10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2017 and December 31, 2016 are as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Trade payables and accrued expenses
|
|
$
|
1,652,681
|
|
|
$
|
1,547,603
|
|
Accrued costs of discontinued operations
|
|
|
-
|
|
|
|
1,478,887
|
|
Accrued payroll and commissions
|
|
|
183,878
|
|
|
|
93,043
|
|
Total
|
|
$
|
1,836,559
|
|
|
$
|
3,119,533
|
|
At December 31, 2017 and 2016, accrued liabilities to related parties consisted of accrued bonus, payroll, and payroll related benefits of $0 and $65,000, respectively.
11. ACCRUED INTEREST
At December 31, 2017, accrued interest on a note outstanding was $15,860. During the twelve months ended December 31, 2017, the Company paid cash for interest in the aggregate amount of $74,178.
At December 31, 2016, accrued interest was $626,873, convertible at the option of the note holders into the Company’s common stock a price of $0.25 per share, or a total of 2,507,492 shares. During the twelve months ended December 31, 2016, the Company paid cash for interest in the aggregate amount of $96,318.
12. REVOLVING CREDIT FACILITIES
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
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. During the twelve months ended December 31, 2016, the Company made net borrowings in the amount of $120,000 from this facility, and transferred principal in the amount of $1,200,000 from this credit facility to a new term loan established with Fifth Third Bank. There was no activity on this credit facility during the twelve months ended December 31, 2017.
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
13. NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
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 is due and was paid on the maturity date of February 5, 2018. See note 20. 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, 2017, the Company made principal and interest payments on this loan in the amounts of $800,000 and $27,764, respectively.
|
|
$
|
114,033
|
|
|
$
|
914,033
|
|
|
|
|
|
|
|
|
|
|
Secured mortgage note payable for the acquisition of land and building in Bonita Springs, Florida in the amount of $546,000. Principal payments of $4,550 and interest at the rate of Libor plus 3% are due monthly. The balance of the principal amount will be due February 28, 2018. In March 2018 and effective February 26, 2018, this note was amended and renewed in the amount of $273,000, with monthly payments of principal and interest of $4,550 payable through the maturity date of February 28, 2023. See note 20. On March 23, 2018 and effective February 26, 2018, this note was amended and renewed in the amount of $273,000, with monthly payments of principal and interest of $4,550 payable through the maturity date of February 28, 2023. See note 20. During the twelve months ended December 31, 2017, the Company made payments of principal and interest on this note in the amounts of $54,600 and $12,805, respectively.
|
|
|
282,100
|
|
|
|
336,700
|
|
|
|
|
|
|
|
|
|
|
Secured mortgage note payable for the acquisition of land and building in Broadview, Illinois in the amount of $980,000. Payments of $8,167 including principal and 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 twelve months ended December 31, 2017, the Company made payments of principal and interest on this note in the amounts of $98,000 and $30,508, respectively.
|
|
|
726,833
|
|
|
|
824,833
|
|
|
|
|
|
|
|
|
|
|
A total of 16 convertible notes payable in the aggregate amount of $627,565 (the “Convertible Notes Payable”). Certain of the Convertible Notes Payable contain cross default provisions, and are secured by subordinated interest in a majority of the Company’s assets. The Convertible Notes Payable bear interest at the rate of 1.9% per annum; principal and accrued interest are convertible into common stock of the Company at a conversion price of $0.25 per share; however, the interest may be paid in cash by the Company and certain limited amounts of principle may also be prepaid in cash. Effective May 13, 2014, the due date of these notes was extended from May 15, 2014 to December 31, 2015, and a discount to the notes in the aggregate amount of $712,565 was recorded to recognize the value of the beneficial conversion feature embedded in the extension of the term of the notes. In March 2015 the notes were further extended to January 1, 2016. On September 30, 2015, the notes in the amount of $627,565 were further extended to July 1, 2017, and a discount in the amount of $627,565 was recorded to recognize the value of the beneficial conversion featured embedded in the extension of the term of the notes. During the twelve months ended December 31, 2017, $0 and $185,018, respectively, of this discount was charged to operations.
During the twelve months ended December 31, 2017, holders of the Convertible Notes Payable converted principal in the amount of $627,565 and accrued interest in the amount of $528,242 into an aggregate of 1,155,807 shares of common stock, and accrued interest in the amount of $86,089 was forgiven. The amount of $86,809 is recorded as a decrease in interest expense during the twelve months ended December 31, 2017.
|
|
|
-
|
|
|
|
627,565
|
|
|
|
|
|
|
|
|
|
|
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 twelve months ended December 31, 2017, the Company accrued interest in the amount of $372 and $380, respectively, on this note.
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Unsecured note to Sam Klepfish for $164,650 which may not be prepaid without Mr. Klepfish’s consent, originally carrying an interest rate of 8% per annum and no due date. As of July 1, 2014, the interest rate was reduced to 1.9% and as of November 17, 2014 the interest rate was further reduced to 0%. During the three months ended December 31, 2015, interest in the amount of $54,150 was capitalized, and the aggregate principal amount of $164,650 was extended to July 1, 2017. This note and accrued interest are convertible into common stock of the Company at a conversion price of $0.25 per share. During the twelve months ended December 31, 2017, the entire principal balance of this note in the amount of $164,650 was converted into 658,600 shares of the Company’s common stock.
|
|
|
-
|
|
|
|
164,650
|
|
|
|
|
|
|
|
|
|
|
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 twelve months ended December 31, 2017, the Company made principal and interest payments on this note in the amount of $44,946 and $2,318, respectively.
|
|
|
55,054
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations under a lease agreement for a forklift payable in thirty-six monthly installments of $274 including interest at the rate of 4.46%. During the twelve months ended December 31, 2017, the Company made principal and interest payments on this lease obligation in the amounts of $3,093 and $195, respectively.
|
|
|
2,685
|
|
|
|
5,778
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations under a lease agreement for a forklift payable in thirty-six monthly installments of $579 including interest at the rate of 4.83%. During the twelve months end December 31, 2017, the Company made principal and interest payments on this lease obligation in the amounts of $6,194 and $751, respectively.
|
|
|
12,160
|
|
|
|
18,354
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,212,865
|
|
|
$
|
2,911,913
|
|
|
|
|
|
|
|
|
|
|
Less: Discount
|
|
|
-
|
|
|
|
(185,020
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
1,212,865
|
|
|
$
|
2,726,893
|
|
Current maturities, net of discount
|
|
$
|
346,855
|
|
|
$
|
1,589,082
|
|
Long-term portion, net of discount
|
|
|
866,010
|
|
|
|
1,137,811
|
|
Total
|
|
$
|
1,212,865
|
|
|
$
|
2,726,893
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Discount on Notes Payable amortized to interest expense:
|
|
$
|
185,018
|
|
|
$
|
370,036
|
|
At December 31, 2017 and 2016, the Company had unamortized discounts to notes payable in the aggregate amount of $0 and $185,020, respectively.
