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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/14/19 Innovative Food Holdings Inc 10-Q 9/30/19 90:7.1M Federal Filings, LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 568K
2: EX-10.2 Material Contract HTML 76K
3: EX-10.3 Material Contract HTML 45K
4: EX-10.4 Material Contract HTML 69K
5: EX-31.1 Certification -- §302 - SOA'02 HTML 29K
6: EX-31.2 Certification -- §302 - SOA'02 HTML 29K
7: EX-32.1 Certification -- §906 - SOA'02 HTML 25K
8: EX-32.2 Certification -- §906 - SOA'02 HTML 25K
80: R1 Document And Entity Information HTML 56K
39: R2 Condensed Consolidated Balance Sheets HTML 119K
27: R3 Condensed Consolidated Balance Sheets HTML 36K
(Parentheticals)
58: R4 Condensed Consolidated Statements of Operations HTML 81K
82: R5 Condensed Consolidated Statements of Cash Flows HTML 142K
41: R6 Condensed Consolidated Statements of Cash Flows HTML 27K
(Parentheticals)
29: R7 Consolidated Statements of Stockholders' Equity HTML 106K
56: R8 1. Basis of Presentation HTML 31K
83: R9 2. Nature of Activities and Significant Accounting HTML 165K
Policies
63: R10 3. Acquisitions HTML 67K
89: R11 4. Accounts Receivable HTML 35K
42: R12 5. Inventory HTML 31K
30: R13 6. Property and Equipment HTML 53K
64: R14 7.Right of Use Assets and Lease Liabilities - HTML 55K
Operating Leases
90: R15 8. Investments HTML 30K
43: R16 9. Intangible Assets HTML 73K
31: R17 10. Accounts Payable and Accrued Liabilities HTML 35K
65: R18 11. Accrued Interest HTML 28K
88: R19 12. Revolving Credit Facilities HTML 39K
49: R20 13. Notes Payable HTML 84K
15: R21 14. Lease Liabilities - Financing Leases HTML 48K
66: R22 15. Related Party Transactions HTML 39K
73: R23 16. Commitments and Contingent Liabilities HTML 37K
50: R24 17. Equity HTML 119K
16: R25 18. Subsequent Events HTML 29K
67: R26 Accounting Policies, by Policy (Policies) HTML 192K
74: R27 2. Nature of Activities and Significant Accounting HTML 141K
Policies (Tables)
48: R28 3. Acquisitions (Tables) HTML 60K
17: R29 4. Accounts Receivable (Tables) HTML 35K
34: R30 5. Inventory (Tables) HTML 33K
45: R31 6. Property and Equipment (Tables) HTML 46K
87: R32 7.Right of Use Assets and Lease Liabilities - HTML 56K
Operating Leases (Tables)
62: R33 9. Intangible Assets (Tables) HTML 70K
33: R34 10. Accounts Payable and Accrued Liabilities HTML 35K
(Tables)
44: R35 12. Revolving Credit Facilities (Tables) HTML 40K
86: R36 13. Notes Payable (Tables) HTML 85K
61: R37 14. Lease Liabilities - Financing Leases (Tables) HTML 50K
32: R38 17. Equity (Tables) HTML 117K
46: R39 2. Nature of Activities and Significant Accounting HTML 65K
Policies (Details)
20: R40 2. Nature of Activities and Significant Accounting HTML 32K
Policies (Details) - Deferred Revenue
52: R41 2. Nature of Activities and Significant Accounting HTML 36K
Policies (Details) - Disaggregation of Revenue
79: R42 2. Nature of Activities and Significant Accounting HTML 78K
Policies (Details) - Schedule of Dilutive Shares
72: R43 3. Acquisitions (Details) HTML 72K
19: R44 3. Acquisitions (Details) - Schedule of Recognized HTML 64K
Identified Assets Acquired and Liabilities Assumed
51: R45 3. Acquisitions (Details) - Business Acquisition, HTML 42K
Pro Forma Information
78: R46 4. ACCOUNTS RECEIVABLE (Details) - Schedule of HTML 34K
accounts receivable
71: R47 5. INVENTORY (Details) - Schedule of Inventory HTML 27K
18: R48 6. Property and Equipment (Details) HTML 68K
53: R49 6. Property and Equipment (Details) - Schedule of HTML 48K
property, plant and equipment
36: R50 7.Right of Use Assets and Lease Liabilities - HTML 30K
Operating Leases (Details)
24: R51 7.Right of Use Assets and Lease Liabilities - HTML 37K
Operating Leases (Details) - Schedule of Operating
Lease Right to Use Assets
59: R52 7.Right of Use Assets and Lease Liabilities - HTML 41K
Operating Leases (Details) - Schedule of Operating
Lease Liabilities
84: R53 7.Right of Use Assets and Lease Liabilities - HTML 45K
Operating Leases (Details) - Lessee, Operating
Lease, Liability, Maturity
37: R54 8. Investments (Details) HTML 36K
25: R55 9. Intangible Assets (Details) HTML 41K
60: R56 9. Intangible Assets (Details) - Schedule of HTML 57K
intangible assets
85: R57 10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES HTML 33K
(Details) - Schedule of accounts payable and
accrued liabilities
35: R58 11. Accrued Interest (Details) HTML 31K
26: R59 12. REVOLVING CREDIT FACILITIES (Details) - HTML 35K
Schedule of Line of Credit Facilities
68: R60 12. Revolving Credit Facilities (Details) - HTML 42K
Schedule of Line of Credit Facilities
(Parentheticals)
76: R61 13. NOTES PAYABLE (Details) - Schedule of debt HTML 76K
54: R62 13. Notes Payable (Details) - Schedule of debt HTML 129K
(Parentheticals)
22: R63 13. Notes Payable (Details) - Schedule of HTML 47K
Maturities of Long-term Debt
69: R64 14. LEASE LIABILITIES - FINANCING LEASES (Details) HTML 36K
- Lease, Cost
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- Lease, Cost (Parentheticals)
55: R66 14. Lease Liabilities - Financing Leases (Details) HTML 38K
- Finance Lease, Liability, Maturity
23: R67 15. Related Party Transactions (Details) HTML 143K
70: R68 16. Commitments and Contingent Liabilities HTML 72K
(Details)
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81: R70 17. Equity (Details) - Schedule of Share-based HTML 89K
Compensation, Shares Authorized under Stock Option
Plans, by Exercise Price Range
57: R71 17. Equity (Details) - Schedule of share-based HTML 53K
compensation, stock options, activity
28: R72 17. Equity (Details) - Fair Value Measurements, HTML 37K
Recurring and Nonrecurring, Valuation Techniques
40: R73 18. Subsequent Events (Details) HTML 44K
38: XML IDEA XML File -- Filing Summary XML 163K
21: EXCEL IDEA Workbook of Financial Reports XLSX 98K
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| innovfood20191109_10q.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-Q
☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
For the quarterly period ended September 30, 2019
☐ Transition report pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to _________.
Commission File Number: 0-9376
INNOVATIVE FOOD HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
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Florida (State or Other Jurisdiction of Incorporation or Organization) |
20-1167761 (IRS Employer I.D. No.) |
28411 Race Track Rd.
(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.
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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N/A |
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N/A |
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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):
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Large Accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☒ |
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Emerging growth company ☐ |
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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: 36,793,671 shares of common stock issued and 34,206,091 shares of common stock outstanding as of November 12, 2019.
INNOVATIVE FOOD HOLDINGS, INC.
TABLE OF CONTENTS TO FORM 10-Q
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
26 |
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Item 4. |
33 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
34 |
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Item 2. |
34 |
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Item 3. |
34 |
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Item 4. |
34 |
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Item 5. |
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Item 6. |
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37 |
PART I. FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Innovative Food Holdings, Inc.
Condensed Consolidated Balance Sheets
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September 30, |
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2018 |
||||||||
| (unaudited) | ||||||||
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ASSETS |
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Current assets |
||||||||
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Cash and cash equivalents |
$ | 2,825,995 | $ | 4,759,817 | ||||
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Accounts receivable, net |
3,179,676 | 3,039,756 | ||||||
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Inventory |
2,695,489 | 2,301,377 | ||||||
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Other current assets |
194,372 | 144,301 | ||||||
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Total current assets |
8,895,532 | 10,245,251 | ||||||
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Property and equipment, net |
2,208,037 | 2,456,610 | ||||||
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Investments |
420,225 | 339,525 | ||||||
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Right to use assets, operating leases, net |
296,579 | - | ||||||
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Right to use assets, finance leases, net |
115,222 | - | ||||||
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Other amortizable intangible assets, net |
1,515,773 | 2,158,498 | ||||||
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Goodwill and other unamortizable intangible assets |
2,183,065 | 2,183,065 | ||||||
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Total assets |
$ | 15,634,433 | $ | 17,382,949 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
||||||||
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Accounts payable and accrued liabilities |
$ | 2,503,147 | $ | 3,689,868 | ||||
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Accrued interest |
18,471 | 16,402 | ||||||
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Deferred revenue |
197,574 | 559,315 | ||||||
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Notes payable - current portion |
705,460 | 928,857 | ||||||
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Lease liability - operating leases, current |
165,369 | - | ||||||
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Lease liability - finance leases, current |
19,279 | - | ||||||
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Contingent liability - current portion |
306,157 | 472,876 | ||||||
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Total current liabilities |
3,915,457 | 5,667,318 | ||||||
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Lease liability - operating leases, non-current |
131,210 | - | ||||||
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Lease liability - finance leases, non-current |
92,988 | - | ||||||
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Contingent liability - long-term |
227,600 | 357,600 | ||||||
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Note payable - long term portion |
436,373 | 1,196,245 | ||||||
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Total liabilities |
4,803,628 | 7,221,163 | ||||||
| Commitments and contingencies (see note 16) | - | - | ||||||
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Stockholders' equity |
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Common stock: $0.0001 par value; 500,000,000 shares authorized; 36,786,528 and 36,296,218 shares issued, and 34,198,948 and 33,708,638 shares outstanding at September 30, 2019 and December 31, 2018, respectively |
3,675 | 3,627 | ||||||
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Additional paid-in capital |
36,773,186 | 36,132,065 | ||||||
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Treasury stock: 2,373,171 shares outstanding at September 30, 2019 and December 31, 2018 |
(1,016,370 |
) |
(1,016,370 |
) |
||||
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Accumulated deficit |
(24,929,686 |
) |
(24,957,536 |
) |
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Total stockholders' equity |
10,830,805 | 10,161,786 | ||||||
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Total liabilities and stockholders' equity |
$ | 15,634,433 | $ | 17,382,949 | ||||
See notes to these unaudited condensed consolidated financial statements.
Innovative Food Holdings, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
See notes to these unaudited condensed consolidated financial statements.
Innovative Food Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
See notes to these unaudited condensed consolidated financial statements.
