NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(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 Specialty Foods, Inc. (“Artisan”), Food Innovations, Inc. (“Food Innovations” or “FII”), Food New Media Group, Inc. (“FNM”), Organic Food Brokers, Inc. (“OFB”), Gourmet Food Service Group, Inc. (“GFG”), Gourmet Foodservice Warehouse, Inc., Gourmeting, Inc., The Haley Group, Inc. (“Haley”), 4 The Gourmet, Inc. (d/b/a For The Gourmet, Inc.), (“Gourmet” and collectively with IVFH and the 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, 2015. 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, 2016 are not necessarily indicative of the results of operations to be expected for the full year.
Discontinued Operations
On February 23, 2016, the Company consummated the sale of 90% of its ownership in The Fresh Diet, Inc. (“FD”). As a result of the sale, the results of operations from January 1, 2016 through February 22, 2016 and from January 1, 2015 through September 30, 2015 have been included in “Net loss from discontinued operations” in our consolidated statements of operations. Additionally, these assets and liabilities have been presented as discontinued operations in our consolidated balance sheet as of December 31, 2015. See Note 3 - Discontinued Operations for additional information.
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, Gourmet Foodservice Warehouse, Inc., Gourmeting, Inc., Haley, and Gourmet. Since its incorporation, the Company primarily through FII’s relationship with US Food, Inc. (“U.S. Foods” or “USF”), has been in the business of providing premium restaurants, within 24 – 72 hours, with the freshest origin-specific perishables, specialty food products, 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 consumers with gourmet food products shipped directly from our network of vendors and from our warehouses within 24 – 72 hours. GFG is focused on expanding the Company’s program offerings to additional customers. 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.
Artisan is a supplier of over 1,500 niche gourmet products to over 500 customers in the Greater Chicago area. Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ label food service opportunities with the intent of helping them launch and commercialize new products in the foodservice industry. OFB is an outsourced national sales and brand management team for emerging organic and specialty food Consumer Packaged Goods (“CPG”) companies and provides emerging CPG specialty food brands distribution and shelf placement access in key major metro markets in the retail food industry.
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. These estimates include certain assumptions related to doubtful accounts receivable, stock-based services, valuation of financial instruments, 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.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Innovative Food Holdings, Inc., and its wholly owned operating subsidiaries, Artisan, Food Innovations, FNM, OFB, GFG, Gourmet Foodservice Warehouse, Inc., Gourmeting, Inc., Haley, and Gourmet. All accounts of FD have been included under discontinued operations. All material intercompany transactions have been eliminated upon consolidation of these entities.
Concentration Risk
Cash includes amounts deposited in financial institutions in excess of insurable Federal Deposit Insurance Corporation (FDIC) limits. At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of September 30, 2016, the cash balance in excess of the FDIC limits was $1,448,028. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.
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” 605-15-05. ASC 605-15-05 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. 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.
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 income (loss) per share is based on the weighted average number of shares outstanding during the period, while fully-diluted net income (loss) per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. Potentially dilutive securities consist of options and warrants to purchase common stock, and convertible debt. Basic and diluted net loss per share is computed based on the weighted average number of shares of common stock outstanding during the period.
The Company uses the treasury stock method to calculate the impact of outstanding stock options and warrants. Stock options and warrants for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per common share and, accordingly, are excluded from the calculation. For the three months ended September 30, 2016, the company did not include the following in the calculation of weighted-average fully-diluted shares outstanding because the result would have been anti-dilutive: 2,742,503 shares underlying warrants and 1,475,000 shares underlying options. For the nine months ended September 30, 2016, the company did not include the following in the calculation of weighted-average fully-diluted shares outstanding because the result would have been anti-dilutive: 2,294,493 shares underlying warrants and 1,290,000 shares underlying options.
For the three and nine months ended September 30, 2015, fully-diluted earnings per share was the same as basic earnings per share because the effect of the exercise of any of the dilutive securities would have been anti-dilutive, and the following were not included in the calculation of fully-diluted earnings per share: 5,682,320 shares underlying convertible notes payable and accrued interest; 3,120,000 shares from the exercise of options; and 3,537,286 shares from the exercise of warrants.
Dilutive shares at September 30, 2016:
Convertible notes and interest:
At September 30, 2016, the Company had outstanding convertible notes payable in the aggregate principal amount of $812,215 with accrued interest of $623,771 convertible at the rate of $0.25 per share into an aggregate of 5,743,994 shares of common stock.
Warrants:
At September 30, 2016, the Company had outstanding warrants for holders to purchase the following additional shares: 2,294,491 shares at a price of $0.575 per share; 448,010 shares at a price of $0.55 per share; 94,783 shares at a price of $0.25 per share; and 700,000 shares at a price of $0.01 per share.
Stock options:
At September 30, 2016, the Company had outstanding options for holders to purchase the following additional shares: 30,000 shares at a price of $3.40 per share; 20,000 shares at a price of $2.40 per share; 500,000 shares at a price of $2.00 per share; 15,000 shares at a price of $1.90 per share; 310,000 shares at a price of $1.60 per share; 100,000 shares at a price of $1.46 per share; 15,000 shares at a price of $1.44 per share; 75,000 shares at a price of $1.31 per share; 225,000 shares at a price of $0.57 per share; 92,500 shares at a price of $0.48 per share; 92,500 shares at a price of $0.474 per share; 92,500 shares at a price of $0.45 per share; 275,000 shares at a price of $0.40 per share; 92,500 shares at a price of $0.38 per share; and 1,170,000 shares at a price of $0.35 per share
.
