UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D. C. 20549
FORM
10-QSB
x Quarterly report
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934.
For
the quarterly period ended September
30, 2006
o Transition
report pursuant to Section 13 or 15(d) of the Exchange
Act for
the transition period from _________ to _________.
Commission
File Number: 0-9376
INNOVATIVE
FOOD HOLDINGS, INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
|
Florida
(State
of or Other Jurisdiction of Incorporation
or Organization)
|
20-1167761
(IRS
Employer I.D. No.)
|
1923
Trade Center Way
Naples, Florida 34109
(Address
of Principal Executive Offices)
(239)
596-0204
(Issuer's
Telephone Number, Including Area Code)
Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Issuer Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES x NO o
Indicate
by check mark whether the issuer is a shell company (as defined in Regulation
12b-2 of the Exchange Act:
YES o NO x
State the
number of shares outstanding of each of the issuer's classes of Common equity,
as of the latest practicable date:
171,787,638
Common Shares (post-reverse split) as of April 14, 2008
Transitional
Small Business Disclosure Format:
YES o NO
x
INNOVATIVE FOOD HOLDINGS, INC.
INDEX
TO FORM 10-QSB
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Page
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PART
I.
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FINANCIAL
INFORMATION
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Item
1.
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3
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3
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4
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5
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7
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Item
2.
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27
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Item
3.
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33
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PART
II.
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OTHER
INFORMATION
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Item
1.
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33
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Item
2.
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34
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Item
3.
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34
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Item
4.
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34
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Item
5.
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34
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Item
6.
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34
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35
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PART
I - FINANCIAL INFORMATION
Innovative
Food Holdings, Inc.
Condensed
Consolidated Balance Sheet
(unaudited)
|
September
30,
|
September
30,
|
September
30,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||||
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ASSETS
|
||||||||||||
|
Current
assets
|
||||||||||||
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Cash
and cash equivalents
|
$ | 12,695 | $ | 17,663 | $ | 24,423 | ||||||
|
Accounts
receivable, net of allowance
|
249,015 | 302,476 | 148,140 | |||||||||
|
Interest
receivable
|
7,147 | 1,184 | - | |||||||||
|
Loan
receivable, net of allowance
|
285,000 | 75,000 | - | |||||||||
|
Prepaid
expenses
|
- | 45,278 | - | |||||||||
|
Other
current assets
|
31,351 | - | - | |||||||||
|
Total
current assets
|
585,208 | 441,601 | 172,563 | |||||||||
|
Property
and equipment, net of accumulated depreciation
|
107,091 | 71,489 | 163,510 | |||||||||
|
Total
assets
|
$ | 692,299 | $ | 513,090 | $ | 336,073 | ||||||
|
LIABILITIES
AND (DEFICIENCY IN) STOCKHOLDERS' EQUITY
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Accounts
payable and accrued liabilities
|
$ | 708,840 | $ | 443,222 | $ | 594,798 | ||||||
|
Amount
due under bank credit line
|
24,255 | 15,154 | 24,400 | |||||||||
|
Accrued
interest, net of discount
|
137,503 | 15,260 | 28,195 | |||||||||
|
Accrued
interest - related parties, net of discount
|
94,975 | 29,352 | 4,520 | |||||||||
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Notes
payable - current portion
|
934,443 | 585,000 | - | |||||||||
|
Notes
payable - related parties, current portion
|
375,000 | 275,000 | - | |||||||||
|
Warrant
liability
|
1,374,197 | 10,374,536 | - | |||||||||
|
Conversion
option liability
|
1,461,180 | 12,453,662 | - | |||||||||
|
Penalty
for late registration of shares
|
583,040 | 880,000 | - | |||||||||
|
Total
current liabilities
|
5,693,433 | 25,071,186 | 651,913 | |||||||||
|
Notes
payable
|
17,763 | 219,000 | 365,000 | |||||||||
|
Notes
payable - related parties
|
- | 175,000 | 98,000 | |||||||||
|
Total
liabilities
|
5,711,196 | 25,465,186 | 1,114,913 | |||||||||
|
(Deficiency
in) stockholder's equity
|
||||||||||||
|
Common
stock, $0.0001 par value; 500,000,000 shares authorized;
|
||||||||||||
|
151,310,796,
103,742,037 and 65,052,037 at September 30, 2006,
|
||||||||||||
|
2005,
and 2004, respectively
|
15,130 | 10,374 | 6,506 | |||||||||
|
Additional
paid-in capital
|
391,437 | - | 4,385,318 | |||||||||
|
Accumulated
deficit
|
(5,425,464 | ) | (24,962,470 | ) | (5,170,664 | ) | ||||||
|
Total
(deficiency in) stockholder's equity
|
(5,018,897 | ) | (24,952,096 | ) | (778,840 | ) | ||||||
|
Total
liabilities and (deficiency in) stockholders' equity
|
$ | 692,299 | $ | 513,090 | $ | 336,073 | ||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Innovative
Food Holdings, Inc.
Condensed
Consolidated Statements of Operations
(unaudited)
|
For
the Three
|
For
the Three
|
For
the Three
|
For
the Nine
|
For
the Nine
|
For
the Nine
|
|||||||||||||||||||
|
Months
Ended
|
Months
Ended
|
Months
Ended
|
Months
Ended
|
Months
Ended
|
Months
Ended
|
|||||||||||||||||||
|
September
30
|
September
30
|
September
30
|
September
30
|
September
30
|
September
30
|
|||||||||||||||||||
|
2006
|
2005
|
2004
|
2006
|
2005
|
2004
|
|||||||||||||||||||
|
Revenue
|
$ | 1,564,653 | $ | 1,303,593 | $ | 1,171,484 | $ | 5,044,098 | $ | 3,799,332 | $ | 3,237,454 | ||||||||||||
|
Cost
of goods sold
|
1,167,832 | 1,002,958 | 918,392 | 3,838,060 | 2,964,413 | 2,742,653 | ||||||||||||||||||
| 396,821 | 300,635 | 253,092 | 1,206,038 | 834,919 | 494,801 | |||||||||||||||||||
|
Selling,
general and administrative expenses
|
484,171 | 516,051 | 503,191 | 1,520,810 | 1,304,466 | 4,032,703 | ||||||||||||||||||
|
Total
operating expenses
|
484,171 | 516,051 | 503,191 | 1,520,810 | 1,304,466 | 4,032,703 | ||||||||||||||||||
|
Operating
loss
|
(87,350 | ) | (215,416 | ) | (250,099 | ) | (314,772 | ) | (469,547 | ) | (3,537,902 | ) | ||||||||||||
|
Other
(income) expense:
|
||||||||||||||||||||||||
|
Interest
(income) expense
|
107,360 | 253,168 | 91,113 | 266,007 | 694,353 | 398,375 | ||||||||||||||||||
|
Cost
of penalty for late registration of shares
|
362,960 | 1,040,000 | - | 1,584,912 | 1,507,200 | - | ||||||||||||||||||
|
Change
in fair value of warrant liability
|
(5,203,035 | ) | - | - | (4,670,200 | ) | - | - | ||||||||||||||||
|
Change
in fair value of conversion option liability
|
(6,009,676 | ) | - | - | (5,642,095 | ) | - | - | ||||||||||||||||
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Change
in value of penalty for late registration of shares
|
(1,934,800 | ) | (697,600 | ) | - | (1,928,592 | ) | (627,200 | ) | - | ||||||||||||||
|
Total
other (income) expense
|
(12,677,191 | ) | 595,568 | 91,113 | (10,389,968 | ) | 1,574,353 | 398,375 | ||||||||||||||||
|
Income
(Loss) before income taxes
|
12,589,841 | (810,984 | ) | (341,212 | ) | 10,075,196 | (2,043,900 | ) | (3,936,277 | ) | ||||||||||||||
|
Income
tax expense
|
- | - | - | - | - | - | ||||||||||||||||||
|
Net
Income (loss)
|
$ | 12,589,841 | $ | (810,984 | ) | $ | (341,212 | ) | $ | 10,075,196 | $ | (2,043,900 | ) | $ | (3,936,277 | ) | ||||||||
|
Net
income (loss) per share - basic
|
$ | 0.09 | $ | (0.01 | ) | $ | (0.02 | ) | $ | 0.08 | $ | (0.03 | ) | $ | (0.14 | ) | ||||||||
|
Net
income (loss) per share - diluted
|
$ | 0.05 | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.04 | $ | (0.03 | ) | $ | (0.04 | ) | ||||||||
|
Weighted
average shares outstanding - basic
|
136,912,804 | 87,659,428 | 17,994,416 | 120,338,009 | 81,506,689 | 28,825,062 | ||||||||||||||||||
|
Weighted
average shares outstanding - diluted
|
245,737,804 | 87,659,428 | 126,231,711 | 281,808,565 | 81,506,689 | 95,919,044 | ||||||||||||||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
Innovative
Food Holdings, Inc.
|
For
the Nine
MonthsEnded
September
30, 2006
|
For
the Nine
MonthsEnded
September
30, 2005
|
For
the Nine
Months
Ended
September 30, 2004 |
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 10,075,196 | $ | (2,043,900 | ) | $ | (3,936,277 | ) | ||||
|
Adjustments
to reconcile net loss to to net
|
||||||||||||
|
cash
used in operating activities:
|
||||||||||||
|
Depreciation
|
39,835 | 44,372 | 48,487 | |||||||||
|
Value
of warrants issued
|
10,750 | - | - | |||||||||
|
Vale
of options issued to officer
|
- | - | 135,673 | |||||||||
|
Stock
issued for services
|
- | 45,400 | 2,420,000 | |||||||||
|
Stock
issued for employee bonus
|
- | - | - | |||||||||
|
Stock
issued as bonuses to employees and board members
|
49,901 | - | - | |||||||||
|
Reserve
for bad debt
|
- | 75,000 | - | |||||||||
|
Amortization
of discount on NP to interest expense
|
- | 595,000 | 388,000 | |||||||||
|
Amortization
of discount on convertible interest
|
- | - | - | |||||||||
|
Cost
of penalty for late registration
|
1,584,912 | 1,507,200 | - | |||||||||
|
Change
in fair value of warrant liability
|
(4,652,805 | ) | - | - | ||||||||
|
Change
in fair value of conversion option liability
|
(5,642,095 | ) | - | - | ||||||||
|
(gain)
loss from marking to market-penalty
|
(1,928,592 | ) | (627,200 | ) | - | |||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Accounts
receivable, net
|
190,095 | 23,022 | 116,876 | |||||||||
|
Interest
receivable
|
- | (1,184 | ) | - | ||||||||
|
Prepaid
expenses
|
(29,844 | ) | (45,278 | ) | - | |||||||
|
Other
current liability
|
- | - | - | |||||||||
|
Accounts
payable and accrued expenses
|
371,584 | (73,374 | ) | 158,817 | ||||||||
|
Notes
and loans payables
|
- | - | - | |||||||||
|
Net
cash used in operating activities
|
68,937 | (500,942 | ) | (668,424 | ) | |||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Loan
to Pasta Italiana
|
(190,000 | ) | (150,000 | ) | - | |||||||
|
Acquisition
of property and equipment
|
(26,445 | ) | (12,040 | ) | (134,772 | ) | ||||||
|
Net
cash used in investing activities
|
(216,445 | ) | (162,040 | ) | (134,772 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from issuance of long-term-debt
|
160,000 | 595,000 | 463,000 | |||||||||
|
Payments
on bank credit line
|
(9,366 | ) | - | |||||||||
|
Cash
from bank credit line
|
- | 262 | ||||||||||
|
Principal
payments on notes payable
|
(10,000 | ) | - | - | ||||||||
|
Proceeds
from sale of common stock
|
- | 67,000 | 320,225 | |||||||||
|
Net
cash provided by financing activities
|
150,000 | 652,634 | 783,487 | |||||||||
|
Increase
in cash and cash equivalents
|
2,492 | (10,348 | ) | (19,709 | ) | |||||||
|
Cash
and cash equivalents at beginning of period
|
10,203 | 28,011 | 44,132 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 12,695 | $ | 17,663 | $ | 24,423 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | - | $ | - | $ | - | ||||||
|
Taxes
|
$ | - | $ | - | $ | - | ||||||
Innovative
Food Holdings, Inc.
