeds its EBITDA in 2019 by at least 20% and if its EBITDA reaches $8,000,000. The EBITDA based earnout shall be paid 37.5% in cash, 25% in IVFH shares valued at the time of the closing of this transaction and 37.5%, at Innovative Gourmet’s option, in IVFH shares valued at the time of the payment of the earnout or in cash. The 2018, 2019 and 2020 earnout milestones were not met. In connection with the acquisition, our wholly-owned subsidiary, Food Funding, purchased Seller’s senior secured note at a price of approximately $1,187,000, pursuant to the terms of a Loan Sale Agreement with UPS Capital Business Credit. That note was reduced by the proceeds of the Asset Purchase Agreement. See Item (i) above.
Effective July 6, 2018, pursuant to an asset purchase agreement between Mouth Foods, Inc. (“Mouth”) and our wholly-owned subsidiary M Innovations LLC (“M Innovations”) (the “MFI APA”), the Company through its wholly-owned subsidiary Oasis Sales Corp., purchasedacquired certain assets of Oasis SalesMouth from MFI (assignment for the benefit of creditors), LLC, in connection with a Delaware assignment proceeding. The MFI APA was accounted for as an acquisition of an ongoing business where the Company was treated as the acquirer and Marketing, L.L.C.,the acquired assets and assumed liabilities were recorded by the Company at their preliminary estimated fair values. Mouth, a California limitedprivately held New York company operating out of Brooklyn, was an expert curator and online retailer of high quality specialty foods from small-batch makers in the US. The consideration for and in connection with the acquisition consisted of (i) closing related cash payments of $208,355; (ii) additional revenue-based contingent liabilities valued by management at $100,000 related to certain future sales of purchased assets payable under the following terms: payment of 5% of certain revenues, with no payments on the first $500,000 of revenues and no payments on revenues after June 30, 2020; (iii) additional revenue based contingent liabilities of up to $185,000 associated with the purchase of certain debt of the seller; and (iv) additional contingent liability company.consideration valued by management at approximately $20,000.
Effective July 23, 2019, P Innovations acquired certain assets of GBC Sub, Inc. (d/b/a The GiftBox) (“GiftBox”) (the “GiftBox Asset Purchase Agreement”). GiftBox, a privately held Nevada corporation controlled by David Polinsky, a director of the Company, was in the business of subscription-based ecommerce. The consideration for the assets purchased was a nominal amount of cash. The GiftBox Asset Purchase Agreement also provides the sellers the option to acquire 30% of P Innovations subject to dilution for a period of thirty-six months following the date of the Giftbox Asset Purchase Agreement; the option will only be exercisable if there is a spinoff of P Innovations to Innovative Food Holdings shareholders.
Transactions Withwith a Major Customer
Transactions with a major customer and related economic dependence information is set forth immediately below and above in Note 2 to the Condensed Consolidated Financial Statements and also in our Annual Report on Form 10-K for the year ended December 31, 20162021 (1) following our discussion of Liquidity and Capital Resources, and (2) Concentrations of Credit Risk in Note 1718 to the Consolidated Financial Statements, and (3) as the fourth item under Risk Factors.Statements.
Relationship with U.S. Foods
We have historically sold the majority of our products through a distributor relationship between FII and Next Day Gourmet, L.P., a subsidiary of U.S. Foods, a leading broadline distributor. These sales amounted to $7,604,308 (72%$7,659,459 (49% of total sales) and $6,546,697 (72%$5,165,378 (42% of total sales) for the three months ended September 30, 2017March 31, 2022 and 2016, respectively; and $22,004,270 (72% of total sales) and $18,352,407 (72% of total sales) for the nine months ended September 30, 2017 and 2016,2021, respectively. On January 26, 2015 we executed a contract between Food Innovations, Inc., our wholly-owned subsidiary, and U.S. Foods.Foods, Inc. The term of the Agreement is from January 1, 2015 through December 31, 2016 and provides for up to three (3)a limited number of automatic annual renewals thereafter if no party gives the other 30 days’ notice of its intent not to renew. Based on the terms, the Agreement was extended through 2017.2018. Effective January 1, 2018 the Agreement was further amended to remove the cap on renewals, and provide for an unlimited number of additional 12-month terms unless either party notifies the other in writing, 30 days prior to the end date, of its intent not to renew.
RESULTS OF OPERATIONS
This discussion may contain forward looking-statements that involve risks and uncertainties. Our future results could differ materially from the forward looking-statements discussed in this report. This discussion should be read in conjunction with our consolidated financial statements, the notes thereto and other financial information included elsewhere in the report.