RSUs:
At September 30, 2016, the Company has issued restricted stock units (“RSUs”) for the potential issuance of shares of the Company’s common stock for the purpose of aligning executives and employees of the Company and for the purpose of compensation for serving as members of the Board of Directors of the Company and for the purposes of retaining qualified personnel at compensation levels that otherwise would not be available should the company have been required to pay certain salaries in cash only. Certain of the RSUs were issued to members of the board of directors of the Company (“Board RSUs”); certain RSUs were issued to the executive officers of the Company (“Executive RSUs”); certain RSUs were issued to employees of the Company (“Employee RSUs”); and certain RSUs were issued to employees of The Fresh Diet (“FD RSUs”).
In August 2016, 95,000 Board RSUs were exercised. At September 30, 2016, the following Board RSUs were outstanding: a total of 545,000 RSUs were vested, and 270,000 RSUs will vest on July 1, 2017.
At September 30, 2016, the following Executive RSUs were outstanding: a total of 1,137,072 RSUs were vested; 600,000 RSUs will vest on December 31, 2016; and 800,000 RSUs will vest on July 1, 2017. An additional 125,000 RSUs 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 RSUs will vest contingent upon the attainment of a stock price of $3.00 per share for 20 straight trading days. The Company estimated that the stock-price goals of the Company’s stock price closing above $2.00 per share for 20 straight days have a 90% likelihood of achievement, and these RSUs were valued at 90% of their face value; the Company also estimated that the likelihood of the Company’s stock closing above $3.00 per share for 20 straight days is 70%, and these RSUs were valued at 70% of their face value
At September 30, 2016, the following FD RSUs were outstanding: A total of 300,000 RSUs were vested; 300,000 RSUs will vest on December 31, 2016; and 400,000 RSUs will vest on July 1, 2017.
At September 30, 2016, a total of 251,174 Employee RSUs were outstanding, all of which were vested.
We recognized stock-based compensation expense for RSUs in a straight-line manner over the vesting period of the grant. This resulted in stock-based compensation expense (continuing operations) of $190,692 and $753,633 related to recognition of RSUs during the three months ended September 30, 2016 and 2015, respectively, and $658,709 and $1,551,775 related to recognition of RSUs during the nine months ended September 30, 2016 and 2015, respectively.
Dilutive shares at September 30, 2015:
Convertible notes and interest:
At September 30, 2015, the Company had outstanding convertible notes payable in the aggregate principal amount of $758,065 with accrued interest of $665,516 convertible at the rate of $0.25 per share into an aggregate of 5,694,324 shares of common stock, and a convertible note payable in the amount of $100,000 convertible at the rate of $1.54 per share into 64,935 shares of common stock.
Warrants:
At September 30, 2015, the Company had outstanding warrants for holders to purchase the following additional shares: 2,294,493 shares at a price of $0.575 per share; 448,011 shares at a price of $0.55 per share; 94,783 shares at a price of $0.25 per share; and 700,000 shares at a price of $0.01 per share.
Stock Options:
At September 30, 2015, the Company had outstanding options for holders to purchase the following additional shares: 30,000 shares at a price of $3.40 per share; 20,000 shares at a price of $2.40 per share; 500,000 shares at a price of $2.00 per share; 15,000 shares at a price of $1.90 per share; 310,000 shares at a price of $1.60 per share; 15,000 shares at a price of $1.50 per share; 100,000 shares at a price of $1.46 per share; 15,000 shares at a price of $1.44 per share; 75,000 shares at a price of $1.31 per share; 225,000 shares at a price of $0.57 per share; 92,500 shares at a price of $0.48 per share; 92,500 shares at a price of $0.474 per share; 92,500 shares at a price of $0.45 per share; 275,000 shares at a price of $0.40 per share; 92,500 shares at a price of $0.38 per share; and 1,170,000 shares at a price of $0.35 per share.
RSUs:
At September 30, 2015, the Company has issued restricted stock units (“RSUs”) for the potential issuance of shares of the Company’s common stock for the purpose of aligning executives and employees of the Company and for the purpose of compensation for serving as members of the Board of Directors of the Company and for the purposes of retaining qualified personnel at compensation levels that otherwise would not be available should the company have been required to pay certain salaries in cash only. Certain of the RSUs were issued to employees of The Fresh Diet (“Employee RSUs”) and certain RSUs were issued to the executive officers of the Company (“Executive RSUs”) and certain RSUs were issued to members of the board of directors of the Company (“Board RSUs”). With respect to the Executive RSUs, the Company’s executive officers were awarded an aggregate number of RSUs which vest according to the following schedule, provided the performance conditions are met:
322,466 RSU’s vested on January 1, 2015, 390,000 RSUs vested on July 1, 2015 and 300,000 RSU’s vest on December 31, 2015; 75,000 RSU’s vest on May 1, 2016, 90,000 RSU’s vest on July 1, 2016 and 600,000 RSUs vest on December 31, 2016 and 890,000 RSUs vest on July 1, 2017 and 300,000 RSU’s vest solely upon the achievement of performance goals and the continued employment with the Company.
The members of the Company’s Board of Directors were awarded the aggregate number of RSU’s which vest according to the following schedule: 270,000 RSU’s vested on July 1, 2015; 270,000 RSU’s vest on July 1, 2016; and 270,000 RSU’s vest on July 1, 2017.
The Employee RSUs issued to certain nonexecutive employees of the Company were issued either partially in lieu of salary, future bonuses or a combination of both bonus and salary. At September 30, 2015, there were a total of 99,907 Employee RSUs, all of which were vested.
The FD RSUs issued to certain nonexecutive employees of FD were issued either partially in lieu of salary, future bonuses, or a combination of both bonus and salary. At September 30, 2015, the FD RSUs were scheduled to vest as follows: On July 1, 2015, 600,000 RSUs vested;
on December 31, 2015 an additional 600,000 RSUs vest;
on
December 31, 2016 an additional 1,200,000 RSUs vest; and on July 1, 2017, an additional 1,600,000 RSUs vest.
