What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-04-15 compared with 2020-05-14 · 250 added, 288 removed, 614 unchanged (47% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

To the Shareholders and Board of Directors of:

Innovative Food Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Innovative Food Holdings, Inc., and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, 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.

We have audited the accompanying consolidated balance sheets of Innovative Food Holdings, Inc.

and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as “the consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill, Amortizable and Unamortizable Intangible Assets

As described in Note 9 to the consolidated financial statements, these assets are evaluated for impairment at least annually using valuation techniques to estimate fair value.

The adverse impact of COVID-19 pandemic to the Company’s foodservice customer base was a triggering event and accordingly, the Company performed the impairment tests during the first quarter of 2020.

The Company engaged a valuation specialist to assist in evaluating the fair values of these assets.

These fair value estimates are sensitive to certain significant assumptions including future revenues, growth rates which take into account estimated inflation rates, estimates of future levels of gross profit and operating profit, projected capital expenditures and discount rates based upon industry and competitor analyses used by the valuation specialist.

Auditing management’s goodwill, amortizable and unamortizable intangible assets impairment tests was highly judgmental due to the significant assumptions used by management and the valuation methodologies used the valuation specialist in determining the fair values of these assets.

To test the estimated fair values of the goodwill, amortizable and unamortizable intangible assets, we performed audit procedures that included, among others, evaluating the methodologies used in the valuation model and the significant assumptions used by the Company and the valuation specialist.

Contingencies

As described in Note 18 to the consolidated financial statements, the Company is involved in a number of legal proceedings and has made accruals with respect to certain of these matters.

Where a liability is reasonably possible and may be material, such matters have been disclosed.

Management exercised judgment and assessed the probability of occurrence based on the ability to predict the number of claims that may be filed and whether it can reasonably estimate any loss or range of loss that may arise from that proceeding.

Auditing management’s accounting for, and disclosure of, loss contingencies was highly judgmental as it involved our assessment of the significant judgments made by management when assessing the probability of occurrence or when determining whether an estimate of the loss or range of loss could be made.

To test the Company’s assessment of the probability of occurrence or determination of an estimate of loss, or range of loss, among other procedures, we read the legal documentations, reviewed opinions provided to the Company by certain outside legal counsel, read letters received directly by us from external counsel, and evaluated the current status of contingencies based on discussions with legal counsel.

We also evaluated the appropriateness of the related disclosures.

/s/ Liggett & Webb, P.A.

LIGGETT & WEBB, P.A.

Certified Public Accountants

We have served as the Company’s auditor since 2012

Boynton Beach, Florida

April 15, 2021

Innovative Food Holdings, Inc.

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Property and equipment, net

Right to use assets, operating leases, net

Right to use assets, finance leases, net

Right of use assets, operating leases, net

Right of use assets, finance leases, net

Other amortizable intangible assets, net

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Deferred revenue

Notes payable - current portion, net

Line of Credit

Notes payable - current portion, net of discount

Lease liability - operating leases, current

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Consolidated Statements of Operations

For the Twelve

Cost of goods sold

Selling, general and administrative expenses

Impairment of intangible assets

Total operating expenses

Operating income

Operating (loss) income

Other income (expense):

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Total other income (expense)

Net income before taxes

Income tax expense

Net income per share - basic

Net income per share - diluted

Net (loss) income before taxes

Provision for Income tax expense

Net (loss) income

Net (loss) income per share - basic

Net (loss) income per share - diluted

Weighted average shares outstanding - basic

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Consolidated Statements of Cash Flows

For the Twelve

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Impairment of intangible assets

Depreciation and amortization

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Operating lease liability

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Cash related to the igourmet asset acquisition

Cash related to the Mouth Foods asset acquisition

Cash from the sale of fixed assets

Cash paid for website development

Cash received from the sale of fixed assets

Acquisition of property and equipment

Acquisition of intangible assets

Investment in food related companies

Purchase of intangible assets

Investment in food related company

Net cash used in investing activities

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Loan fees related to building acquisition financing

Purchase of stock options from officers, directors, and employees

Cash received from exercise of stock options

Cash paid in settlement of contingent liabilities to do acquisitions

Borrowings on term loan

Cash paid in settlement of contingent liabilities in connection with acquisitions

Proceeds from line of credit

Purchase of treasury stock

Proceeds from Payroll Protection Plan Loan

Principal payments on debt

Principal payments capital leases

Net cash (used in) provided by financing activities

Decrease in cash and cash equivalents

Principal payments financing leases

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Supplemental disclosure of cash flow information:

Cash paid during the period for:

Cash paid during the year for:

Non-cash investing and financing activities:

Issuance of 131,136 shares of common stock previously accrued

Right to use assets and liabilities - operating, upon adoption of ASU 2016-02

414,807 shares of common stock not issued

Right of use assets and liabilities - operating, upon adoption of ASU 2016-02

Equipment financed under note payable

Return of equipment and reduction in amount due under equipment financing loan

Fair value of 19,048 shares of common stock issued for services

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Capital lease for purchase of fixed assets

Return of equipment and reduction in amount due under equipment financing loan

Note payable for acquisition of land and building

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Innovative Food Holdings, Inc.

Stockholders' E quity for the T wo Y ears E nded December 31, 2019

Additional Paid-in Capital

Consolidated Stockholders' Equity

For the Years Ended December 31, 2020 and 2019

Treasury Stock

Balance - December 31, 2017

Common stock issued for the exercise of options

Purchase of stock options from employees, officers, and directors

Fair value of vested stock and stock options issued to management

Treasury stock acquired

Net income for the year ended December 31, 2018

Balance - December 31, 2018

Balance at December 31, 2018

Common stock issued for services

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Balance - December 31, 2019

Fair value of vested stock and stock options

Fair value of shares issued to employees and service providers

Net (loss) for the year ended December 31, 2020

Balance - December 31, 2020

See notes to consolidated financial statements.

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Business Activity

Our business is currently conducted by our wholly owned subsidiaries, some of which are non-operating, Artisan (“Artisan”), Food Innovations (“FII”), Food New Media Group, Inc.

Our business is currently conducted by our wholly owned subsidiaries, some of which are non-operating, Artisan Specialty Foods Group, Inc.

(“Artisan”), Food Innovations (“FII”), Food New Media Group, Inc.

(“FNM”), Organic Food Brokers (“OFB”), Gourmet Food Service Group, Inc.

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(“Oasis”), 4 The Gourmet, Inc.

(d/b/a For The Gourmet, Inc.), (“Gourmet”), Innovative Food Properties, LLC (“IFP”), Innovative Gourmet, LLC (“Innovative Gourmet” or “igourmet”), Food Funding, LLC (“Food Funding”), Logistics Innovations, LLC (“L Innovations”), M Innovations, LLC (“M Innovations”), P Innovations, LLC, and collectively with IVFH and its other subsidiaries, the “Company” or “IVFH”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

(d/b/a For The Gourmet, Inc.), (“Gourmet”), Innovative Food Properties, LLC (“IFP”), Innovative Gourmet, LLC (“Innovative Gourmet” or “igourmet”), Food Funding, LLC (“Food Funding”), Logistics Innovations, LLC (“L Innovations”), M Innovations, LLC (“M Innovations” or “Mouth”), P Innovations, LLC “(P Innovations”), and collectively with IVFH and its other subsidiaries, the “Company” or “IVFH”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

All material intercompany transactions have been eliminated upon consolidation of these entities.

