innovfood20240331_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 March 31, 2024

 

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

 

For the transition period from                                   to                                 .

 

Commission File Number: 0-9376

https://cdn.kscope.io/3b3be567b9a3e8c8b188855f7802affc-innovfood20240331_10qimg001.jpg

 

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.)

 

9696 Bonita Beach Rd., Ste. 208, 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: 49,693,803 shares of common stock outstanding as of May 13, 2024.

 

 

 

 

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)

26

Item 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

 

Signatures

35

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS

 

Innovative Food Holdings, Inc.

Consolidated Balance Sheets

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 
   

(unaudited)

         

ASSETS

               

Current assets

               

Cash and cash equivalents

  $ 4,272,243     $ 5,327,016  

Accounts receivable, net

    4,109,274       4,307,726  

Inventory, net

    2,840,682       2,973,134  

Other current assets

    348,926       287,528  

Assets held for sale

    5,941,933       649,884  

Current assets - discontinued operations

    20,649       95,861  

Total current assets

    17,533,707       13,641,149  
                 

Property and equipment, net

    974,143       7,000,015  

Right of use assets, operating leases, net

    24,344       28,519  

Right of use assets, finance leases, net

    411,488       436,403  

Tradenames and other unamortizable intangible assets

    217,000       217,000  

Total assets

  $ 19,160,682     $ 21,323,086  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities

               

Accounts payable and accrued liabilities

  $ 3,111,671       6,252,951  

Accrued separation costs, related parties, current portion

    418,635       463,911  

Accrued interest

    93,829       95,942  

Deferred revenue

    1,227,936       1,312,837  

Stock appreciation rights liability

    373,918       255,020  

Notes payable - current portion

    100,237       121,041  

Lease liability - operating leases, current

    17,422       17,131  

Lease liability - finance leases, current

    136,096       115,738  

Current liabilities - discontinued operations

    2,522       6,422  

Total current liabilities

    5,482,266       8,640,993  
                 

Note payable, net of discount

    8,501,474       8,855,000  

Accrued separation costs, related parties, non-current

    707,692       791,025  

Lease liability - operating leases, non-current

    6,922       11,388  

Lease liability - finance leases, non-current

    148,931       219,266  

Total liabilities

    14,847,285       18,517,672  
                 

Commitments & Contingencies (see note 18)

               

Stockholders' equity

               

Common stock: $0.0001 par value; 500,000,000 shares authorized; 52,516,974 and 52,538,100 shares issued, and 49,693,803 and 49,714,929 shares outstanding at March 31, 2024 and December 31, 2023, respectively

    5,249       5,251  

Additional paid-in capital

    42,844,922       42,762,811  

Treasury stock: 2,623,171 shares outstanding at March 31, 2024 and December 31, 2023

    (1,141,370 )     (1,141,370 )

Accumulated deficit

    (37,395,404 )     (38,821,278 )

Total stockholders' equity

    4,313,397       2,805,414  
                 

Total liabilities and stockholders' equity

  $ 19,160,682     $ 21,323,086  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Consolidated Statements of Operations

(unaudited)

 

   

For the Three

   

For the Three

 
   

Months Ended

   

Months Ended

 
   

March 31,

   

March 31,

 
   

2024

   

2023

 
   

(unaudited)

   

(unaudited)

 
                 

Revenue

    15,730,113       16,674,759  

Cost of goods sold

    11,895,799       12,900,609  

Gross margin

    3,834,314       3,774,150  
                 

Selling, general and administrative expenses

    4,013,427       4,444,394  

Separation costs - executive officers

    -       1,945,650  

Total operating expenses

    4,013,427       6,390,044  
                 

Operating (loss)

    (179,113 )     (2,615,894 )
                 

Other income (expense):

               

Interest expense, net

    (215,450 )     (172,721 )

Gain on sale of assets

    1,807,516       -  

Gain on sale of subsidiary

    21,126       -  

Other leasing income

    1,900       1,900  

Total other income (expense)

    1,615,092       (170,821 )
                 

Net income (loss) before taxes

    1,435,979       (2,786,715 )
                 

Income tax expense

    -       -  
                 

Net income (loss) from continuing operations

  $ 1,435,979     $ (2,786,715 )
                 

Net (loss) from discontinued operations

  $ (10,105 )   $ (42,051 )
                 

Consolidated net income (loss)

  $ 1,425,874     $ (2,828,766 )
                 

Net income (loss) per share from continuing operations - basic

  $ 0.029     $ (0.06 )
                 

