innovfood20220630_10q.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D. C. 20549 

 


 

FORM 10-Q

 


 

Quarterly report pursuant to Section 13 or15(d) of the Securities and Exchange Act of 1934

 

For the quarterly period ended June 30, 2022

 

Transition report pursuant to Section 13 or 15(d) of the Exchange Act

 

For 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. YESNO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YESNO

 

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): YESNO

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 47,176,567 shares of common stock outstanding as of August 19, 2022.

 

 

 

 

INNOVATIVE FOOD HOLDINGS, INC.

TABLE OF CONTENTS TO FORM 10-Q

 

   

Page

PART I.

FINANCIAL INFORMATION

 
     

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Condensed Consolidated Statement of Stockholders’ Equity

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (including cautionary statement)

26

Item 4.

Controls and Procedures

35

     

PART II.

OTHER INFORMATION

 
     

Item 1.

Legal Proceedings

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3.

Defaults Upon Senior Securities

36

Item 4.

Mine Safety Disclosures

36

Item 5.

Other Information

36

Item 6.

Exhibits

37

 

Signatures

38

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Innovative Food Holdings, Inc.

Condensed Consolidated Balance Sheets

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 
    (unaudited)          

ASSETS

               

Current assets

               

Cash and cash equivalents

  $ 2,360,473     $ 6,122,671  

Accounts receivable, net

    5,027,892       3,256,764  

Inventory

    3,041,782       3,109,984  

Other current assets

    340,702       314,107  

Total current assets

    10,770,849       12,803,526  
                 

Property and equipment, net

    8,090,295       8,186,227  

Investments

    286,725       286,725  

Right of use assets, operating leases, net

    184,003       232,381  

Right of use assets, finance leases, net

    640,931       669,039  

Other amortizable intangible assets, net

    51,656       72,218  

Goodwill and other unamortizable intangible assets

    1,532,822       1,532,822  

Total assets

  $ 21,557,281     $ 23,782,938  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities

               

Accounts payable and accrued liabilities

  $ 6,285,703     $ 5,702,905  

Accrued interest, current portion

    43,535       29,349  

Deferred revenue

    1,222,247       1,631,406  

Line of Credit

    2,014,333       2,000,000  

Notes payable - current portion, net of discount

    5,617,323       412,961  

Lease liability - operating leases, current

    64,665       74,088  

Lease liability - finance leases, current

    185,715       159,823  

Contingent liability - current portion

    187,000       187,000  

Total current liabilities

    15,620,521       10,197,532  
                 

Lease liability - operating leases, non-current

    119,338       158,293  

Lease liability - finance leases, non-current

    430,672       499,240  

Contingent liability - long-term

    108,600       108,600  

Note payable - long term portion, net

    4,720       5,409,172  
Total liabilities     16,283,851       16,372,837  
                 

Commitments & Contingencies (see note 17)

   
 
     
 
 

Stockholders' equity

               

Common stock: $0.0001 par value; 500,000,000 shares authorized; 50,014,147 and 48,879,331 shares issued, and 47,176,567 and 46,041,751 shares outstanding at June 30, 2022 and December 31, 2021, respectively

    4,997       4,885  

Additional paid-in capital

    41,980,090       41,662,710  

Treasury stock: 2,623,171 and 2,623,171 shares outstanding at June 30, 2022 and December 31, 2021, respectively.

    (1,141,370 )     (1,141,370 )

Accumulated deficit

    (35,570,287 )     (33,116,124 )
 Total stockholders' equity     5,273,430       7,410,101  
                 

Total liabilities and stockholders' equity

  $ 21,557,281     $ 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

   

For the Six

   

For the Six

 
   

Months Ended

   

Months Ended

   

Months Ended

   

Months Ended

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Revenue

  $ 20,523,156     $ 13,974,564     $ 36,166,267     $ 26,155,463  

Cost of goods sold

    16,074,259       10,165,144       27,991,438       19,044,058  

Gross margin

    4,448,897       3,809,420       8,174,829       7,111,405  
                                 

Selling, general and administrative expenses

    5,522,049       4,663,302       10,694,475       9,514,130  

Total operating expenses

    5,522,049       4,663,302       10,694,475       9,514,130  
                                 

Operating loss

    (1,073,152

)

    (853,882

)

    (2,519,646

)

    (2,402,725

)

                                 

Other income (expense:)

                               

Impairment of investment

    -       -       -       (209,850

)

Gain on interest rate swap

    -       -       294,000       -  

Loss on extinguishment of debt

    (40,556

)

    -       (40,556

)

    -  

Other leasing income

    2,294       1,900       7,384       7,040  

Interest expense, net

    (112,372

)

    (85,542

)

    (195,345

)

    (175,860

)

Total other income (expense)

    (150,634

)

    (83,642

)

    65,483       (378,670

)

                                 

Net loss before taxes

    (1,223,786

)

    (937,524

)

    (2,454,163

)

    (2,781,395

)

                                 

Provision for income taxes

    -       -       -       -  
                                 

Net loss

  $ (1,223,786

)

  $ (937,524

)

  $ (2,454,163

)

  $ (2,781,395

)

                                 

Net loss per share - basic

  $ (0.03

)

  $ (0.03

)

  $ (0.05

)

  $ (0.08

)

                                 

Net loss per share - diluted

  $ (0.03

)

  $ (0.03

)

  $ (0.05

)

  $ (0.08

)

                                 

Weighted average shares outstanding - basic

    46,855,525       35,872,143       46,557,498       35,729,807  
                                 

Weighted average shares outstanding - diluted

    46,855,525       35,872,143       46,557,498       35,729,807  

 

See notes to these unaudited condensed consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

   

For the Six

   

For the Six

 
   

Months Ended

   

Months Ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

 
                 

Cash flows from operating activities:

               

Net loss

  $ (2,454,163

)

  $ (2,781,395

)

Adjustments to reconcile net loss to net cash used in operating activities:

               

Impairment of investment

    -       209,850  

Depreciation and amortization

    279,735       271,973  

Amortization of right-of-use asset

    35,162       49,700  

Amortization of prepaid loan fees

    20,582       6,211  

Stock based compensation

    367,492       315,380  

Loss on extinguishment of debt

    40,556       -  

Provision for doubtful accounts

    8,056       27,987  
                 

Changes in assets and liabilities:

               

Accounts receivable, net

    (1,779,184

)

    (571,480

)

Inventory and other current assets, net

    41,607       625,481  

Accounts payable and accrued liabilities

    627,395       (1,035,849

)

Deferred revenue

    (409,159

)

    (1,937,141

)

Contingent liabilities

    -       (8,000

)

Operating lease liability

    (35,162

)

    (49,700

)

Net cash used in provided by operating activities

    (3,257,083

)

    (4,876,983

)

                 

Cash flows from investing activities:

               

Acquisition of property and equipment

    (92,633

)

    (12,686

)

Net cash used in investing activities

    (92,633

)

    (12,686

)

                 

Cash flows from financing activities:

               

Payment of offering costs for stock previously issued

    (50,000

)

