INNOVATIVE FOOD HOLDINGS INC

Previous wording

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:

Current wording

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 (the “Private Securities Litigation Reform Act”), 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, as amended (the “Exchange Act”), 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 (the “SEC”). 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:

Previous wording

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts pursuant to the guidance of Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326) as codified in Accounts Standards Codification (ASC) 326, Financial Instruments – Credit Losses. Under ASC 326, the Company utilizes a current and expected credit loss (CECL) impairment model. ASU 2016-13 became effective for us on January 1, 2023. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $82,336 and $46,477 at June 30, 2024 and December 31, 2023, respectively.

Current wording

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts pursuant to the guidance of Accounting Standards Update (“ASU”) 2016-13,Financial Instruments–* Credit Losses* (Topic 326), as codified in Accounts Standards Codification (“ASC”) 326,Financial Instruments–* Credit Losses*. Under ASC 326, the Company utilizes a current and expected credit loss (CECL) impairment model. ASU 2016-13 became effective for us on January 1, 2023. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $87,149 and $46,477 at September 30, 2024 and December 31, 2023, respectively.

Previous wording

Innovative Food Holdings (IVFH) builds dynamic scalable businesses by selling specialty foods that are difficult to find through traditional channels. Our expertise is forging close relationships with the producers, growers, makers and distributors of specialty products, then carefully selecting our suppliers based on their quality, uniqueness and reliability.

Current wording

We build dynamic scalable businesses by selling specialty foods that are difficult to find through traditional channels. Our expertise is forging close relationships with the producers, growers, makers and distributors of specialty products, then carefully selecting our suppliers based on their quality, uniqueness and reliability.

Previous wording

We leverage this unique, premium assortment to serve the needs of Professional Chefs in settings such as restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses. We provide these premium customers with products that can’t typically be found through their broadline distributor’s warehouse assortment. We distribute these products directly to Professional Chefs in Chicago through our subsidiary, Artisan Specialty Foods, Inc., and nationally through our e-commerce businesses on Amazon.com and our own website. We also drop ship specialty foods to Professional Chefs nationally through the websites of broadline distributors, such as US Foods, Inc. Between this variety of sales channels, IVFH is able to serve our Professional Chef customers wherever they are located.

Current wording

We leverage this unique, premium assortment to serve the needs of Professional Chefs in settings such as restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses. We provide these premium customers with products that can’t typically be found through their broadline distributor’s warehouse assortment. We distribute these products directly to Professional Chefs in Chicago through our subsidiary, Artisan Specialty Foods, Inc., and nationally through our e-commerce businesses on Amazon.com and our own website. We also drop ship specialty foods to Professional Chefs nationally through the websites of broadline distributors, such as US Foods, Inc. Lastly, we sell these food to large retailers for resale on their shelves to the end customer. Between this variety of sales channels, we are able to serve our Professional Chef customers wherever they are located.

Previous wording

We have made the strategic decision to sell our 200K square foot facility in Mountain Top, Pennsylvania and consolidate our warehouse activities into our 28K square foot facility in the greater Chicago area. We have the capabilities to pack and ship frozen, refrigerated, and ambient products, enabling us to sell a broad range of specialty foods. We also have GFSI/SQF certifications, allowing compatibility with the highest standards of food handling supply chains in the world, and the quality and food safety that our premium customers expect from us. These warehouses have the ability to ship packages and pallets of all sizes through overnight shipping. We also leverage our own fleet of trucks to deliver directly to our Professional Chef customers within our reach.

Current wording

We operate our new retail business, as well as our airline catering distribution business, out of our 200,000 square foot facility in Mountain Top, Pennsylvania,. We also operate warehouse activities in our owned 28,000 square foot facility in the greater Chicago area. Once our acquisition of Golden Organics closes, we will have another warehouse, operating out of Denver, CO, measuring approximately 20,000 square feet. We have the capabilities to pack and ship frozen, refrigerated, and ambient products, enabling us to sell a broad range of specialty foods. We also have GFSI/SQF certifications, allowing compatibility with the highest standards of food handling supply chains in the world, and the quality and food safety that our premium customers expect from us. These warehouses have the ability to ship packages and pallets of all sizes through overnight shipping. We also leverage our own fleet of trucks to deliver directly to our Professional Chef customers within our reach.