Aggregate maturities of long-term notes payable as of December 31, 2017 are as follows:
For the twelve months ended December 31,
2018
|
|
$
|
346,855
|
|
2019
|
|
|
162,277
|
|
2020
|
|
|
585,433
|
|
2021
|
|
|
54,600
|
|
2022
|
|
|
54,600
|
|
Thereafter
|
|
|
9,100
|
|
Total
|
|
$
|
1,212,865
|
|
Beneficial Conversion Features
The Company calculates the fair value of any beneficial conversion features embedded in its convertible notes via the Black-Scholes valuation method. The Company also calculates the fair value of any detachable warrants offered with its convertible notes via the Black-Scholes valuation method. The instruments were considered discounts to the notes, to the extent the aggregate value of the warrants and conversion features did not exceed the face value of the notes. These discounts were amortized to interest expense via the effective interest method over the term of the notes.
The following table illustrates certain key information regarding our conversion option valuation assumptions at December 31, 2017 and 2016 for options underlying both principal and convertible accrued interest:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Number of conversion options outstanding
|
|
|
-
|
|
|
|
5,756,352
|
|
Value at December 31
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
Number of conversion options issued during the period
|
|
|
-
|
|
|
|
49,632
|
|
Value of conversion options issued during the period
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
Number of conversion options exercised, expired, or underlying notes paid during the period
|
|
|
5,756,352
|
|
|
|
64,935
|
|
Value of conversion options exercised or underlying notes paid during the period
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
Revaluation loss (gain) during the period
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
14. RELATED PARTY TRANSACTIONS
For the year ended December 31, 2017:
The Company cancelled RSUs held by its Chief Executive Officer representing 1,382,540 shares of common stock, of which 700,000 were unvested and 682,540 were vested. In place of the 682,540 vested cancelled RSUs, the Company issued a net amount of 586,586 shares of common stock. The remaining 95,954 shares of the 682,540 cancelled vested RSUs were not issued and instead the cash value of those shares was held back by the Company to pay certain taxes related to the issuance. In addition, the 700,000 unvested RSUs were replaced with restricted stock awards under the same terms and conditions as the 700,000 RSUs. See note 16.
The Company cancelled RSUs held by its President representing 1,724,532 shares of common stock, of which 490,000 were unvested and 1,234,532 were vested. In place of the 1,234,532 vested cancelled RSUs, the Company issued a net amount of 928,027 shares of common stock. The remaining 306,505 shares of the 1,234,532 cancelled vested RSUs were not issued and instead the cash value of those shares was held back by the Company to pay certain taxes related to the issuance. In addition, the 490,000 unvested RSUs were replaced with restricted stock awards under the same terms and conditions as the 490,000 RSUs. See note 16.
The Company cancelled RSUs held by its two of its Directors representing 545,000 shares of common stock, of which 180,000 were unvested and 365,000 were vested. In place of the 365,000 vested cancelled RSUs, the Company issued 365,000 shares of common stock. In addition, the 180,000 unvested RSUs were replaced with restricted stock awards under the same terms and conditions as the 180,000 RSUs. See note 16.
The Company’s Chief Executive Officer converted a note payable in the amount of $164,650 into 658,600 shares of common stock.
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. See note 16.
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. See note 16.
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. See note 16.
For the year ended December 31, 2016:
At December 31, 2015, the Company had an accrued liability in the amount of $160,150 representing an aggregate of 210,520 shares of common stock to be issued to officers, directors, and employees for services performed during 2013; during the twelve months ended December 31, 2016, the Company issued 210,520 RSUs in exchange of this liability. Also at December 31, 2015, the Company had an accrued liability in the amount of $157,780 representing 244,620 RSUs to be issued to officers and employees as a bonus for services performed in 2015; during the twelve months ended December 31, 2016, the Company issued an aggregate of 244,620 RSUs in exchange of this liability.
During the twelve months ended December 31, 2016, the Company issued 95,000 shares of its common stock to a former Director of the Company pursuant to the exercise of RSUs.
During the twelve months ended December 31, 2016, the Company purchased the following options held by three of its officers and one of its directors: options to purchase an aggregate 92,500 shares of the Company’s common stock exercisable at a price of $0.38 per share were purchased for a total amount of $10,175, and options to purchase an aggregate 275,000 shares of the Company’s common stock exercisable at a price of $0.40 per share were purchased for a total amount of $24,750. The purchase price was calculated as the excess of the closing market price of the Company’s stock on the purchase date over the exercise price of the options.
15. INCOME TAXES
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 $3,400,000, which will expire 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. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Due to significant changes in the Company’s ownership, the Company’s future use of its existing net operating losses may be limited.
The provision (benefit) for income taxes for the years ended December 31, 2017 and 2016 consist of the following:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The provision (benefit) for income taxes differs from the amount of income tax determined by applying the applicable statutory income tax rate of 39.6% for the December 31, 2017 and 2016, respectively, to the loss before taxes as a result of the following differences:
|
|
2017
|
|
|
2016
|
|
Income (loss) before income taxes
|
|
$
|
4,529,262
|
|
|
$
|
2,816,405
|
|
Statutory tax rate
|
|
|
39.6
|
%
|
|
|
39.6
|
%
|
Total tax at statutory rate
|
|
|
1,794,000
|
|
|
|
1,115,000
|
|
Temporary differences
|
|
|
255,000
|
|
|
|
235,000
|
|
Permanent differences - restructuring
|
|
|
--
|
|
|
|
(4,070,500
|
)
|
Permanent difference – meals and entertainment
|
|
|
6,000
|
|
|
|
5,000
|
|
Permanent differences- non cash compensation, and discount amortization
|
|
|
256,700
|
|
|
|
463,000
|
|
Total
|
|
|
2,311,700
|
|
|
|
(2,252,500
|
)
|
Changes in valuation allowance
|
|
|
(2,311,700
|
)
|
|
|
2,252,500
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
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, 2017 and 2016 significant components of the Company’s deferred tax assets are as follows:
|
|
2017
|
|
|
2016
|
|
Deferred Tax Assets (Liabilities):
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
997,500
|
|
|
$
|
3,808,000
|
|
Allowance for doubtful accounts
|
|
|
(7,100
|
)
|
|
|
17,000
|
|
Property and equipment
|
|
|
38,000
|
|
|
|
(87,000
|
)
|
Intangible assets
|
|
|
(154,800
|
)
|
|
|
(220,000
|
)
|
Accrued officer compensation
|
|
|
18,700
|
|
|
|
-
|
|
Debt discount
|
|
|
-
|
|
|
|
74,000
|
|
Net deferred tax assets (liabilities)
|
|
|
892,300
|
|
|
|
3,592,000
|
|
Valuation allowance
|
|
|
(892,300
|
)
|
|
|
(3,592,000
|
)
|
Net deferred tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s tax returns for the previous three years remain open for audit by the respective tax jurisdictions.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws that affect 2018 and future years, including a reduction in the U.S. federal corporate income tax rate to 21%, effective January 1, 2018. For certain deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $388,000, with a corresponding net adjustment to valuation allowance of $388,000 as of December 31, 2017.
