UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM
For the quarterly period ended
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INNOVATIVE FOOD HOLDINGS, INC.
TABLE OF CONTENTS TO FORM 10-Q
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Consolidated Balance Sheets | 1 | |
| Consolidated Statements of Operations | 2 | |
| Consolidated Statement of Stockholders’ Equity | 3 | |
| Consolidated Statements of Cash Flows | 4 | |
| Condensed Notes to the Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 |
| Item 4. | Controls and Procedures | 22 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 24 |
| Item 1A. | Risk Factors | 24 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3. | Defaults Upon Senior Securities | 24 |
| Item 4. | Mine Safety Disclosures | 24 |
| Item 5. | Other Information | 24 |
| Item 6. | Exhibits | 25 |
| Signatures | 26 | |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Innovative Food Holdings, Inc.
Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Cash, restricted | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Other current assets | ||||||||
| Assets held-for-sale - discontinued operations | ||||||||
| Current assets - discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets - operating leases, net | ||||||||
| Right of use assets - finance leases, net | ||||||||
| Amortizable intangible assets, net | ||||||||
| Indefinite-lived intangible assets | ||||||||
| Other noncurrent assets | ||||||||
| Noncurrent assets - discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accrued separation costs - related parties, current portion | ||||||||
| Stock appreciation rights liability | ||||||||
| Notes payable, current portion | ||||||||
| Lease liability - operating leases, current | ||||||||
| Lease liability - finance leases, current | ||||||||
| Current liabilities - discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Note payable non-current, net of discount | ||||||||
| Accrued separation costs - related parties, non-current | ||||||||
| Lease liability - operating leases, non-current | ||||||||
| Lease liability - finance leases, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments & Contingencies (see note 20) | ||||||||
| Stockholders' equity | ||||||||
| Common stock: $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock: | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See condensed notes to these unaudited consolidated financial statements.
1
Innovative Food Holdings, Inc.
Consolidated Statements of Operations
(unaudited)
| For the | For the | |||||||
| Three Months Ended | Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Operating income | ||||||||
| Other (expense) income: | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Total expense | ( | ) | ( | ) | ||||
| Net income before taxes | ||||||||
| Income tax expense | ||||||||
| Net income from continuing operations | $ | $ | ||||||
| Net income (loss) from discontinued operations | $ | $ | ( | ) | ||||
| Consolidated net income (loss) | $ | $ | ( | ) | ||||
| Net income per share from continuing operations - basic | $ | $ | ||||||
| Net income per share from continuing operations - diluted | $ | $ | ||||||
| Net income (loss) per share from discontinued operations - basic | $ | $ | ( | ) | ||||
| Net income (loss) per share from discontinued operations - diluted | $ | $ | ( | ) | ||||
| Weighted average shares outstanding - basic | ||||||||
| Weighted average shares outstanding - diluted | ||||||||
See condensed notes to these unaudited consolidated financial statements.
2
Innovative Food Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
Three Months Ended March 31, 2026 and 2025
(unaudited)
| Common Stock | Common Stock to be issued | Additional Paid-in | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||
| Amount | Value | Amount | Value | Capital | Amount | Value | Deficit | Total | ||||||||||||||||||||||||||||
| Balance - January 1, 2025 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Fair value of shares under compensation plan | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Shares earned under compensation plans | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||
| Shares issued under compensation plans | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued in cashless conversion of options | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||
| Net income for the three months ended March 31, 2025 | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance - March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Balance - January 1, 2026 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Fair value of shares under compensation plan | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Net income for the three months ended March 31, 2026 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
| Balance - March 31, 2026 | $ | - | $ | - | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||
See condensed notes to these unaudited consolidated financial statements.
3
Innovative Food Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)
| |
|
For
the Three Months Ended March 31, 2026 |
|
|
For
the Three Months Ended March 31, 2025 |
|
||
| Cash flows used in operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Gain on sale of assets | ( | ) | ||||||
| Loss on early extinguishment of debt | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Amortization of discount on notes payable | ||||||||
| Stock based compensation | ||||||||
| Change in value of stock appreciation rights | ( | ) | ||||||
| Provision for credit losses | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Accrued separation costs - related parties | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash received from sale of land and building, net of costs | ||||||||
| Cash paid for purchase of property and equipment | ( | ) | ( | ) | ||||
| Cash received from disposition of asset | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Payments on financing leases | ( | ) | ( | ) | ||||
| Borrowings from line of credit | ||||||||
| Payments on line of credit | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Decrease in cash and cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents, and restricted cash at end of period - continuing operations | $ | $ | ||||||
| Cash and cash equivalents, and restricted cash at end of period - discontinued operations | $ | $ | ||||||
| Cash and cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Non-cash
investing and financing activities: | ||||||||
| None. | ||||||||
See condensed notes to these unaudited consolidated financial statements.
4
INNOVATIVE FOOD HOLDINGS, INC.
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2026
(Unaudited)
1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements include those of Innovative Food Holdings, Inc. and all of its wholly-owned subsidiaries (collectively, the “Company”) and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) pursuant to Regulation S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with U.S. GAAP 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 its Annual Report on Form 10-K for the year ended December 31, 2025. In the opinion of management, the interim unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary for fair presentation of the interim periods presented. The results of the operations for the three months ended March 31, 2026 are not necessarily indicative of the results of operations to be expected for the full year.
Business Activity
The Company provides difficult-to-find specialty foods primarily to both Professional Chefs and Home Gourmets through the Company’s relationships with producers, growers, makers and distributors of these products worldwide. The distribution of these products primarily originates from the Company’s two unified warehouses and those of its drop ship partners, and is driven by its proprietary technology platform. In addition, the Company provides value-added services through its team of food specialists and Chef Advisors who offer customer support, menu ideas, and preparation guidance.
