innovfood20230930_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, 2023

 

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

 

For the transition period from                                   to                                   .

 

Commission File Number: 0-9376

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INNOVATIVE FOOD HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Florida

(State or Other Jurisdiction of Incorporation or Organization)

20-1167761

(IRS Employer I.D. No.)

 

28411 Race Track Rd.

Bonita Springs, Florida 34135

(Address of Principal Executive Offices)

 

(239) 596-0204

(Registrant’s Telephone Number, Including Area Code)

 

                                                                                                

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

 

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically 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). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

(Check One):

Large Accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Regulation 12b-2 of the Exchange Act): Yes ☐ No ☒

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 48,979,067 shares of common stock outstanding as of November 6, 2023.

 

 

 

 

INNOVATIVE FOOD HOLDINGS, INC.

TABLE OF CONTENTS TO FORM 10-Q

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Consolidated Financial Statements (unaudited)

4

 

Consolidated Balance Sheets

4

 

Consolidated Statements of Operations

5

 

Consolidated Statement of Stockholders’ Equity

6

 

Consolidated Statements of Cash Flows

7

 

Condensed Notes to the Consolidated Financial Statements

8

Item 2.

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

29

Item 4.

Controls and Procedures

37

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

 

Signatures

40

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

 

Innovative Food Holdings, Inc.

Consolidated Balance Sheets

 

   

September 30,

   

December 31,

 
   

2023

   

2022

 
    (unaudited)          

ASSETS

               

Current assets

               

Cash and cash equivalents

  $ 3,711,887     $ 4,899,398  

Accounts receivable, net

    4,969,374       4,969,395  

Inventory

    2,986,258       3,053,852  

Other current assets

    339,410       289,432  

Total current assets

    12,006,929       13,212,077  
                 

Property and equipment, net

    7,682,896       7,921,561  

Right of use assets, operating leases, net

    104,775       152,425  

Right of use assets, finance leases, net

    469,883       570,323  

Other amortizable intangible assets, net

    -       30,994  

Tradenames and other unamortizable intangible assets

    1,532,822       1,532,822  

Total assets

  $ 21,797,305     $ 23,420,202  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities

               

Accounts payable and accrued liabilities

  $ 5,228,965     $ 6,853,253  

Accrued separation costs, related parties, current portion

    343,144       -  

Accrued interest

    91,660       18,104  

Deferred revenue

    1,094,322       1,558,155  

Line of Credit

    -       2,014,333  

Stock appreciation rights liability

    274,755       -  

Notes payable - current portion

    120,330       5,711,800  

Lease liability - operating leases, current

    66,860       64,987  

Lease liability - finance leases, current

    185,226       191,977  

Total current liabilities

    7,405,262       16,412,609  
                 

Note payable, net of discount

    8,880,014       -  

Accrued separation costs, related parties, non-current

    874,359       -  

Lease liability - operating leases, non-current

    37,915       87,438  

Lease liability - finance leases, non-current

    197,077       333,092  

Total liabilities

    17,394,627       16,833,139  
                 

Commitments & Contingencies (see note 16)

   
 
     
 
 

Stockholders' equity

               

Common stock: $0.0001 par value; 500,000,000 shares authorized; 51,622,238 and 49,427,297 shares issued,

and 48,799,067 and 46,589,717 shares outstanding at September 30, 2023 and December 31, 2022, respectively

    5,159       4,938  

Additional paid-in capital

    42,685,559       42,189,471  

Common stock to be issued, 180,000 and 1,499,940 shares at September 30, 2023 and December 31, 2022, respectively

    18       150  

Treasury stock: 2,623,171 and 2,623,171 shares outstanding at September 30, 2023 and December 31, 2022 , respectively.

    (1,141,370 )     (1,141,370 )

Accumulated deficit

    (37,146,688 )     (34,466,126 )

Total stockholders' equity

    4,402,678       6,587,063  
                 

Total liabilities and stockholders' equity

  $ 21,797,305     $ 23,420,202  

 

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,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Revenue

  $ 17,300,291     $ 20,059,982     $ 53,128,812     $ 56,226,249  

Cost of goods sold

    12,424,105     $ 15,546,132       39,373,204       43,537,570  

Gross margin

    4,876,186       4,513,850       13,755,608       12,688,679  
                                 

Selling, general and administrative expenses

    4,483,134       4,320,981       13,838,369       15,015,456  

Separation costs - executive officers

    -       -       1,945,650       -  

Total operating expenses

    4,483,134       4,320,981       15,784,019       15,015,456  
                                 

Operating income (loss)

    393,052       192,869       (2,028,411 )     (2,326,777 )
                                 

Other income (expense:)

                               

Other income - interest rate swap

    -       -       -       294,000  

Loss on extinguishment of debt

    -       -       -       (40,556 )

Other leasing income

    2,389       785       6,189       8,169  

Interest expense, net

    (260,708 )     (183,908 )     (642,506 )     (379,253 )

Total other income (expense)

    (258,319 )     (183,123 )     (636,317 )     (117,640 )
                                 

Net income (loss) before taxes

    134,733       9,746       (2,664,728 )     (2,444,417 )
                                 

Income tax expense

    -       -       15,834       -  
                                 

Net income (loss)

  $ 134,733     $ 9,746     $ (2,680,562 )   $ (2,444,417 )
                                 

Net income (loss) per share - basic

  $ 0.00     $ 0.00     $ (0.05 )   $ (0.05 )
                                 

Net income (loss) per share - diluted

  $ 0.00     $ 0.00     $ (0.05 )   $ (0.05 )
                                 

