Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

References in this report to "we," "us," "IVFH" 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.

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.

Provision for Credit Losses 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. 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 $40,002 at September 30, 2025 and December 31, 2024.

Inventory

Inventory consists of food products and is valued at the lower of cost or net realizable value. Cost is determined using the average-cost method. The Company adjusts the 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. Adjustments to reduce inventory to net realizable value are recorded when necessary and included in cost of sales.

Impairment of Intangible Assets

Indefinite-lived intangible assets are not amortized but are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the assets might be impaired. Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the United States of America. The estimated fair values approximate their carrying value because of the short-term maturity of these instruments or the stated interest rates are indicative of market interest rates. These fair values have historically varied due to the market price of the Company's stock at the date of valuation.

Income Taxes

The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized.

Leases

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets ("ROU assets") and short-term and long-term lease liabilities are included on the face of the condensed consolidated balance sheet.

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.

The IVFH team is adept at evaluating and certifying the food safety and supply chain capabilities of small batch producers who don't 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.

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

We operate our airline catering distribution business out of our owned 28,000 square foot facility in the greater Chicago area. In addition, following the closing of our acquisition of Golden Organics, we now operate a warehouse in Denver, Colorado, measuring approximately 20,000 square feet. We also operated a 200,000 square foot facility in Mountain Top, Pennsylvania, which previously supported both our retail and airline catering operations. Subsequent to the date of these financial statements, we entered into a sale agreement for this Pennsylvania property. In connection with this transition, 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 September 30, 2025: IVFH reported revenue of $16.4 million, a 3.5% increase compared to $15.9 million in 2024.

Three Months Ended September 30, 2025

Revenue Breakdown:

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Digital Channels: Largely comprised of our distributor relationships and supported by our drop-ship model generated $8.9. million, or 54.1% of total revenue, in the current period, compared to $9.3 million in the prior year period, a decrease of approximately 4.5%. This decrease was primarily driven by continued headwinds in our legacy U.S. Food Platform drop-ship business, where increased competition in online marketplace channels has resulted in lower order volumes and pricing pressure.

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National Distribution: Revenue was $3.5 million, or 21.3% of total revenue, compared to $3.5 million in the prior year period. We expect this channel to continue to expand as we further develop over time broker relationships and deepen participation in airline menu programs. While overall airline related revenue grew approximately 3%, a portion of these sales shifted to channels outside of National Distribution during the period, given the reolocation of PA operations, reducing the amount recorded here.

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Local Distribution: Consists mainly of local sales team relationships and our local fleet delivering direct from warehouse. This category generated $4 million, or 21.6% of total revenue, which is a 33% increase from $3 million in 2024. The figure includes $1.6 million, up from $0 in Q3 2024, due to acquisitions of LoCo Foods and Golden Organics.

Cost of goods sold for the three months ended September 30, 2025 increased 3.1% to $12.6 million compared to $12.2 million in the prior year period, which is generally consistent with the 3.5% increase in revenue. Gross margin decreased by 34 basis points to 23.5%, primarily due to changes in the overall sales mix. The improvement in gross margin from continuing operations is largely attributable to the discontinuation of our retail cheese business, which carried lower margins.

Operating Expenses

Cash Operating Expenses (Cash OpEx):

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Payroll and related costs increased by $657 thousand to $2.65 million. This increase was primarily driven by higher headcount to support the local distribution business, including approximately $278 thousand related to the Denver acquisition completed in the fourth quarter of 2024. The period also included approximately $174 thousand in severance costs associated with the transition of the former CEO and approximately $78 thousand from wage and benefit inflation.

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Computer and IT costs remained near flat with a slight increase of $4 thousand to $87 thousand, reflecting stabilization of core IT spend; on a year-to-date basis, these costs are down approximately 4.4%.

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Office, facilities, and vehicle expenses increased by $359 thousand. The increase is attributed to costs associated with a new office location tied to our Q4 acquisitions ($158 thousand), and an increase to truck fleet expenses to support our expanding local distribution business in Chicago ($72 thousand).

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Advertising and Digital Marketing Costs: Increased by $20 thousand in Q3 2025 to $20 thousand as a result of spend related to our Amazon and Harvest platforms. We expect annual amounts to continue to remain lower, resulting from a full year's cycle of the restructuring of marketing programs.

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Professional and legal fees decreased by $4 thousand to $354 thousand. The current period includes approximately $125 thousand of legal fees associated with the Company's ongoing Nasdaq uplisting process. We are continuing to undertake a vendor review process aimed at identifying further cost reduction opportunities going forward..