An additional 350,000 RSUs will vest if the price of the Company’s common stock closes above $2.50 per share for twenty consecutive trading days. In addition there are restrictions on the sale of such vested stock, including aggregate volume restrictions, and shares cannot be sold below $2.50 per share.
The Company estimated that the stock-price goals of the Company’s stock price closing above $2.50 per share for 20 straight days have a 90% likelihood of achievement, and these RSUs were valued at 90% of their face value. The Company estimated that the revenue targets had a 100% likelihood of achievement, and these RSUs were valued at 100% of their face value. We recognized stock-based compensation expense of in a straight-line manner over the vesting period of the RSUs. This resulted in stock-based compensation expense of $1,128,170 and $3,287,219 respectively, related to recognition of RSUs during the three and nine months ended September 30, 2015.
Fully-diluted earnings per share was the same as basic earnings per share for the three and nine months ended September 30, 2015 because the effect of the exercise of above instruments would be anti-dilutive.
Significant Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-2, which creates ASC Topic 842, “Leases.” This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018. 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 March 2016, the FASB issued ASU No. 2016-9, which amends ASC Topic 718, “Compensation – Stock Compensation.” This amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. 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 August 2016, the FASB issued ASU No. 2016-15 which amends ASC Topic 230, “Classification of Certain Cash Receipts and Cash Payments.” The amendments in this Update address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The update outlines the classification of specific transactions as either cash inflows or outflows from financing activities, operating activities, investing activities or non-cash activities. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017. 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.
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 unaudited condensed consolidated financial statements.
3. DISCONTINUED OPERATIONS
Effective February 23, 2016, the Company closed a transaction to sell 90% of its ownership in FD to New Fresh Co., LLC, a Florida limited liability company controlled by the former founder of FD who was appointed Interim CEO of FD prior thereto. The consideration to Innovative Food Holdings consisted 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.
ASC 360-10-45-9 requires that a long-lived asset (disposal group) to be sold shall be classified as held for sale in the period in which a set of criteria have been met, including criteria that the sale of the asset (disposal group) is probable and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. This criteria was achieved on February 9, 2016. Additionally, the discontinued operations are comprised of the entirety of The Fresh Diet, excluding corporate services expenses. Lastly, for comparability purposes certain prior period line items relating to the assets held for sale have been reclassified and presented as discontinued operations for all periods presented in the accompanying condensed consolidated statements of operations and the condensed consolidated balance sheets.
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheet:
|
|
December 31,
|
|
|
|
2015
|
|
Current assets - discontinued operations:
|
|
|
|
Cash and cash equivalents
|
|
$
|
491,969
|
|
Inventory
|
|
|
173,987
|
|
Other current assets
|
|
|
640,137
|
|
Due from related parties
|
|
|
461,240
|
|
Total current assets - discontinued operations
|
|
$
|
1,767,333
|
|
|
|
|
|
|
Noncurrent assets - discontinued operations:
|
|
|
|
|
Property and equipment, net
|
|
$
|
802,843
|
|
Intangible assets, net
|
|
|
3,862,711
|
|
Total noncurrent assets - discontinued operations
|
|
$
|
4,665,554
|
|
|
|
|
|
|
Current liabilities - discontinued operations:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
3,022,466
|
|
Deferred revenue
|
|
|
5,035,906
|
|
Accrued liabilities - related parties
|
|
|
135,935
|
|
Accrued interest
|
|
|
58,943
|
|
Revolving credit facilities
|
|
|
211,211
|
|
Notes payable, current portion
|
|
|
528,594
|
|
Deferred tax liability
|
|
|
1,069,200
|
|
Contingent liabilities
|
|
|
450,000
|
|
Total current liabilities - discontinued operations:
|
|
$
|
10,512,255
|
|
|
|
|
|
|
Long term liabilities - discontinued operations:
|
|
|
|
|
Note payable - long term portion
|
|
|
101,181
|
|
Notes payable - related parties, long term portion
|
|
|
2,199,970
|
|
Total long term liabilities - discontinued operations
|
|
$
|
2,301,151
|
|
The following information presents the major classes of line items constituting the after-tax loss from discontinued operations in the consolidated statements of operations. The three and nine months ended September 30, 2016 includes the results from discontinued operations from January 2, 2016 through the date of disposal (February 22, 2016):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
|
-
|
|
|
|
4,103,930
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
3,542,429
|
|
Gross margin
|
|
|
-
|
|
|
|
561,501
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
-
|
|
|
|
3,446,223
|
|
Total operating expenses
|
|
|
-
|
|
|
|
3,446,223
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
-
|
|
|
|
(2,884,722
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Interest expense, net
|
|
|
-
|
|
|
|
21,556
|
|
Total other (income) expense
|
|
|
-
|
|
|
|
21,556
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
-
|
|
|
$
|
(2,906,278
|
)
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
|
2,389,950
|
|
|
|
13,607,750
|
|
Cost of goods sold
|
|
|
1,764,834
|
|
|
|
10,504,109
|
|
Gross margin
|
|
|
625,116
|
|
|
|
3,103,641