Weighted average shares outstanding - basic

    49,193,476       47,390,976       48,909,277       46,838,377  
                                 

Weighted average shares outstanding - diluted

    49,235,998       47,390,976       48,909,277       46,838,377  

 

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, 2023 and 2022

(unaudited)

 

                    Common Stock    

Additional

                                 
   

Common Stock

   

to be issued

   

Paid-in

   

Treasury Stock

   

Accumulated

         
   

Amount

   

Value

   

Amount

   

Value

   

Capital

   

Amount

   

Value

   

Deficit

   

Total

 
                                                                         

Balance -June 30, 2022

    48,290,859     $ 4,827       1,723,288       170     $ 41,980,090       2,623,171     $ (1,141,370 )   $ (35,570,287 )   $ 5,273,430  

Fair value of vested stock and options

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

Shares issued to management and employees, previously accrued

    1,136,438       114       (1,136,438 )     (114 )     -       -       -       -       -  

Net income for the three months ended September 30, 2022

    -       -       -       -       -       -       -       9,746       9,746  

Balance -September 30, 2022

    49,427,297     $ 4,941       1,189,293       116     $ 42,132,756       2,623,171     $ (1,141,370 )   $ (35,560,541 )   $ 5,435,902  
                                                                         
                                                                         

Balance -June 30, 2023

    50,969,327     $ 5,092       847,320       85     $ 42,608,233       2,623,171     $ (1,141,370 )   $ (37,281,421 )   $ 4,190,619  

Fair value of shares issuable under equity incentive plan

    -       -       -       -       77,326       -       -       -       77,326  

Common stock issued from common stock subscribed

    652,911       67       (667,320 )     (67 )     -       -       -       -       -  

Net income for the three months ended September 30, 2023

    -       -       -       -       -       -       -       134,733       134,733  

Balance -September 30, 2023

    51,622,238     $ 5,159       180,000       18     $ 42,685,559       2,623,171     $ (1,141,370 )   $ (37,146,688 )   $ 4,402,678  
                                                                         
                                                                         
                                                                         

Balance - December 31, 2021

    48,114,557     $ 4,809       764,774     $ 76     $ 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       154       460,115       -       -       -       460,269  

Common stock issued for services

    176,302       18       -       -       59,931       -       -       -       59,949  

Offering expenses for stock previously sold for cash

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

Shares issued to management and employees, previously accrued

    1,136,438       114       (1,136,438 )     (114 )     -       -       -       -       -  

Net loss for the nine months ended September 30, 2022

    -       -       -       -       -       -       -       (2,444,417 )     (2,444,417 )

Balance - September 30, 2022

    49,427,297     $ 4,941       1,189,293     $ 116     $ 42,132,756       2,623,171     $ (1,141,370 )   $ (35,560,541 )   $ 5,435,902  
                                                                         
                                                                         

Balance - December 31, 2022

    49,427,297     $ 4,938       1,499,940     $ 150     $ 42,189,471       2,623,171     $ (1,141,370 )   $ (34,466,126 )   $ 6,587,063  

Shares issued for compensation

    -       -       222,380       22       50,658       -       -       -       50,680  

Shares issued to management and employees, previously accrued

    875,000       87       (875,000 )     (87 )     -       -       -       -       -  

Fair value of shares under compensation plan

    -       -       -       -       165,328       -       -       -       165,328  

Shares issued under severance agreement

    400,000       40       -       -       167,960       -       -       -       168,000  

Common stock issued for services

    267,030       27       -       -       112,142       -       -       -       112,169  

Common stock issued from common stock subscribed

    652,911       67       (667,320 )     (67 )     -       -       -       -       -  

Net loss for the nine months ended September 30, 2023

    -       -       -       -       -       -       -       (2,680,562 )     (2,680,562 )

Balance - September 30, 2023

    51,622,238     $ 5,159       180,000     $ 18     $ 42,685,559       2,623,171     $ (1,141,370 )   $ (37,146,688 )   $ 4,402,678  

 

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,

 
   

2023

   

2022

 
   

 

   

 

 

Cash flows from operating activities:

               

Net loss

  $ (2,680,562 )   $ (2,444,417 )

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

               

Depreciation and amortization

    429,048       423,844  

Amortization of right of use asset

    47,650       50,821  

Amortization of prepaid loan fees

    -       70,618  

Amortization of discount on notes payable

    2,013       -  

Stock based compensation

    328,177       520,218  

Value of stock appreciation rights

    274,755       -  

Loss on extinguishment of debt

    -       40,556  

Provision for doubtful accounts

    108,694       11,493  
                 

Changes in assets and liabilities:

               

Accounts receivable, net

    (108,673 )     (1,425,374 )

Inventory and other current assets, net

    17,616       150,643  

Accounts payable and accrued liabilities

    (1,489,017 )     386,414  

Accrued separation costs - related parties

    1,385,503       -  

Deferred revenue

    (463,833 )     (536,757 )

Operating lease liability

    (47,650 )     (50,821 )

Net cash used in operating activities

    (2,196,279 )     (2,802,762 )
                 

Cash flows from investing activities:

               

Acquisition of property and equipment

    (58,949 )     (107,045 )

Net cash used in investing activities

    (58,949 )     (107,045 )
                 

Cash flows from financing activities:

               

Payment of offering costs for stock previously issued

    -       (50,000 )

Cash received from notes payable, net of costs

    3,285,588       -  

Principal payments on debt

    (52,405 )     (169,696 )

Principal payments financing leases

    (151,133 )     (130,459 )

Principal payments on line of credit

    (2,014,333 )     -  

Cost of debt financing

    -       (110,305 )

Net cash provided by (used in) financing activities

    1,067,717       (460,460 )
                 

Decrease in cash and cash equivalents

    (1,187,511 )     (3,370,267 )
                 

