Attached files
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8-K/A - INNOVATIVE FOOD HOLDINGS INC | innovativefood8ka071212.htm |
EX-99.2 - INNOVATIVE FOOD HOLDINGS INC | ex99-2.htm |
Exhibit 99.1
ARTISAN SPECIALTY FOODS, INC.
Financial Statements
December 31, 2011 and 2010
ARTISAN SPECIALTY FOODS, INC.
Financial Statements
December 31, 2011and 2010
CONTENTS
|
PAGES
|
Independent Registered Auditor’s Report
|
3
|
Financial Statements
|
|
Balance Sheets
|
4
|
Statements of Operations
|
5
|
Statements of Cash Flows
|
6
|
Statements of Stockholder’s (Deficiency) Equity
|
7
|
Notes to the Financial Statements
|
8
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Artisan Specialty Foods, Inc.
We have audited the accompanying balance sheets of Artisan Specialty Foods, Inc. (the “Company”), as of December 31, 2011 and 2010 and the related statements of operations, stockholder’s (deficiency) equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Artisan Specialty Foods, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ RBSM LLP
New York, New York
July 18, 2012
3
Artisan Specialty Foods, Inc.
|
||||||||
Balance Sheets
|
||||||||
December 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
2,473
|
$
|
37,172
|
||||
Accounts receivable, net
|
420,428
|
316,599
|
||||||
Inventory
|
322,734
|
507,099
|
||||||
Total current assets
|
745,635
|
860,870
|
||||||
Property and equipment, net
|
89,348
|
152,915
|
||||||
Total assets
|
$
|
834,983
|
$
|
1,013,785
|
||||
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
|
||||||||
Current liabilities
|
||||||||
Line of credit
|
$
|
747,070
|
$
|
818,885
|
||||
Accounts payable and accrued liabilities
|
316,070
|
212,879
|
||||||
Capital leases, current portion
|
10,535
|
14,538
|
||||||
Total current liabilities
|
1,073,675
|
1,046,302
|
||||||
Capital leases - long term portion
|
27,844
|
38,378
|
||||||
Total liabilities
|
1,101,519
|
1,084,680
|
||||||
Stockholder's deficiency) equity
|
||||||||
Common stock, no par value; 1,000 shares authorized, issued, and outstanding
|
1,000
|
1,000
|
||||||
Accumulated deficit
|
(267,536)
|
(71,895)
|
||||||
Total stockholder's deficiency
|
(266,536)
|
(70,895)
|
||||||
Total liabilities and stockholder’s deficiency
|
$
|
834,983
|
$
|
1,013,785
|
See notes to financial statements.
4
Artisan Specialty Foods, Inc.
|
||||||||
Statements of Operations
|
||||||||
For the
|
For the
|
|||||||
Year Ended
|
Year Ended
|
|||||||
December 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Revenue
|
$
|
5,678,211
|
$
|
4,557,372
|
||||
Cost of goods sold
|
3,918,259
|
3,102,363
|
||||||
Gross Profit |
1,759,952
|
1,455,009
|
||||||
Selling, general and administrative expenses
|
1,492,359
|
1,362,803
|
||||||
Total operating expenses
|
1,492,359
|
1,362,803
|
||||||
Operating income
|
267,593
|
92,206
|
||||||
Other expense:
|
||||||||
Interest expense, net
|
24,592
|
31,182
|
||||||
Total other expense
|
24,592
|
31,182
|
||||||
Income before income taxes
|
243,001
|
61,024
|
||||||
Income tax expense
|
2,000
|
3,876
|
||||||
Net income
|
$
|
241,001
|
$
|
57,148
|
||||
Net income per share
|
$
|
241.00
|
$
|
57.15
|
||||
Weighted average shares outstanding- basic
|
1,000
|
1,000
|
See notes to financial statements.