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
3,368,213
|
|
|
|
9,905,762
|
|
Total operating expenses
|
|
|
3,368,213
|
|
|
|
9,905,762
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,743,097
|
)
|
|
|
(6,802,121
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
Gain on sale is discontinued operations
|
|
|
(7,201,196
|
)
|
|
|
-
|
|
Interest expense, net
|
|
|
10,820
|
|
|
|
64,920
|
|
Total other (income) expense
|
|
|
(7,190,376
|
)
|
|
|
64,920
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
4,447,279
|
|
|
$
|
(6,867,041
|
)
|
The following information presents the major classes of line items constituting significant operating and investing cash flow activities in the unaudited consolidated statements of cash flows relating to discontinued operations:
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash Flow: Major line items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
107,009
|
|
|
|
652,038
|
|
Non-cash compensation
|
|
|
1,028,908
|
|
|
|
1,777,944
|
|
Purchase of equipment
|
|
|
(6,296
|
)
|
|
|
(142,162
|
)
|
Cash from revolving credit facilities
|
|
|
685,959
|
|
|
|
2,267,700
|
|
Payments made on revolving credit facilities
|
|
|
(641,831
|
)
|
|
|
(2,614,404
|
)
|
Principal payments made on notes payable
|
|
|
(7,074
|
)
|
|
|
(75,756
|
)
|
Principal payments made on capital leases
|
|
|
(8,094
|
)
|
|
|
(157,374
|
)
|
The components of the gain on sale and income from discontinued operations are as follows:
|
|
February 22, 2016
|
|
|
|
|
|
Receivable due from buyer, net of reserve of $8,700,000
|
|
$
|
-
|
|
Net proceeds from sale of assets and liabilities
|
|
|
-
|
|
|
|
|
|
|
Assets sold
|
|
|
(6,225,073
|
)
|
Liabilities sold
|
|
|
13,426,269
|
|
Net liabilities sold
|
|
|
7,201,196
|
|
|
|
|
|
|
Gain on sale
|
|
|
7,201,196
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income tax
|
|
|
(2,753,917
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
4,447,279
|
|
4. ACCOUNTS RECEIVABLE
At September 30, 2016 and December 31, 2015, accounts receivable consists of:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Accounts receivable from customers
|
|
$
|
1,932,257
|
|
|
$
|
1,706,948
|
|
Allowance for doubtful accounts
|
|
|
(56,371
|
)
|
|
|
(56,364
|
)
|
Accounts receivable, net
|
|
$
|
1,875,886
|
|
|
$
|
1,650,584
|
|
5. INVENTORY
Inventory consists primarily of specialty food products. At September 30, 2016 and December 31, 2015, inventory consisted of the following:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Finished Goods Inventory
|
|
$
|
925,150
|
|
|
$
|
920,885
|
|
6. PROPERTY AND EQUIPMENT
The Company owns a building and property located at 28411 Race Track Road, Bonita Springs, Florida 34135 and with respect thereto has entered into each of a Loan Agreement, Mortgage, Security Agreement and Note with Fifth Third Bank, each with an effective date of February 26, 2013. 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 and was financed in part by a five year mortgage in the amount of $546,000 carrying an annual interest rate of 3% above LIBOR Rate, as such term is defined in the Note.
The Company also owns 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. 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 up-fit expenses 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 for the Company’s Artisan subsidiary.
A summary of property and equipment at September 30, 2016 and December 31, 2015, was as follows:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Land
|
|
$
|
385,523
|
|
|
$
|
385,523
|
|
Building
|
|
|
1,326,165
|
|
|
|
1,326,165
|
|
Computer and Office Equipment
|
|
|
466,177
|
|
|
|
466,177
|
|
Warehouse Equipment
|
|
|
207,596
|
|
|
|
197,561
|
|
Furniture, Fixtures
|
|
|
454,743
|
|
|
|
451,346
|
|
Vehicles
|
|
|
40,064
|
|
|
|
40,064
|
|
Total before accumulated depreciation
|
|
|
2,880,268
|
|
|
|
2,866,836
|
|
Less: accumulated depreciation
|
|
|
(793,390
|
)
|
|
|
(673,373
|
)
|
Total
|
|
$
|
2,086,878
|
|
|
$
|
2,193,463
|
|
Depreciation and amortization expense for property and equipment amounted to $37,807 and $106,083 for the three months ended September 30, 2016 and 2015, respectively. Depreciation and amortization expense for property and equipment amounted to $120,017 and $293,348 for the nine months ended September 30, 2016 and 2015, respectively.
7. 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. As of September 30, 2016 and December 31, 2015, the Company had made investments in two
such companies in the aggregate amount of $150,000. The Company does not have significant influence over the operations of the companies it invests in.
8. INTANGIBLE ASSETS
The Company acquired certain intangible assets pursuant to the acquisition of Artisan and OFB, and the acquisition of certain assets of The Haley Group, LLC. The following is the net book value of these assets:
|
|
September 30, 2016
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
Trade Name
|
|
$
|
217,000
|
|
|
$
|
-
|
|
|
$
|
217,000
|
|
Non-Compete Agreement
|
|
|
244,000
|
|
|
|
(244,000
|
)
|
|
|
-
|
|
Customer Relationships
|
|
|
1,130,994
|
|
|
|
(740,743
|
)
|
|
|
390,251
|
|
Goodwill
|
|
|
151,000
|
|
|
|
-
|
|
|
|
151,000
|
|
Total
|
|
$
|
1,742,994
|
|
|
$
|
(984,743
|
)
|
|
$
|
758,251
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
Trade Name
|
|
$
|
217,000
|
|
|
$
|
-
|
|
|
$
|
217,000
|
|
Non-Compete Agreement
|
|
|
244,000
|
|
|
|
(213,500
|
)
|
|
|
30,500
|
|
Customer Relationships
|
|
|
1,130,994
|
|
|
|
(589,042
|
)
|
|
|
541,952
|
|
Goodwill
|
|
|
151,000
|
|
|
|
-
|
|
|
|
151,000
|
|
Total
|
|
$
|
1,742,994
|
|
|
$
|
(802,542
|
)
|
|
$
|
940,452
|
|
Amortization expense charged to continuing operations for the three months ended September 30, 2016 and 2015 was $50,567 and $210,788, respectively. Amortization expense charged to continuing operations for the nine months ended September 30, 2016 and 2015 was $182,201 and $632,364, respectively.