Previous wording

We also saw a decrease in our logistics business (from $270,443 in the three months ended June 30, 2023 to $249,257 in the three months ended June 30, 2024) as our existing customers experienced softness in demand and subsequently less volume throughput for our logistics services. Though small, we continue to seek new opportunities to leverage our logistics services in order to better leverage existing fixed assets.

Current wording

We also saw a decrease in our logistics business, from $358,717 in the three months ended September 30, 2023 to $305,973 in the three months ended September 30, 2024. This decline was due to softness in demand from our existing customers, which resulted in less volume throughput for our logistics services. Though small, we continue to seek new opportunities to leverage our logistics services in order to better leverage existing fixed assets.

Previous wording

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.

Current wording

See “Transactions with Major Customers” and the 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.

Previous wording

Our cost of goods sold for the three months ended June 30, 2024 was $12.7 million, a decrease of $1.3 million or approximately 9.6% compared to cost of goods sold of $14.0 million for the three months ended June 30, 2023. Cost of goods sold was made up of the following expenses for the three months ended June 30, 2024: cost of goods in the amount of $9.4 million; and shipping, delivery, handling, and purchase allowance expenses in the amount of $3.1 million; and cost of goods associated with logistics of $0.1 million. Gross margins as a percentage of sales decreased during the current period to 23.8% compared to 24.2% during the comparable period, a decline of 41 basis points, driven by our continued ramp down and liquidation efforts related to the consumer eCommerce business. However, after adjusting for these liquidation efforts in the amount of $0.1 million, gross margins continued to make forward progress, improving by 37 basis points vs. the comparable period, as we continued implementing our strategy to improve cost controls, better manage pricing, and focus more on product mix. Importantly, the improvement was driven by an improvement in gross margins in the Specialty Foodservice business. Additionally, we renegotiated a new contract with our shipping provider which reduced shipping expenses materially.

Current wording

For the three months ended September 30, 2024, our cost of goods sold was $12.7 million, reflecting an increase of $0.3 million or approximately 2.5% from $12.4 million for the same period in 2023. The cost of goods sold comprised the following expenses for the three months ended September 30, 2024: $9.9 million for cost of goods; $2.7 million for shipping, delivery, handling, and purchase allowance expenses; and $0.1 million for logistics-related costs. Gross margins as a percentage of sales decreased during the current period to 25.2%, compared to 26.8% in the comparable period, representing a decline of 158 basis points, driven by our continued ramp down of the consumer e-commerce business, some one-time benefits in our Specialty Foodservice business last year, and margin investments to acquire new retail business customers. Although our margins have declined, they continue to stabilize as we transition away from the direct-to-consumer e-commerce business. In the three months ended September 30, 2024, we also benefited from a renegotiated contract with our shipping provider, which significantly reduced shipping expenses.

Previous wording

Selling, general, and administrative expenses (“SG&A”) decreased by $0.3 million or 7.6% to $3.9 million during the three months ended June 30, 2024 compared to $4.2 million for the three months ended June 30, 2023. The decrease in selling, general, and administrative expenses was primarily due to a decrease in payroll and related costs of $0.3 million, a decrease in advertising and marketing costs of $0.2 million, a decrease in office and facilities costs of $0.1 million, and a decrease in depreciation and amortization of $0.1 million. These decreases were partially offset by an increase in non-cash compensation of $0.4 million associated with the revaluation of stock appreciation rights pursuant to a management compensation plan. Excluding non-cash compensation, SG&A expenses would have decreased by $0.7 million, or 17.9%, resulting in a 190 basis point reduction in SG&A as a percentage of sales compared to the comparable period.

Current wording

Selling, general, and administrative expenses (“SG&A”) decreased by $0.6 million, or 14.1%, to $3.6 million during the three months ended September 30, 2024 compared to $4.2 million for the three months ended September 30, 2023. SG&A as a percentage of sales decreased from 24.5% of sales during the three months ended September 30, 2023 to 21.0% of sales during the current period as we continued to thoughtfully reduce our expense structure. The decrease in SG&A was primarily due to a decrease in non-cash compensation of $0.3 million, a decrease advertising of $0.2 million, a decrease in payroll and related costs of $0.1 million, a decrease in amortization and depreciation of $0.1 million, and a decrease in office, facilities, and vehicles costs of $0.1 million. These decreases were partially offset by an increase in legal and professional fees of $0.2 million related to our acquisition and divestiture activity. Excluding non-cash compensation and non-recurring legal & transactional expenses, SG&A would have decreased by $0.5 million, or 11.0%, resulting in a 222 basis point reduction in SG&A as a percentage of sales compared to the comparable period.