5
Artisan Specialty Foods, Inc.
|
||||||||
Statements of Cash Flows
|
||||||||
For the
|
For the
|
|||||||
Year Ended
|
Year Ended
|
|||||||
December 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
241,001
|
$
|
57,148
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
63,567
|
54,815
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable, net
|
(103,829
|
)
|
(48,986
|
)
|
||||
Inventory
|
184,365
|
18,182
|
||||||
Accounts payable and accrued expenses
|
103,191
|
(59,403
|
)
|
|||||
Net cash provided by operating activities
|
488,295
|
21,756
|
||||||
Cash flows from investing activities:
|
||||||||
Acquisition of property and equipment
|
-
|
(48,698
|
)
|
|||||
Net cash used in investing activities
|
-
|
(48,698
|
)
|
|||||
Cash flows from financing activities:
|
||||||||
(Repayment of) proceeds from line of credit
|
(71,815
|
)
|
91,956
|
|||||
Distributions to owner
|
(436,642
|
)
|
(266,062
|
)
|
||||
Principal payments on debt
|
(14,537
|
)
|
(13,004
|
)
|
||||
Net cash used in financing activities
|
(522,994
|
)
|
(187,110
|
)
|
||||
Decrease in cash and cash equivalents
|
(34,699
|
)
|
(214,052
|
)
|
||||
Cash and cash equivalents at beginning of period
|
37,172
|
251,224
|
||||||
Cash and cash equivalents at end of period
|
$
|
2,473
|
$
|
37,172
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
24,592
|
$
|
31,182
|
||||
Income taxes
|
$
|
2,000
|
$
|
3,876
|
||||
Non-cash investing and financing activities: | ||||||||
Non-cash distribution to shareholder | $ | - | $ | 129,322 |
See notes to financial statements.
6
Artisan Specialty Foods, Inc.
|
||||||||||||||||
Statements of Stockholder’s (Deficiency) Equity
For the Two Years Ended December 31, 2011
|
||||||||||||||||
Common Stock
|
||||||||||||||||
Shares
|
Amount
|
Accumulated Earnings (Deficit)
|
Total
|
|||||||||||||
Balance – January 1, 2010
|
1,000
|
|
$ |
1,000
|
$
|
266,341
|
$
|
267,341
|
||||||||
Net income for the year ended December 31, 2010
|
-
|
-
|
57,148
|
57,148
|
||||||||||||
Distributions to shareholder
|
-
|
-
|
(395,384
|
)
|
(395,384
|
)
|
||||||||||
Balance - December 31, 2010
|
1,000
|
1,000
|
(71,895
|
)
|
(70,895
|
)
|
||||||||||
Net income for the year ended December 31, 2011
|
-
|
-
|
241,001
|
241,001
|
||||||||||||
Distributions to shareholder
|
-
|
-
|
(436,642
|
)
|
(436,642
|
)
|
||||||||||
Balance - December 31, 2011
|
1,000
|
$
|
1,000
|
$
|
(267,536)
|
$
|
(266,536)
|
See notes to financial statements.
7
ARTISAN SPECIALTY FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied in the preparation of the accompanying financial statements.
Business Activities
Artisan Specialty Foods, Inc. “the Company” was organized on July 8, 2004 as an S-Corporation, in the state of Illinois. The Company is in the business of providing specialty food products to end users.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
Revenue Recognition
The Company recognizes revenue upon product shipment. The Company ships all its products either overnight shipping terms or three day shipping terms to the customer. 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.
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 the product plus the shipping costs.
Selling, general, and administrative expenses
The Company has included in selling, general, and administrative expenses all other costs which support the Company’s operations but which are not includable as a cost of sales. These include primarily payroll, facility costs such as rent and utilities, and other administrative costs including professional fees. Advertising costs are expensed as incurred.
Cash and Cash Equivalents
Cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations.
Accounts Receivable
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. As of December 31, 2011 and 2010, the Company has an allowance for doubtful receivable for $50,000.
8
Property and Equipment
Property and equipment are valued at cost. Depreciation is provided over the estimated useful lives up to five years using the straight-line method. Leasehold improvements are depreciated on a straight-line basis over the term of the lease.