Discontinued Operations
The Company relied on the guidance of Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements – Discontinued Operations, in presenting the results of its discontinued operations. During the third quarter of fiscal 2025, the Company committed to a strategic exit of its retail specialty cheese business, which served as the primary component of its national distribution platform. Accordingly, results for this business for all prior periods presented have been retrospectively reclassified to discontinued operations in accordance with ASC 205-20. In connection with this decision, the Company also elected to discontinue its related logistics operations and specialty cheese cutting activities, including igourmet, along with the Company’s logistics subsidiaries (Logistics Innovations LLC (“LII”) and Innovative Food Properties LLC (“IFP”)). During the year ended December 31, 2025, the accounts of the following entities are included in net loss from discontinued operations and in the discontinued operations sections of the Company’s balance sheet: IFP, LII, and the activity of igourmet directly related to its cheese business. See Note 3.
Reclassifications
Certain amounts presented in the financial statements of the prior period have been reclassified to conform with the current period presentation of discontinued operations. See Note 3. In addition, restricted cash has been included with unrestricted cash in the cash totals in the statement of cash flows.
Use of Estimates
The preparation of these unaudited consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates these estimates, including those related to revenue recognition and concentration of credit risk. The Company bases its 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 allowance for credit losses, allowance for slow moving and obsolete inventory, income taxes, contingent liabilities, operating and finance right of use assets and liabilities, and equity-based instruments. Actual results may differ from these estimates under different assumptions or conditions. The Company believes its estimates have not been materially inaccurate in past years, and its assumptions are not likely to change in the foreseeable future.
Concentrations of Credit Risk
Financial instruments and related items, which potentially
subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade accounts receivable. The Company
places its cash and temporary cash in investments with credit quality institutions. At times, such investments may be in excess of applicable
government mandated insurance limit. As of March 31, 2026 and December 31, 2025, trade receivables from the Company’s largest customer
accounted for approximately
The Company maintains cash balances in excess
of Federal Deposit Insurance Corporation limits. At March 31, 2026 and December 31, 2025, the total cash in excess of these limits was
$
Accounts Receivable
The Company provides an allowance for credit losses 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 ASC 326, Financial Instruments – Credit Losses. Under ASC 326, the
Company utilizes a current and expected credit loss (CECL) impairment model. 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 credit losses will change. Accounts receivable are presented net of an allowance for credit losses of $
5
Inventory
Inventory is valued at the lower of cost or net realizable value, and is determined by the average cost method. The Company adjusts inventory based upon bi-weekly cycle counts and upon the expiration date of food products. In addition, the Company records a provision for excess, obsolete, and slow-moving inventory. This provision reduces the carrying value of inventory to its net realizable value.
Leases
The Company accounts for leases in accordance with Financial Accounting Standards Board (“FASB”) ASC 842, Leases. The Company determines if an arrangement is a lease at inception. Operating and Finance lease right-of-use (“ROU”) assets and current and noncurrent lease liabilities are included on the face of the consolidated balance sheet.
ROU assets represent the right of use to an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For finance leases, the Company recognizes the amortization of the ROU asset over the shorter of the lease term or useful life of the underlying asset. Interest accretion on the finance lease liabilities is recorded as interest expense. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
Revenue Recognition
The Company recognizes revenue upon product delivery. All of the Company’s 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 are included in revenues.
For revenue from product sales (i.e., specialty foodservice and e-commerce), the Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers. A five-step analysis must be met as outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
Warehouse and logistics services revenue is primarily comprised of inventory management, order fulfilment and warehousing services. Warehouse and logistics services revenues are recognized at the point in time when the services are rendered to the customer. Warehouse rental services are recognized over the period the service is provided.
Disaggregation of Revenue
The following table represents a disaggregation of revenue for the three months ended March 31, 2026 and 2025:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2026 | 2025 | |||||||
| (unaudited) | (unaudited) | |||||||
| Digital Channels | $ | $ | ||||||
| National Distribution | ||||||||
| Local Distribution | ||||||||
| Total | $ | $ | ||||||
Cost of Goods Sold
The Company has 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. The Company has also included all payroll costs as cost of goods sold in its warehouse and logistics services business.
Basic and Diluted Earnings Per Share (“EPS”)
Basic net EPS is based on the weighted average number of shares outstanding during the period, while fully-diluted net EPS 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 restricted stock awards (“RSAs”).
6
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.
Three Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Numerator: | ||||||||
| Income from continuing operations | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average shares outstanding – basic | ||||||||
| Dilutive effect of stock issuable under compensation plan | ||||||||
| Weighted average shares outstanding - diluted | ||||||||
| Income per share from continuing operations - diluted | $ | $ | ||||||
Dilutive Shares at March 31, 2026:
Stock Options
None.
Restricted Stock Awards
At March 31, 2026, there were
The Company also has in place Executive Stock Plans for its executive team. See Note 16.
When shares are granted under the Company’s Executive Stock Plans, the Company withholds the number of shares required to satisfy income tax withholding requirements on the award, calculated at the market value of the Company’s stock on the date the award is granted.
Stock-based Compensation
During the three months ended March 31, 2026,
the Company charged the amount of $
At March 31, 2026, there were no shares of common stock which have vested and are issuable pursuant to Executive Stock Plans.
Computation of basic and diluted EPS:
There are no potentially issuable shares not included in basic earnings per share, and no difference between EPS and fully-diluted EPS for the three months ended March 31, 2026.
Dilutive Shares at March 31, 2025:
Stock Options
None.