Net income (loss) per share from continuing operations - diluted

  $ 0.028     $ (0.06 )
                 

Net income (loss) per share from discontinued operations - basic

  $ (0.00 )   $ (0.00 )
                 

Net income (loss) per share from discontinued operations - diluted

  $ (0.00 )   $ (0.00 )
                 

Weighted average shares outstanding - basic

    49,707,036       48,462,234  
                 

Weighted average shares outstanding - diluted

    50,603,891       48,462,234  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Consolidated Statements of Stockholders' Equity

Three Months Ended March 31, 2024 and 2023

(unaudited)

 

   

Common Stock

   

Common Stock

to be issued

   

Additional Paid-in

   

Treasury Stock

   

Accumulated

         
   

Amount

   

Value

   

Amount

   

Value

   

Capital

   

Amount

   

Value

   

Deficit

   

Total

 
                                                                         

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

    -       -       207,274       20       45,660       -       -       -       45,680  

Shares issued to management and employees, previously accrued

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

Fair value of shares under compensation plan

    -       -       -       -       20,199       -       -       -       20,199  

Common stock issued for services

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

Net loss for the three months ended March 31, 2023

    -       -       -       -       -       -       -       (2,828,766 )     (2,828,766 )

Balance - March 31, 2023

    50,569,327     $ 5,052       832,214     $ 83     $ 42,367,472       2,623,171     $ (1,141,370 )   $ (37,294,892 )   $ 3,936,345  
                                                                         

Balance - December 31, 2023

    52,538,100     $ 5,251       -       -     $ 42,762,811       2,623,171     $ (1,141,370 )   $ (38,821,278 )   $ 2,805,414  

Shares returned to treasury from sale of subsidiary

    (21,126 )     (2 )     -       -       (21,124 )     -       -       -       (21,126 )

Fair value of shares under compensation plan

    -       -       -       -       103,235       -       -       -       103,235  

Net income for the three months ended March 31, 2024

    -       -       -       -       -       -       -       1,425,874       1,425,874  

Balance - March 31, 2024

    52,516,974     $ 5,249       -     $ -     $ 42,844,922       2,623,171     $ (1,141,370 )   $ (37,395,404 )   $ 4,313,397  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

Innovative Food Holdings, Inc.

Consolidated Statements of Cash Flows

 

   

For the Three

   

For the Three

 
   

Months Ended

   

Months Ended

 
   

March 31,

   

March 31,

 
   

2024

   

2023

 
   

(unaudited)

   

(unaudited)

 

Cash flows from operating activities:

               

Net income (loss)

  $ 1,425,874     $ (2,828,766 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Gain on disposition of asset

    (1,807,516 )     -  

Gain on sale of subsidiary

    (21,126 )     -  

Depreciation and amortization

    110,260       145,387  

Amortization of right of use asset

    4,175       16,314  

Amortization of discount on notes payable

    1,283       -  

Stock based compensation

    103,235       178,048  

Loss on value of stock appreciation rights

    118,898       -  

Provision for doubtful accounts

    22,882       4,666  
                 

Changes in assets and liabilities:

               

Accounts receivable, net

    175,436       135,020  

Inventory and other current assets, net

    71,054       (51,038 )

Accounts payable and accrued liabilities

    (3,144,335 )     (2,056,459 )

Accrued separation costs - related parties

    (128,610 )     1,600,795  

Deferred revenue

    (84,548 )     (319,365 )

Operating lease liability

    (4,175 )     (16,314 )

Net cash used in operating activities

    (3,157,213 )     (3,191,712 )
                 

Cash flows from investing activities:

               

Acquisition of property and equipment

    (1,406 )     (7,995 )

Cash received from disposition of asset, net of loan payoff

    2,101,185       -  

Net cash from (used in) investing activities

    2,099,779       (7,995 )
                 

Cash flows from financing activities:

               

Principal payments on debt

    (22,708 )     (2,757 )

Principal payments financing leases

    (49,977 )     (46,807 )

Net cash (used in) financing activities

    (72,685 )     (49,564 )
                 

Decrease in cash and cash equivalents

    (1,130,119 )     (3,249,271 )
                 

Cash and cash equivalents at beginning of period

    5,422,335       4,899,398  
                 

Cash and cash equivalents at end of period - continuing operations

  $ 4,272,243     $ 1,435,561  

Cash and cash equivalents at end of period - discontinued operations

  $ 19,973     $ 214,566  

Cash and cash equivalents at end of period

  $ 4,292,216     $ 1,650,127  
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid during the period for:

               

Interest

  $ 228,970     $ 174,410  
                 

Taxes

  $ -     $ -  
                 

Non-cash investing and financing activities:

               

Reclassify fixed assets as held for sale

  $ 5,941,933     $ -  

Principal and accrued interest paid from escrow to Maple Mark Bank

  $ 353,815     $ -  

 

See condensed notes to these unaudited consolidated financial statements.