    -  

Proceeds from Payroll Protection Plan Loan

    -       1,748,414  

Principal payments on debt

    (167,001

)

    (208,719

)

Principal payments financing leases

    (85,176

)

    (70,682

)

Cost of debt financing

    (110,305

)

    -  

Net cash provided by (used in) financing activities

    (412,482

)

    1,469,013  
                 

Decrease in cash and cash equivalents

    (3,762,198

)

    (3,420,656

)

                 

Cash and cash equivalents at beginning of period

    6,122,671       5,060,015  
                 

Cash and cash equivalents at end of period

  $ 2,360,473     $ 1,639,359  
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid during the period for:

               

Interest

  $ 128,798     $ 162,636  
                 

Taxes

  $ -     $ -  
                 

Non-cash investing and financing activities:

               

Increase (decrease) in right of use assets & liabilities – operating leases

  $ (13,216 )   $ 88,359  
Increase in right of use assets & liabilities – finance leases   $ 42,500     $ -  

Debt to Fifth Third Bank paid directly by MapleMark Bank

  $ 7,695,866     $ -  

 

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 JUNE 30, 2022 AND 2021

 

                   

Additional

                                 
   

Common Stock

   

Paid-in

   

Treasury Stock

   

Accumulated

         
   

Amount

   

Value

   

Capital

   

Amount

   

Value

   

Deficit

   

Total

 
                                                         

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  

Fair value of vested stock and stock options

    305,315       31       157,558       -       -       -       157,589  

Net loss for the three months ended June 30, 2021

    -       -       -       -       -       (937,524 )     (937,524 )

Balance - June 30, 2021 (unaudited)

    38,800,629     $ 3,877     $ 37,730,475       2,623,171     $ (1,141,370 )   $ (35,181,188 )   $ 1,411,794  
                                                         

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  

Fair value of vested stock and stock options

    493,999       49       152,677       -       -       -       152,726  

Offering expenses for stock previously sold for cash

    -       -       (50,000 )     -       -       -       (50,000 )

Common stock issued for services

    176,302       17       59,931       -       -       -       59,948  

Fair value of options issued to consultant

    -       -       2,092       -       -       -       2,092  

Net loss for the three months ended June 30, 2022

    -       -       -       -       -       (1,223,786 )     (1,223,786 )

Balance - June 30, 2022 (unaudited)

    50,014,147     $ 4,997     $ 41,980,090       2,623,171     $ (1,141,370 )   $ (35,570,287 )   $ 5,273,430  

 

FOR THE SIX MONTHS ENDED JUNE 30, 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

    591,569       60       315,320       -       -       -       315,380  

Net loss for the six months ended June 30, 2021

    -       -       -       -       -       (2,781,395 )     (2,781,395 )

Balance - June 30, 2021 (unaudited)

    38,800,629     $ 3,877     $ 37,730,475       2,623,171     $ (1,141,370 )   $ (35,181,188 )   $ 1,411,794  
                                                         

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

    958,514       95       305,357       -       -       -       305,452  

Offering expenses for stock previously sold for cash

    -       -       (50,000 )     -       -       -       (50,000 )

Common stock issued for services

    176,302       17       59,931       -       -       -       59,948  

Fair value of options issued to consultant

    -       -       2,092       -       -       -       2,092  

Net loss for the six months ended June 30, 2022

    -       -       -       -       -       (2,454,163 )     (2,454,163 )

Balance - June 30, 2022 (unaudited)

    50,014,147     $ 4,997     $ 41,980,090       2,623,171     $ (1,141,370 )   $ (35,570,287 )   $ 5,273,430  

 

See notes to these unaudited condensed consolidated financial statements.

 

 

INNOVATIVE FOOD HOLDINGS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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. (“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”), 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 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.

 

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, 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 six months ended June 30, 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 owned subsidiaries, some of which are non-operating, Artisan Specialty Foods, Inc. (“Artisan”), Food Innovations, 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 Partnerships, 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-Packaged Goods (“CPG”) products through a variety of sales channels ranging from national partnership based and regionally based foodservice related sales channels to e-commerce sales channels offering products both direct to consumers (“D2C”) and direct to business (“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 unique specialty foodservice products to over 500 customers such as chefs, restaurants, etc. in the Greater Chicago 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 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 function 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 provides emerging and unique CPG specialty food brands with distribution and shelf placement access in all of the major metro markets in the food retail industry.

 

igourmet has been in the business of providing D2C specialty food via 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 subscription-based e-commerce business activities and to launch new businesses leveraging the Company’s e-commerce platform.

 

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. 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 finance right of 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 consolidated financial statements include the accounts of Innovative Food Holdings, Inc., and its wholly owned operating subsidiaries, Artisan, FII, FNM, OFB, GFG, GFW, Gourmeting, Haley, Oasis, Innovative Gourmet, Food Funding, IFP, L Innovations, M Innovations, P Innovations, MIF, M Foods, PlantBelly, Plant Innovations, IFI, IGP, and Gourmet. 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 June 30, 2022 and December 31, 2021, trade receivables from the Company’s largest customer amounted to 28% and 28%, respectively, of total trade receivables. During the six months ended June 30, 2022 and 2021, sales from the Company’s largest customer amounted to 49% and 46% of total sales, respectively.

 

The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. At June 30, 2022 and December 31, 2021, the total cash in excess of these limits was $1,144,563 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 of use to 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”) Accounting Standards Codification (“ASC”) Topic 606 Revenue from Contracts with Customers”. A five-step analysis must be met as 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 when (or as) performance obligations are 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  
         

Cash payments received

    375,115  

Net sales recognized

    (527,991

)

Balance as of June 30, 2021 (unaudited)

  $ 980,535  

 

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  

 

Cash payments received

    99,989  

Net sales recognized

    (128,686

)

Balance as of June 30, 2022 (unaudited)

  $ 1,222,247  

 

Disaggregation of Revenue

 

The following table represents a disaggregation of revenue for the three and six months ended June 30, 2022 and 2021:

 

   

Three Months Ended

 
   

June 30,

 
   

2022

   

2021

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 16,900,908     $ 10,160,910  

E-Commerce

    3,185,325       3,285,073  

National Brand Management

    251,819       265,337  

Logistics

    185,104       263,244  

Total

  $ 20,523,156     $ 13,974,564  

 

   

Six Months Ended

 
   

June 30,

 
   

2022

   

2021

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 28,441,743     $ 16,988,837  

E-Commerce

    6,797,669       8,265,011  

National Brand Management

    535,966       490,931  

Logistics

    390,889       410,684  

Total

  $ 36,166,267     $ 26,155,463  

 

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 earnings per share is based on the weighted average number of shares outstanding during the period, while fully-diluted net 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 June 30, 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 at June 30, 2022:

 

               

Weighted

 
               

Average

 
               

Remaining

 

Exercise

   

Number

   

Contractual

 

Price

   

of Options

   

Life (years)

 

$

0.41

     

125,000

     

1.82

 

$

0.50

     

125,000

     

1.82

 

$

0.60

     

50,000

     

3.50

 

$

0.62

     

360,000

     

1.50

 

$

0.85

     

540,000

     

1.50

 

$

1.00

     

50,000

     

3.50

 

$

1.20

     

1,100,000

     

1.34

 
         

2,350,000

     

1.55

 

 

Restricted Stock Awards

 

At June 30, 2022, there are 300,000 unvested restricted stock awards 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

 

At June 30, 2022, there were an aggregate 112,052 unvested stock grants outstanding due to the Company’s two independent directors.  These grants will vest as follows: 25,816 per quarter through December 31, 2022, and 15,106 per quarter through September 30, 2023, and 15,102 during the quarter ended December 31, 2023.