16. EQUITY
Common Stock
At December 31, 2017 and 2016, a total of 2,491,112 and 733,662 shares, respectively, are deemed issued but not outstanding by the Company.
Twelve months ended December 31, 2017:
The Company issued 499,421 shares of common stock for cash of $196,741 pursuant to the exercise of warrants.
The Company charged the amount of $240,208 to additional paid-in capital representing the vesting of restricted stock awards issued to officers.
The Company issued 658,600 shares of common stock to its Chief Executive Officer for conversion of a note payable in the amount of $164,650.
The Company issued 4,626,427 shares of common stock for the conversion of notes payable and accrued interest in the aggregate amount of $1,155,807.
The Company issued a net amount of 2,410,392 shares of common stock (net of 623,813 shares held back by the Company to pay certain taxes owed related to the issuance) to employees, officers, and directors in satisfaction of the following obligations: vested RSUs representing 2,533,246 shares of common stock, and bonus shares and shares previously accrued representing 500,959 shares of common stock. The Company charged the amount of $33,453 to additional paid-in capital representing the value of these shares that had not been previously charged to operations.
The Company issued 70,000 shares of common stock with a fair value of $33,600 to an employee as a bonus.
The Company purchased options to purchase a total of 367,500 shares of common stock from two executive officers, and employee, and a board member for an aggregate $34,925 in 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 charged the amount of $34,925 to additional paid-in capital.
The Company purchased options to purchase a total of 100,000 shares of common stock for $33,000 in 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 charged the amount of $33,000 to additional paid-in capital.
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 issued 250,000 shares of common stock in exchange for the cashless conversion of warrants. The aggregate par value of $25 was charged to additional paid-in capital on the Company’s balance sheet at December 31, 2017.
The Company retired to treasury 642,688 shares of common stock pursuant to an agreement signed to acquire those shares. The Company also retired to treasury an aggregate of 37,000 shares of common stock purchased on the open market for cash of $18,592.
The Company acquired 639,383 shares of common stock for cash of $235,000 and returned these shares to treasury. The Company also acquired an additional 438,379 shares of common stock for $252,068 and returned these shares to treasury.
The Company issued a total of 1,070,000 shares of common stock to officers and directors pursuant to the vesting of restricted stock awards: 400,000 shares to its Chief Executive Officer; 400,000 shares to its President; and 90,000 shares to each of three directors.
The Company issued 693,860 shares of common stock to an investor for the cashless conversion of warrants. The aggregate par value of $69 was charged to additional paid-in capital on the Company’s balance sheet at December 31, 2017.
The Company issued 100,000 shares of common stock for cash of $35,000 pursuant to the exercise of stock options.
The Company issued 200,000 shares of common stock for cash of $70,000 pursuant to the exercise of stock options.
The Company issued 200,000 shares of common stock pursuant to the terms of a structured equity agreement related to the Oasis acquisition. See note 2.
Twelve months ended December 31, 2016:
The Company issued 25,000 shares of common stock with a fair value of $34,000 to a service provider. The value of these shares was accrued during the twelve months ended December 31, 2015.
The Company issued an aggregate of 600,000 shares of common stock to an employee of FD pursuant to a separation agreement. These shares were issued as follows: 300,000 of these shares were issued for the exercise of RSUs held by the employee, and an additional 300,000 shares were charged to discontinued operations at the fair value of $147,000.
The Company issued 133,333 shares of common stock to an employee of FD pursuant to an employee agreement. The fair value of these shares in the amount of $68,000 was charged to discontinued operations during the period.
The Company issued 200,000 shares of common stock to an employee of FD pursuant to a separation agreement. These shares were issued via the exercise of RSUs; the par value of $20 was charged to additional paid-in capital during the period.
The Company charged the amount of $317,930 to additional paid-in capital for the value of RSUs previously accrued for officer and director compensation.
The Company reduced additional paid-in capital by the amount of $620,000 for the value of 642,688 shares of the Company’s common stock and rights to 1,450,000 RSUs. These equity instruments were purchased pursuant to an agreement subsequent to December 31, 2016. See note 16.
The Company issued 95,000 shares of common stock pursuant to the exercises of RSUs by an ex-director.
Treasury Stock
At December 31, 2017 and 2016, the Company had 2,276,703 and 519,254 shares of treasury stock, respectively.
Warrants
The Company had no warrants outstanding at December 31, 2017. Transactions involving warrants are summarized as follows:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Warrants outstanding at December 31, 2016
|
|
|
3,537,284
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(3,537,284
|
)
|
|
$
|
0.45
|
|
Cancelled / Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
Options
Twelve months ended December 31, 2017:
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. A net number of 55,192 shares will be issued to the Chief Executive Officer, 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. A net number of 60,507 shares will be issued to the President, 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. A net number of 0 shares will be issued to the Director, net of shares held back for the exercise price and for taxes, along with a cash payment of $77,000 as a cash-out amount.
Also during the year, the following options expired: options to purchase 15,000 shares of the Company’s common stock at a price of $1.90 per share, and options to purchase 500,000 shares of the Company’s common stock at a price of $2.00 per share.
