innovfood20220930_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 September 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: 47,779,010 shares of common stock outstanding as of November 8, 2022.

 

 

 

 

INNOVATIVE FOOD HOLDINGS, INC.

TABLE OF CONTENTS TO FORM 10-Q

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements (unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

  Consolidated Statement of Stockholders’ Equity 5

 

Consolidated Statements of Cash Flows

6

 

Condensed Notes to the Consolidated Financial Statements

7

Item 2.

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

27

Item 4.

Controls and Procedures

36

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

 

Signatures

39

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

 

Innovative Food Holdings, Inc.

Consolidated Balance Sheets

 

   

September 30,

   

December 31,

 
   

2022

   

2021

 
   

(unaudited)

         

ASSETS

               

Current assets

               

Cash and cash equivalents

  $ 2,752,404     $ 6,122,671  

Accounts receivable, net

    4,670,645       3,256,764  

Inventory

    2,937,098       3,109,984  

Other current assets

    336,350       314,107  

Total current assets

    10,696,497       12,803,526  
                 

Property and equipment, net

    8,008,057       8,186,227  

Investments

    286,725       286,725  

Right of use assets, operating leases, net

    168,344       232,381  

Right of use assets, finance leases, net

    603,803       669,039  

Other amortizable intangible assets, net

    41,325       72,218  

Tradenames and other unamortizable intangible assets

    1,532,822       1,532,822  

Total assets

  $ 21,337,573     $ 23,782,938  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities

               

Accounts payable and accrued liabilities

  $ 6,070,249     $ 5,702,905  

Accrued interest, current portion

    18,008       29,349  

Deferred revenue

    1,094,649       1,631,406  

Line of Credit

    2,014,333       2,000,000  

Notes payable - current portion, net of discount

    5,667,485       412,961  

Lease liability - operating leases, current

    63,569       74,088  

Lease liability - finance leases, current

    188,818       159,823  

Contingent liability - current portion

    187,000       187,000  

Total current liabilities

    15,304,111       10,197,532  
                 

Lease liability - operating leases, non-current

    104,775       158,293  

Lease liability - finance leases, non-current

    382,286       499,240  

Contingent liability - long-term

    108,600       108,600  

Note payable - long term portion, net

    1,899       5,409,172  

Total liabilities

    15,901,671       16,372,837  
                 
                 
              -  
                 

Commitments & Contingencies (see note 17)

   
 
     
 
 

Stockholders' equity

               

Common stock: $0.0001 par value; 500,000,000 shares authorized; 50,616,590 and 48,879,331 shares issued, and 47,779,010 and 46,041,751 shares outstanding at September 30, 2022 and December 31, 2021, respectively

    5,057       4,885  

Additional paid-in capital

    42,132,756       41,662,710  

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

    (1,141,370

)

    (1,141,370

)

Accumulated deficit

    (35,560,541

)

    (33,116,124

)

Total stockholders' equity

    5,435,902       7,410,101  
                 

Total liabilities and stockholders' equity

  $ 21,337,573     $ 23,782,938  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Consolidated Statements of Operations

(unaudited)

 

   

For the Three

   

For the Three

   

For the Nine

   

For the Nine

 
   

Months Ended

   

Months Ended

   

Months Ended

   

Months Ended

 
   

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Revenue

  $ 20,059,982     $ 15,207,353     $ 56,226,249     $ 41,362,816  

Cost of goods sold

    15,546,132       11,427,343       43,537,570       30,471,401  

Gross margin

    4,513,850       3,780,010       12,688,679       10,891,415  
                                 

Selling, general and administrative expenses

    4,320,981       4,998,673       15,015,456       14,512,803  

Total operating expenses

    4,320,981       4,998,673       15,015,456       14,512,803  
                                 

Operating (loss) income

    192,869       (1,218,663

)

    (2,326,777

)

    (3,621,388

)

                                 

Other income (expense:)

                               

Impairment of investment

    -       -       -       (209,850

)

Gain on interest rate swap

    -       -       294,000       -  

Gain on forgiveness of debt

    -       1,665,818       -       1,665,818  

Loss on extinguishment of debt

    -       -       (40,556

)

    -  

Other leasing income

    785       1,900       8,169       8,940  

Interest expense, net

    (183,908

)

    (82,029

)

    (379,253

)

    (257,889

)