The estimated service lives of property and equipment are as follows:
Computer Equipment
|
3 years
|
Office Furniture and Fixtures
|
5 years
|
Warehouse Equipment
|
5 years
|
Vehicles
|
5 years
|
Inventories
Inventory is valued at the lower of cost or market and is determined by the first-in, first-out method.
Long-lived Assets
The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
As of December 31, 2011, the Company’s management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change which could result in impairment of long-lived assets in the future.
Net Loss Per Common Share
Basic net earnings per share is based on the weighted average number of shares outstanding during the period. The Company did not have any dilutive securities outstanding at December 31, 2011 or 2010.
Fair Value of Financial Instruments
The carrying amount of the Company’s cash and cash equivalents, accounts receivable, notes payable, line of credit, accounts payable and accrued expenses, none of which is held for trading, approximates their estimated fair values due to the short-term maturities of those financial instruments.
The Company adopted ASC 820-10, “Fair Value Measurements” (SFAS 157), which provides a framework for measuring fair value under GAAP. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
As of December 31, 2011 and 2010, the Company did not have any financial assets or liabilities that are measured at fair value on a recurring basis.
Advertising costs
The Company follows the policy of charging the costs of advertising expenses as incurred.
Income taxes
The Company has elected to be treated as subchapter “S” corporations for federal and state income tax purposes. Therefore, no provision has been made for corporate federal and state income taxes and the stockholders have consented to include the income or loss in their individual tax returns. The Company is, however, liable for its state franchise taxes. The Company provides for income taxes based on pre-tax earnings reported in the financial statements. Certain items such as depreciation are recognized for tax purposes in periods other than the period they are reported in the financial statements.
9
Deferred income taxes are provided in accordance with ASC 740, Subtopic 10. Deferred income taxes are provided for accumulated temporary differences due to basis of differences for assets and liabilities for financial reporting and income tax purposes, including alternative minimum taxes. The Company’s temporary differences were deemed to be immaterial.
In June 2006, the FASB issued FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. Effective January 1, 2007, the Company adopted the provisions of ASC 740-10-25, as required. As a result of implementing ASC 740-10-25, there has been no adjustment to the Company’s financial statements and the adoption of ASC 740-10-25 did not have a material effect on the Company’s financial statements for the years ended December 31, 2011 and 2010.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
2. ACCOUNTS RECEIVABLE
At December 31, 2011 and 2010, accounts receivable consists of:
2011
|
2010
|
|||||||
Accounts receivable from customers
|
$
|
470,428
|
$
|
366,599
|
||||
Allowance for doubtful accounts
|
(50,000
|
)
|
(50,000
|
)
|
||||
Accounts receivable, net
|
$
|
420,428
|
$
|
316,599
|
3. INVENTORY
At December 31, 2011 and 2010, finished goods inventory was $322,734 and $507,099, respectively.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 2011 and 2010 is as follows:
2011
|
2010
|
|||||||
Office Equipment
|
$
|
33,926
|
$
|
33,926
|
||||
Warehouse Equipment
|
60,134
|
60,134
|
||||||
Computer Equipment
|
66,746
|
66,746
|
||||||
Leasehold Improvements
|
100,500
|
100,500
|
||||||
Vehicles
|
161,023
|
161,023
|
||||||
422,329
|
422,329
|
|||||||
Less accumulated depreciation and amortization
|
(332,981
|
)
|
(269,414
|
)
|
||||
Total
|
$
|
89,348
|
$
|
152,915
|
Depreciation and amortization expense for property and equipment amounted to $63,567 and $54,815 for the years ended December 31, 2011 and 2010, respectively.
5. LINE OF CREDIT
The Company entered into a line of credit facility with The PrivateBank and Trust Company for a maximum borrowing of $1,000,000 available for working capital and maturing June 28, 2012. The line is collateralized by a first lien on all the Company’s business assets, a mortgage on the Company’s warehouse and office facility which the Company leases and commercial guaranty from the Company’s shareholder. The variable interest rate on the line of credit is based upon the prime rate published by the Wall Street Journal.