Previous wording

Interest expense, net of interest income, decreased by $153 or approximately 0% to $209,487 during the three months ended June 30, 2024, compared to $209,640 during the three months ended June 30, 2023. There was an increase in interest income in the amount of $13,473 due to higher cash balances during the period. There was also an increase in interest expense accrued or paid on the Company’s commercial loans and notes payable in the amount of $12,764 due to higher interest rates under the MapleMark term loans, backed by the USDA.

Current wording

Interest expense, net of interest income, decreased by $43,719, or approximately 16.8%, to $217,275 during the three months ended September 30, 2024, compared to $260,994 during the three months ended September 30, 2023. There was an increase in interest income in the amount of $11,403 due to higher cash balances during the period. There was also a decrease in interest expense accrued or paid on the Company’s commercial loans and notes payable in the amount of $32,314 due to lower principal balances, driven by the payoff of the Company’s loan associated with its Florida office building, which was sold in January 2024.

Previous wording

During the six months ended June 30, 2024, the Company sold its property located in Bonita Springs, Florida for a gain in the amount of $1,807,516. There was no comparable transaction in the prior period.

Current wording

During the three months ended September 30, 2024, the Company sold certain intangible assets of igourmet for a gain in the amount of $834,463. There was no comparable transaction in the prior period.

Previous wording

During the six months ended June 30, 2024, the Company recognized income in the amount of $3,800 in connection with the lease of space in our Mountaintop warehouse facility; this amount was unchanged compared to the prior period.

Current wording

During the three months ended September 30, 2024, the Company recognized income in the amount of $1,900 in connection with the lease of space in our Mountaintop warehouse facility compared to $2,389 in the prior period.

Previous wording

For the reasons above, the Company had a net loss from continuing operations for the three months ended June 30, 2024 of $(102,958) compared to a net income from continuing operations of $82,760 during the three months ended June 30, 2023. The net loss from continuing operations for the three months ended June 30, 2024 includes a net total of $590,679 in non-cash charges: non-cash compensation in the amount of $518,119, depreciation and amortization expense of $58,302, provision for doubtful accounts of $12,973, and amortization of the discount on notes payable term loans of $1,285. The net loss from continuing operations for the three months ended June 30, 2023 includes a total of $261,257 in non-cash charges, including non-cash compensation in the amount of $72,804, depreciation and amortization expense of $141,485, provision for doubtful accounts of $46,239, and amortization of the discount on notes payable of $729.

Current wording

For the reasons above, the Company had net income from continuing operations for the three months ended September 30, 2024 of $1,332,983 compared to a net income from continuing operations of $123,544 during the three months ended September 30, 2023. The net income from continuing operations for the three months ended September 30, 2024 includes a net total of $98,702 in non-cash charges: non-cash compensation in the amount of $49,682, depreciation and amortization expense of $42,926, provision for doubtful accounts of $4,812, and amortization of the discount on notes payable term loans of $1,282. The net income from continuing operations for the three months ended September 30, 2023 includes a total of $542,805 in non-cash charges, consisting of non-cash compensation in the amount of $350,053, depreciation and amortization expense of $142,179, provision for doubtful accounts of $49,289, and amortization of the discount on notes payable of $1,284.

Previous wording

We are also seeing decreases in our logistics business (from $519,012 for the six months ended June 30, 2023 to $457,468 for the six months ended June 30, 2024 as our customers have faced demand softness on their side.

Current wording

We continue to see declines in our logistics business (from $877,729 for the nine months ended September 30, 2023 to $763,441 for the nine months ended September 30, 2024) as our customers have faced demand softness on their side.

Previous wording

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.

Current wording

See “Transactions with Major Customers” and the 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.

