Innovative Food Holdings Inc (IVFH)

[Amigo Mike]

The high level 8k info reads far different in the Asset Purchase agreement where NET INCOME numbers are offered instead of EBITDA numbers. Sloppy ...... IMO ....

>>>>>>>>>>>>>>>>>>>High Level 8K
https://www.sec.gov/Archives/edgar/data/312257/000118518518000131/innovativefood8k013018.htm

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, LLC (“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 Asset Purchase Agreement; (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 Asset Purchase Agreement. See Item (i) above.
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>>>>>>>>>>>>>>>>>>>>>>>>>>>> Asset Purchase Agreement
https://www.sec.gov/Archives/edgar/data/312257/000118518518000131/ex10-1.htm

Section 2.05 Closing Date Purchase Price. The aggregate purchase price for the Purchased Assets shall be One Million, Five Hundred Thousand Dollars ($1,500,000.00), with the assumption of the Assumed Liabilities (the “Closing Date Purchase Price”). The Closing Date Purchase Price shall be paid by Buyer in payment of amounts owed to certain secured, priority and administrative creditors of Seller which are listed on Exhibit A to this Agreement, such payments to be in amounts, on terms and at times agreed to between Buyer and such creditors. Such secured, priority and administrative creditors of Seller are not third party beneficiaries under this Agreement.

Section 2.06 Additional Purchase Price. In addition to the Closing Date Purchase Price, Buyer will pay additional cash purchase price, and/or will cause its parent, IVFH, to issue IVFH Shares to Seller, if certain benchmark Net Income attributable to the Purchased Assets are achieved in each of the calendar years 2018 and 2019, as follows:

(a) [I]If Net Income for calendar year 2018 exceeds $800,000, Buyer will pay Seller 50% of such excess, up to a maximum Additional Purchase Price attributable to such year of $1,500,000; and

(b) If Net Income for calendar year 2019 exceeds $1,500,000 and exceeds 20% of Net Income for the calendar year 2018, Buyer will pay Seller an amount equal to 50% of the Net Income for such year in excess of $1,500,000, up to a maximum Additional Purchase Price attributable to such year of $1,750,000; and

(c) If Net Income for calendar year 2020 exceeds $3,750,000 and exceeds 20% of the Net Income for calendar year 2019, Buyer will pay Seller an amount equal to 50% of the Net Income for such year in excess of $3,750,000 up to a maximum Additional Purchase price attributable to such year of $2,125,000.[/I]

(d) The Additional Purchase Price, if any, payable pursuant to Sections 2.06(a), (b) or (c) above shall be paid 37.5% in immediately available funds, 25% in IVFH Shares (with the number of IVFH Shares to be issued to the PA Seller based upon the applicable amount of Additional Purchase Price to be paid through issuance of such Shares divided by the IVFH Share Price at Closing), and the balance in any combination of cash or IVFH Shares (with the number of IVFH Shares to be issued to the PA Seller based upon the applicable amount of Additional Purchase Price to be paid through issuance of such Shares divided by the IVFH Share Price at Earnout), as elected by Buyer, promptly following the issuance of the Buyer Financial Statements for each such year.

(e) Seller hereby makes the representations and warranties to Buyer and IVFH, and covenants with Buyer and IVFH, as set forth in Exhibit G hereto, will complete and execute any attachments to Exhibit G prior and as a condition to issuance of any IVFH Shares, and upon each receipt of IVFH Shares will be deemed to have re-made such representations, warranties and covenants as set forth in Exhibit G. IVFH shall be a third party beneficiary of such representations, warranties and covenants and entitled to enforce them with or independently of Buyer.

Section 2.07 Allocation of Purchase Price. Seller and Buyer agree that the Closing Date Purchase Price and the Assumed Liabilities (plus other relevant items) shall be allocated among the Purchased Assets for all purposes (including Tax and financial accounting) as shown on the Exhibit B to this Agreement (the “Allocation Schedule”). A draft of the Allocation Schedule shall be prepared by Buyer and delivered to Seller within ten (10) days following the Closing Date. If Seller notifies Buyer in writing that Seller objects to one or more items reflected in the Allocation Schedule, Seller and Buyer shall negotiate in good faith to resolve such dispute; provided, however, that if Seller and Buyer are unable to resolve any dispute with respect to the Allocation Schedule within thirty (30) days following the Closing Date, such dispute shall be resolved by Buyer’s Accountant. Buyer and Seller shall file all Tax Returns (including amended returns and claims for refund) and information reports in a manner consistent with the Allocation Schedule. Any Additional Purchase Price pursuant to Section 2.06 herein shall be allocated in a manner consistent with the Allocation Schedule.
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The additional exhibits referenced were not provided and may not actually exist just yet.

Would not appear there is any dilution at this point, picking up some debt from the purchase. Would seem that prior owner has incentive to net at least $800K in the division for calendar year 2018.

At a very high level, hard to say if immediately accretive to net income. One would think that PR would state that if it were. But the PR focuses on underutilization of iGourmet space, distribution, operational efficiency and expansion in new markets.

Amigo Mike