 

 

INNOVATIVE FOOD HOLDINGS, INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(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, 2023. 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 months ended March 31, 2024 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.

 

Restructuring

 

During the fourth quarter of 2023 we made the decision to focus more on our Business to Business (B2B) activities and less on our Direct to Consumer (D2C) products. Our subsidiaries GROW and Oasis were sold effective December 29, 2023; Haley was sold effective February 26, 2024; and the activities of P Innovations will be abandoned. Our remaining D2C business, primarily operated within igourmet and Mouth, will be downsized. See note 2.

 

Discontinued Operations

 

Pursuant to the guidance of ASC 205-20 Presentation of Financial Statements Discontinued Operations, the accounts of our discontinued entities GROW, Oasis, Haley, and P Innovations have been included in “Net loss from discontinued operations” in our consolidated statements of operations until such time as each entity was sold. Additionally, the assets and liabilities of these entities have been presented as discontinued operations in our consolidated balance sheets as of March 31, 2024 and December 31, 2023 until such time as each entity was sold. See Note 2.

 

Reclassifications

 

Certain amounts presented in the financial statements of the prior period have been reclassified to conform with the current period presentation of discontinued operations. See note 2.

 

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.

 

 

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 March 31, 2024 and 2023, trade receivables from the Company’s largest customer amounted to 32% and 23%, respectively, of total trade receivables. During the three months ended March 31, 2024 and 2023, sales from the Company’s largest customer amounted to 49% and 47% of total sales, respectively.

 

The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits. At March 31, 2024 and December 31, 2023, the total cash in excess of these limits was $931,857 and $988,825, respectively.

 

Accounts Receivable

 

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts pursuant to the guidance of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326) as codified in Accounts Standards Codification (ASC) 326, Financial Instruments – Credit Losses. Under ASC 326, the Company utilizes a current and expected credit loss (CECL) impairment model. ASU 2016-13 became effective for us on January 1, 2023. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $69,359 and $46,477 at March 31, 2024 and December 31, 2023, 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.

 

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, 2022

  $ 1,558,155  

Cash payments received

    215,346  

Net sales recognized

    (534,711 )

Balance as of March 31, 2023 (unaudited)

  $ 1,238,790  

 

Balance as of December 31, 2023

  $ 1,312,837  

Cash payments received

    4,033,077  

Net sales recognized

    (4,117,978 )

Balance as of March 31, 2024 (unaudited)

  $ 1,227,936  

 

Disaggregation of Revenue

 

The following table represents a disaggregation of revenue for the three months ended March 31, 2024 and 2023:

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 
   

(unaudited)

   

(unaudited)

 

Specialty Foodservice

  $ 13,993,565     $ 13,804,785  

E-Commerce

    1,528,337       2,621,405  

Logistics

    208,211       248,569  

Total

  $ 15,730,113     $ 16,674,759  

 

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 March 31, 2024:

 

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 March 31, 2024:

 

               

Weighted

 
               

average

 
               

Remaining

 

Exercise

   

Number of

   

contractual

 

Price

   

Options

   

life (years)

 
$ 0.41       125,000       0.07  
$ 0.50       125,000       0.07  
$ 0.60       50,000       1.75  
$ 1.00       50,000       1.75  
$ 1.25       130,000       2.25  
$ 1.75       130,000       2.25  
          610,000       1.27  

 

Restricted Stock Awards

 

At March 31, 2024, 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 March 31, 2024, none of these RSU were vested. There was no charge to operations for these RSUs during the three months ended March 31, 2024.

 

Stock-based Compensation

 

At March 31, 2024, there were a total of 3,910,534 shares of common stock potentially issuable to the Company’s executive officers pursuant to compensation plans and contingent upon the achievement of certain performance goals; see notes 15 and 16.

