What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-31 compared with 2021-04-15 · 155 added, 286 removed, 578 unchanged (43% of the section changed)

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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

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/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

March 31, 2022

Innovative Food Holdings, Inc.

6 unchanged sentences

Property and equipment, net

Right of use assets, operating leases, net

Right of use assets, finance leases, net

Right to use assets, operating leases, net

Right to use assets, finance leases, net

Other amortizable intangible assets, net

Goodwill and other unamortizable intangible assets

Other unamortizable intangible assets

LIABILITIES AND STOCKHOLDERS' EQUITY

1 unchanged sentence

Accounts payable and accrued liabilities

Accrued interest

Accrued interest, current portion

Deferred revenue

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500,000,000 shares authorized;

38,209,060 and 37,210,859 shares issued, and 35,371,480 and 34,373,279 shares outstanding at December 31, 2020 and December 31, 2019, respectively

48,879,331 and 38,209,060 shares issued, and 46,041,751 and 35,371,480 shares outstanding at December 31, 2021 and 2020, respectively

Additional paid-in capital

Treasury stock:

2,623,171 and 2,623,171 shares outstanding at December 31, 2020 and December 31, 2019, respectively.

2,623,171 shares outstanding at December 31, 2021 and 2020

Accumulated deficit

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Total operating expenses

Operating (loss) income

Operating loss

Other income (expense):

Other leasing income

Gain on settlement of contingent liability

Gain on forgiveness of debt

Impairment of investment

Gain on sale of fixed assets

Other leasing income

Interest expense, net

Total other income (expense)

Net (loss) income before taxes

Net loss before taxes

Provision for income tax expense

Net (loss) income

Net (loss) income per share - basic

Net (loss) income per share - diluted

Net loss per share - basic

Net loss per share - diluted

Weighted average shares outstanding - basic

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Cash flows from operating activities:

Net (loss) income

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

Adjustments to reconcile net income to net cash used in operating activities:

Gain on forgiveness of debt

Impairment of intangible assets

Impairment of investment

Depreciation and amortization

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Stock based compensation

Gain on settlement of contingent liability

Gain on sale of fixed assets

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Operating lease liability

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Cash paid for website development

Cash received from the sale of fixed assets

Acquisition of property and equipment

Purchase of intangible assets

Investment in food related company

Net cash used in investing activities

Cash flows from financing activities:

Sales of common stock

Cash paid for acquisition of treasury stock

Loan fees related to building acquisition financing

Cash paid in settlement of contingent liabilities in connection with acquisitions

Proceeds from line of credit

Proceeds from Payroll Protection Plan Loan

Proceeds from sale of common stock, net of costs

Principal payments on debt

Principal payments financing leases

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Net cash provided by financing activities

Increase 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 year for:

Cash paid during the period for:

Non-cash investing and financing activities:

Issuance of 131,136 shares of common stock previously accrued

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

Increase in right of use assets & liabilities

Investment in food related company

Building improvements financed under note payable

Increase in right to use assets & liabilities

Reclassification of accounts receivable to other current assets and investment

Capital lease for purchase of fixed assets

Note payable for acquisition of land and building

See notes to consolidated financial statements.

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Treasury Stock

Balance at December 31, 2018

Common stock issued for services

Common stock sold for cash

Issuance of shares to employees, previously accrued

Fair value of vested stock and stock options issued to management

Treasury stock acquired

Net income for the year ended December 31, 2019

Balance - December 31, 2019

Fair value of vested stock and stock options

Fair value of vested stock and stock options issued to management and directors

Fair value of shares issued to employees and service providers

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Balance - December 31, 2020

Fair value of vested stock and stock options issued to management and directors

Common stock sold for cash, net of costs

Net loss for the year ended December 31, 2021

Balance - December 31, 2021

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 Specialty Foods Group, Inc.

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

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

(“GFG”), Gourmet Foodservice Warehouse, Inc.

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

(“Artisan”), Food Innovations, Inc.

(“FII”), Food New Media Group, Inc.

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

(“GFG”), Gourmet Foodservice Group Warehouse, Inc.