 

 

Dilutive shares at June 30, 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 at June 30, 2021:   

 

                 

Weighted

 
                 

Average

 
                 

Remaining

 
 

Exercise

   

Number

   

Contractual

 
 

Price

   

of Options

   

Life (years)

 
 

$

0.60

     

50,000

     

4.50

 
 

$

0.62

     

360,000

     

2.50

 
 

$

0.85

     

540,000

     

2.50

 
 

$

1.00

     

50,000

     

4.50

 
 

$

1.20

     

1,050,000

     

2.35

 
 

$

1.50

     

125,000

     

0.50

 
           

2,175,000

     

2.41

 

 

The Company charged the amount of $35,878 and $71,958 to operations in connection with stock options during the three and six months ended June 30, 2021, respectively.

 

Restricted Stock Awards 

 

At June 30, 2021 there are 300,000 unvested restricted stock awards 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 three and six months ended June 30, 2021, the Company incurred obligations to issue the following shares of common stock pursuant to compensation agreements: an aggregate of 50,070 and 100,140 shares of common stock, respectively, to board members; and an aggregate total of 255,245 and 491,429 shares of common stock, respectively, to Executive Officers.  Some of these shares or other shares owned by the Company’s employees are included in a 10b5-1 selling plan.

 

The Company charged the amount of $121,711 and $243,422 to operations in connection with stock grants during the three and six months ended June 30, 2021, respectively.

 

Significant Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard effective January 1, 2021; adoption of this standard did not have a material effect on our consolidated financial statements and related disclosures.

 

In August 2020, the FASB 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 have a material effect on our consolidated financial statements and 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 consolidated financial statements.

 

 

3. GOING CONCERN 

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company had an accumulated deficit of $35,570,287 at June 30, 2022 and negative cash flow from operations in the amount of $3,257,083 for the six months ended June 30, 2022. The Company’s current liabilities exceeded its current assets by $4,849,672 as of June 30, 2022. The Company has reported a net loss of $2,454,163 for the six months ended June 30, 2022.

 

The Company is working to manage its current liabilities while it continues to make changes in operations to further improve its cash flow and liquidity position. Management believes the Company will generate sufficient capital from operations and, if additional financing is required, from debt and equity financing in order to satisfy current liabilities in the succeeding twelve months. Management’s belief is based, if necessary, on the Company’s operating plans, which in turn is based on assumptions that may prove to be incorrect.  

 

On June 6, 2022, the Company entered into the following loan agreements with MapleMark:  the MapleMark Revolver, with a balance at June 30, 2022 of $2,014,333; the MapleMark Term Loan 1, with a balance at June 30, 2022 of $5,324,733; and the MapleMark Term Loan 2, with a balance at June 30, 2022 $356,800 (the “MapleMark Loans”).  See notes 13 and 14.  The total debt due to MapleMark at June 30, 2022 was $7,695,866.  The purpose of the MapleMark Loans was to recapitalize the Company’s debt by the loans payable to Fifth Third Bank in the aggregate amount of $5,665,456.

 

The MapleMark Revolver has an initial maturity date of November 28, 2022; the MapleMark Term Loans 1 and 2 have initial maturity dates of November 28, 2022.  The Company has applied for, and expects to receive, loan guarantees from the United States Department of Agriculture pursuant to its Business and Industry Guarantee Loan Program, though there can be no assurance that these guarantees will be received. Upon receipt of these loan guarantees, the maturity date of the Revolver will be extended to November 28, 2023, and the maturity date of the Term Loans will be extended to June 6, 2052.

 

If the Company’s cash flow from operations is insufficient, the Company may require additional financing in order to execute its operating plan and continue as a going concern.  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 has not made any adjustments to the financial statements which would be necessary should the Company not be able to continue as a going concern.

 

4. ACCOUNTS RECEIVABLE

 

At June 30, 2022 and December 31, 2021, accounts receivable consists of:

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Accounts receivable from customers

  $ 5,390,106     $ 3,632,695  

Allowance for doubtful accounts

    (362,214

)

    (375,931

)

Accounts receivable, net

  $ 5,027,892     $ 3,256,764  

 

During the three and six months ended June 30, 2022 the Company charged the amount of $9,171 and $8,056 to bad debt expense, respectively; during the previous period the Company charged the amount of $25,666 and $27,987 to bad debt expense, respectively.

 

5. INVENTORY

 

Inventory consists primarily of specialty food products. At June 30, 2022 and December 31, 2021, inventory consisted of the following:

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Finished Goods Inventory

  $ 3,041,782     $ 3,109,984  

 

 

6. 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, 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. We have also recently completed an additional property improvement and upgrade buildout at the 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 for 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 packaging 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 private 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 were financed by a loan from Fifth Third Bank.

 

Depreciation on the building and the related improvements, furniture, fixtures, and equipment began when the 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. On June 9, 2022, the principal and interest due on this note in the amount of $5,168,000 and $14,967, respectively, were paid directly to Fifth Third Bank by MapleMark in connection with MapleMark Term Loan 1. See note 14.

 

The following table summarizes property and equipment at June 30, 2022 and December 31, 2021:

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Land

  $ 1,256,895     $ 1,256,895  

Building

    7,191,451       7,191,451  

Computer and Office Equipment

    604,223       593,566  

Warehouse Equipment

    376,667       376,667  

Furniture and Fixtures

    1,006,233       944,233  

Vehicles

    109,441       109,441  

Total before accumulated depreciation

    10,544,910       10,472,253  

Less: accumulated depreciation

    (2,454,615

)

    (2,286,026

)

Total

  $ 8,090,295     $ 8,186,227  

 

 

Depreciation and amortization expense for property and equipment amounted to $91,616 and $100,373 for the three months ended June 30, 2022 and 2021, respectively. Depreciation and amortization expense for property and equipment amounted to $188,565 and $200,537 for the six months ended June 30, 2022 and 2021, respectively.

 

7. RIGHT OF USE (ROU) ASSETS AND LEASE LIABILITIES OPERATING LEASES

 

The Company has operating leases for offices, warehouses, vehicles, and office 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 the three months ended June 30, 2022 and 2021 was entirely comprised of operating leases and amounted to $18,729 and $31,727, respectively. The Company’s lease expense for the six months ended June 30, 2022 and 2021 was entirely comprised of operating leases and amounted to $41,973 and $58,582, respectively.