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GFG is focused on expanding the Company’s program offerings to additional specialty foodservice customers.

IFP was formed to hold the Company’s real estate holdings including the recently acquired facility in PA.

L Innovations provides 3rd party warehouse and fulfillment services out of its first location at Company’s Mountaintop, Pennsylvania facility.

IFP was formed to hold the Company’s real estate holdings including the recently acquired facility in Mountaintop, Pennsylvania.

L Innovations provides 3rd party warehouse and fulfillment services out of its location at the Company’s PA facility.

P Innovations focus is to leverage acquired assets to expand the Company’s subscription-based e-commerce business activities.

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In addition, igourmet.com offers a line of B2B specialty foodservice items.

Products are primarily shipped directly from igourmet.com’s 67,000 square feet warehouse in Pennsylvania via igourmet.com owned trucks and via third party carrier directly to thousands of customers nationwide.

Products are primarily shipped directly from igourmet.com’s approximately 100,000 square feet warehouse in Pennsylvania via igourmet.com owned trucks and via third party carrier directly to thousands of customers nationwide.

Mouth.com (www.mouth.com) is an online retailer of specialty foods, monthly subscription boxes and curated gift boxes to thousands of consumers and corporate customers across the United States.

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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, operating right of use assets and liabilities, and equity based instruments.

Accounts subject to estimate and judgements are accounts receivable reserves, income taxes, intangible assets, 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.

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For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board “FASB” Accounting Standards Codification “ASC” 606.

A five-step analysis a must be met as outlined in Topic 606:

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.

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Warehouse Equipment

Warehouse Equipment - Heavy

Office Furniture and Fixtures

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Certain customer arrangements in the Company's business such as gift cards and e-commerce subscription purchases result in deferred revenues when cash payments are received in advance of performance.

Gift cards are issued by the Company generally do not have expiration dates.

Gift cards issued by the Company generally have an expiration of five years from date of purchase.

The Company records a liability for unredeemed gift cards and advance payments for monthly club memberships, as cash is received, and the liability is reduced when the card is redeemed or product delivered.

The following table represents the changes in deferred revenue as reported on the Company’s consolidated balance sheets:

Balance acquired as of January 23, 2018

Balance acquired as of December 31, 2018

Cash payments received

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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.

The Company adopted ASC 820-10, “Fair Value Measurements”, 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.

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Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Comprehensive Income

ASC 220-10-15 “Reporting Comprehensive Income,” establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances.

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.

Among other disclosures, ASC 220-10-15 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.

The Company does not have any items of comprehensive income in any of the periods presented.

Cost Method Investments

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38,892 to its Director of Strategic Acquisitions, an aggregate total of 139,854 shares to board members;

and 100,000 shares to an employee.

38,943 shares to an employee.

These restricted stock grants are being amortized over their vesting periods of one to three years.

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Stock Options

The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company:

In 2018, an aggregate of 115,941 shares were issued upon the option exercises in December 2017 described below.

The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company at December 31, 2019:

Restricted Stock Awards

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125,000 restricted stock awards will vest contingent upon the attainment of a stock price of $2.00 per share for 20 straight trading days, and an additional 175,000 restricted stock awards will vest contingent upon the attainment of a stock price of $3.00 per share for 20 straight trading days.

No Restricted stock awards vested in 2018.

Stock-based compensation

We use the Black-Scholes-Merton option pricing model to estimate the fair value of options granted.

The Black-Scholes option valuation model requires the use of assumptions, including the expected term of the award and the expected stock price volatility.

We used the Company’s historical volatility to estimate expected stock price volatility.

The risk-free rate assumption was based on United States Treasury instruments whose terms were consistent with the expected term of the stock option.

The expected dividend assumption was based on the Company’s history and expectation of dividend payouts.

The value of options is amortized pro rata over the vesting period of the option.

Options expense charged to operations during the twelve months ended December 31, 2019 and 2018 are summarized in the table below:

During the year ended December 31, 2019, the Company incurred obligations to issue the following shares of common stock pursuant to employment agreements:

an aggregate total of 260,507 shares of common stock to its Chief Executive Officer;

30,392 to its Director of Strategic Acquisitions, an aggregate total of 291,090 shares to board members;

and 100,000 shares to an employee.

These restricted stock grants are being amortized over their vesting periods of one to three years.

During the year ended December 31, 2019, the amount of $246,628 was charged to operations in connection with these grants.

Also during the year ended December 31, 2019, the Company issued 19,048 shares of restricted common stock with a fair value of $10,405 to a service provider, and charged this amount to operations.

Options expense charged to operations during the year ended December 31, 2020 and 2019 are summarized in the table below:

Option expense

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Commencing in January 2019, based upon new accounting pronouncements (described in greater detail below), 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.

Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within accrued liabilities.

ROU assets represent the right to use 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 right-of-use assets (“ROU assets”) and short-term and long-term lease liabilities are included on the face of the consolidated balance sheet.

Finance lease ROU assets are presented within other assets, and finance lease liabilities are presented within current and long-term liabilities.

ROU assets represent the right of use 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.

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however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The ASU becomes effective for the Company on January 1, 2020.

The amendments in this ASU should be applied on a prospective basis.

Early adoption is permitted for interim or annual goodwill impairment tests performed.

We are evaluating what impact, if any, the adoption of this guidance will have on our financial condition, results of operations, cash flows or financial disclosures.

The ASU became effective for the Company on January 1, 2020.

The amendments in this ASU were applied on a prospective basis.

The adoption of this ASU had no material effect on our financial condition, results of operations, cash flows or financial disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and disclosing key information about leasing transactions.

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We adopted ASU 2016-02 in the first quarter of 2019 using the optional transition method and elected certain practical expedients permitted under the transition guidance, which, among other things, allowed us to not reassess prior conclusions related to contracts containing leases or lease classification.

The adoption primarily affected our condensed consolidated balance sheet through the recognition of $338,581 of operating right-of-use assets and $338,581 of operating lease liabilities as of January 1, 2019.

The adoption primarily affected our consolidated balance sheet through the recognition of $338,581 of operating right-of-use assets and $338,581 of operating lease liabilities as of January 1, 2019.

The adoption did not have a significant impact on our results of operations or cash flows.

See Note 6 to our condensed consolidated financial statements for further discussion of the effects of the adoption of ASU 2016-02 and the associated disclosures.

See Note 6 to our consolidated financial statements for further discussion of the effects of the adoption of ASU 2016-02 and the associated disclosures.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718):

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The share-based payments are to be measured at grant-date fair value of the equity instruments that the entity is obligated to issue when the goods or service has been delivered or rendered and all other conditions necessary to earn the right to benefit from the equity instruments have been satisfied.