The Company has a line of credit with a bank. As of December 31, 2011 and 2010, the Company had $747,070 and $818,885 due under the line of credit agreement, respectively. In accordance with the acquisition on May 18, 2012, the line of credit was fully paid off and cancelled.
10
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2011 and 2010 are as follows:
2011
|
2010
|
|||||||
Trade payables
|
$
|
316,070
|
$
|
212,879
|
7. CAPITAL LEASES
December 31, 2011
|
December 31, 2010
|
|||||||
On August 20, 2006, the Company entered into a capital lease for a van. The lease agreement is for 60 payments of $646.33 per month. During the years ended December 31, 2011 and 2010, the Company made principal payments on the lease in the amount of $4,923 and $6,614, respectively, and interest payments on the lease in the amount of $249 and $1,142, respectively.
|
$
|
-
|
$
|
4,922
|
||||
On January 1, 2010, the Company entered into a capital lease for a van. The lease agreement is for 60 payments of $614 per month. During the year ended December 31, 2011and 2010, the Company made principal payments on the lease in the amount of $5,146 and $4,289, and interest payments on the lease in the amount of $2,222 and $2,465, respectively.
|
19,493
|
24,639
|
||||||
|
|
|||||||
On June 30, 2010, the Company entered into a capital lease for a van. The lease agreement is for 60 payments of $519.30 per month.
|
18,886
|
23,356
|
||||||
Total outstanding
|
38,379
|
52,916
|
||||||
Less: current maturities
|
(10,535
|
) |
(14,538
|
) | ||||
Long-term
|
$ |
27,844
|
$ |
38,378
|
Maturities of capital leases for the next five years are as follows:
December 31,
|
|||||||||
2011
|
2010
|
||||||||
2011 | $ | - | $ | 18,770 | |||||
2012
|
13,600
|
13,600
|
|||||||
2013
|
13,600
|
13,600
|
|||||||
2014
|
13,600
|
13,600
|
|||||||
2015
|
3,730
|
3,730
|
|||||||
Subtotal
|
$
|
44,530
|
$
|
63,300
|
|||||
Less interest
|
(6,151
|
)
|
(10,383
|
)
|
|||||
Total
|
$
|
38,379
|
$
|
52,917
|
8. COMMON STOCK
The Company has authorized a total of 1,000 shares of common stock with no par value. As December 31, 2011 and 2010, the Company had issued and outstanding 1,000 shares of common stock.
11
9. RELATED PARTY TRANSACTIONS
The Company has following transactions with the stockholder, entities under common control which are controlled by the Company’s stockholder:
(a)
|
The Company purchases from an entity related to the stockholder. Total purchases from the related party for the years ended December 31, 2011 and 2010 was $79,277 and $59,912, respectively. Related party accounts payable outstanding as of December 31, 2011 and 2010 was $9,601 and $2,743, respectively.
|
(b)
|
The Company made distributions to the stockholder of $436,642 and $395,384 for the years ended December 31, 2011 and 2010, respectively.
|
(c)
|
The Company leased warehouse and office space from the stockholder. The Company charged related party rent expense of $100,000 and $100,000 for the years ended December 31, 2011 and 2010, respectively.
|
10. BUSINESS CONCENTRATION
For the years ended December 31, 2011 and 2010, sales to major customer(s) and purchases from major supplier(s) are as follows:
2011
|
2010
|
|||||||||||||||||||||||
#
|
Amount
|
%
|
#
|
Amount
|
%
|
|||||||||||||||||||
Major customer(s)
|
2
|
$
|
2,606,310
|
45.90
|
1
|
$
|
1,775,485
|
38.96
|
||||||||||||||||
Major supplier(s)
|
0
|
$
|
0
|
00.00
|
0
|
$
|
0
|
00.00
|
11. SUBSEQUENT EVENT
Subsequent events have been evaluated through July 18, 2012, a date that the financial statements were issued.