Three Months Ended September 30, 2017March 31, 2022 Compared to Three Months Ended September 30, 2016March 31, 2021
Revenue
Revenue increased by $1,401,194$3,462,212 or approximately 15%28% to $10,495,637$15,643,111 for the three months ended September 30, 2017March 31, 2022 from $9,094,443$12,180,899 prior year. The increase in revenues is primarily attributable to an increase in specialty foodservice revenues which was driven by the nationwide opening of restaurants and other foodservice establishments previously affected by COVID-19 as well as increases in travel related foodservice , and restaurant dining. The increase in specialty foodservice revenue was partially offset with decreases in e-commerce revenues, though e-commerce revenue remains significantly above pre-pandemic historical levels. The decreases in e-commerce revenues during the current period were related to decreases in COVID-19 driven demand in 2022 compared to 2021 partially driven by the continued re-opening of bricks and mortar stores, and also driven by lower recognized revenue in the first quarter of 2022, due to a decline in the value of recognized deferred revenue related revenues associated with items ordered in the 4th quarter of the prior year but delivered in the first quarter of the following year.
We continue to assess the potential of new revenue sources from the manufacture and sale of proprietary food products, private label products and additional sales channel opportunities in both the foodservice and consumer space and will implement thata strategy if,which based on our analysis we deem itprovides the most beneficial to us.opportunity for growth.
Any changes in the food distribution and specialty foods operating landscape that materially hinders our current ability and/or cost to deliver our products to our customers could potentially cause a material impact on our net revenue and gross margin and, therefore, our profitability and cash flows could be adversely affected.
Currently, a small portion of our revenues comes from imported products or international sales. Our current sales from such segmentsmarkets may be hampered and negatively impacted by any economic tariffs that may be imposed in the United States or in foreign countries.
See “Transactions with Major Customers” and the Securities and Exchange Commission’s (“SEC”) mandated FR-60 disclosures following the “Liquidity and Capital Resources” section for a further discussion of the significant customer concentrations, loss of significant customer, critical accounting policies and estimates, and other factors that could affect future results.
Cost of goods sold
Our cost of goods sold for the three months ended September 30, 2017March 31, 2022 was $7,052,018,$11,917,179, an increase of $647,833$3,038,265 or approximately 10%34% compared to cost of goods sold of $6,404,185$8,878,914 for the three months ended September 30, 2016.March 31, 2021. The increase in cost of goods sold is attributed mainly to increases in revenues. Cost of goods sold iswas made up of the following expenses for the three months September 30, 2017:ended March 31, 2022: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $4,982,334; and$7,761,702; shipping, delivery, handling, and purchase allowance expenses in the amount of $2,069,684.$4,016,598; and cost of goods associated with logistics of $138,879. Total gross margin was approximately 32.8%23.8% of sales in 20172021 compared to approximately 29.6%27.1% of sales in 2016. The increase in cost2021. Gross margins as a percentage of goods sold is primary attributablesales declined during the current period to an increase in sales. The increase in gross margins from 2016 is23.8% compared to 27.1% during the comparable period, primarily attributabledue to variation in product and revenue mix as well as variationsacross our various selling channels. In addition, increases in fuel costs and fuel surcharges associated with the higher cost of goods soldfuel in the United States contributed to the decline in gross margins as a percentage of total expenses, across our various selling channels.sales.
In 2017,2022, we continuedcontinue to price our products in order to increase sales, gain market share and increase the number of our end users. We were successful in both increasing salesusers and increasing market share.customers. We currently expect, if market conditions, overall economic conditions, and our product revenue mix remain constant, that our cost of goods sold may increase.increase and may result in a decrease in profit margin.
Selling, general, and administrative expenses
Selling, general, and administrative expenses increased by $192,163$321,598 or approximately 11%7% to $1,894,588$5,172,426 during the three months ended September 30, 2017March 31, 2022 compared to $1,702,425$4,850,828 for the three months ended September 30, 2016.March 31, 2021. The increase in selling, general, and administrative expenses was primarily due to an increase in SGA expenses associated with Oasis,advertising and tomarketing costs of $250,282, an increase in professional fees of $150,679, an increase in office, facilities, and vehicles costs. Increasescosts $90,153, an increase in office, facilities, and vehicle costs of $90,153, an increase in travel expenses of $34,826, an increase in IT and computer costs of $30,281, an increase in insurance costs of $10,441, and an increase in amortization and depreciation of $2,507. These increases were partially offset by a decrease in payroll and related costs of approximately $214,143 (including a decrease in non-cash compensation in the amount of $5,065), a decrease in banking and credit card fees of $91,798, a decrease in bad debt expense of $3,872, and a decrease in taxes of $3,494. The increases were driven mainly by increases in costs related to legal, accounting, and employee benefit costs alsoother advisor fees and increases in digital marketing fees. In addition an overall increase in cost of goods and labor and other items contributed to the increase.increase in facility and IT costs.