 

Dilutive shares at March 31, 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 March 31, 2023:

 

               

Weighted

 
               

Average

 
               

Remaining

 

Exercise

   

Number

   

Contractual

 

Price

   

of Options

   

Life (years)

 
$ 0.41       125,000       1.07  
$ 0.50       125,000       1.07  
$ 0.60       50,000       2.75  
$ 0.62       360,000       0.75  
$ 0.85       540,000       0.75  
$ 1.00       50,000       2.75  
$ 1.20       950,000       0.74  
          2,200,000       0.87  

 

 

Restricted Stock Awards

 

At March 31, 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. At March 31, 2023, none of these RSU were vested. There was no charge to operations for these RSUs during the three months ended March 31, 2023.

 

Stock-based Compensation

 

At March 31, 2023, there were a total of 3,538,243 shares of common stock potentially issuable to the Company’s Chief Executive Officer pursuant to his compensation plan and contingent upon the achievement of certain performance goals. see notes 15 and 16.

 

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. DISCONTINUED OPERATIONS

 

During the fourth quarter of fiscal 2023, in connection with an analysis of the Company’s sales mix and profitability by service offering, management made the strategic decision to focus on the Company’s Business to Business (B2B) service offering and to allocate fewer resources to and in some cases to sell certain of the Company’s subsidiaries involved in our Direct to Consumer (D2C) service offerings. Pursuant to this strategy, on December 29, 2023, the Company completed the sales of its Grow and Oasis subsidiaries, and on February 26, 2024, the Company completed the sale of its Haley subsidiary (see note 3). In addition, the operations of P Innovations has been abandoned.

 

The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheets:

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Current assets - discontinued operations:

 

(unaudited)

         

Cash

  $ 19,973     $ 95,319  

Accounts receivable

    635       501  

Inventory

    41       41  

Other current assets

    -       -  

Total current assets - discontinued operations

  $ 20,649     $ 95,861  
                 

Current liabilities - discontinued operations:

               

Accounts payable and accrued liabilities

  $ -     $ 986  

Accrued payroll and related liabilities

    -       3,267  

Deferred revenue

    2,522       2,169  

Total current liabilities - discontinued operations

  $ 2,522     $ 6,422  

 

The following information presents the major classes of line items constituting the after-tax loss from discontinued operations in the consolidated statements of operations:

 

   

Three Months Ended

 
   

March 31,

   

March 31,

 
   

2024

   

2023

 

Revenue

  $ 24,856     $ 320,441  

Cost of goods sold

    (2,238 )     (8,080 )

Gross margin

    22,618       312,361  
                 

Selling, general, and administrative expenses

    (32,723 )     (354,692 )
                 

Interest income

    -       280  

Loss from discontinued operations, net of tax

  $ (10,105 )   $ (42,051 )

 

 

There were no major classes of line items which constituted significant operating and investing cash flow activities in the consolidated statements of cash flows relating to discontinued operations.

 

3. SALE OF SUBSIDIARY

 

On February 26, 2024, the Company sold 100% of the equity interests in Haley Food Group, Inc., (“Haley”) for the return of 21,126 shares of the Company’s common stock held by the buyer. The Company Haley had no assets of liabilities at the time of the sale; the Company valued the 21,126 shares of common stock at the market price on the date of the acquisition of $1.00 per sale and recorded a gain in the amount of $21,126 on this transaction.

 

4. ACCOUNTS RECEIVABLE

 

At March 31, 2024 and December 31, 2023, accounts receivable consists of:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Accounts receivable from customers

  $ 4,178,633     $ 4,354,203  
Allowance for doubtful accounts     (69,359 )     (46,477 )

Accounts receivable, net

  $ 4,109,274     $ 4,307,726  

 

During the three months ended March 31, 2024 and 2023, the Company charged the amount of $22,882 and $4,666 to provision for credit loss, respectively.

 

5. INVENTORY

 

Inventory consists primarily of specialty food products. At March 31, 2024 and December 31, 2023, inventory consisted of the following:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Finished goods inventory

  $ 2,840,682     $ 2,973,134  

Allowance for slow moving & obsolete inventory

    -       -  

Finished goods inventory, net

  $ 2,840,682     $ 2,973,134  

 

6. PROPERTY AND EQUIPMENT

 

A summary of property and equipment at March 31, 2024 and December 31, 2023 is as follows:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Land

  $ 208,140     $ 1,079,512  

Building

    711,409       6,571,496  

Computer and Office Equipment

    599,242       597,834  

Warehouse Equipment

    477,090       477,090  

Furniture and Fixtures

    940,960       940,960  

Vehicles

    58,353       58,353  

Total before accumulated depreciation

    2,995,194       9,725,245  

Less: accumulated depreciation

    (2,021,051 )     (2,725,230 )

Total

  $ 974,143     $ 7,000,015  

 

Depreciation expense for property and equipment amounted to $85,345 and $101,576 for the three months ended March 31, 2024 and 2023, respectively. Depreciation expense for property and equipment is recorded in selling, general & administrating expenses on the Company’s statement of operations. During the three months ended March 31, 2024 and 2023, the Company acquired property and equipment in the amount of $1,406 and $7,995, respectively.