On May 18, 2012, Innovative Foods Holdings, Inc. acting through a newly created subsidiary (“Subsidiary”), entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Artisan Specialty Foods, Inc. The purchase price was $1.2 million, with up to another $300,000 payable in the event certain financial milestones are met over the next one or two years. Prior to the acquisition, Innovative Food Holdings, Inc. was a major customer for the years ended December 31, 2011 and 2010.
As part of the transaction, Mr. Vohaska entered into a two year employment agreement with Subsidiary to continue running the acquired business. The agreement provides for an annual base salary of $120,000 in the first year and $140,000 in the second year.
Also as part of the acquisition of Artisan, the registrant entered into a three year lease for the premises where Artisan conducted its business prior to the acquisition described above. The annual base rent under the lease ranges from approximately $100,000 to approximately $102,010. The landlord is Mr. and Mrs. David Vohaska.
In accordance with the acquisition, a condition precedent to the closing required the seller to pay-off all secured creditors from the Closing Cash Payment necessary to pay all the Company’s secured debt in full.
12
ARTISAN SPECIALTY FOODS, INC.
Financial Statements
March 31, 2012 and 2011
CONTENTS
|
PAGES
|
Financial Statements (unaudited)
|
13
|
Balance Sheets
|
14
|
Statements of Operations
|
15
|
Statements of Cash Flows
|
16
|
Notes to the Financial Statements
|
17
|
13
Artisan Specialty Foods, Inc.
|
||||||||
Balance Sheet
(Unaudited)
|
||||||||
March 31,
|
March 31,
|
|||||||
2012
|
2011
|
|||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
75,705
|
$
|
84,502
|
||||
Accounts receivable, net
|
355,943
|
321,070
|
||||||
Inventory
|
419,759
|
558,595
|
||||||
Total current assets
|
851,407
|
964,167
|
||||||
Property and equipment, net
|
74,899
|
136,374
|
||||||
Total assets
|
$
|
926,306
|
$
|
1,100,541
|
||||
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
|
||||||||
Current liabilities
|
||||||||
Line of credit
|
$
|
711,121
|
$
|
695,372
|
||||
Accounts payable and accrued liabilities
|
609,299
|
430,925
|
||||||
Capital lease payable, current portion
|
2,821
|
6,890
|
||||||
Total current liabilities
|
1,323,241
|
1,133,187
|
||||||
Capital lease payable - long term portion
|
33,014
|
41,910
|
||||||
Total liabilities
|
1,356,255
|
1,175,097
|
||||||
Stockholders' (deficiency)
|
||||||||
Common stock, no par value; 1,000 shares authorized, issued and outstanding at March 31, 2012 and December 31, 2011
|
1,000
|
1,000
|
||||||
Accumulated deficit
|
(430,949
|
)
|
(75,556
|
)
|
||||
Total stockholders' (deficiency)
|
(429,949
|
)
|
(74,556
|
)
|
||||
Total liabilities and stockholders' (deficiency)
|
$
|
926,306
|
$
|
1,100,541
|
See notes to unaudited financial statements.
14
Artisan Specialty Foods, Inc.
|
||||||||
Statements of Operations
(Unaudited)
|
||||||||
For the Three
|
For the Three
|
|||||||
Months Ended
|
Months Ended
|
|||||||
March 31,
|
March 31,
|
|||||||
2012
|
2011
|
|||||||
Revenue
|
$
|
1,599,396
|
$
|
1,217,853
|
||||
Cost of goods sold
|
1,002,493
|
799,690
|
||||||
Gross Profit |
596,903
|
418,163
|
||||||
Selling, general and administrative expenses
|
289,887
|
332,952
|
||||||
Total operating expenses
|
289,887
|
332,952
|
||||||
Operating income
|
307,016
|
85,211
|
||||||
Other expense:
|
||||||||
Interest expense, net
|
7,685
|
6,872
|
||||||
Total other expense
|
7,685
|
6,872
|
||||||
Income before income taxes
|
299,331
|
78,339
|
||||||
Income tax expense
|
2,500
|
2,000
|
||||||
Net income
|
$
|
296,831
|
$
|
76,339
|
||||
Net income per share- basic
|
$
|
296.83
|
$
|
76.34
|
||||
Weighted average shares outstanding- basic
|
1,000
|
1,000
|
See notes to unaudited financial statements.