Innovative Food Holdings, Inc. and subsidiary
Consolidated Statements of Stockholders' Equity
For the Three and Nine Months Ended September 30, 2019 and 2018
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STOCKHOLDERS' EQUITY - THREE MONTHS ENDED SEPTEMBER 30 |
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Common Stock |
Treasury Stock |
Accum |
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Amount |
Value |
APIC |
Amount |
Value |
Deficit |
Total |
||||||||||||||||||||||
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Balance - June 30, 2018 (unaudited) |
36,296,218 | $ | 3,627 | $ | 36,088,068 | 2,306,503 | $ | (1,016,370 |
) |
$ | (25,874,644 |
) |
$ | 9,200,681 | ||||||||||||||
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Fair value of stock vested to management |
- | - | 24,288 | - | - | - | 24,288 | |||||||||||||||||||||
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Net income for the three months ended June 30, 2018 |
- | - | - | - | - | 148,701 | 148,701 | |||||||||||||||||||||
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Balance - September 30, 2018 (unaudited) |
36,296,218 | $ | 3,627 | $ | 36,112,356 | 2,306,503 | $ | (1,016,370 |
) |
$ | (25,725,943 |
) |
$ | 9,373,670 | ||||||||||||||
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Balance - June 30, 2019 (unaudited) |
36,427,354 | $ | 3,640 | $ | 36,421,970 | 2,373,171 | $ | (1,016,370 |
) |
$ | (24,772,072 |
) |
$ | 10,637,168 | ||||||||||||||
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Common stock issued for services |
9,524 | 1 | 5,142 | - | - | - | 5,143 | |||||||||||||||||||||
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Common stock sold for cash |
349,650 | 34 | 249,966 | - | - | - | 250,000 | |||||||||||||||||||||
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Fair value of vested stock and stock options issued to management |
- | - | 96,108 | - | - | - | 96,108 | |||||||||||||||||||||
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Net loss for the three months ended September 30, 2019 |
- | - | - | - | - | (157,614 |
) |
(157,614 |
) |
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Balance - September 30, 2019 (unaudited) |
36,786,528 | $ | 3,675 | $ | 36,773,186 | 2,373,171 | $ | (1,016,370 |
) |
$ | (24,929,686 |
) |
$ | 10,830,805 | ||||||||||||||
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STOCKHOLDERS' EQUITY - NINE MONTHS ENDED SEPTEMBER 30 |
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Common Stock |
Treasury Stock |
Accum |
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Amount |
Value |
APIC |
Amount |
Value |
Deficit |
Total |
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Balance - December 31, 2017 |
36,080,519 | $ | 3,605 | $ | 36,196,682 | 2,276,703 | $ | (992,313 |
) |
$ | (26,653,435 |
) |
$ | 8,554,539 | ||||||||||||||
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Common stock issued for the exercise of options |
100,000 | 10 | 34,990 | - | - | - | 35,000 | |||||||||||||||||||||
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Purchase of stock options from employees, officers, and directors |
115,699 | 12 | (167,012 |
) |
- | - | - | (167,000 |
) |
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Purchase of treasury stock from employee |
- | - | - | 2,000 | (1,940 |
) |
- | (1,940 |
) |
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Fair value of vested stock options issued to management |
- | - | 8,787 | - | - | - | 8,787 | |||||||||||||||||||||
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Fair value of stock vested to management |
- | - | 38,909 | - | - | - | 38,909 | |||||||||||||||||||||
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Cost of treasury stock acquired during the period |
- | - | - | 27,800 | (22,117 |
) |
- | (22,117 |
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Net income for the six months ended June 30, 2018 |
- | - | - | - | - | 927,492 | 927,492 | |||||||||||||||||||||
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Balance - September 30, 2018 (unaudited) |
36,296,218 | $ | 3,627 | $ | 36,112,356 | 2,306,503 | $ | (1,016,370 |
) |
$ | (25,725,943 |
) |
$ | 9,373,670 | ||||||||||||||
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Balance at December 31, 2018 |
36,296,218 | $ | 3,627 | $ | 36,132,065 | 2,373,171 | $ | (1,016,370 |
) |
$ | (24,957,536 |
) |
$ | 10,161,786 | ||||||||||||||
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Common stock issued for services |
9,524 | 1 | 5,142 | - | - | - | 5,143 | |||||||||||||||||||||
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Common stock sold for cash |
349,650 | 34 | 249,966 | - | - | - | 250,000 | |||||||||||||||||||||
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Issuance of shares to employees, previously accrued |
131,136 | 13 | 93,653 | - | - | - | 93,666 | |||||||||||||||||||||
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Fair value of vested stock and stock options issued to management |
- | - | 292,360 | - | - | - | 292,360 | |||||||||||||||||||||
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Net income for the nine months ended September 30, 2019 |
- | - | - | - | - | 27,850 | 27,850 | |||||||||||||||||||||
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Balance - September 30, 2019 (unaudited) |
36,786,528 | $ | 3,675 | $ | 36,773,186 | 2,373,171 | $ | (1,016,370 |
) |
$ | (24,929,686 |
) |
$ | 10,830,805 | ||||||||||||||
See notes to these unaudited condensed consolidated financial statements.
INNOVATIVE FOOD HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of Innovative Food Holdings, Inc., and its wholly owned subsidiaries, some of which are non-operating, Artisan (“Artisan”), Food Innovations (“FII”), Food New Media Group, Inc. (“FNM”), Organic Food Brokers (“OFB”), Gourmet Food Service Group, Inc. (“GFG”), Gourmet Foodservice Warehouse, Inc. (“GFW”), Gourmeting, Inc. (“Gourmeting”), The Haley Group, Inc. (“Haley”), Oasis Sales Corp. (“Oasis”), 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.), (“Gourmet”), Innovative Gourmet, LLC (“Innovative Gourmet” or “iGourmet”), Food Funding, LLC (“Food Funding”), M Innovations, LLC (“M Innovations”), P Innovations, LLC (“P Innovations”), and collectively with IVFH and its other subsidiaries, the “Company” or “IVFH”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All material intercompany transactions have been eliminated upon consolidation of these entities.
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company, in accordance with generally accepted accounting principles pursuant to Regulation S-X of the Securities and Exchange Commission and with the instructions to Form 10-Q. Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the Company’s audited financial statements and related notes as contained in Form 10-K for the year ended December 31, 2018. In the opinion of management, the interim unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of the operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations to be expected for the full year.
2. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Our business is currently conducted by our wholly-owned subsidiaries, Artisan, FII, FNM, OFB, GFG, GFW, Gourmeting, Haley, Oasis, Gourmet, iGourmet, M Innovations, (sometimes referred to herein as “Mouth” or ” Mouth.com”), Food Funding and P Innovations (collectively, IVFH and its subsidiaries, the “Company” or “IVFH”).
Overall, our business activities are focused around the creation and growth of a platform which provides distribution or the enabling of distribution of high quality, unique specialty food and food related products ranging from specialty foodservice products to Consumer-Packaged Goods (“CPG”) products through a variety of sales channels ranging from national partnership based and regionally based foodservice related sales channels to e-commerce sales channels offering products both direct to consumers (“D2C”) and direct to business (“B2B”). In our business model, we receive orders from our customers and then work closely with our suppliers and our warehouse facilities to have the orders fulfilled. In order to maintain freshness and quality, we carefully select our suppliers based upon, among other factors, their quality, uniqueness, reliability and access to overnight courier services.
FII, though its relationship with the producers, growers, and makers of thousands of unique specialty foodservice products and through its relationship with US Foods, Inc. (“U.S. Foods” or “USF”), has been in the business of providing premium restaurants, within 24 – 72 hours, with the freshest origin-specific perishable, and healthcare products shipped directly from our network of vendors and from our warehouses. Our customers include restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses.
Gourmet has been in the business of providing specialty food via e-commerce through its own website at www.forthegourmet.com and through other ecommerce channels, with unique specialty gourmet food products shipped directly from our network of vendors and from our warehouses within 24 – 72 hours.
Artisan is a supplier of over 1,500 unique specialty foodservice products to over 500 customers such as chefs, restaurants, etc. in the Greater Chicago area and serves as a national fulfillment center for certain of the Company’s other subsidiaries.
GFG is focused on expanding the Company’s program offerings to additional specialty foodservice customers.
P Innovations focus is to leverage acquired assets to expand the Company’s subscription-based e-commerce business activities.
Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ private label food service opportunities with the intent of helping them launch and commercialize new products in the broadline foodservice industry and assists in the enabling of the distribution of products via national broadline food distributors.
OFB and Oasis function as outsourced national sales and brand management teams for emerging organic and specialty food CPG companies of a variety of sizes and business stages, and provides emerging and unique CPG specialty food brands with distribution and shelf placement access in all of the major metro markets in the food retail industry.
iGourmet has been in the business of providing DTC specialty food via e-commerce through its own website at www.iGourmet.com and through other channels such as www.amazon.com, www.ebay.com, and www.walmart.com. In addition, Igourmet.com offers a line of B2B specialty foodservice items. Products are primarily shipped directly from iGourmet.com’s 67,000 square feet warehouse in Pennsylvania via iGourmet.com owned trucks and via third party carrier directly to thousands of customers nationwide.
Mouth.com (www.mouth.com) is an online retailer of specialty foods, monthly subscription boxes and curated gift boxes to thousands of consumers and corporate customers across the United States. Mouth sources high quality specialty foods crafted in the US by independent and small batch makers, and expertly curates them into standout food gifts for both consumers and corporate customers. Mouth also has launched a private label brand, including several award-winning products.
Use of Estimates
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accounts subject to estimate and judgements are accounts receivable reserves, income taxes, intangible assets, contingent liabilities, operating right of use assets and liabilities, and equity based instruments. Actual results may differ from these estimates under different assumptions or conditions. We believe our estimates have not been materially inaccurate in past years, and our assumptions are not likely to change in the foreseeable future.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Innovative Food Holdings, Inc., and its wholly owned operating subsidiaries, Artisan, FII, FNM, OFB, GFG, GFW, Gourmeting, Haley, Oasis, Innovative Gourmet, Food Funding, M Innovations, P Innovations, and Gourmet. All material intercompany transactions have been eliminated upon consolidation of these entities.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash in investments with credit quality institutions. At times, such investments may be in excess of applicable government mandated insurance limit. At September 30, 2019 and December 31, 2018, trade receivables from the Company’s largest customer amounted to 38% and 44%, respectively, of total trade receivables. During the three months ended September 30, 2019 and 2018, sales from the Company’s largest customer amounted to 60% and 63% of total sales, respectively. During the nine months ended September 30, 2019 and 2018, sales from the Company’s largest customer amounted to 60% and 63% of total sales, respectively.
Reclassifications
Certain reclassifications have been made to conform prior period data to the current presentation.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the condensed consolidated balance sheet. Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within accrued liabilities.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
Revenue Recognition
The Company recognizes revenue upon product delivery. All of our products are shipped either same day or overnight or through longer shipping terms to the customer and the customer takes title to product and assumes risk and ownership of the product when it is delivered. Shipping charges to customers and sales taxes collectible from customers, if any, are included in revenues.
For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 606. A five-step analysis a 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. Adoption of ASC 606 had no material effect on the Company’s financial statements.
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 are issued by the Company generally do not have expiration dates. 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, 2018 |
$ | 559,315 | ||
|
Cash payments received |
93,580 | |||
|
Net sales recognized |
(375,500 |
) |
||
|
Balance as of March 31, 2019 |
$ | 277,395 |
|
Cash payments received |
225,064 | |||
|
Net sales recognized |
(221,531 |
) |
||
|
Balance as of June 30, 2019 |
$ | 280,928 |
|
Cash payments received |
120,345 | |||
|
Net sales recognized |
(203,699 |
) |
||
|
Balance as of September 30, 2019 |
$ | 197,574 |
Disaggregation of Revenue
The following table represents a disaggregation of revenue by from sales for the three and nine months ended September 30, 2019 and 2018:
|
Three Months Ended |
||||||||
|
2018 |
||||||||
|
Specialty food service |
$ | 11,574,373 | $ | 10,481,021 | ||||
|
E-Commerce |
1,572,031 | 1,181,933 | ||||||
|
National Brand Management |
319,360 | 391,536 | ||||||
|
Total |
$ | 13,465,764 | $ | 12,054,490 | ||||
|
Nine Months Ended |
||||||||
|
2018 |
||||||||
|
Specialty food service |
$ | 33,542,367 | $ | 29,739,129 | ||||
|
E-Commerce |
5,452,024 | 3,617,039 | ||||||
|
National Brand Management |
1,256,039 | 1,603,869 | ||||||
|
Total |
$ | 40,250,430 | $ | 34,960,037 | ||||
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.