Condensed
Consolidated Statements of Cash Flows
(continued)
|
For
the Nine
MonthsEnded
September
30, 2006
|
For
the Nine
MonthsEnded
September
30, 2005
|
For
the Nine
Months
Ended
September 30, 2004 |
||||||||||
|
Stock
issued for services
|
$ | 85,901 | $ | 45,400 | $ | 2,420,000 | ||||||
|
Notes
payable issued for acquisition of computer equipment
|
$ | 25,385 | $ | - | $ | - | ||||||
|
Common
stock issued for conversion of notes payable
|
$ | - | $ | 44,000 | $ | 788,176 | ||||||
|
Common
stock issued for conversion of liability
|
$ | - | $ | - | $ | 339,750 | ||||||
|
Value
of warrants issued
|
$ | 10,750 | $ | - | $ | - | ||||||
|
Common
stock issued during recapitalization
|
$ | - | $ | - | $ | 2,500 | ||||||
|
Common
stock issued as penalty for late registration
|
$ | - | $ | 537,600 | $ | - | ||||||
|
Common
stock issued in share exchange to acquire subsidiary
|
$ | - | $ | - | $ | 125,000 | ||||||
|
Charge
to equity for change to liability method for value
|
||||||||||||
|
of
beneficial conversion feature of notes payable
|
$ | - | $ | 12,453,662 | $ | - | ||||||
|
Charge
to equity for change to liability method of warrant
valuation
|
$ | - | $ | 10,374,536 | $ | - | ||||||
|
Value
of warrants and options issued as compensation
|
$ | 10,750 | $ | - | $ | - | ||||||
|
Value
of shares issued as penalty for late registration
|
$ | 1,584,912 | $ | - | $ | - | ||||||
|
Revaluation
of conversion option liability
|
$ | (5,642,095 | ) | $ | - | $ | - | |||||
|
Revaluation
of liability for warrants
|
$ | (4,652,805 | ) | $ | - | $ | - | |||||
|
Revaluation
of penalty for late registration of shares
|
$ | (1,928,592 | ) | $ | - | $ | - | |||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
1. BASIS
OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements of Innovative
Food Holdings, Inc. and subsidiary (collectively, the “Company”) have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. They do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for a
complete financial statement presentation. U.S. accounting principles also
contemplate continuation of the Company as a going concern.
Acquisition and Corporate
Restructure
We were
initially formed in June 1979 as Alpha Solarco Inc., a Colorado corporation.
From June 1979 through February 2004, we were either inactive or involved in
discontinued business ventures. In February 2003 we changed our name to Fiber
Application Systems Technology, Ltd.
On
January 26, 2004, through a share exchange, the shareholders of FII converted
10,000 shares (post-reverse split) of FII common stock outstanding into
25,000,000 shares (post-reverse split) of IVFH. On January 29, 2004, in a
transaction known as a reverse acquisition, the shareholders of IVFH exchanged
25,000,000 shares (post-reverse split) of IVFH for 25,000,000 shares
(post-reverse split) of Fiber Application Systems (formerly known as Alpha
Solarco) (“Fiber”), a publicly-traded company. The shareholders
of IVFH thus assumed control of Fiber, and Fiber changed its name to Innovative
Food Holdings, Inc. The 25,000,000 shares (post-reverse split) of
Innovative Food Holdings are shown on the Company’s balance sheet at December
31, 2003 as shares outstanding. These shares are shown at their par
value of $2,500 as a decrease of additional paid-in capital at the acquisition
date of January 29, 2004. There were 157,037 shares
(post-reverse split) outstanding in Fiber at the time of the reverse
acquisition; the par value of these shares, or $16, was transferred from
additional paid-in capital at the time of the reverse acquisition.
2. NATURE
OF ACTIVITED AND SIGNIFICANT ACCOUNTING POLICIES
Business
Activity
FII is in
the business of providing premium white tablecloth restaurants with the freshest
origin-specific perishables and specialty products direct from its network of
vendors to the end users (restaurants, hotels, country clubs, national chain
accounts, casinos, and catering houses) within 24-48 hours, except as stated
hereafter, eliminating all wholesalers and distributors. We currently sell the
majority of our products through a distributor relationship with Next Day
Gourmet, L.P., and a subsidiary of US Foodservice, Inc. (“USF”), a $20 Billion
broadline distributor owned by Dutch grocer Royal Ahold.
Interim Financial
Information
The
accompanying unaudited interim financial statements have been prepared by the
Company, in accordance with generally accepted accounting principles pursuant to
Regulation S-B of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in audited financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Accordingly, these interim financial statements
should be read in conjunction with the Company’s financial statements and
related notes as contained in form 10-KSB for the year ended December 31, 2006.
In the opinion of management, the interim financial statements reflect all
adjustments, including normal recurring adjustments, necessary for fair
presentation of the interim periods presented. The results of the operations for
the three and six months ended June 30, 2006 are not necessarily indicative of
the results of operations to be expected for the full year.
Reclassification
Certain
reclassifications have been made to conform prior periods' data to the current
presentation. These reclassifications had no effect on reported
income.
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Going Concern
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. However, the
Company has reported a net income (loss) of $12,589,741, $(810,984) and
$(341,212) for the three months ended September 20, 2006, 2005, and 2004,
respectively; and $10,075,196, $(2,043,900) and $(3,936,277) for the nine months
ended September 30, 2006, 2005 and 2004, respectively; and
$(7,417,910) for the year ended December 31, 2005. The Company
also had an accumulated deficit of $5,425,464 and a working capital
deficiency of $5,108,225 as of September 30, 2006.
The
Company cannot be certain that anticipated revenues from operations will be
sufficient, to satisfy its ongoing capital requirements. Management's belief is
based on the Company's operating plan, which in turn is based on assumptions
that may prove to be incorrect. If the Company's financial resources are
insufficient the Company may require additional financing in order to execute
its operating plan and continue as a going concern. The Company cannot predict
whether this additional financing will be in the form of equity or debt, or be
in another form. The Company may not be able to obtain the necessary additional
capital on a timely basis, on acceptable terms, or at all. In any of these
events, the Company may be unable to implement its current plans for growth,
repay its debt obligations as they become due or respond to competitive
pressures, any of which circumstances would have a material adverse effect on
its business, prospects, financial condition and results of
operations.
Management
plans to take the following steps that it believes will be sufficient to provide
the Company with the ability to continue as a going concern. Management intends
to raise financing through the sale of its stock or debt instruments in private
placements to individual investors. Management may raise funds in the public
markets, though there currently are no plans to do so. Management believes that
with this financing, the Company will be able to generate additional revenues
that will allow the Company to continue as a going concern. This will be
accomplished by hiring additional personnel and focusing sales and marketing
efforts on the distribution of product through key marketing channels currently
being developed by the Company. The Company also intends to pursue the
acquisition of certain strategic industry partners where
appropriate.
Revenue
Recognition
The
Company recognizes revenue upon shipment of the product from the
vendor. Shipping and handling costs incurred by the Company are
included in cost of goods sold.
For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin ("SAB") No.
104, "Revenue Recognition," which superseded
SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 requires that four basic criteria
must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured. Determination of criteria (3)
and (4) are based on management's judgments regarding the fixed nature of the
selling prices of the products delivered and the collectibility of those
amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. 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. SAB No. 104
incorporates Emerging Issues Task Force ("EITF") No.
00-21, "Multiple-Deliverable Revenue Arrangements." EITF
No. 00-21 addresses accounting for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use
assets. The effect of implementing EITF No. 00-21 on the Company's
consolidated financial position and results of operations was not significant.
This issue addresses determination of whether an arrangement involving more than
one deliverable contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to the separate units
of accounting. EITF No. 00-21 became effective for revenue
arrangements entered into in periods beginning after June 15,
2003. For revenue arrangements occurring on or after August 1, 2003,
the Company revised its revenue recognition.
Income
Taxes
The
Company accounts for income taxes using the liability method. Under
the liability method, deferred income taxes are determined based on differences
between the financial reporting and tax bases of assets and
liabilities. They are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. The Company is required to adjust its deferred tax
liabilities in the period when tax rates or the provisions of the income tax
laws change. Valuation allowances are established to reduce deferred
tax assets to the amounts expected to be realized.
Disclosures about Fair Value
of Financial Instruments
The
carrying amounts of
the Company's financial instruments, which include
accounts receivable and
accounts payable, approximate fair value at September 30,
2006.
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Inventories
The
Company does not currently maintain any material amount of
inventory.
Stock-Based
Compensation
On
January 1, 2006 the company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123 (R), which requires the
measurement and recognition of compensation expense for all share-based payment
awards made to employees and directors including employee stock options and
employee stock purchases related to a Employee Stock Purchase Plan based on the
estimated fair values. SFAS 123 (R) supersedes the company's previous accounting
under Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to
Employees" for the periods beginning fiscal 2006.
The company adopted SFAS
123(R) using
the modified prospective transition
method, which required the application of the accounting standard as
of January 1, 2006. The
company's Consolidated Financial Statements as
of and for twelve months Ended June 30, 2006 reflect the impact of SFAS 123(R).
In accordance with the modified prospective transition method, the company's
Consolidated Financial Statements for the prior periods have not been
restated to reflect, and do not include the impact of SFAS 123 (R).