Cash and cash equivalents at beginning of period

    4,899,398       6,122,671  
                 

Cash and cash equivalents at end of period

  $ 3,711,887     $ 2,752,404  
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid during the period for:

               

Interest

  $ 572,879     $ 187,090  
                 

Taxes

  $ -     $ -  
                 

Non-cash investing and financing activities:

               

(Decrease) Increase in right of use assets & liabilities

  $ -     $ (13,216 )

Finance lease for fixed assets

  $ -     $ 42,500  

Debt to Fifth Third Bank paid directly by Maple Mark Bank

  $ -     $ 7,695,866  

Par value of shares issued, previously accrued

  $ 66     $ -  

Issuance of common stock for severance agreement previously accrued

  $ 168,000     $ -  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

INNOVATIVE FOOD HOLDINGS, INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(Unaudited)

 

1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements include those of Innovative Food Holdings, Inc. and all of its wholly-owned subsidiaries (collectively, the “Company”) and have been prepared 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, 2022. 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, 2023 are not necessarily indicative of the results of operations to be expected for the full year.

 

Business Activity

 

We provide difficult-to-find specialty foods primarily to both Professional Chefs and Home Gourmets through our relationships with producers, growers, makers and distributors of these products worldwide. The distribution of these products primarily originates from our three unified warehouses and those of our drop ship partners, and is driven by our proprietary technology platform. In addition, we provide value-added services through our team of food specialists and Chef Advisors who offer customer support, menu ideas, and preparation guidance.

 

Use of Estimates

 

The preparation of these unaudited 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, inventory reserves, income taxes, intangible assets, 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 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.

 

 

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, 2023 and 2022, trade receivables from the Company’s largest customer amounted to 26% and 27%, respectively, of total trade receivables. During the three months ended September 30, 2023 and 2022, sales from the Company’s largest customer amounted to 47% and 50% of total sales, respectively. During the nine months ended September 30, 2023 and 2022, sales from the Company’s largest customer amounted to 47% and 51% of total sales, respectively.

 

The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. At September 30, 2023 and December 31, 2022, the total cash in excess of these limits was $2,018,993 and $3,205,568, 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 (i.e., specialty foodservice and e-commerce), 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.

 

Revenue from brand management services are comprised of fees and/or commissions associated with client sales. Revenue from brand management services are recognized at the point in time when services are rendered to the client.

 

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, 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  

 

Balance as of December 31, 2022

  $ 1,558,155  

Cash payments received

    215,346  

Net sales recognized

    (534,711

)

Balance as of March 31, 2023 (unaudited)

  $ 1,238,790  
         

Cash payments received

    361,151  

Net sales recognized

    (515,819

)

Balance as of June 30, 2023 (unaudited)

  $ 1,084,122  
         

Cash payments received

    997,195  

Net sales recognized

    (986,995

)

Balance as of September 30, 2023 (unaudited)

  $ 1,094,322  

 

Disaggregation of Revenue

 

The following table represents a disaggregation of revenue for the three and nine months ended September 30, 2023 and 2022:

 

   

Three Months Ended

 
   

September 30,

 
   

2023

   

2022

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 14,775,073     $ 17,630,515  

E-Commerce

    1,825,924       1,839,541  

National Brand Management

    340,577       336,766  

Logistics

    358,717       253,160  

Total

  $ 17,300,291     $ 20,059,982  

 

   

Nine Months Ended

 
   

September 30,

 
   

2023

   

2022

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 44,625,285     $ 46,072,258  

E-Commerce

    6,660,138       8,637,210  

National Brand Management

    965,660       872,732  

Logistics

    877,729       644,049  

Total

  $ 53,128,812     $ 56,226,249  

 

 

Cost of goods sold

 

We have included in cost of goods sold all costs which are directly related to the generation of revenue. These costs include primarily the cost of food and raw materials, packing and handling, shipping, and delivery costs.

 

We have also included all payroll costs as cost of goods sold in our leasing and logistics services business.

 

Basic and Diluted Earnings Per Share

 

Basic net earnings per share is based on the weighted average number of shares outstanding during the period, while fully-diluted net earnings per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. Potentially dilutive securities consist of options and warrants to purchase common stock, and convertible debt. Basic and diluted net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period.

 

The Company uses the treasury stock method to calculate the impact of outstanding stock options and warrants. Stock options and warrants for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per common share and, accordingly, are excluded from the calculation.

 

Dilutive shares at September 30, 2023:

 

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, 2023:

 

               

Weighted

 
               

average

 
               

Remaining

 

Exercise

   

Number of

   

contractual

 

Price

   

Options

   

life (years)

 
$ 0.41       125,000       0.57  
$ 0.50       125,000       0.57  
$ 0.60       50,000       2.25  
$ 0.62       360,000       0.25  
$ 0.85       540,000       0.25  
$ 1.00       50,000       2.25  
$ 1.20       900,000       0.25  
          2,150,000       0.37  

 

Restricted Stock Awards

 

At September 30, 2023, 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. At September 30, 2023, none of these RSU were vested. There was no charge to operations for these RSUs during the three and nine months ended September 30, 2023.

 

Stock-based Compensation

 

At September 30, 2023, there were a total of 3,538,243 shares of common stock potentially issuable to the Company’s CEO pursuant to his compensation plan and contingent upon the achievement of certain performance goals; see notes 14 and 17.

 

 

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. At September 30, 2022, none of these RSU were vested. There was no charge to operations for these RSUs during the three and nine months ended September 30, 2022.

 

Stock-based Compensation

 

At September 30, 2023, there were a total of 1,000,307 shares of common stock issuable to officers and directors pursuant to their compensation plans.