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, 2019:
Convertible notes and interest
At September 30, 2019 there were no convertible notes outstanding.
Warrants
At September 30, 2019 there are no warrants outstanding.
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, 2019:
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
Exercise |
|
|
Number |
|
|
Contractual |
|
|||
|
|
Price |
|
|
of Options |
|
|
Life (years) |
|
|||
|
|
$ |
0.62 |
|
|
|
360,000 |
|
|
|
4.25 |
|
|
|
$ |
0.75 |
|
|
|
50,000 |
|
|
|
2.25 |
|
|
|
$ |
0.85 |
|
|
|
540,000 |
|
|
|
4.25 |
|
|
|
$ |
0.95 |
|
|
|
50,000 |
|
|
|
2.25 |
|
|
|
$ |
1.10 |
|
|
|
75,000 |
|
|
|
1.62 |
|
|
|
$ |
1.20 |
|
|
|
900,000 |
|
|
|
4.25 |
|
|
|
$ |
1.38 |
|
|
|
100,000 |
|
|
|
0.17 |
|
|
|
$ |
1.50 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
|
$ |
2.00 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
|
$ |
2.50 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
|
$ |
3.00 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
|
|
|
|
|
|
2,575,000 |
|
|
|
3.55 |
|
Restricted Stock Awards
At September 30, 2019 there are an additional 300,000 unvested restricted stock awards remaining from grants in a prior year. Those 300,000 restricted stock awards will vest as follows: 125,000 restricted stock awards will vest contingent upon the attainment of a stock price of $2.00 per share for 20 straight trading days, and an additional 175,000 restricted stock awards will vest contingent upon the attainment of a stock price of $3.00 per share for 20 straight trading days.
Stock-based compensation
During the nine months ended September 30, 2019, the Company incurred obligations to issue the following shares of common stock pursuant to employment agreements: an aggregate total of 218,175 shares of common stock to its Chief Executive Officer and to its Director of Strategic Acquisitions; an aggregate total 72,774 shares to board members; and 41,991 shares to an employee.
Dilutive shares at September 30, 2018:
There were no convertible notes or warrants outstanding on September 30, 2018.
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, 2018:
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
Exercise |
|
|
Number |
|
|
Contractual |
|
|||
|
|
Price |
|
|
of Options |
|
|
Life (years) |
|
|||
|
|
$ |
1.10 |
|
|
|
75,000 |
|
|
|
2.62 |
|
|
|
$ |
1.31 |
|
|
|
150,000 |
|
|
|
0.25 |
|
|
|
$ |
1.38 |
|
|
|
100,000 |
|
|
|
1.17 |
|
|
|
$ |
1.43 |
|
|
|
50,000 |
|
|
|
0.25 |
|
|
|
$ |
1.90 |
|
|
|
175,000 |
|
|
|
0.73 |
|
|
|
|
|
|
|
|
550,000 |
|
|
|
0.89 |
|
Significant Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, current U.S. GAAP requires the performance of procedures to determine the fair value at the impairment testing date of assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, the amendments under this ASU require the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU becomes effective for the Company on January 1, 2020. The amendments in this ASU should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed. We are evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and disclosing key information about leasing transactions. Leases are classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provided an optional transition method to apply the new lease requirements through a cumulative-effect adjustment in the period of adoption.
We adopted ASU 2016-02 in the first quarter of 2019 using the optional transition method and elected certain practical expedients permitted under the transition guidance, which, among other things, allowed us to not reassess prior conclusions related to contracts containing leases or lease classification. The adoption primarily affected our condensed consolidated balance sheet through the recognition of $338,581 of operating right-of-use assets and $338,581 of operating lease liabilities as of January 1, 2019. The adoption did not have a significant impact on our results of operations or cash flows. See Note 7. "Leases" to our condensed consolidated financial statements for further discussion of the effects of the adoption of ASU 2016-02 and the associated disclosures.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU relates to the accounting for non-employee share-based payments. The amendment in this update expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU excludes share-based payment awards that relate to: (1) financing to the issuer; or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers. The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the goods or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. We adopted the provisions of this ASU on January 1, 2019. The adoption had no impact on our results of operations, cash flows, or financial condition.
Management does not believe that any other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.
3. ACQUISITIONS
GBC Sub, Inc. (d/b/a TheGiftBox)
Effective July 23, 2019, P Innovations acquired certain assets of GBC Sub, Inc. (d/b/a The GiftBox) (“GiftBox”) (the “GiftBox Asset Purchase Agreement”). GiftBox, a privately held Nevada corporation controlled by David Polinsky, a director of the Company, was in the business of subscription-based ecommerce. The consideration for the assets purchased was a nominal amount of cash. The GiftBox Asset Purchase Agreement also provides the sellers the option to acquire 30% of P Innovations subject to dilution for a period of thirty-six months following the date of the Giftbox Asset Purchase Agreement; the option will only be exercisable if there is a spinoff of P Innovations to Innovative Food Holdings shareholders. The Company is evaluating its preliminary purchase price allocation. As a result, during the preliminary purchase price allocation period, which may be up to one year from the asset purchase date, we may record adjustments to the assets acquired.
Mouth Foods, Inc.
Effective July 6, 2018, M Innovations acquired certain assets of Mouth Foods, Inc. from MFI (assignment for the benefit of creditors), LLC (“MFI”), the assignee of Mouth Foods, Inc.’s assets in connection with a Delaware assignment proceeding, pursuant to the terms of an Asset Purchase Agreement (“MFI APA”). The MFI APA was accounted for as an acquisition of an ongoing business in accordance with ASC Topic 805 - Business Combinations (“ASC 805”), where the Company was treated as the acquirer and the acquired assets and assumed liabilities were recorded by the Company at their preliminary estimated fair values. Mouth Foods, Inc., was a privately held New York company operating out of Brooklyn, was an expert curator and online retailer of high quality specialty foods from small-batch makers in the US.
The consideration for and in connection with the acquisition consisted of (i) closing related cash payments of $208,355; (ii) additional revenue-based contingent liabilities valued by management at $100,000 related to certain future sales of purchased assets payable under the following terms: payment of 5% of certain revenues, with no payments on the first $500,000 of revenues and no payments on revenues after June 30, 2020; (iii) additional revenue based contingent liabilities of up to $185,000 associated with the purchase of certain debt of the seller; and (iv) additional contingent liability consideration valued by management at approximately $20,000.
The acquisition date estimated fair value of the consideration transferred totaled $513,355. During the year ended December 31, 2018, the Company changed the original allocation of the purchase price among the assets acquired. The reallocated purchase price consisted of the following:
The above estimated fair value of the intangible assets is based on management’s estimates. Going forward, adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period will be made in our operating results in the period in which the adjustments are determined.
iGourmet, LLC
The iGourmet Asset Purchase Agreement effective January 23, 2018 (the “iGourmet APA”) was accounted for as an acquisition of an ongoing business in accordance with ASC Topic 805 - Business Combinations (“ASC 805”), where the Company was treated as the acquirer and the acquired assets and certain liabilities not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay, were recorded by the Company at their preliminary estimated fair values.
The consideration for and in connection with the iGourmet APA consisted of: (i) $1,500,000, which satisfied or reduced secured, priority and administrative debt of sellers; (ii) in connection with and prior to the acquisition, our wholly-owned subsidiary, Food Funding, funded advances of $325,500 to sellers on a secured basis, pursuant to certain loan documents and as bridge loans, which loans were reduced by the proceeds of the iGourmet APA; (iii) the purchase for $200,000 of certain debt owed by sellers, to be paid out of, if available, Innovative Gourmet’s cash flow; (iv) potential contingent liability allocation for a percentage of sellers’ approximately $2,300,000 of certain debt, not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay; and (v) additional purchase price consideration of (a) up to a maximum of $1,500,000, if EBITDA of Innovative Gourmet reaches $800,000 thousand in 2018, (b) up to a maximum of $1,750,000, if EBITDA of Innovative Gourmet in 2019 exceeds its EBITDA in 2018 by at least 20% and if its EBITDA reaches $5,000,000; and (c) up to a maximum of $2,125,000, if EBITDA of Innovative Gourmet in 2020 exceeds its EBITDA in 2019 by at least 20% and if its EBITDA reaches $8,000,000. The additional purchase price consolidation milestone for 2018 was not met. The EBITDA based earnout shall be paid 37.5% in cash, 25% in Innovative Food Holdings shares valued at the time of the closing of this transaction and 37.5%, at Innovative Gourmet’s option, in Innovative Food Holdings shares valued at the time of the payment of the earnout or in cash.
In connection with the iGourmet APA, our wholly-owned subsidiary, Food Funding, purchased seller’s senior secured note at a price of approximately $1,187,000, pursuant to the terms of a Loan Sale Agreement with UPS Capital Business Credit. That note was reduced by the proceeds of the iGourmet APA as disclosed in (i) above.
The acquisition date estimated fair value of the consideration transferred totaled $4,151,243. During the year ended December 31, 2018, the Company made the following purchase price adjustments: (i) accrued an additional $286,239 for accounts payable prior to acquisition; (ii) decreased contingent liabilities by the amount of $392,900 for earnout payments not made; (iii) decreased accounts receivable in the amount of $108,893 for amounts not collected; and (4) increased deferred revenue in the amount of $231,169 for shipments made. These adjustments increased the value of the acquisition to $4,275,751. At December 31, 2018, the value of the acquisition consisted of the following:
The above estimated fair value of the intangible assets is based on a third party valuation expert and also includes additional analysis by management based on a subsequent analysis of the transaction and adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Going forward, adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period will be made in our operating results in the period in which the adjustments are determined.
Pro forma results
The following table sets forth the unaudited pro forma results of the Company as if the iGourmet APA was effective on the first day of the September 30, 2018 nine month period presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.
4. ACCOUNTS RECEIVABLE
At September 30, 2019 and December 31, 2018, accounts receivable consists of:
|
Accounts receivable from customers |
$ | 3,332,720 | $ | 3,194,932 | ||||
|
Allowance for doubtful accounts |
(153,044 |
) |
(155,176 |
) |
||||
|
Accounts receivable, net |
$ | 3,179,676 | $ | 3,039,756 | ||||
5. INVENTORY
Inventory consists primarily of specialty food products. At September 30, 2019 and December 31, 2018, inventory consisted of the following:
|
Finished Goods Inventory |
$ | 2,695,489 | $ | 2,301,377 | ||||
6. PROPERTY AND EQUIPMENT
Acquisition of Building
The Company owns a building and property located at 28411 Race Track Road, Bonita Springs, Florida 34135. The property consists of approximately 1.1 acres of land and approximately 10,000 square feet of combined office and warehouse space, and was purchased as part of a bank short sale. The Company moved its operations to these premises on July 15, 2013. The purchase price of the property was $792,758.
On May 14, 2015, the Company purchased a building and property located at 2528 S. 27th Avenue, Broadview, Illinois 60155. The property consists of approximately 1.33 acres of land and approximately 28,711 square feet of combined office and warehouse space. The purchase price of $914,350 was initially financed primarily by a draw-down of $900,000 on the Company’s credit facility with Fifth Third Bank, National Association (“Fifth Third Bank”). On May 29, 2015, a permanent financing facility was provided by Fifth Third Bank in the form of a loan in the amount of $980,000. $900,000 of this amount was used to pay the balance of the credit facility; the additional $80,000 was used for refrigeration and other improvements at the property. The interest on the loan is at the LIBOR rate plus 3.0%. The building is used for office and warehouse space primarily for the Company’s Artisan subsidiary. We have also recently completed an additional property improvement and upgrade buildout at the Artisan building which include a fully functional commercial test kitchen and training center and conference room. The test kitchen and training room will be used by Artisan and other subsidiaries of the Company for the purposes of new product testing and development and approval, Quality Assurance and Quality Control as well as sales presentations and customer demonstrations. In addition, we recently added a packaging room to the Artisan building, which is built to FDA, FSMA and SQF food safety standards and purchased new, technologically advanced semi-automated fillers for the packaging room. The packaging room addition will allow for expansion of private label product lines as well as packing of organic, non GMO, diet specific and other specialty foods. The test kitchen, packaging room and additional improvements were financed by a loan from Fifth Third Bank.