(“GFW”), Gourmeting, Inc.

(“Gourmeting”), The Haley Group, Inc.

(“Gourmeting”), Haley Food Group, Inc.

(“Haley”), Oasis Sales Corp.

(“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” 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.

(d/b/a For The Gourmet, Inc.), (“Gourmet”), Innovative Food Properties, LLC (“IFP”), Plant Innovations, Inc.

(“Plant Innovations”), Innovative Gourmet, LLC (“Innovative Gourmet” or “igourmet”), Food Funding, LLC (“Food Funding”), Logistics Innovations, LLC (L Innovations”), M Innovations, LLC (“M Innovations”), MI Foods, LLC (“MIF”), M Foods Innovations, LLC (“M Foods”), P Innovations, LLC (“P Innovations”), PlantBelly, LLC (“PlantBelly”), Innovative Foods, Inc.

(“IFI”) and Innovative Gourmet Partnerships, LLC (“IGP”), 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 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.

Haley is a dedicated foodservice consulting and advisory firm that works closely with companies to access private label and manufacturers’ private label food service opportunities with the intent of helping them launch and commercialize new products in the broadline foodservice industry and assists in the enabling of the distribution of products via national broadline food distributors.

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

OFB and Oasis function as outsourced national sales and brand management teams for emerging organic and specialty food CPG companies of a variety of sizes and business stages, and provides emerging and unique CPG specialty food brands with distribution and shelf placement access in all of the major metro markets in the food retail industry.

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Mouth also has launched a private label brand, including several award-winning products.

P Innovations focus is to leverage acquired assets to expand the Company’s subscription-based e-commerce business activities and to launch new businesses leveraging the Company’s e-commerce platform.

Plant Innovations is focused on plant-based D2C brands and online retail within the e-commerce space.

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

Use of Estimates

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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 and finance 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 to use assets and liabilities, and equity-based instruments.

Actual results may differ from these estimates under different assumptions or conditions.

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Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Innovative Food Holdings, Inc., and its wholly owned operating subsidiaries, Artisan, FII, FNM, OFB, GFG, GFW, Gourmeting, Haley, Oasis, Innovative Gourmet, Food Funding, IFP, L Innovations, M Innovations, P Innovations, and Gourmet.

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

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Shipping charges to customers and sales taxes collectible from customers, if any, are included in revenues.

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

For revenue from product sales, the Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606 “ Revenue from Contracts with Customers ”.

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

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The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

Adoption of ASC 606 had no material effect on the Company’s financial statements.

Warehouse and logistic services revenue primarily comprises of inventory management, order fulfilment and warehousing services.

Warehouse and logistic services revenue is primarily comprised of inventory management, order fulfilment and warehousing services.

Warehouse & logistics services revenues are recognized at the point in time when the services are rendered to the customer.

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At times, such investments may be in excess of applicable government mandated insurance limit.

At December 31, 2020 and 2019, the Company had cash deposits in excess of applicable government mandated insurance limits in the amount of $3,385,113 and $2,559,503, respectively.

At December 31, 2021 and 2020, trade receivables from the Company’s largest customer amounted to 28 % and 22 %, respectively, of total trade receivables.

During the year ended December 31, 2021 and 2020, sales from the Company’s largest customer amounted to 46 % and 40 % of total sales, respectively.

The Company maintains cash balances in excess of Federal Deposit Insurance Corporation limits.

At December 31, 2021 and 2020, the total cash in excess of these limits was $ 4,555,032 and $ 3,385,113 , respectively.

Accounts Receivable

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59,016 to its Director of Strategic Acquisitions, an aggregate total of 200,282 shares to board members;

38,943 shares to an employee.

and 74,076 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, 2021, the amount of $ 523,977 was charged to operations in connection with these grants.

Also during the year ended December 31, 2020, the Company issued 4,762 shares of restricted common stock with a fair value of $2,286 to a service provider, and charged this amount to operations.

Dilutive shares at December 31, 2020:

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At December 31, 2020 there were no convertible notes outstanding.

At December 31, 2019 there are no warrants outstanding.

At December 31, 2020 there were no warrants outstanding.