 

The Company’s ROU asset amortization for the three months ended June 30, 2022 and 2021 was $15,471 and $26,771, respectively. The Company’s ROU asset amortization for the six months ended June 30, 2022 and 2021 was $35,162 and $49,700, respectively.

 

Right of use assets – operating leases are summarized below:

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Office

  $ 128,043     $ 148,529  

Warehouse equipment

    44,878       55,047  

Office equipment

    11,082       12,677  

Vehicles

    -       16,128  

Right of use assets - operating leases, net

  $ 184,003     $ 232,381  

 

Operating lease liabilities are summarized below:

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Office

  $ 128,043     $ 148,529  

Warehouse equipment

    44,878       55,047  

Office equipment

    11,082       12,677  

Vehicles

    -       16,128  

Lease liability

  $ 184,003     $ 232,381  

Less: current portion

    (64,665

)

    (74,088

)

Lease liability, non-current

  $ 119,338     $ 158,293  

 

Maturity analysis under these lease agreements are as follows:

 

For the period ended June 30, 2023

  $ 73,865  

For the period ended June 30, 2024

    71,508  

For the period ended June 30, 2025

    54,548  

For the period ended June 30, 2026

    2,420  

For the period ended June 30, 2027

    -  

Total

  $ 202,341  

Less: Present value discount

    (18,338

)

Lease liability

  $ 184,003  

 

 

8. RIGHT OF USE ASSETS FINANCING LEASES

 

The Company has financing leases for vehicles and warehouse equipment. See note 15. Right of use asset – financing leases are summarized below:

 

   

June 30,

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

    (319,343

)

    (248,735

)

Total right of use assets - financing leases, net

  $ 640,931     $ 669,039  

 

Depreciation expense for right of use assets for the three months ended June 30, 2022 and 2021 was $39,427 and $32,848, respectively. Depreciation expense for right of use assets for the six months ended June 30, 2022 and 2021 was $70,608 and $65,696, respectively.

 

9. 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 June 30, 2022 and 2021 the Company has investments in seven food related companies in the aggregate amount of $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 six months ended June 30, 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.

 

10. INTANGIBLE ASSETS

 

The Company acquired certain intangible assets pursuant to the acquisitions through Artisan, Oasis, Innovative Gourmet, OFB, Haley, and M Innovations. These assets include non-compete agreements, customer relationships, trade names, internally developed technology, and goodwill. The Company has also capitalized the development of its website.

 

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 the 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 adverse 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 the 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 required by the applicable accounting rules to record an impairment charge to operations during the year ended December 31, 2020. At June 30, 2022 and December 31, 2021, the net carrying value of other intangible assets on the Company’s balance sheet was $1,584,478 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:

 

   

June 30, 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       (32,344

)

    51,656  

Total

  $ 6,716,642     $ (5,132,164

)

  $ 1,584,478  

 

   

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 June 30, 2022 and 2021 was $10,331 and $2,870, respectively. Total amortization expense for the six months ended June 30, 2022 and 2021 was $20,562 and $5,740, respectively.

 

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at June 30, 2022 and December 31, 2021 are as follows:

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Trade payables and accrued liabilities

  $ 6,013,230     $ 5,414,731  

Accrued payroll and commissions

    272,473       288,174  

Total

  $ 6,285,703     $ 5,702,905  

 

 

12. ACCRUED INTEREST

 

At June 30, 2022, accrued interest on notes outstanding was $43,535. During the three months ended June 30, 2022 and 2021, the Company paid cash for interest in the aggregate amount of $43,837 and $79,361, respectively. During the six months ended June 30, 2022 and 2021, the Company paid cash for interest in the aggregate amount of $128,798 and $162,636, respectively.

 

13. REVOLVING CREDIT FACILITIES

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

On June 6, 2022, the Company entered into a revolving credit facility with MapleMark Bank ("MapleMark”, the “MapleMark Revolver”) in the initial amount of $2,014,333. This amount was paid by MapleMark directly to Fifth Third Bank in satisfaction of the Fifth Third Bank Line of Credit. Any amounts borrowed under the MapleMark Revolver will bear interest at the greater of (a) the Base Rate (the rate of interest per annum quoted in the “Money Rates” section of The Wall Street Journal from time to time and designated as the “Prime Rate”) plus 0.25% per annum and (b) 3.50% per annum. The MapleMark Revolver matures on November 28, 2022 and in the event United States Department of Agriculture issues a guarantee of repayment of the MapleMark Revolver in favor of the Company pursuant to its Business and Industry Loan Guarantee Program (the “USDA Guarantee”), at the Company’s option, the amount of the MapleMark Revolver can be expanded to $3,000,000 and its term extended to November 28, 2023. The Company has applied for a USDA Guarantee; at June 30, 2022, this guarantee had not yet been received. The MapleMark Revolver contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. The Company is also subject to a fixed charge coverage ratio covenant for the Revolver Loan as described in more detail in the MapleMark Revolver. During the three and six months ended June 30, 2022, the Company accrued interest in the amount of $6,099 on the MapleMark Revolver.

  $ 2,014,333     $ -  
                 

Line of credit facility with Fifth Third Bank in the original amount of $2,000,000 with an interest rate of LIBOR plus 3.00% (the “Fifth Third Bank Line of Credit”). Effective August 1, 2019, this credit facility was extended to August 1, 2021. Effective as of July 31, 2021 this credit facility was extended to November 1, 2021: effective as of October 29, 2021, this credit facility was extended to March 1, 2022; and effective March 1, 2022, this credit facility was extended to June 30, 2022. The debt covenants of this credit facility were waived until June 30, 2022. On March 20, 2020, the Company drew down the amount of $2,000,000. During the three and six months ended June 30, 2022, the Company paid interest in the amount of $22,459 and $44,681 respectively, on the Fifth Third Bank Line of Credit. On June 9, 2022, the total outstanding principal in the amount of $2,000,000 and accrued interest in the amount of $14,333 were paid directly to Fifth Third Bank by MapleMark in connection with the MapleMark Revolver. The Fifth Third Bank Line of Credit is paid in full.

  $ -     $ 2,000,000  
                 

Total

  $ 2,014,333     $ 2,000,000  

 

 

14. NOTES PAYABLE

 

   

June 30,

2022

   

December 31,

2021

 
   

(unaudited)

         
                 

On June 6, 2022, the Company entered into a term loan agreement with MapleMark (the “MapleMark Term Loan 1”) for the original amount of $5,324,733. This amount was paid by MapleMark directly to Fifth Third Bank in satisfaction the outstanding principal and interest due under existing loans with Fifth Third Bank. The MapleMark Term Loan 1 matures on November 28, 2022. Upon receipt of the USDA Guarantee, the Company will have the option of extending the term of the Term Loan 1 to June 6, 2052.