Depreciation on the building and the related improvements, furniture, fixtures, and equipment began when the Company occupied the facility in October, 2015.
On November 8, 2019 the Company, through a newly formed wholly-owned subsidiary, purchased a logistics and warehouse facility (the “Facility”) for $4.5 million. The Facility is approximately 200,000 square feet and is situated on approximately 15 acres in Mountain Top, Pennsylvania. The Facility’s appraised value by a third party appraisal firm in October 2019 was $6,150,000 “as is” and $8,000,000 with additional scheduled improvements. Related to the Facility purchase, the Company entered into a commercial loan agreement for both the purchase price and planned improvements to the building. The amount of the loan was $5.5 million, the lender was Fifth Third Bank and the loan is secured by a mortgage on the property and other Company assets. The interest on the loan is LIBOR plus 2.75%, with interest only payments due through September 30, 2020, thereafter with principal amortized over 20 years and maturity on September 2, 2025 Related to Facility purchase, the Company also acquired certain leases from certain tenants of the Facility, all of which were in good standing at the time of purchase.
A summary of property and equipment at September 30, 2019 and December 31, 2018, was as follows:
Depreciation and amortization expense for property and equipment amounted to $80,402 and $51,384 for the three months ended September 30, 2019 and 2018, respectively. Depreciation and amortization expense for property and equipment amounted to $231,731 and $146,108 for the nine months ended September 30, 2019 and 2018, respectively.
7. RIGHT OF USE 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 and nine months ended September 30, 2019 was entirely comprised of operating leases and amounted to $57,780 and $155,047, respectively. The Company’s ROU asset amortization for the three and nine months ended September 30, 2019 was $53,472 and $140,303, respectively. The difference between the lease expense and the associated ROU asset amortization consists of interest.
Right to use assets – operating leases are summarized below:
|
Warehouse |
$ | 69,880 | ||
|
Warehouse equipment |
22,321 | |||
|
Office equipment |
35,421 | |||
|
Vehicles |
168,957 | |||
|
Right to use assets, net |
$ | 296,579 | ||
Operating lease liabilities are summarized below:
|
Warehouse |
$ | 69,880 | ||
|
Warehouse equipment |
22,321 | |||
|
Office equipment |
35,421 | |||
|
Vehicles |
168,957 | |||
|
Lease liability |
$ | 296,579 | ||
|
Less: current portion |
(165,369 |
) |
||
|
Lease liability, non-current |
$ | 131,210 | ||
Maturity analysis under these lease agreements are as follows:
|
Twelve months ended September 30, 2020 |
$ | 176,689 | ||
|
Twelve months ended September 30, 2021 |
58,972 | |||
|
Twelve months ended September 30, 2022 |
30,158 | |||
|
Twelve months ended September 30, 2023 |
16,373 | |||
|
Twelve months ended September 30, 2024 |
13,776 | |||
|
Thereafter |
25,255 | |||
|
Total |
$ | 321,223 | ||
|
Less: Present value discount |
(24,644 |
) |
||
|
Lease liability |
$ | 296,579 |
8. INVESTMENTS
The Company has made investments in certain early stage food related companies which it expects can benefit from synergies with the Company’s various operating businesses. At September 30, 2019 the Company has investments in seven food related companies in the aggregate amount of $420,225. The Company does not have significant influence over the operations of these companies.
During the three and nine months ended September 30, 2019, the Company invested cash of $10,200 and 35,200, respectively, in food related companies. The Company’s investments may take the form of debt, equity, or equity in the future including convertible notes and other instruments which provide for future equity under various scenarios including subsequent financings or initial public offerings. The Company has evaluated the guidance in Accounting Standards Codification (“ASC”) No. 325-20 Investments – Other, in determining to account for the investment using the cost method since the equity securities are not marketable and do not give the Company significant influence.
Also during the three and nine months ended September 30, 2019, the Company converted accounts receivable in the amount of $15,000 and $45,500, respectively, into an equity investment in a food related company.
9. INTANGIBLE ASSETS
The Company acquired certain intangible assets pursuant to the acquisitions through Artisan, Oasis (see note 3), Innovative Gourmet (see note 3), OFB, Haley, and M Innovations. The following is the net book value of these assets:
|
Accumulated |
||||||||||||
|
Gross |
Amortization |
Net |
||||||||||
|
Non-Compete Agreement - amortizable |
$ | 505,900 | $ | (415,887 |
) |
$ | 90,013 | |||||
|
Customer Relationships - amortizable |
3,068,043 | (2,279,241 |
) |
788,802 | ||||||||
|
Trade Name |
1,532,822 | - | 1,532,822 | |||||||||
|
Internally Developed Technology - amortizable |
875,643 | (285,685 |
) |
589,958 | ||||||||
|
Goodwill |
650,243 | - | 650,243 | |||||||||
|
Website - amortizable |
47,000 | - | 47,000 | |||||||||
|
Total |
$ | 6,679,651 | $ | (2,980,813 |
) |
$ | 3,698,838 | |||||
Total amortization expense for the three months ended September 30, 2019 and 2018 was $210,028 and $242,874, respectively; total amortization expense for the nine months ended September 30, 2019 and 2018 was $689,725 and $648,177, respectively.
The trade names are not considered finite-lived assets, and are not being amortized. The non-compete agreement is being amortized over a period of 48 months. The customer relationships acquired in these transactions are being amortized over periods of 24 to 36 months. The internally developed technology is being amortized over 60 months.
As detailed in ASC 350, the Company tests for goodwill impairment in the fourth quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. As detailed in ASC 350-20-35-3A, in performing its testing for goodwill impairment, management has completed a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. To complete this review, management followed the steps in ASC 350-20-35-3C to evaluate the fair value of goodwill and considered all known events and circumstances that might trigger an impairment of goodwill. The analysis completed in 2018 determined that there was no impairment to goodwill assets.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2019 and December 31, 2018 are as follows:
|
Trade payables and accrued liabilities |
$ | 2,286,085 | $ | 3,425,178 | ||||
|
Accrued payroll and commissions |
217,062 | 264,690 | ||||||
|
Total |
$ | 2,503,147 | $ | 3,689,868 | ||||
11. ACCRUED INTEREST
At September 30, 2019, accrued interest on notes outstanding was $18,471. During the nine months ended September 30, 2019, the Company paid cash for interest in the aggregate amount of $68,812.
At December 31, 2018, accrued interest on a note outstanding was $16,402. During the twelve months ended December 31, 2018, the Company paid cash for interest in the aggregate amount of $190,781.
12. REVOLVING CREDIT FACILITIES
|
On March 23, 2018, the Company entered into a Master Loan & Security Agreement that provided for the advance of funds in connection with a $500,000 Draw Promissory Note. in order to finance certain equipment acquisitions (“Artisan Equipment Loan”); On December 21, 2018, the Company advanced $391,558 under the $500,000 Draw Promissory Note. This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of 5.20%. As of December 31, 2018, there was $108,422 remaining to be drawn on the Artisan Equipment Loan. On March 27, 2019, an amendment was made to the Draw Promissory Note to extend the draw period to December 31, 2019. On March 27, 2019, a Promissory Note was made for the amounts advanced in the amount of $391,558 to convert to a Term Loan. (see note 13). |
$ | - | $ | - | ||||
|
Line of credit facility with Fifth Third Bank in the original amount of $1,000,000 with an interest rate of LIBOR plus 3.25%. In August 2015, the amount of the credit facility was increased to $1,500,000 and the due date was extended to August 1, 2016. In August 2016, this credit facility was extended to August 1, 2017. On August 1, 2017 this credit facility was increased to $2,000,000 and the due date was extended to August 1, 2018. In August 2018, this credit facility was extended to August 1, 2019. Effective August 1, 2019, this credit facility was extended to August 1, 2021. |
$ | - | $ | - | ||||
|
Total |
$ | - | $ | - | ||||
13. NOTES PAYABLE
|
Term loan dated as of August 5, 2016 in the original amount of $1,200,000 payable to Fifth Third Bank. This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of LIBOR plus 4.5%. Principal payments in the amount of $66,667 are due monthly along with accrued interest beginning September 5, 2016. The entire principal balance and all accrued interest was due and was paid on the maturity date of February 5, 2018. During the twelve months ended December 31, 2016, the Company transferred principal in the amount of $1,200,000 from the line of credit facility with Fifth Third Bank into this term loan. During the twelve months ended December 31, 2018, the Company made principal and interest payments on this loan in the amounts of $114,033 and $829, respectively. |
$ | - | $ | - | ||||
|
Secured mortgage note payable for the acquisition of land and building in Bonita Springs, Florida in the amount of $546,000. Principal payments of $4,550 plus interest at the rate of Libor plus 3% are due monthly. The balance of the principal amount was originally due February 28, 2018. On March 23, 2018 and effective February 26, 2018, this note was amended and renewed in the amount of $273,000, with monthly payments of principal and interest of $4,550 payable through the maturity date of February 28, 2023. During the three months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $13,650 and $2,695, respectively. During the nine months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $40,950 and $8,817, respectively. |
191,100 | 232,050 | ||||||
|
Secured mortgage note payable for the acquisition of land and building in Broadview, Illinois in the amount of $980,000. Principal payments of $8,167 plus interest at the rate of LIBOR plus 2.75% are due monthly through April 2020, the remaining principal balance in the amount of $490,000 will be due May 29, 2020. During the three months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $24,500 and $7,364, respectively. During the nine months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $73,500 and $23,577, respectively. |
555,333 | 628,833 | ||||||
|
Term loan dated March 28, 2018 in the original amount of $1,500,000 payable to Fifth Third Bank. This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of LIBOR plus 4.25%. Principal payments in the amount of $83,333 are due monthly along with accrued interest beginning March 28, 2018. The entire principal balance and all accrued interest is due on the maturity date of August 28, 2019. During the three months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $166,668 and $1,390, respectively. During the nine months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $666,670 and $17,157, respectively. |
- | 666,670 | ||||||
|
Promissory note dated March 22, 2019 in the original amount of $391,558 (the “Artisan Equipment Loan”) payable to Fifth Third Bank. This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of 5.20%. The entire principal balance and all accrued interest is due on the maturity date of March 21, 2024. Monthly payments in the amount of $7,425 including principal and interest commenced in April, 2019. During the three and nine months ended September 30, 2019, equipment financed under the Artisan Equipment Loan in the amount of $33,075 was returned for credit. Also during the three and nine months ended September 30, 2019, the Company made payments of principal and interest on this note in the amounts of $16,001 and $4,455, respectively. |
332,032 | 391,558 | ||||||
|
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, 2019, the Company accrued interest in the amount of $93 and $279, respectively, on this note. |
20,000 | 20,000 | ||||||
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
Unsecured promissory note in the amount of $100,000 dated January 1, 2017 bearing interest at the rate of 2.91% per annum issued in connection with the Oasis acquisition. Payments in the amount of $4,297 consisting of principal and interest are to be made monthly beginning February 15, 2017 for twenty-four months until paid in full. During the three months ended September 30, 2019, the Company made principal and interest payments on this note in the amount of $0 and $0, respectively. During the nine months ended September 30, 2019, the Company made principal and interest payments on this note in the amount of $4,291 and $2, respectively. |
|
|
- |
|
|
|
4,291 |
|
|
|
|
|
|
|
|
|
|
|
|
This obligation was reclassified as a Lease Liability - Financing Lease in connection with the Company’s adoption of ASU 2016-02 on January 1, 2019; see note 14. |
|
|
- |
|
|
|
5,661 |
|
|
|
|
|
|
|
|
|
|
|
|
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%. During the three months ended September 30, 2019, the Company made principal and interest payments in the amount of $3,123 and $697, respectively, on this loan. During the nine months ended September 30, 2019, the Company made principal and interest payments in the amount of $6,961 and $1,634, respectively, on this loan. |