 

New Accounting Pronouncements

 

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.

 

2. 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 $37,146,688 at September 30, 2023 and negative cash flow from operations in the amount of $2,196,279 for the nine months ended September 30, 2023. The Company’s current assets exceeded its current liabilities by $4,601,667 as of September 30, 2023. The Company has reported net income of $134,733 for the three months ended September 30, 2023 and a net loss of $2,680,562 for the nine months ended September 30, 2023.

 

The Company continues to work to manage its current liabilities while making changes to operations in order to further improve its cash flow and liquidity position. Management believes the Company achieved significant progress in improving the Company’s liquidity during the three months ended September 30, 2023, as discussed below.

 

 

The Company reported a profit in the amount of $134,733 for the three months ended September 30, 2023 compared to a profit in the amount of $9,746 during the comparable period of the prior year. Also during the three months ended September 30, 2023, the Company paid the entire balance due on its letter of credit with MapleMark Bank in the amount of $2,014,333. Due to the Company’s improved operations performance along with its restructured balance sheet, the Company believes that any issues regarding its near-term liquidity have been resolved.

 

3. ACCOUNTS RECEIVABLE

 

At September 30, 2023 and December 31, 2022, accounts receivable consists of:

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Accounts receivable from customers

  $ 5,051,214     $ 5,309,620  

Allowance for doubtful accounts

    (81,840

)

    (340,225

)

Accounts receivable, net

  $ 4,969,374     $ 4,969,395  

 

During the nine months ended September 30, 2023, the Company wrote-off accounts receivable in the amount of $335,693 against our allowance for doubtful accounts. As these accounts had all been 100% recorded in the allowance for doubtful accounts, there was no charge to operations.

 

During the three and nine months ended September 30, 2023, the Company charged the amount of $57,789 and $108,694 to provision for doubtful accounts, respectively. During the three and nine months ended September 30, 2022, the Company charged the amount of $0 and $11,493 to provision for doubtful accounts, respectively.

 

4. INVENTORY

 

Inventory consists primarily of specialty food products. At September 30, 2023 and December 31, 2022, inventory consisted of the following:

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Finished goods inventory

  $ 2,986,258     $ 3,053,852  

Allowance for slow moving & obsolete inventory

    -       -  

Finished goods inventory, net

  $ 2,986,258     $ 3,053,852  

 

5. PROPERTY AND EQUIPMENT

 

A summary of property and equipment at September 30, 2023 and December 31, 2022 is as follows:

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Land

  $ 1,256,895     $ 1,256,895  

Building

    7,191,451       7,191,451  

Computer and Office Equipment

    626,349       609,018  

Warehouse Equipment

    420,573       378,957  

Furniture and Fixtures

    1,021,481       1,021,481  

Vehicles

    109,441       109,441  

Total before accumulated depreciation

    10,626,190       10,567,243  

Less: accumulated depreciation

    (2,943,294

)

    (2,645,682

)

Total

  $ 7,682,896     $ 7,921,561  

 

Depreciation expense for property and equipment amounted to $98,367 and $96,650 for the three months ended September 30, 2023 and 2022, respectively, and $297,614 and $285,215 for the nine months ended September 30, 2023 and 2022, respectively. Depreciation expense for property and equipment is recorded in selling, general & administrating expenses on the Company’s statement of operations.

 

 

6. 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, 2023 and 2022 was entirely comprised of operating leases and amounted to $17,746 and $18,213, respectively. The Company’s lease expense for the nine months ended September 30, 2023 and 2022 was entirely comprised of operating leases and amounted to $54,282 and $60,186, respectively.

 

The Company’s ROU asset amortization for the three months ended September 30, 2023 and 2022 was $15,536 and $15,659, respectively. The Company’s ROU asset amortization for the nine months ended September 30, 2023 and 2022 was $47,650 and $50,821, respectively. The difference between the lease expense and the associated ROU asset amortization consists of interest.

 

Right of use assets – operating leases are summarized below:

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Warehouse equipment

  $ 25,205     $ 36,170  

Office

    72,150       106,601  

Office equipment

    7,420       9,654  

Right of use assets, net

  $ 104,775     $ 152,425  

 

Operating lease liabilities are summarized below:

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Warehouse equipment

  $ 25,205     $ 36,170  

Office

    72,150       106,601  

Office equipment

    7,420       9,654  

Lease liability

  $ 104,775     $ 152,425  

Less: current portion

    (66,860

)

    (64,987

)

Lease liability, non-current

  $ 37,915     $ 87,438  

 

Maturity analysis under these lease agreements are as follows:

 

For the period ended September 30, 2024

  $ 71,902  

For the period ended September 30, 2025

    37,936  

For the period ended September 30, 2026

    890  

Total

  $ 110,728  

Less: Present value discount

    (5,953

)

Lease liability

  $ 104,775  

 

During the year ended December 31, 2022, the Company recorded the removal of a right of use asset and lease liability in the amount of $13,216 due to damage to the asset.

 

 

7. RIGHT OF USE ASSETS FINANCING LEASES

 

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

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Vehicles

  $ 404,858     $ 404,858  

Warehouse Equipment

    555,416       555,416  

Total before accumulated depreciation

    960,274       960,274  

Less: accumulated depreciation

    (490,391

)

    (389,951

)

Total

  $ 469,883     $ 570,323  

 

Depreciation expense related to right of use assets for the three months ended September 30, 2023 and 2022 was $33,480 and $37,128, respectively. Depreciation expense related to right of use assets for the nine months ended September 30, 2023 and 2022 was $100,440 and $107,736, respectively.