 

Amounts outstanding under the Term Loans will bear interest at the rate equal to the lesser of (a) the Maximum Lawful Rate, or (b) the greater of (i) WSJP (the “Prime Rate” as published by The Wall Street Journal) plus 1.25% per annum or (ii) 4.50% per annum. The Term Loan Agreements contain negative covenants that, subject to certain exceptions, limits the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. The Term Loan Agreements also provides that the Company and its subsidiaries on a consolidated basis, meet a Fixed Charge Coverage Ratio  as described in detail in the Loan Agreements. The Term Loan Agreements contain events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, and certain judgment defaults as specified in the Term Loan Agreements. If an event of default occurs, the maturity of the amounts owed under the Term Loan Agreements may be accelerated. The obligations under the Term Loan Agreements are guaranteed by the Company and IFP and are secured by mortgages on their real estate located in Florida, Illinois, and Pennsylvania and substantially all of their assets, in each case, subject to certain exceptions and permitted liens. The Company recorded a discount to this loan in the amount of $57,106 in connection with financing costs; $7,832 of this amount was amortized to interest expense during the three and six months ended June 30, 2022. During the three and six months ended June 30, 2022, the Company accrued interest in the amount of $19,524 on this loan.

  $ 5,324,733     $ -  
                 

On June 6, 2022, the Company entered into a term loan agreement with MapleMark (the “MapleMark Term Loan 2”) for the original amount of $356,800. This amount was paid by MapleMark directly to Fifth Third Bank in satisfaction the outstanding principal and interest due under existing loans with Fifth Third Bank. The MapleMark Term Loan 1 matures on November 28, 2022. Upon receipt of the USDA Guarantee, the Company will have the option of extending the term of the Term Loan 1 to June 6, 2052.

 

Amounts outstanding under the Term Loans will bear interest at the rate equal to the lesser of (a) the Maximum Lawful Rate, or (b) the greater of (i) WSJP (the “Prime Rate” as published by The Wall Street Journal) plus 1.25% per annum or (ii) 4.50% per annum. The Term Loan Agreements contain negative covenants that, subject to certain exceptions, limits the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates. The Term Loan Agreements also provides that the Company and its subsidiaries on a consolidated basis, meet a Fixed Charge Coverage Ratio  as described in detail in the Loan Agreements. The Term Loan Agreements contain events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, and certain judgment defaults as specified in the Term Loan Agreements. If an event of default occurs, the maturity of the amounts owed under the Term Loan Agreements may be accelerated. The obligations under the Term Loan Agreements are guaranteed by the Company and IFP and are secured by mortgages on their real estate located in Florida, Illinois, and Pennsylvania and substantially all of their assets, in each case, subject to certain exceptions and permitted liens. The Company recorded a discount to this loan in the amount of $23,367 in connection with financing costs; $3,205 of this amount was amortized to interest expense during the three and six months ended June 30, 2022. During the three and six months ended June 30, 2022, the Company accrued interest in the amount of $1,308 on this loan.

    356,800       -  

 

 

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 June 30, 2022, the Company made payments of principal and interest on this note in the amounts of $9,100 and $151, respectively; and during the six months ended June 30, 2022, the Company made payments of principal and interest on this note in the amounts of $22,750 and $655, respectively. On June 9, 2022, the principal and interest due on this note in the amount of $45,500 and $66, respectively, were paid directly to Fifth Third Bank by MapleMark in connection with MapleMark Term Loan 2.     -       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 June 30, 2022, the Company made payments of principal and interest on this note in the amounts of $16,333 and $1,305, respectively; during the six months ended June 30, 2022, the Company made payments of principal and interest on this note in the amounts of $40,833 and $3,781, respectively. On June 9, 2022, the principal and interest due on this note in the amount of $310,333 and $901, respectively, were paid directly to Fifth Third Bank by Maple Mark in connection with MapleMark Term Loan 2.

    -       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 June 30, 2022, the Company made payments of principal and interest on this loan in the amounts of $12,288 and $1,308, respectively; during the six months ended June 30, 2022, the Company made payments of principal and interest on this loan in the amounts of $30,523 and $3,467, respectively. On June 9, 2022, the principal and interest due on this note in the amount of $141,623 and $143, respectively, were paid directly to Fifth Third Bank by MapleMark in connection with MapleMark Term Loan 1.

    -       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 and six months ended June 30, 2022, the Company accrued interest in the amount of $95 and $189, respectively, on this note. At June 30, 2022, accrued interest on this note was $17,912.

    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 June 30, 2022, the Company made principal and interest payments in the amount of $2,634 and $201, respectively, on this loan; during the six months ended June 30, 2022, the Company made principal and interest payments in the amount of $5,297 and $433, respectively.

    15,687       20,984  

 

 

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; during the three and six months ended June 30, 2022, $2,368 and $5,456, respectively, of this discount was amortized to interest expense. During the three months ended June 30, 2022, the Company made principal and interest payments in the amount of $33,800 and $13,351, respectively, on this loan; during the six months ended June 30, 2022, the Company made principal and interest payments in the amount of $67,600 and $51,151, respectively, on this loan. On June 9, 2022, the principal and interest due on this note in the amount of $5,168,000 and $14,967, respectively, were paid directly to Fifth Third Bank by MapleMark in connection with MapleMark Term Loan 1.  The Company recorded a loss in the amount of $40,556 on this transaction in connection with the write-off of the unamortized portion of the discount.   

 

The Company also had 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 paid 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 resulting in additional interest expense of $0 and $5,632, respectively, during the three and six months ended June 30, 2022. 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 six months ended June 30, 2022.

    -       5,235,600  
                 

Total

    5,717,220       5,868,145  

Discount

    (95,177

)

    (46,012

)

Net of discount

  $ 5,622,043     $ 5,822,133  
                 

Current portion

  $ 5,712,500     $ 458,973  

Long-term maturities

    4,720       5,409,172  

Total

  $ 5,717,220     $ 5,868,145  

 

Aggregate maturities of long-term notes payable as of June 30, 2022 are as follows:

 

For the period ended June 30,

 

2023

 

$

5,712,500

 

2024

   

4,720

 

2025

   

-

 

2026

   

-

 

2027

   

-

 

Total

 

$

5,717,220

 

 

 

15. LEASE LIABILITIES - FINANCING LEASES

 

   

June 30,

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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $1,289 and $179, respectively. During the six months ended June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $2,558 and $377, respectively.

  $ 11,031     $ 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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $466 and $65, respectively. During the six months ended June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $925 and $136, respectively.

    3,993       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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amount of $24,304 and $5,521, respectively. During the six months ended June 30, 2021, the Company made principal and interest payments on this lease obligation in the amount of $48,248 and $11,403, respectively.

    351,440       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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,049 and $1,515, respectively. During the six months ended June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $10,029 and $3,099, respectively.

    107,991       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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,748 and $1,229, respectively. During the six months ended June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $11,378 and $2,575, respectively.

    55,148       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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $2,786 and $658, respectively. During the six months ended June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,537 and $1,350, respectively.

    50,786       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 June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $4,898 and $992, respectively. During the six months ended June 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $6,502 and $1,351, respectively.