Total Cash OpEx increased by $1.1 million, or 40 %. The increase was primarily driven by the Denver facility, which was not part of our operations in the prior-year period and accounted for approximately $500 thousand of the increase. The quarter also included approximately $72 thousand in higher fleet-related expenses, $174 thousand in severance, and approximately $78 thousand from wage and benefit inflation.

Non-Cash Operating Expenses (Non-Cash OpEx):

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Share-Based Compensation: Decreased by $740 thousand a credit of ($691) thousand, due to revaluation of stock options and other equity-based incentives to attract and retain key personnel.

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Depreciation and amortization expense increased by $49 thousand to $72 thousand, reflecting an increase in PPE associated with Q4 acquisitions similar net book value of property, plant, and equipment compared to the prior year period.

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Credit Loss Expense: Increased by $28 thousand to $33 thousand, primarily due to changes in customer mix within our local delivery segment.

Discontinued Operations

Retail Cheese Operations revenue was $3.4 million in the current period compared to $0.2 million in the prior year period. This activity reflects the sell through of remaining product associated with the wind down of our discontinued retail cheese operations. We expect only minimal sales in the fourth quarter as the remaining cheese inventory is sold, after which revenue from this business is not expected on a go forward basis.

The discontinued operations reported a net loss of $2.4 million in the current quarter. We continue to progress toward the sale of the Pennsylvania facility, which we anticipate will close in the fourth quarter. Upon completion of the sale, we expect a significant reduction in overhead costs associated with these operations.

Nine Months Ended September 30, 2025

Revenue Breakdown:

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Digital Channels: Largely comprised of our distributor relationships and supported by our drop ship model, generated $26.3 million, or 53.3% of total revenue, compared to $27.8 million in the prior year period, a decrease of approximately 5.4%. The decrease was primarily driven by continued headwinds in our legacy U.S. Food Platform drop ship business, where increased competition within online marketplace channels has resulted in lower order volumes and pricing pressure.

●

National Distribution revenue was $10.3 million, or 17.4 % of total revenue, compared to $9.5 million in the prior year period, an increase of approximately 8.1%. The increase was driven by higher volume within our airline catering relationships, including expanded demand from a key existing customer and additional sales through broker partnerships. We expect this category to continue to grow as broker channels mature, though order volumes may vary by period based on procurement and menu planning cycles.

●

Local Distribution: Consists mainly of local sales team relationships and our local fleet delivering direct from warehouse. This category brought in $12.7 million, or 25.7% of total revenue, an increase of 54.8% from $8.2 million in 2024, supported by $5.3 million from the recent acquisitions of LoCo Foods and Golden Organics

Cost of goods sold for the nine months ended September 30, 2025 was 37.2 million, an increase of 7.85% compared to 34.5 million in the prior year period. This is generally in line with the increase in sales of 8.26%. As a result, gross margin increased 29 basis points to 24.5%. The gross margin performance was driven by sales mix, including a 99 basis point increase in digital and a 57 basis point increase in airlines, partially offset by a 524 basis point decline in local. Local distribution in the current period includes both the Denver and Chicago facilities, whereas the prior year period included only Chicago. The Denver facility carries a different product mix than Chicago, which contributed to the change in local distribution margin.

Operating Expenses

Cash Operating Expenses (Cash OpEx):

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Payroll and related costs increased by $1.41 million to $7.42 million. This increase was primarily driven by higher headcount associated with employees added through acquisitions completed in Q4 2024, which accounted for approximately $946 thousand of the increase, as well as approximately $174 thousand in CEO severance and $180 thousand related to wage and benefit inflation.

●

Computer and IT Costs: Reduced by $13 thousand to $290 thousand, reflecting the Company's efforts to streamline IT operations and reduce software and hardware expenses.

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Office, facilities, and vehicle expenses increased by $779 thousand. The increase is primarily due to new office locations costing $452 thousand as a result of the acquisition of Golden Organics and LoCo Foods. As part of this acquisition, LoCo Foods relocated from Fort Collins to Denver, consolidating offices. H1 results include $50 thousand in rent and utilities for the closed Fort Collins facility, which will not continue in subsequent quarters. Additionally, increased fleet costs at our Chicago hub accounted for $160 thousand.

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Advertising and Digital Marketing Costs: Increased by $23 thousand to $27 thousand, reflecting spend towards our Amazon and Harvest platforms. although We expect annual amounts to continue to remain lower, resulting from a full year's cycle of the restructuring of marketing programs.