This standard will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

This standard became effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

We adopted the provisions of this ASU on January 1, 2019.

The adoption had no impact on our results of operations, cash flows, or financial condition.

Management does not believe that any other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying condensed consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”.

This ASU reduces the number of accounting models for convertible debt instruments and convertible Preferred Stock.

As well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

In addition, this ASU improves and amends the related EPS guidance.

This standard is effective for us on January 1, 2022, including interim periods within such fiscal year.

Adoption is either a modified retrospective method or a fully retrospective method of transition.

We are currently assessing the impact the new guidance will have on our consolidated financial statements.

GBC Sub, Inc.

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the option will only be exercisable if there is a spinoff of P Innovations to Innovative Food Holdings’ shareholders.

The Company is evaluating its preliminary purchase price allocation.

As a result, during the preliminary purchase price allocation period, which may be up to one year from the asset purchase date, we may record adjustments to the assets acquired.

Mouth Foods, Inc.

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and (iv) additional contingent liability consideration valued by management at approximately $20,000.

At December 31, 2019, the Company maintains contingent liabilities in the aggregate amount of $120,000 on its balance sheet in connection with the MIF APA.

At December 31, 2020, the Company maintains contingent liabilities in the aggregate amount of $120,000 on its balance sheet in connection with the MFI APA.

The acquisition date estimated fair value of the consideration transferred totaled $513,355.

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Going forward, adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period will be made in our operating results in the period in which the adjustments are determined.

i g ourmet, LLC

igourmet, LLC

The igourmet Asset Purchase Agreement effective January 23, 2018 (the “igourmet APA”) was accounted for as an acquisition of an ongoing business in accordance with ASC Topic 805 - Business Combinations (“ASC 805”), where the Company was treated as the acquirer and the acquired assets and certain liabilities not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay, were recorded by the Company at their preliminary estimated fair values.

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Pro forma results

The following table sets forth the unaudited pro forma results of the Company as if the igourmet APA was effective on January 1, 2018.

These combined results are not necessarily indicative of the results that may have been achieved had the companies always been combined.

December 31, 2018

Basic net income per share

Diluted net income per share

Weighted average shares – basic

Weighted average shares – diluted

ACCOUNTS RECEIVABLE

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The test kitchen and training room will be used by Artisan and other subsidiaries of the Company for the purposes of new product testing and development and approval, Quality Assurance and Quality Control as well as sales presentations and customer demonstrations.

In addition, we recently added a packaging room to the Artisan building, which is built to FDA, FSMA and SQF food safety standards and purchased new, technologically advanced semi-automated fillers for the packaging room.

In addition, we added a packaging room to the Artisan building, which is built to FDA, FSMA and SQF food safety standards and purchased new, technologically advanced semi-automated fillers for the packaging room.

The packaging room addition will allow for expansion of private label product lines as well as packing of organic, non GMO, diet specific and other specialty foods.

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The Facility is approximately 200,000 square feet and is situated on approximately 15 acres in Mountain Top, Pennsylvania.

The Facility’s appraised value by a third party appraisal firm in October 2019 was $6,150,000 “as is” and $8,000,000 with additional scheduled improvements.

The Facility’s appraised value by a third party appraisal firm in 2021 was $9,400,000.

Related to the Facility purchase, the Company entered into a commercial loan agreement for both the purchase price and planned improvements to the Facility.

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Depreciation on the building began when the Company commenced recognizing revenue from leasing and logistics services associated with the Facility.

On October 5, 2020, the Company completed work to upgrade the Facility at a cost of $2,231,458 in order to better support the Company’s focus on e-commerce and logistics.

Of the build out costs, $1,900,000 was funded by the loan described below (See Note 13).

A summary of property and equipment at December 31, 2020 and 2019 is as follows:

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The Company’s leases have remaining lease terms of 1 year to 4 years, some of which include options to extend.

The Company’s lease expense for the year ended December 31, 2019 was entirely comprised of operating leases and amounted to $202,551.

The Company’s ROU asset amortization for the year ended December 31, 2019 was $187,254.

The Company’s lease expense for the years ended December 31, 2020 and December 31, 2019 was entirely comprised of operating leases and amounted to $171,624 and $202,551, respectively.

The Company’s ROU asset amortization for the years ended December 31, 2020 and December 31, 2019 was $161,926 and $187,254, respectively.

The difference between the lease expense and the associated ROU asset amortization consists of interest.

Right to use assets – operating leases are summarized below:

Right of use assets – operating leases are summarized below:

Warehouse equipment

Office equipment

Right to use assets, net

Right of use assets, net

Operating lease liabilities are summarized below:

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Maturity analysis under these lease agreements are as follows:

Twelve months ended December 31, 2020

Twelve months ended December 31, 2021

Twelve months ended December 31, 2022

Twelve months ended December 31, 2023

Twelve months ended December 31, 2024

Year ended December 31, 2021

Year ended December 31, 2022

Year ended December 31, 2023

Year ended December 31, 2024

Year ended December 31, 2025

Present value discount

Lease liability

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:

Warehouse Equipment

Total before accumulated depreciation

accumulated depreciation

The Company has made investments in certain early stage food related companies which it expects can benefit from synergies with the Company’s various operating businesses.

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325-20 Investments – Other, in determining to account for the investment using the cost method since the equity securities are not marketable and do not give the Company significant influence.

Also during the year ended December 31, 2019, the Company converted accounts receivable in the amount of $60,500 respectively, into an equity investment in a food related company.

Also during the year ended December 31, 2019, the Company made cash investments in three food related companies in the total amount of $60,200.

During the year ended December 31, 2020, the Company converted accounts receivable in the amount of $61,350 into an equity investment in a food related company.

During the year ended December 31, 2019, the Company converted accounts receivable in the amount of $60,500 into an equity investment in a food related company, and made cash investments in three food related companies in the total amount of $35,200.

INTANGIBLE ASSETS

The Company acquired certain intangible assets pursuant to the acquisition of Artisan, OFB, Oasis, and the acquisition of certain assets of Haley, igourmet LLC and Mouth Foods, Inc.

The following is the net book value of these assets:

The Company acquired certain intangible assets pursuant to the acquisitions through Artisan, Oasis, Innovative Gourmet, OFB, Haley, and M Innovations (see note 2).

These assets include non-compete agreements, customer relationships, trade names, internally developed technology, and goodwill.

The Company has also capitalized the development of its website.

As detailed in ASC 350, the Company tests for goodwill impairment in the fourth quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.

As detailed in ASC 350-20-35-3A, in performing its testing for goodwill impairment, management has completed a qualitative analysis to determine whether it was more likely than not that the fair value of the Company’s reporting unit is less than its carrying amount, including goodwill.

To complete this review, management followed the steps in ASC 350-20-35-3C to evaluate the fair value of goodwill and considered all known events and circumstances that might trigger an impairment of goodwill.

COVID-19 has had a material negative impact on some of the Company’s foodservice customers.

In an effort to limit the spread of the virus, federal, state and local governments have implemented measures that have resulted in the closure of non-essential businesses in many of the markets the Company serves, which has forced its customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.