    35,998       -  
                 

Total

  $ 616,387     $ 659,063  
                 

Current portion

  $ 185,715     $ 159,823  

Long-term maturities

    430,672       499,240  

Total

  $ 616,387     $ 659,063  

 

 

Aggregate maturities of lease liabilities – financing leases as of June 30, 2022 are as follows:

 

For the period ended June 30,

 

2023

 

$

185,715

 

2024

   

190,508

 

2025

   

154,392

 

2026

   

67,474

 

2027

   

18,298

 

Thereafter

   

-

 

Total

 

$

616,387

 

 

16. RELATED PARTY TRANSACTIONS

 

For the six months ended June 30, 2022:

 

Vesting of shares to officers

 

During the six months ended June 30, 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 $20,000 for the vesting of a total of 51,624 shares of common stock issuable to two of its independent board members, and $300,800 for the vesting of a total of 906,890 shares of common stock issuable to its Chief Executive Officer  pursuant to his  employment agreement. The Company also recognized non-cash compensation in the amount of $4,652 during the six months ended June 30, 2022 in connection with stock options issuable to management and board members.

 

For the six months ended June 30, 2021:

 

Vesting of shares to officers

 

During the six months ended June 30, 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 $45,000 for the vesting of a total of 100,140 shares of common stock issuable to two of its independent board members, and $198,422 for the vesting of a total of 491,429 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreement. The Company also recognized non-cash compensation in the amount of $71,958 during the six months ended June 30, 2021 in connection with stock options issuable to management and board members.

 

17. COMMITMENTS AND CONTINGENT LIABILITIES

 

Contingent Liability

 

Pursuant to the igourmet Asset Purchase Agreement, the Company recorded 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 as well as to certain additional liabilities that the Company has evaluated and has recorded on a contingent basis. During the year 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 $39,000 in connection with the additional liabilities. During the three and six months ended June 30, 2022, the Company paid the amount of $0 and $8,000, respectively, in connection with the additional liabilities. At June 30, 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 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 a contingent basis. During the year ended December 31, 2019, the Company paid the amount of $120,576 in connection with these liabilities. At June 30, 2022 and December 31, 2021, $120,000 is classified as a current contingent 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 limitations, 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.             

 

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 driver employed by Innovative Gourmet and indicates 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 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. The case has been set for trial for April 1, 2024. 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 certain lawsuits and legal proceedings which arise in the ordinary course of 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 financial position or our business and the outcome of these matters cannot be ultimately predicted.

 

18. EQUITY

 

Common Stock

 

At June 30, 2022 and December 31, 2021, a total of 2,837,580 shares are deemed issued but not outstanding by the Company. These include 2,623,171 shares of treasury stock.

 

Six months ended June 30, 2022:

 

During the six months ended June 30, 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 $20,000 for the vesting of a total of 51,624 shares of common stock issuable to two of its independent board members, and $300,800 for the vesting of a total of 906,890 shares of common stock issuable to its Chief Executive Officer  pursuant to his employment agreement. The Company also recognized non-cash compensation in the amount of $4,652 during the six months ended June 30, 2022 in connection with stock options issuable to management and board members.

 

On April 8, 2022, the Company issued 33,445 shares with a value of $11,405 to an employee as compensation.

 

On April 25, 2022, the Company issued 142,857 shares with a value of $48,543 to a service provider.

 

 

Six months ended June 30, 2021:

 

During the six months ended June 30, 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 $45,000 for the vesting of a total of 100,140 shares of common stock issuable to two of its independent board members, and $198,422 for the vesting of a total of 491,429 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 $71,958 during the six months ended June 30, 2021 in connection with stock options issuable to management and board members.

 

Options

 

The following table summarizes the options outstanding at June 30, 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

 
 

$

0.41

     

125,000

     

1.82

   

$

0.41

     

125,000

   

$

0.41

 
 

$

0.50

     

125,000

     

1.82

   

$

0.50

     

125,000

   

$

0.50

 
 

$

0.60

     

50,000

     

3.50

   

$

0.60

     

37,500

   

$

0.60

 
 

$

0.62

     

360,000

     

1.50

   

$

0.62

     

360,000

   

$

0.62

 
 

$

0.85

     

540,000

     

1.50

   

$

0.85

     

540,000

   

$

0.85

 
 

$

1.00

     

50,000

     

3.50

   

$

1.00

     

37,500

   

$

1.00

 
 

$

1.20

     

1,100,000

     

1.34

   

$

1.20

     

1,087,500

   

$

1.20

 
           

2,350,000

     

1.55

   

$

0.93

     

2,312,500

   

$

0.93

 

 

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

    250,000     $ 0.46  

Exercised

    -     $ -  

Cancelled / Expired

    -     $ -  
                 

Options outstanding at June 30, 2022 (unaudited)

    2,350,000     $ 0.93  

Options exercisable at June 30, 2022 (unaudited)

    2,132,500     $ 0.93  

 

Aggregate intrinsic value of options outstanding and exercisable at June 30, 2022 and 2021 was $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 $0.24 and $0.36 as of June 30, 2022 and 2021, respectively, and the exercise price multiplied by the number of options outstanding.

 

During the three months ended June 30, 2022 and 2021, the Company charged $2,326 and $35,878, respectively, to operations to recognized stock-based compensation expense for employee and board member stock options; the Company also charged $2,092 and $0, respectively, to operations to recognize the fair value of options issued to a service provider.

 

During the six months ended June 30, 2022 and 2021, the Company charged $4,652 and $71,958, respectively, to operations to recognized stock-based compensation expense for employee and board member stock options; the Company also charged $2,092 and $0, respectively, to operations to recognize the fair value of options issued to a service provider. 

 

 

ITEM 2 - MANAGEMENTS 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 the 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-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 $362,214 for doubtful accounts receivable at June 30, 2022, and $375,931 at 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.

 

Income Taxes

 

The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future 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 of use to 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.

 

 

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”), 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 November 2, 2012, the Company entered into an asset purchase agreement (the “Haley Acquisition”) with The Haley Group, LLC whereby we acquired all existing assets of The Haley Group, LLC and its customers. The Haley Acquisition was valued at a total cost of $119,645.

 

On June 30, 2014, pursuant to a purchase agreement, the Company purchased 100% of the membership interest of Organic Food Brokers, LLC, a Colorado limited liability company (“OFB”), for $300,000, 100,000 four-year options at a price of $1.46 per share, and up to an additional $225,000 in earn-outs if certain milestones are met.

 

Pursuant to an Asset Purchase Agreement dated as of January 1, 2017 the Company’s wholly-owned subsidiary, Oasis Sales Corp. (“Oasis”), purchased substantially all of the assets of Oasis Sales and Marketing, L.L.C. for $300,000 cash; a $200,000 structured equity instrument which can be paid in cash or shares of the Company stock at the Company’s option, anytime under certain conditions, or is automatically payable via the issuance of 200,000 shares if the Company’s shares close above $1.00 for ten consecutive days; a $100,000 note; and up to an additional $400,000 in earn-outs over two years if certain milestones are met. The Agreement also contains claw-back provisions if certain revenue conditions are not met.