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:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
average
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
Range of
|
|
|
Number of
|
|
|
Remaining
|
|
|
price of
|
|
|
Number of
|
|
|
price of
|
|
exercise
|
|
|
options
|
|
|
contractual
|
|
|
outstanding
|
|
|
options
|
|
|
exercisable
|
|
Prices
|
|
|
Outstanding
|
|
|
life (years)
|
|
|
Options
|
|
|
Exercisable
|
|
|
Options
|
|
$
|
0.57
|
|
|
|
25,000
|
|
|
|
0.02
|
|
|
$
|
0.57
|
|
|
|
25,000
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.04
|
|
|
|
200,000
|
|
|
|
2.83
|
|
|
$
|
1.04
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.31
|
|
|
|
200,000
|
|
|
|
0.50
|
|
|
$
|
1.31
|
|
|
|
200,000
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.38
|
|
|
|
100,000
|
|
|
|
1.92
|
|
|
$
|
1.38
|
|
|
|
100,000
|
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.42
|
|
|
|
100,000
|
|
|
|
0.47
|
|
|
$
|
1.42
|
|
|
|
100,000
|
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.43
|
|
|
|
50,000
|
|
|
|
1.00
|
|
|
$
|
1.43
|
|
|
|
50,000
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.46
|
|
|
|
100,000
|
|
|
|
0.50
|
|
|
$
|
1.46
|
|
|
|
100,000
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.60
|
|
|
|
310,000
|
|
|
|
0.01
|
|
|
$
|
1.60
|
|
|
|
310,000
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.70
|
|
|
|
75,000
|
|
|
|
0.28
|
|
|
$
|
1.70
|
|
|
|
75,000
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.90
|
|
|
|
175,000
|
|
|
|
1.48
|
|
|
$
|
1.90
|
|
|
|
175,000
|
|
|
$
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.00
|
|
|
|
50,000
|
|
|
|
0.28
|
|
|
$
|
2.00
|
|
|
|
50,000
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.40
|
|
|
|
20,000
|
|
|
|
0.41
|
|
|
$
|
2.40
|
|
|
|
20,000
|
|
|
$
|
2.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.50
|
|
|
|
37,500
|
|
|
|
0.28
|
|
|
$
|
2.50
|
|
|
|
37,500
|
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.40
|
|
|
|
30,000
|
|
|
|
0.41
|
|
|
$
|
3.40
|
|
|
|
30,000
|
|
|
$
|
3.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.50
|
|
|
|
37,500
|
|
|
|
0.28
|
|
|
$
|
3.50
|
|
|
|
37,500
|
|
|
$
|
3.50
|
|
|
|
|
|
|
1,510,000
|
|
|
|
0.89
|
|
|
$
|
1.60
|
|
|
|
1,310,000
|
|
|
$
|
1.68
|
|
Transactions involving stock options are summarized as follows:
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
Options outstanding at December 31, 2016
|
|
|
2,445,000
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
950,000
|
|
|
$
|
1.55
|
|
Exercised
|
|
|
(1,370,000
|
)
|
|
$
|
0.38
|
|
Cancelled / Expired
|
|
|
(515,000
|
)
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2017
|
|
|
1,510,000
|
|
|
$
|
1.60
|
|
Aggregate intrinsic value of options outstanding and exercisable at December 31, 2017 and 2016 was $15,500 and $0, respectively. Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the fiscal period, which was $1.19 and $0.45 as of December 31, 2017 and 2016, respectively, and the exercise price multiplied by the number of options outstanding.
During the year ended December 31, 2017 and 2016, the Company charged $38,847 and $19,752, respectively, to operations related to recognized stock-based compensation expense for stock options.
The exercise price grant dates in relation to the market price during 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Exercise price lower than market price
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercise price equal to market price
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercise price exceeded market price
|
|
$
|
1.04 to $1.38
|
|
|
$
|
0.57 to $3.50
|
|
As of December 31, 2017 and 2016, there were 200,000 and 0, respectively, non-vested options outstanding.
Accounting for warrants and stock options
The Company valued warrants and options using the Black-Scholes valuation model utilizing the following variables:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Volatility
|
|
|
47.3-56.9
|
%
|
|
|
N/A
|
%
|
Dividends
|
|
$
|
0
|
|
|
|
N/A
|
|
Risk-free interest rates
|
|
|
0.87-2.0
|
%
|
|
|
N/A
|
%
|
Term (years)
|
|
|
0.8-2.5
|
|
|
|
N/A
|
|
Restricted Stock Units (“RSUs”)
During the twelve months ended December 31, 2017, the Company cancelled all of its outstanding RSUs and issued the following: For vested RSUs representing 3,104,205 shares of common stock, the Company issued a net amount of 2,480,392 shares of restricted common stock (net of 623,813 shares held back by the Company to pay certain taxes owed related to the issuance); for unvested RSUs representing 1,370,000 shares of common stock, the Company issued 1,370,000 shares of restricted common stock under the same terms as the cancelled RSUs. 1,070,000 of the restricted stock awards vested on July 1, 2017, the same date at which the RSUs which they replaced would have vested. These 1,070,000 shares were issued during the twelve months ended December 31, 2017. The vesting for the remaining 300,000 restricted stock awards is contingent upon meeting certain price and volume conditions related to the Company’s stock; these conditions are the same conditions required for vesting of the cancelled RSUs. The Company charged the amount of $0 and $240,208, respectively, to operations during the twelve months ended December 31, 2017 representing the amortization of the cost of these restricted stock awards. The amounts charged to operations is the same amount that the Company would have charged for the RSUs that were cancelled had they not been cancelled.
RSUs expense during the twelve months ended December 31,
2017 and 2016 is summarized in the table below:
|
|
Twelve Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
RSUs expense – Continuing operations
|
|
$
|
-
|
|
|
$
|
849,401
|
|
RSUs expense – Discontinued operations
|
|
|
-
|
|
|
|
813,908
|
|
Total
|
|
$
|
-
|
|
|
$
|
1,663,309
|
|
17. COMMITMENTS AND CONTINGENCIES
Contingent Liability
Pursuant to the Oasis acquisition, the Company was contingently liable for certain performance-based payments over the twenty-four months following the acquisition date. At December 31, 2017, the Company carried the amount of $200,000 on its balance sheet as contingent liability – current, and an additional $200,000 as contingent liability – long term. See notes 2 and 16.
Litigation
From time to time, the Company has become and may become involved in certain lawsuits and legal proceedings which arise in the ordinary course of business, or as the result of current or previous investments, or current or previous subsidiaries, or current or previous employees, or current or previous directors, or as a result of acquisitions and dispositions or other corporate activities. The Company intends to vigorously defend its positions. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our financial position or our business and the outcome of these matters cannot be ultimately predicted.
PNC Bank, National Association v. The Fresh Diet, Inc. f/k/a YS Catering, LLP f/k/a YS Catering, Inc., et al. / Scher Zalman Duchman and Deborah L. Duchman v. Innovative Food Holdings, Inc., et al., Case No. 17-cv-21027-KMM, United States District Court, Southern
District of Florida
On July 7, 2017, Scher Zalman Duchman and Deborah L. Duchman (collectively, “Duchmans”) filed an amended complaint in the United States District Court for the Southern District of Florida seeking approximately $1 million in damages against Innovative Food Holdings, Inc., FD Acquisition Corp., and Sam Klepfish, IVFH’s CEO. The Duchmans, amongst other things, allege that defendants owed a fiduciary duty to the Duchmans to minimize the Duchmans’ own personal guarantees and personal obligations related to loans and other obligations incurred by a former subsidiary of the Company and that the Defendants did not fulfill that alleged fiduciary obligation. By Order dated March 22, 2018, the following causes of action were dismissed without prejudice: Count I, Breach of Fiduciary Duty; Count III, Unjust Enrichment; Count IV, Unjust Enrichment; and Count IX, Fraud in the Inducement. The Court further ordered Count XI, Punitive Damages, stricken from the Complaint and that all claims against Third Party Defendant FD Acquisition Corp. dismissed with prejudice. Discovery is ongoing, and IVFH will soon be filing a motion for summary judgment. The parties have scheduled required mediation. The court has provided a scheduled trial date. IVFH believes that this lawsuit is without merit and is an attempt by the Duchmans to drag IVFH into the Duchmans’ personal financial matters which are unrelated to IVFH. While IVFH intends to vigorously defend against this lawsuit, the outcome of this lawsuit cannot ultimately be predicted.