Restricted Stock Awards
At March 31, 2025, there
were
Stock-based Compensation
At March 31, 2025, there were a total of
Computation of basic and diluted EPS:
The Company recorded a net loss for the three months ended March 31, 2025, and all of potentially issuable shares are anti-dilutive. There is no difference between EPS and fully-diluted EPS for the three months ended March 31, 2025.
7
Recently Adopted Accounting Pronouncements
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as expensing of U.S. research expenditures and eligible capital expenditures, the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The impacts of the OBBBA are reflected in the Company’s results for the three months ended March 31, 2026, and there was no impact to its income tax expense or effective income tax rate.
In July 2025, the FASB issued 2025-05, Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows companies to elect a practical expedient to assume that the current conditions as of the balance sheet date will remain unchanged for the remaining life of the asset when developing a reasonable and supportable forecast as part of estimating expected credit losses on these assets. The Company adopted ASU 2025-05 effective January 1, 2026, on a prospective basis. The adoption of this accounting standard did not have a material impact on the Company’s financial condition, results of operations, or cash flows.
New Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses (DISE)” which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating standard and its potential effect on its consolidated financial statements and segment disclosures.
2. REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
As previously reported in the Annual Report on Form 10-K for the year ended December 31, 2025, the Company revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to immaterial errors. The errors relate to certain costs directly related to the revenue generation and cost of goods sold. The costs were not properly categorized in prior periods, which led to an overstatement of revenue and a corresponding overstatement of cost of goods sold. There was no effect to consolidated net income (loss) in any of the revised periods.
The Company evaluated the aggregate effects of the errors to its previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2025.
The following tables present the effects of the aforementioned revisions on the Company’s consolidated statements of operations for the quarterly period ended March 31, 2025.
| Three Months Ended | ||||||||||||
March 31, 2025 (Unaudited) | ||||||||||||
| As Reported | Adjustments | As Revised | ||||||||||
| Revenue | $ | $ | ( | ) | $ | |||||||
| Cost of goods sold | $ | $ | ( | ) | $ | |||||||
3. DISCONTINUED OPERATIONS
During the third quarter of fiscal 2025, the Company committed to a strategic exit of its retail specialty cheese business, which served as the primary component of its national distribution platform. In connection with this decision, the Company also elected to discontinue its related logistics operations and specialty cheese cutting activities. As part of this exit, the Company has sold the associated Pennsylvania production and distribution facility.
Accordingly, the operating results and related assets and liabilities of the retail specialty cheese business, including igourmet, along with the Company’s logistics subsidiaries (LII and IFP) and specialty cheese cutting operations, have been reclassified to discontinued operations for all periods presented.
The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations in the consolidated balance sheets:
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (unaudited) | ||||||||
| Current assets - discontinued operations: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Assets held for sale | ||||||||
| Total current assets - discontinued operations | $ | $ | ||||||
8
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (unaudited) | ||||||||
| Noncurrent assets - discontinued operations: | ||||||||
| ROU assets – financing leases, net | $ | $ | ||||||
| Property and equipment, net | ||||||||
| Total noncurrent assets - discontinued operations | $ | $ | ||||||
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| (unaudited) | ||||||||
| Current liabilities - discontinued operations: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Deferred revenue | ||||||||
| Accrued interest | ||||||||
| Notes payable, net | ||||||||
| Total current liabilities - discontinued operations | $ | $ | ||||||
The following information presents the major classes of line items constituting the after-tax loss from discontinued operations in the consolidated statements of operations:
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2026 | 2025 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Selling, general, and administrative expenses | ( | ) | ( | ) | ||||
| Gain on sale of assets | ||||||||
| Loss on early extinguishment of debt | ( | ) | ||||||
| Other expense | ( | ) | ( | ) | ||||
| Income (loss) from discontinued operations, net of tax | $ | $ | ( | ) | ||||
The following information presents the significant items related to discontinued operations in the statement of cash flows:
| Three Months Ended | Three Months Ended | |||||||
| March 31, 2026 | March 31, 2025 | |||||||
| Operating activities: | ||||||||
| Adjustment to reconcile net loss to cash | ||||||||
| Net cash provided by (used in) operating activities | ||||||||
| Gain on sale of assets | $ | ( | ) | $ | - | |||
| Loss on early extinguishment of debt | - | |||||||
| Depreciation and amortization | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Investing activities: | ||||||||
| Cash paid for purchase of property and equipment | ( | ) | ||||||
| Proceeds from sale of fixed assets | ||||||||
| Cash received from sale of land and building, net of costs | ||||||||
| Financing activities: | ||||||||
| Payments on debt | ( | ) | ( | ) | ||||
| Payments on financing leases | ( | ) | ||||||
4. SALE OF ASSETS
On March 6, 2026, the Company closed the sale
of its warehouse and office facility in Mountaintop, Pennsylvania. A gain in the amount of $
| Sales price of land and building | $ | |||
| Assets held-for-sale | ( | ) | ||
| ROU assets, financing | ( | ) | ||
| Deferred revenue | ||||
| Legal, title, and other expenses | ( | ) | ||
| Gain on sale | $ |
In connection with this transaction, the Company’s
term loan with Maple Mark Bank was paid off and a loss on the early extinguishment of debt of $
9
5. ACCOUNTS RECEIVABLE
At March 31, 2026 and December 31, 2025, accounts receivable consisted of:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Accounts receivable from customers | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
During the three months ended March 31, 2026
and 2025, the Company charged the amount of $
6. INVENTORY
Inventory consists primarily of specialty food products. At March 31, 2026 and December 31, 2025, inventory consisted of the following:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Finished goods inventory | $ | $ | ||||||
7. PROPERTY AND EQUIPMENT
A summary of property and equipment at March 31, 2026 and December 31, 2025 is as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Land | $ | $ | ||||||
| Building | ||||||||
| Computer and Office Equipment | ||||||||
| Warehouse Equipment | ||||||||
| Furniture and Fixtures | ||||||||
| Vehicles | ||||||||
| Total before accumulated depreciation | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation expense for property and equipment amounted
to $
8. PROPERTY AND EQUIPMENT CLASSIFIED AS HELD FOR SALE
Assets held for sale include the net book value of property and equipment the Company plans to sell within the next year. Long lived assets that meet the criteria are held for sale and reported at the lower of their carrying value or fair value less estimated cost to sell.