Impairment of Investment
During the three months ended March 31, 2021, the founder of one of the food related companies passed away in an untimely tragic accident, and as a result the food related company ceased operations and the Company recognized an impairment in the amount of $209,850 in connection with that investment. There is no comparable transaction in the current period.
Gain on Interest Rate Swap
During the three months ended March 31, 2022, the Company recognized a gain on the interest rate swap in the amount of $294,000 in connection with the termination of the interest rate swap. There is no comparable transaction in the prior period.
Other leasing income
During the three months ended March 31, 2022, the Company recognized revenue in the amount of $5,090 in connection with the lease of space in our Mountaintop warehouse facility, a decrease of $50 or approximately 1% compared to $5,140 during the three months ended March 31, 2021.
Interest expense, net
Interest expense, net of interest income, decreased by $105,087$7,345 or approximately 87%8% to $16,139$82,973 during the three months ended September 30, 2017,March 31, 2022, compared to $121,226$90,318 during the three months ended September 30, 2016. The decrease was due primarily to a reduction of the amortization of discountsMarch 31, 2021. Interest accrued or paid on the Company’s commercial loans and notes payable. These discounts are fully amortized, and there was $0payable decreased by $1,032 to $76,148 during the current period primarily as a result of decreased principal balances. In addition, interest expense associated with this amortizationthe interest rate swap was $5,632 during the three months ended September 30, 2017,March 31, 2022 compared to $92,509$6,094 in the prior period, a decrease of $462. The interest rate swap was terminated during the current period. Interest on the PPP loans decreased by $5,571, from $0 during the current period compared to $5,571 during the three months ended September 30, 2016. ThereMarch 31, 3021. The Company’s PPP loans have all been forgiven as of March 31, 2022. Interest income was a decrease$1,989 for the period ended March 31, 2022, an increase of approximately $17,481 or 100%$280 compared to interest income of $1,709 during the gross interest expense of $17,481 was accrued or paid interestprior period due to higher cash balances. Interest on the company’s commercial loans and notes payable. The Company also had $1,342 of interest income duringCompany’s note payable was $94 for the three months ended September 30, 2017.March 31, 2022 and 2021. We also amortized $3,088 of loan fees to interest expense during the period ended March 31, 2022 and 2021.
Net income from continuing operationsloss
For the reasons above, the Company had a net income from continuing operationsloss for the three months ended September 30, 2017March 31, 2022 of $1,532,892$1,230,377 which is an increasea decrease of approximately 77%$613,494 or 33% compared to a net incomeloss of $866,607$1,843,871 during the three months ended September 30, 2016.March 31, 2021. The incomenet loss for the three months ended September 30, 2017March 31, 2022 includes a total of $124,013$298,060 in non-cash charges, including amortization of intangible assets in the amount of $82,317 and depreciation expense of $41,696. The income for the three months ended September 30, 2016 includes a total of $376,513 in non-cash charges, including amortization of intangible assets in the amount of $50,567, depreciation expense of $37,807, charges for non-cash compensation in the amount of $195,630,$152,726, depreciation and amortization expense of $138,361, and amortization of prepaid loan fees in the amount of $3,088.
The loss for the three months ended March 31, 2021 includes a total of $509,304 in non-cash charges, including impairment of investment of $209,850, depreciation and amortization expense of $135,854, non-cash compensation in the amount of $157,791, amortization of the discount on notes payable in the amount of $92,509.
Liquidity and Capital Resources at September 30, 2017March 31, 2022
As of September 30, 2017,March 31, 2022 the Company had current assets of $7,802,866,$10,132,629 consisting of cash and cash equivalents of $4,337,662;$3,111,168, trade accounts receivable net of $2,417,104;$3,422,003, inventory of $983,733;$3,209,945, and other current assets of $64,367.$389,513. Also, at September 30, 2017,March 31, 2022, the Company had current liabilities of $2,851,005,$8,612,694, consisting of trade payablespayable and accrued liabilities of $2,088,148;$4,473,440, accrued interest of $15,674;$42,794, deferred revenue of $1,250,944, line of credit of $2,000,000, lease liabilities – operating leases, current portion of $63,361, lease liabilities – financing leases, current portion of $182,664, current portion of contingent liabilities of $187,000, and current portion of notes payable and capital leases of $547,183; and current portion of contingent liability of $200,000.