YS Catering Holdings, Inc., et al. vs. Attollo Partners LLC, Rajesh Rawal, Vojkan Dimitijevic, Asif Syed, Roy Heggland and Innovative Food Holdings, Inc., Case No. 2017-007504-CA-01, Eleventh Judicial Circuit in and for Miami-Dade County, Florida
On March 26, 2018, YS Catering Holdings, Inc., et al., filed suit against Innovative Food Holdings, Inc. YS alleges claims against IVFH that are almost identical to ones pending in the PNC Bank vs. Fresh Diet, et al. federal court litigation (Case No. 17-cv-21027-KMM) in what we believe is an improper attempt at forum shopping. In addition, YS seeks injunctive relief with respect to the removal of certain trading restrictions and other restrictions on its restricted shares. IVFH intends to move to stay the case pending the outcome of the almost identical PNC federal court litigation involving YS’s principal Zalmi Duchman. Discovery in the case is ongoing. While IVFH intends to vigorously defend against this lawsuit, the outcome of this lawsuit cannot ultimately be predicted.
18. MAJOR CUSTOMER
The Company’s largest customer, U.S. Foods, Inc. and its affiliates, accounted for approximately 72% of total sales in each of the years ended December 31, 2017 and 2016. A contract between our subsidiary, Food Innovations, and U.S. Foods entered an optional renewal period in December 2012 but was automatically extended for an additional 12 months in each of January 1, 2013 and 2014. On January 26, 2015 we executed a contract between Food Innovations, Inc., our wholly-owned subsidiary, and U.S. Foods, Inc. The term of the contract is from January 1, 2015 through December 31, 2016 and provides for limited number of automatic annual renewals thereafter if no party gives the other 30 days’ notice of its intent not to renew. Based on the terms, the Agreement was extended through December 31, 2018. Effective January 1, 2018 the Agreement was further amended to remove the cap on renewals, and provide for an unlimited number of additional 12-month terms unless either party notifies the other in writing, 30 days prior to the end date, of its intent not to renew.
19. FAIR VALUE MEASUREMENTS
Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. 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:
Level 1 -
|
Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
|
|
|
Level 2 -
|
In15puts other than Level 1 inputs that are either directly or indirectly observable; and
|
|
|
Level 3 -
|
Unobservable inputs, for which little or no market data exist, therefore requiring an entity to develop its own assumptions.
|
As December 31, 2017 and 2016, the Company did not have financial assets or liabilities that are required to be accounted for at fair value on a recurring basis.
20. SUBSEQUENT EVENTS
Asset Acquisition – iGourmet, LLC
Effective January 24, 2018, our wholly-owned subsidiary, Innovative Gourmet, acquired substantially all of the assets and certain liabilities of iGourmet LLC and iGourmet NY LLC (“Sellers”), privately-held New York limited liability companies operating out of Pennsylvania and engaged in the sale, marketing, and distribution of specialty food and specialty food items through www.igourmet.com, online marketplaces, additional direct-to-consumer platforms, distribution to foodservice, retail stores and other wholesale accounts, pursuant to the terms of an Asset Purchase Agreement (the “APA”).
The consideration for and in connection with the acquisition 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 $325,000 to Sellers on a secured basis, pursuant to certain loan documents and as bridge loans, which loans were reduced by the proceeds of the 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 $3,800,000 million 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 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 acquisition, 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 APA as disclosed in (i) above.
Restated Loan Agreement
On March 23, 2018 and effective February 26, 2018, we entered into a Fifth Amended and Restated Loan Agreement with Fifth Third Bank, an Ohio banking corporation (“Lender”), to, among other things, reduce the amount of an existing loan to Two Hundred Seventy Three Thousand Dollars and extend its due date to February 28, 2023 and enter into a new term loan in the amount of One Million Five Hundred Thousand Dollars due on August 28, 2019 carrying interest at LIBOR plus 4.25%. We also entered into an equipment loan with Lender in the amount of Five Hundred Thousand Dollars due March 31, 2019 carrying interest at LIBOR plus 2.75%. All of these loans continue to be secured by the assets of the Company and its subsidiaries.
Exercise of Options
In January 2018, the Company issued 100,000 shares of common stock to a former board member for the exercise of options at a price of $0.35 per share.
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. 55,192 shares of common stock will be issued in April 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.
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. 60,749 shares of common stock will be issued in April 2018, which number of shares represents a net amount after a cash payment of $45,000 made in March 2018 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.
In December 2017, a Board Member exercised 100,000 options at a price of $0.35 per share. The date for payment of the exercise price of these options was extended to April 26, 2018. In March 2018 the Company made a payment of $77,000 which is the difference between the exercise price of the options and the market price of the stock on the date of purchase.
Amendment of Bylaws
In January 2018,
Pursuant to the authority granted by Article XII of our Bylaws, Article III, Section 11 of the Bylaws was amended to permit the Board of Directors to remove, with or without cause, a director appointed by the Board of Directors by the affirmative vote of a majority of directors.
Director Resignation
In January 2018, Mr. Nathaniel Klein voluntarily resigned from our Board of Directors. Prior to his resignation, Mr. Klein was a member of the Audit, Compensation and Nominating and Corporate Governance Committees.
Contingent Liability – Oasis Acquisition
In January 2018, the Company paid the amount of $200,000 to satisfy a performance-based contingent liability related to the Oasis acquisition; see notes 2 and 16.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. We concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act were effective as of December 31, 2017 to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in SEC rules and forms and our disclosure controls and procedures are also effective to ensure that the information required to be disclosed in reports that we file under the Exchange Act is accumulated and communicated to our principal executive and financial officers to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act. Our internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth in Internal Control Over Financial Reporting — Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013).
Subject to the inherent limitations described in the following paragraph, our management has concluded that our internal control over financial reporting was effective at December 31, 2017 at the reasonable assurance level.
Inherent Limitations Over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, our internal controls and procedures are designed to provide reasonable assurance of achieving their objectives.
Changes in Internal Control over Financial Reporting
We have made no change in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
ITEM 9B. Other Information
None.
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Set forth below are the directors and executive officers of our Company, their respective names and ages, positions with our Company, principal occupations and business experiences during at least the past five years.
Name
|
|
Age
|
|
Position
|
Sam Klepfish
|
|
43
|
|
Chief Executive Officer and Director
|
Justin Wiernasz
|
|
52
|
|
President and Director
|
Joel Gold
|
|
76
|
|
Director
|
Hank Cohn
|
|
48
|
|
Director
|
Directors
Sam Klepfish
Mr. Klepfish has been a director since December 1, 2005. From November 2007 to present Mr. Klepfish is the CEO of Innovative Food Holdings and its subsidiaries. From March 2006 to November 2007 Mr. Klepfish was the interim president of the Company and its subsidiary. Since February 2005 Mr. Klepfish was also a Managing Partner at ISG Capital, a merchant bank. From May 2004 through February 2005 Mr. Klepfish served as a Managing Director of Technoprises, Ltd. From January 2001 to May 2004 he was a corporate finance analyst and consultant at Phillips Nizer, a New York law firm. Since January 2001 Mr. Klepfish has been a member of the steering committee of Tri-State Ventures, a New York investment group. From 1998 to December 2000, Mr. Klepfish was an asset manager for several investors in small-cap entities.