Stock Options

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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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Also, during the year ended December 31, 2020, the Company issued 4,762 shares of restricted common stock with a fair value of $ 2,286 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

During the year ended December 31, 2019, the Company also granted the following shares of restricted common stock pursuant to compensation agreements:

- 260,507 shares of common stock with a fair value of $150,000 to the Company’s Chief Executive Officer.

These shares vested over the twelve month period ended December 31, 2019;

the amount of $150,000 was charged to operations during the year ended December 31, 2019.

255,328 shares, net of taxes, were issued in January 2020, and are included in common stock issued and outstanding at December 31, 2019.

- 30,392 shares of restricted common stock with a fair value of $16,398 to Company’s Director of Strategic Acquisitions.

These shares vested over the twelve month period ended December 31, 2019;

the amount of $16,398 was charged to operations during the year ended December 31, 2019.

29,115 shares, net of taxes, were issued in January 2020, and are included in common stock issued and outstanding at December 31, 2019.

- 100,000 shares of restricted common stock with a fair value of $100,000 to an employee.

Vesting of these shares is scheduled as follows:

33,334 shares vested on December 31, 2019;

33,333 are scheduled to vest on December 31, 2020;

and 33,333 are scheduled to vest on December 31, 2021.

The amount of $30,231 was charged to operations during the year ended December 31, 2019.

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

- 145,545 shares of restricted common stock with a fair value of $75,000 to an independent director with a fair value of $150,000.

These shares are scheduled to vest quarterly over a three year period beginning January 1, 2019.

The amount of $25,000 was charged to operations during the year ended December 31, 2019.

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

- 145,545 shares of restricted common stock with a fair value of $75,000 to a second independent director with a fair value of $150,000.

These shares are scheduled to vest quarterly over a three year period beginning January 1, 2019.

The amount of $25,000 was charged to operations during the year ended December 31, 2019.

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

Reclassifications

Certain reclassifications have been made to conform prior period data to the current presentation.

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.

The Company accounts for leases in accordance with Financial Accounting Standards Board (“FASB”) ASC 842, “Leases”.

The Company determines if an arrangement is a lease at inception.

Operating 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.

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 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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New Accounting Pronouncements

In January 2017, the FASB issued ASU No.

2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

In computing the implied fair value of goodwill under Step 2, current U.S.

GAAP requires the performance of procedures to determine the fair value at the impairment testing date of assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Instead, the amendments under this ASU require the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

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

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.

Leases are classified as either operating or financing, with such classification affecting the pattern of expense recognition in the income statement.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provided an optional transition method to apply the new lease requirements through a cumulative-effect adjustment in the period of adoption.

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 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 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):

Improvements to Nonemployee Share-Based Payment Accounting.

This ASU relates to the accounting for non-employee share-based payments.

The amendment in this update expands the scope of Topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The ASU excludes share-based payment awards that relate to:

(1) financing to the issuer;

or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers.

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 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.

In December 2019, the FASB issued ASU No.

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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.

The Company adopted this standard effective January 1, 2021;

we do not expect the adoption to have a material impact on our 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)”.

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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 consolidated financial statements.

GBC Sub, Inc.

(d/b/a TheGiftBox)

Effective July 23, 2019, P Innovations acquired certain assets of GBC Sub, Inc.

(d/b/a The GiftBox) (“GiftBox”) (the “GiftBox Asset Purchase Agreement”).

GiftBox, a privately held Nevada corporation controlled by David Polinsky, a director of the Company, was in the business of subscription-based ecommerce.

The consideration for the assets purchased was a nominal amount of cash.

The GiftBox Asset Purchase Agreement also provides the sellers the option to acquire 30% of P Innovations subject to dilution for a period of thirty-six months following the date of the Giftbox Asset Purchase Agreement;

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

Mouth Foods, Inc.

Effective July 6, 2018, M Innovations acquired certain assets of Mouth Foods, Inc.

from MFI (assignment for the benefit of creditors), LLC (“MFI”), the assignee of Mouth Foods, Inc.’s assets in connection with a Delaware assignment proceeding, pursuant to the terms of an Asset Purchase Agreement (“MFI APA”).