During the ninethree months ended September 30, 2017,March 31, 2022, the Company had cash provided byused in operating activities of $2,071,097.$2,873,290. Cash flow fromused in operations consisted of:of the Company’s consolidated net incomeloss of $3,481,891 plus non-cash$1,230,377 increased by recovery of doubtful accounts of ($1,115); these items were reduced by stock based compensation in the amount of $315,968; non-cash amortization of discount on notes payable of $185,018, and$152,726, depreciation and amortization of $409,283.$138,361, amortization of right-to-use asset of $19,691, and amortization of prepaid loan fees of $3,088. The Company’s cash position also decreased by $2,321,063 asdue to a result of changeschange in the components of current assets and current liabilities primarily a reduction in accrued liabilities related to related to discontinued operations in the amount of $1,460,122.$1,955,664.
The Company had cash used in investing activities of $340,777$4,760 for the ninethree months ended September 30, 2017,March 31, 2022, which consisted of cash paid in the acquisition of Oasis in the amount of $300,000, and cash paid for the acquisition of property and equipment in the amount of $40,777. equipment.
The Company had cash used inflow from financing activities of $1,156,711$133,453 for the ninethree months ended September 30, 2017,March 31, 2022, which consisted of principal payments made on notes payable of $746,941;$92,816 and principal payments on capitalfinancing leases of $6,926, payments made for the purchase of treasury stock of $505,660; and payments made for the purchase of options from officers, directors, and employees of $163,925. The Company also received cash of $196,741 from the exercise of warrants for common stock, and $70,000 for the exercise of common stock options.$40,637.
The Company had net working capital of $4,951,861$1,519,935 as of September 30, 2017.March 31, 2022. The Company hadused cash provided byin operations during the ninethree months ended September 30, 2017March 31, 2022 in the amount of $2,071,097; this amount is net of certain payments in the amount of $1,460,122 related to discontinued operations which relate mainly to a transaction to purchase the rights to 1,450,000 RSUs and 642,688 shares of the Company’s common stock from a former FD employee which resulted in $850,000 in non-recurring cash payments compared$2,873,290. This compares to cash generated from operating activitiesused in operations of $1,563,446$3,497,010 during the ninethree months ended September 30, 2016. Without the cash flow items associated with discontinued operations, cash operating cash flow would have been $3,531,219 for the nine months ended September 30, 2017.March 31, 2021. The Company intends to continue to focus on increasing market share and cash flow from operations by focusing its sales activities on specific market segments and new product lines. Currently,As of March 31, 2022, we do not have any material long-term obligations other than those described in NoteNotes 6, 7, 12, 13, and 14 to the financial statements included in this report. As we seek to increase our sales of new items and enter new markets, acquire new businesses as well as identify new and other consumer and food service oriented products and services, we may use existing cash reserves, long-term financing, or other means to finance such diversification.
If the Company’s cash flow from operations is insufficient to fully implement its business plan, the Company may require additional financing in order to execute its operating plan. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.
In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations. The Company
2022 Plans
Since 2020 the world has not made any adjustmentsbeen in the grip of a pandemic which has wreaked havoc on economies world-wide, including in the U.S., which is our primary market. As a result of the pandemic, restaurants, hotels, country clubs, casinos, catering houses and other of our primary customers have either been closed completely or are only partially open with significantly reduced operations. Accordingly, foodservice revenues, which historically have been a significant overall portion of our revenues have been significantly reduced as most foodservice establishments cross the United States closed or had limited operations. As a result, foodservice revenue commencing in the second half of March 2020 and continuing throughout the year and into 2021, experienced unprecedented declines. In 2022, as the pandemic has begun to decline in the financial statements which would be necessary shouldUnited States and foodservice establishments have begun to reopen and travel has resumed, we have experienced strong foodservice revenue growth. Concurrently, while ecommerce revenues remained above pre-pandemic historical levels, lower deferred revenues recognized in the Company not be ablefirst quarter of 2022 and decreases in COVID-19 driven demand in 2022 compared to continue as a going concern. 2021 partially driven by the continued re-opening of bricks and mortar stores, impacted e-commerce revenues.
During 2017, in addition to our efforts to increase sales in our existing foodservice operations2022, we plan to attempt to expand our business by expanding our focus to additional specialty foods markets in bothand by leveraging our e-commerce platform to launch and grow, either organically and/or through acquisition, new D2C brands and e-commerce sites within targeted consumer areas, on the consumer and foodservice sector,Company’s e-commerce platform. In addition, we will continue exploring potential acquisition and partnership opportunities with influencers and continuingother celebrities to continue to extend our focus in the specialty food market through the growth of the Company’s existing sales channels and through a variety of additional potential sales channel relationships which are currently being explored.relationships. In addition, we are currently exploring the introduction of, or have introduced into the market, a variety of new product categories and new product lines, including private label products and proprietary branded products to leverage our existing foodservice and consumer customer base.