Joel Gold, Director
Mr. Gold is currently a partner in a merchant banking firm, and has served on the board and committees of numerous companies. Prior to that, he was an investment banker at Buckman, Buckman and Reid located in New Jersey, a position he held since May 2010. Prior there to, from October 2004, he was head of investment banking of Andrew Garrett, Inc. From January 2000 until September 2004, he served as Executive Vice President of Investment Banking of Berry Shino Securities, Inc., an investment banking firm also located in New York City. From January 1999 until December 1999, he was an Executive Vice President of Solid Capital Markets, an investment-banking firm also located in New York City. From September 1997 to January 1999, he served as a Senior Managing Director of Interbank Capital Group, LLC, an investment banking firm also located in New York City. From April 1996 to September 1997, Mr. Gold was an Executive Vice President of LT Lawrence & Co., and from March 1995 to April 1996, a Managing Director of Fechtor Detwiler & Co., Inc., a representative of the underwriters for the Company’s initial public offering. Mr. Gold was a Managing Director of Furman Selz Incorporated from January 1992 until March 1995. From April 1990 until January 1992, Mr. Gold was a Managing Director of Bear Stearns and Co., Inc. (“Bear Stearns”). For approximately 20 years before he became affiliated with Bear Stearns, he held various positions with Drexel Burnham Lambert, Inc.
Hank Cohn, Director
Mr. Cohn has been a director since October 29, 2010. Hank Cohn is currently CEO of P1 Billing, LLC, a revenue cycle management services provider to ambulatory medical clinics. P1 Billing is a spinoff of PracticeOne Inc., (formerly PracticeXpert, Inc., an OTCBB traded company), an integrated PMS and EMR software and services company for physicians. Mr. Cohn served as President and Chief Executive Officer of PracticeOne from December 2009 until December 2009, at which time he sold the company to Francison Partners, one of the largest, global technology focused, private equity firms in Silicon Valley. Prior to that, Mr. Cohn worked with a number of public companies. A partial list of his past and present board memberships include: Analytical Surveys, Inc., Kaching Kaching, Inc., and International Food and Wine, Inc., currently Evolution Resources Inc. Mr. Cohn also served as the executive vice president of Galaxy Ventures, LLC a closely-held investment fund concentrating in the areas of bond trading and early stage technology investments, where he acted as portfolio manager for investments.
Justin Wiernasz, President
Mr. Wiernasz has been a director since November 1, 2013. Effective on July 31, 2008, Mr. Justin Wiernasz was promoted to the position of President of Innovative Food Holdings, Inc. Prior thereto he was the Executive Vice President of Marketing and Sales and Chief Marketing Officer of our operating subsidiary, Food Innovations, Inc. since May 2007 and the President of Food Innovations and our Chief Marketing Officer since December 2007. Prior thereto, he was at USF, our largest customer, for 13 years. From 2005 to 2007 he was the Vice President of Sales & Marketing, USF, Boston, and prior thereto, from 2003 to 2005 he was a National Sales Trainer at USF, Charleston SC, from 1996 to 2003 he was the District Sales Manager at USF, Western Massachusetts and from 1993 to 1996 he was Territory Manager, USF, Northampton, Easthampton & Amherst, MA. Prior to that from 1989 to 1993 he was the owner and operator J.J.’s food and spirit, a 110 seat restaurant
.
Key Employee
John McDonald
Mr. McDonald, age 55, has been our principal accounting officer since November 2007; from November 2007 through October 2017, he was also our Chief Information Officer. From 2004 through 2007, Mr. McDonald worked as a consultant with Softrim Corporation of Estero, Florida where he created custom applications for a variety of different industries and assisted in building interfaces to accounting applications. Since 1999 he has also been President of McDonald Consulting Group, Inc. which provide consulting on accounts receivable, systems and accounting services.
Mike Fabrico
Mr. Fabrico is the Chief Information Officer of Innovative Food Holdings. Prior to this, from February 2017 to October 2017, he was an independent consultant and he led small-scale technology projects to modernize, upgrade, support, and improve on legacy applications and ERP systems. From January 2015 to June 2016, he was the CIO at Haddon House Food Products before its acquisition to UNFI in 2016. Before joining Haddon House, he was EVP & CIO for SharkNinja in Boston from 2008 to 2013, Prior to SharkNinja, he held various technology leadership positions at public and private equity backed companies. Before moving into corporate technology leadership positions, he was President and Co-Founder of a manufacturing and distribution software development firm.
Qualification of Directors
We believe that all of our directors are qualified for their positions and each brings a benefit to the board. Messrs. Kelpfish and Wiernasz, as our executive officers, are uniquely qualified to bring management’s perspective to the board’s deliberations. Mr. Gold, with his lengthy career working for broker/dealers, brings “Wall Street’s” perspective. Mr. Cohn, with his prior history of being an executive and his experience as a director of other companies, brings a well-rounded background and wealth of experience to our board.
Committees
The Board of Directors currently has an Audit Committee, a Compensation Committee, a Nominating Committee and a Governance Committee. However, inasmuch as we only have two independent directors, each Committee only has two members. We are currently seeking to add additional qualified independent directors to the Board of Directors.
Code of Ethics
We have adopted a Code of Ethics that applies to each of our employees, including our CEO, our President, our principal financial officer, CIO, as well as members of our Board of Directors. A copy of such Code has been publicly filed with, and is available for free from, the Securities and Exchange Commission.
Section 16(a) Beneficial Ownership Reporting Compliance
During 2017, Messrs. Gold, Cohn, and Klepfish did not file four Forms 4, Mr. Wiernasz did not file five Forms 4, and Mr. McDonald did not file one Form 4. None of the unfiled Forms 4 related to the public sale of securities.
ITEM 11. Executive Compensation
The following table sets forth information concerning the compensation for services rendered to us for the year ended December 31, 2017, of our Chief Executive Officer and our other executive officers whose annual compensation exceeded $100,000 in the fiscal year ended December 31, 2017, if any. We refer to the Chief Executive Officer and these other officers as the named executive officers.