Previous wording

Our cost of goods sold for the six months ended June 30, 2024 was $24.6 million, a decrease of $2.3 million or approximately 8.7% compared to cost of goods sold of $26.9 million for the six months ended June 30, 2023. Cost of goods sold was made up of the following expenses for the six months ended June 30, 2024: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $18.0 million; shipping, delivery, handling, and purchase allowance expenses in the amount of $6.3 million; and cost of goods associated with logistics of $0.3 million. Gross margins as a percentage of sales increased during the current period to 24.1% compared to 23.5% during the comparable period, as we continued implementing our strategy to improve cost controls, better manage pricing, and focus more on product mix. After adjusting for the Q2 liquidation efforts, in the amount of $0.1 million gross margins improved by 101 basis points versus comparable period.

Current wording

Our cost of goods sold for the nine months ended September 30, 2024 was $37.3 million, a decrease of $2.0 million, or approximately 5.2%, compared to cost of goods sold of $39.4 million for the nine months ended September 30, 2023. Cost of goods sold was made up of the following expenses for the nine months ended September 30, 2024: cost of goods of specialty, meat, game, cheese, seafood, poultry and other sales categories in the amount of $27.9 million; shipping, delivery, handling, and purchase allowance expenses in the amount of $9.0 million; and cost of goods associated with logistics of $0.4 million. Gross margins as a percentage of sales remained at 24.5% during the current period, which was no change from the comparable period, as we continued implementing our strategy to improve cost controls, better manage pricing, and focus more on product mix. After adjusting for the second quarter 2024 liquidation efforts, in the amount of $0.1 million, our YTD gross margins improved by 119 basis points versus comparable period. As we launch our new retail business, we expect margin compression in the fourth quarter of 2024 as we work to optimize our business model.

Previous wording

Selling, general, and administrative expenses decreased by $0.7 million or approximately 8.7% to $7.9 million during the six months ended June 30, 2024 compared to $8.6 million for the six months ended June 30, 2023. The decrease in selling, general, and administrative expenses was primarily due to a decrease in payroll and related costs of $0.4 million; advertising costs of $0.3 million; office, facilities, and vehicles of $0.2 million; amortization and depreciation of $0.1 million; legal and professional fees of $78,408; computer and IT costs of $56,141, and insurance costs of $35,090. These decreases were partially offset by increases in non-cash compensation of $0.5 million, taxes of $25,005, and bad debt expense of $16,963. Selling, general, and administrative expenses as a percentage of sales decreased from 24.5% of sales during the six months ended June 30, 2023 to 24.3% of sales during the current period as we continued to thoughtfully reduce our expense structure.

Current wording

SG&A decreased by $1.3 million, or approximately 10.4%, to $11.5 million during the nine months ended September 30, 2024 compared to $12.8 million for the nine months ended September 30, 2023. The decrease in SG&A was primarily due to a decrease in payroll and related costs of $0.5 million; advertising costs of $0.5 million; office, facilities, and vehicles of $0.3 million; amortization and depreciation of $0.2 million; and computer and IT costs of $0.1 million. These decreases were partially offset by increases in professional and legal fees of $0.1 million, associated with divestiture and acquisition activity, and non-cash compensation of $0.2 million. SG&A as a percentage of sales decreased from 24.5% of sales during the three months ended September 30, 2023 to 23.2% of sales during the current period as we continued to thoughtfully reduce our expense structure.

Previous wording

During the six months ended June 30, 2023, the Company entered into a separation agreement with its Prior CEO and current board member with a total cost of $1,819,199 consisting of $1,251,199 in cash payments, $1,199 of Cobra health insurance payments, and stock grants with a value of $568,000. Also during the six months ended June 30, 2023, the Company entered into a separation agreement with its prior Director of Strategic Acquisitions and board member consisting of cash payments of $100,000 and $26,451 of Cobra health insurance payments. The aggregate separation costs for the six months ended June 30, 2023 was $1,945,650; there were no such costs during the current period.

Current wording

During the nine months ended September 30, 2023, the Company entered into a separation agreement with its prior CEO and current board member with a total cost of $1,819,199, consisting of $1,251,199 in cash payments, $1,199 of COBRA health insurance payments, and stock grants with a value of $568,000. Also during the nine months ended September 30, 2023, the Company entered into a separation agreement with its prior Director of Strategic Acquisitions and board member consisting of cash payments of $100,000 and $26,451 of COBRA health insurance payments. The aggregate separation costs for the nine months ended September 30, 2023 was $1,945,650; there were no such costs during the current period.