|
|
43,368 |
|
|
|
50,328 |
|
|
|
|
|
|
|
|
|
|
|
|
This obligation was reclassified as a Lease Liability - Financing Lease in connection with the Company’s adoption of ASU 2016-02 on January 1, 2019; see note 14. |
|
|
- |
|
|
|
125,711 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,141,833 |
|
|
$ |
2,125,102 |
|
|
|
|
|
|
|
|
|
|
|
|
Current portion |
|
$ |
705,460 |
|
|
$ |
928,857 |
|
|
Long-term maturities |
|
|
436,373 |
|
|
|
1,196,245 |
|
|
Total |
|
$ |
1,141,833 |
|
|
$ |
2,125,102 |
|
Aggregate maturities of long-term notes payable as of September 30, 2019 are as follows:
For the period ended September 30,
| $ | 705,197 | |||
|
2021 |
133,907 | |||
|
2022 |
138,121 | |||
|
2023 |
115,259 | |||
|
2024 |
49,349 | |||
|
Thereafter |
- | |||
|
Total |
$ | 1,141,833 |
14. LEASE LIABILITIES - FINANCING LEASES
|
Financing lease obligation under a lease agreement for a forklift payable in thirty-six monthly installments of $579 including interest at the rate of 4.83%. During the three months ended September 30, 2019, the Company made principal and interest payments on this lease obligation in the amounts of $1,722 and $14, respectively. During the nine months ended September 30, 2019, the Company made principal and interest payments on this lease obligation in the amounts of $5,661 and $103, respectively. |
-- | - | ||||||
|
Financing lease obligations under a lease agreement for a truck 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, 2019, the Company made principal and interest payments on this lease obligation in the amounts of $4,5751 and $2,402, respectively. During the nine months ended September 30, 2019, the Company made principal and interest payments on this lease obligation in the amounts of $13,444 and $7,487 respectively. |
112,267 | - | ||||||
|
Total |
$ | 112,267 | $ | - | ||||
|
Current portion |
$ | 19,279 | $ | - | ||||
|
Long-term maturities |
92,988 | - | ||||||
|
Total |
$ | 112,267 | $ | - |
Aggregate maturities of lease liabilities – financing leases as of September 30, 2019 are as follows:
For the period ended September 30,
|
|
$ |
19,279 |
|
|
|
2021 |
|
|
20,952 |
|
|
2022 |
|
|
22,766 |
|
|
2023 |
|
|
24,737 |
|
|
2024 |
|
|
24,533 |
|
|
Thereafter |
|
|
- |
|
|
Total |
|
$ |
112,267 |
|
15. RELATED PARTY TRANSACTIONS
For the nine months ended September 30, 2019:
GBC Sub, Inc. (d/b/a TheGiftBox)
Effective July 23, 2019, P Innovations acquired certain assets of GBC Sub, Inc. (d/b/a The GiftBox) (“GiftBox”) (the “GiftBox Asset Purchase Agreement”). GiftBox, a privately held Nevada corporation controlled by David Polinsky, a director of the Company, was in the business of subscription-based ecommerce. The consideration for the assets purchased was a nominal amount of cash. The GiftBox Asset Purchase Agreement also provides the sellers the option to acquire 30% of P Innovations subject to dilution for a period of thirty-six months following the date of the Giftbox Asset Purchase Agreement; the option will only be exercisable if there is a spinoff of P Innovations to Innovative Food Holdings shareholders. The Company is evaluating its preliminary purchase price allocation. As a result, during the preliminary purchase price allocation period, which may be up to one year from the asset purchase date, we may record adjustments to the assets acquired.
Sale of common stock to related party
On July 23, 2019, the Company entered into a subscription agreement to sell 349,650 restricted shares of common stock to Pet Box LLC, a company controlled by David Polinsky, a director of the Company. The purchase price was $0.715 per share for a total of $250,000. See note 17.
Vesting of shares to officers
During the nine months ended September 30, 2019 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 aggregate total amount of $154,036 for the vesting of a total of 290,949 shares of common stock issuable to its Chief Executive Officer, its Director of Strategic Acquisitions and to its two independent board members.
In January 2019, the Company awarded the following to each of its two independent directors: (i) a cash retainer in the amount of $45,000, which was paid in January 2019; and (ii) cash retainers in the amount of $30,000 per year, to be paid quarterly.
In January 2019, the Company awarded the following stock options to each of its four directors:
|
|
- |
(i) five-year options to purchase 90,000 shares of common stock at a price of $0.62 per share, vesting quarterly over a three year period; |
|
|
- |
(ii) five-year options to purchase 135,000 shares of common stock at a price of $0.85 per share, vesting quarterly over a three year period; |
|
|
- |
(iii) five-year options to purchase 225,000 shares of common stock at a price of $1.20 per share, vesting quarterly over a three year period |
The Company recognized non-cash compensation in the amount of $34,120 and $102,360 during the three and nine months ended September 30, 2019 in connection with these options.
For the nine months ended September 30, 2018:
In December 2017, the Company’s Chief Executive Officer exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share. The date for payment of the exercise price of these options was extended to April 26, 2018. 55,192 shares of common stock were deemed issued on March 5, 2018, which number of shares represents a net amount after a cash payment of $45,000 which was a portion of the difference between the exercise price of the options and the market price of the stock on the date of purchase, and taxes.
In December 2017, the Company’s former President exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share. The date for payment of the exercise price of these options was extended to April 26, 2018. 60,749 shares of common stock were deemed issued on March 5, 2018, which number of shares represents a net amount after a cash payment of $45,000 which was a portion of the difference between the exercise price of the options and the market price of the stock on the date of purchase, and taxes.
In December 2017, a Board Member exercised 100,000 options at a price of $0.35 per share. The date for payment of the exercise price of these options was extended to April 26, 2018. In March 2018 the Company made a payment of $77,000 which is the difference between the exercise price of the options and the market price of the stock on the date of purchase.
In May 2018, as part of a realignment towards focusing on certain specific growth initiatives and growth opportunities the Company amended the employment agreement with its President, and the President of the Company was named as the Director of Strategic Acquisitions, whose responsibilities include: (i) identifying and assisting in the acquisition and integration of strategic assets; (ii) identifying and executing on new growth opportunities; and (iii) identifying and executing growth initiatives for the Company. In order to allow for the Executive to devote his full time to his new responsibilities, the President of the Company resigned from his role as President of the Company and its subsidiaries. Pursuant to this agreement, the Executive’s salary was reduced by $15,000 per year, and an equity bonus of 46,000 shares of the Company’s common stock will be issued to the Executive. These shares will vest at a rate of one-sixth per month over a period of six months.
16. COMMITMENTS AND CONTINGENT LIABILITIES
Contingent Liability
Pursuant to the iGourmet Asset Purchase Agreement, the Company recorded contingent liabilities in the original amount of $787,800. This amount relates to certain performance based payments over the twenty-four months following the acquisition date as well as to certain additional liabilities that the Company has evaluated and has recorded on a contingent basis. During the year ended December 31, 2018, the Company reduced this amount by $392,900 as the performance goals for the first year were not met. During the three months ended September 30, 2019, the Company paid the amount of $30,000 in connection with the additional liabilities; at September 30, 2019, the amount of $132,300 remains on the Company’s balance sheet as a current contingent liability, and $227,600 as a long term contingent liability.
Pursuant to the Oasis acquisition, the Company had a contingent liability in the amount of $400,000 on connection with performance-based bonus obligations. During the year ended December 31, 2018, the company paid the amount of $189,000 related to these obligations, and recorded a gain in the amount of $11,000. During the three months ended September 30, 2019, the Company paid the amount of $200,000 in connection with these obligations; at September 30, 2019, there is no further liability related to these obligations on the Company’s balance sheet.
Pursuant to the Mouth Foods LLC Asset Acquisition, the Company recorded contingent liabilities in the amount of $240,576. These amounts relate to the estimate of certain performance based payments following the acquisition date as well as to certain additional liabilities that the Company has evaluated and has recorded on a contingent basis. During the three and nine months ended September 30, 2019, the Company paid the amount of $12,951 and $66,719 in connection with these liabilities. At September 30, 2019, $53,857 is classified as a current contingent liability.
License Agreements
In May 2019, the Company entered into a royalty-based license agreement, through December 31, 2022 with a lifestyle brand, which provides the exclusive right, with certain carve-outs and limitations, to sell and promote branded gift baskets for certain channels including: retail, warehouse club stores, certain of the Company’s current e-commerce channels, and other e-commerce channels such as amazon.com (the “May 2019 License Agreement”). Pursuant to the May 2019 License Agreement, the Company paid an initial royalty deposit in the amount of $50,000 towards the minimum royalty, which is classified as other current assets on the Company’s balance sheet at September 30, 2019. Future royalty amounts owed for minimum payments in connection with the May 2019 License Agreement will be deducted from this deposit. The royalty rate is 5% of net sales, and the Company is required, with certain exceptions and exclusions, to make minimum royalty payments of $100,000 through the end of 2020, $110,000 in 2021, and $125,000 in 2022, respectively.
Litigation
On September 16, 2019, an action (the “PA Action”) was filed in the Court of Common Pleas of Philadelphia County, Trial Division, against, among others, the Company and its wholly-owned subsidiaries, Innovative Gourmet LLC and Food Innovations, Inc. The complaint in the PA Action alleges, inter alia, wrongful death and negligence by a driver employed by Innovative Gourmet and demands minimum aggregate damages of $1.25 million, although we expect Plaintiffs’ actual claims for damages to be substantially higher. The Company and its subsidiaries had auto and umbrella insurance policies, among others, that were in effect for the relevant period. While the initial response from the relevant insurance companies has been to provide coverage only under an auto policy, we intend to further aggressively pursue the Company and its subsidiaries’ insurance coverage under their umbrella and other available policies. In addition, the Company intends to defend this action and believes that the likely outcome would result in any liabilities being covered in full by its insurance carriers. However, if the Company was found responsible for damages in excess of its available insurance coverage, such damages in excess of the coverage could have a material adverse effect on the Company’s operations.
From time to time, the Company has become and may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our financial position or our business and the outcome of these matters cannot be ultimately predicted.
17. EQUITY
Common Stock
At September 30, 2019 and December 31, 2018, a total of 2,587,580 shares are deemed issued but not outstanding by the Company. These include 2,373,171 shares of treasury stock.
Nine months ended September 30, 2019:
The Company issued a total of 131,136 shares of common stock to seven employees for previously accrued bonuses in the amount of $93,666.
The Company charged the amount of $176,709 in connection with the vesting of 332,940 shares of common stock issuable to board members and employees in connection with their employment agreements.
The Company sold 349,650 restricted shares of common stock to Pet Box LLC, a company controlled by David Polinsky, a director of the Company. The purchase price was $0.715 per share for a total of $250,000.
The Company issued 9,524 shares of common stock with a fair value of $0.54 to a service provider; the fair value of $5,143 was charged to operations during the three months ended September 30, 2019.
Nine months ended September 30, 2018:
The Company issued 100,000 shares of common stock for cash of $35,000 pursuant to the exercise of options.
In December 2017, the Company’s Chief Executive Officer exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share. The date for payment of the exercise price of these options was extended to April 26, 2018. 55,192 shares of common stock were deemed issued on March 5, 2018, which number of shares represents a net amount after a cash payment of $45,000 which was a portion of the difference between the exercise price of the options and the market price of the stock on the date of purchase, and taxes.