 

During the nine months ended September 30, 2023 and 2022, the Company recorded right of use assets and lease liabilities in the amount of $0 and $42,500, respectively, due to the execution of new financing lease agreements.

 

Financing lease liabilities are summarized below:

 

   

September 30,

2023

   

December 31,

2022

 
   

(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, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $1,371 and $99, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $2,718 and $218, respectively.

  $ 4,293     $ 8,396  
                 

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, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $493 and $36, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $983 and $79, respectively.

  $ 1,554     $ 3,040  
                 

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, 2023, the Company made principal and interest payments on this lease obligation in the amount of $25,804 and $4,020, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amount of $51,227 and $8,424, respectively.

  $ 224,301     $ 301,726  

 

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

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, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $5,329 and $1,234, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $10,587 and $2,540, respectively.

  $ 81,695     $ 97,685  
                 

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, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $6,246 and $859, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $12,364 and $1,718, respectively.

  $ 24,546     $ -  
                 

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, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $2,928 and $552, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $5,820 and $1,104, respectively.

  $ 36,324     $ 43,287  
                 

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, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $5,416 and $474, respectively. During the nine months ended September 30, 2023, the Company made principal and interest payments on this lease obligation in the amounts of $10,697 and $1,083, respectively.

  $ 9,590     $ 25,826  
                 

Total

  $ 382,303     $ 525,069  
                 

Current portion

  $ 185,226     $ 191,977  

Long-term maturities

    197,077       333,092  

Total

  $ 382,303     $ 525,069  

 

There was a total of $18,104 and $0 accrued interest on financing leases at September 30, 2023 and December 31, 2022, respectively.

 

Aggregate maturities of lease liabilities:

 

For the twelve months ended September 30,

 

2024

  $ 183,376  

2025

    151,982  

2026

    36,150  

2027

    10,795  

Total

  $ 382,303  

 

 

8. INTANGIBLE ASSETS

 

The Company acquired certain intangible assets pursuant to the acquisitions of Artisan, Oasis, igourmet, OFB, Haley, and Mouth. 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.

 

Other Amortizable Intangible Assets

 

Other amortizable intangible assets consist of $1,055,400 of trade names held by igourmet, $260,422 of trade names held by Mouth, and $217,000 of trade names held by Artisan. The Company followed the guidance of ASC 360 “Property, Plant, and Equipment” (“ASC 360”) in assessing these assets for impairment. ASC 360 states that impairment testing should be completed whenever events or changes in circumstances indicate the asset’s carrying value may not be recoverable. In management’s judgment there are no indications that the carrying value of these trade names may not be recoverable, and it determined that impairment testing was not required.

 

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, 2023

(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       (84,000

)

    -  

Total

  $ 6,066,399     $ (4,533,567

)

  $ 1,532,822  

 

   

December 31, 2022

 
           

Accumulated

         
   

Cost

   

Amortization

   

Net

 

Trade Name

    1,532,822       -       1,532,822  

Internally Developed Technology

    875,643       (875,643

)

    -  

Website

    84,000       (53,006

)

    30,994  

Total

  $ 2,492,465     $ (928,649

)

  $ 1,563,816  

 

Total amortization expense for the three months ended September 30, 2023 and 2022 was $10,332 and $10,231, respectively. Total amortization expense for the nine months ended September 30, 2023 and 2022 was $30,994 and $30,993, respectively.

 

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at September 30, 2023 and December 31, 2022 are as follows:

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

Trade payables and accrued liabilities

  $ 5,021,343     $ 6,599,903  

Accrued payroll and commissions

    207,622       253,350  

Total

  $ 5,228,965     $ 6,853,253  

 

 

10. ACCRUED SEPARATION COSTS RELATED PARTIES

 

On February 3, 2023, the Company entered into a Severance Note, an Agreement and General Release, and a Side Letter thereto with Sam Klepfish (the “SK Agreements”), its prior CEO and a current board member. The SK Agreements provide, among other things, for Mr. Kelpfish’s resignation from all positions with the Company and its subsidiaries on February 28, 2023, except that Mr. Klepfish will remain a director and member of the board of the Company, confidentiality and non-disparagement conditions, nomination of Mr. Klepfish for future election to the board of directors at least through the 2024 general meeting of shareholders based on certain minimum stock ownership and Board Observer rights when Mr. Klepfish is no longer a director but maintains certain minimum agreed upon stock ownership. The payment terms are $250,000 upon effectiveness and an additional $1,000,000 payable in weekly payments of $6,410.26 from March 8, 2023 through March 6, 2026. The $250,000 was paid into an escrow account with the requirement that they are released to Mr. Klepfish on his separation date. The $1,000,000 portion is in the form of an unsecured, non-interest bearing note payable to Mr. Klepfish. The SK Agreements also call for the delivery of 400,000 shares of the Company’s common stock valued at $168,000 based upon the closing price of the Company’s common stock on Mr. Klepfish’s separation date of February 28, 2023 (see note 14); in addition, for delivery on June 1, 2027 of additional shares of the Company’s common stock equal to the greater of (i) the number of shares with an aggregate fair market value of $400,000 on such date, or (ii) 266,666 shares. The Company also agreed to pay a total of $1,199 of Cobra insurance costs on behalf of Mr. Klepfish over eighteen months. The total amount accrued in connection with the SK Agreements was $1,819,199.

 

On February 28, 2023, the Company entered into a separation agreement (the “Wiernasz Separation Agreement”) with Justin Wiernasz, a director and previous Director of Strategic Acquisitions. Pursuant to the Wiernasz Separation Agreement, the Company agreed to a payment of $100,000 in cash as follows: $33,333 upon execution of the agreement, $33,333 on March 15, 2023, and $33,334 on April 15, 2023. The Company also agreed to make the Cobra insurance payments on behalf of Mr. Wiernasz in the amount of $2,548 per month for twelve months with a maximum of $26,451. The total amount accrued in connection with the Wiernasz Separation Agreement was $126,451.