As of December 31, 2025, the Company classified the land and building located at 220 Oak Hill Road, Mountain Top, Pennsylvania, as held for sale. During the year ended December 31, 2025, the Company classified certain leasehold improvements at the Mountain Top property as held for sale. This property was sold during the three months ended March 31, 2026. See Note 4 for additional information.
The net book value of these assets consisted of the following at December 31, 2025:
| December 31, | ||||
| 2025 | ||||
| Equipment | $ | |||
| Land | ||||
| Building | ||||
| Total | $ | |||
10
9. RIGHT OF USE ASSETS AND LEASE LIABILITIES – OPERATING LEASES
The Company has operating leases for offices,
warehouses, vehicles, and office equipment. The Company’s leases have remaining lease terms of
The Company’s lease expense for the three
months ended March 31, 2026 and 2025 was entirely comprised of operating leases and amounted to $
The Company’s ROU asset amortization for
the three months ended March 31, 2026 and 2025 was $
The weighted-average discount rate for operating
leases was
Right of use assets – operating leases are summarized below:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Building | $ | $ | ||||||
| Vehicles | ||||||||
| Right of use assets, net | $ | $ | ||||||
Operating lease liabilities are summarized below:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Building | $ | $ | ||||||
| Vehicles | ||||||||
| Warehouse equipment | ||||||||
| Office equipment | ||||||||
| Lease liability | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Lease liability, non-current | $ | $ | ||||||
Maturity analysis under these lease agreements are as follows for the year ended December 31:
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total | $ | |||
| Less: Present value discount | ( | ) | ||
| Lease liability | $ |
10. RIGHT OF USE ASSETS – FINANCING LEASES
The Company has financing leases for vehicles and warehouse equipment. Right of use asset – financing leases are summarized below:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Vehicles | $ | $ | ||||||
| Warehouse equipment | ||||||||
| Total before accumulated depreciation | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation expense related to right of use
assets for the three months ended March 31, 2026 and 2025 was $
The weighted-average interest rate for financing
leases was
11
Financing lease liabilities are summarized below:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Financing lease obligation under a lease agreement for a truck dated March 31, 2020 in the original amount of $ | $ | $ | ||||||
| Financing lease obligation under a lease agreement for a truck dated August 23, 2019 in the original amount of $ | $ | $ | ||||||
| Financing lease obligation under a lease agreement for warehouse equipment dated September 12, 2024 in the original amount of $ | $ | |||||||
| Total | $ | $ | ||||||
| Current portion | $ | $ | ||||||
| Long-term maturities | ||||||||
| Total | $ | $ | ||||||
There was no accrued interest on financing leases at March 31, 2026 and December 31, 2025.
Aggregate maturities of lease liabilities – financing leases:
| For the period ended December 31, | ||||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total | $ | |||
11. INTANGIBLE ASSETS
The Company acquired certain indefinite intangible assets pursuant to the acquisitions of Artisan Specialty Foods, Inc. (“Artisan”) and Golden Organics, Inc. (“Golden Organics”). These assets include trade names and customer lists.
Other Amortizable Intangible Assets
The following table represents the balances of other amortizable intangible assets as of March 31, 2026 and December 31, 2025:
| March 31, 2026 (unaudited) | ||||||||||||
| Accumulated | ||||||||||||
| Cost | Amortization | Net | ||||||||||
| Total Customer lists | $ | $ | $ | |||||||||
| December 31, 2025 | ||||||||||||
| Accumulated | ||||||||||||
| Gross | Amortization | Net | ||||||||||
| Total Customer lists | $ | $ | $ | |||||||||
Total amortization expense for the three months
ended March 31, 2026 and 2025 was $
12
Remaining amortization expense for intangible assets as of March 31, 2026 is as follows:
| For the twelve months ended March 31, | ||||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total | $ | |||
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets consist of
$
12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at March 31, 2026 and December 31, 2025 are as follows:
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| Trade payables and accrued liabilities | $ | $ | ||||||
| Accrued payroll and commissions | ||||||||
| Total | $ | $ | ||||||
13. ACCRUED SEPARATION COSTS – RELATED PARTIES
On February 3, 2023, the Company entered into
a Severance Note, an Agreement and General Release, and a Side Letter thereto (the “SK Agreements”) with Sam Klepfish, its
prior Chief Executive Officer (“CEO”) and a previous board member. The SK Agreements provide, among other things, for Mr.
Kelpfish’s resignation from all positions with the Company and its subsidiaries on February 28, 2023, except that Mr. Klepfish
will remain a director and member of the board of the Company, confidentiality and non-disparagement conditions, nomination of Mr. Klepfish
for future election to the board of directors at least through the 2024 general meeting of shareholders based on certain minimum stock
ownership and board observer rights when Mr. Klepfish is no longer a director but maintains certain minimum agreed upon stock ownership.
The payment terms are $
On October 4, 2025, the Company entered into
a separation agreement and general release (the “Bennett Separation Agreement”) with Bill Bennett, pursuant to which Mr.