SUMMARY COMPENSATION TABLE
Name and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Sam Klepfish
|
|
2017
|
|
$
|
376,997
|
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
18,084
|
(a)
|
|
$
|
512,141
|
|
CEO
|
|
2016
|
|
$
|
362,550
|
|
|
$
|
-
|
|
|
$
|
375,297
|
(b)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
2,229
|
(a)
|
|
$
|
740,075
|
|
|
|
2015
|
|
$
|
317,709
|
|
|
$
|
85,000
|
(c)
|
|
$
|
644,835
|
(b)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
1,047,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Justin Wiernasz
|
|
2017
|
|
$
|
376,997
|
|
|
$
|
65,000
|
(d)
|
|
$
|
76,190
|
(e)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
12,960
|
(a)
|
|
$
|
531,147
|
|
President
|
|
2016
|
|
$
|
346,920
|
|
|
$
|
50,000
|
(f)
|
|
$
|
308,192
|
(g)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
8,056
|
(a)
|
|
$
|
713,168
|
|
|
|
2015
|
|
$
|
312,119
|
|
|
$
|
124,800
|
(h)
|
|
$
|
667,780
|
(i)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
8,016
|
(a)
|
|
$
|
1,112,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
2017
|
|
$
|
199,301
|
|
|
$
|
69,000
|
(j)
|
|
$
|
-
|
|
|
$
|
-
|
(n)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
8,415
|
(a)
|
|
$
|
276,716
|
|
Chief Information and
|
|
2016
|
|
$
|
181,182
|
|
|
$
|
30,000
|
(j)
|
|
$
|
43,660
|
(k)
|
|
$
|
992
|
(l)
|
|
|
|
|
|
$
|
|
|
$
|
|
$
|
7,959
|
(a)
|
|
$
|
263,794
|
|
Principal Accounting Officer
|
|
2015
|
|
$
|
163,611
|
|
|
$
|
38,407
|
(m)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
8,016
|
(a)
|
|
$
|
210,034
|
|
(a) Consists of cash payments for health care benefits.
(b) Consists of the portion of RSUs which were recognized as a period cost during the year.
(c)
Consists of a cash bonus paid during the year for services performed in 2014.
(d)
Consists of a cash bonus paid during the year for services performed in 2016.
(e) Consists of the portion of restricted stock awards which were recognized as a period cost during the year for services as an executive officer. Does not include $7,826 of restricted stock awards which were recognized as a period cost during the year for services as a board member.
(f) Consists of a cash bonus paid during the year for services performed in 2015. Does not include $65,000 in cash bonuses for services performed in 2016 but not paid during the year.
(g)
Consists of the portion of RSUs which were recognized as a period cost during the year for services as an executive officer. Does not include $55,304 of RSUs which were recognized as a period cost during the year for services as a board member.
(h) Consists of a cash bonus paid during the year for services performed in 2015. Does not include $50,000 in cash bonuses and 116,279 of RSUs with a fair value of $75,000 for services performed in 2015 but not paid during the year.
(i) Consists of the portion of RSUs which were recognized as a period cost during the year for services as an executive officer. Does not include $163,826 of RSUs which were recognized as a period cost during the year for services as a board member.
(j)
Consists of the portion of restricted stock awards which were recognized as a period cost during the year for services as an executive officer.
(j) Consists of a cash bonus paid during the year for services performed in 2016.
(k)
Consists of 90,959 shares of common stock with a fair value of $43,660.
(l)
Consists of options to purchase 200,000 shares of common stock with a fair value of $992.
(m) Consists of a cash bonus paid during the year for services performed in 2014. Does not include $30,000 in cash bonuses and 46,512 RSUs with a fair value of $30,000 for services performed in 2015 but not paid during the year.
Outstanding Equity Awards at Fiscal Year-End as of December 31, 2017
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
Number of Securities Underlying Unexercised Options
(#)
Exercisable
|
|
|
Number of Securities Underlying Unexercised Options(#)Unexercisable
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(#)
|
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
|
Number of Shares or Units of Stock That Have Not Vested
(#)
|
|
|
Market Value of Shares or Units of Stock That Have Not Vested ($)
|
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sam Klepfish
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
(a)
|
|
$
|
357,000
|
(b)
|
|
|
|
|
|
Sam Klepfish
|
|
125,000
|
|
|
|
|
|
|
|
$
|
1.600
|
|
01/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Justin Wiernasz
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
(a)
|
|
|
357,000
|
(b)
|
|
|
|
|
|
Justin Wiernasz
|
|
125,000
|
|
|
-
|
|
-
|
|
|
$
|
1.600
|
|
01/01/18
|
|
-
|
|
|
|
-
|
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
25,000
|
|
|
-
|
|
-
|
|
|
$
|
0.570
|
|
01/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
60,000
|
|
|
-
|
|
-
|
|
|
$
|
1.600
|
|
01/01/18
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
75,000
|
|
|
-
|
|
-
|
|
|
$
|
1.700
|
|
04/04/18
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
50,000
|
|
|
-
|
|
-
|
|
|
$
|
2.000
|
|
04/04/18
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
37,500
|
|
|
-
|
|
-
|
|
|
$
|
2.500
|
|
04/04/18
|
|
|
|
|
|
|
|
|
|
|
|
|
John McDonald
|
|
37,500
|
|
|
-
|
|
-
|
|
|
$
|
3.500
|
|
04/04/18
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Restricted stock awards
vest according to the following schedule: An additional 125,000 restricted stock awards will vest contingent upon the attainment of a stock price of $2.00 per share for 20 consecutive 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 consecutive trading days.
(b) Amounts are calculated by multiplying the number of shares shown in the table by $1.19 per share, which is the closing price of common stock on December 31, 2017 (the last trading day of the 2016 fiscal year).
Director Compensation
Name
|
|
Fees
Earned
or Paid
in Cash ($)
|
|
|
Stock
Awards
($) (a)
|
|
|
|
Option
Awards
($) (b)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Joel Gold
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Sam Klepfish
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Hank Cohn
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Justin Wiernasz
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
Does not include 270,000 RSUs at $1.00 per share granted to each director and included in 2014 for service in years 2015, 2016, and 2017. These RSUs are contingent upon being a member of the board in those years. The amount of $163,826 was included as a period cost for these RSUs in 2015. Mr. Klepfish has declined this grant of RSUs which the Company offered to all Directors in 2014.
Employment Agreements
Our subsidiary, Food Innovations, has employment agreements with certain officers and certain employees. The employment agreements provide for salaries and benefits, including stock grants and extend up to five years. In addition to salary and benefit provisions, the agreements include defined commitments should the employer terminate the employee with or without cause.
SAM KLEPFISH
On November 20, 2012 we entered into an employment agreement with Mr. Klepfish, the Corporation’s CEO, having an effective date of January 1, 2013 and terminating on December 31, 2015. The agreement provides a base compensation in the amount of $198,312 in cash plus an additional $27,937 in restricted stock units for year one, $223,987 in cash plus an additional $24,875 in restricted stock units for year two, and $260,075 in cash plus an additional $13,688 in restricted stock units for year three. The agreement also provides for annual bonuses including bonuses based on increases in EBITDA (as defined in the agreement) of our various subsidiaries; additional bonuses upon the occurrence of certain events such as: listing on specific stock exchanges, spin-offs, investments and stock trading and volume levels. The agreement also provides for stock options with exercise prices ranging from $0.40 - $1.60 and an award of restricted stock, which only vests if certain volume and pricing milestones with respect to our common stock are met. Mr. Klepfish also has the option of receiving any portion of his salary or bonus in the form of equity. The agreement also contains non-compete and non-solicitation provisions.