 

During the three months ended September 30, 2023, the Company made the following payments in connection with the SK Agreements: The Company paid cash in the amount of $83,333 to Mr. Klepfish, and made Cobra payments on behalf of Mr. Klepfish in the amount of $200. The Company also issued 400,000 shares of common stock with a fair value of $168,000.

 

During the three months ended September 30, 2023, the Company made the following payments in connection with separation agreements with Justin Weirnasz, its prior Director of Strategic Acquisitions and board member: The Company paid cash in the amount of $33,334 to Mr. Weirnasz and made Cobra payments on behalf of Mr. Weirnasz in the amount of $7,645.

 

The following table represents the amounts accrued, paid, and outstanding on these agreements as of September 30, 2023:

 

   

Total

   

Paid / Issued

   

Balance

   

Current

   

Non-current

 

Mr. Klepfish:

                                       

Cash - through March 6, 2026

  $ 1,000,000     $ (192,308

)

  $ 807,692     $ 333,332     $ 474,359  

Cash - upon agreement execution

    250,000       (250,000

)

    -       -       -  

Stock - June 1, 2027

    400,000       -       400,000       -       400,000  

Stock - Issued in April 2023

    168,000       (168,000

)

    -       -       -  

Cobra - over eighteen months

    1,199       -       1,199       1,199       -  

Total – Mr. Klepfish

  $ 1,819,199     $ (610,308

)

  $ 1,208,891     $ 334,531     $ 874,359  
                                         

Mr. Wiernasz:

                                       

Cash - three equal payments

  $ 100,000     $ (100,000

)

  $ -     $ -     $ -  

Cobra - over eighteen months

    26,451       (17,838

)

    8,613       8,613       -  

Total - Mr. Wiernasz

  $ 126,451     $ (117,838

)

  $ 8,613     $ 8,613     $ -  
                                         

Total Company

  $ 1,945,650     $ (728,546

)

  $ 1,217,104     $ 343,144     $ 874,359  

 

 

11. STOCK APPRECIATION RIGHTS LIABILITY

 

Effective May 15, 2023, the Company issued 1,500,000 stock appreciation rights (the “Smallwood SARs”) to Brady Smallwood, its Chief Operating Officer. See note 14. The Smallwood SARs were valued utilizing the Black-Scholes valuation model, and had an aggregate fair value of $9,794 upon issuance; this amount was charged to operations and credited to stock appreciation rights liability. The Smallwood SARs are revalued each quarter, and any gain or loss in the fair value is charged to non-cash compensation expense. At September 30, 2023, the Smallwood SARs had a fair value of $274,755; the increase in fair value in the amount $264,961 was charged to non-cash compensation during the nine months ended September 30, 2023.

 

12. REVOLVING CREDIT FACILITIES

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

On June 6, 2022, the Company entered into a revolving credit facility (the “MapleMark Revolver”) with MapleMark Bank ("MapleMark”) in the initial amount of $2,014,333. The borrowing base amount is based upon 80% of eligible accounts receivables and 60% of eligible inventory. 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. At September 30, 2023, the interest rate was 8.50%. The MapleMark Revolver originally was due to mature on May 27, 2023. The Company applied for a USDA Guarantee and on June 9, 2023, this guarantee was approved. At this time, the Revolver was expanded to $3,000,000 and its term extended to May 27, 2024. The MapleMark Revolver contains certain negative covenants. During the three and nine months ended September 30, 2023, the Company paid interest in the amount of $29,991 and $115,429, respectively, on the MapleMark Revolver. During the three months ended September 30, 2023, the Company made a principal payment in the amount of $2,014,333 on the MapleMark Revolver. At September 30, 2023, this loan has been fully satisfied. The amount of $2,014,333 is available to the Company under the MapleMark Revolver at September30, 2023.

  $ -     $ 2,014,333  
                 

Total

  $ -     $ 2,014,333  

 

 

13. NOTES PAYABLE

 

   

September 30,

2023

   

December 31,

2022

 
   

(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 of the outstanding principal and interest due under existing loans with Fifth Third Bank.

 

Amounts outstanding under the Term Loans accrued 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.

 

At December 31, 2022, the interest rate was 8.75%. The MapleMark loan was originally due to mature on May 27, 2023. and in the event United States Department of Agriculture issues a guarantee of repayment of the MapleMark loan 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 loan can be expanded to $7,420,000. Upon approval of the USDA Loan Guarantee on June 9, 2023, the Company refinanced its term loans with MapleMark Bank. On June 14, 2023, the Company paid the principal and interest due on the MapleMark Term Loan 1 in the amount of $5,324,733 and $61,715, respectively, with proceeds of the MapleMark Term Loan 3 (see below).

 

The Maple Mark Term Loan 1 contains 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 which was amortized to interest expense during the year ended December 31, 2022. During the three months and nine months ended September 30, 2023, the Company accrued interest in the amount of $0 and $221,176, respectively, on the MapleMark Term Loan 1. At September 30, 2023, this loan has been fully satisfied.

  $ -     $ 5,324,733  

 

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

On June 13, 2023, the Company entered into a term loan with MapleMark Bank (the “MapleMark Term Loan 3”) in the amount of $9,057,840. Principal and interest due on the MapleMark Term Loan 1 in the amounts of $5,324,733 and $61,715, respectively, were paid with proceeds of the MapleMark Term Loan 3. The MapleMark Term Loan 3 is payable in monthly installments of $80,025 commencing July 1, 2023 and continuing through June 13, 2048.