15
Artisan Specialty Foods, Inc.
|
||||||||
Statements of Cash Flows
(Unaudited)
|
||||||||
For the Three
|
For the Three
|
|||||||
Months Ended
|
Months Ended
|
|||||||
March 31,
|
March 31,
|
|||||||
2012
|
2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$
|
296,831
|
$
|
76,339
|
||||
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
14,449
|
16,541
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable, net
|
64,485
|
(4,471
|
)
|
|||||
Inventory
|
(97,025
|
)
|
(51,496
|
)
|
||||
Accounts payable and accrued expenses
|
293,229
|
218,046
|
||||||
Net cash provided by operating activities
|
571,969
|
254,959
|
||||||
Cash flows from investing activities | - | - | ||||||
Cash flows from financing activities:
|
||||||||
Repayment of line of credit
|
(35,949
|
)
|
(123,513
|
)
|
||||
Distributions to owner
|
(460,244
|
)
|
(80,000
|
)
|
||||
Principal payments on debt
|
(2,544
|
)
|
(4,116
|
)
|
||||
Net cash used in financing activities
|
(498,737
|
)
|
(207,629
|
)
|
||||
Increase in cash and cash equivalents
|
73,232
|
47,330
|
||||||
Cash and cash equivalents at beginning of period
|
2,473
|
37,172
|
||||||
Cash and cash equivalents at end of period
|
$
|
75,705
|
$
|
84,502
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
7,685
|
$
|
6,872
|
||||
Income taxes
|
$
|
2,500
|
$
|
2,000
|
See notes to unaudited financial statements.
16
ARTISAN SPECIALTY FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied in the preparation of the accompanying financial statements.
Business Activities
Artisan Specialty Foods, Inc. “the Company” was organized on July 8, 2004 as an S-Corporation, in the state of Illinois. The Company is in the business of providing specialty food products to end users.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
Revenue Recognition
The Company recognizes revenue upon product shipment. The Company ships all its products either overnight shipping terms or three day shipping terms to the customer. 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.
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 the product plus the shipping costs.
Selling, general, and administrative expenses
The Company has included in selling, general, and administrative expenses all other costs which support the Company’s operations but which are not includable as a cost of sales. These include primarily payroll, facility costs such as rent and utilities, and other administrative costs including professional fees. Advertising costs are expensed as incurred.
Cash and Cash Equivalents
Cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations.
Accounts Receivable
The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. As of March 31, 2012 and 2011, the allowance for doubtful accounts was $50,000.
17
Property and Equipment
Property and equipment are valued at cost. Depreciation is provided over the estimated useful lives up to five years using the straight-line method. Leasehold improvements are depreciated on a straight-line basis over the term of the lease.
The estimated service lives of property and equipment are as follows:
Computer Equipment
|
3 years
|
Office Furniture and Fixtures
|
5 years
|
Warehouse Equipment
|
5 years
|
Vehicles
|
5 years
|
Inventories
Inventory is valued at the lower of cost or market and is determined by the first-in, first-out method.
Long-lived Assets
The Company reviews its property and equipment and any identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The test for impairment is required to be performed by management at least annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
As of March 31, 2012, the Company’s management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change which could result in impairment of long-lived assets in the future.
Net Loss Per Common Share
Basic net earnings per share is based on the weighted average number of shares outstanding during the period, while fully-diluted net earnings per share is based on the weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period using the treasury stock method. The Company did not have any dilutive securities outstanding at March 31, 2012 or 2011.
Fair Value of Financial Instruments
The carrying amount of the Company’s cash and cash equivalents, accounts receivable, notes payable, line of credit, accounts payable and accrued expenses, none of which is held for trading, approximates their estimated fair values due to the short-term maturities of those financial instruments.