Previous wording

Interest expense, net of interest income, increased by $42,576 or approximately 11.1% to $424,937 during the six months ended June 30, 2024, compared to $382,361 during the six months ended June 30, 2023. The increase was due primarily to an increase in interest accrued or paid on the Company’s commercial loans and notes payable in the amount of $67,414 due to higher interest rates under the MapleMark term loans. The increase in interest expense was partially offset by interest income in the amount of $30,177, an increase in the amount of $26,114 compared to $4,063 in the prior period.

Current wording

Interest expense, net of interest income, decreased by $1,143, or approximately 0.2%, to $642,212 during the nine months ended September 30, 2024, compared to $643,355 during the nine months ended September 30, 2023. The decrease was due primarily to a lower principal balances on the Company’s commercial loans and notes payable. In addition, the Company’s interest income increased by 37,517 during the period to $42,735 compared to $5,218 in the prior period; the increase was due to an increase in cash balances.

Previous wording

During the six months ended June 30, 2024, the Company sold its subsidiary Haley Group, Inc.; consideration for the sale was the return to the Company of 21,126 shares of the Company’s common stock with a market value at the time of the sale of $21,126. The Company recorded a gain on the sale of Haley in the amount of $21,126. There was no comparable transaction in the prior period.

Current wording

During the nine months ended September 30, 2024, the Company sold its subsidiary, Haley Group, Inc. (“Haley”); consideration for the sale was the return to the Company of 21,126 shares of the Company’s common stock with a market value at the time of the sale of $21,126. The Company recorded a gain on the sale of Haley in the amount of $21,126. There was no comparable transaction in the prior period.

Previous wording

During the six months ended June 30, 2023, the Company paid federal income taxes in the amount of $15,834 in connection with an audit of the year ended December 31, 2017. There was no such charge during the current period.

Current wording

During the nine months ended September 30, 2023, the Company paid federal income taxes in the amount of $15,834 in connection with an audit of the year ended December 31, 2017. There was no such charge during the current period.

Previous wording

For the reasons above, the Company had net income from continuing operations for the six months ended June 30, 2024 of $1,333,021 compared to a net loss from continuing operations of $(2,703,995) during the six ended June 30, 2023. The net loss for the six months ended June 30, 2024 includes a net total of $949,271 in non-cash charges: non-cash compensation in the amount of $742,286, depreciation and amortization expense of $168,562, provision for doubtful accounts of $35,855, and amortization of the discount on notes payable term loans of $2,568. The net loss from continuing operations for the six months ended June 30, 2023 includes a total of $589,355 in non-cash charges, including non-cash compensation in the amount of $250,852, depreciation and amortization expense of $286,869, provision for doubtful accounts of $50,905, and amortization of prepaid loan fees in the amount of $729.

Current wording

For the reasons above, the Company had net income from continuing operations for the nine months ended September 30, 2024 of $2,666,004 compared to a net loss from continuing operations of $(2,580,411) during the nine ended September 30, 2023. The net income (loss) for the nine months ended September 30, 2024 includes a net total of $1,047,973 in non-cash charges: non-cash compensation in the amount of $791,968, depreciation and amortization expense of $211,488, provision for doubtful accounts of $40,667, and amortization of the discount on notes payable term loans of $3,850. The net loss from continuing operations for the nine months ended September 30, 2023 includes a total of $1,102,174 in non-cash charges, consisting of non-cash compensation in the amount of $602,932, depreciation and amortization expense of $398,054, provision for doubtful accounts of $68,181, and amortization of prepaid loan fees in the amount of $2,013.

Previous wording

For the three months ended June 30, 2024, the Company had a net loss from discontinued operations in the amount of $(366), a decrease in the amount of $68,923 or approximately 99.5% compared to a net loss from discontinue operations in the amount of $(69,289) for the three months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, the Company had a net loss from discontinued operations in the amount of $(8,624), a decrease in the amount of $91,257, or approximately 91.4%, compared to a net loss from discontinue operations in the amount of $(100,151) for the nine months ended September 30, 2023.