The MFI 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 assumed liabilities were recorded by the Company at their preliminary estimated fair values.

Mouth Foods, Inc., was a privately held New York company operating out of Brooklyn, was an expert curator and online retailer of high quality specialty foods from small-batch makers in the US.

The consideration for and in connection with the acquisition consisted of (i) closing related cash payments of $208,355;

(ii) additional revenue-based contingent liabilities valued by management at $100,000 related to certain future sales of purchased assets payable under the following terms:

payment of 5% of certain revenues, with no payments on the first $500,000 of revenues and no payments on revenues after June 30, 2020;

(iii) additional revenue based contingent liabilities of up to $185,000 associated with the purchase of certain debt of the seller;

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

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.

During the year ended December 31, 2018, the Company changed the original allocation of the purchase price among the assets acquired.

The reallocated purchase price consisted of the following:

Contingent liability – payable to debt holder

Contingent liabilities – payable to sellers

Additional Contingent Liabilities

Total purchase price

Tangible assets acquired

Intangible assets acquired

Goodwill acquired

Total purchase price

The above estimated fair value of the intangible assets is based on management’s estimates.

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.

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.

The consideration for and in connection with the igourmet APA consisted of:

(i) $1,500,000, which satisfied or reduced secured, priority and administrative debt of sellers;

(ii) in connection with and prior to the acquisition, our wholly-owned subsidiary, Food Funding, funded advances of $325,500 to sellers on a secured basis, pursuant to certain loan documents and as bridge loans, which loans were reduced by the proceeds of the igourmet APA;

(iii) the purchase for $200,000 of certain debt owed by sellers, to be paid out of, if available, Innovative Gourmet’s cash flow;

(iv) potential contingent liability allocation for a percentage of sellers’ approximately $2,300,000 of certain debt, not purchased or assumed by Innovative Gourmet, which under certain circumstances, Innovative Gourmet may determine to pay;

and (v) additional purchase price consideration of (a) up to a maximum of $1,500,000, if EBITDA of Innovative Gourmet reaches $800,000 thousand in 2018, (b) up to a maximum of $1,750,000, if EBITDA of Innovative Gourmet in 2019 exceeds its EBITDA in 2018 by at least 20% and if its EBITDA reaches $5,000,000;

and (c) up to a maximum of $2,125,000, if EBITDA of Innovative Gourmet in 2020 exceeds its EBITDA in 2019 by at least 20% and if its EBITDA reaches $8,000,000.

The additional purchase price consolidation milestone for 2018, 2019, and 2020 were not met.

The EBITDA based earnout shall be paid 37.5% in cash, 25% in Innovative Food Holdings shares valued at the time of the closing of this transaction and 37.5%, at Innovative Gourmet’s option, in Innovative Food Holdings shares valued at the time of the payment of the earnout or in cash.

In connection with the igourmet APA, our wholly-owned subsidiary, Food Funding, purchased seller’s senior secured note at a price of approximately $1,187,000, pursuant to the terms of a Loan Sale Agreement with UPS Capital Business Credit.

That note was reduced by the proceeds of the igourmet APA as disclosed in (i) above.

The acquisition date estimated fair value of the consideration transferred totaled $4,151,243.

During the year ended December 31, 2018, the Company made the following purchase price adjustments:

(i) accrued an additional $286,239 for accounts payable prior to acquisition;

(ii) decreased contingent liabilities by the amount of $392,900 for earnout payments not made;

(iii) decreased accounts receivable in the amount of $108,893 for amounts not collected;

and (4) increased deferred revenue in the amount of $231,169 for shipments made.

These adjustments increased the value of the acquisition to $4,275,751.

At December 31, 2018, the value of the acquisition consisted of the following:

Initial purchase price

Cash payable in connection with transaction

Accounts payable

Deferred revenue

Contingent liabilities

Total purchase price

Tangible assets acquired

Intangible assets acquired

Goodwill acquired

Total purchase price

The above estimated fair value of the intangible assets is based on a third party valuation expert and also includes additional analysis by management based on a subsequent analysis of the transaction and adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

ACCOUNTS RECEIVABLE

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During the years ended December 31, 2021 and 2020, the Company charged the amount of $ 31,756 and $ 254,899 , respectively, to bad debt expense.