Stock based compensation expense recognized under SFAS 123(R) for the
three months ended September 30, 2006 was $0.
Pro forma stock based compensation was $0 for the three months ended September
30, 2006.
Stock-based compensation expense recognized
during the period is based on the value of the portion of
share-based payment awards that is ultimately expected to
vest during the period.
A summary
of option activity as of September
30, 2006, 2005, and 2004, and changes during the periods
then ended are presented below:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Options
exercisable at December 31, 2003
|
- | - | ||||||
|
Granted
|
500,000 | $ | 0.50 | |||||
|
Exercised
|
- | |||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 12.31.04
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
- | $ | - | |||||
|
Not
exercisable
|
500,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 03.31.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
- | $ | - | |||||
|
Not
exercisable
|
500,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
|
- | - | ||||||
|
Options
outstanding at 06.30.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | 0.50 | |||||
|
Not
exercisable
|
400,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 09.30.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | 0.50 | |||||
|
Not
exercisable
|
400,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 12.31.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | 0.50 | |||||
|
Not
exercisable
|
400,000 | $ | 0.50 | |||||
|
Granted
|
- | 0.005 | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 03.31.06
|
500,000 | $ | 0.500 | |||||
|
Exercisable
|
100,000 | $ | 0.500 | |||||
|
Not
exercisable
|
400,000 | $ | 0.500 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 06.30.06
|
500,000 | $ | 0.500 | |||||
|
Exercisable
|
200,000 | $ | 0.500 | |||||
|
Not
exercisable
|
300,000 | $ | 0.500 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 09.30.06
|
500,000 | $ | 0.500 | |||||
|
Exercisable
|
200,000 | $ | 0.500 | |||||
|
Not
exercisable
|
300,000 | $ | 0.500 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Aggregate
intrinsic value of options outstanding and options exercisable at September 30,
2006, 2005, and 2004 was $0. Aggregate intrinsic value represents the difference
between the company's closing stock price on the
last trading day of the fiscal period, which
was $0.01, $0.06, and $0.04 (post-reverse split)as of September 30,
2006, 2005, and 2004, respectively, and the
exercise price multiplied by the
number of options outstanding. As of September
30, 2006, 2005, and 2004, total unrecognized
stock-based compensation expense related to non-vested stock options was $0. The
total fair value of options vested was $0 for the three-month periods ended
September 30, 2006, 2005, and 2004.
Earnings (Loss) per Common
Share
The
Company computes earnings per share under SFAS 128. Net loss per
common share is computed by dividing net loss by the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
the year. Dilutive common stock equivalents consist of shares
issuable upon conversion of convertible notes and the exercise of the Company’s
stock options and warrants (calculated using the treasury stock
method).
Management
Estimates
The
presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive
Income
The
Company has no items of other comprehensive income (loss) for the
periods ended September 30, 2006, 2005, and 2004.
3. PER
SHARE INFORMATION
The
Company computes earnings per share under Financial Accounting Standard
No.128, "Earnings Per Share" (SFAS 128). Net loss per
common share is computed by dividing net loss by the weighted average number of
shares of common stock and dilutive common stock equivalents outstanding during
the year. Dilutive common stock equivalents consist
of shares issuable upon conversion of convertible notes and the exercise of the
Company’s stock options and warrants (calculated using the treasury stock
method).
4.
ACCOUNTS RECEIVABLE
At
September 30, 2006, 2005, and 2004 accounts receivable consists
of:
|
2006
|
2005
|
2004
|
||||||||||
|
Accounts
receivable from customers
|
$ | 249,015 | $ | 367,476 | $ | 148,140 | ||||||
|
Allowance
for doubtful accounts
|
(0 | ) | (65,000 | ) | (0 | ) | ||||||
|
Accounts
receivable, net
|
$ | 249,015 | $ | 302,476 | $ | 148,140 | ||||||
5. LOAN
RECEIVABLE
The
balance of loan receivable consisted of a loan to Pasta Italiana, Inc. in the
amount of $360,000 and $150,000 as of September 30, 2006 and 2005,
respectively. This note bears interest in the amount of 8% per
annum. This note matured on August 24, 2006. At September
30, 2006 and 2005, the Company has reserved $75,000 of the loan
receivable. The Company stopped accruing interest income on this note
at December 31, 2005. At September 30, 2006 and 2005, interest receivable is
$7,147 and $1,184, respectively.
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
6. PROPERTY AND EQUIPMENT
A summary
of property and equipment at September 30, 2006, 2005, and 2004 is as
follows:
|
2006
|
2005
|
2004
|
||||||||||
|
Computer
equipment
|
$ | 214,507 | $ | 150,574 | $ | 197,635 | ||||||
|
Furniture
and fixtures
|
82,213 | 63,315 | 61,275 | |||||||||
| 296,720 | 213,889 | 258,910 | ||||||||||
|
Less
accumulated depreciation and amortization
|
(189,629 | ) | (142,400 | ) | (95,400 | ) | ||||||
|
Total
|
$ | 107,091 | $ | 71,489 | $ | 163,510 | ||||||
Depreciation
and amortization expense amounted to $39,835, $44,372, and $48,487 respectively,
for the nine months ended September 30, 2006, 2005 and 2004.
7.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at September 30, 2006, 2005, and 2004 are as
follows:
|
2006
|
2005
|
2004
|
||||||||||
|
Accounts
payable and accrued expenses
|
$ | 681,838 | $ | 420,928 | $ | 440,972 | ||||||
|
Accrued
commissions
|
3,183 | 2,907 | 2,250 | |||||||||
|
Total
|
$ | 685,651 | $ | 423,835 | $ | 443,222 | ||||||
8.
ACCRUED INTEREST
At
September 30, 2006, the Company has the following accrued interest on
its balance sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 162,223 | $ | 24,720 | $ | 137,503 | ||||||
|
Related
parties
|
95,928 | 953 | 94,975 | |||||||||
|
Total
|
$ | 258,151 | $ | 25,673 | $ | 232,478 | ||||||
At September 30,
2005, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 41,205 | $ | 25,945 | $ | 15,260 | ||||||
|
Related
parties
|
61,792 | 32,440 | 29,352 | |||||||||
|
Total
|
$ | 102,997 | $ | 58,385 | $ | 44,612 | ||||||
At September 30,
2004, the Company has the following accrued interest on its balance
sheet:
|
Gross
|
Discount
|
Net
|
||||||||||
|
Non-related
parties
|
$ | 38,812 | $ | 10,617 | $ | 28,195 | ||||||
|
Related
parties
|
7,909 | 3,389 | 4,520 | |||||||||
|
Total
|
$ | 46,721 | $ | 14,006 | $ | 32,715 | ||||||
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Accrued
interest on some of the Company’s notes payable is convertible into common stock
of the Company at a price of $0.005 per share (post-reverse split) (note 9).
There is a beneficial conversion feature embedded in this convertible accrued
interest. The Company is amortizing this beneficial conversion
feature over the life of the related party notes payable. During the
three months ended September 30, 2006, 2005, and 2004, the amounts of $
$227,082, $96,026, and $17,268 were credited to additional paid-in
capital as a discount on accrued interest. The Company amortized to
interest expense a total of $34,060, $37,642, and $65,398 of these
discounts during the three months ended September 30, 2006, 2005, and
2004, respectively.
9. NOTES
PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
The
Company has a line of credit with Wachovia Bank in the amount of
$25,000. The outstanding balance as of September 30, 2006 and 2005
was $24,255 and $15,154, respectively. The Company has a loan payable
outstanding for the purchase of a server, at September 30, 2006 the outstanding
balance was $24,840.
At
September 30, 2006, 2005 and 2004,, the Company has outstanding notes payable in
the aggregate amount of $1,327,206 , $1,254,000, and $463,000,
respectively. Notes payable and notes payable to related
parties at September 30, 2006, 2005, and 2004, consist of the
following:
|
2006
|
2005
|
2004
|
||||||||||
|
Convertible
note payable in the original amount of $350,000 to Alpha Capital
Aktiengesselschaft (“Alpha Capital”), dated February 25, 2005. This note
consists of $100,000 outstanding under a previous note payable which was
cancelled on February 25, 2005, and $250,000 of new borrowings. We did not
meet certain of our obligations under the loan documents relating to this
issuance. These lapses include not reserving the requisite
number of treasury shares, selling subsequent securities without offering
a right of first refusal, not complying with reporting obligations, not
having our common shares quoted on the OTC:BB and not timely registering
certain securities. This note is entered technical default
status on May 16, 2005. The note originally
carried interest at the rate of 8% per annum, and is due in
full on February 24, 2007. Upon default, the note’s interest
rate increased to 15% per annum, and the note became immediately due. The note is
convertible into common stock of the Company at a conversion price of
$0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $250,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a conversion
price of $0.005 per share (post-reverse
split). Interest in the amount of $13,233, $13,043 and $0 was accrued on
this note during the three months ended September 30,
2006, 2005, and 2004, respectively.. During the twelve
months ended December 31, 2006 the note holder converted $5,000 into
shares of common stock. During the twelve months ended December 31, 2006
the holder of the note converted $27,865 of accrued interest into common
stock. This note is in default at September 30, 2006 and
2005.
|
$ | 345,000 | $ | 350,000 | $ | 0 | ||||||
|
Convertible
note payable in the amount of $160,000 to Michael Ferrone, a board member
and related party, dated March 11, 2004. The note bears interest at the
rate of 8% per annum, and was originally due in full on March 11, 2006. On
February 25, 2005, an amendment to the convertible notes was signed which
extended the term, which resulted in a new maturity date of October 12,
2006. The note is convertible by the holder into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $160,000 was
recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2004. Accrued
interest is convertible by the holder into common stock of the Company at
maturity of the note at a price of $0.005 per share (post-reverse
split) Interest in the amount of $3,226 was accrued on this
note during the each of the three months ended
September 30, 2006, 2005, and
2004.
|
$ | 160,000 | $ | 160,000 | $ | 160,000 |
|
Convertible
note payable in the original amount of $100,000 to Joel Gold, a board
member and related party, dated October 12, 2004. The note bears interest
at the rate of 8% per annum, and was due in full on October 12, 2006. The
note is convertible by the holder into common stock of the Company at a
conversion price of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of
$100,000 was recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2004. Accrued
interest is convertible by the holder into common stock of the Company at
maturity of the note at a price of $0.005 per share (post-reverse
split) Interest in the amount of $504, $2,016, and $0 was
accrued on this note during the three months ended September 30, 2006,
2005, and 2004, respectively. During the twelve months ended
December 31, 2006, $75,000 of the principal amount was converted into
common stock.
|
$ | 25,000 | $ | 100,000 | $ | 0 |
|
Convertible
note payable in the amount of $85,000 to Briolette Investments, Ltd, dated
March 11, 2004. The note bears interest at the rate of 8% per annum, and
is due in Full on March 11, 2006. The note is convertible into common
stock of the Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of
$85,000 was recorded as a discount to the note, and was amortized to
interest expense during the twelve months ended December 31, 2004 Accrued
interest is convertible by the holder into common stock of the Company at
a price of $0.005 per share (post-reverse
split) Interest in the amount of $828, $1,310, and $1,715 was accrued on
this note during the three months ended September 30, 2006, 2005, and
2004, respectively. During the twelve months ended December 31, 2005, the
note holder converted $44,000 of the note payable into common stock.