Bennett will resign from his position as the CEO of the Company, effective October 3, 2025. Pursuant to the Bennett Separation Agreement,
the Company shall (i) pay Mr. Bennett a severance payments consisting of salary continuation through December 31, 2025, in the total
gross amount of $
The following table represents the amounts accrued, paid, and outstanding on these agreements as of March 31, 2026:
| Total | Paid / Issued | Balance | Current | Non-current | ||||||||||||||||
| Mr. Klepfish: | ||||||||||||||||||||
| Cash – through March 6, 2026 | $ | $ | ( | ) | $ | ( | )* | $ | ( | )* | $ | |||||||||
| Cash - upon agreement execution | ( | ) | ||||||||||||||||||
| Stock - June 1, 2027 | ||||||||||||||||||||
| Stock - Issued in April 2023 | ( | ) | ||||||||||||||||||
| COBRA - over eighteen months | ||||||||||||||||||||
| Total – Mr. Klepfish | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
| Mr. Bennett: | ||||||||||||||||||||
| Cash – installments through December 31, 2025 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| Insurance – installments through September 30, 2026 | ( | ) | ||||||||||||||||||
| Total – Mr. Bennett | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| Total Company | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| * |
13
14. STOCK APPRECIATION RIGHTS LIABILITY
Effective May 15, 2023, the Company issued
During the three months ended March 31, 2026
and 2025, Smallwood SARs decreased in fair value in the amount $
The change in valuation of the Smallwood SARs is summarized in the table below:
| May 15, 2023 - fair value | $ | |||
| Loss on revaluation | ||||
| December 31, 2023 -fair value | $ | |||
| Loss on revaluation | ||||
| December 31, 2024 - fair value | $ | |||
| Gain on revaluation | ( | ) | ||
| December 31, 2025 - fair value | $ | |||
| Gain on revaluation | ( | ) | ||
| March 31, 2026 - fair value | $ |
The Smallwood SARs were valued using the Black-Scholes valuation model utilizing the following variables:
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Volatility | % | % | ||||||
| Dividends | % | % | ||||||
| Risk-free interest rates | % | % | ||||||
| Term (in years) | ||||||||
The price of the Company’s common stock
on the date of the grant of the Smallwood SARs was $
15. NOTES PAYABLE
| March 31, 2026 | December 31, 2025 | |||||||
| (unaudited) | ||||||||
| A note payable in the amount of $ | $ | $ | ||||||
| Total | $ | $ | ||||||
| Current portion | $ | $ | ||||||
| Long-term maturities, net of discount | ||||||||
| Total | $ | $ | ||||||
Aggregate maturities of notes payable as of March 31, 2026 are as follows:
For the period ended December 31,
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Total | $ |
16. EQUITY
Common Stock
As of March 31, 2026, total number of shares
of common stock issued and total number of shares of common stock outstanding was
For the three months ended March 31, 2026, the Company did not issue any common stock.
Below is the common stock activity for the three months ended March 31, 2025:
On January 9, 2025, the Company issued
14
On January 13, 2025, the Company issued
On March 14, 2025, the Company issued the following
shares of common stock to its executive officers pursuant to executive compensation plans:
Executive Stock Plans
Predecessor CEO Stock Plan
The stock plan with Mr. Bennett (the “Predecessor
CEO Stock Plan”) had a fair value of $
During the year ended December 31, 2025, the
price targets of $
On October 4, 2025, the Company entered into
a separation agreement and general release with Mr. Bennett, pursuant to which Mr. Bennett resigned from his position as the CEO of the
Company effective October 1, 2025. During the year ended December 31, 2025, the Company charged the unamortized portion of the value
of the Predecessor CEO Stock Plan in the amount of $
There are no shares unvested under the Predecessor CEO Stock Plan at March 31, 2026 or December 31, 2025.
COO Stock Plan
On April 14, 2023, the Company entered into an employment agreement with Brady Smallwood to become the Company’s COO effective May 15, 2023. Pursuant to this agreement, Mr. Smallwood was provided with an incentive compensation plan (the “COO Stock Plan”) whereby Mr. Smallwood would be granted shares of the Company’s common stock upon the common stock meeting certain price points at various 60-day volume weighted prices, as described below:
| Number of Shares Granted - Lower of: | ||||||||||
| Stock | Number of Shares Issued | Maximum | ||||||||
| Price | and Outstanding on | Number of | ||||||||
| Target | Grant Date Multiplied by: | Shares | ||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
The COO Stock Plan had a fair value of $
On January 14, 2025, the price target of $
Successor CEO Stock Plan
On October 3, 2025, the Company entered into an employment
agreement with Gary Schubert pursuant to which he will serve as the Company’s Chief Executive Officer (the “CEO Employment
Agreement”). The CEO Employment Agreement provides for the grant of
15
Prior CFO Stock Plan
On December 29, 2023, the Company entered into an employment agreement with Gary Schubert to become the Company’s Chief Financial Officer effective January 1, 2024. Pursuant to this agreement, Mr. Schubert was provided with an incentive compensation plan (the “Prior CFO Stock Plan”) whereby Mr. Schubert would be granted shares of the Company’s common stock upon the common stock meeting certain price points at various 60-day volume weighted prices, as described below:
| Number of Shares Granted - Lower of: | ||||||||||
| Stock | Number of Shares Issued | Maximum | ||||||||
| Price | and Outstanding on | Number of | ||||||||
| Target | Grant Date Multiplied by: | Shares | ||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
| $ | % | |||||||||
The Prior CFO Stock Plan had a fair value of
$
On March 10, 2025, the price target of $
Valuation of Executive Stock Plans
The Company relied upon the guidance of Statement of Financial Account Standards No. 718 Compensation – Stock Compensation (“ASC 718”) in accounting for the Predecessor CEO Stock Plan, the COO Stock Plan, and the Prior CFO Stock Plan (collectively, the Executive Stock Plans). A Monte Carlo market-based performance stock awards model was used in valuing the Executive Stock Plans, with the following assumptions:
| ● | The stock price for each trading day would fluctuate with an estimated projected volatility using a normal distribution. The stock price of the underlying instrument is modeled such that it follows a geometric Brownian motion with constant drift and volatility. |
| ● | The Company would award the stock upon triggering the thresholds. |
| ● | Annual attrition or forfeiture rates (i.e., pre–vesting forfeiture assumption) are assumed to be zero given the holder’s position with the Company. |
| ● | No projected capital events were included in the adjustments to the shares issued and outstanding in the projected simulations. |
| ● | Awards/payouts were discounted at the risk–free rate. |
Options
For the three months ended March 31, 2026, there was no stock options activity.