During the year ended December 31, 2021, the Company entered into a note receivable agreement with a customer in exchange for accounts receivable in the amount of $ 22,380 .

This note bears an interest rate of 5 % per annum and is due in full on July 31, 2023.

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 (see note 7).

Inventory consists of specialty food products.

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We have also recently completed an additional property improvement and upgrade buildout at the Artisan building which include a fully functional commercial test kitchen and training center and conference room.

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.

The test kitchen and training room is 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 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.

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The amount of the loan was $ 5,500,000 , of which $ 3,600,000 had been utilized at December 31, 2021 in connection with the purchase of the Facility;

the lender was Fifth Third Bank and the loan is secured by a mortgage on the property and other Company assets.

the lender is Fifth Third Bank and the loan is secured by a mortgage on the property and other Company assets.

The interest on the loan is LIBOR plus 2.75 %, with interest only payments due through September 30, 2020, thereafter with principal amortized over 20 years with the balance due at maturity on September 2, 2025.

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Depreciation and amortization expense for property and equipment amounted to $ 388,657 and $ 417,781 for the years ended December 31, 2021 and 2020, respectively.

RIGHT OF USE ASSETS AND LEASE LIABILITIES – OPERATING LEASES

RIGHT TO USE ASSETS AND LEASE LIABILITIES – OPERATING LEASES

The Company has operating leases for offices, warehouses, vehicles, and office equipment.

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

Right of use assets – operating leases are summarized below:

Right to use assets – operating leases are summarized below:

December 31, 2021

December 31, 2020

Warehouse equipment

Office equipment

Right of use assets, net

Right to use assets, net

Operating lease liabilities are summarized below:

December 31, 2021

December 31, 2020

Warehouse equipment

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Year ended December 31, 2025

Present value discount

Lease liability

RIGHT OF USE ASSETS – FINANCING LEASES

During the years ended December 31, 2021 and 2020, the Company recorded right to use assets and lease liabilities in the amount of $ 88,359 and $ 214,930 , respectively, due to the execution of new operating lease agreements.

RIGHT TO USE ASSETS – FINANCING LEASES

The Company has financing leases for vehicles and warehouse equipment.

Right of use asset – financing leases are summarized below:

Right to use asset – financing leases are summarized below:

Warehouse Equipment

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accumulated depreciation

Depreciation expense for the year ended December 31, 2021 and 2020 was $ 129,285 and $ 73,258 , respectively.

During the years ended December 31, 2021 and 2020, the Company recorded right to use assets and lease liabilities in the amount of $ 21,885 and $ 677,021 , respectively, due to the execution of new financing lease agreements.

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.

At December 31, 2020 the Company has investments in eight food related companies in the aggregate amount of $496,575.

At December 31, 2021 and 2020 the Company has investments in seven food related companies in the aggregate amount of $ 286,725 and $ 496,575 , respectively.

The Company does not have significant influence over the operations of these companies.

The Company’s investments may take the form of debt, equity, or equity in the future including convertible notes and other instruments which provide for future equity under various scenarios including subsequent financings or initial public offerings.

The Company has evaluated the guidance in Accounting Standards Codification (“ASC”) No.

The Company has evaluated the guidance in ASC No.

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.

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.

During the years ended December 31, 2021 and 2020, the Company converted accounts receivable in the amount of $ 0 and $ 61,350 , respectively, into an equity investment in a food related company.

During the year ended December 31, 2021, the founder of one of the food related companies passed away in an untimely tragic accident, and as a result the food related company ceased operations and the Company recognized an impairment in the amount of $ 209,850 in connection with that investment.

INTANGIBLE ASSETS

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

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

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 “Intangibles - Goodwill and Other”, 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.

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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

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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.

At December 31, 2021 and 2020, the net carrying value of goodwill on the Company’s balance sheet was $ 0 .