During the twelve months ended December 31, 2006, the Company made a
$3,000 cash payment on the principal amount of the note.
|
$ | 41,000 | $ | 41,000 | $ | 85,000 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Convertible
note payable in the amount of $80,000 to Brown Door, Inc., dated March 11,
2004. The note bears interest at the rate of 8% per annum, and was due in
full on March 11, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $80,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible by the holder into common stock of the Company at maturity of
the note at a price of $0.005 per share (post-reverse
split) Interest in the amount of $1,614 was accrued on
this note during each of the three months ended September 30, 2006,
2005, and 2004..
|
$ | 80,000 | $ | 80,000 | $ | 80,000 |
|
Convertible
note payable in the amount of $50,000 to Whalehaven Capital Fund, Ltd.
(“Whalehaven Capital”) dated February 25, 2005. We did not meet certain of
our obligations under the loan documents relating to this
issuance. These lapses include not reserving the requisites
numbers of treasury shares, selling subsequent securities without offering
a right of first refusal, not complying with reporting obligations, not
having our common shares quoted on the OTC:BB and not timely registering
certain securities. This note is in technical default as of May
16, 2005. The note originally carried interest at
the rate of 8% per annum, and was due in Full on February 24, 2007. Upon
default, the note’s interest rate increased to 15% per annum, and the note
became due immediately. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of
$50,000 was recorded as a discount to the note, and was amortized to
interest expense during the three months ended March 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share (post-reverse
split). Interest in the amount of $1,596, $1,890, and $0 was accrued on
this note during the three months ended September 30, 2006 and 2005,
respectively. During the twelve months ended December 31, 2006,
$5,000 of principal was converted into common stock. During the
twelve months ended December 31, 2006 the holder of the note converted
$5,000 of principal and $589 of accrued interest into shares of common
stock. This note is in default at September 30,
2006 and 2005.
|
$ | 40,000 | $ | 50,000 | $ | 0 |
|
Convertible
note payable in the amount of $50,000 to Oppenheimer & Co., /
Custodian for Joel Gold IRA, a related party, dated March 14, 2004. The
note bears interest at the rate of 8% per annum, and was due in full on
October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $50,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued
interest is convertible into common stock of the Company at a price of
$0.005 per share (post-reverse
split). Interest in the amount of $1,009 was accrued on this
note during each of the three months ended December 31, 2006, 2005, and
2004.
|
$ | 50,000 | $ | 50,000 | $ | 50,000 |
|
Convertible
note payable in the original amount of $30,000 to Huo Hua dated May 9,
2005. The note bears interest at the rate of 8% per annum, and was due in
full on October 12, 2006. The note is convertible into common
stock of the Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $30,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share(post-reverse
split) Interest in the amount of $404, $605, and $0
was accrued on this note during the three months ended
September 30, 2006, 2005, and 2004, respectively. During the twelve months
ended December 31, 2006, the note holder converted $10,000 of principal
into common stock.
|
$ | 20,000 | $ | 30,000 | $ | 0 |
|
Convertible
note payable in the original amount of $5,000 to Ke Du dated May 9, 2005.
The note bears interest at the rate of 8% per annum, and was due in full
on October 12, 2006. The note is convertible into common stock
of the Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $5,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. This note was converted
to common stock during the year ended December 31,
2005. Accrued interest is convertible into common stock of the
Company at a price of $0.005 per share(post-reverse
split) Interest in the amount of $101 was accrued on this note
during the thee months ended September 30, 2005.
|
$ | 0 | $ | 5,000 | $ | 0 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Convertible
note payable in the amount of $25,000 to Joel Gold a board member and
related party, dated January 25, 2005. The note bears interest at the rate
of 8% per annum, and is due in full on January 25, 2007. The
note is convertible into common stock of the Company at a
conversion of $0.025 per share. A beneficial conversion feature in the
amount of $25,000 was recorded as a discount to the note, and was
amortized to interest expense during the twelve months ended December 31,
2005. Accrued interest is convertible into common stock of the Company at
a price of $0.025 per share. Interest in the amount of $504, $504, and $0
was accrued on this note during the three months ended September 30, 2006,
2005, and 2004, respectively.
|
$ | 25,000 | $ | 25,000 | $ | 0 |
|
Convertible
note payable in the amount of $25,000 to The Jay & Kathleen Morren
Trust dated January 25, 2005. The note bears interest at the
rate of 6% per annum, and is due in full on January 25,
2007. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $25,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split) Interest in the amount of $377, $377, and $0 was accrued on this
note during the three months ended September 301, 2006, 2005, and 2004,
respectively.
|
$ | 25,000 | $ | 25,000 | $ | 0 |
|
Convertible
note payable in the amount of $10,000 to Lauren M. Ferrone, a relative of
a board member and related party, dated October 12, 2004. The note bears
interest at the rate of 8% per annum, and was originally due in full on
October 12, 2005. On February 25, 2005, an amendment to the convertible
notes was signed which extended the term, which resulted in a new maturity
date of October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per share
(post-reverse
split). Interest in the amount of $202, $202, and $0 was accrued on this
note during the three months ended September 30, 2006, 2005, and 2004,
respectively. This note is in default at September 30,
2006 and 2005.
|
$ | 10,000 | $ | 10,000 | $ | 0 |
|
Convertible
note payable in the amount of $10,000 to Richard D. Ferrone, a relative of
a board member and related party, dated October 12, 2004. The note bears
interest at the rate of 8% per annum, and was originally due in full on
October 12, 2005. On February 25, 2005, an amendment to the convertible
notes was signed which extended the term, which resulted in a new maturity
date of October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per share
(post-reverse
split) . Interest in the amount of $202, $202, and $0 was accrued on this
note during the three months ended September 30, 2006, 2005, and 2004,
respectively. This note is in default at September 30,
2006 and 2005
|
$ | 10,000 | $ | 10,000 | $ | 0 |
|
Convertible
note payable in the amount of $10,000 to Christian D. Ferrone, a relative
of a board member and related party, dated October 12, 2004. The note
bears interest at the rate of 8% per annum, and was originally
due in full on October 12, 2005. On February 25, 2005, an amendment to the
convertible notes was signed which extended the term, which resulted in a
new maturity date of October 12, 2006. The note is convertible into common
stock of the Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per
share (post-reverse
split). Interest in the amount of $202, $202, and $0 was accrued on this
note during the three months ended September 30, 2006, 2005, and 2004,
respectively. This note is in default at September 30,
2006 and 2005
|
$ | 10,000 | $ | 10,000 | $ | 0 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Convertible
note payable in the amount of $10,000 to Andrew I. Ferrone, a relative of
a board member and related party, dated October 12, 2004. The note bears
interest at the rate of 8% per annum, and was originally due in full on
October 12, 2005. On February 25, 2005, an amendment to the convertible
notes was signed which extended the term, which resulted in a new maturity
date of October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.01 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004. Accrued interest is
convertible into common stock of the Company at a price of $0.01 per
share (post-reverse
split). Interest in the amount of $202, $202, and $0 was accrued on this
note during the three months ended September 30, 2006, 2005, and 2004,
respectively. This note is in default at
September 30, 2006 and 2005
|
$ | 10,000 | $ | 10,000 | $ | 0 |
|
Convertible
note payable in the amount of $8,000 to Adrian Neilan dated March 11,
2004. The note bears interest at the rate of 8% per annum, and is due in
full on October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $8,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2004.. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split). Interest in the amount of $161was accrued on this note during the
each of the three months ended September 30,
2006, 2005, and 2004, respectively.
|
$ | 8,000 | $ | 8,000 | $ | 8,000 |
|
Convertible
note payable in the amount of $5,000 to Matthias Mueller dated March 11,
2004. The note bears interest at the rate of 8% per annum, and was due in
full on October 12, 2006. The note is convertible into common stock of the
Company at a conversion of $0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $5,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split). Interest in the amount of $101was accrued on this note during the
each of the three months ended September 30, 2006, 2005, and 2004,
respectively.
|
$ | 5,000 | $ | 5,000 | $ | 5,000 |
|
Convertible
note payable in the amount of $120,000 to Alpha Capital dated August 25,
2005. We did not meet certain of our obligations under the loan documents
relating to this issuance. These lapses include not reserving
the requisite number of treasury shares, selling subsequent securities
without offering a right of first refusal, not complying with reporting
obligations, not having our common shares quoted on the OTC:BB and not
timely registering certain securities. This note is in
technical default as of November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $120,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split). Interest in the amount of $4,537, $947, and $0 was accrued on this
note during the three months ended September 30, 2006, 2005,
and 2004, respectively. This note is in default at
September 30, 2006 and 2005.
|
$ | 120,000 | $ | 120,000 | $ | 0 |
|
Convertible
note payable in the amount of $30,000 to Whalehaven Capital dated August
25, 2005. We did not meet certain of our obligations under the
loan documents relating to this issuance. These lapses include
not reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default as of November 13, 2006. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $30,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split). Interest in the amount of $1,134 and $236 was accrued on this note
during the three months ended September 30, 2006 and 2005,
respectively. This note is in default at September 30, 2006 and
2005.
|
$ | 30,000 | $ | 30,000 | $ | 0 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Convertible
note payable in the original amount of $25,000 to Asher Brand, dated
August 25, 2005. We did not meet certain of our obligations under the loan
documents relating to this issuance. These lapses include not
reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default as of November 13, 2006. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $25,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split) Interest in the amount of $938 and $197 was accrued on this note
during the three months ended September 30, 2006 and 2005, respectively.