In December 2017, the Company’s President exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share. The date for payment of the exercise price of these options was extended to April 26, 2018. 60,749 shares of common stock were deemed issued on March 5, 2018, which number of shares represents a net amount after a cash payment of $45,000 which was a portion of the difference between the exercise price of the options and the market price of the stock on the date of purchase, and taxes.
The Company recognized the fair value of stock options vested to management and employees in the amount of $9,462. The Company also recognized the fair value of stock grants to management and employees in the amount of $13,946.
The Company purchased 2,000 shares of common stock from an employee at a cost of $0.97 per share for a total of $1,940 and retired these shares to treasury.
The Company made open market purchases of 27,800 shares of its common stock at an average cost of $0.79 per share for a total of $22,117 and retired these shares to treasury.
Warrants
There were no warrants outstanding at September 30, 2019 or December 31, 2018.
Options
The following table summarizes the options outstanding at September 30, 2019 and the related prices for the options to purchase shares of the Company’s common stock issued by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
|
|
|
|
Weighted |
|
|
average |
|
|
|
|
|
|
average |
|
|||
|
|
|
|
|
|
|
|
|
average |
|
|
exercise |
|
|
|
|
|
|
exercise |
|
|||
|
Range of |
|
|
Number of |
|
|
Remaining |
|
|
price of |
|
|
Number of |
|
|
price of |
|
||||||
|
exercise |
|
|
options |
|
|
contractual |
|
|
outstanding |
|
|
options |
|
|
exercisable |
|
||||||
|
Prices |
|
|
Outstanding |
|
|
life (years) |
|
|
Options |
|
|
Exercisable |
|
|
Options |
|
||||||
|
$ |
0.62 |
|
|
|
360,000 |
|
|
|
4.25 |
|
|
$ |
0.62 |
|
|
|
90,000 |
|
|
$ |
0.62 |
|
|
$ |
0.75 |
|
|
|
50,000 |
|
|
|
2.25 |
|
|
$ |
0.75 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
0.85 |
|
|
|
540,000 |
|
|
|
4.25 |
|
|
$ |
0.85 |
|
|
|
135,000 |
|
|
$ |
0.85 |
|
|
$ |
0.95 |
|
|
|
50,000 |
|
|
|
2.25 |
|
|
$ |
0.95 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
1.10 |
|
|
|
75,000 |
|
|
|
1.62 |
|
|
$ |
1.10 |
|
|
|
75,000 |
|
|
$ |
1.10 |
|
|
$ |
1.20 |
|
|
|
900,000 |
|
|
|
4.25 |
|
|
$ |
1.20 |
|
|
|
225,000 |
|
|
$ |
1.20 |
|
|
$ |
1.38 |
|
|
|
100,000 |
|
|
|
0.17 |
|
|
$ |
1.38 |
|
|
|
100,000 |
|
|
$ |
1.38 |
|
|
$ |
1.50 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
$ |
1.50 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
2.00 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
$ |
2.00 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
2.50 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
$ |
2.50 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
3.00 |
|
|
|
125,000 |
|
|
|
2.25 |
|
|
$ |
3.00 |
|
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
|
2,575,000 |
|
|
|
3.55 |
|
|
$ |
1.24 |
|
|
|
625,000 |
|
|
$ |
1.06 |
|
Transactions involving stock options are summarized as follows:
|
Number of Shares |
Weighted Average Exercise Price |
|||||||
|
Options outstanding at December 31, 2018 |
1,050,000 | $ | 1.80 | |||||
|
Granted |
1,800,000 | $ | 0.98 | |||||
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Exercised |
- | $ | - | |||||
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Cancelled / Expired |
(275,000 |
) |
$ | 1.51 | ||||
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Options outstanding at September 30, 2019 |
2,575,000 | $ | 1.24 | |||||
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Options exercisable at September 30, 2019 |
625,000 | $ | 1.06 | |||||
Aggregate intrinsic value of options outstanding and exercisable at September 30, 2019 and 2018 was $0 and $0, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $0.58 and $0.68 as of September 30, 2019 and 2018, respectively, and the exercise price multiplied by the number of options outstanding.
During the three months ended September 30, 2019 and 2018, the Company charged $38,550 and $24,285, respectively, to operations to recognized stock-based compensation expense for employee stock options. During the nine months ended September 30, 2019 and 2018, the Company charged $115,651 and $47,693, respectively, to operations related to recognized stock-based compensation expense for employee stock options.
Accounting for warrants and stock options
The Company valued warrants and stock options during the three and nine months ended September 30, 2019 using the Black-Scholes valuation model utilizing the following variables:
|
Volatility |
59.4 |
% |
||
|
Dividends |
$ | - | ||
|
Risk-free interest rates |
2.49 |
% |
||
|
Term (years) |
5.00 | |||
18. SUBSEQUENT EVENTS
In October and November 2019, the Company issued 4,762 and 2,381 shares of common stock to a service provider.
On November 8, 2019 the Company, through a newly formed wholly-owned subsidiary, purchased a logistics and warehouse facility (the “Facility”) for $4.5 million. The Facility is approximately 200,000 square feet and is situated on approximately 15 acres in Wright, Pennsylvania. The Facility’s appraised value by a third party appraisal firm in October 2019 was $6,150,000 “as is” and $8,000,000 with additional improvements. Related to the Facility purchase, the Company entered into a commercial loan agreement for both the purchase price and planned improvements to the building. The amount of the loan was $5.5 million, the lender was Fifth Third Bank and the loan is secured by a mortgage on the property and other Company assets. The interest on the loan is LIBOR plus 2.75%, with interest only payments due through September 30, 2020, thereafter with principal amortized over 20 years and maturity on September 2, 2025 Related to the Facility purchase, the Company also acquired certain leases from certain tenants of the Facility, all of which were in good standing at the time of purchase.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto, as well as all other related notes, and financial and operational references, appearing elsewhere in this document.
Certain information contained in this discussion and elsewhere in this report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and is subject to the safe harbor created by that act. The safe harbor created by the Private Securities Litigation Reform Act will not apply to certain “forward looking statements” because we issued “penny stock” (as defined in Section 3(a)(51) of the Securities Exchange Act of 1934 and Rule 3(a)(51-1) under the Exchange Act) during the three year period preceding the date(s) on which those forward looking statements were first made, except to the extent otherwise specifically provided by rule, regulation or order of the Securities and Exchange Commission. We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to have been made in this Report or which are otherwise made by or on our behalf. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “explore”, “consider”, “anticipate”, “intend”, “could”, “estimate”, “plan”, “propose” or “continue” or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. Factors that may affect our results include, but are not limited to, the risks and uncertainties associated with:
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Our ability to raise capital necessary to sustain our anticipated operations and implement our business plan, |
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Our ability to implement our business plan, |
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Our ability to generate sufficient cash to pay our lenders and other creditors, |
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Our dependence on one major customer, |
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Our ability to employ and retain qualified management and employees, |
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Our dependence on the efforts and abilities of our current employees and executive officers, |
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Changes in government regulations that are applicable to our current or anticipated business, |
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Changes in the demand for our services and different food trends, |
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The degree and nature of our competition, |
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The lack of diversification of our business plan, |
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The general volatility of the capital markets and the establishment of a market for our shares, and |
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Disruption in the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future attacks, police and military activities overseas and other disruptive worldwide political and economic events and environmental weather conditions. |
We are also subject to other risks detailed from time to time in our other filings with Securities and Exchange Commission and elsewhere in this report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Critical Accounting Policy and Estimates
Use of Estimates in the Preparation of Financial Statements
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates include certain assumptions related to doubtful accounts receivable, stock-based services, valuation of financial instruments, operating right of use assets and liabilities, and income taxes. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accounts subject to estimate and judgements are accounts receivable reserves, income taxes, intangible assets, contingent liabilities, and equity based instruments. Actual results may differ from these estimates under different assumptions or conditions. We believe our estimates have not been materially inaccurate in past years, and our assumptions are not likely to change in the foreseeable future.
Doubtful Accounts Receivable
The Company maintained an allowance in the amount of $153,044 for doubtful accounts receivable at September 30, 2019, and $155,176 at December 31, 2018. The Company has an operational relationship of several years with our major customers, and we believe this experience provides us with a solid foundation from which to estimate our expected losses on accounts receivable. Should our sales mix change or if we develop new lines of business or new customers, these estimates and our estimation process will change accordingly. These estimates have been accurate in the past.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the United States of America. The estimated fair values approximate their carrying value because of the short-term maturity of these instruments or the stated interest rates are indicative of market interest rates. These fair values have historically varied due to the market price of the Company’s stock at the date of valuation.
Income Taxes
The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the condensed consolidated balance sheet. Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within accrued liabilities.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
Background
We were initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation. From June 1979 through February 2003, we were either inactive or involved in discontinued business ventures. We changed our name to Fiber Application Systems Technology, Ltd in February 2003. In January 2004, we changed our state of incorporation by merging into Innovative Food Holdings, Inc. (IVFH), a Florida corporation formed for that purpose. As a result of the merger, we changed our name to that of Innovative Food Holdings, Inc. In January 2004, we also acquired Food Innovations, Inc. (“FII” or “Food Innovations”), a Florida corporation, for 500,000 shares of our common stock.
On November 2, 2012, the Company entered into an asset purchase agreement (the “Haley Acquisition”) with The Haley Group, LLC whereby we acquired all existing assets of The Haley Group, LLC and its customers. The Haley Acquisition was valued at a total cost of $119,645. On June 30, 2014, pursuant to a purchase agreement, the Company purchased 100% of the membership interest of Organic Food Brokers, LLC, a Colorado limited liability company (“OFB”), for $300,000, 100,000 four year options at a price of $1.46 per share, and up to an additional $225,000 in earn-outs if certain milestones are met. Pursuant to an Asset Purchase Agreement dated as of January 1, 2017 the Company’s wholly-owned subsidiary, Oasis, purchased substantially all of the assets of Oasis Sales and Marketing, L.L.C. for $300,000 cash; a $200,000 structured equity instrument which can be paid in cash or shares of the Company stock at the Company’s option, anytime under certain conditions, or is automatically payable via the issuance of 200,000 shares if the Company’s shares close above $1.00 for ten consecutive days; a $100,000 note; and up to an additional $400,000 in earn-outs over two years if certain milestones are met. The Agreement also contains claw-back provisions if certain revenue conditions are not met.
On August 15, 2014, pursuant to a merger agreement, the Company acquired The Fresh Diet, Inc. (“FD”). Effective February 23, 2016, the Company closed a transaction to sell 90% of our ownership in FD for consideration consisting primarily of a restructuring of our loans, which includes the ability to convert to additional amounts of FD under certain circumstances. There is no continuing cash inflows or outflows from or to the discontinued operations.