Below is the stock option activity for the three months ended March 31, 2025:
On January 9, 2025, the Company issued
On January 13, 2025, the Company issued
As of March 31, 2026 and 2025, there were no options outstanding.
16
17. SEGMENTS
The Company’s Chief Operating Decision Maker
(“CODM”) is the CEO, Gary Schubert, and he has determined that the Company operates in
The CODM uses consolidated revenue, gross margin percentage and net income to monitor results. The CODM also uses revenue by category to monitor the growth of the business in each of the Company’s target markets.
The following table presents the Company’s segment results:
| March 31, | March 31, | |||||||||||||||||||||||
| 2026 | 2025 | |||||||||||||||||||||||
| Amount | % | Amount | % | $ Change | % Change | |||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||
| Digital Channels | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| National distribution | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Local distribution | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Total revenue | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Cost of sales | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Gross margin | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Cash OpEx: | ||||||||||||||||||||||||
| Payroll & related costs | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Computer and IT | $ | % | $ | % | $ | % | ||||||||||||||||||
| Office, facility, vehicles | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Insurance | $ | % | $ | % | $ | % | ||||||||||||||||||
| Travel & entertainment | $ | % | $ | % | $ | % | ||||||||||||||||||
| Advertising & marketing | $ | % | $ | % | $ | % | ||||||||||||||||||
| Banking and credit card processing | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Professional fees | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| $ | % | $ | % | $ | ( | ) | - | % | ||||||||||||||||
| Non-cash OpEx: | ||||||||||||||||||||||||
| Credit loss expense | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Share based compensation | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Depreciation & amortization | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| Taxes & fees | $ | % | $ | % | $ | ( | ) | - | % | |||||||||||||||
| $ | % | $ | % | $ | ( | ) | - | % | ||||||||||||||||
| Non-Operating Expense: | ||||||||||||||||||||||||
| Interest expense | $ | % | $ | % | $ | % | ||||||||||||||||||
| Total other expense | $ | % | $ | % | $ | - | % | |||||||||||||||||
| Income tax expense | - | % | - | % | - | - | ||||||||||||||||||
| Net income from continuing operations | $ | % | $ | % | $ | % | ||||||||||||||||||
| Other segment disclosures: | ||||||||||||||||||||||||
| Segment assets | $ | $ | ||||||||||||||||||||||
| Expenditures for segment assets | $ | $ | ||||||||||||||||||||||
17
18. RELATED PARTY TRANSACTIONS
Payments to Prior Executive Officers under Separation Agreements
For the three months ended March 31, 2026
The Company paid cash
in the amount of $
The Company paid cash
in the amount of $
For the three months ended March 31, 2025
The Company paid cash
in the amount of $
19. MAJOR CUSTOMERS
During the three months ended March 31, 2026
and 2025, U.S. Foods, Inc. and its affiliates accounted for approximately
Discontinued operations: Sams Club accounted
for approximately
20. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company has become and may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s financial position or its business and the outcome of these matters cannot be ultimately predicted.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report to “we,” “our,” “us,” or the “Company” refer to Innovative Food Holdings, Inc. and all of its wholly-owned subsidiaries.
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto, as well as all other related notes, and financial and operational references, appearing elsewhere in this document.
Certain information contained in this discussion and elsewhere in this report may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (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:
| ● | Our ability to raise capital necessary to sustain our anticipated operations and implement our business plan, | |
| ● | Our ability to implement our business plan, including sale and acquisition of certain operations, | |
| ● | The potential impact on future revenue and operations resulting from changes to our business plan, including our decision to exit certain business lines such as cheese and logistics, | |
| ● | Our ability to generate sufficient cash to pay our lenders and other creditors, | |
| ● | Our dependence on three major customers, | |
| ● | Our ability to employ and retain qualified management and employees, | |
| ● | Our dependence on the efforts and abilities of our current employees and executive officers, | |
| ● | Changes in government regulations that are applicable to our current or anticipated business, | |
| ● | Changes in the demand for our services and different food trends, | |
| ● | The imposition of tariffs or other trade restrictions that may increase costs or disrupt our supply chain, | |
| ● | The degree and nature of our competition, | |
| ● | The lack of diversification of our business plan, | |
| ● | The general volatility of the capital markets and the establishment of a market for our shares, and | |
| ● | Disruption in the economic and financial conditions primarily from the impact of past terrorist attacks in the United States, threats of future attacks, police and military activities overseas and other disruptive worldwide political and economic events, health pandemics, rising inflation and energy costs, and environmental weather conditions. |
We are also subject to other risks detailed from time to time in our other filings with the SEC and elsewhere in this report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
19
Critical Accounting Policy and Estimates
Use of Estimates in the Preparation of Financial Statements
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates include certain assumptions related to, among others, doubtful accounts receivable, inventory, valuation of stock-based services, operating right of use assets and liabilities, impairment of intangible assets, 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.