Total other income (expense)

    (183,123

)

    1,585,689       (117,640

)

    1,207,019  
                                 

Net (loss) income before taxes

    9,746       367,026       (2,444,417

)

    (2,414,369

)

                                 

Income tax expense

    -       -       -       -  
                                 

Net (loss) income

  $ 9,746     $ 367,026     $ (2,444,417

)

  $ (2,414,369

)

                                 

Net (loss) income per share - basic

  $ 0.00     $ 0.01     $ (0.05

)

  $ (0.06

)

                                 

Net (loss) income per share - diluted

  $ 0.00     $ 0.01     $ (0.05

)

  $ (0.06

)

                                 

Weighted average shares outstanding - basic

    47,390,976       40,253,543       46,838,377       37,254,290  
                                 

Weighted average shares outstanding - diluted

    47,390,976       40,253,543       46,838,377       37,254,290  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Consolidated Statements of Stockholders' Equity

Three and Nine Months Ended September 30, 2022 and 2021

(unaudited)

 

                   

Additional

                                 
   

Common Stock

   

Paid-in

   

Treasury Stock

   

Accumulated

         
   

Amount

   

Value

   

Capital

   

Amount

   

Value

   

Deficit

   

Total

 
                                                         

Balance - June 30, 2021

    38,800,629     $ 3,877     $ 37,730,475       2,623,171     $ (1,141,370

)

  $ (35,181,188

)

  $ 1,411,794  

Fair value of vested stock and stock options

    335,252       34       160,718       -       -       -       160,752  

Common stock sold for cash, net of costs

    9,375,000       938       3,579,434       -       -       -       3,580,372  

Net income for the three months ended September 30, 2021

    -       -       -       -       -       367,026       367,026  

Balance - September 30, 2021

    48,510,881     $ 4,849     $ 41,470,627       2,623,171     $ (1,141,370

)

  $ (34,814,162

)

  $ 5,519,944  
                                                         

Balance - June 30, 2022

    50,014,147       4,997       41,980,090       2,623,171       (1,141,370

)

    (35,570,287

)

    5,273,430  

Fair value of vested stock and stock options

    602,443       60       152,666       -       -       -       152,726  

Net income for the three months ended September 30, 2022

    -       -       -       -       -       9,746       9,746  

Balance - September 30, 2022

    50,616,590     $ 5,057     $ 42,132,756       2,623,171     $ (1,141,370

)

  $ (35,560,541

)

  $ 5,435,902  
                                                         

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

    926,821       94       476,038       -       -       -       476,132  

Common stock sold for cash, net of costs

    9,375,000       938       3,579,434       -       -       -       3,580,372  

Net loss for the nine months ended September 30, 2021

    -       -       -       -       -       (2,414,369

)

    (2,414,369

)

Balance - September 30, 2021

    48,510,881     $ 4,849     $ 41,470,627       2,623,171     $ (1,141,370

)

  $ (34,814,162

)

  $ 5,519,944  
                                                         

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

    1,560,957       155       458,023       -       -       -       458,178  

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 nine months ended September 30, 2022

    -       -       -       -       -       (2,444,417

)

    (2,444,417

)

Balance - September 30, 2022

    50,616,590     $ 5,057     $ 42,132,756       2,623,171     $ (1,141,370

)

  $ (35,560,541

)

  $ 5,435,902  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

   

For the Nine

   

For the Nine

 
   

Months Ended

   

Months Ended

 
   

September 30,

   

September 30,

 
   

2022

   

2021

 
   

(unaudited)

   

(unaudited)

 

Cash flows from operating activities:

               

Net loss

  $ (2,444,417

)

  $ (2,414,369

)

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

               

Gain on forgiveness of debt

    -       (1,665,818

)

Impairment of investment

    -       209,850  

Depreciation and amortization

    423,844       407,704  

Amortization of right-of-use asset

    50,821       76,005  

Amortization of prepaid loan fees

    70,618       9,368  

Stock based compensation

    520,218       476,132  

Loss on extinguishment of debt

    40,556       -  
Provision for doubtful accounts     11,493       32,443  
                 

Changes in assets and liabilities:

               

Accounts receivable, net

    (1,425,374

)

    (1,254,764

)

Inventory and other current assets, net

    150,643       869,165  

Accounts payable and accrued liabilities

    386,414       (747,187

)