During the three months ended September 30, 2006, the holder of the note
converted $2,000 of principal and $3,667 of accrued interest into common
stock. This note is in default at September 30, 2006 and
2005.
|
$ | 23,000 | $ | 25,000 | $ | 0 |
|
Convertible
note payable in the original amount of $25,000 to Momona Capital, dated
August 25, 2005. We did not meet certain of our obligations under the loan
documents relating to this issuance. These lapses include not
reserving the requisite number of treasury shares, selling subsequent
securities without offering a right of first refusal, not complying with
reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities. This note was in
technical default at November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $25,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split. Interest in the amount of $938 and $197 was accrued on
this note during the three months ended September 30, 2006 and 2005,
respectively. During the twelve months ended December 31, 2006, the holder
of the note converted $2,000 of principal and $3,667 of accrued interest
into common stock. This note is in default at September 30, 2006 and
2005.
|
$ | 23,000 | $ | 25,000 | $ | 0 |
|
Convertible
note payable in the amount of $10,000 to Lane Ventures dated August 25,
2005. We did not meet certain of our obligations under the loan documents
relating to this issuance. These lapses include not reserving
the requisite number of treasury shares, selling subsequent securities
without offering a right of first refusal, not complying with reporting
obligations, not having our common shares quoted on the OTC:BB and not
timely registering certain securities. This note was in
technical default at November 13, 2005. The note originally
carried interest at the rate of 8% per annum, and was due in
full on August 25, 2007. Upon default, the note’s interest rate increased
to 15% per annum and the note became immediately due. The note is
convertible into common stock of the Company at a conversion of
$0.005 per share (post-reverse
split). A beneficial conversion feature in the amount of $10,000 was
recorded as a discount to the note, and was amortized to interest expense
during the twelve months ended December 31, 2005. Accrued interest is
convertible into common stock of the Company at a price of $0.005 per
share (post-reverse
split). Interest in the amount of $364 and $79 was accrued on this note
during the three months ended September 30, 2006 and 2005,
respectively. During the twelve months ended December 31,
2006, the holder of the note converted $4,000 of principal and $1,467 of
accrued interest into common stock. This note is in default at
September 30, 2006 and 2005.
|
$ | 6,000 | $ | 10,000 | $ | 0 |
|
Note
payable in the amount of $120,000 to Alpha Capital, dated February 7,
2006. The originally carried interest at the rate of 15% per annum, and
was originally due in full on February 7, 2007. The Company is not in
compliance with various terms of this note, including making timely
payments of interest, and this note was in technical default at May 8,
2006. At this time, the interest rate increased to 20% and the note became
immediately due and payable. Interest in the amount of $6,049
was accrued on this note during the three months ended September 30,
2006. This note is in default at September 30,
2006.
|
$ | 120,000 | $ | 0 | $ | 0 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Note
payable in the amount of $30,000 to Whalehaven Capital dated February 7,
2006. The note originally carried interest at the rate of 15%
per annum, and was due in full on February 7, 2007. The Company is not in
compliance with various terms of this note, including making timely
payments of interest, and this note was in technical default at May 8,
2006. At this time, the interest rate increased to 20% and the note became
immediately due and payable. Interest in the amount of $1,512
was accrued on this note during the three months ended
September 30, 2006. This note is in default at September
30, 2006.
|
$ | 30,000 | $ | 0 | $ | 0 | ||||||
|
Note
payable in the amount of $75,000 to Michael Ferrone, dated August 2, 2004.
The note bears interest at the rate of 8% per annum, and was due in full
on February 2, 2005. Interest in the amount of $1,512, $1,512, and $970
was accrued on this note during the twelve months ended
December 31, 2006, 2005, and 2004,
respectively. This note is in default at September 30,
2006, 2005, and 2004.
|
$ | 75,000 | $ | 75,000 | $ | 75,000 |
|
Note
payable in the amount of $10,000 to Alpha Capital, dated May 19, 2006. The
note bears interest at the rate of 15% per annum, and was due in full on
November 19, 2006. Interest in the amount of $461 was accrued on this
note during the three months ended September 30,
2006.
|
$ | 10,000 | $ | 0 | $ | 0 | ||||||
|
Note
payable in the original amount of $25,787 to Microsoft Corporation dated
May 3, 2006. The note bears interest at the rate of 9.7% per annum, and is
payable in 60 monthly payments of $557 beginning October 1, 2006. Negative
interest in the amount of $419 was capitalized to this note during the
three months ended September 30, 2006.
|
$ | 26,206 | $ | - | $ | - |
| Total | $ | 1,327,206 | $ | 1,254,000 | $ | 463,000 | ||||||
| Less: Current maturities | (1,309,443 | ) | (860,000 | ) | (75,000 | ) | ||||||
|
Long-term
portion
|
$ | 17,763 | $ | 394,000 | $ | 388,000 | ||||||
|
Total
Non-related parties
|
$ | 952,206 | $ | 804,000 | $ | 178,000 | ||||||
|
Total
related parties
|
375,000 | 450,000 | 285,000 | |||||||||
|
Total
|
$ | 1,327,206 | $ | 1,254,000 | $ | 463,000 |
Accounting for Conversion
Options Embedded in Convertible Notes and Convertible
Interest
The
Company has certain convertible notes payable which contain embedded beneficial
conversion features. Through August 2005, the beneficial conversion
features of these convertible notes were accounted for by the equity method,
whereby the intrinsic value of the beneficial conversion features were
considered discounts to the notes. These discounts were immediately amortized to
interest expense. During September 2005, the number of shares of the Company’s
common stock issued and issuable exceeded the number of shares of common stock
the Company had authorized, and this triggered a change in the manner in which
the Company accounts for these beneficial conversion
features. In accordance with Statement of Financial Accounting
Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities, as amended (“SFAS 133”), the debt features provision contained in
the terms governing the Notes are not clearly and closely related to the
characteristics of the Notes. Accordingly, the features qualified as
embedded derivative instruments at September 30, 2005 and because they do not
qualify for any scope exception within SFAS 133, they were required by SFAS 133
to be accounting for separately from the debt instrument and recorded as
derivative financial instruments. In September 2005, the Company
valued the beneficial conversion features of its notes payable using
the Black-Scholes valuation method, and arrived at an aggregate value
of $12,528,662. Pursuant to Emerging Issues Task Force
Issue 00-19 “Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”)
“If a contract is reclassified from permanent or temporary equity to
an asset or a liability, the change in fair value of the contract during the
period the contract was classified as equity should be accounted for as an
adjustment to stockholders’ equity.” Accordingly, during the year
ended December 31, 2005, the Company charged the amount of $12,445,576 to
stockholders’ equity. $5,665,290 of this amount was charged to
additional paid-in capital, which brought the balance of additional paid-in
capital to $0. The remainder, or $6,780,286, was charged to accumulated
deficit. During subsequent periods, the conversion option
liability will be revalued, and any change in value charged to
operations. At September 30, 2006, the conversion option liability
was valued at $1,461,180. The revaluation resulted in a gain during
the three months ended September 30, 2006 of
$6,009,676.
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Risk
Free
|
Expected
|
Expected
|
||||||||||||||
|
Interest
|
Dividend
|
Option
|
||||||||||||||
|
Rate
|
Yield
|
Life
|
Volatility
|
|||||||||||||
|
September
30, 2006
|
4.75 | % | 0 | 5 | 141.4 | % | ||||||||||
10. RELATED
PARTY TRANSACTIONS
The
Company engaged in the following transactions with related parties:
Three
months ended September 30, 2006:
None.
Three
months ended September 30, 2005:
None.
Three
months ended September 30, 2004:
The
Company issued 230,000 shares of common stock to a director for services
rendered.
11.
EQUITY
On March
27, 2003 a one for 1-for-1,000 reverse stock split of the Company’s common stock
was effected. On March 8, 2004, a 1-for 200 reverse stock split of
the Company’s common stock was effected.
Common
Stock
The
Company had the following common stock transactions during the three months
ended September 30, 2006:
The
Company issued 1,117,778 shares (post reverse-split) of common stock for
conversion of notes payable and accrued interest in the amount of
$5,589.
The
Company issued 8,933,358 shares (post reverse-split) of common stock for
conversion of notes payable and accrued interest in the amount of
$44,666;
The
Company issued 5,573,158 shares of common stock for conversion of notes payable.
The par value of $557 was charged to additional paid-in capital.
The
Company had the following common stock transactions during the three months
ended September 30, 2005:
The
Company sold 13,400,000 shares (post-reverse split)of common stock for cash of
$67,000. These shares were issued during the three months ended
September 30, 2005, and the amount of $67,000 is shown as common stock
subscribed on the Company’s balance sheet at June 30, 2005.
The
Company issued 8,800,000 shares (post-reverse split)of common stock pursuant to
the partial conversion of a note payable. The Company charged the
fair value of these shares of $44,000.
The
Company had the following common stock transactions during the three months
ended September 30, 2004:
The
Company sold 15,000,000 shares of common stock (post reverse-split) for cash
proceeds of $320,225.
The
Company issued 7,925,000 shares of common stock (post
reverse-split) with a fair value of $204,500 to employees and board
members for services performed.
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Warrants
During
the three months ended March 31, 2005, the Company issued five
year warrants to purchase 80,000,000 shares (post reverse-split) of
common stock at an exercise price equal to 115% of the closing stock price on
the date of exercise to investors in conjunction with convertible note
agreements (see note 9). During the three months ended June 30, 2005,
these warrants were re-priced to an exercise price of $0.005 per share (post
reverse-split). The Company also issued five year warrants
to purchase 20,000,000 (post reverse-split) shares of common stock at a price
equal to 110% of the closing stock price on the date of exercise to investors in
conjunction with convertible note agreements (see note 9). During the
three months ended June 30, 2005, these warrants were re-price to an exercise
price of $0.005 per share (post reverse-split). The Company also
issued five year warrants to purchase 32,000,000 shares (post reverse-split) of
common stock at a price of $0.005 per share (post reverse-split) to investors in
conjunction with convertible note payable agreements (see note 9).
During
the three months ended September 30, 2005, the Company issued five year warrants
to purchase 56,700,000 shares (post reverse-split) of common stock at prices
ranging from $0.005 to $0.115 per share (post reverse-split) to investors in
conjunction with convertible note payable agreements (see note 9).
During
the three months ended June 30, 2006, the Company issued five year warrants to
purchase 300,000 shares (post reverse-split) of common stock at $0.005 per share
(post reverse-split) to investors in conjunction with convertible note payable
agreements (see note 9).
There
were no warrants outstanding at September 30, 2004.