 

 

7. PROPERTY AND EQUIPMENT CLASSIFIED AS HELD FOR SALE

 

Assets held for sale include the net book value of property and equipment the Company plans to sell within the next year. Long lived assets that meet the criteria are held for sale and reported at the lower of their carrying value or fair value less estimated cost to sell.

 

As of December 31, 2023, the Company classified the land, building, leasehold improvements, and certain equipment located at 28411 Race Track Road, Bonita Springs, Florida, 34135 (the “Race Track Road Property”) as held for sale. On February 14, 2024, the Company finalized the sale of the Race Track Road Property for cash in the amount of $2,455,000. The Company recorded a gain on the sale in the amount of $1,807,516. Proceeds of the sale in the amount of $353,815 were used to pay the mortgage and accrued interest on the Race Track Road Property. Total expenses related to the sale $165,755, including a commission of $147,300, state taxes of $17,185, and closing fees of $1,270.

 

As of March 31, 2024, the Company classified the land and building located at 220 Oak Hill Road, Mountain Top, Pennsylvania, as held for sale.

 

The net book value of these assets consisted of the following at March 31, 2024 and December 31, 2023:

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 
                 

Land

  $ 871,372     $ 177,383  

Building

    5,070,561       431,147  

Furniture, fixtures, and equipment

    -       41,314  

Total

  $ 5,941,933     $ 649,844  

 

8. 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 March 31, 2024 and 2023 was entirely comprised of operating leases and amounted to $8,165 and $18,790, respectively.

 

The Company’s ROU asset amortization for the three months ended March 31, 2024 and 2023 was $4,175 and $16,314, 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:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Warehouse equipment

  $ 18,477     $ 21,869  

Office equipment

    5,867       6,650  

Right of use assets, net

  $ 24,344     $ 28,519  

 

Operating lease liabilities are summarized below:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Warehouse equipment

  $ 18,477     $ 21,869  

Office equipment

    5,867       6,650  

Lease liability

  $ 24,344     $ 28,519  

Less: current portion

    (17,422 )     (17,131 )

Lease liability, non-current

  $ 6,922     $ 11,388  

 

 

Maturity analysis under these lease agreements are as follows:

 

For the period ended March 31, 2025

  $ 18,532  

For the period ended March 31, 2026

    7,051  

Total

  $ 25,583  

Less: Present value discount

    (1,239 )

Lease liability

  $ 24,344  

 

9. 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:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Vehicles

  $ 404,858     $ 404,858  

Warehouse Equipment

    555,416       555,416  

Total before accumulated depreciation

    960,274       960,274  

Less: accumulated depreciation

    (548,786 )     (523,871 )

Total

  $ 411,488     $ 436,403  

 

Depreciation expense related to right of use assets for the three months ended March 31, 2024 and 2023 was $24,915 and $33,480, respectively.

 

Financing lease liabilities are summarized below:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Financing lease obligation under a lease agreement for a forklift dated July 12, 2021 in the original amount of $16,070 payable in thirty-six monthly installments of $489 including interest at the rate of 6.01%. During the three months ended March 31, 2024, the Company made principal and interest payments on this lease obligation in the amounts of $1,431 and $36, respectively.

  $ 1,453     $ 2,884  
                 

Financing lease obligation under a lease agreement for a pallet truck dated July 15, 2021 in the original amount of $5,816 payable in thirty-six monthly installments of $177 including interest at the rate of 6.01%. During the three months ended March 31, 2024, the Company made principal and interest payments on this lease obligation in the amounts of $518 and $13, respectively.

  $ 526     $ 1,044  
                 

Financing lease obligation under a lease agreement for warehouse furniture and equipment truck dated October 14, 2020 in the original amount of $514,173 payable in sixty monthly installments of $9,942 including interest at the rate of 6.01%. During the three months ended March 31, 2024, the Company made principal and interest payments on this lease obligation in the amount of $19,084 and $2,834, respectively.