These actions have led to a significant decrease in demand for certain of the Company’s foodservice products.

The adverse impact to the Company’s foodservice customer base was a triggering event and accordingly, as required by ASC 350, the Company performed interim goodwill and long-lived asset quantitative impairment tests during the first quarter of 2020.

While the triggering event was a result of the negative impact related to foodservice customers, the applicable accounting rules then required an impairment test targeted specifically to any available carrying value of goodwill or intangible assets.

During the first quarter of 2020, the Company performed the impairment tests on certain intangible assets and goodwill pursuant to the acquisitions through Artisan, Oasis, Innovative Gourmet and M Innovations (see note 2).

Goodwill Impairment Test

The Company estimated the fair value of the Company’s reporting unit using an income approach that incorporates the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections which include estimates of COVID-19’s impact on our business.

Assumptions include estimates of future revenues, growth rates which take into account estimated inflation rates, estimates of future levels of gross profit and operating profit, projected capital expenditures and discount rates based upon industry and competitor analyses.

As a result of impairment test, it was calculated that the net carrying value of goodwill exceeded the fair value by $650,243, and the Company was required by ASC 350 to record an impairment charge to operations during the year ended December 31, 2020.

At December 31, 2020, the net carrying value of goodwill on the Company’s balance sheet is $0.

Long-lived Impairment Test

Long-lived assets, including other intangible assets, were tested for recoverability at the asset group level.

The Company estimated the net undiscounted cash flows expected to be generated from the asset group over the expected useful life of the asset group’s primary asset.

Key assumptions include future revenues, growth rates, estimates of future levels of gross profit and operating profit and projected capital expenditures necessary to maintain the operating capacity of each asset group.

As a result of the impairment test, it was calculated that the net carrying values of other intangible assets exceeded the undiscounted cash flows for each of the Company’s asset groups by a total of $1,048,692, and the Company was required by the applicable accounting rules to record an impairment charge to operations during the year ended December 31, 2020.

At December 31, 2020, the net carrying value of other intangible assets on the Company’s balance sheet is $1,633,202.The following is the net book value of these assets:

December 31, 2020

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Internally Developed Technology

Total amortization expense charged to operations for the year ended December 31, 2019 and 2018 was $898,757 and $885,002, respectively.

During the year ended December 31, 2020, the Company charged to operations amortization expense in the amount of $212,902 in addition to the impairment charge of $1,698,952.

During the year ended December 31, 2019, the company charged to operations amortization expense in the amount of $899,756.

Amortization of finite life intangible assets as of December 31, 2020 is as follows:

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The internally developed technology is being amortized over 60 months.

As detailed in ASC 350-20-35-3A, in performing its testing for goodwill impairment, management has completed a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

The analysis completed in 2019 determined that there was no impairment to goodwill assets.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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At December 31, 2020, accrued interest on a note outstanding was $28,873.

During the twelve months ended December 31, 2019, the Company paid cash for interest in the aggregate amount of $112,971.

During the year ended December 31, 2020, the Company paid cash for interest in the aggregate amount of $125,396.

At December 31, 2019, accrued interest on a note outstanding was $16,973.

During the twelve months ended December 31, 2018, the Company paid cash for interest in the aggregate amount of $119,791.

During the year ended December 31, 2019, the Company paid cash for interest in the aggregate amount of $112,971.

REVOLVING CREDIT FACILITIES

On March 23, 2018, the Company entered into a Master Loan & Security Agreement that provided for the advance of funds in connection with a $500,000 Draw Promissory Note in order to finance certain equipment acquisitions (“Artisan Equipment Loan”).

On December 21, 2018, the Company advanced $391,558 under the $500,000 Draw Promissory Note.

This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of 5.20%.

As of December 31, 2018, there was $108,422 remaining to be drawn on the Artisan Equipment Loan.

On March 27, 2019, an amendment was made to the Draw Promissory Note to extend the draw period to December 31, 2019.

On March 27, 2019, a Promissory Note was made for the amounts advanced in the amount of $391,558 to convert to a Term Loan.

(see note 12).

Line of credit facility with Fifth Third Bank in the original amount of $1,000,000 with an interest rate of LIBOR plus 3.25%.

In August 2015, the amount of the credit facility was increased to $1,500,000 and the due date was extended to August 1, 2016.

In August 2016, this credit facility was extended to August 1, 2017.

On August 1, 2017 this credit facility was increased to $2,000,000 and the due date was extended to August 1, 2018.

In August 2018, this credit facility was extended to August 1, 2019.

Line of credit facility with Fifth Third Bank in the original amount of $2,000,000 with an interest rate of LIBOR plus 3.25% (the “Fifth Third Bank Line of Credit”).

Effective August 1, 2019, this credit facility was extended to August 1, 2021.

On March 20, 2020, the Company drew down the amount of $2,000,000.

During the year ended December 31, 2020, the Company paid interest in the amount of $58,382 on the Fifth Third Bank Line of Credit.

NOTES PAYABLE

Term loan dated as of August 5, 2016 in the original amount of $1,200,000 payable to Fifth Third Bank.

This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of LIBOR plus 4.5%.

Principal payments in the amount of $66,667 are due monthly along with accrued interest beginning September 5, 2016.

The entire principal balance and all accrued interest was due and was paid on the maturity date of February 5, 2018.

During the twelve months ended December 31, 2016, the Company transferred principal in the amount of $1,200,000 from the line of credit facility with Fifth Third Bank into this term loan.

During the twelve months ended December 31, 2018, the Company made principal and interest payments on this loan in the amounts of $114,033 and $829, respectively.

Secured mortgage note payable for the acquisition of land and building in Bonita Springs, Florida in the amount of $546,000.

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During the year ended December 31, 2020, the Company made payments of principal and interest on this note in the amounts of $54,600 and $5,743, respectively;

during the year ended December 31, 2019, the Company made principal and interest payments in the amounts of $54,060 and $11,111, respectively.

Secured mortgage note payable for the acquisition of land and building in Broadview, Illinois in the amount of $980,000.

Principal payments of $8,167 plus interest at the rate of LIBOR plus 2.75% are due monthly through April 2020, the remaining principal balance in the amount of $490,000 will be due May 29, 2020.

During the year ended December 31, 2019, the Company made payments of principal and interest on this note in the amounts of $98,000 and $30,031, respectively.

Term loan dated March 28, 2018 in the original amount of $1,500,000 payable to Fifth Third Bank.

This loan is secured by the Company’s tangible and intangible personal property and bears interest at the rate of LIBOR plus 4.25%.

Principal payments in the amount of $83,333 are due monthly along with accrued interest beginning March 28, 2018.

The entire principal balance and all accrued interest is due on the maturity date of August 28, 2019.

Principal payments of $8,167 plus interest at the rate of LIBOR plus 2.75% are due monthly through April 2020, the remaining principal balance in the amount of $490,000 was originally due May 29, 2020.

Effective May 29, 2020, the note was amended and renewed such that principal payments of $8,303 plus accrued interest were due beginning June 29, 2020 and continuing for sixty months;

the entire principal balance and all accrued interest will be due on May 29, 2025.