The trade names are not considered finite-lived assets, and are not being amortized. The non-compete agreements are being amortized over a period of 48 months. The customer relationships acquired in the Artisan, Haley, and OFB transactions are being amortized over periods of 60, 36, and 60 months, respectively.
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 2015 determined that there was no impairment to goodwill assets related to the Artisan and Haley transactions.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2016 and December 31, 2015 are as follows:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Trade payables
|
|
$
|
1,273,435
|
|
|
$
|
1,623,856
|
|
Accrued costs of discontinued operations
|
|
|
202,964
|
|
|
|
-
|
|
Accrued payroll and commissions
|
|
|
89,803
|
|
|
|
78,670
|
|
Total
|
|
$
|
1,566,202
|
|
|
$
|
1,702,526
|
|
At September 30, 2016 and December 31, 2015, accrued liabilities to related parties of consisted of accrued payroll, accrued bonus, and payroll related benefits.
10. ACCRUED INTEREST
At September 30 2016 accrued interest was $623,771, which is convertible at the option of the note holders into the Company’s common stock a price of $0.25 per share, or a total of 2,495,084 shares. During the nine months ended September 30, 2016, the Company paid cash for interest in the aggregate amount of $92,965. The due date of the accrued interest in the amount is July 1, 2017.
At December 31, 2015, accrued interest was $623,695. Of this amount, $614,465 is convertible at the option of the note holders into the Company’s common stock a price of $0.25 per share, or a total of 2,457,860 shares. During the twelve months ended December 31, 2015, the Company paid cash for interest in the aggregate amount of $68,754. The due date of accrued interest in the amount of $614,465 was extended to July 1, 2017 pursuant to an amendment to the September 2015 Notes Payable Extension Agreement (See Note 12) and is classified as a long-term liability on the Company’s balance sheet at December 31, 2015.
11. REVOLVING CREDIT FACILITIES
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
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. During the three and nine months ended September 30, 2016, the Company made net borrowings in the amount of $0 and $120,000 from this facility. During the three months and nine months ended September 30, 2016, the Company made principal payments in the net amount of $0 and $200,000, respectively. During the three months ended September 30,2016, the Company transferred principal in the amount of $1,200,000 from this credit facility to a new term loan established with Fifth Third Bank. During the three and nine months ended September 30, 2016, the Company recorded interest in the amount of $6,151 and $23,203, respectively.
|
|
$
|
100,000
|
|
|
$
|
1,380,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,000
|
|
|
$
|
1,380,000
|
|
12. NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
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 is due on the maturity date of February 5, 2018. During the three months ended September 30, 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 three months ended September 30, 2016, the Company made principal and interest payments in the amount of $152,634 and $10,039, respectively, on this loan.
|
|
$
|
1,047,366
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
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 and interest at the rate of Libor plus 3% are due monthly. The balance of the principal amount will be due February 28, 2018. During the three months ended September 30, 2016, the Company made payments of principal and interest in the amounts of $13,650 and $3,205, respectively. During the nine months ended September 30, 2016, the Company made payments of principal and interest in the amounts of $40,950 and $9,987, respectively.
|
|
|
350,350
|
|
|
|
391,300
|
|
|
|
|
|
|
|
|
|
|
Secured mortgage note payable for the acquisition of land and building in Broadview, Illinois in the amount of $980,000. Payments of $8,167 including principal and 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, 2016, the Company made payments of principal and interest in the amounts of $24,500 and $7,282, respectively. During the nine months ended September 30, 2016, the Company made payments of principal and interest in the amounts of $73,500 and $22,189, respectively.
|
|
|
849,333
|
|
|
|
922,833
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
A total of 17 convertible notes payable in the aggregate amount of $647,565 (the “Convertible Notes Payable”). Certain of the Convertible Notes Payable contain cross default provisions, and are secured by subordinated interest in a majority of the Company’s assets. The Convertible Notes Payable bear interest at the rate of 1.9% per annum; principal and accrued interest are convertible into common stock of the Company at a conversion price of $0.25 per share; however, the interest may be paid in cash by the Company and certain limited amounts of principle may also be prepaid in cash. Effective May 13, 2014, the due date of these notes was extended from May 15, 2014 to December 31, 2015, and a discount to the notes in the aggregate amount of $732,565 was recorded to recognize the value of the beneficial conversion feature embedded in the extension of the term of the notes. In March 2015 the notes were further extended to January 1, 2016. On September 30, 2015, the notes in the amount of $647,565 were further extended to July 1, 2017, and a discount in the amount of $647,565 was recorded to recognize the value of the beneficial conversion featured embedded in the extension of the term of the notes. During the three and nine months ended September 30, 2016, $92,509 and $277,528, respectively, of this discount was charged to operations. During the three and nine months ended September 30, 2016, the Company accrued interest in the amount of $3,102 and $9,306, respectively, on these notes.
|
|
$
|
647,565
|
|
|
$
|
647,565
|
|
|
|
|
|
|
|
|
|
|
An unsecured note to Sam Klepfish for $164,650 which may not be prepaid without Mr. Klepfish’s consent, originally carrying an interest rate of 8% per annum and no due date. As of July 1, 2014, the interest rate was reduced to 1.9% and as of November 17, 2014 the interest rate was further reduced to 0%. During the three months ended December 31, 2015, interest in the amount of $54,150 was capitalized, and the aggregate principal amount of $164,650 was extended to July 1, 2017. This note and accrued interest are convertible into common stock of the Company at a conversion price of $0.25 per share.
|
|
|
164,650
|
|
|
|
164,650
|
|
|
|
|
|
|
|
|
|
|
Promissory note in the amount of $200,000 bearing interest at the rate of 1% per annum issued in connection with the OFB acquisition. Principal in the amount of $100,000 was due June 30, 2015; this payment was made in July 2015 within the 5 day grace period stipulated in the note agreement. During the three and nine months ended September 30, 2016, the Company paid accrued interest in the amount of $2,010 on this note. The note is convertible into shares of the Company’s common stock at the conversion price of $1.54 per share. During the three and nine months ended September 30, 2016, the Company accrued interest in the amount of $510 and $1,010, respectively, on this note. In July 2016, the Company made a principal payment in the amount of $100,000 which satisfied this note in full.