●

Professional and legal fees increased by $92 thousand to $1.2 million, 222 thousand of which was attributable to transactional activities related to acquisitions, and other corporate actions which are not expected to recur.

Total Cash Operating Expenses increased by $2.4 million. The increase was primarily driven by the new Denver facility, which was not included in the prior year financials and accounted for approximately $1.6 million of the increase. The quarter also included approximately $160 thousand in higher fleet costs, $174 thousand in CEO severance, and approximately $180 thousand from wage and benefit inflation.

Non-Cash Operating Expenses (Non-Cash OpEx):

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Share-Based Compensation: Decreased by $1.5 million to ($715) thousand, primarily due to lower amortization expense associated with stock appreciation rights (SARs), reflecting a decline in the company's stock price during the period.

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Depreciation and amortization expense increased by $135 thousand to $212 thousand, reflecting an increase in PPE associated with Q4 acquisitions similar net book value of property, plant, and equipment compared to the prior year period

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Credit Loss Expense: decreased by $2 thousand to $43 thousand, primarily due to changes in customer mix within our local delivery segment.

Discontinued Operations

Retail Cheese Operations revenue was $10.7 million for the nine months ended September 30, 2025, compared to $0.2 million in the prior year period. Q3 revenue reflects the sell through of remaining product associated with the wind down of this business. The discontinued operations reported a net loss of $3.8 million for the nine month period. Sales are expected to substantially conclude in the fourth quarter as the remaining cheese inventory is sold, after which revenue from these operations is not expected on a go forward basis.

Net (Loss) Income

During the three months ended September 30, 2025, the company reported a net income from continuing operations of $651 thousand, compared to a net income of $861 thousand in 2024, representing a decrease of $210 thousand. During the nine months ended September 30, 2025, the company reported a net income from continuing operations of $1.7 million, compared to net income of $3.5 million in 2024, representing a decrease of $1.7 million.

Liquidity and Capital Resources at September 30, 2025

As of September 30, 2025, IVFH had current assets of $18.6 million and current liabilities of $13.6 million, including an $8.8 million note classified as current due to its expected repayment upon the sale of the related business. Although the note is not contractually due within one year, it is presented within current liabilities based on the expected timing of the sale transaction. Net working capital was $5 million.

We believe we have sufficient liquidity to fund operations for at least the next twelve months. With the shutdown of the Pennsylvania facility, operating cash flows are expected to improve as facility costs and lower margin product sales roll off. Upon the sale of the facility, we intend to use the proceeds to repay the associated note, which will reduce overhead and interest expense. 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:

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Operating Activities: Used $687 thousand, primarily due to operations, offset by favorable changes in working capital components of $332 thousand. The significant changes in working capital included:

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Accounts receivable decreased by $2.8 million, primarily reflecting the collection of receivables related to discontinuing cheese business.

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Inventory decreased by $367 thousand, because of lowered cheese inventory balances associated with the wind down of the facility.

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Accounts payable and accrued liabilities decreased by $2.7 million, primarily due to paydowns of inventory purchases related to the elevated Q4 2024 cheese sales, which were settled in Q1 2025. In addition, the decrease reflects the payment of aged vendor payables associated with the acquired LoCo Foods business as well as signing down of vendor accounts associated with the cheese segment.

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Investing activities: Net cash used in investing activities was $174 thousand, primarily related to purchases of property and equipment. These investments included equipment for cheese cutting operations and warehouse improvements to support the consolidation of Loco Foods and Golden Organics, acquired in Q4 2024. As of the end of the quarter we sold approximately 54k worth of cheese cutting equipment.

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Financing Activities: Used $40 thousand, primarily from the principal payments on debt and reimbursements from restricted cash on the purchase of Capex equipment

Transactions with Major Customers

Transactions with a major customer and related economic dependence information is set forth below and following our discussion of Liquidity and Capital Resources.

During the nine months ended September 30, 2025 and 2024, U.S. Foods, Inc. and its affiliates accounted for approximately 34% and 47% of total consolidated sales, respectively. Gate Gourmet accounted for approximately 15% and 18% of total consolidated sales, respectively.

Sams Club accounted for approximately 18% and 0% of total consolidated sales in 2025 and 2024, respectively. Sales to Sams Club related entirely to the discontinued Pennsylvania distribution operations and are not expected to continue in future periods

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 2025.

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, 2024 and other of its Current Reports on Form 8-K, all of which reports are available at no cost at www.sec.gov.