During the year ended December 31, 2020, the Company made payments of principal and interest on this note in the amounts of $81,667 and $17,532, respectively;

during the year ended December 31, 2019, the Company made principal and interest payments in the amounts of $98,000 and $30,031, respectively.

Promissory note dated March 22, 2019 in the original amount of $391,558 (the “Artisan Equipment Loan”) payable to Fifth Third Bank.

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During the year ended December 31, 2019, equipment financed under the Artisan Equipment Loan in the amount of $33,075 was returned for credit.

Also, during the year ended December 31, 2019, the Company made payments of principal and interest on this note in the amounts of $48,654 and $18,957 respectively.

During the year ended December 31, 2020, the Company made payments of principal and interest on this loan in the amounts of $67,064 and $14,755, respectively;

during the year ended December 31, 2019, the Company made principal and interest payments in the amounts of $48,654 and $18,957, respectively.

A note payable in the amount of $20,000.

The Note was due in January 2006 and the Company is currently accruing interest on this note at 1.9%.

During each of the years ended December 31, 2019 and 2018, the Company accrued interest in the amount of $380 on this note.

Unsecured promissory note in the amount of $100,000 dated January 1, 2017 bearing interest at the rate of 2.91% per annum issued in connection with the Oasis acquisition.

Payments in the amount of $4,297 consisting of principal and interest are to be made monthly beginning February 15, 2017 for twenty-four months until paid in full.

During the year ended December 31, 2019, the Company made principal and interest payments on this note in the amount of $4,291 and $0, respectively.

This obligation was reclassified as a Lease Liability - Financing Lease in connection with the Company’s adoption of ASU 2016-02 on January 1, 2019;

Vehicle acquisition loan dated December 6, 2018 in the original amount of $51,088, payable in sixty monthly installments of $955 including interest at the rate of 4.61%.

During the year ended December 31, 2020, the Company accrued interest in the amount of $372 on this note;

during the year ended December 31, 2020, the Company accrued interest in the amount of $380 on this note.

Vehicle acquisition loan dated December 6, 2018 in the original amount of $51,088, payable in sixty monthly installments of $955 including interest at the rate of 4.61% maturing November 5, 2023.

During the year ended December 31, 2020, the Company made principal and interest payments in the amount of $9,737 and $1,723, respectively, on this loan;

This obligation was reclassified as a Lease Liability - Financing Lease in connection with the Company’s adoption of ASU 2016-02 on January 1, 2019;

Secured mortgage facility in the amount of $5,500,000 with Fifth Third Bank for the acquisition of land and building in Wright, Pennsylvania dated November 8, 2019.

during the year ended December 31, 2019, the Company made principal and interest payments in the amount of $8,540 and $1,964, respectively, on this loan.

Secured mortgage facility in the amount of $5,500,000 with Fifth Third Bank for the acquisition of land and building in Mountaintop, Pennsylvania dated November 8, 2019 (the “Fifth Third Mortgage Facility”).

The Fifth Third Mortgage Facility is secured by the assets acquired.

During the year ended December 31, 2019, the Company drew down $3,600,000 of this facility.

During the year ended December 31, 2020, the Company drew down an additional $1,900,000 of this facility.

The interest rate is LIBOR plus 2.75% with interest only due through September 30, 2020, thereafter with principal amortized at a 20 years amortization rate and the balance due on the maturity date of September 2, 2025.

The Company prepaid loan fees in connection with this loan in the amount of $71,097 which are considered a discount to the loan;

$1,819 of these fees were amortized to interest expense during the year ended December 31, 2019 and are being amortized over the term of the note.

The Company prepaid loan fees in connection with this loan in the amount of $72,916 which are considered a discount to the loan and are being amortized over the term of the note;

$12,560 of this discount was amortized to interest expense during the year ended December 31, 2020.

During the year ended December 31, 2020 the Company made principal and interest payments in the amount of $65,600 and $154,955, respectively, on this loan;

during the year ended December 31, 2019 the Company made principal and interest payments in the amount of $0 and $25,064, respectively, on this loan.

The Company also has in place an interest rate swap agreement (the “Fifth Third Interest Rate Swap”) with Fifth Third bank in connection with the Fifth Third Mortgage Facility.

Pursuant to the Fifth Third Interest Rate Swap, the Company pays an additional base rate of 0.59% reduced by the difference between an initial LIBOR rate of 0.1513% and the month-end LIBOR rate.

During the year ended December 31, 2020, the Company paid an additional $6,084 of interest pursuant to the Fifth Third Interest Rate Swap.

Loan payable to Fifth Third Bank dated April 21, 2020 pursuant to the Paycheck Protection Program (the “PPP Loan”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the principal amount of $1,650,221.

The term of the PPP Loan is two years, and the annual interest rate is 1%.

Under the terms of the CARES Act, PPP Loan recipients can apply for, and be granted forgiveness for, all or a portion of loans granted under the Paycheck Protection Program.

No assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

During the year ended December 31, 2020, the Company accrued interest in the amount of $11,528 on the PPP Loan.

Net of discount

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Aggregate maturities of long-term notes payable as of December 31, 2020 are as follows:

For the twelve months ended December 31,

For the year ended December 31,

LEASE LIABILITIES - FINANCING LEASES

Financing lease obligation under a lease agreement for a forklift dated November 7, 2016 payable in thirty-six monthly installments of $579 including interest at the rate of 4.83%.

Financing lease obligation under a lease agreement for warehouse furniture and equipment truck dated October 14, 2020 in the original amount of $514,173 payable in sixty monthly installments of $9,942 including interest at the rate of 6.01%.

During the year ended December 31, 2020, the Company made principal and interest payments on this lease obligation in the amount of $22,216 and $7,609, respectively.

Financing lease obligation under a lease agreement for a truck dated March 31, 2020 in the original amount of $152,548 payable in eighty-four monthly installments of $2,188 including interest at the rate of 5.44%.

During the year ended December 31, 2020, the Company made principal and interest payments on this lease obligation in the amounts of $15,270 and $6,612, respectively.

Financing lease obligation under a lease agreement for a truck dated November 5, 2018 in the original amount of $128,587 payable in seventy monthly installments of $2,326 including interest at the rate of 8.33%.

$125,711 was outstanding as of December 31, 2018 (see note 12).

During the year ended December 31, 2020, the Company made principal and interest payments on this lease obligation in the amounts of $19,683 and $8,225, respectively.

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Aggregate maturities of lease liabilities – financing leases as of December 31, 2020 are as follows:

For the period ended December 31,

For the year ended December 31,

RELATED PARTY TRANSACTIONS

For the year ended December 31, 2020:

Vesting of shares to officers

During the year ended December 31, 2020 in connection with stock based compensation based upon the terms of employment agreements with its employees and compensation agreements with the Company’s independent board members, the Company charged to operations the amount of $70,000 for the vesting of a total of 139,854 shares of common stock issuable to two of its independent board members, and $293,503 for the vesting of a total of 814,640 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreements, which includes 330,758 shares with a market value of $113,887 received by the Chief Executive Officer subsequent to the expiration of a limited waiver provided through June 29, 2020 (see below).