  $ 170,712     $ 197,707  

 

 

   

March 31,

2024

   

December 31,

2023

 
   

(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 March 31, 2024, the Company made principal and interest payments on this lease obligation in the amounts of $5,552 and $1,012, respectively.

  $ 70,666     $ 76,218  
                 

Financing lease obligation under a lease agreement for a truck dated November 5, 2018 in the original amount of $128,587 payable in seventy monthly installments of $2,326 including interest at the rate of 8.33%. During the three months ended March 31, 2024, the Company made principal and interest payments on this lease obligation in the amounts of $6,647 and $330, respectively.

    11,388     $ 18,035  
                 

Financing lease obligation under a lease agreement for a truck dated August 23, 2019 in the original amount of $80,413 payable in eighty-four monthly installments of $1,148 including interest at the rate of 5.0%. During the three months ended March 31, 2024, the Company made principal and interest payments on this lease obligation in the amounts of $3,040 and $404, respectively.

  $ 30,282     $ 33,322  
                 

Financing lease obligation under a lease agreement for a truck dated February 4, 2022 in the original amount of $42,500 payable in twenty-four monthly installments of $1,963 including interest at the rate of 10.1%. During the three months ended March 31, 2024, the Company made principal and interest payments on this lease obligation in the amounts of $5,794 and $98, respectively.

  $ -     $ 5,794  
                 

Total

  $ 285,027     $ 335,004  
                 

Current portion

  $ 136,096     $ 115,738  

Long-term maturities

    148,931       219,266  

Total

  $ 285,027     $ 335,004  

 

There was no accrued interest on financing leases at March 31, 2024 and December 31, 2023.

 

Aggregate maturities of lease liabilities:

 

For the twelve months ended March 31,

 

2025

  $ 160,993  

2026

    96,060  

2027

    27,974  

Total

  $ 285,027  

 

10. 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 Non-Amortizable Intangible Assets

 

Other non-amortizable intangible assets consist of $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. The following is the net book value of these assets:

 

   

March 31, 2024

(unaudited)

 
           

Accumulated

         
   

Gross

   

Amortization

   

Net

 

Trade Names

  $ 217,000     $ -     $ 217,000  

 

   

December 31, 2023

 
           

Accumulated

         
   

Cost

   

Amortization

   

Net

 

Total Trade Names

  $ 217,000     $ -     $ 217,000  

 

Total amortization expense for the three months ended March 31, 2024 and 2023 was $0.

 

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at March 31, 2024 and December 31, 2023 are as follows:

 

   

March 31,

2024

   

December 31,

2023

 
   

(unaudited)

         

Trade payables and accrued liabilities

  $ 2,955,157     $ 6,046,396  

Accrued payroll and commissions

    156,514       206,555  

Total

  $ 3,111,671     $ 6,252,951  

 

12. 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; 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.

 

 

On February 6, 2024, the Company entered into a separation agreement with Richard Tang, its Chief Financial Officer (the “Tang Separation Agreement”) effective as of December 31, 2023. Pursuant to the Tang Separation Agreement, the Company will pay to Mr. Tang, in equal installments over a five month period, the gross sum of $113,918. In addition, Mr. Tang may submit for reimbursement up to $4,000 of legal expenses connected with the review of this separation agreement. The severance payment will be made in the following installments: (i) $25,890 to be paid the week of March 4, 2024; (ii) $5,178 to be paid each successive week for seventeen weeks beginning the week of March 11, 2024, until the Severance Payment is completed. In addition, if Tang timely elects to continue his group health insurance benefits under the Consolidated Omnibus Reconciliation Act (“COBRA”), the Company will reimburse Tang’s group health insurance premiums (“COBRA Premiums”) for the lesser of: (a) the period of time Employee is eligible to continue his group health insurance benefits under COBRA and (b) the five-month period immediately following the Separation Date. Reimbursements will be paid within thirty days of when Tang submits a request for reimbursement and supporting documentation.

 

During the three months ended March 31, 2024, the Company paid cash in the amount of $83,333 to Mr. Klepfish in connection with the SK Agreements.

 

During the three months ended March 31, 2024, the Company made the following payments in connection with the Wiernasz Separation Agreement: The Company made Cobra payments on behalf of Mr. Weirnasz in the amount of $967.

 

During the three months ended March 31, 2024, the Company made the following payments in connection with the Tang Separation agreement: The Company paid cash to Mr. Tang in the amount of $41,125, and made Cobra payments on behalf of Mr. Tang in the amount of $2,885.