The Company adopted ASC 820-10, “Fair Value Measurements” (SFAS 157), which provides a framework for measuring fair value under GAAP. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
Advertising costs
The Company follows the policy of charging the costs of advertising expenses as incurred.
Income taxes
The Company has elected to be treated as subchapter “S” corporations for federal and state income tax purposes. Therefore, no provision has been made for corporate federal and state income taxes and the stockholders have consented to include the income or loss in their individual tax returns. The Company is, however, liable for its state franchise taxes. The Company provides for income taxes based on pre-tax earnings reported in the financial statements. Certain items such as depreciation are recognized for tax purposes in periods other than the period they are reported in the financial statements.
18
Deferred income taxes are provided in accordance with ASC 740, Subtopic 10. Deferred income taxes are provided for accumulated temporary differences due to basis of differences for assets and liabilities for financial reporting and income tax purposes, including alternative minimum taxes. The Company’s temporary differences were deemed to be immaterial.
In June 2006, the FASB issued FASB ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. Effective January 1, 2007, the Company adopted the provisions of ASC 740-10-25, as required. As a result of implementing ASC 740-10-25, there has been no adjustment to the Company’s financial statements and the adoption of ASC 740-10-25 did not have a material effect on the Company’s financial statements for the three months ended March 31, 2012 and 2011.
New Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
2. ACCOUNTS RECEIVABLE
At March 31, 2012 and 2011, accounts receivable consists of:
2012
|
2011
|
|||||||
Accounts receivable from customers
|
$
|
405,943
|
$
|
371,070
|
||||
Allowance for doubtful accounts
|
(50,000
|
)
|
(50,000
|
)
|
||||
Accounts receivable, net
|
$
|
355,943
|
$
|
321,070
|
3. INVENTORY
At March 31, 2012 and 2011, finished goods inventory was $419,759 and $558,595, respectively.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at March 31, 2012 and 2011, is as follows:
2012
|
2011
|
|||||||
Office Equipment
|
$
|
33,926
|
$
|
33,926
|
||||
Warehouse Equipment
|
44,331
|
44,331
|
||||||
Computer Equipment
|
66,746
|
66,746
|
||||||
Leasehold Improvements
|
100,500
|
100,500
|
||||||
Vehicles
|
176,825
|
176,825
|
||||||
422,328
|
422,328
|
|||||||
Less accumulated depreciation and amortization
|
(347,429
|
)
|
(285,954
|
)
|
||||
Total
|
$
|
74,899
|
$
|
136,374
|
Depreciation and amortization expense for property and equipment amounted to $14,449 and $16,541 for the three months ended March 31, 2012 and 2011, respectively.
5. LINE OF CREDIT
The Company entered into a line of credit facility with The PrivateBank and Trust Company for a maximum borrowing of $1,000,000 available for working capital and maturing June 28, 2012. The line is collateralized by a first lien on all the Company’s business assets, a mortgage on the Company’s warehouse and office facility which the Company leases and commercial guaranty from the Company’s shareholder. The variable interest rate on the line of credit is based upon the prime rate published by the Wall Street Journal.
The Company has a line of credit with a bank. As of March 31, 2012 and 2011, the Company had $711,121 and $695,372 due under the line of credit agreement, respectively. In accordance with the acquisition on May 18, 2012, the line of credit was fully paid off and cancelled.
19
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at March 31, 2012 and 2011 are as follows:
2012
|
2011
|
|||||||
Trade payables
|
$
|
609,299
|
$
|
430,925
|
7. CAPITAL LEASES
March 31, 2012
|
March 31, 2011
|
|||||||
On August 20, 2006, the Company entered into a capital lease for a van. The lease agreement is for 60 payments of $646.33 per month. During the three months ended March 31, 2012 and 2011, the Company made principal payments on the lease in the amount of $0 and $1,795, respectively, and interest payments on the lease in the amount of $0 and $144, respectively.
|
$
|
-
|
$
|
3,127
|
||||
On January 1, 2010, the Company entered into a capital lease for a van. The lease agreement is for 60 payments of $614 per month. During the three months ended March 31, 2012 and 2011, the Company made principal payments on the lease in the amount of $1,368 and $1,239, and interest payments on the lease in the amount of $474 and $603, respectively.