 

Amounts outstanding under the Maple Mark Term Loan 3 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. At September 30, 2023, the interest rate was 9.50%. The MapleMark Term Loan 3 matures on June 13, 2048.

 

The MapleMark Term Loan 3 contains 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 created a discount on the MapleMark Term Loan 3 for costs in the amount of $385,803 which will be amortized over the life of the loan. During the three months and nine months ended September 30, 2023, the Company amortized $1,284 and $2,013, respectively, of these costs to interest expense. During the three months and nine months ended September 30, 2023, the Company made principal payments in the amount of $49,510 on this loan. During the three and nine months ended September 30, 2023, the Company accrued interest in the amount of $190,564 and $261,880, respectively, on the MapleMark term Loan 3.

  $ 9,008,330     $ -  

 

 

   

September 30,

2023

   

December 31,

2022

 
   

(unaudited)

         

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 of the outstanding principal and interest due under existing loans with Fifth Third Bank. The MapleMark Term Loan 2 originally matured on May 27, 2023. On June 9, 2023, the USDA approved the Guarantee of MapleMark Term Loan 1 which allowed the Company to extend the term of the MapleMark Term Loan 2 from May 27, 2023 to May 27, 2033 with monthly payments in the amount of approximately $2,311 commencing July 1, 2023 and continuing through June 1, 2033. On July 1, 2033, a final payment in the amount of approximately $303,536 will be due on the MapleMark Term Loan 2.

 

The MapleMark Term Loan 2 contains 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 which was amortized to interest expense during the year ended December 31, 2022. During the three and nine months ended September 30, 2023, the Company made principal payments in the amount of $2,895 on this loan. During the three and nine months ended September 30, 2023, the Company accrued interest in the amount of $6,010 and $21,140, respectively, on this loan.

  $ 353,905     $ 356,800  
                 

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, 2023, the Company accrued interest in the amount of $94 and $282, respectively, on this note. At September 30, 2023, accrued interest on this note was $18,386.

  $ 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, 2023, the Company made principal and interest payments in the amount of $1,899 and $44, respectively, on this loan. During the nine months ended September 30, 2023, the Company made principal and interest payments in the amount of $8,368 and $228, respectively, on this loan.

  $ 1,899     $ 10,267  

 

Total

  $ 9,384,134     $ 5,711,800  

Discount

    (383,790

)

    -  

Net of discount

  $ 9,000,344     $ 5,711,800  
                 

Current portion

  $ 139,131     $ 5,711,800  

Long-term maturities

    8,861,213       -  

Total

  $ 9,000,344     $ 5,711,800  

 

 

There was a total of $61,316 and $18,104 accrued interest on notes payable at September 30, 2023 and December 31, 2022, respectively.

 

Aggregate maturities of notes payable as of September 30, 2023 are as follows:

 

For the period ended September 30,

 

2024

  $ 120,330  

2025

    109,597  

2026

    120,708  

2027

    132,951  

2028

    146,313  

Thereafter

    8,754,235  

Total

  $ 9,384,134  

 

14. EQUITY

 

Common Stock

 

At September 30, 2023 and December 31, 2022, a total of 2,823,171 shares are deemed issued but not outstanding by the Company.

 

For the nine months ended September 30, 2023:

 

Common Stock Issued from Common Stock To Be Issued

 

During the three months ended September 30, 2023, the Company issued a total of 667,320 shares of common stock previously classified as common stock to be issued as follows: 178,626 shares were issued to the Company’s previous CEO; 14,754 shares were issued the Company’s previous Director of Strategic Acquisitions; an aggregate of 473,620 shares were issued to two board members; and 320 shares were issued to a previous employee. The issuance of these shares did not increase the total number of shares outstanding.

 

Shares issued to employees

 

On February 28, 2023, the Company issued 267,030 shares with a value of $112,169 to three employees as compensation.

 

Shares issued to previous Chief Executive officer

 

The Company incurred obligations to issue the following shares of common stock pursuant to employment agreements: an aggregate total of 400,007 shares of common stock with a market value of $93,600 were accrued for issuance to its previous Chief Executive Officer; of this amount, 207,839 with a market value of $52,919 were withheld for the payment of income taxes, and the net number of shares issuable to the previous Chief Executive Officer was 192,168 with a market value of $45,680. The Company also issued 400,000 shares of common stock to the previous Chief Executive Officer pursuant to the SK Agreements. See note 10.

 

Shares accrued to be issued to board members

 

During the three and nine months ended September 30, 2023, a total of 0 and 30,212 shares of common stock, respectively, with a market value of $0 and $10,000, respectively, were accrued for issuance to two board members.

 

Share based executive compensation plans

 

During the three and nine months ended September 30, 2023, the amounts of $58,283 and $136,764 respectively were expensed for the share-based plan for the Chief Executive Officer, and the amounts of $19,043 and $28,564 were expensed, respectively, for the share based plan for the Chief Operating Officer. (see below). These restricted stock grants are being amortized over their term of from 31.5 to 34 months.

 

 

Stock Appreciation Rights

 

Effective May 15, 2023, the Company issued 1,500,000 stock appreciation rights (the “Smallwood SARs”) to Brady Smallwood, its Chief Operating Officer. The Smallwood SARs vest upon issuance, and expire on December 31, 2026; 750,000 of the Smallwood SARs are priced at $1.50 per share, and 750,000 are priced at $2.00 per share. It is the Company’s intention to settle the Smallwood SARs in cash. The Smallwood SARs were valued utilizing the Black-Scholes valuation model, and had an aggregate fair value of $9,794 upon issuance; this amount was charged to operations and credited to stock appreciation rights liability. The Smallwood SARs are revalued each quarter, and any gain or loss in the fair value is charged to non-cash compensation expense. At September 30, 2023, the Smallwood SARs had a fair value of $274,755; the increase in fair value in the amount $264,961 was charged to non-cash compensation during the nine months ended September 30, 2023.