The
following table summarizes the warrants outstanding at September 30, 2005 (post
reverse-split):
|
Weighted
|
Weighted
|
|||||||||
|
Weighted
|
average
|
average
|
||||||||
|
average
|
exercise
|
exercise
|
||||||||
|
Range
of
|
Number
of
|
remaining
|
price
of
|
Number
of
|
price
of
|
|||||
|
exercise
|
shares
|
contractual
|
outstanding
|
shares
|
exercisable
|
|||||
|
prices
|
outstanding
|
life
(years)
|
warrants
|
exercisable
|
options
|
| $ | 0.0050 | 136,200,000 | 4.42 | $ | 0.0050 | 136,200,000 | $ | 0.0050 | ||||||||||||||
| $ | 0.1100 | 10,500,000 | 4.89 | $ | 0.1100 | 10,500,000 | $ | 0.1100 | ||||||||||||||
| $ | 0.1150 | 42,000,000 | 4.89 | $ | 0.1150 | 42,000,000 | $ | 0.1150 | ||||||||||||||
| 188,700,000 | 4.55 | $ | 0.0353 | 188,700,000 | $ | 0.0353 |
The
following table summarizes the warrants outstanding at September 30, 2006 (post
reverse-split):
|
Weighted
|
Weighted
|
|||||||||
|
Weighted
|
average
|
average
|
||||||||
|
average
|
exercise
|
exercise
|
||||||||
|
Range
of
|
Number
of
|
remaining
|
price
of
|
Number
of
|
price
of
|
|||||
|
exercise
|
shares
|
contractual
|
outstanding
|
shares
|
exercisable
|
|||||
|
prices
|
outstanding
|
life
(years)
|
warrants
|
exercisable
|
options
|
| $ | 0.0050 | 136,500,000 | 3.42 | $ | 0.0050 | 136,500,000 | $ | 0.0050 | ||||||||||||||
| $ | 0.1100 | 10,500,000 | 3.89 | $ | 0.1100 | 10,500,000 | $ | 0.1100 | ||||||||||||||
| $ | 0.1150 | 42,000,000 | 3.89 | $ | 0.1150 | 42,000,000 | $ | 0.1150 | ||||||||||||||
| 189,000,000 | 3.55 | $ | 0.0353 | 189,000,000 | $ | 0.0353 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Transaction
involving warrants are summarized as follows:
|
Weighted
|
|||
|
Average
|
|||
|
Number
of
|
Exercise
|
||
|
Shares
|
Price
|
|
Warrants
exercisable at December 31, 2003
|
- | $ | - | ||||
|
Granted
|
- | - | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at March 31, 2004
|
- | $ | - | ||||
|
Granted
|
- | - | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at June 30, 2004
|
- | $ | - | ||||
|
Granted
|
- | - | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at Sept 30, 2004
|
- | $ | - | ||||
|
Granted
|
- | - | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at December 31, 2004
|
- | $ | - | ||||
|
Granted
|
132,000,000 | 0.005 | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Weighted
|
|||
|
Average
|
|||
|
Number
of
|
Exercise
|
||
|
Shares
|
Price
|
|
Warrants
exercisable at March 31, 2005
|
132,000,000 | $ | 0.005 | ||||
|
Granted
|
- | ||||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at June 30, 2005
|
132,000,000 | $ | 0.005 | ||||
|
Granted
|
56,700,000 | 0.079 | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at Sept 30, 2005
|
188,700,000 | $ | 0.027 | ||||
|
Granted
|
- | ||||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at Dec 31, 2005
|
188,700,000 | $ | 0.027 | ||||
|
Granted
|
- | ||||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at March 31, 2006
|
188,700,000 | $ | 0.027 | ||||
|
Granted
|
300,000 | 0.005 | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at June 30, 2006
|
189,000,000 | $ | 0.027 | ||||
|
Granted
|
- | - | |||||
|
Exercised
|
- | ||||||
|
Cancelled
/ Expired
|
- | - | |||||
|
Warrants
exercisable at Sept 30, 2006
|
189,000,000 | $ | 0.027 |
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Options
In May
2004, the Company issued options to purchase 500,000 shares (post-reverse
split)of common stock to an employee. The options vest 100,000
annually over the next five years. The Company expensed the value of
the shares issued of $135,673 to operations during the twelve months ended
December 31, 2004.
The
following table summarizes the options outstanding at September 30,
2006:
|
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
|
|||||||||||||||||
| $ | 0.50 | 500,000 | 2.6 | $ | 0.50 | 200,000 | $ | 0.500 | ||||||||||||||
| 500,000 | 2.6 | 200,000 | $ | 0. 500 | ||||||||||||||||||
The
following table summarizes the options outstanding at September 30,
2005:
|
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
|
|||||||||||||||||
| $ | 0.50 | 500,000 | 3.6 | $ | 0.50 | - | $ | - | ||||||||||||||
| 500,000 | 3.6 | - | - | |||||||||||||||||||
The
following table summarizes the options outstanding at September 30,
2004:
|
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
|
|||||
|
$0.50
|
500,000
|
4.6
|
$ 0.50
|
-
|
$ -
|
|||||
|
500,000
|
4.6
|
-
|
-
|
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Options
exercisable at December 31, 2003
|
- | $ | - | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 03.31.04
|
- | - | ||||||
|
Granted
|
500,000 | $ | 0.50 | |||||
|
Exercised
|
- | |||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 06.30.04
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
- | $ | - | |||||
|
Not
exercisable
|
500,000 | $ | 0.50 | |||||
|
Granted
|
- | $ | 0.50 | |||||
|
Exercised
|
- | $ | - | |||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 06.30.04
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
- | $ | - | |||||
|
Not
exercisable
|
500,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 09.30.04
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
- | $ | - | |||||
|
Not
exercisable
|
500,000 | $ | 0.50 | |||||
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Number
of
|
Exercise
|
|||||||
|
Shares
|
Price
|
|||||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 12.31.04
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | - | |||||
|
Not
exercisable
|
400,000 | $ | - | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 03.31.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
- | - | ||||||
|
Not
exercisable
|
- | - | ||||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 06.30.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | 0.50 | |||||
|
Not
exercisable
|
400,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 09.30.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | 0.50 | |||||
|
Not
exercisable
|
400,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 12.31.05
|
500,000 | $ | 0.50 | |||||
|
Exercisable
|
100,000 | $ | 0.50 | |||||
|
Not
exercisable
|
400,000 | $ | 0.50 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 03.31.06
|
500,000 | $ | 0.500 | |||||
|
Exercisable
|
100,000 | $ | 0.500 | |||||
|
Not
exercisable
|
400,000 | $ | 0.500 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 06.30.06
|
500,000 | $ | 0.500 | |||||
|
Exercisable
|
200,000 | $ | 0.500 | |||||
|
Not
exercisable
|
300,000 | $ | 0.500 | |||||
|
Granted
|
- | - | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 09.30.06
|
500,000 | $ | 0.500 | |||||
|
Exercisable
|
200,000 | $ | 0.500 | |||||
|
Not
exercisable
|
300,000 | $ | 0.500 | |||||
|
Granted
|
15,000,000 | 0.005 | ||||||
|
Exercised
|
- | - | ||||||
|
Cancelled
/ Expired
|
- | - | ||||||
|
Options
outstanding at 12.31.06
|
15,500,000 | $ | 0.021 | |||||
|
Exercisable
|
15,200,000 | $ | 0.012 | |||||
|
Not
exercisable
|
300,000 | $ | 0.500 | |||||
INNOVATIVE
FOOD HOLDINGS, INC
FOR
THE THREE AND NINE MONTHS ENDED
SEPTEMBER
30, 2006, 2005, AND 2004
(Unaudited)
Accounting for Warrants and
Freestanding Derivative Financial Instruments
The
Company accounts for the issuance of common stock purchase warrants and other
freestanding derivative financial instruments in accordance with the provisions
of EITF 00-19. Based on the provisions of EITF 00-19, the Company
classifies, as equity, any contracts that (i) require physical settlement or
net-share settlement or (ii) gives the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share
settlement). The Company classifies as assets or liabilities any
contract that (i) require net-cash or (ii) give the counterparty a choice of
net-cash settlement in shares (physical or net-share settlement).
The fair
value of these warrants is determined utilizing the Black-Scholes valuation
model. Through August 2005, these warrants were accounted for by the
equity method, whereby the fair value of the warrants was charged to additional
paid-in capital. During September, 2005, the number of shares of the Company’s
common stock issued and issuable exceeded the number of shares of common stock
the Company had authorized, and this triggered a change in the manner in which
the Company accounts for these warrants and the Company began to
account for these warrants utilizing the liability
method. Pursuant to EITF 00-19 , “If a
contract is reclassified from permanent or temporary equity to an
asset or a liability, the change in fair value of the contract during the period
the contract was classified as equity should be accounted for as an adjustment
to stockholders’ equity.” Accordingly, during the year ended December
31, 2005, the Company charged the amount of $10,374,536 to
stockholders’ equity. At the same time, the Company
changed the way in which it accounts for the beneficial conversion feature of
convertible notes payable (see note 8).
The
accounting guidance shows that the warrants and options which are a derivative
liability should be revalued each reporting period. The recorded
value of such warrants can fluctuate significantly based on fluctuations in the
market value of the underlying securities of the issuer of the warrants and
options, as well as in the volatility of the stock price during the term used
for observation and the term remaining for warrants and
options. During the three months ended September 30, 2006, the
Company recognized a gain of $5,203,035 for the increase
in the fair value of the warrant liability and recorded this gain in operations
during the three months ended September 30, 2006. The fair value of
these instruments was estimated at September 30, 2006, using the
Black-Scholes option pricing model with the following assumptions: risk free
interest rate: 4.75%; expected dividend yield: 0%; expected option life: 5
years; and volatility: 152.50%.
Insufficient Authorized but
Unissued Shares of Common Stock
The
Company has a potential obligation to issue 660,265,588 and 544,747,277 shares
(post-reverse split) of common stock upon the conversion of convertible notes
and accrued interest, warrants and penalty shares issuable at September 30, 2006
and 2005, respectively. The Company had 151,310,796, and
103,742,037 shares (post-reverse split) of common stock outstanding at September
30, 2006, and 2005, respectively , and 500,000,000 shares
(post-reverse split) of common stock authorized at September30, 2006 and
2005. The Company has exceeded its shares authorized by
160,265,588 and 44,747,277 shares (post-reverse split) at September
30, 2006 and 2005, respectively.
12.
PENALTY FOR LATE REGISTRATION OF SHARES
At
September 30, 2006, the Company had a liability in the amount of $583,040 for
the issuance of 72,880,000 shares (post-reverse split) of the Company’s common
stock pursuant to a penalty calculation with regard to the late registration of
shares underlying convertible notes payable. The Company
charged to operations the amount of $362,960 during the three months ended
September 30, 2006 representing the fair value of these
shares. During the three months ended September 30, 2006, the Company
also marked to market the value of these shares. This resulted in a
gain $1,934,800.
During
the nine months ended September 30, 2005, the Company accrued a liability for
the issuance of 16,000,000 shares (post-reverse split) of the Company’s common
stock pursuant to a penalty calculation with regard to the late registration of
shares underlying convertible notes payable. The Company
charged to operations $ 1,040,000, during the three months ended
September 30, 2005, representing the fair value of these
shares. During the three months ended September 30, 2005, the Company
also marked to market the value of these 16,000,000 shares (post-reverse
split). This resulted in a net gain of $697,600.