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note payable to Alpha Capital in the amount of $469,010 dated November 6, 2015 bearing interest at the rate of 9.9% per annum. This note is unsecured, and became due December 6, 2015. During the nine months ended September 30, 2016 the Company accrued interest expense in the amount of $9,525, on this note. During the nine months ended September 30, 2016, the Company paid principal and accrued interest in the amounts of $469,010 and $15,798, respectively, which satisfied this note in full.
|
|
|
-
|
|
|
|
469,010
|
|
|
|
|
|
|
|
|
|
|
Promissory note payable to Alpha Capital in the amount of $176,005 dated November 20, 2015 bearing interest at the rate of 9.9% per annum. This note is unsecured, and became due December 20, 2015. During the nine months ended September 30, 2016, the Company accrued interest expense in the amount of $3,533 on this note. During the nine months ended September 30, 2016, the Company paid principal and accrued interest in the amounts of $176,005 and $5,490, respectively, which satisfied this note in full.
|
|
|
-
|
|
|
|
176,005
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations under a lease agreement for a forklift payable in thirty-six monthly installments of $274 including interest at the rate of 4.46%. During the three months ended September 30, 2016, the Company made principal and interest payments in the amount of $744 and $78, respectively. During the nine months ended September 30, 2016, the Company made principal and interest payments in the amount of $2,206 and $260, respectively.
|
|
|
6,527
|
|
|
|
-
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Total
|
|
$
|
3,065,791
|
|
|
$
|
2,871,363
|
|
|
|
|
|
|
|
|
|
|
Less: Discount
|
|
|
(277,529
|
)
|
|
|
(555,056
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
2,788,262
|
|
|
$
|
2,316,307
|
|
|
|
|
|
|
|
|
|
|
Current maturities, net of discount
|
|
$
|
1,423,678
|
|
|
$
|
897,615
|
|
Long-term portion, net of discount
|
|
|
1,364,584
|
|
|
|
1,418,692
|
|
Total
|
|
$
|
2,788,262
|
|
|
$
|
2,316,307
|
|
|
|
For the Three Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Discount on Notes Payable amortized to interest expense:
|
|
$
|
92,509
|
|
|
$
|
198,364
|
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Discount on Notes Payable amortized to interest expense:
|
|
$
|
277,527
|
|
|
$
|
396,678
|
|
At September 30, 2016 and December 31, 2015, the Company had unamortized discounts to notes payable in the aggregate amount of $277,529 and $555,056, respectively.
Beneficial Conversion Features
The Company calculates the fair value of any beneficial conversion features embedded in its convertible notes via the Black-Scholes valuation method. The Company also calculates the fair value of any detachable warrants offered with its convertible notes via the Black-Scholes valuation method. The instruments were considered discounts to the notes, to the extent the aggregate value of the warrants and conversion features did not exceed the face value of the notes. These discounts were amortized to interest expense via the effective interest method over the term of the notes.
13. RELATED PARTY TRANSACTIONS
For the nine months ended September 30, 2016:
At December 31, 2015, the Company had an accrued liability in the amount of $160,150 representing an aggregate of 210,520 shares of common stock to be issued to officers, directors, and employees for services performed during 2013; during the three months ended March 31, 2016, the Company issued 210,520 RSUs in satisfaction of this liability. Also at December 31, 2015, the Company had an accrued liability in the amount of $157,780 representing 244,620 RSUs to be issued to officers and employees as a bonus for services performed in 2015; during the three months ended March 31, 2016, the Company issued an aggregate of 244,620 RSUs in satisfaction of this liability.
During the three months ended September 30, 2016, the Company issued 95,000 shares of its common stock to an ex-Director of the Company pursuant to the exercise of RSUs.
For the nine months ended September 30, 2015:
During the nine months ended September 30, 2015, the Company extended the expiration date to December 31, 2015 of certain options to purchase a total of 277,500 shares of the Company’s common stock which were held by board members and key employees. The Company valued the options at the extended due dates using the Black-Scholes valuation model, and charged the amount of $146 to operations during the period ended June 30, 2015. (See note 15).
At September 30, 2015, the Company’s subsidiary, FD had loans receivable outstanding in the aggregate amount of $426,342 from four individuals who were previously owners of The Fresh Diet. The Company also has a loan receivable in the amount of $34,899 from a previously related entity.
During the three months ended September 30, 2015, the Company issued 25,000 shares of common stock with a value of $42,500 to the President of The Fresh Diet pursuant to his employment agreement.
14. COMMITMENTS AND CONTINGENT LIABILITIES
Contingent Liability
Pursuant to the OFB acquisition, the Company was contingently liable for certain performance-based payments over the twenty-four months following the acquisition date. The Company believed it was likely that these payments would be made, and accordingly recorded the entire amount of $225,000 as a contingent liability on its balance sheet at acquisition with $91,000 outstanding at December 31, 2015. During the three months ended September 30, 2016 and 2015, payments were made in the aggregate amount of $60,000 and $26,250, respectively. During the nine months ended September 30, 2016 and 2015, payments in the aggregate amount of $91,000 and $52,500, respectively, have been made under this contingent liability; at September 30, 2016, the balance of the contingent liability is $0.