|
18,125
|
23,400
|
||||||
|
|
|||||||
On June 30, 2010, the Company entered into a capital lease for a van. The lease agreement is for 60 payments of $519.30 per month. During the three months ended March 31, 2012 and 2011, the Company made principal payments on the lease in the amount of $1,176 and $1,083, and interest payments on the lease in the amount of $382 and $475, respectively.
|
17,710
|
22,273
|
||||||
Total outstanding
|
35,835
|
48,800
|
||||||
Less: current maturities
|
2,821
|
6,890
|
||||||
Long-term
|
$ |
33,014
|
$ |
41,910
|
Maturities of capital lease for the next five years are as follows:
March 31,
|
|||||||||
2012
|
2011
|
||||||||
2012
|
$
|
-
|
$
|
16,831
|
|||||
2013
|
13,600
|
13,600
|
|||||||
2014
|
13,600
|
13,600
|
|||||||
2015
|
12,372
|
12,372
|
|||||||
2016
|
1,558
|
1,558
|
|||||||
2017
|
-
|
-
|
|||||||
Subtotal
|
$
|
41,130
|
$
|
57,961
|
|||||
Less interest
|
(5,295
|
)
|
(9,161
|
)
|
|||||
Total
|
$
|
35,835
|
$
|
48,800
|
8. COMMON STOCK
The Company has authorized a total of 1,000 shares of common stock with no par value. As March 31, 2012 and 2011, the Company had issued and outstanding 1,000 shares of common stock.
20
9. RELATED PARTY TRANSACTIONS
The Company has following transactions with the stockholder, entities under common control which are controlled by the Company’s stockholder:
(a)
|
The Company purchases from an entity related to the stockholder. Total purchases from the related party for the three months ended March 31, 2012 and 2011 was $20,933 and $16,521, respectively. Related party accounts payable outstanding as of March 31, 2012 and 2011 was $12,160 and $10,197, respectively.
|
(b)
|
The Company made distributions to the stockholder of $460,244 and $80,000 for the three months ended March 31, 2012 and 2011, respectively.
|
(c)
|
The Company leased warehouse and office space from the stockholder. The Company charged related party rent expense of $25,000 and $25,000 for the three months ended March 31, 2012 and 2011, respectively.
|
10. BUSINESS CONCENTRATION
For the three months ended March 31, 2012 and 2011, sales to major customer(s) are as follows:
2012
|
2011
|
|||||||||||||||||||||||
#
|
Amount
|
%
|
#
|
Amount
|
%
|
|||||||||||||||||||
Major customer(s)
|
2
|
$
|
628,849
|
39.31
|
2
|
$
|
795,515
|
65.32
|
11. SUBSEQUENT EVENT
Subsequent events have been evaluated through June 30, 2012, the date that the financial statements were issued.
On May 18, 2012, Innovative Foods Holdings, Inc. acting through a newly created subsidiary (“Subsidiary”), entered into a Stock Purchase Agreement to acquire all of the issued and outstanding shares of Artisan Specialty Foods, Inc. The purchase price was $1.2 million, with up to another $300,000 payable in the event certain financial milestones are met over the next one or two years. Prior to the acquisition, Innovative Food Holdings, Inc. was a major customer for the years ended December 31, 2011 and 2010.
As part of the transaction, Mr. Vohaska entered into a two year employment agreement with Subsidiary to continue running the acquired business. The agreement provides for an annual base salary of $120,000 in the first year and $140,000 in the second year.
Also as part of the acquisition of Artisan, the registrant entered into a three year lease for the premises where Artisan conducted its business prior to the acquisition described above. The annual base rent under the lease ranges from approximately $100,000 to approximately $102,010. The landlord is Mr. and Mrs. David Vohaska.
In accordance with the acquisition, a condition precedent to the closing required the seller to pay-off all secured creditors from the Closing Cash Payment necessary to pay all the Company’s secured debt in full.
21