Deferred revenue

    (536,757

)

    (1,861,665

)

Contingent liabilities

    -       (8,000

)

Operating lease liability

    (50,821

)

    (76,005

)

Net cash (used in) operating activities

    (2,802,762

)

    (5,947,141

)

                 

Cash flows from investing activities:

               

Acquisition of property and equipment

    (107,045

)

    (14,812

)

Net cash used in investing activities

    (107,045

)

    (14,812

)

                 

Cash flows from financing activities:

               

Payment of offering costs for stock previously issued

    (50,000

)

    -  

Proceeds from sale of common stock, net of costs

            3,580,372  

Proceeds from Payroll Protection Plan Loan

    -       1,748,414  

Principal payments on debt

    (169,696

)

    (299,924

)

Principal payments financing leases

    (130,459

)

    (108,528

)

Cost of debt financing

    (110,305

)

    -  

Net cash provided by (used in) financing activities

    (460,460

)

    4,920,334  
                 
Decrease in cash and cash equivalents     (3,370,267

)

    (1,041,619

)

                 

Cash and cash equivalents at beginning of period

    6,122,671       5,060,015  
                 

Cash and cash equivalents at end of period

  $ 2,752,404     $ 4,018,396  
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid during the period for:

               

Interest

  $ 187,090     $ 250,967  
                 

Taxes

  $ -     $ -  
                 

Non-cash investing and financing activities:

               

Increase in right of use assets & liabilities – new leases

  $ -     $ 88,359  

Decrease in right of use assets & liabilities – cancellation of lease

  $ 13,216     $ -  

Finance lease for fixed assets

  $ 42,500     $ 21,885  

Debt to Fifth Third Bank paid directly by Maple Mark Bank

  $ 7,695,866     $ -  

Reclassification of accounts receivable to other assets

  $ -     $ 22,380  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

INNOVATIVE FOOD HOLDINGS, INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2022

(Unaudited)

 

1. BASIS OF PRESENTATION

 

Basis of Presentation

 

The accompanying unaudited interim 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  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  consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of the operations for the three and nine months ended September 30, 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 consolidated 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 September 30, 2022 and December 31, 2021, trade receivables from the Company’s largest customer amounted to 27% and 28%, respectively, of total trade receivables. During the nine months ended September 30, 2022 and 2021, sales from the Company’s largest customer amounted to 51% and 48% of total sales, respectively.

 

The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. At September 30, 2022 and December 31, 2021, the total cash in excess of these limits was $403,255 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  

 

Cash payments received

    401,097  

Net sales recognized

    (325,621

)

Balance as of September 30, 2021 (unaudited)

  $ 1,056,011  

 

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  

 

Cash payments received

    385,633  

Net sales recognized

    (513,231

)

Balance as of September 30, 2022 (unaudited)

  $ 1,094,649  

 

Disaggregation of Revenue

 

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

 

   

Three Months Ended

 
   

September 30,

 
   

2022

   

2021

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 17,630,515     $ 12,060,223  

E-Commerce

    1,839,541       2,652,307  

National Brand Management

    336,766       260,934  

Logistics

    253,160       233,889  

Total

  $ 20,059,982     $ 15,207,353  

 

   

Nine Months Ended

 
   

September 30,

 
   

2022

   

2021

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 46,072,258     $ 29,049,060  

E-Commerce

    8,637,210       10,917,318  

National Brand Management

    872,732       751,865  

Logistics

    644,049       644,573  

Total

  $ 56,226,249     $ 41,362,816  

 

 

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. For the three and nine months ended September 30, 2022, 2,300,000 stock options were excluded from the calculation of fully diluted earnings per share because the effect would have been anti-dilutive.  For the three and nine months ended September 30, 2021, 2,225,000 stock options were excluded from the calculation of fully diluted earnings per share because the effect would have been anti-dilutive. 

 

Dilutive shares at September 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 September 30, 2022:

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Remaining

 

Exercise

 

 

Number

 

 

Contractual

 

Price

 

 

of Options

 

 

Life (years)

 

$

0.41

 

 

 

125,000

 

 

 

1.57

 

$

0.50

 

 

 

125,000

 

 

 

1.57

 

$

0.60

 

 

 

50,000

 

 

 

3.25

 

$

0.62

 

 

 

360,000

 

 

 

1.25

 

$

0.85

 

 

 

540,000

 

 

 

1.25

 

$

1.00

 

 

 

50,000

 

 

 

3.25

 

$

1.20

 

 

 

1,050,000

 

 

 

1.15

 

 

 

 

 

 

2,300,000

 

 

 

1.33

 

 

Restricted Stock Awards

 

At September 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. The fair value of these RSUs at the date of the grants will be charged to operations upon vesting.