FORWARD
LOOKING STATEMENTS
Certain
information contained in this discussion and elsewhere in this report may
include “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, and is subject to the safe harbor
created by that act. The safe harbor created by the Securities Litigation Reform
Act will not apply to certain “forward looking statements” because we issued
"penny stock" (as defined in Section 3(a)(51) of the Securities Exchange Act of
1934 and Rule 3a51-1 under the Exchange Act) during the three year period
preceding the date(s) on which those forward looking statements were first made,
except to the extent otherwise specifically provided by rule, regulation or
order of the Securities and Exchange Commission. We caution readers that certain
important factors may affect our actual results and could cause such results to
differ materially from any forward-looking statements which may be deemed to
have been made in this Report or which are otherwise made by or on behalf of us.
For this purpose, any statements contained in this report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "will",
"expect", "believe", "explore", "consider", "anticipate", "intend", "could",
"estimate", "plan", "propose" or "continue" or the negative variations of those
words or comparable terminology are intended to identify forward-looking
statements. Factors that may affect our results include, but are not limited to,
the risks and uncertainties associated with:
|
·
|
Our
ability to raise capital necessary to sustain our anticipated operations
and implement our proposed business
plan,
|
|
·
|
Our
ability to implement our proposed business
plan,
|
|
·
|
The
ability to successfully integrate the operations of businesses we have
acquired, or may acquire in the future, into our
operations,
|
|
·
|
Our
ability to generate sufficient cash to pay our lenders and other
creditors,
|
|
·
|
Our
ability to identify and complete acquisitions and successfully integrate
the businesses we acquire, if any,
|
|
·
|
Our
ability to employ and retain qualified management and
employees,
|
|
·
|
Our
dependence on the efforts and abilities of our current employees and
executive officers,
|
|
·
|
Changes
in government regulations that are applicable to our
anticipated business,
|
|
·
|
Changes
in the demand for our services,
|
|
·
|
The
degree and nature of our
competition,
|
|
·
|
Our
lack of diversification of our business
plan,
|
|
·
|
The
general volatility of the capital markets and the establishment of a
market for our shares,
|
|
·
|
Our
ability to generate sufficient cash to pay our creditors,
and
|
|
·
|
Disruption
in the economic and financial conditions primarily from the impact of past
terrorist attacks in the United States, threats of future attacks, police
and military activities overseas and other disruptive worldwide political
and economic events and natural
disasters.
|
We are
also subject to other risks detailed from time to time in our other Securities
and Exchange Commission filings and elsewhere in this report. Any one or more of
these uncertainties, risks and other influences could materially affect our
results of operations and whether forward-looking statements made by us
ultimately prove to be accurate. Our actual results, performance and
achievements could differ materially from those expressed or implied in these
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether from new information, future
events or otherwise.
Critical Accounting Policy
and Estimates
Our
Management’s Discussion and Analysis section discusses our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments, including those related to
revenue recognition, accrued expenses,
financing operations, and contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these Estimates under different assumptions or conditions. There
are no significant accounting estimates inherent in the preparation of our
financial statements.
Background
The
following discussion should be read in conjunction with the financial statements
of the company and related notes included elsewhere in this Report and in the
Company’s Annual Report on Form 10-KSB for the year ended December 31,
2006.
RESULTS
OF OPERATIONS
The
following is a discussion of our financial condition and results of operations
for the quarters ended September 30, 2006 and 2005. This discussion may contain
forward looking-statements that involve risks and uncertainties. Our actual
results could differ materially from the forward looking-statements discussed in
this report. This discussion should be read in conjunction with our consolidated
financial statements, the notes thereto and other financial information included
elsewhere in the report and our other public filings.
Three
Months Ended September 30, 2006 Compared to Three Months Ended September 30,
2005
Revenue
Revenue
increased by $261,060, or approximately 20%, to $1,564,653 for the three months
ended September 30, 2006 from $1,303,593 in the
prior year. The
substantial portion of the increase was attributable to increases in sales of
specialty products, meats and game, the addition of cheeses to our product
offerings, and an increase in the number of divisions of USF that offered our
products to their customers.
Cost of
Revenue
Cost of revenue was
$1,167,832 for the three months ended September 30, 2006, an increase of
$164,874 or approximately 16% compared to cost of revenue of $1,002,958 for the
three months ended September 30, 2005. The
increase in the cost of revenue was due primarily to increased sales volume
during the current quarter. Gross profit margin for the three
months ended September 30, 2006 was approximately 25%, compared to gross profit
margin of approximately 23% for the three months ended September 30, 2005.
The
increased gross margins for the current quarter was due primarily to higher
margins on specialty products sales and better rates from
Fedex.
Selling, General and
Administrative Expenses
Selling, general and
administrative expenses decreased by $31,880, or approximately 6%, to $484,171
during the three months ended September 30, 2006 compared to $ 516,051 for the
three months ended September 30, 2005. The
decrease was attributable to lower
professional and legal fees. The
primary components of selling, general, and administrative expenses for the
three months ended September 30, 2006 were payroll and related costs of
$190,312; consulting and professional fees of $112,562; facilities costs of
$96,897; commissions of $23,933; insurance of $21,322; amortization and
depreciation of $14,462; shipping and postage of $13,502; and investor relations
of $6,079.
Penalty for Late
Registration of Shares
During
the three months ended September 30, 2006, the Company accrued the issuance of
14,640,000 shares (post-reverse split)of common stock pursuant to a penalty
calculation with regard to the late registration of shares underlying
convertible notes payable. The Company charged to operations $362,960, during
the three months ended September 30, 2006, representing the fair value of these
shares. At September 30, 2006, there were a total of 72,880,000 shares
(post-reverse split) issuable pursuant to this penalty. During the three months
ended September 30, 2006, the Company also marked to market the value of these
72,880,000 shares (post-reverse split). This resulted in a net gain of
$1,934,800.
Change in Fair value of
Warrant Liability
At
September 30, 2006, the Company had an accrued a liability of $1,374,197
representing the value of the warrants issued with the convertible
notes. The Company credited operations the amount of $5,203,035
during the three months ended September 30, 2006, representing the change in the
fair value of these warrants.
Change in Fair value of the
Conversion Option Liability
At
September 30, 2006, the Company had an accrued a liability of $1,461,180,
representing the fair value of the beneficial conversion feature of convertible
notes payable. The Company credited to operations $6,009,676 during
the three months ended September 30, 2006, representing
the change in the fair value of these options
Interest expense,
net
Interest
expense, net of interest income, decreased by $145,808, or approximately 58%,
from $253,168 during the three months ended September 30, 2005 to $107,360 for
the three months ended September 30, 2006. This decrease was attributable
primarily to the decrease in the amortization of the beneficial conversion
feature of certain notes payable which were charged to interest expense during
the three months ended September 30, 2005.
Net Income
(Loss)
For the
reasons stated above, net income for the three months ended September 30, 2006
was $12,589,841, an increase of $13,400,825 or approximately 1,652% compared to
a net loss of ($810,984) during the three months ended September 30,
2005. We note that these “profits” are the result of the application of various
accounting rules as they apply to the Company and that these “Profits” have no
impact on out cash flows. During the three month period ended September 30, 2006
and 2005 our operating loss was $810,984 and $341,212,
respectively.
Three
Months Ended September 30, 2005 Compared to Three Months Ended September 30,
2004
Revenue
Revenue
increased by $132,109, or approximately 11%, to $1,303,593 for the three months
ended September 30, 2005 from $1,171,484 for the three months ended September
30, 2004. The
substantial portion of the increase was attributable to increases in sales of
specialty products, meats and game, the addition of cheeses to our product
offerings, and an increase in the number of divisions of USF that offered our
products to their customers.
Cost of
Revenue
Cost of revenue was
$1,002,958 for the three months ended September 30, 2005, an increase of $84,566
or approximately 9% compared to cost of revenue of $918,392 for the
three months ended September 30, 2004. Gross profit margin for the
three months ended September 30, 2005 was approximately 23%, compared to gross
profit margin of approximately 22% for the three months ended September 30,
2004. This increased gross margins for the current quarter was due
primarily to improved buying efficiencies and
better Fedex rates.
Selling, General, and
Administrative Expenses
Selling, general and
administrative expenses decreased by approximately $12,860 or 3%, from $503,191
to $516,051 for the three months ended September 30, 2004 and 2005,
respectively. The
decrease was attributable to a reduction in sales payroll and to participation
in fewer USF food shows and reimbursement from USF food shows attended. The
primary components of selling, general, and administrative expenses for the
three months ended September 30, 2005 were payroll and related costs of
$210,262; reserve for notes receivable of $75,000; consulting and professional
fees of $70,062; facilities costs of $23,072; commissions of $18,947; food show
expenses of $18,709; insurance of $22,615; amortization and depreciation of
$12,045; shipping and postage of $12,243; and investor relations of
$7,358.
Penalty for Late
Registration of Shares
During
the three months ended September 30, 2005, the Company accrued the
issuance of 6,400,000 shares (post-reverse split)of common stock
pursuant to a penalty calculation with regard to the late registration of shares
underlying convertible notes payable. The Company charged to
operations $1,040,000, during the three months ended September 30, 2005,
representing the fair value of these shares. During the three months
ended September 30, 2005, the Company also marked to market the value of these
6,400,000 shares(post-reverse split). This resulted in a gain of
$697,600.
Interest Expense,
net
Interest
expense, net of interest income, increased by approximately $162,055, or 177%,
from $91,113 during the three months ended September 30, 2004 to
$253,168 for the three months ended September 30, 2005. This increase
was attributable to an increase in notes payable, and to the amortization of the
beneficial conversion features associated with convertible notes payable during
the three months ended September 30, 2005.
Net Loss
For the
reasons stated above, net loss for the three months ended September 30, 2005 was
($810,984), an increase of $469,772 or approximately 138% compared to a net loss
of ($341,212) during the three months ended September 30, 2004. . Our
operating loss for the three months ended September 30,
2005 and 2004 was $2,043,900, and $3,936,277, respectively.
Nine
Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
2005
Revenue
Revenue increased by $1,244,766, or approximately 33%, to $5,044,098 for
the nine months ended September 30, 2006 from $3,799,332 in the prior year.
The
substantial portion of the increase was attributable to increases in sales of
specialty products, meats and game, the addition of cheeses to our product
offerings, and an increase in the number of divisions of USF that offered our
products to their customers.
Cost of
Revenue
Cost of revenue was
$3,838,060 for the nine months ended September 30, 2006, an increase of $873,647
or approximately 30% compared to cost of revenue of $2,964,413 for the nine
months ended September 30, 2005. The
increase in the cost of revenue was due primarily to increased sales volume
during the current quarter. Gross profit margin for the nine months ended
September 30, 2006 was approximately 24%, compared to gross profit margin of
approximately 22% for the nine months ended September 30, 2005.
The
increased gross margins for the current quarter was due primarily to higher
margins on specialty products sales and better rates from
Fedex.