 

The following table represents the amounts accrued, paid, and outstanding on these agreements as of March 31, 2024:

 

   

Total

   

Paid / Issued

   

Balance

   

Current

   

Non-current

 

Mr. Klepfish:

                                       

Cash – through March 6, 2026

  $ 1,000,000     $ (358,975 )   $ 641,025     $ 333,333     $ 307,692  

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     $ (776,975 )   $ 1,042,224     $ 334,532     $ 707,692  
                                         

Mr. Wiernasz:

                                       

Cash - three equal payments

  $ 100,000     $ (100,000 )   $ -     $ -     $ -  

Cobra - over eighteen months

    26,451       (26,451 )     -       -       -  

Total - Mr. Wiernasz

  $ 126,451     $ (126,451 )   $ -     $ -     $ -  
                                         

Mr. Tang:

                                       

Cash – over seventeen weeks

  $ 113,918     $ (41,425 )   $ 72,493     $ 72,493     $ -  

Cobra - over five months

    14,495       (2,885 )     11,610       11,610       -  

Total - Mr. Tang

  $ 128,413     $ (44,310 )   $ 84,103     $ 84,103     $ -  
                                         

Total Company

  $ 2,074,063     $ (947,736 )   $ 1,126,327     $ 418,635     $ 707,692  

 

 

13. 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 15. 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.

 

The change in valuation of the Smallwood SARs is summarized in the table below:

 

May 15, 2023 - fair value

  $ 9,794  

(Gain) Loss on revaluation

    245,226  

December 31, 2023 -fair value

  $ 255,020  

(Gain) Loss on revaluation

    118,898  

March 31, 2024 - fair value

  $ 373,918  

 

14. NOTES PAYABLE

 

   

March 31,

2024

   

December 31,

2023

 
   

(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 March 31, 2024, 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 ended March 31, 2024, the Company amortized $1,284 of these costs to interest expense. During the three months ended March 31, 2024, the Company made principal payments and interest payments in the amount of $22,709 and $221,317, respectively, on this loan. At March 31, 2024, accrued interest on this note was $75,251.

  $ 8,962,933     $ 8,985,642  

 

 

   

March 31,

2024

   

December 31,

2023

 
   

(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.

 

On February 14, 2024, The Company sold its Race Track Road Facility in Bonita Springs, Florida, which had been pledged as security for the MapleMark Term Loan 2 (see note 7). Proceeds from the sale in the amount of $352,905 and $910 were used to pay the remaining principal and interest, respectively, on the MapleMark Term Loan 2. At March 31, 2024, there are no amounts due under the MapleMark Term Loan 2.

  $ -     $ 352,905  
                 

A note payable in the amount of $20,000. The Note was due in January 2006 and the Company is currently accruing interest on this note at 1.9%. During the three months ended March 31, 2024, the Company accrued interest in the amount of $96 on this note. At March 31, 2024, accrued interest on this note was $18,578.

  $ 20,000     $ 20,000  

 

Total

  $ 8,982 933     $ 9,358,547  

Discount

    (381,222 )     (382,506 )

Net of discount

  $ 8,601,711     $ 8,976,041  
                 

Current portion

  $ 100,237     $ 121,041  

Long-term maturities, net of discount

    8,501,474       8,855,000  

Total

  $ 8,601,711     $ 8,976,041  

 

There was a total of $93,829 and $95,942 accrued interest on notes payable at March 31, 2024 and December 31, 2023, respectively.

 

 

Aggregate maturities of notes payable as of March 31, 2024 are as follows:

 

For the period ended March 31,

 

2025

  $ 120,237  

2026

    110,532  

2027

    121,884  

2028

    134,403  

2029

    148,207  

Thereafter

    8,347,670  

Total

  $ 8,982,933  

 

15. EQUITY

 

Common Stock

 

As of March 31, 2024, total common stock issued and outstanding was 52,516,974 and 49,693,803, respectively. As of December 31, 2023, total common stock issued and outstanding was 52,538,100 and 49,714,929, respectively. At March 31, 2024 and December 31, 2023, a total of 2,823,171 shares of common stock were deemed issued but not outstanding.

 

For the three months ended March 31, 2024:

 

Common Stock Received from Sale of Subsidiary

 

On February 26, 2024, the Company sold 100% of the equity interests in Haley for the return of 21,126 shares of the Company’s common stock held by the buyer. (see note 3). The Company Haley had no assets of liabilities at the time of the sale; the Company valued the 21,126 shares of common stock at the market price on the date of the acquisition of $1.00 per sale and recorded a gain in the amount of $21,126 on this transaction.