 

Stock Grants

 

At September 30, 2022, there were an aggregate 86,236 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. The fair value of these stock grants at the date of the grant were charged to operations upon vesting.

 

 

Dilutive shares at September 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 September 30, 2021:

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

Exercise

 

 

Number

 

 

Contractual

 

 

Price

 

 

of Options

 

 

Life (years)

 

 

$

0.60

 

 

 

50,000

 

 

 

4.25

 

 

$

0.62

 

 

 

360,000

 

 

 

2.25

 

 

$

0.85

 

 

 

540,000

 

 

 

2.25

 

 

$

1.00

 

 

 

50,000

 

 

 

4.25

 

 

$

1.20

 

 

 

1,100,000

 

 

 

2.04

 

 

$

1.50

 

 

 

125,000

 

 

 

0.25

 

 

 

 

 

 

 

2,225,000

 

 

 

2.13

 

 

During the three months ended September 30, 2021, the Company issued 50,000 two-year options with a fair value $2,270 to a director. The Company charged the amount of $35,878 and $107,836 to operations in connection with stock options during the three and nine months ended September 30, 2021, respectively.

 

Restricted Stock Awards

 

At September 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

 

The Company charged the amount of $124,874 and $368,296 to operations in connection with stock grants during the three and nine months ended September 30, 2021, respectively.

 

Significant Recent Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 provides for a new impairment model which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments, including but not limited to, accounts receivable. ASU 2016-13 will become effective for the Company on January 1, 2023 and early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.

 

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, 2023; adoption of this standard is not expected to 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. LIQUIDITY

 

The accompanying unaudited 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 $35,560,541 at September 30, 2022 and negative cash flow from operations in the amount of $2,802,762 for the nine months ended September 30, 2022. The Company’s current liabilities exceeded its current assets by $4,607,614 as of September 30, 2022. The Company has reported a net loss of $2,444,417 for the nine months ended September 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 September 30, 2022 of $2,014,333; the MapleMark Term Loan 1, with a balance at September 30, 2022 of $5,324,733; and the MapleMark Term Loan 2, with a balance at September 30, 2022 $356,800 (the “MapleMark Loans”). See notes 13 and 14. The total debt due to MapleMark at September 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. See note 19.

 

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

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Accounts receivable from customers

  $ 5,036,296     $ 3,632,695  

Allowance for doubtful accounts

    (365,651

)

    (375,931

)

Accounts receivable, net

  $ 4,670,645     $ 3,256,764  

 

During the three and nine months ended September 30, 2022 the Company charged the amount of $3,437 and $11,473 to provision for doubtful accounts, respectively; during the previous period the Company charged the amount of $4,456 and $32,443 to provision for doubtful accounts, respectively.

 

5. INVENTORY

 

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

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Finished Goods Inventory

  $ 2,937,098     $ 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 September 30, 2022 and December 31, 2021:

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Land

  $ 1,256,895     $ 1,256,895  

Building

    7,191,451       7,191,451  

Computer and Office Equipment

    607,384       593,566  

Warehouse Equipment

    376,667       376,667  

Furniture and Fixtures

    1,017,483       944,233  

Vehicles

    109,441       109,441  

Total before accumulated depreciation

    10,559,321       10,472,253  

Less: accumulated depreciation

    (2,551,264

)

    (2,286,026

)

Total

  $ 8,008,057     $ 8,186,227  

 

 

Depreciation and amortization expense for property and equipment amounted to $96,650 and $97,797 for the three months ended September 30, 2022 and 2021, respectively. Depreciation and amortization expense for property and equipment amounted to $285,215 and $298,362 for the nine months ended September 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 September 30, 2022 and 2021 was entirely comprised of operating leases and amounted to $18,213 and $30,861, respectively. The Company’s lease expense for the nine months ended September 30, 2022 and 2021 was entirely comprised of operating leases and amounted to $60,186 and $89,443, respectively.