Long-lived Impairment Test

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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:

At December 31, 2021 and 2020, the net carrying value of other intangible assets on the Company’s balance sheet was $ 1,605,040 and $ 1,633,202 , respectively.

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

The following is the net book value of these assets:

December 31, 2021

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Internally Developed Technology

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, 2021, the Company charged to operations amortization expense in the amount of $ 8,912 .

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 .

Amortization of finite life intangible assets as of December 31, 2021 is as follows:

2024 and thereafter

The trade names are not considered finite-lived assets, and are not being amortized.

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The internally developed technology is being amortized over 60 months.

The website is being amortized over a period of 36 months.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

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ACCRUED INTEREST

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

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

At December 31, 2021, accrued interest - on notes outstanding was $ 29,349 During the year ended December 31, 2021, the Company paid cash for interest in the aggregate amount of $ 298,481 .

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

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

Effective as of July 31, 2021 this credit facility was extended to November 1, 2021 , effective as of October 29, 2021, this credit facility was extended to March 1, 2022 ;

and effective March 1, 2022, this credit facility was extended to June 30, 2022 .

The debt covenants of this credit facility were waived until December 31, 2022.

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.

During the year ended December 31, 2021 and 2020, the Company paid interest in the amount of $ 57,396 and $ 58,382 , respectively, on the Fifth Third Bank Line of Credit.

NOTES PAYABLE

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During the year ended December 31, 2021, the Company made payments of principal and interest on this note in the amounts of $ 54,600 and $ 3,079 , 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.

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.

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

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During the year ended December 31, 2021, the Company made payments of principal and interest on this note in the amounts of $ 98,000 and $ 11,826 , 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.

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.

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, 2021, the Company made payments of principal and interest on this loan in the amounts of $ 70,618 and $ 10,957 , 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.

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.

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 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.

During the years ended December 31, 2021 and 2020, the Company accrued interest in the amount of $ 378 and $ 372 , respectively, on this note;

at December 31, 2021 and 2020, accrued interest on this note was $ 17,723 and $ 17,345 , respectively.

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, 2021, the Company made principal and interest payments in the amount of $ 11,067 and $ 1,349 , respectively, on this loan;

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.

during the year ended December 31, 2020, the Company made principal and interest payments in the amount of $ 9,737 and $ 1,723 , respectively.

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”).

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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;

$ 12,525 and $ 12,560 of this discount was amortized to interest expense during the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021 the Company made principal and interest payments in the amount of $ 198,800 and $ 142,073 , respectively, on this loan.

During the year ended December 31, 2020, the Company paid principal and interest in the amount of $ 65,600 and $ 154,955 , 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%.

During the years ended December 31, 2021 and 2020, the Company paid additional interest in the amount of $ 26,258 and $ 6,084 , respectively, 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 “IVFH 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 IVFH 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.

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

During the year ended December 31, 2021 and 2020, the Company accrued interest in the amount of $ 4,069 and $ 11,528 , respectively, on the IVFH PPP Loan.

Effective July 8, 2021, the entire principal amount due under this loan of $ 1,650,221 and accrued interest of $ 15,597 was forgiven and the Company recorded a gain on forgiveness of debt during the year ended December 31, 2021.

Five loans payable to Fifth Third Bank dated from February 12, 2021 to April 11, 2021 were received by subsidiaries of the Company pursuant to the Paycheck Protection Program (the “Additional PPP Loans”) established under the CARES Act in the aggregate principal amount of $ 1,748,414 .

Each of the Additional PPP Loans are due five years from inception 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 Additional PPP Loans in whole or in part.

During the year ended December 31, 2021 , the Company received cash in the aggregate amount of $ 1,748,414 under these loans.

During the year ended December 31, 2021, the Company accrued interest in the amount of $ 10,783 , on the Additional PPP Loans.

Effective between the dates October 5, 2021 through December 13, 2021, all of these loans in the aggregate principal amount of $ 1,748,414 and accrued interest of $ 10,783 were forgiven.