The Company also recognized non-cash compensation in the amount of $142,512 during the year ended December 31, 2020 in connection with stock options issuable to management and board members.

The chief executive officer provided a limited waiver through June 29, 2020 of certain rights and benefits contained in his employment agreement following a Change in Control (as defined in the employment agreement).

On January 30, 2020, the Company issued to each of two directors options to purchase 50,000 shares of common stock (an aggregate of 100,000 options) at a price of $1.20 per share, vesting January 30, 2021, and expiring January 30, 2023.

On December 29, 2020, the Company issued to its Chief Financial Officer options to purchase 50,000 shares of common stock at a price of $0.60 per share, and options to purchase 50,000 shares of common stock at a price of $1.00 per share;

these options vest quarterly over two years and expire December 28, 2025.

For the year ended December 31, 2019:

GBC Sub, Inc.

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the option will only be exercisable if there is a spinoff of P Innovations to Innovative Food Holdings’ shareholders.

The Company is evaluating its preliminary purchase price allocation.

As a result, during the preliminary purchase price allocation period, which may be up to one year from the asset purchase date, we may record adjustments to the assets acquired.

Sale of common stock to related party

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The Company recognized non-cash compensation in the amount of $157,145 during the year ended December 31, 2019 in connection with these options.

For the year ended December 31, 2018:

In January 2018, the Company issued 100,000 shares of common stock to a director for the exercise of options at a price of $0.35 per share.

In May 2018, as part of a realignment towards focusing on certain specific growth initiatives and growth opportunities the Company amended the employment agreement with its President, and the President of the Company was named as the Director of Strategic Acquisitions, whose responsibilities include:

(i) identifying and assisting in the acquisition and integration of strategic assets;

(ii) identifying and executing on new growth opportunities;

and (iii) identifying and executing growth initiatives for the Company.

In order to allow for the Executive to devote his full time to his new responsibilities, the President of the Company resigned from his role as President of the Company and its subsidiaries.

Pursuant to this agreement, the Executive’s salary was reduced by $15,000 per year, and an equity bonus of 46,000 shares of the Company’s common stock will be issued to the Executive.

These shares will vest at a rate of one-sixth per month over a period of six months.

In addition, in 2018, 55,192 shares were issued to the Company’s President upon the option exercises in December 2017, and 60,507 shares were issued to the Company’s Chief Executive Officer upon the exercises in December 2017, as described below.

The Company acquired options to purchase 100,000 shares of the Company’s common stock from its President for $9,000 cash, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company acquired options to purchase 140,000 shares of the Company’s common stock from its President for $13,400 cash, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company acquired options to purchase 87,500 shares of the Company’s common stock from its Principal Accounting Officer for $8,125 cash, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company acquired options to purchase 100,000 shares of the Company’s common stock from its Chief Executive Officer for $24,000 cash, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company acquired options to purchase 100,000 shares of the Company’s common stock from its President for $24,000 cash, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company acquired options to purchase 200,000 shares of the Company’s common stock from two of its directors (100,000 from each director) for $48,000 ($24,000 to each director), which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company acquired options to purchase 100,000 shares of the Company’s common stock from a director for $33,000, which was the difference between the exercise price of the options and the market price of the stock on the date of purchase.

The Company’s Chief Executive Officer exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share.

The amount due to the Company for these conversions was extended to April 26, 2018.

55,192 shares of common stock were deemed issued on March 5, 2018, which number of shares represents a net amount after a cash payment of $45,000 which was a portion of the difference between the exercise price of the options and the market price of the stock on the date of purchase, and taxes.

The Company’s President exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share.

The amount due to the Company for these conversions was extended to April 26, 2018.

60,507 shares of common stock were deemed issued on March 5, 2018, which number of shares represents a net amount after a cash payment of $45,000 which was a portion of the difference between the exercise price of the options and the market price of the stock on the date of purchase, and taxes.

A Director exercised 100,000 options at a price of $0.35 per share.

The amount due to the Company for these conversions was extended to April 26, 2018.

Deferred income taxes result from the temporary differences primarily attributable to amortization of intangible assets and debt discount and an accumulation of net operating loss carryforwards for income tax purposes with a valuation allowance against the carryforwards for book purposes.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Included in deferred tax assets are Federal and State net operating loss carryforwards of approximately $500,000, which will expire through 2038.

Included in deferred tax assets are Federal and State net operating loss carryforwards of approximately $4,963,000, which will expire in various years through 2037 and net operating loss carryforwards of $6,510,000 which are carried-forward indefinitely subject to limitation.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

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Statutory tax rate

Total tax at statutory rate

Permanent difference – meals and entertainment

Other adjustments

Total tax (benefit) at statutory rate

Permanent difference

Change in tax estimates

Changes in valuation allowance

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Deferred income taxes reflect the tax impact of temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations.

The change in tax estimates in 2019 was to correct the deferred tax assets associated with the net loss carryforwards.

Deferred income taxes include the net tax effects of net operating loss (NOL) carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of December 31, 2020, and 2019 significant components of the Company’s deferred tax assets are as follows:

Deferred Tax Assets (Liabilities):

Deferred Tax Assets:

Net operating loss carryforwards

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Intangible assets

Accrued officer compensation

Net deferred tax assets (liabilities)

Net deferred tax assets

Valuation allowance

Net deferred tax assets (liabilities)

Net deferred tax assets

The Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions.

At December 31, 2019 and 2018, a total of 2,837,580 and 2,587,580 shares, respectively, are deemed issued but not outstanding by the Company.

Twelve months ended December 31, 2019:

At December 31, 2020 and 2019 a total of 2,837,580 shares are deemed issued but not outstanding by the Company.

For the year ended December 31, 2020:

The Company charged the amount of $142,512 in connection with the vesting of stock options issuable to board members and employees in connection with their compensation agreements.

The Company charged the amount of $363,503 in connection with the vesting of 954,496 shares of common stock issuable to board members and employees in connection with their employment agreements.

These shares are included in common stock outstanding at December 31, 2020.

The Company issued 38,943 shares of common stock with a fair value of $0.44 to an employee as a bonus.

The fair value of $17,135 was charged to operations during the year ended December 31, 2020.

The Company issued 4,762 shares of common stock with an average fair value of $0.48 to a service provider;

the fair value of $2,286 was charged to operations during the year ended December 31, 2020.

For the year ended December 31, 2019:

The Company issued a total of 131,136 shares of common stock to seven employees for previously accrued bonuses in the amount of $93,666.

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The Company charged the amount of $246,628 in connection with the vesting of 421,233 shares of common stock issuable to board members and employees in connection with their employment agreements.

414,807 of the the vested shares, net of taxes due, are included in common stock outstanding at December 31, 2019.

414,807 of the vested shares, net of taxes due, are included in common stock outstanding at December 31, 2019.

The Company sold 349,650 restricted shares of common stock to Pet Box LLC, a company controlled by David Polinsky, a director of the Company.

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these shares were retired to treasury during the year ended December 31, 2019.