 

The Company’s ROU asset amortization for the three months ended September 30, 2022 and 2021 was $15,659 and $26,305, respectively. The Company’s ROU asset amortization for the nine months ended September 30, 2022 and 2021 was $50,821 and $76,005, respectively.

 

Right of use assets – operating leases are summarized below:

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Office

  $ 117,412     $ 148,529  

Warehouse equipment

    40,558       55,047  

Office equipment

    10,374       12,677  

Vehicles

    -       16,128  

Right of use assets - operating leases, net

  $ 168,344     $ 232,381  

 

Operating lease liabilities are summarized below:

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Office

  $ 117,412     $ 148,529  

Warehouse equipment

    40,558       55,047  

Office equipment

    10,374       12,677  

Vehicles

    -       16,128  

Lease liability

  $ 168,344     $ 232,381  

Less: current portion

    (63,569

)

    (74,088

)

Lease liability, non-current

  $ 104,775     $ 158,293  

 

Maturity analysis under these lease agreements are as follows:

 

For the period ended September 30, 2023

  $ 72,948  

For the period ended September 30, 2024

    71,901  

For the period ended September 30, 2025

    37,938  

For the period ended September 30, 2026

    890  

For the period ended September 30, 2027

    -  

Total

  $ 183,677  

Less: Present value discount

    (15,333

)

Lease liability

  $ 168,344  

 

 

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:

 

   

September 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

    (356,471

)

    (248,735

)

Total right of use assets - financing leases, net

  $ 603,803     $ 669,039  

 

Depreciation expense for right of use assets for the three months ended September 30, 2022 and 2021 was $37,128 and $35,036, respectively. Depreciation expense for right of use assets for the nine months ended September 30, 2022 and 2021 was $107,736 and $100,732, 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 September 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 nine months ended September 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 September 30, 2022 and December 31, 2021, the net carrying value of other intangible assets on the Company’s balance sheet was $1,574,147 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:

 

   

September 30, 2022

(unaudited)

 
           

Accumulated

         
   

Gross

   

Amortization

   

Net

 

Non-Compete Agreement - amortizable

  $ 505,900     $ (505,900

)

  $ -  

Customer Relationships - amortizable

    3,068,034       (3,068,034

)

    -  

Trade Names and other

    1,532,822       -       1,532,822  

Internally Developed Technology - amortizable

    875,643       (875,643

)

    -  

Website - amortizable

    84,000       (42,675

)

    41,325  

Total

  $ 6,066,399     $ (4,492,252

)

  $ 1,574,147  

 

   

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 Names and other

    1,532,822       -       1,532,822  

Internally Developed Technology

    875,643       (875,643

)

    -  

Website

    84,000       (11,782

)

    72,218  

Total

  $ 6,066,399     $ (4,461,359

)

  $ 1,605,040  

 

Total amortization expense for the three months ended September 30, 2022 and 2021 was $10,331 and $2,870, respectively. Total amortization expense for the nine months ended September 30, 2022 and 2021 was $30,993 and $8,610, respectively.

 

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

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

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         

Trade payables and accrued liabilities

  $ 5,835,854     $ 5,414,731  

Accrued payroll and commissions

    234,395       288,174  

Total

  $ 6,070,249     $ 5,702,905  

 

12. ACCRUED INTEREST

 

At September 30, 2022, accrued interest on notes outstanding was $18,008. During the three months ended September 30, 2022 and 2021, the Company paid cash for interest in the aggregate amount of $58,292 and $88,331, respectively. During the nine months ended September 30, 2022 and 2021, the Company paid cash for interest in the aggregate amount of $187,090 and $250,967, respectively.

 

 

13. REVOLVING CREDIT FACILITIES

 

   

September 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 September 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. The Company recorded a discount to this loan in the amount of $29,832 in connection with financing costs; $13,532 and $17,623 of this amount was amortized to interest expense during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2022, the Company paid interest in the amount of $34,355 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 nine months ended September 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

 

   

September 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; $25,904 and $33,736 of this amount was amortized to interest expense during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2022, the Company accrued interest in the amount of $88,856 and $108,380 on this loan, respectively.

  $ 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; $10,599 and $13,804 of this amount was amortized to interest expense during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2022, the Company accrued interest in the amount of $5,954 and $7,262 on this loan, respectively.