 

On August 15, 2014, pursuant to a merger agreement, the Company acquired The Fresh Diet, Inc. (“FD”). Effective February 23, 2016, the Company closed a transaction to sell 90% of our ownership in FD for consideration consisting primarily of a restructuring of our loans, which includes the ability to convert to additional amounts of FD under certain circumstances. There 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 acquired certain assets of Mouth 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 the acquired assets and assumed liabilities were recorded by the Company at their preliminary estimated fair values. Mouth, a privately 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 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 with 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, 2021 (1) following our discussion of Liquidity and Capital Resources, and (2) in Note 18 to the Consolidated Financial 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 $10,197,930 (50% of total sales) and $6,939,129 (50% of total sales) for the three months ended June 30, 2022 and 2021, respectively. These sales amounted to $17,857,389 (49% of total sales) and $12,104,507 (46% of total sales) for the six months ended June 30, 2022 and 2021, respectively. On January 26, 2015 we executed a contract between Food Innovations, Inc., our wholly-owned subsidiary, and U.S. Foods, Inc. The term of the Agreement is from January 1, 2015 through December 31, 2016 and provides for 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 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 June 30, 2022 Compared to Three Months Ended June 30, 2021

 

Revenue

 

Revenue increased by $6,548,592 or approximately 47% to $20,523,156 for the three months ended June 30, 2022 from $13,974,564 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. E-commerce revenue decreased slightly  though e-commerce revenue remains significantly above pre-pandemic historical levels. The decrease in e-commerce revenue  during the current period was 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 by a more challenging digital marketing environment as compared to 2021 driven partially by industrywide marketing challenges related to expanded privacy rules that significantly reduce data sharing.

 

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 a strategy which based on our analysis provides the most beneficial 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 markets 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 June 30, 2022 was $16,074,259, an increase of $5,909,115 or approximately 58% compared to cost of goods sold of $10,165,144 for the three months ended June 30, 2021. The increase in cost of goods sold, which also included inventory adjustment expenses of  $316,666, is attributed mainly to increases in revenues. Cost of goods sold was made up of the following expenses for the three months ended June 30, 2022: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $11,439,211; shipping, delivery, handling, and purchase allowance expenses in the amount of $4,500,219; and cost of goods associated with logistics of $134,829. Gross margins as a percentage of sales declined during the current period to 21.7% compared to 27.3% during the comparable period, primarily due to variation in product and revenue mix across our various selling channels, increases in fuel costs and fuel surcharges associated with the higher cost of fuel in the United States and higher shipping costs contributed to the decline in gross margins as a percentage of sales.

 

In 2022, we continue to price our products in order to increase sales, gain market share and increase the number of our end users and 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 and may result in a decrease in profit margin.

 

Selling, general, and administrative expenses

 

Selling, general, and administrative expenses increased by $858,747 or approximately 18% to $5,522,049 during the three months ended June 30, 2022 compared to $4,663,302 for the three months ended June 30, 2021. The increase in selling, general, and administrative expenses was primarily due to an increase in advertising and digital marketing costs of $438,216, which includes an expense of $86,866 in digital marketing fees associated with a settlement of digital marketing fees to a service provider, an increase in payroll and related expenses of $339,013 partially related to increased payroll associated with the growth of foodservice revenues mostly offset by payroll reductions associated with e-commerce revenues (including an increase in non-cash compensation of $57,177); an increase in professional fees of $83,194 (including $188,986 in expenses associated with the MapleMark loan transaction), an increase in IT and computer costs of $38,372; an increase in insurance costs of $30,194; an increase in travel expenses of $22,805; an increase in amortization and depreciation of $13,577; and an increase in taxes of $2,044. These increases were partially offset by a decrease in banking and credit card fees of $71,681, a decrease in office, facilities, and vehicle costs of $18,017, and a decrease in bad debt expense of $16,095. The increases were driven mainly by increases in costs related to advertising and digital marketing expenses, and expenses  associated with the MapleMark loan transaction. In addition an overall increase in cost of goods and labor and other items contributed to the increase in facility and IT costs.

 

Loss on extinguishment of debt

 

During the three months ended June 30, 2022, we entered into a revolving line of credit agreement and two term loan agreements with MapleMark Bank, replacing our revolving line of credit and term loans with Fifth Third Bank. We wrote off the existing discounts to the Fifth Third Bank loans in the amount of $40,556 resulting in a loss on extinguishment of debt. There was no comparable transaction during the three months ended June 30, 2021.

 

Other leasing income

 

During the three months ended June 30, 2022, the Company recognized revenue in the amount of $2,294 in connection with the lease of space in our Mountaintop warehouse facility, an increase of $394 or approximately 21% compared to $1,900 during the three months ended June 30, 2021.

 

 

Interest expense, net

 

Interest expense, net of interest income, increased by $26,830 or approximately 31% to $112,372 during the three months ended June 30, 2022, compared to $85,542 during the three months ended June 30, 2021. Interest accrued or paid on the Company’s commercial loans and notes payable increased by $12,649 to $96,779 during the current period primarily as a result of increases in interest rates. Interest on the PPP loans decreased by $4,346 to $0 during the current period compared to $4,346 during the three months ended June 30, 3021. The Company’s PPP loans have all been forgiven as of June 30, 2022. Interest income was $1,996 for the period ended June 30, 2022, an increase of $284 compared to interest income of $1,712 during the prior period due to higher cash balances. Interest on the Company’s note payable was $94 for the three months ended June 30, 2022 and 2021. Interest expense associated with the amortization of loan fees was $17,494 during the three months ended June 30, 2022, an increase of $14,371 compared to $3,123 during the prior period.

 

Net loss

 

For the reasons above, the Company had a net loss for the three months ended June 30, 2022 of $1,223,786 which is an increase of $286,262 or 31% compared to a net loss of $937,524 during the three months ended June 30, 2021. The net loss for the three months ended June 30, 2022 includes a total of $423,359 in non-cash charges, including non-cash compensation in the amount of $214,766, depreciation and amortization expense of $141,374, loss on extinguishment of debt of $40,556, amortization of prepaid loan fees in the amount of $17,494, and provision for doubtful accounts of $9,171.

 

The net loss for the three months ended June 30, 2021 includes a total of $322,127 in non-cash charges, including depreciation and amortization expense of $136,149, non-cash compensation in the amount of $157,589, amortization of the discount on notes payable of $3,123, and provision for doubtful accounts of $25,266.