Stock Options and Stock Appreciation Rights
The Company accounts for options in accordance with FASB ASC 718-40. Options are valued upon issuance utilizing the Black-Scholes valuation model. Option expense is recognized over the requisite service period of the related option award. The following table illustrates certain key information regarding our options, SARS, and valuation assumptions:
| March 31, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Volatility | 66.47 | % | 77.84-205.63 | % | ||||
| Dividends | 0 | % | 0 | % | ||||
| Risk-free interest rates | 3.68 | % | 3.48-4.10 | % | ||||
| Term (in years) | 0.75 | 1.00-2.00 | ||||||
Allowance for Credit Losses
The Company maintained an allowance in the amount of $247,272 and $218,319 for credit losses at March 31, 2026 and December 31, 2025, respectively. The Company has an operational relationship of several years with our major customers, and we believe this experience provides us with a solid foundation from which to estimate our expected losses on accounts receivable. Should our sales mix change or if we develop new lines of business or new customers, these estimates and our estimation process will change accordingly. These estimates have been accurate in the past.
Income Taxes
The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized.
Leases
The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the condensed consolidated balance sheet.
ROU assets represent the right of use to an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component. For lease agreements with terms less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease payments on a straight-line basis over the lease term.
Our Business Activities
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.
Our team is adept at evaluating and certifying the food safety and supply chain capabilities of small batch producers who do not typically sell through broad-based sales channels. We seek out the freshest, most unique, origin-specific gourmet cheese, meat, produce, and premium ingredients available, and distribute them directly from our robust network of vendors and warehouses within 24 – 72 hours of an order being placed. We also source, package, and brand a meaningful segment of these products ourselves, enabling us to better control the assortment, offer more flexibility and variety to our customers, and capture additional margin.
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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 cannot 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 U.S. Foods, Inc. Lastly, we sell these foods 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.
We operate our airline catering distribution business out of our owned 28,000 square foot facility in the greater Chicago area. Additionally, we operate a warehouse in Denver, Colorado, measuring approximately 20,000 square feet. In March 2026, we sold our facility in Mountain Top, Pennsylvania, which previously supported both our retail and airline catering operations. In connection with this sale, our airline catering operations have been relocated to the Chicago facility, and our retail business is being wound down.
Our facilities have the capabilities to pack and ship frozen, refrigerated, and ambient products, enabling us to offer a broad range of specialty foods. We maintain GFSI/SQF certifications, ensuring compatibility with the highest global standards for food handling and meeting the quality and food safety expectations of our premium customers. These warehouses are equipped to ship packages and pallets of all sizes via overnight carriers. We also utilize our own fleet of trucks to deliver directly to Professional Chef customers within our delivery footprint.
Our proprietary technology platform underpins our entire business, driving transparency and efficiency up and down the supply chain. Orders flow in real time, whether to our warehouses or to our vendor partners, to allow for fast handling and fulfillment. Our picking is enabled by efficient scan-based, handheld devices, ensuring order and inventory accuracy. Our warehouse management software optimizes pick routes for common items and order types, recommends a box size, and calculates the appropriate amount of packaging and ice required based on forecasted temperatures along the delivery route.
We have built a team consisting of passionate, committed, and food-obsessed people: our average tenure (outside of seasonal workers) across the Company is over five years. Our merchandising team has deep connections within the specialty food space around the globe. Our customer service and sales teams, as ex-chefs themselves, go beyond customer service to offer our Professional Chefs customer support, menu ideas, and preparation guidance.
RESULTS OF OPERATIONS
This discussion may contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from the forward-looking statements discussed in this report. This discussion should be read in conjunction with our consolidated financial statements, the notes thereto and other financial information included elsewhere in the report.
Financial highlights for the fiscal quarter ended March 31, 2026: we reported revenue of $12.2 million, a 19.0% decrease compared to $15.0 million in 2025.
Three Months Ended March 31, 2026
Revenue Breakdown:
| ● | Digital Channels: Largely comprised of our distributor relationships and supported by our drop-ship model generated $6.6 million, or 55% of total revenue, in the current period, compared to $7.8 million in the prior year period, a decrease of approximately 16%. This decrease was primarily driven by continued headwinds in our legacy drop-ship business, where increased competition in online marketplace channels has resulted in lower order volumes and pricing pressure. |
| ● | National Distribution: Revenue was $2.5 million, 21% of total revenue, compared to $2.8 million in the prior year period. The decrease was primarily driven by stiffer competition and airline menu cycle changes. |
| ● | Local Distribution: Consists mainly of local sales team relationships and our local fleet delivering direct from warehouse. This category generated $3.1 million, or 26% of total revenue, which is a 30% decrease from $4.4 million in 2025. This decrease was primarily driven by customer attrition following prior year operational transitions; however, these strategic customer attrition efforts have stabilized. |
Cost of goods sold for the three months ended March 31, 2026 decreased by approximately 18% to $9.1 million compared to $11.1 million in the prior year period, which is primarily due to a 19% decrease in revenue. Gross margin remained flat at approximately 26%.
Operating Expenses
Total operating expenses decreased by $888 thousand, or 24%, primarily due to the factors described below:
| ● | Payroll and related costs decreased by $426 thousand to $1.9 million. This decrease was primarily due to a reduction in headcount from organizational restructuring, largely at the executive level. |
| ● | Professional fees decreased by $276 thousand to $249 thousand primarily due to the discontinuation of strategic growth initiatives that did not yield desired results. |
| ● | Share-based compensation decreased by $153 thousand to $8 thousand, due to revaluation of stock options and other equity-based incentives offered to attract and retain key personnel. |
| ● | Depreciation and amortization expense decreased by $11 thousand to $60 thousand primarily due to the expiration of capitalized financial leases. |
Discontinued Operations
The discontinued operations reported net income of $1.5 million in the current quarter, compared to a net loss of $684 thousand in the prior year primarily due to the $2.1 million gain on the sale of the Pennsylvania facility in 2026.