Effective January 24, 2018, pursuant to an asset purchase agreement (the “iGourmet Asset Purchase Agreement”), our wholly-owned subsidiary, Innovative Gourmet, acquired substantially all of the assets and certain liabilities of iGourmet LLC and iGourmet NY LLC, privately-held New York limited liability companies located in West Pittston, Pennsylvania and engaged in the sale, marketing, and distribution of specialty food and specialty food items through www.igourmet.com, online marketplaces, additional direct-to-consumer platforms, distribution to foodservice, retail stores and other wholesale accounts, pursuant to the terms of an Asset Purchase Agreement. The consideration for and in connection with the acquisition consisted of: (i) $1,500,000, which satisfied or reduced secured, priority and administrative debt of Sellers; (ii) in connection with and prior to the acquisition, our wholly-owned subsidiary, Food Funding, funded advances of $325,500 to Sellers on a secured basis, pursuant to certain loan documents and as bridge loans, which loans were reduced by the proceeds of the Asset Purchase Agreement; (iii) the purchase for $200,000 of certain debt owed by Sellers, to be paid out of, if available, Innovative Gourmet’s cash flow; (iv) potential contingent liability allocation for a percentage of Sellers’ approximately $2,300,000 of certain debt, not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay; and (v) additional purchase price consideration of (a) up to a maximum of $1,500,000, if EBITDA of Innovative Gourmet reaches $800,00 in 2018, (b) up to a maximum of $1,750,000, if EBITDA of Innovative Gourmet in 2019 exceeds its EBITDA in 2018 by at least 20% and if its EBITDA reaches $5,000,000; and (c) up to a maximum of $2,125,000, if EBITDA of Innovative Gourmet in 2020 exceeds its EBITDA in 2019 by at least 20% and if its EBITDA reaches $8,000,000. The EBITDA based earnout shall be paid 37.5% in cash, 25% in IVFH shares valued at the time of the closing of this transaction and 37.5%, at Innovative Gourmet’s option, in IVFH shares valued at the time of the payment of the earnout or in cash. The 2018 earnout milestone was not met. In connection with the acquisition, our wholly-owned subsidiary, Food Funding, purchased Seller’s senior secured note at a price of approximately $1,187,000, pursuant to the terms of a Loan Sale Agreement with UPS Capital Business Credit. That note was reduced by the proceeds of the Asset Purchase Agreement. See Item (i) above.
Effective July 6, 2018, pursuant to an asset purchase agreement between Mouth Foods, Inc. and our wholly-owned subsidiary M Innovations (the “MFI APA”), the Company acquired certain assets of Mouth Foods, Inc. from MFI (assignment for the benefit of creditors), LLC, in connection with a Delaware assignment proceeding. The MFI APA was accounted for as an acquisition of an ongoing business where the Company was treated as the acquirer and the acquired assets and assumed liabilities were recorded by the Company at their preliminary estimated fair values. Mouth Foods, Inc., a privately held New York company operating out of Brooklyn, was an expert curator and online retailer of high quality specialty foods from small-batch makers in the US.
The consideration for and in connection with the acquisition consisted of (i) closing related cash payments of $208,355; (ii) additional revenue-based contingent liabilities valued by management at $100,000 related to certain future sales of purchased assets payable under the following terms: payment of 5% of certain revenues, with no payments on the first $500,000 of revenues and no payments on revenues after June 30, 2020; (iii) additional revenue based contingent liabilities of up to $185,000 associated with the purchase of certain debt of the seller; and (iv) additional contingent liability consideration valued by management at approximately $20,000.
Transactions With a Major Customer
Transactions with a major customer and related economic dependence information is set forth immediately below and above in Note 2 to the Condensed Consolidated Financial Statements and also in our Annual Report on Form 10-K for the year ended December 31, 2018 (1) following our discussion of Liquidity and Capital Resources, (2) Concentrations of Credit Risk in Note 17 to the Consolidated Financial Statements, and (3) as the fourth item under Risk Factors.
Relationship with U.S. Foods
We have historically sold the majority of our products through a distributor relationship between FII and Next Day Gourmet, L.P., a subsidiary of U.S. Foods, a leading broadline distributor. These sales amounted to $8,037,169 (60% of total sales) and $7,559,430 (63% of total sales) for the three months ended September 30, 2019 and 2018 respectively; and $24,247,665 (60% of total sales) and $22,151,487 (63% of total sales) for the nine months ended September 30, 2019 and 2018 respectively. On January 26, 2015 we executed a contract between Food Innovations, Inc., our wholly-owned subsidiary, and U.S. Foods, Inc. The term of the Agreement is from January 1, 2015 through December 31, 2016 and provides for a limited number of automatic annual renewals thereafter if no party gives the other 30 days’ notice of its intent not to renew. Based on the terms, the Agreement was extended through 2018. Effective January 1, 2018 the Agreement was further amended to remove the cap on renewals, and provide for an unlimited number of additional 12-month terms unless either party notifies the other in writing, 30 days prior to the end date, of its intent not to renew.
RESULTS OF OPERATIONS
This discussion may contain forward looking-statements that involve risks and uncertainties. Our future results could differ materially from the forward looking-statements discussed in this report. This discussion should be read in conjunction with our consolidated financial statements, the notes thereto and other financial information included elsewhere in the report.
Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
Revenue
Revenue increased by $1,411,274 or approximately 12% to $13,465,764 for the three months ended September 30, 2019 from $12,054,490 in the prior year. The increase in revenues was attributable to an increase in revenues associated with foodservice and ecommerce offset partially by a decrease in revenues associated with national brand management.
We continue to assess the potential of new revenue sources from the manufacture and sale of proprietary food products, private label products and additional sales channel opportunities in both the foodservice and consumer space and will implement a strategy which based on our analysis provides the most beneficial opportunity for growth.
Any changes in the food distribution and specialty foods operating landscape that materially hinders our current ability and/or cost to deliver our products to our customers could potentially cause a material impact on our net revenue and gross margin and, therefore, our profitability and cash flows could be adversely affected.
Currently, a small portion of our revenues comes from imported products or international sales. Our current sales from such markets may be hampered and negatively impacted by any economic tariffs that may be imposed in the United States or in foreign countries.
See “Transactions with Major Customers” and the Securities and Exchange Commission’s (“SEC”) mandated FR-60 disclosures following the “Liquidity and Capital Resources” section for a further discussion of the significant customer concentrations, loss of significant customer, critical accounting policies and estimates, and other factors that could affect future results.
Cost of goods sold
Our cost of goods sold for the three months ended September 30, 2019 was $9,864,484, an increase of $1,340,979 or approximately 15.7% compared to cost of goods sold of $8,523,505 for the three months ended September 30, 2019. Cost of goods sold is made up of the following expenses for the three months ended September 30, 2019: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $6,544,503; and shipping, delivery, handling, and purchase allowance expenses in the amount of $3,319,981. Total gross margin was approximately 26.7% of sales in 2019 compared to approximately 29.3% of sales in 2018. The increase in cost of goods sold is primary attributable to an increase in sales. The decrease in gross margins from 2018 are primarily attributable to variation in product and revenue mix across our various selling channels including a decrease in higher gross margin revenues associated with National Brand Management and variations in both revenue mix and gross margins associated with foodservice revenues.
In 2019, we continued to price our products in order to increase sales, gain market share and increase the number of our end users and ecommerce customers. We were successful in both increasing sales and increasing market share and increasing the number of our ecommerce customers. We currently expect, if market conditions and our product revenue mix remain constant, that our cost of goods sold may increase.
Selling, general, and administrative expenses
Selling, general, and administrative expenses increased by $399,697 or approximately 11.9% to $3,754,012 during the three months ended September 30, 2019 compared to $3,354,315 for the three months ended September 30, 2018. The increase in selling, general, and administrative expenses was primarily due to an increase in office, facility, and vehicle costs of $259,445; payroll and related costs of approximately $230,323 (including an increase in non-cash compensation in the amount of $76,963), and an increase in insurance costs of $66,667. These increases were partially offset by decreases in professional fees in the amount of $43,349 and banking cost and processing fees in the amount of $21,227. The increases were driven mainly by increases associated with Mouth which was added in 2019, and increases in Company payroll associated mainly with additional personnel added to the Company to support sales growth.
Gain on sale of fixed assets
During the three months ended September 30, 2019, the Company recorded a gain on the sale of warehouse equipment in the amount of $12,495; there was no comparable transaction in the prior period.
Interest expense, net
Interest expense, net of interest income, decreased by $10,592 or approximately 37.9% to $17,377 during the three months ended September 30, 2019, compared to $27,969 during the three months ended September 30, 2018. Interest accrued or paid on the Company’s commercial loans and notes payable decreased by $10,233 to $19,094 during the current period, compared to $29,327 during the prior year; interest income increased by $359 to $1,717 during the current period compared to $1,358 during the prior period.
Net loss
For the reasons above, the Company had a net loss for the three months ended September 30, 2019 of $157,614 which is a decrease of approximately $306,315 or 206.0% compared to a net income of $148,701 during the three months ended September 30, 2018. The loss for the three months ended September 30, 2019 includes a total of $391,262 in non-cash charges, including amortization of intangible assets in the amount of $210,029, depreciation expense of $79,982, and charges for non-cash compensation in the amount of $101,251. The income for the three months ended September 30, 2018 includes a total of $318,546 in non-cash charges, including amortization of intangible assets in the amount of $242,874, depreciation expense of $51,384, and non-cash compensation of $24,288.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
Revenue
Revenue increased by $5,290,393 or approximately 15.1% to $40,250,430 for the nine months ended September 30, 2019 from $34,960,037 in the prior year. The increase in revenues was attributable to an increase in revenues associated with foodservice and ecommerce offset partially by a decrease in revenues associated with national brand management.
We continue to assess the potential of new revenue sources from the manufacture and sale of proprietary food products, private label products and additional sales channel opportunities in both the foodservice and consumer space and will implement a strategy which based on our analysis provides the most beneficial opportunity for growth.
Any changes in the food distribution and specialty foods operating landscape that materially hinders our current ability and/or cost to deliver our products to our customers could potentially cause a material impact on our net revenue and gross margin and, therefore, our profitability and cash flows could be adversely affected.
Currently, a small portion of our revenues comes from imported products or international sales. Our current sales from such markets may be hampered and negatively impacted by any economic tariffs that may be imposed in the United States or in foreign countries.
See “Transactions with Major Customers” and the Securities and Exchange Commission’s (“SEC”) mandated FR-60 disclosures following the “Liquidity and Capital Resources” section for a further discussion of the significant customer concentrations, loss of significant customer, critical accounting policies and estimates, and other factors that could affect future results.
Cost of goods sold
Our cost of goods sold for the nine months ended September 30, 2019 was $28,608,233, an increase of $4,237,812 or approximately 17.4% compared to cost of goods sold of $24,370,421 for the nine months ended September 30, 2018. Cost of goods sold is made up of the following expenses for the nine months ended September 30, 2019: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $19,712,472; and shipping, delivery, handling, and purchase allowance expenses in the amount of $8,895,761. Total gross margin was approximately 28.9% of sales in 2019 compared to approximately 30.3% of sales in 2018. The increase in cost of goods sold is primary attributable to an increase in sales. The decrease in gross margins from 2018 are primarily attributable to variation in product and revenue mix across our various selling channels including a decrease in higher gross margin revenues associated with National Brand Management and variations in both revenue mix and gross margins associated with foodservice revenues.
In 2019, we continued to price our products in order to increase sales, gain market share and increase the number of our end users and ecommerce customers. We were successful in both increasing sales and increasing market share and increasing the number of our ecommerce customers. We currently expect, if market conditions and our product revenue mix remain constant, that our cost of goods sold may increase.
Selling, general, and administrative expenses
Selling, general, and administrative expenses increased by $2,131,727 or approximately 22.6% to $11,560,838 during the nine months ended September 30, 2019 compared to $9,429,111 for the nine months ended September 30, 2018. The increase in selling, general, and administrative expenses was primarily due to an increase in payroll and related costs of approximately $1,505,079 (including an increase in non-cash compensation in the amount of $249,807), an increase in office, facility, and vehicle costs of $476,774, an increase in depreciation and amortization of $129,812, an increase in advertising and marketing of $88,056, an increase in travel and entertainment of $86,789, an increase in computer and IT costs in the amount of $66,394, and an increase in insurance costs of $63,185. Professional fees decreased by $179,047 during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due to a decrease in acquisition activity in the current period compared to the nine months ended September 30, 2018. The increase in payroll and related costs were driven mainly by increases associated with Mouth which was added in 2019, and increases in Company payroll associated mainly with additional personnel added to the Company to support sales growth.