Litigation
From time to time, the Company may be involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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 business.
15. EQUITY
Common Stock
At September 30, 2016 and December 31, 2015, a total of 733,662 shares are deemed issued but not outstanding by the Company.
Nine months ended September 30, 2016:
The Company issued 25,000 shares of common stock with a fair value of $34,000 to a service provider. The value of these shares was accrued during the twelve months ended December 31, 2015.
The Company issued an aggregate of 600,000 shares of common stock to an employee of The Fresh Diet pursuant to a separation agreement. These shares were issued as follows: 300,000 of these shares were issued for the exercise of RSUs held by the employee, and an additional 300,000 shares were charged to discontinued operations at the fair value of $147,000.
The Company issued 133,333 shares of common stock to an employee of The Fresh Diet pursuant to an employee agreement. The fair value of these shares in the amount of $67,987 was charged to discontinued operations during the period.
The Company issued 200,000 shares of common stock to an employee of The Fresh Diet pursuant to a separation agreement. These shares were issued via the exercise of RSUs; the par value of $20 was charged to additional paid-in capital during the period.
The Company repurchased 33,000 shares of common stock at a share price of $0.45 per share. The value of these shares in the amount of $14,850 has been recorded in treasury stock.
The Company issued 95,000 shares of common stock pursuant to the exercises of RSUs by an ex-director.
Nine months ended September 30, 2015:
The Company sold 3,178,420 shares of common stock at a price of $0.9646 per share and an additional 943,829 shares at a price of $1.30 per share in a private placement for net cash proceeds of $4,288,596.
The Company paid $3,000,000 cash for the purpose of acquiring, in a block sale, the shares of Monolith Ventures Ltd, a former shareholder of The Fresh Diet, who agreed to sell its position of 3,110,063 shares at a price of $0.9646 per share. The Company cancelled these 3,110,063 shares during the three months ended March 31, 2015.
The Company issued 727,272 shares of common stock pursuant to the exercise of warrants for cash of $400,000.
The Company issued 40,000 shares of common stock pursuant to the exercise of stock options for cash of $15,200.
The Company issued 150,000 shares of common stock Michael Ferrone pursuant to the exercise of 150,000 stock options with a weighted average exercise price of $0.444 per share, for cash proceeds of $66,600.
On September 25, 2015, the Company issued 533,913 shares of common stock pursuant to the exercise of warrants with a purchase price of $0.575 per share, for cash proceeds of $307,000.
On September 30, 2015, the Company recorded the issuance of 25,000 shares of common stock with a fair value of $42,500 to an employee pursuant to an employment agreement.
Warrants
The following table summarizes the significant terms of warrants outstanding at September 30, 2016. These warrants may be settled in cash and, unless the underlying shares are registered, via cashless conversion, into shares of the Company’s common stock at the request of the warrant holder. These warrants were granted as part of a financing agreement:
Range of
exercise
Prices
|
|
Number of
warrants
Outstanding
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Weighted
average
exercise
price of
outstanding
Warrants
|
|
Number of
warrants
Exercisable
|
|
Weighted
average
exercise
price of
exercisable
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.010
|
|
|
|
700,000
|
|
|
|
3.63
|
|
|
$
|
0.010
|
|
|
|
700,000
|
|
|
$
|
0.010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.250
|
|
|
|
94,783
|
|
|
|
0.75
|
|
|
$
|
0.250
|
|
|
|
94,783
|
|
|
$
|
0.250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.550
|
|
|
|
448,010
|
|
|
|
0.75
|
|
|
$
|
0.550
|
|
|
|
448,011
|
|
|
$
|
0.550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.575
|
|
|
|
2,294,491
|
|
|
|
0.75
|
|
|
$
|
0.575
|
|
|
|
2,294,491
|
|
|
$
|
0.575
|
|
|
|
|
|
|
|
3,537,284
|
|
|
|
1.32
|
|
|
$
|
0.451
|
|
|
|
3,537,284
|
|
|
$
|
0.451
|
|
Transactions involving warrants are summarized as follows:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Warrants outstanding at December 31, 2015
|
|
|
3,537,284
|
|
|
$
|
0.451
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled / Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at September 30, 2016
|
|
|
3,537,284
|
|
|
$
|
0.451
|
|
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:
|
|
|
|
|
|
|
|
|
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
|
|
$
|
0.350
|
|
|
|
1,170,000
|
|
|
|
0.91
|
|
|
$
|
0.350
|
|
|
|
1,170,000
|
|
|
$
|
0.350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.380
|
|
|
|
92,500
|
|
|
|
0.25
|
|
|
$
|
0.380
|
|
|
|
92,500
|
|
|
$
|
0.380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.400
|
|
|
|
275,000
|
|
|
|
0.25
|
|
|
$
|
0.400
|
|
|
|
275,000
|
|
|
$
|
0.400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.450
|
|
|
|
92,500
|
|
|
|
0.25
|
|
|
$
|
0.450
|
|
|
|
92,500
|
|
|
$
|
0.450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.474
|
|
|
|
92,500
|
|
|
|
0.25
|
|
|
$
|
0.474
|
|
|
|
92,500
|
|
|
$
|
0.474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.480
|
|
|
|
92,500
|
|
|
|
0.25
|
|
|
$
|
0.480
|
|
|
|
92,500
|
|
|
$
|
0.480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.570
|
|
|
|
225,000
|
|
|
|
1.25
|
|
|
$
|
0.570
|
|
|
|
225,000
|
|
|
$
|
0.570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.310
|
|
|
|
75,000
|
|
|
|
1.92
|
|
|
$
|
1.310
|
|
|
|
25,000
|
|
|
$
|
1.310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.440
|
|
|
|
15,000
|
|
|
|
0.09
|
|
|
$
|