 

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

 

Revenue

 

Revenue increased by $10,010,804 or approximately 38% to $36,166,267 for the six months ended June 30, 2022 from $26,155,463 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 and also by lower recognized revenue in the first quarter of 2022, due to a decline in the value of recognized deferred revenue associated with items ordered in the 4th quarter of  the prior year but delivered in the first quarter of the following year.  E-commerce revenues were also driven lower by the continued re-opening of bricks and mortar stores, and by a more challenging digital marketing environment as compared to 2021 driven partially by industrywide marketing challenges related to expanded privacy rules that significantly reduce data sharing.                                             

                     

 

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 a strategy which based on our analysis provides the most beneficial 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 markets 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 six months ended June 30, 2022 was $27,991,438, an increase of $8,947,380 or approximately 47% compared to cost of goods sold of $19,044,058 for the six months ended June 30, 2021. The increase in cost of goods sold which also included inventory adjustment expenses of  $316,666, is attributed mainly to increases in revenues. Cost of goods sold was made up of the following expenses for the six months ended June 30, 2022: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $19,200,913; shipping, delivery, handling, and purchase allowance expenses in the amount of $8,516,817; and cost of goods associated with logistics of $273,708. Gross margins as a percentage of sales declined during the current period to 22.6% compared to 27.2% during the comparable period, primarily due to variation in product and revenue mix across our various selling channels, increases in fuel costs and fuel surcharges associated with the higher cost of fuel in the United States and higher shipping costs contributed to the decline in gross margins as a percentage of sales.

 

In 2022, we continue to price our products in order to increase sales, gain market share and increase the number of our end users and 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 and may result in a decrease in profit margin.

 

Selling, general, and administrative expenses

 

Selling, general, and administrative expenses increased by $1,180,345 or approximately 12% to $10,694,475 during the six months ended June 30, 2022 compared to $9,514,130 for the six months ended June 30, 2021. The increase in selling, general, and administrative expenses was primarily due to an increase in advertising and digital marketing costs of $686,023 which includes an expense of $86,866 in digital marketing fees associated with a settlement of digital marketing fees to a service provider, an increase in professional fees of $233,873 (including $188,986 in expenses associated with the MapleMark loan transaction); an increase in payroll and related costs of $190,070 driven by increased payroll associated with the growth of foodservice revenues mostly offset by payroll reductions associated with e-commerce revenues, (including an increase of $52,112 in non-cash compensation); an increase in computer and IT costs of $68,653; an increase in travel expenses of $57,631; an increase in insurance costs of $40,635; and an increase in depreciation and amortization of $16,184. These increases were partially offset by a decrease in banking and credit card costs of $163,479; a decrease in bad debt expense of $19,931, and a decrease in taxes of $1,450. The increases were driven mainly by increases in costs related to  legal, accounting, and other advisor fees and   digital marketing fees and expenses associated with the MapleMark loan transaction. In addition an overall increase in cost of goods and labor and other items contributed to the increase in facility and IT costs.

 

Impairment of Investment

 

During the six months ended June 30. 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 six months ended June 30, 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.

 

Loss on extinguishment of debt

 

During the six months ended June 30, 2022, we entered into a revolving line of credit agreement and two term loan agreements with MapleMark Bank, replacing our revolving line of credit and term loans with Fifth Third Bank. We wrote off the existing discounts to the Fifth Third Bank loans in the amount of $40,556 resulting in a loss on extinguishment of debt. There was no comparable transaction during the six months ended June 30, 2021.

 

Other leasing income

 

During the six months ended June 30, 2022, the Company recognized revenue in the amount of $7,384 in connection with the lease of space in our Mountaintop warehouse facility, an increase of $344 or approximately 5% compared to $7,040 during the six months ended June 30, 2021.

 

 

Interest expense, net

 

Interest expense, net of interest income, increased by $19,485 or approximately 11% to $195,345 during the six months ended June 30, 2022, compared to $175,860 during the six months ended June 30, 2021. Interest accrued or paid on the Company’s commercial loans and notes payable increased by $22,612 to $172,927 during the current period primarily as a result of increases in interest rates. Interest on the PPP loans decreased by $9,917 to $0 during the current period compared to $9,917 during the six months ended June 30, 3021. The Company’s PPP loans have all been forgiven as of June 30, 2022. Interest income was $3,985 for the period ended June 30, 2022, an increase of $564 compared to interest income of $3,421 during the prior period due to higher cash balances. Interest on the Company’s note payable was $189 for the six months ended June 30, 2022 compared to $186 for the prior period. Interest expense associated with the amortization of loan fees was $20,582 during the six months ended June 30, 2022, an increase of $14,371 compared to $6,211 during the prior period.

 

Net loss

 

For the reasons above, the Company had a net loss for the six months ended June 30, 2022 of $2,454,163 which is a decrease of $327,232 or 12% compared to a net loss of $2,781,395 during the six months ended June 30, 2021. The net loss for the six months ended June 30, 2022 includes a total of $716,419 in non-cash charges, including non-cash compensation in the amount of $367,490, depreciation and amortization expense of $279,735, loss on extinguishment of debt of $40,556, amortization of prepaid loan fees in the amount of $20,582, and provision for doubtful accounts of $8,056.

 

The net loss for the six months ended June 30, 2021 includes a total of $831,401 in non-cash charges, including impairment of investment of $209,850, depreciation and amortization expense of $271,973, non-cash compensation in the amount of $315,380, amortization of the discount on notes payable of $6,211, and provision for doubtful accounts of $27,987. 

 

Liquidity and Capital Resources at June 30, 2022

 

As of June 30, 2022 the Company had current assets of $10,770,849 consisting of cash and cash equivalents of $2,360,473, trade accounts receivable of $5,027,892, inventory of $3,041,782, and other current assets of $340,702. Also, at June 30, 2022, the Company had current liabilities of $15,620,521, consisting of trade payable and accrued liabilities of $6,285,703, accrued interest of $43,535, deferred revenue of $1,222,247, line of credit of $2,014,333, notes payable – current portion of $5,617,323, lease liabilities – operating leases, current portion of $64,665, lease liabilities – financing leases, current portion of $185,715, and current portion of contingent liabilities of $187,000.

 

During the six months ended June 30, 2022, the Company had cash used in operating activities of $3,257,083. Cash used in operations consisted of the Company’s consolidated net loss of $2,454,163 partially offset by stock based compensation in the amount of $367,492, depreciation and amortization of $279,735, amortization of right-to-use asset of $35,162, loss on extinguishment of debt of $40,556, and amortization of prepaid loan fees of $20,582, and provision for doubtful accounts of $8,056. The Company’s cash position also decreased due to a change in the components of current assets and liabilities in the amount of $1,554,503.

 

The Company had cash used in investing activities of $92,633 for the six months ended June 30, 2022, which consisted of cash paid for the acquisition of property and equipment.

 

The Company had cash used in   financing activities of $412,482 for the six months ended June 30, 2022, which consisted of principal payments made on notes payable of $167,001, principal payments on financing leases of $85,176, and cost debt financing of $110,305.

 

The Company had net working capital deficit of $4,849,672 as of June 30, 2022. The Company used cash in operations during the six months ended June 30, 2022 in the amount of $3,257,083. This compares to cash used in operations of $4,876,983 during the six months ended June 30, 2021. On June 6, 2022, the Company completed a financing arrangement with MapleMark Bank, whereby MapleMark provided the company with a revolving credit facility and two term loans in the aggregate amount of $7,695,867. Pursuant to the terms of these loan agreements, the Company has applied for loan guarantees from United States Department of Agriculture. Upon receipt of these guarantees, the revolving loan in the amount of $2,014,333 will be due in 18 months and the term loans