Previous wording

As of June 30, 2024, the Company had current assets of $18,088,313, consisting of cash and cash equivalents of $3,866,448, trade accounts receivable, net, of $5,198,153, inventory of $2,762,071, other current assets of $299,424, assets held for sale of $5,941,933, and current assets – discontinued operations of $20,284. Also at June 30, 2024, the Company had current liabilities of $6,178,109, consisting of trade payables and accrued liabilities of $3,222,324, current portion of accrued separation costs – related parties of $342,666, accrued interest of $89,990, deferred revenue of $1,440,803, liability for stock appreciation rights of $786,768, current portion of notes payable of $122,717, current portion of operating lease liability of $15,927, current portion of financing lease liability of $154,392, and current liabilities - discontinued operations of $2,522.

Current wording

As of September 30, 2024, the Company had current assets of $19,382,145, consisting of cash and cash equivalents of $4,820,970, trade accounts receivable, net, of $4,965,381, inventory of $3,134,237, other current assets of $519,624, and assets held for sale of $5,941,933. Also at September 30, 2024, the Company had current liabilities of $6,426,045, consisting of trade payables and accrued liabilities of $4,090,153, current portion of accrued separation costs – related parties of $354,532, accrued interest of $91,251, deferred revenue of $886,787, liability for stock appreciation rights of $731,181, current portion of notes payable of $105,259, current portion of operating lease liability of $14,898, and current portion of financing lease liability of $151,984. While the Company is enhancing its operational performance and has restructured its balance sheet, the onboarding of new customers with increasing working capital requirements and the acquisition of Golden Organics necessitate careful management of short-term liquidity. Additionally, the Company is actively exploring various avenues to raise additional capital to support future growth and ensure a robust level of liquidity.

Previous wording

During the six months ended June 30, 2024, the Company had cash used in operating activities of $3,483,218. Cash flow used in operations consisted of the Company’s consolidated net income of $1,322,550 less gain on disposition of assets of $1,807,516 and gain on sale of subsidiary of $21,126, plus non-cash charges for depreciation and amortization of $168,562, increase in value of stock appreciation rights of $531,748, stock-based compensation in the amount of $208,504, provision for doubtful accounts of $35,855, amortization of right-of-use assets of $8,421, and amortization of discount on notes payable of $2,568. The Company’s cash position also decreased by $3,932,784 as a result of changes in the components of current assets and current liabilities, primarily the result of a net paydown of $3,037,522 in accounts payable and accrued liabilities. Excluding $287,913 in payments associated with the separation and hiring of key officers referenced earlier, the Company would have recorded cash used in operating activities of $3,195,305 for the six months ended June 30, 2024, a decrease of $1,315,166 compared to the six months ended June 30, 2023.

Current wording

During the nine months ended September 30, 2024, the Company had cash used in operating activities of $2,717,332. Cash flow used in operations consisted of the Company’s consolidated net income of $2,657,380 less gain on disposition of assets of $2,755,166 and gain on sale of subsidiary of $21,126, plus non-cash charges for depreciation and amortization of $211,488, increase in value of stock appreciation rights of $476,161, stock-based compensation in the amount of $313,773, provision for doubtful accounts of $40,667, amortization of right-of-use assets of $12,740, and amortization of discount on notes payable of $3,850. The Company’s cash position also decreased by $3,657,099 as a result of changes in the components of current assets and current liabilities, primarily the result of a net paydown of $2,168,431 in accounts payable and accrued liabilities and an increase of $697,821 in accounts receivable. Excluding $379,381 in payments associated with the separation and hiring of key officers referenced earlier, the Company would have recorded cash used in operating activities of $2,337,951 for the nine months ended September 30, 2024, an increase of $141,672 compared to $2,196,279 during the nine months ended September 30, 2023.

Previous wording

The Company had cash provided by investing activities of $2,085,328 for the six months ended June 30, 2024, which consisted of cash received from the sale of our Bonita Springs property in the amount of $2,101,185 net of the payoff of the related secured loan in the amount of $353,815 including accrued interest. The Company also purchased property and equipment in the amount of $15,857 during the period.