  $ 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 September 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 nine months ended September 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 September 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 nine months ended September 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 September 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 nine months ended September 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 nine months ended September 30, 2022, the Company accrued interest in the amount of $96 and $285, respectively, on this note. At September 30, 2022, accrued interest on this note was $18,008.

  $ 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 September 30, 2022, the Company made principal and interest payments in the amount of $2,694 and $168, respectively, on this loan; during the nine months ended September 30, 2022, the Company made principal and interest payments in the amount of $7,991 and $601, respectively.

  $ 12,992     $ 20,984  

 

 

   

September 30,

2022

   

December 31,

2021

 
   

(unaudited)

         
                 

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 nine months ended September 30, 2022, $0 and $5,456, respectively, of this discount was amortized to interest expense. During the three months ended September 30, 2022, the Company made principal and interest payments in the amount of $0 and $13,351, respectively, on this loan; during the nine months ended September 30, 2022, the Company made principal and interest payments in the amount of $0 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 nine months ended September 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 nine months ended September 30, 2022.

  $ -     $ 5,235,600  
                 

Total

  $ 5,714,526     $ 5,868,145  

Discount

    (45,142

)

    (46,012

)

Net of discount

  $ 5,669,384     $ 5,822,133  
                 

Current portion

  $ 5,712,627     $ 458,973  

Long-term maturities

    1,899       5,409,172  

Total

  $ 5,714,526     $ 5,868,145  

 

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

 

For the period ended September 30,

 

2023

 

$

5,712,627

 

2024

 

 

1,899

 

2025

 

 

-

 

2026

 

 

-

 

2027

 

 

-

 

Total

 

$

5,714,526

 

 

 

15. LEASE LIABILITIES - FINANCING LEASES

 

   

September 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $1,307 and $159, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $3,865 and $536, respectively.

  $ 9,723     $ 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $473 and $58, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $1,398 and $194, respectively.

  $ 3,520     $ 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amount of $24,672 and $5,153, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amount of $72,920 and $16,556, respectively.

  $ 326,768     $ 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,118 and $1,447, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $15,147 and $4,546, respectively.

  $ 102,873     $ 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,869 and $1,109, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $17,247 and $3,684, respectively.

  $ 49,279     $ 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $2,821 and $623, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $8,358 and $1,974, respectively.

  $ 47,965     $ 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 September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $5,022 and $868, respectively. During the nine months ended September 30, 2022, the Company made principal and interest payments on this lease obligation in the amounts of $11,524 and $2,219, respectively.

  $ 30,976     $ -  
                 

Total

  $ 571,104     $ 659,063  
                 

Current portion

  $ 188,818     $ 159,823  

Long-term maturities

    382,286       499,240  

Total

  $ 571,104     $ 659,063  

 

 

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

 

For the period ended September 30,

 

2023

 

$

188,818

 

2024

 

 

183,361

 

2025

 

 

151,984

 

2026

 

 

36,148

 

2027

 

 

10,793

 

Thereafter

 

 

-

 

Total

 

$

571,104

 

 

16. RELATED PARTY TRANSACTIONS

 

For the nine months ended September 30, 2022:

 

Vesting of shares to officers

 

During the nine months ended September 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 $30,000 for the vesting of a total of 77,440 shares of common stock issuable to two of its independent board members, and $421,200 for the vesting of a total of 1,483,517 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 $6,978 during the nine months ended September 30, 2022 in connection with stock options issuable to management and board members.

 

For the nine months ended September 30, 2021:

 

Vesting of shares to officers

 

During the nine months ended September 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 $67,500 for the vesting of a total of 150,210 shares of common stock issuable to two of its independent board members, and $300,796 for the vesting of a total of 776,611 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 $107,836 during the nine months ended September 30, 2021 in connection with stock options issuable to management and board members.

 

During the nine months ended September 30, 2021, the Company issued 50,000 two-year stock options with a fair value of $2,270 and an exercise price of $1.20 to a director.

 

On August 26, 2021, the Company sold a total of 3,125,000 shares of common stock at a price of $0.40 per share to an entity controlled by Hank Cohn, a director of the Company; the Company sold 3,125,000 shares of common stock at a price of $0.40 per share to an entity controlled by Jefferson Gramm, a director of the Company; and the Company sold 3,125,000 shares of common stock at a price of $0.40 per share to an entity controlled by James C. Pappas, a director of the Company.