 

The following variables were utilized in valuing the Smallwood SARs:

 

Volatility

    45.0-95.5

%

Dividends

  $ 0  

Risk-free interest rates

    3.67-5.03

%

Expected term (years)

    1.63-1.82  

 

As of September 30, 2023, total common stock issued and outstanding was 51,622,238 and 48,799,067, respectively. The Company also had 180,000 shares issuable to directors and consultants.

 

Chief Executive Officer share-based incentive plan

 

On February 3, 2023, the Company entered into an employment agreement with Bill Bennett to become the Company’s CEO. See note 15. Pursuant to this agreement, Mr. Bennett was provided with an incentive compensation plan (the “CEO Stock Plan”) whereby Mr. Bennett would be granted shares of the Company’s common stock upon the common stock meeting certain price points at various 60-day volume weighted prices, as described below:

 

       

Number of Shares Granted - Lower of:

 

Stock

   

Number of Shares Issued

   

Maximum

 

Price

   

and Outstanding on

   

Number of

 

Target

   

Grant Date Multiplied by:

   

Shares

 
$ 0.60       2.00

%

    943,531  
$ 0.80       1.50

%

    707,649  
$ 1.00       1.00

%

    471,766  
$ 1.20       0.75

%

    353,824  
$ 1.40       0.75

%

    353,824  
$ 1.60       0.50

%

    235,883  
$ 1.80       0.50

%

    235,883  
$ 2.00       0.50

%

    235,883  

 

The Company relied upon the guidance of Statement of Financial Account Standards No. 718 Compensation – Stock Compensation (“ASC 718”) in accounting for the CEO Stock Plan. A Monte Carlo market-based performance stock awards model was used in valuing the plan, with the following assumptions:

 

 

The stock price for each trading day would fluctuate with an estimated projected volatility using a normal distribution. The stock price of the underlying instrument is modeled such that it follows a geometric Brownian motion with constant drift and volatility.

 

 

 

 

The Company would award the stock upon triggering the thresholds.

 

 

 

 

Annual attrition or forfeiture rates (i.e., pre–vesting forfeiture assumption) are assumed to be zero given the Holder’s position with the Company.

 

 

 

 

No Projected capital events were included in the adjustments to the shares issued and outstanding in the projected simulations.

 

 

 

 

Awards/Payouts were discounted at the risk–free rate.

 

 

The plan was valued as of February 3, 2023. The following variables were utilized:

 

Volatility

    113.7

%

Dividends

  $ 0  

Risk-free interest rates

    4.29

%

Expected term (years)

    2.91  

 

The value of the plan was determined to be $660,541. This amount will be recorded as a charge to additional paid-in capital on a straight-line basis over 34 months. During the three months and nine ended September 30, 2023, the amounts of $58,283 and $136,764, respectively, were charged to operations pursuant to the CEO Stock Plan.

 

Chief Operating Officer share-based incentive plan

 

On April 14, 2023, the Company entered into an employment agreement with Brady Smallwood to become the Company’s COO effective May 15, 2023. See note 15. Pursuant to this agreement, Mr. Smallwood was provided with an incentive compensation plan (the “COO Stock Plan”) whereby Mr. Smallwood would be granted shares of the Company’s common stock upon the common stock meeting certain price points at various 60-day volume weighted prices, as described below:

 

       

Number of Shares Granted - Lower of:

 

Stock

   

Number of Shares Issued

   

Maximum

 

Price

   

and Outstanding on

   

Number of

 

Target

   

Grant Date Multiplied by:

   

Shares

 
$ 0.87       0.40

%

    196,627  
$ 1.16       0.30

%

    147,470  
$ 1.45       0.20

%

    98,313  
$ 1.74       0.15

%

    73,735  
$ 2.03       0.15

%

    73,735  
$ 2.32       0.10

%

    49,157  
$ 2.61       0.10

%

    49,157  
$ 2.90       0.10

%

    49,157  

 

The Company relied upon the guidance of Statement of Financial Account Standards No. 718 Compensation – Stock Compensation (“ASC 718”) in accounting for the CEO Stock Plan. A Monte Carlo market-based performance stock awards model was used in valuing the plan, with the following assumptions:

 

 

The stock price for each trading day would fluctuate with an estimated projected volatility using a normal distribution. The stock price of the underlying instrument is modeled such that it follows a geometric Brownian motion with constant drift and volatility.

 

 

 

 

The Company would award the stock upon triggering the thresholds.

 

 

 

 

Annual attrition or forfeiture rates (i.e., pre–vesting forfeiture assumption) are assumed to be zero given the Holder’s position with the Company.

 

 

 

 

No Projected capital events were included in the adjustments to the shares issued and outstanding in the projected simulations.

 

 

 

 

Awards/Payouts were discounted at the risk–free rate.

 

The plan was valued as of May 15, 2023. The following variables were utilized:

 

Volatility

    103.9

%

Dividends

  $ 0  

Risk-free interest rates

    4.45

%

Expected term (years)

    2.63  

 

The value of the plan was determined to be $199,951. This amount will be recorded as a charge to additional paid-in capital on a straight-line basis over 31.5 months. During the three and nine months ended September 30, 2023, the amount of $19,043 and $28,564, respectively, were charged to operations pursuant to the COO Stock Plan.

 

 

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 $20,000 for the vesting of a total of 51,624 shares of common stock issuable to two of its independent board members, and $