Current wording

The Company had cash provided by investing activities of $2,316,923 for the nine months ended September 30, 2024, which consisted of cash received from the sale of our Bonita Springs property in the amount of $2,101,185 net of the payoff of the related secured loan in the amount of $353,815, including accrued interest; and cash from the sale of intangible assets of $525,000. The Company also purchased property and equipment in the amount of $309,262 during the period.

Previous wording

The Company had cash used in financing activities of $138,389 for the six months ended June 30, 2024, which consisted of payments on notes payable and financing lease in the amount of $43,548 and $94,841, respectively.

Current wording

The Company had cash used in financing activities of $200,956 for the nine months ended September 30, 2024, which consisted of payments on notes payable and financing lease in the amount of $136,078 and $64,878, respectively.

Previous wording

As of June 30, 2024, our net working capital stood at a positive $11,910,204, marking a significant increase from the $5,000,156 recorded on December 31, 2023. This improvement of $6,910,048 can be largely attributed to the reclassification of our Mountaintop, PA facility as an asset held for sale, with a book value of $5,941,933 as of June 30, 2024.

Current wording

As of September 30, 2024, our net working capital stood at a positive $12,956,100, marking a significant increase from the $5,000,156 recorded on December 31, 2023. This improvement of $7,955,944 can be largely attributed to the reclassification of our Mountaintop facility as an asset held for sale, with a book value of $5,941,933 as of September 30, 2024.

Previous wording

For the first half of 2024, the Company reported a profit from continuing operations amounting to $1,333,021. This figure includes a gain of $1,807,516 from the sale of our Race Track Road Property, a non-cash compensation expense of $742,28, and a depreciation and amortization expense of $168,562. This is a marked improvement compared to the loss of $2,703,955 from continuing operations during the same period in the previous year.

Current wording

For the nine months ended September 30, 2024, the Company reported a profit from continuing operations amounting to $2,666,004. This figure includes a gain of $1,807,516 from the sale of our Race Track Road Property, a gain from the sale of intangible assets held by igourmet of $834,463, non-cash compensation expense of $791,968, and depreciation and amortization expenses of $429,048. This is a marked improvement compared to the loss of $2,680,562 from continuing operations during the same period in the previous year.

Previous wording

In addition to cash totaling $3,866,448, the Company continues to have access to an untapped $3 million revolving credit facility with MapleMark.

Current wording

In addition to cash & cash equivalent totaling $4,820,970, the Company has access to an untapped $1.5 million revolving credit facility with MapleMark Bank.

Previous wording

During 2024, management is focused on continuing the Stabilization phase of its three phase plan, focusing on the fundamentals of running a cash flow positive business, serving Professional Chefs, including a focus on improving margins. Management expects to continue to expand the Professional Chefs business by entering additional specialty foods markets, serving new customers, and launching new products. On the Home Gourmet business, management has kicked off the marketing of the business for divestiture, and in the meantime has eliminated all marketing spend, reduced headcount, and eliminated unproductive inventory.

Current wording

During 2024, management is focused on continuing the Stabilization phase of its three-phase plan, focusing on the fundamentals of running a cash flow positive business, serving Professional Chefs, including a focus on improving margins. Management expects to continue to expand the Professional Chefs business by entering additional specialty foods markets, serving new customers, and launching new products.

Previous wording

The Company’s largest customer, U.S. Foods, Inc. and its affiliates, accounted for approximately 48% and 47% of total sales in the three months ended June 30, 2024 and 2023, respectively, and 49% and 47% of total sales in the six months ended June 30, 2024 and 2023, respectively. In addition, Gate Gourmet, the leading global provider of airline catering solutions and provisioning services for airlines, represented 18% and 16% of total sales for the three months ended June 30, 2024 and 2023, respectively, and 17% and 16% of total sales for the six months ended June 30, 2024 and 2023, respectively.

Current wording

The Company’s largest customer, U.S. Foods, Inc. and its affiliates, accounted for approximately 45% and 49% of total sales in the three months ended September 30, 2024 and 2023, respectively, and 47% and 48% of total sales in the nine months ended September 30, 2024 and 2023, respectively. In addition, Gate Gourmet, the leading global provider of airline catering solutions and provisioning services for airlines, represented 18% and 16% of total sales for the three months ended September 30, 2024 and 2023, respectively, and 18% and 16% of total sales for the nine months ended September 30, 2024 and 2023, respectively.