Net of discount

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LEASE LIABILITIES - FINANCING LEASES

Financing lease obligation under a lease agreement for a forklift dated July 12, 2021 in the original amount of $ 16,070 payable in thirty-six monthly installments of $489 including interest at the rate of 6.01 %.

During the year ended December 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $ 2,482 and $ 452 , respectively.

Financing lease obligation under a lease agreement for a pallet truck dated July 15, 2021 in the original amount of $ 5,816 payable in thirty-six monthly installments of $177 including interest at the rate of 6.01 %.

During the year ended December 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $ 898 and $ 163 , respectively.

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, 2021, the Company made principal and interest payments on this lease obligation in the amount of $ 92,269 and $ 27,034 , respectively.

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, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $ 19,259 and $ 6,998 , respectively.

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 %.

During the year ended December 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $ 21,388 and $ 6,521 , respectively.

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.

Financing lease obligation under a lease agreement for a truck dated August 23, 2019 in the original amount of $ 80,413 payable in eighty-four monthly installments of $1,148 including interest at the rate of 5.0 %.

During the year ended December 31, 2021, the Company made principal and interest payments on this lease obligation in the amounts of $ 10,669 and $ 4,903 , respectively.

During the year ended December 31, 2020, the Company made principal and interest payments on this lease obligation in the amounts of $ 10,148 and $ 3,626 , respectively.

Current portion

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Vesting of shares to officers

During the year ended December 31, 2021 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 $ 90,000 for the vesting of a total of 200,278 shares of common stock issuable to two of its independent board members, and $ 402,116 for the vesting of a total of 1,020,913 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreements.

The Company also recognized non-cash compensation in the amount of $ 144,274 during the year ended December 31, 2021 in connection with stock options issuable to management and board members.

During the year ended December 31, 2021, the Company issued 50,000 two-year stock options with a fair value of $ 8,616 and an exercise price of $ 1.20 to a director.

On August 26, 2021, the Company sold a total of 3,125,000 shares of common stock at a price of $ 0.40 per share to an entity controlled by Hank Cohn, a director of the Company;

the Company sold 3,125,000 shares of common stock at a price of $ 0.40 per share to an entity controlled by Jefferson Gramm, a director of the Company;

and the Company sold 3,125,000 shares of common stock at a price of $ 0.40 per share to an entity controlled by James C.

Pappas, a director of the Company, for total proceeds, net of costs, of $ 3,580,372 .

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).

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

For the year ended December 31, 2019:

GBC Sub, Inc.

(d/b/a TheGiftBox)

Effective July 23, 2019, P Innovations acquired certain assets of GBC Sub, Inc.

(d/b/a The GiftBox) (“GiftBox”) (the “GiftBox Asset Purchase Agreement”).

GiftBox, a privately held Nevada corporation controlled by David Polinsky, a director of the Company, was in the business of subscription-based ecommerce.

The consideration for the assets purchased was a nominal amount of cash.

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

Sale of common stock to related party

On July 23, 2019, the Company entered into a subscription agreement to sell 349,650 restricted shares of common stock to Pet Box LLC, a company controlled by David Polinsky, a director of the Company.

The purchase price was $0.715 per share for a total of $250,000.

Stock based compensation to Officers

During the year ended December 31, 2019 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 aggregate total amount of $226,803 for the vesting of a total of 387,899 shares of common stock issuable to its Chief Executive Officer, its Director of Strategic Acquisitions and to its two independent board members.

In January 2020, the Company issued, net of income taxes, an aggregate of 316,966 of these shares.

In January 2019, the Company awarded the following to each of its two independent directors:

(i) a cash retainer in the amount of $45,000, which was paid in January 2019;

and (ii) cash retainers in the amount of $30,000 per year, to be paid quarterly.

In January 2019, the Company awarded the following stock options to four of its directors:

(i) five-year options to purchase 90,000 shares of common stock at a price of $0.62 per share, vesting quarterly over a three year period;

(ii) five-year options to purchase 135,000 shares of common stock at a price of $0.85 per share, vesting quarterly over a three year period;

(iii) five-year options to purchase 225,000 shares of common stock at a price of $1.20 per share, vesting quarterly over a three year period.