Twelve months ended December 31, 2018:

The Company issued 100,000 shares of common stock for cash of $35,000 pursuant to the exercise of options.

In December 2017, the Company’s Chief Executive Officer exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share.

The date for payment of the exercise price of these options was extended to April 26, 2018.

In December 2017, the Company’s President exercised 100,000 options at a price of $0.35 per share and an additional 100,000 options at a price of $0.57 per share.

The date for payment of the exercise price of these options was extended to April 26, 2018.

The Company recognized the fair value of stock options vested to management and employees in the amount of $19,098.

The Company also recognized the fair value of stock grants to management and employees in the amount of $48,307.

The Company purchased 2,000 shares of common stock from an employee at a cost of $0.97 per share for a total of $1,940 and retired these shares to treasury.

The Company made open market purchases of 27,800 shares of its common stock at an average cost of $0.79 per share for a total of $22,117 and retired these shares to treasury.

The Company received for cancellation a share certificate representing 66,668 shares of common stock which the investor had lost.

The Company retired these shares to treasury.

Treasury Stock

At December 31, 2019 and 2018, the Company had 2,623,171 and 2,373,171 shares of treasury stock, respectively.

At December 31, 2020 and 2019, the Company had 2,623,171 shares of treasury stock.

The Company had no warrants outstanding at December 31, 2020 or 2019.

Twelve months ended December 31, 2019:

For the year ended December 31, 2020:

Each grant of 50,000 options had a fair value of $1,216 on the date of the grant.

On December 29, 2020, the Company issued to its Chief Financial Officer options to purchase 50,000 shares of common stock at a price of $0.60 per share with a fair value on the date of the grant of $7,775, and options to purchase 50,000 shares of common stock at a price of $1.00 per share with a fair value on the date of the grant of $6,291;

these options vest quarterly over two years and expire December 28, 2025.

During the year ended December 31, 2020, an aggregate of 475,000 options to purchase shares of common stock at a weighted average price of $1.76 expired.

For the year ended December 31, 2019:

In January 1, 2019, the Company issued the following options:

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Options to purchase 225,000 shares of common stock at a price of $1.20 per share, vesting quarterly over three years, and expiring December 31, 2023 issued to four of its directors (a total of 900,000 options);

On July 24, 2019, the Company issued to a director options to purchase 50,000 shares of common stock at a price of $1.20 per share, vesting July 24, 2021 and expiring July 24, 2022.

During the year ended December 31, 2019, an aggregate of 375,000 options to purchase shares of common stock at a weighted average price of $1.43 expired.

Twelve months ended December 31, 2018:

In May 2018, the Company issued the following options:

Options to purchase 75,000 shares of common stock at a price of $1.10 per share, vesting at a rate of on-sixth per month beginning June 1, 2018 and expiring May 14, 2021.

In November 2018, the Company issued the following options:

Options to purchase 50,000 shares of common stock at a price of $0.75 per share, vesting on April 1, 2020 and expiring December 31, 2021;

Options to purchase 50,000 shares of common stock at a price of $0.95 per share, vesting on April 1, 2020 and expiring December 31, 2021;

Options to purchase 125,000 shares of common stock at a price of $1.50 per share, vesting on December 31, 2019 and expiring December 31, 2021;

Options to purchase 125,000 shares of common stock at a price of $2.00 per share, vesting on August 30, 2020 and expiring December 31, 2021;

Options to purchase 125,000 shares of common stock at a price of $2.50 per share, vesting on August 30, 2020 and expiring December 31, 2021;

Options to purchase 125,000 shares of common stock at a price of $3.00 per share, vesting on August 30, 2020 and expiring December 31, 2021;

During the year ended December 31, 2018, an aggregate 1,135,000 options to purchase shares of common stock at a weighted average price of $1.51 expired.

The following table summarizes the options outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company as of December 31, 2020:

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Options outstanding at December 31, 2020

Aggregate intrinsic value of options outstanding and exercisable at December 31, 2019 and 2018 was $0 and $0, respectively.

Aggregate intrinsic value of options outstanding and exercisable at December 31, 2020 and 2019 was $0.

Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $0.29 and $0.44 as of December 31, 2020 and 2019, respectively, and the exercise price multiplied by the number of options outstanding.

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Risk-free interest rates

During the year ended December 31, 2019, the Company granted the following shares of restricted common stock.

- 260,507 shares of common stock to its President and Chief Executive Officer with a fair value of $150,000 pursuant to an employment agreement.

255,328 of these vested shares, net of taxes due, are included in common stock outstanding at December 31, 2019.

- 30,392 shares of common stock to its Director of Strategic Acquisitions with a fair value of $16,398 pursuant to an employment agreement.

29,115 of these vested shares, net of taxes due, are included in common stock outstanding at December 31, 2019.

-145,545 shares of common stock with a fair value of $75,000 to a director pursuant to a compensation agreement.

48,515 of these vested shares were vested during the year ended December 31, 2019, and are included in common stock outstanding at December 31, 2019.

-145,545 shares of common stock with a fair value of $75,000 to a second director pursuant to a compensation agreement.

48,515 of these vested shares were vested during the year ended December 31, 2019, and are included in common stock outstanding at December 31, 2019.

-100,000 shares of common stock with a fair value of $54,000 to an employee pursuant to an employment agreement.

33,334 of these vested shares were vested during the year ended December 31, 2019, and are included in common stock outstanding at December 31, 2019.

During the year ended December 31, 2018, the Company granted the following shares of restricted common stock which were unissued as of December 31, 2018:

- 100,000 shares of common stock to an employee with a fair value of $54,000 pursuant to an employment agreement.

COMMITMENTS AND CONTINGENCIES

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During the year ended December 31, 2019, the Company reduced this amount by $132,300 as the performance goals for the second year were not met.

Also, during the year ended December 31, 2019, the Company paid the amount of $39,000 in connection with the additional liabilities.

At December 31, 2019, the amount of $67,000 remains on the Company’s balance sheet as a current contingent liability, and $156,600 as a long term contingent liability.

Pursuant to the Oasis acquisition, the Company had a contingent liability in the amount of $400,000 on connection with performance-based bonus obligations.

During the year ended December 31, 2018, the company paid the amount of $189,000 related to these obligations, and recorded a gain in the amount of $11,000.

During the year ended December 31, 2019, the Company paid the amount of $200,000 in connection with these obligations;

at December 31, 2019, there is no further liability related to these obligations on the Company’s balance sheet.

During the year ended December 31, 2019, the Company paid the amount of $39,000 in connection with the additional liabilities.

During the year ended December 31, 2020, the Company paid the amount of $40,000 in connection with the additional liabilities.

At December 31, 2020, the amount of $67,000 remains on the Company’s consolidated balance sheet as a current contingent liability, and $116,600 as a long term contingent liability.

Pursuant to the Mouth Foods LLC Asset Acquisition, the Company recorded contingent liabilities in the amount of $240,576.

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Future royalty amounts owed for minimum payments in connection with the May 2019 License Agreement will be deducted from this deposit The royalty rate is 5% of net sales, and the Company is required, with certain exceptions and exclusions, to make minimum royalty payments of $100,000 through the end of 2020, $110,000 in 2021, and $125,000 in 2022, respectively.