Gain on sale of fixed assets
During the nine months ended September 30, 2019, the Company recorded a gain on the sale of warehouse equipment in the amount of $12,495; there was no comparable transaction in the prior period.
Interest expense, net
Interest expense, net of interest income, decreased by $23,009 or approximately 25.8% to $66,004 during the nine months ended September 30, 2019, compared to $89,013 during the nine months ended September 30, 2018. Interest accrued or paid on the Company’s commercial loans and notes payable decreased by $24,000 to $70,882 during the current period, compared to $94,882 during the prior year; interest income decreased by $991 to $4,878 during the current period compared to $5,869 during the prior period.
Net income
For the reasons above, the Company had net income for the nine months ended September 30, 2019 of $27,850 which is a decrease of approximately $899,642 or 97.0% compared to a net income of $927,492 during the nine months ended September 30, 2018. The income for the nine months ended September 30, 2019 includes a total of $1,218,600 in non-cash charges, including amortization of intangible assets in the amount of $689,726, depreciation expense of $231,371, and charges for non-cash compensation in the amount of $297,503. The income for the nine months ended September 30, 2018 includes a total of $841,981 in non-cash charges, including amortization of intangible assets in the amount of $648,177, depreciation expense of $146,108 and charges for non-cash compensation in the amount of $47,696.
Liquidity and Capital Resources at September 30, 2019
As of September 30, 2019, the Company had current assets of $8,895,532, consisting of cash and cash equivalents of $2,825,995; trade accounts receivable of $3,179,676; inventory of $2,695,489; and other current assets of $194,392. Also at September 30, 2019, the Company had current liabilities of $3,915,457, consisting of trade payables and accrued liabilities of $2,503,147; accrued interest of $18,471; deferred revenue of $197,574; lease liabilities – operating leases, current portion of $165,369; lease liabilities – financing leases, current portion of $19,279; current portion of notes payable of $705,460; and current portion of contingent liabilities of $306,157.
During the nine months ended September 30, 2019, the Company had cash used in operating activities of $848,376. Cash used in operations consisted of the Company’s consolidated net income of $27,850 plus non-cash compensation in the amount of $297,503; depreciation and amortization of $921,096; and amortization of right-of-use asset of $140,304. These amounts were partially offset by a gain on the sale of fixed assets in the amount of $12,495, a decrease in provision for doubtful accounts of $1,633 and by a change in the components of current assets and liabilities in the amount of $2,221,001.
The Company had cash used in investing activities of $200,800 for the nine months ended September 30, 2019, which consisted of cash paid for the acquisition of property and equipment of $131,095, cash paid for the acquisition of intangible assets of $47,000, and cash paid in connection with an investment in food-related companies of $47,000. The Company also received $12,495 from the sale of fixed assets.
The Company had cash used in financing activities of $884,646 for the nine months ended September 30, 2019, which consisted of principal payments made on notes payable of $818,819, cash payments on contingent liabilities in connection with acquisitions of $296,719, and principal payments on financing leases of $19,108, partially offset by the sale of common stock for cash in the amount of $250,000.
The Company had net working capital of $4,980,075 as of September 30, 2019. The Company had cash used by operations during the nine months ended September 30, 2019 in the amount of $848,376. This compares to cash generated from operating activities of $111,583 during the nine months ended September 30, 2018. The Company intends to continue to focus on increasing market share and cash flow from operations by focusing its sales activities on specific market segments and new product lines. As of September 30, 2019, we do not have any material long-term obligations other than those described in Notes 12, 13, and 14 to the financial statements included in this report. As we seek to increase our sales of new items and enter new markets, acquire new businesses as well as identify new and other consumer and food service oriented products and services, we may use existing cash reserves, long-term financing, or other means to finance such diversification.
If the Company’s cash flow from operations is insufficient to fully implement its business plan, the Company may require additional financing in order to execute its operating plan. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all.
In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
2019 Plans
During 2019, in addition to our efforts to increase sales in our existing foodservice operations we plan to attempt to expand our business by expanding our focus to additional specialty foods markets in both the consumer and foodservice sector, exploring potential acquisition and partnership opportunities and continuing to extend our focus in the specialty food market through the growth of the Company’s existing sales channels and through a variety of additional sales channel relationships which are currently being explored. In addition, we are currently exploring the introduction of a variety of new product categories and new product lines, including private label products and proprietary branded products to leverage our existing foodservice and consumer customer base.
Furthermore, the Company intends to expand its activities in the direct to consumer space and the overall consumer packaged goods (CPG) space through leveraging the assets acquired from iGourmet LLC and Mouth Foods, Inc. and through leveraging its overall capabilities in the consumer space.
No assurances can be given that any of these plans will come to fruition or that if implemented that they will necessarily yield positive results.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
In the opinion of management, inflation has not had a material effect on the Company’s financial condition or results of its operations.
RISK FACTORS
The Company’s business and success is subject to numerous risk factors as detailed in its Annual Report on Form 10-K for the year ended December 31, 2018 which is available at no cost at www.sec.gov.
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit pursuant to the requirements of the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
(a) Evaluation of disclosure controls and procedures
Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act.) as of the end of the period covered by this Quarterly Report, have identified a control deficiency regarding the integration of two acquisitions in 2018 and as a result management has concluded our internal control over financial reporting was ineffective at September 30, 2019 at the reasonable assurance level. Management of the Company believes that this deficiency is primarily due to the smaller size of the company’s accounting staff in relation to certain continued system integrations related to the 2018 acquisitions of certain assets of iGourmet LLC and Mouth Foods, Inc. To address this matter, we have expanded our accounting staff and we expect to retain additional qualified personnel to continue to remediate this control deficiency in the future. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
(b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) and 15d-15 that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
On September 16, 2019, an action (the “PA Action”) was filed in the Court of Common Pleas of Philadelphia County, Trial Division, against, among others, the Company and its wholly-owned subsidiaries, Innovative Gourmet LLC and Food Innovations, Inc. The complaint in the PA Action alleges, inter alia, wrongful death and negligence by a driver employed by Innovative Gourmet and demands minimum aggregate damages of $1.25 million, although we expect Plaintiffs’ actual claims for damages to be substantially higher. The Company and its subsidiaries had auto and umbrella insurance policies, among others, that were in effect for the relevant period. While the initial response from the relevant insurance companies has been to provide coverage only under an auto policy, we intend to further aggressively pursue the Company and its subsidiaries’ insurance coverage under their umbrella and other available policies. In addition, the Company intends to defend this action and believes that the likely outcome would result in any liabilities being covered in full by its insurance carriers. However, if the Company was found responsible for damages in excess of its available insurance coverage, such damages in excess of the coverage could have a material adverse effect on the Company’s operations.
From time to time, the Company has become and may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our financial position or our business and the outcome of these matters cannot be ultimately predicted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 23, 2019, the Company entered into a subscription agreement to sell 349,650 restricted shares of common stock to Pet Box LLC, a company controlled by David Polinsky, a director of the Company. The purchase price was $0.715 per share for a total of $250,000. The sale was made directly between the Company and Mr. Polinsky without any brokers or public advertising and was exempt as a private placement pursuant to Section 4(1).
On July 31, 2019, the Company issued 9,524 shares of common stock with a fair value of $0.54 to a service provider; the fair value of $5,143 was charged to operations during the three months ended September 30, 2019.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
On November 8, 2019 the Company, through a newly formed wholly-owned subsidiary, Innovative Food Properties, LLC, a Delaware limited liability company (“Purchaser”), purchased a logistics and warehouse facility (the “Facility”) for $4.5 million from East Coast Logistics & Distribution, Inc., a Pennsylvania corporation. The Facility is approximately 200,000 square feet and is situated on approximately 1.5 acres in Mountain Top, Pennsylvania. The purchase price was financed by a loan from Fifth Third Bank, National Association (“Fifth Third Bank”) secured by a mortgage on the property and other Company and Purchaser assets, as further described below. Related to the Facility purchase, the Purchaser also acquired certain leases from certain tenants of the Facility, all of which were in good standing at the time of purchase.
As part of the financing for the acquisition of the Facility described above, on November 8, 2019 the Company and Purchaser entered into various agreements with Fifth Third Bank including, Eighth Amendment to Restated Loan Agreement dated November 26, 2013, as modified and amended to date, which primarily served to add a new credit facility in the amount of $5.5 million; a Promissory Note of Purchaser evidencing such new loan which is due September 2, 2025 and carries interest at LIBOR plus 2.75%; and a Mortgage, Assignment of Leases, Fixture Filing and Security Agreement whereby the Purchaser granted Fifth Third Bank security for the new loan.
The foregoing description of the Eighth Amendment to Restated Loan Agreement; Promissory Note; and Mortgage, Assignment of Leases, Fixture Filing and Security Agreement and are qualified in their entirety by reference to the agreements, copies of which are filed as exhibits to this Report and are incorporated by reference in this Part II, Item 5.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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/s/ Sam Klepfish |
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/s/ John McDonald |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 9/2/25 | ||||
| 9/30/24 | ||||
| 3/21/24 | ||||
| 9/30/23 | ||||
| 2/28/23 | ||||
| 12/31/22 | ||||
| 9/30/22 | ||||
| 9/30/21 | ||||
| 8/1/21 | ||||
| 9/30/20 | ||||
| 6/30/20 | 10-Q, NT 10-Q | |||
| 5/29/20 | ||||
| 1/1/20 | ||||
| 12/31/19 | 10-K, 10-K/A | |||
| Filed on: | 11/14/19 | |||
| 11/12/19 | ||||
| 11/8/19 | ||||
| For Period end: | 9/30/19 | |||
| 9/16/19 | ||||
| 8/28/19 | ||||
| 8/1/19 | ||||
| 7/31/19 | ||||
| 7/23/19 | ||||
| 6/30/19 | 10-Q | |||
| 3/31/19 | 10-Q, NT 10-Q | |||
| 3/27/19 | ||||
| 3/22/19 | ||||
| 1/1/19 | ||||
| 12/31/18 | 10-K, 5, NT 10-K | |||
| 12/21/18 | ||||
| 12/15/18 | ||||
| 12/6/18 | SC 13D/A | |||
| 9/30/18 | 10-Q | |||
| 8/1/18 | ||||
| 7/6/18 | ||||
| 6/30/18 | 10-Q | |||
| 4/26/18 | ||||
| 3/28/18 | ||||
| 3/23/18 | ||||
| 3/5/18 | ||||
| 2/28/18 | ||||
| 2/26/18 | ||||
| 2/5/18 | ||||
| 1/24/18 | 8-K, 8-K/A | |||
| 1/23/18 | 8-K | |||
| 1/1/18 | ||||
| 12/31/17 | 10-K | |||
| 8/1/17 | ||||
| 2/15/17 | ||||
| 1/1/17 | ||||
| 12/31/16 | 10-K | |||
| 9/5/16 | ||||
| 8/5/16 | ||||
| 8/1/16 | ||||
| 2/23/16 | 8-K | |||
| 5/29/15 | ||||
| 5/14/15 | ||||
| 1/26/15 | 8-K | |||
| 1/1/15 | ||||
| 8/15/14 | 8-K, 8-K/A | |||
| 6/30/14 | 10-Q | |||
| 11/26/13 | ||||
| 7/15/13 | ||||
| 11/2/12 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/21/24 Innovative Food Holdings Inc. 10-K 12/31/23 110:10M Federal Filings, LLC/FA 3/31/23 Innovative Food Holdings Inc. 10-K 12/31/22 99:8.2M Federal Filings, LLC/FA 3/31/22 Innovative Food Holdings Inc. 10-K 12/31/21 98:8.5M Federal Filings, LLC/FA 4/15/21 Innovative Food Holdings Inc. 10-K 12/31/20 103:7.7M Federal Filings, LLC/FA |