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Liquidity and Capital Resources at March 31, 2026
As of March 31, 2026, we had current assets of $9.8 million and current liabilities of $3.3 million. Net working capital was $6.5 million.
We believe we have sufficient liquidity to fund operations for at least the next twelve months. With the sale of the Pennsylvania facility, operating cash flows are expected to continue to improve as facility costs and lower margin product sales roll off. We do not anticipate the need to raise additional capital. We are working on a new credit facility to provide working capital flexibility. Remaining severance obligations are not expected to be material, and staffing levels are being managed to align with current business needs.
Cash Flow Analysis:
| ● | Net cash used in operating activities was $234 thousand, primarily due to net income of $1.8 million, a decrease in inventory of $345 thousand due to lowered cheese inventory balances associated with the wind down Pennsylvania of the facility, partially offset by the gain on disposition of assets of $2.7 million, a $609 thousand loss on the early extinguishment of debt, a decrease of $184 thousand primarily due to the collection of receivables related to discontinuing the cheese business, and a $564 thousand decrease in accounts payable and accrued liabilities primarily due to the sale of the Pennsylvania facility. |
| ● | Net cash provided by investing activities was $8.8 million which was primarily due to cash received for the sale of the Pennsylvania land and building for $8.8 million, offset by the purchase of property and equipment for $31 thousand. |
| ● | Net cash used in financing Activities was $8.8 million, due to the payments on debt and financing leases. |
Transactions with Major Customers
During the three months ended March 31, 2026, and 2025, U.S. Foods, Inc. and its affiliates accounted for approximately 40% and 41% of total revenue, respectively. Gate Gourmet accounted for approximately 15% and 19% of total revenue, respectively, during the three months ended March 31, 2026, and 2025.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
In the opinion of management, inflation has had a material effect on the Company’s financial condition and results of its operations. The Company has seen the impact of inflation across its costs for fuel, shipping, cost of goods, and marketing. Balancing the management of these increases with the willingness of our customers to pay higher prices will continue to be a key focus for the Company this year. However, no assurance can be given that we will be successful and inflationary pressure on our profits will likely continue through 2026.
RISK FACTORS
The Company’s business and success is subject to numerous risk factors as detailed in its Annual Report on Form 10-K for the year ended December 31, 2025 and its Current Reports on Form 8-K, all of which reports are available at no cost at www.sec.gov.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit pursuant to the requirements of the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, among other things, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our principal executive and financial officer, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive and financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, and because of the material weaknesses in internal control over financial reporting described below, management concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2026.
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Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
During management’s evaluation of internal control over financial reporting, management identified material weaknesses related to information technology general controls over certain applications that support the Company’s financial reporting processes.
Management identified material weaknesses related to information technology general controls over certain applications that support the Company’s financial reporting processes. Specifically, management identified deficiencies associated with (a) effective user access controls to appropriately segregate duties and adequately restrict user and privileged access, (b) effective controls to monitor, document and approve application changes, and (c) effective controls related to monitoring of critical jobs. As a result of these deficiencies and certain account reconciliation and review controls that were not effectively designed in fully mitigating the related risks, automated process- level and manual controls within the financial reporting cycles that rely on information generated from such financially relevant systems were not considered effective.
Notwithstanding the identified material weaknesses, management, including our principal executive, financial and accounting officer, concluded the consolidated financial statements included in this report fairly represent in all material respects our results of operations, financial condition, and cash flows at and for the periods presented in accordance with U.S. GAAP.
As disclosed in Part II, Item 9A of the Annual Report on Form 10-K for the year ended December 31, 2025, management concluded that the aforementioned material weaknesses in internal control existed for the Company. Management concluded that these material weaknesses still existed as of March 31, 2026.
Remediation Plan
Management has begun implementing measures designed to remediate the material weaknesses described above. These remediation efforts include:
| ● | Formalizing information technology governance procedures related to user access administration, periodic access reviews, and application change management for systems supporting financial reporting; |
| ● | Enhancing documentation, approval, testing, and tracking procedures for application changes; |
| ● | Reviewing user roles and access permissions within relevant applications and implementing additional role-based access governance procedures, as appropriate; |
| ● | Enhancing the documentation, retention, and review of system change logs and other relevant system activity logs; and |
| ● | Strengthening documentation of existing monitoring controls related to system interfaces, application functionality, and data validation processes. |
Management will continue to evaluate the design and operating effectiveness of these remediation efforts. The material weaknesses will not be considered remediated until the applicable controls have been fully implemented, tested, and determined to be operating effectively for a sufficient period of time.
Changes in Internal Control Over Financial Reporting
Other than as discussed above, during the period covered by this report, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has become and may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our financial position or our business, and the outcome of these matters cannot be ultimately predicted.
Item 1A. Risk Factors
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in report. However, for detailed descriptions of the risks relating to our Company, see the section titled “Risk Factors” contained in our Annual Report for the year ended December 31, 2025. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Trading Arrangements
During the quarterly period ended March 31, 2026,
none of our directors or officers (as defined in Rule 16a-1(f) promulgated under the Exchange Act)
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Item 6. Exhibits
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INNOVATIVE FOOD HOLDINGS, INC. | ||
| Date: May 20, 2026 | By: | /s/ Gary Schubert |
| Name: | Gary Schubert | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
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