On August 7, 2014, our board of directors approved the amendment of the Employment Agreement with Mr. Klepfish effective as of August 13, 2014. The employment agreement was amended as follows: (i) it has been extended by one year to December 31, 2016; (ii) it provides for 10% annual increases of Base Salary commencing in 2014; (iii) certain performance based bonuses in the employment agreement are eliminated; (iv) stock grants previously issued with vesting based upon performance or stock price are cancelled; (v) a new performance based bonus structure to partially replace the previous structure, based upon meeting certain Cash EBITDA (earnings before interest, taxes, depreciation, and amortization and non-cash compensation charges) targets, the new bonus will have a cash portion and a stock portion and all Base Salary can be paid in cash or in stock at the option of Mr. Klepfish, and (vi) 125,00 restricted stock units which vest if the 30 day average closing price of our common stock is $2.00 or above and there is a 50,000 average daily volume or there is a 50,000 average daily volume for 14 straight trading days; and 175,000 restricted stock units which vest if the 30 day average closing price of our common stock is $3.00 or above and there is a 50,000 average daily volume for 14 straight trading days. Mr. Klepfish will have the option, on an annual basis, to take all or part of the cash portion of the bonus, or any part of Base Salary in the form of stock at a valuation based upon the closing stock price on the last trading day of the prior year. The decision on how much, if any, of the bonus to take in stock must be made by May 1 of each year, unless earlier required. The Cash EBITDA target levels do not include the effect of any potential future acquisitions and also do not include certain one time or non-recurring expenses in the calculation of the Cash EBITDA. If a Cash EBITDA target is missed by 3% or less, the bonus for the target so missed shall be reduced by 20% and if it is missed by 3.1% -5%, the bonus for such target shall be reduced by 30%, except in both cases, Mr. Klepfish has negative discretion to further reduce the bonuses or even cancel them. In March 2016, Mr. Klepfish’s employment agreement was extended for another year under the same terms.
In November 2014, the employment agreement of Mr. Klepfish was amended (i) ) in the event of a change of control (as defined below) all equity based compensation (including options and restricted stock units) payable pursuant to such employment agreements, shall immediately vest and/or restrictions thereon shall lapse, and (ii) to provide that in the event of a termination without Cause (as defined in the employment agreement) they shall receive a lump sum payment equal to the greater of (x) the salary payable over the last six months of the term of the agreement, or (y) the Base Salary (as defined in the employment agreement) remaining through the end of the then-current term of the agreement. The definition of change of control shall mean the occurrence of any of the following events: (w) the sale or transfer by the Company for at least $25 million (such consideration consisting of cash, cash equivalents, notes or securities) of more than 50% of its Voting Securities (as defined below) or substantially all of its assets; or (x) the acquisition, other than from the Company or employees of it or any of its subsidiaries, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (other than an employee benefit plan of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Voting Securities”); or (y) the approval by the stockholders of the Company of a reorganization, merger, consolidation or recapitalization of the Company (a “Business Combination”), other than a Business Combination in which more than 50% of the combined voting power of the outstanding Voting Securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, immediately prior to the Business Combination, were the holders of the Voting Securities; or (z) the approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the assets of the Company.
Mr. Klepfish was awarded, as a special bonus, effective November 17, 2014, an aggregate of 1,000,000 restricted stock units (“RSU”) subject to time and performance vesting conditions, with the timing conditions as follows: 150,000 RSUs vest on each of July 1 and December 31, 2015; 300,000 RSUs vest on December 31, 2016 and 400,000 RSUs vest on July 1, 2017, and the performance conditions are as follows: for the RSUs vesting in 2015, the Corporation, on a consolidated basis, must have four months with sales above $2,500,000 during 2015, for the RSUs vesting in 2016, the Corporation, on a consolidated basis, must have four months with sales above $2,500,000 during 2016 and for the RSUs vesting in 2017, the Corporation, on a consolidated basis, must have four months with sales above $2,500,000 during 2017, provided however, that if the performance condition is not met in any year, the RSUs scheduled to vest in such year will still vest if the Corporation, on a consolidated basis, has six months with sales of at least $2,500,000 during the following year. The company’s board of directors will modify and increase the performance requirements, with the consent of executive, if warranted and appropriate.
Effective March 29, 2017, we entered into a new employment agreement with Mr. Klepfish. The new agreement, which runs through December 31, 2019 maintains the current base salary, and provides for all bonuses and salary increases to be approved by a compensation committee.
JUSTIN WIERNASZ
On November 20, 2012 we entered into an employment agreement with Mr. Wiernasz, the Company’s President, having an effective date of January 1, 2013 and terminating on December 31, 2015 The agreement is for a term of three years, and provides a base compensation in the amount of $226,250 per annum for year one, $248,875 per annum for year two, and $273,763 per annum for year three. The agreement also provides for annual bonuses including bonuses based on increases in EBITDA (as defined in the agreement) of our various subsidiaries; additional bonuses upon the occurrence of certain events such as: listing on specific stock exchanges, spin-offs, investments and stock trading and volume levels. The agreement also provides for stock options with exercise prices ranging from $0.40 - $1.60 and an award of restricted stock, which only vests if certain volume and pricing milestones with respect to our common stock are met. Mr. Wiernasz also has the option of receiving any portion of his salary or bonus in the form of equity. The agreement also contains non-compete and non-solicitation provisions.
On August 7, 2014, our board of directors approved the amendment of the Employment Agreement with Mr. Wiernasz effective as of August 13, 2014. The employment agreement was amended as follows: (i) it has been extended by one year to December 31, 2016; (ii) it provides for 10% annual increases of Base Salary commencing in 2014; (iii) certain performance based bonuses in the employment agreement are eliminated; (iv) stock grants previously issued with vesting based upon performance or stock price are cancelled; (v) a new performance based bonus structure to partially replace the previous structure, based upon meeting certain Cash EBITDA (earnings before interest, taxes, depreciation, and amortization and non-cash compensation charges) targets, the new bonus will have a cash portion and a stock portion and all Base Salary can be paid in cash or in stock at the option of Mr. Wiernasz, and (vi) an award of 75,000 restricted stock units which vest on January 1, 2015 and 75,000 restricted stock units which vest on May 1, 2016. Mr. Wiernasz will have the option, on an annual basis, to take all or part of the cash portion of the bonus, or any part of Base Salary in the form of stock at a valuation based upon the closing stock price on the last trading day of the prior year. The decision on how much, if any, of the bonus to take in stock must be made by May 1 of each year, unless earlier required. The Cash EBITDA target levels do not include the effect of any potential future acquisitions and also do not include certain one time or non-recurring expenses in the calculation of the Cash EBITDA. If a Cash EBITDA target is missed by 3% or less, the bonus for the target so missed shall be reduced by 20% and if it is missed by 3.1% -5%, the bonus for such target shall be reduced by 30%. In March 2016, Mr. Wiernasz’s employment agreement was extended for another year under the same terms.