As of December 31, 2020, the Company has made the required minimum royalty payments.

On September 16, 2019, an action (the “PA Action”) was filed in the Court of Common Pleas of Philadelphia County, Trial Division, against, among others, the Company and its wholly-owned subsidiaries, Innovative Gourmet LLC and Food Innovations, Inc.

Since that time, other parties involved in the incident have joined as plaintiffs in the PA Action.

The complaint in the PA Action alleges, inter alia, wrongful death and negligence by a driver employed by Innovative Gourmet and indicates a demand and offer to settle for fifty million dollars.

We expect that should a settlement occur the amount would be substantially lower.

We expect that should a settlement occur the amount to resolve the Action would be substantially lower.

The Company and its subsidiaries had auto and umbrella insurance policies, among others, that were in effect for the relevant period.

While the initial response from the relevant insurance companies has been to provide coverage only under an auto policy, which has been fully offered, we intend to further aggressively pursue the Company’s and its subsidiaries’ insurance coverage under their umbrella and other available policies.

In addition, the Company has been defending this action and believes that the likely outcome would result in any liabilities being covered by its insurance carriers.

While the initial response from the relevant insurance companies has been to provide coverage only under an auto policy (which has been fully tendered) and umbrella policy that covers one of the Company’s subsidiaries, we intend to further aggressively pursue the Company’s and its subsidiaries’ insurance coverage under their umbrella and other available policies.

The Company has brought an action for declaratory judgement against one of the insurance companies under which it had an umbrella policy so that the court can compel it to provide liability coverage.

In addition, the Company has been defending this action and believes that the likely outcome would result in the liabilities being covered by its insurance carriers.

However, if the Company was found responsible for damages in excess of its available insurance coverage, such damages in excess of the coverage could have a material adverse effect on the Company’s operations.

On July 16, 2020, the court granted the Company's motion to stay the case through the final adjudication of an additional pending legal proceeding against the driver in connection with the events related to the case.

It is not anticipated that the Company and its subsidiaries will be a party to any other legal proceedings in connection with this matter.

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.

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The Company’s largest customer, U.S.

and its affiliates, accounted for approximately 57% of total sales in each of the years ended December 31, 2019 and 2018.

and its affiliates, accounted for approximately 40% and 57% of total sales in each of the years ended December 31, 2020 and 2019.

A contract between our subsidiary, Food Innovations, and U.S.

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The fair value of the Company’s stock option, convertible debt features and warrant instruments is determined using option pricing models.

As a result of the adoption of ASC 815-40, the Company is required to disclose the fair value measurements required by ASC 820, “Fair Value Measurements and Disclosures.” The other liabilities recorded at fair value in the balance sheet as of December 31, 2009 are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

Hierarchical levels, defined by ASC 820 are directly related to the amount of subjectivity associated with the inputs to fair valuations of these liabilities are as follows:

As a result of the adoption of ASC 815-40, the Company is required to disclose the fair value measurements required by ASC 820, “Fair Value Measurements and Disclosures.” Hierarchical levels, defined by ASC 820 are directly related to the amount of subjectivity associated with the inputs to fair valuations of these liabilities are as follows:

Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

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SUBSEQUENT EVENTS

In December 2019, a strain of novel coronavirus (COVID-19) causing respiratory illness and death emerged in the city of Wuhan in the Hubei province of China.

The coronavirus was declared a global pandemic by the World Health Organization in March 2020 and has been spreading throughout the world, including the United States, resulting in emergency measures, including travel bans, closure of retail stores, and restrictions on gatherings of more than a maximum number of people.

Included in these emergency measures is the mandated full or partial closure of restaurants and other foodservice establishments across the United States.

These foodservice establishments represent a significant portion of our revenues and their continued closure would likely have a detrimental effect on our business.

SBA Administered Loan

On April 21, 2020, the Company received loan proceeds of $1,650,221 (the “Loan”) under a recent congressionally-approved act.

The Loan is administered by the U.S.

Small Business Administration.

The Loan to the Company is being made through Fifth Third Bank, National Association (the “Lender”).

The term of the Loan is two years.

The annual interest rate on the Loan is 1.00%.

Payments of principal and interest on the loan will be deferred for the first six months of the term of the Loan.

The promissory note evidencing the Loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note.

The occurrence of an event of default may trigger the immediate repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining a judgment against the Company.

Under the terms of the Congressional act, Loan recipients can apply for and be granted forgiveness for all or a portion of the Loan granted under such act.

Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels.

While the company currently anticipates that it will be eligible for a certain amount of forgiveness related to the Loan, no assurance is provided that the Company will obtain forgiveness of the Loan in whole or in part.

The impact of COVID-19 on the Company is discussed above in “Business – Growth Strategy,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2020 Plans” and elsewhere in this Report.

Line of Credit

On March 20, 2020, the Company drew down the amount of $2,000,000 from its line of credit with Fifth Third Bank.

Delay in Filing of Annual Report

On March 30, 2020, the Company filed a Form 8-K with the Securities and Exchange Commission stating that it will be relying on the Securities and Exchange Commission’s Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No.

34-88465) to delay the filing of its Annual Report on Form 10-K for the year ended December 31, 2019 due to circumstances related to COVID-19.

Board Member s

On January 30, 2020, our Board of Directors expanded the size of the Board and appointed James C.

Pappas and Mark Schmulen (the “New Directors”) to fill the two newly created vacancies.

Pappas’ appointment to the Board, as described in a Current Report on Form 8-K filed on January 30, 2020 (the “January 8-K”), the Company and Mr.

Pappas entered into an Agreement (the “Agreement”) which, among other things, provided that (i) the Company (x) will support the continued directorships of the New Directors at the next two annual meetings and (y) after 18 months will appoint another nominee of JCP (as defined in the Agreement”) to the Board and support such nominee at the next annual meeting, provided that such nominee shall be subject to the approval (which shall not be unreasonably withheld) of the Nominating and Corporate Governance Committee of the Board and the Board after exercising their good faith customary due diligence process and fiduciary duties;

and (ii) JCP and the Company agreed to certain standstill provisions, as more fully described in the Agreement.

Issuance of Common Stock

On January 10, 2020, the Company issued 2,381 shares of common stock with a fair value of $1,119 to a service provider for services performed.

On January 29, 2020, the Company issued 38,973 shares of common stock with a fair value of $17,149 to an employee as a bonus.

On February 3, 2020, the Company issued 2,381 shares of common stock with a fair value of $1,167 to a service provider for services performed.

Subsequent to December 31, 2020, we applied for and received new loans in the amount of $1,748,814 under the Paycheck Protection Program (the “PPP Loan”) established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) .

The term of the PPP Loan is two years, and the annual interest rate is 1%.

Under the terms of the CARES Act, PPP Loan recipients can apply for, and be granted forgiveness for, all or a portion of loans granted under the Paycheck Protection Program.

No assurance is provided that the Company will obtain forgiveness of this PPP Loan in whole or in part.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data