 

For the three months ended March 31, 2023:

 

On February 28, 2023, the Company issued 267,030 shares with a value of $112,152 to three employees as compensation.

 

During the three months ended March 31, 2023, 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. Also during the period, an aggregate total of 15,106 shares of common stock with a market value of $5,000 were accrued for issuance to two board members, and $19,428 was expensed during the quarter for the share based plan for the Chief Executive Officer (see below). These restricted stock grants are being amortized over their vesting periods of one to three years. During the three months ended March 31, 2023, the total amount of $178,048 was charged to non-cash compensation and $52,919 was charged to cash compensation in connection with these grants.

 

 

Share based executive compensation plans

 

CEO Stock Plan

 

On February 3, 2023, the Company entered into an employment agreement with Bill Bennett to become the Company’s CEO. On November 3, 2023, the Company recognized that the hiring of Mr. Bennett was protracted, and the original employment agreement calculated the number of Shares to be granted in connection with the Executive Compensation Plan on the basis of the number of Shares outstanding as of October 2022, which did not take into consideration the number of shares that were issued to a departing executive and to certain other employees of the Company thereafter. Accordingly, the number of shares issuable to Mr. Bennett at each price target was adjusted, effective as of the original date of the plan. 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 %     975,133  
$ 0.80       1.50 %     731,350  
$ 1.00       1.00 %     487,567  
$ 1.20       0.75 %     365,675  
$ 1.40       0.75 %     365,675  
$ 1.60       0.50 %     243,783  
$ 1.80       0.50 %     243,783  
$ 2.00       0.50 %     243,783  

 

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 ended March 31, 2024, the amounts of $58,283 was charged to operations pursuant to the CEO Stock Plan.

 

On November 7, 2023, the Company issued 678,302 shares of common stock, net of 296,831 shares withheld for income tax purposes, to its Chief Executive Officer pursuant the achievement of the first price target in the CEO Stock Plan.

 

On March 19, 2024, the Company’s stock price attained the second price target in the CEO Stock Plan, and Mr. Bennett became eligible to receive 731,350 shares of the Company’s common stock. These shares have not been issued as of March 31, 2024.

 

COO Stock 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. 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 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 months ended March 31, 2024, the amount of $19,043 was charged to operations pursuant to the COO Stock Plan. At March 31, 2024, none of the price targets under the COO Stock Plan have been achieved.

 

 

CFO Stock Plan

 

On December 29, 2023, the Company entered into an employment agreement with Gary Schubert to become the Company’s CFO effective January 1, 2024. Pursuant to this agreement, Mr. Schubert was provided with an incentive compensation plan (the “CFO Stock Plan”) whereby Mr. Schubert 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

 
$ 1.23       0.40 %     131,085  
$ 1.63       0.30 %     98,313  
$ 2.04       0.20 %     65,542  
$ 2.45       0.15 %     49,157  
$ 2.86       0.15 %     49,157  
$ 3.27       0.10 %     32,771  
$ 3.68       0.10 %     32,771  
$ 4.08       0.10 %     32,771  

 

The CFO Stock Plan had a fair value of $238,747 at inception (see “Stock Plan Valuation” section below). This amount will be amortized over the 30-month life of the plan beginning January 1, 2024. During the three months ended March 31, 2024, $23,875 of this amount was charged to operations. At March 31, 2024, none of the price targets under the COO Stock Plan have been achieved.

 

The Company relied upon the guidance of Statement of Financial Account Standards No. 718 Compensation – Stock Compensation (“ASC 718”) in accounting for the CEO, COO, and CFO Stock Plans. 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 CEO, COO, and CFO Stock Plans were valued utilizing the following:

 

   

December 31, 2023

Volatility

    103.9%-113.7%

Dividends

  $ 0 

Risk-free interest rates

    4.45%-4.45%

Expected term (years)

    2.63-2.91 

 

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 if the stock price exceeds the $1.50 and $2.00 per share price prior to the expiration date. 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 March 31, 2024, the Smallwood SARs had a fair value of $373,918; the increase in fair value in the amount $118,898 during the three months ended March 31, 2024 was charged to non-cash compensation. See note 13.

 

 

The Smallwood SARs were valued using the Black-Scholes valuation model utilizing the following variables:

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 

Volatility

    86.58 %     45.0-53.3 %

Dividends