 

17. COMMITMENTS AND CONTINGENCIES

 

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 nine months ended September 30, 2022, the Company paid the amount of $0 and $8,000, respectively, in connection with the additional liabilities. At September 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 September 30, 2022 and December 31, 2021, $120,000 is classified as a current contingent liability and is included in accounts payable and accrued liabilities.

 

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 September 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.

 

Nine months ended September 30, 2022:

 

During the nine months ended September 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 $30,000 for the vesting of a total of 77,440 shares of common stock issuable to two of its independent board members, and $421,200 for the vesting of a total of 1,483,517 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 $6,978 during the nine months ended September 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.

 

 

Nine months ended September 30, 2021:

 

On August 26, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with each of JCP Investment Partnership LP, Bandera Master Fund LP and SV Asset Management LLC (collectively, the “Investors”). Pursuant to the SPA, each Investor purchased 3,125,000 shares of the Company’s common stock for an aggregate of 9,375,000 shares from the Company at a price of $0.40 per share. The Company received $3,580,372 proceeds from the sale of the shares, net of costs in the amount of $169,628. JCP Investment Partnership, LP is controlled by James C. Pappas, a director of the Company; Bandera Master Fund LP is controlled by Jefferson Gramm, a director of the Company; and SV Asset Management LLC is controlled by Hank Cohn, a director of the Company.

 

During the nine months ended September 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 $67,500 for the vesting of a total of 150,210 shares of common stock issuable to two of its independent board members, and $300,796 for the vesting of a total of 776,611 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 $107,836 during the nine months ended September 30, 2021 in connection with stock options issuable to management and board members.

 

Options

 

The following table summarizes the options outstanding at September 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

 

 

 

1.57

 

 

$

0.41

 

 

 

125,000

 

 

$

0.41

 

 

$

0.50

 

 

 

125,000

 

 

 

1.57

 

 

$

0.50

 

 

 

125,000

 

 

$

0.50

 

 

$

0.60

 

 

 

50,000

 

 

 

3.25

 

 

$

0.60

 

 

 

43,750

 

 

$

0.60

 

 

$

0.62

 

 

 

360,000

 

 

 

1.25

 

 

$

0.62

 

 

 

360,000

 

 

$

0.62

 

 

$

0.85

 

 

 

540,000

 

 

 

1.25

 

 

$

0.85

 

 

 

540,000

 

 

$

0.85

 

 

$

1.00

 

 

 

50,000

 

 

 

3.25

 

 

$

1.00

 

 

 

43,750

 

 

$

1.00

 

 

$

1.20

 

 

 

1,050,000

 

 

 

1.15

 

 

$

1.20

 

 

 

1,050,000

 

 

$

1.20

 

 

 

 

 

 

 

2,300,000

 

 

 

1.33

 

 

$

0.93

 

 

 

2,287,500

 

 

$

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

    (50,000

)

  $ 1.20  
                 

Options outstanding at September 30, 2022 (unaudited)

    2,300,000     $ 0.93  

Options exercisable at September 30, 2022 (unaudited)

    2,287,500     $ 0.93  

 

Aggregate intrinsic value of options outstanding and exercisable at September 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 $0.19 and $0.49 as of September 30, 2022 and 2021, respectively, and the exercise price multiplied by the number of options outstanding.

 

 

During the three months ended September 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.

 

During the nine months ended September 30, 2022 and 2021, the Company charged $6,978 and $107,836, 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.

 

19. SUBSEQUENT EVENTS

 

As previously disclosed, in June 2022 we entered into three secured loan facilities with MapleMark Bank consisting of a $7,775,680 USDA B&I loan, a $2,680,000 USDA Food and Supply note, and a $3,000,000 Revolving Line of Credit, with total approved proceeds of $13,450,680, of which only $7,695,867 has been funded to date as the remaining funds are contingent of final USDA approval (the “MMB Facilities”).  The MMB Facilities were originally approved as a 6-month bridge facility until full USDA approval was obtained.  Due to the nationwide backup on USDA approvals, such approval has not been opened.  Accordingly, by memo dated October 15, 2022, the Company was advised that, effective November 28, 2022, the current maturity date of the MMB Facilities, the MMB Facilities would be extended for 90 days. We anticipate that loan modification agreements will be signed shortly as well. 

 

 

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 $365,651 for doubtful accounts receivable at September 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 i