Furthermore, the Company intends to continue to expand its activities in the direct-to-consumer space and the overall consumer packaged goods (CPG) space through leveraging its overall capabilities in the consumer space, including leveraging its direct to consumer e-commerce platform to reach both additional customers in multiple channels, and to expand availability of its e-commerce capabilities to additional products and markets.
No assurances can be given that any of these plans will come to fruition or that if implemented that they will necessarily yield positive results.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
In the opinion of management, during the three months ended March 31, 2022, inflation has not had a material effect on the Company’s financial condition or results of its operations.
RISK FACTORS
The Company’s business and success is subject to numerous risk factors as detailed in its Annual Report on Form 10-K for the year ended December 31, 20162021 and other of its Current Reports on Form 8-K, all of which isreports are available at no cost at www.sec.gov.
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit pursuant to the requirements of the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
(a) Evaluation of disclosure controls and procedures
Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act Rules 13a-15(e) and 15d-15(e)Act.) as of the end of the period covered by this Quarterly Report, have identified a control deficiency regarding the integration of two acquisitions in 2018 and as a result management has concluded our internal control over financial reporting was ineffective at March 31, 2022 at the reasonable assurance level. Management of the Company believes that asthis deficiency is primarily due to the smaller size of that date,the company’s accounting staff in relation to certain continued system integrations related to the 2018 acquisitions of certain assets of igourmet LLC and Mouth Foods, Inc. To address this matter, we have expanded our disclosure controlsaccounting staff and procedures were adequate and effectivewe expect to ensure that information requiredretain additional qualified personnel to be disclosed by uscontinue to remediate this control deficiency in the reports we file or submit withfuture. In making this assessment, our management used the Securities and Exchangecriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission is recorded, processed, summarized and reported within the time periods specified(“COSO”) in the Securities and Exchange Commission’s rules and forms. The conclusions notwithstanding, you are advised that no system is foolproof.Internal Control-Integrated Framework (2013).
(b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) and 15d-15 that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 16, 2019, an action (the “PA Action”) was filed in the Court of Common Pleas of Philadelphia County, Trial Division, against, among others, the Company and its wholly-owned subsidiaries, Innovative Gourmet LLC and Food Innovations, Inc. Since that time, other parties involved in the incident have joined as plaintiffs in the PA Action. The complaint in the PA Action alleges, inter alia, wrongful death and negligence by a driver formerly employed by Innovative Gourmet, and plaintiffs filed a demand and offer to settle for fifty million dollars. We expect that should a settlement occur, the amount to resolve the Action would be substantially lower. The Company, its subsidiaries, and their employees had auto and umbrella insurance policies, among others, that were in effect for the relevant period. The Company and its subsidiaries’ insurers have agreed to defend the Company, its subsidiaries and the driver in the PA Action (and related actions), subject to a reservation of rights. The Company believes that the likely outcome would result in the liabilities being covered by its insurance carriers. However, if the Company was found responsible for damages in excess of its available insurance coverage, such damages in excess of the coverage could have a material adverse effect on the Company’s operations. On July 16, 2020, the court granted the Company's motion to stay the case through the final adjudication of an additional pending legal proceeding against the driver in connection with the events related to the case. It is not anticipated that the Company and its subsidiaries will be a party to any other legal proceedings in connection with this matter. Because the statute of limitations on the incident has now run, it is not anticipated that any new plaintiffs involved in the incident will come forward against the Company and its subsidiaries.
From time to time, the Company has become and may become involved in variouscertain lawsuits and legal proceedings which arise in the ordinary course of business.business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. 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 our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Period | (a) Total number of shares purchased | (b) Average price paid per share | (c) Total number of shares purchased as part of publicly announced plans or programs | (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs | ||||||||||||
January 2017 | 37,000 | $ | 0.502 | N/A | N/A | |||||||||||
February 2017 | 642,688 | $ | 0.485 | N/A | N/A | |||||||||||
May 2017 | 639,383 | $ | 0.368 | N/A | N/A | |||||||||||
June 2017 | 438,379 | $ | 0.575 | N/A | N/A |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicableapplicable.
Item 5. Other Information
None.
Item 6. Exhibits
3.1 | |
3.2 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURE | TITLE | DATE | ||
/s/ Sam Klepfish | Chief Executive Officer | May 16, 2022 | ||
Sam Klepfish | ||||
/s/ | Chief Financial Officer | May 16, 2022 | ||
Richard Tang |