In July 2019, the Company awarded five-year options to purchase 50,000 shares of common stock to a director at a price of $1.20 per share, vesting quarterly over a one year period.

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

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 $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.

Included in deferred tax assets are Federal and State net operating loss carryforwards of approximately $ 15,800,000 , which can be carried forward indefinitely subject to limitation, except $ 4,900,000 which can be carried forward through 2037.

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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Permanent difference

Change in tax estimates

Other adjustments

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.

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For the year ended December 31, 2021:

On August 26, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with each of JCP Investment Partnership LP, Bandera Master Fund LP and SV Asset Management LLC (collectively, the “Investors”).

Pursuant to the SPA, each Investor purchased 3,125,000 shares of the Company’s common stock for an aggregate of 9,375,000 shares from the Company at a price of $ 0.40 per share.

The Company received $ 3,580,372 proceeds from the sale of the shares, net of costs in the amount of $ 169,628 .

JCP Investment Partnership, LP is controlled by James C.

Pappas, a director of the Company;

Bandera Master Fund LP is controlled by Jefferson Gramm, a director of the Company;

and SV Asset Management LLC is controlled by Hank Cohn, a director of the Company.

During the year ended December 31, 2021 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 $ 90,000 for the vesting of a total of 200,282 shares of common stock issuable to two of its independent board members, and $ 402,116 for the vesting of a total of 1,020,913 shares of common stock issuable to its Chief Executive Officer and its Director of Strategic Acquisitions pursuant to their employment agreements.

The Company also recognized non-cash compensation in the amount of $ 144,274 during the year ended December 31, 2021 in connection with stock options issuable to management and board members, and $ 31,861 in connection with 74,076 shares of common stock issued to an employee as a bonus.

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.

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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.

The Company charged the amount of $157,145 in connection with the vesting of stock options issuable to board members and employees in connection with their employment agreements.

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 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.

The purchase price was $0.715 per share for a total of $250,000.

The Company issued 19,048 shares of common stock with an average fair value of $0.546 to a service provider;

the fair value of $10,405 was charged to operations during the year ended December 31, 2019.

The Company acquired 250,000 shares of common stock from an investor;

the purchase price was $0.50 per share for a total of $125,000;

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

Treasury Stock

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For the year ended December 31, 2021:

During the year ended December 31 2021, the Company issued 50,000 two-year options with a fair value on the date of grant of $ 8,616 to a director at a price of $ 1.20 per share, vesting September 10, 2022, and expiring September 10, 2023.

For the year ended December 31, 2020:

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.

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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:

Options to purchase 90,000 shares of common stock at a price of $0.62 per share, vesting quarterly over three years, and expiring December 31, 2023 issued to four of its directors (a total of 360,000 options);

Options to purchase 135,000 shares of common stock at a price of $0.85 per share, vesting quarterly over three years, and expiring December 31, 2023 issued to four of its directors (a total of 540,000 options);

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);

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, 2021:

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:

Transactions involving stock options are summarized as follows:

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Risk-free interest rates

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENT LIABILITIES

Contingent Liability

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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.

During the years ended December 31, 2021 and 2020, the Company paid the amount of $ 8,000 and $ 40,000 , respectively, in connection with the additional liabilities.

At December 31, 2021 and 2020, the amount of $ 67,000 remains on the Company’s consolidated balance sheet as a current contingent liability, and $ 108,600 and $ 116,600 , respectively, 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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During the year ended December 31, 2019, the Company paid the amount of $ 120,576 in connection with these liabilities.

At December 31, 2020, $120,000 is classified as a current contingent liability.

At December 31, 2021 and 2020, $ 120,000 is classified as a current contingent liability.

License Agreements

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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.

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

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 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.

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

The Company and its subsidiaries’ insurers have agreed to defend the Company, its subsidiaries and the driver in the PA Action (and related actions), subject to a reservation of rights.

The Company 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.

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

Because the statute of limitations on the incident has now run, it is not anticipated that any new plaintiffs involved in the incident will come forward against the Company and its subsidiaries.

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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SUBSEQUENT EVENTS

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