1.440
|
|
|
|
15,000
|
|
|
$
|
1.440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.460
|
|
|
|
100,000
|
|
|
|
1.75
|
|
|
$
|
1.460
|
|
|
|
100,000
|
|
|
$
|
1.460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.600
|
|
|
|
310,000
|
|
|
|
1.25
|
|
|
$
|
1.600
|
|
|
|
310,000
|
|
|
$
|
1.600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.900
|
|
|
|
15,000
|
|
|
|
1.09
|
|
|
$
|
1.900
|
|
|
|
15,000
|
|
|
$
|
1.900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.000
|
|
|
|
500,000
|
|
|
|
0.41
|
|
|
$
|
2.000
|
|
|
|
500,000
|
|
|
$
|
2.000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.400
|
|
|
|
20,000
|
|
|
|
1.67
|
|
|
$
|
2.400
|
|
|
|
20,000
|
|
|
$
|
2.400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.400
|
|
|
|
30,000
|
|
|
|
1.67
|
|
|
$
|
3.400
|
|
|
|
30,000
|
|
|
$
|
3.400
|
|
|
|
|
|
|
3,105,000
|
|
|
|
0.81
|
|
|
$
|
0.887
|
|
|
|
3,055,000
|
|
|
$
|
0.880
|
|
Transactions involving stock options are summarized as follows:
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
Options outstanding at December 31, 2015
|
|
|
3,105,000
|
|
|
$
|
0.887
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Cancelled / Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2016
|
|
|
3,105,000
|
|
|
$
|
0.887
|
|
Aggregate intrinsic value of options outstanding and exercisable at September 30, 2016 and 2015 was $737,905 and $1,268,030, 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 $0.48 and $1.02 as of September 30, 2016 and 2015, respectively, and the exercise price multiplied by the number of options outstanding.
During the nine months ended September 30, 2015, the Company extended the expiration date of certain options to purchase a total of 277,500 shares of the Company’s common stock which were held by board members and key employees. The expiration dates of options to purchase 92,500 shares of common stock at a price of $0.38 per share were extended from March 31, 2015 to December 31, 2015; the expiration dates of options to purchase 92,500 shares of common stock at a price of $0.45 per share were extended from June 30, 2015 to December 31, 2015; and the expiration dates of options to purchase 92,500 shares of common stock at a price of $0.474 per share were extended from September 30, 2015 to December 31, 2015. The Company valued the options at the extended due dates using the Black-Scholes valuation model, and charged the amount of $146 to operations during the period ended March 31, 2015.
During the three months ended September 30, 2016, and 2015 the Company charged a total of $4,983 and $9,959, respectively, to operations related to recognized stock-based compensation expense for employee stock options. During the nine months ended September 30, 2016, and 2015 the Company charged a total of $14,814 and $95,873, 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 options using the Black-Scholes valuation model utilizing the following variables:
|
|
September 30,
|
|
|
|
2015
|
|
Volatility
|
|
|
47.35
|
%
|
Dividends
|
|
$
|
-
|
|
Risk-free interest rates
|
|
|
0.99
|
%
|
Term (years)
|
|
|
3.00
|
|
Restricted Stock Units (“RSUs”)
At September 30, 2016, the Company has issued restricted stock units (“RSUs”) for the potential issuance of shares of the Company’s common stock for the purpose of aligning executives and employees of the Company and for the purpose of compensation for serving as members of the Board of Directors of the Company and for the purposes of retaining qualified personnel at compensation levels that otherwise would not be available should the company have been required to pay certain salaries in cash only. Certain of the RSUs were issued to members of the board of directors of the Company (“Board RSUs”); certain RSUs were issued to the executive officers of the Company (“Executive RSUs”); certain RSUs were issued to employees of the Company (“Employee RSUs”); and certain RSUs were issued to employees of The Fresh Diet (“FD RSUs”).
In August 2016, 95,000 Board RSUs were exercised. At September 30, 2016, the following Board RSUs were outstanding: a total of 545,000 RSUs were vested, and 270,000 RSUs will vest on July 1, 2017.
At September 30, 2016, the following Executive RSUs were outstanding: a total of 1,137,072 RSUs were vested; 600,000 RSUs will vest on December 31, 2016; and 800,000 RSUs will vest on July 1, 2017. An additional 125,000 RSUs 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 RSUs will vest contingent upon the attainment of a stock price of $3.00 per share for 20 straight trading days. The Company estimated that the stock-price goals of the Company’s stock price closing above $2.00 per share for 20 straight days have a 90% likelihood of achievement, and these RSUs were valued at 90% of their face value; the Company also estimated that the likelihood of the Company’s stock closing above $3.00 per share for 20 straight days is 70%, and these RSUs were valued at 70% of their face value
At September 30, 2016, the following FD RSUs were outstanding: A total of 300,000 RSUs were vested; 300,000 RSUs will vest on December 31, 2016; and 400,000 RSUs will vest on July 1, 2017.
At September 30, 2016, a total of 251,174 Employee RSUs were outstanding, all of which were vested
RSUs expense during the three and nine months ended September 30,
2016 and 2015 are summarized in the table below:
|
|
Three Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
RSUs expense – Continuing operations
|
|
$
|
190,692
|
|
|
$
|
753,633
|
|
RSUs expense – Discontinued operations
|
|
|
-
|
|
|
|
374,536
|
|
Total
|
|
$
|
190,692
|
|
|
$
|
1,128,169
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
RSUs expense – Continuing operations
|
|
$
|
658,709
|
|
|
$
|
1,551,775
|
|
RSUs expense – Discontinued operations
|
|
|
813,908
|
|
|
|
1,735,444
|
|
Total
|
|
$
|
1,472,617
|
|
|
$
|
3,287,219
|
|