Selling, General and
Administrative Expenses
Selling, general and
administrative expenses increased by $216,344, or approximately 17%, to
$1,520,810 during the nine months ended September 30, 2006 compared to
$1,304,466 for the nine months ended September 30, 2005. The increase
was attributable to increases in professional and legal fees, telephone
equipment, and sales payroll. The
primary components of selling, general, and administrative expenses for the nine
months ended September 30, 2006 were payroll and related costs of $665,836;
consulting and professional fees of $336,251; facilities costs of $170,785;
commissions of $75,390; insurance of $55,292; amortization and depreciation of
$39,835; shipping and postage of $28,886; investor relations of $18,535; and
information technology support of
$17,429.
Penalty for Late
Registration of Shares
During
the nine months ended September 30, 2006, the Company accrued the issuance of
43,920,000 shares (post-reverse split) of common stock pursuant to a penalty
calculation with regard to the late registration of shares underlying
convertible notes payable. The Company charged to operations $1,584,912, during
the nine months ended September 30, 2006, representing the fair value of these
shares. At September 30, 2006, a total of 72,880,000 shares (post-reverse split)
were issuable pursuant to this penalty. During the nine months ended September
30, 2006, the Company marked to market the value of these 72,880,000 shares
(post-reverse split). This resulted in a net gain to operations of
$1,928,592.
Interest expense,
net
Interest
expense, net of interest income, decreased by $ 428,436 or
approximately 62%, from $694,353 during the nine months ended September 30, 2005
to $266,007 for the nine months ended September 30, 2006. This
decrease was attributable primarily to the amortization of the beneficial
conversion feature of certain notes payable which were charged to interest
expense during the three months ended September 30, 2005.
Net Loss
For the
reasons stated above, net income for the nine months ended September 30, 2006
was $ 10,075,196, an increase of $12,119,096 or approximately 593%
compared to a net loss of $2,043,900 during the nine months ended September 30,
2005. Our operating loss for the six months ended September 30, 2006
and 2005 was $810,984 and $341,212, respectively.
Nine
months ended September 30, 2005 compared to nine months ended September 30,
2004
Revenue
Revenue
increased by $561,878, or 17%, to $3,799,332 for the nine months ended September
30, 2005 from $3,237,454 for the nine months ended September 30, 2004. The
substantial portion of the increase was attributable to increases in sales of
meats and game, the addition of cheeses to our product offerings, and an
increase in the number of divisions of USF that offered our products to their
customers.
Cost of
Revenue
Cost of
revenue was $2,964,413 for the nine months ended September 30, 2005, an increase
of $221,760 or approximately 8% compared to cost of revenue of $2,742,653 for
the nine months ended September 30, 2004. This increase in the cost
of revenue was due to the increased revenue mitigatedly. Gross profit
margin for the nine months ended September 30, 2005 was approximately 22%,
compared to gross profit margin of approximately 15% for the nine months ended
September 30, 2004. This increased gross margins for the current
quarter was due primarily to proved buying efficiencies and
better Fedex rates.
Selling, General, and
Administrative Expenses
Selling,
general and administrative expenses decreased by $2,728,237, or
approximately 68%, from $4,032,703 during the nine months ended
September 30, 2004 to $1,304,466 for the nine months ended September 30, 2005.
The decrease was attributable to a one-time
adjustment of $2,418,130 to non-cash compensation for common stock issued to
consultants for work done. The
primary components of selling, general, and administrative expenses for the nine
months ended September 30, 2005 were payroll and related costs of
$590,853; consulting
and professional fees of $195,363; reserve for notes receivable of
$75,000; facilities costs of $71,055; food show expenses of $60,074; commissions
of $57,093; insurance of $47,695; amortization and depreciation of $44,372;
shipping and postage of $35,959; and investor relations of
$26,210.
Penalty for Late
Registration of Shares
During
the nine months ended September 30, 2005, the Company accrued a liability for
the issuance of 16,000,000 shares (post-reverse split) of the Company’s common
stock pursuant to a penalty calculation with regard to the late registration of
shares underlying convertible notes payable. The Company
charged to operations $1,507,200, during the three months ended June 30, 2005,
representing the fair value of these shares. During the three months
ended June 30, 2005, the Company also marked to market the value of these
16,000,000 shares (post-reverse split). This resulted in a net gain
of $627,200.
Interest Expense,
net
Interest
expense, net of interest income increased by approximately $295,978, or 74%,
from approximately $398,375 to approximately $694,353 for the nine months ended
September 30, 2004 and 2005, respectively. This increase was
attributable to an increase in notes payable, and to the amortization of the
beneficial conversion features associated with convertible notes payable during
the nine months ended September 30, 2005.
Net Loss
For the
reasons stated above, net loss for the nine months ended September 30, 2005 was
$2,043,900, an decrease of $1,892,377 or approximately 48% compared to a net
loss of $3,936,277 during the nine months ended September 30, 2004.
Our operating loss for the six months ended September 30, 2006 and
2005 was $810,984 and $341,212, respectively.
Liquidity
and Capital Resources
As of
September 30, 2006, the Company had cash on hand of
$12,695, a decrease of $2,492 from December 31, 2005. During the
nine months ended September 30, 2006, cash provided by operating
activities was $68,937, consisting primarily of the net income of $10,075,196
offset by depreciation and amortization of $39,835; value of warrants
issued of $10,750; stock issued as bonus of $49,901; cost of penalty due to late
registration of shares of $1,584,9112; change in fair value of warrant liability
of ($4,652,095), change in fair value of conversion option liability of
($5,642,095); gain from marking to market shares issuable due
to penalty on late registration of shares of ($1,928,592); and changes in the
components of working capital in the net amount of $531,835. Cash used in
investing activities was $216,445 consisting a loan to Pasta Italiana of
$190,000 and the purchase of property and equipment of $26,445. Cash
provided by financing activities was $150,000, consisting of $160,000 of
proceeds from the issuance of notes payable offset by $10,000 in principal
payments on notes payable.
Historically,
our primary cash requirements have been used to fund the cost of operations,
with additional funds having been used in promotion and advertising and in
connection with the exploration of new business lines.
Under
current operating plans and assumptions, management believes that projected cash
flows from operations and available cash resources may be insufficient to
satisfy our anticipated cash requirements for at least the next twelve months.
As we seek to increase our sales of perishables, as well as identify new and
other consumer oriented products and services, we may use existing cash
reserves, long-term financing, or other means to finance such
diversification.
Critical
Accounting Policy and Accounting Estimate Discussion
In
accordance with the Securities and Exchange Commission's (the "Commission")
Release Nos. 33-8040; 34-45149; and FR-60 issued in December 2001, referencing
the Commission's statement "regarding the selection and disclosure by public
companies of critical accounting policies and practices", we have set forth in
Note 2 of the Notes to Consolidated Financial Statements what we believe to be
the most pervasive accounting policies and estimates that could have a material
effect on our results of operations and cash flows if general business
conditions or individual customer financial circumstances change in an adverse
way relative to the policies and estimates used in the attached financial
statements or in any "forward looking" statements contained herein.
The
Company’s cash on hand may be insufficient to fund its planned operating needs.
Innovative Food Holdings, Inc. continues to seek funding for working capital
requirements, necessary equipment purchases, marketing costs, and other
operations for the next year and foreseeable future by raising capital through
the sale of equity and/or debt securities, issuing common stock in lieu of cash
for services and by advances from shareholders.
We expect
that any sale of additional equity securities or convertible debt will result in
additional dilution to our stockholders. The Company can give no assurance that
it will be able to generate adequate funds from operations, that funds will be
available to us from debt or equity financing, or that if available, the company
will be able to obtain such funds on favorable terms and conditions. If the
company cannot secure additional funds it may have to reduce its operations be
able to continue as a going concern. The Company currently has no
definitive arrangements with respect to additional financing.
While we
have raised capital to meet our working capital and financing needs in the past,
additional financing may be required in order to meet our current and projected
cash flow deficits from operations and development. We are seeking financing in
the form of equity or debt in order to provide the necessary working capital. We
currently have no commitments for financing. There is no guarantee that we will
be successful in raising the funds required.
By
adjusting our operations and development to the level of capitalization,
management believes we have sufficient capital resources to meet projected cash
flow deficits through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
The
independent auditors report on our December 31, 2005 financial statements states
that our recurring losses raise substantial doubts about our ability to continue
as a going concern.
INFLATION
The
impact of inflation on the costs of the Company, and the ability to pass on cost
increases to its customers over time is dependent upon market conditions. The
Company is not aware of any inflationary pressures that have had any significant
impact on the Company’s operations over the past quarter, and the Company does
not anticipate that inflationary factors will have a significant impact on
future operations.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company does not maintain off-balance sheet arrangements nor does it participate
in non-exchange traded contracts requiring fair value accounting
treatment.
RISK
FACTORS
The
Company’s business and success is subject to numerous risk factors as detailed
in its Annual Report on Form 10-KSB for the year ended December 31,
2006.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit pursuant to the requirements of the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, among other things, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, including our principal executive and financial officers, as
appropriate to allow timely decisions regarding required
disclosure.
(a)
Evaluation of disclosure controls and procedures
Our
Principal Executive Officer and Principal Financial Officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this Quarterly Report, have concluded that as of that date, our disclosure
controls and procedures were adequate and effective to ensure that information
required to be disclosed by us in the reports we file or submit with the
Securities and Exchange Commission is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. The conclusions notwithstanding, you are advised
that no system if foolproof.
(b)
Changes in internal control over financial reporting
There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Exchange Act Rules 13a-15(d) and
15d-15 that occurred during the period covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART
II. - OTHER INFORMATION
NONE
During
the nine months ended September 30, 2006, the Company issued the following
shares of equity securities:
On August
10, 2006, the Company issued 1,117,778 shares (post reverse-split) of common
stock for conversion of notes payable and accrued interest in the amount of
$5,589.
On
September 22, 2006, the Company issued 8,933,358 shares (post reverse-split) of
common stock for conversion of notes payable and accrued interest in the amount
of $44,666;
On
September 28, 2006, the Company issued 5,573,158 shares of common stock for
conversion of notes payable. The par value of $557 was charged to additional
paid-in capital.
During
the nine months ended September 30, 2005, the following equity transactions
occurred:
On
February 8, 2005, the Company issued 750,000 shares (post-reverse split)of
common stock with a fair value of $9,000 to board members for services
performed.
On
February 25, 2005, the Company issued 5,000,000 shares (post-reverse split) of
common stock pursuant to the conversion of a note payable.
On April
4, 2005, the Company issued 100,000 shares (post-reverse split) of common stock
with a fair value of $1,300 to consultants for services performed.
On April
4, 2005, the Company issued 100,000 shares (post-reverse split) of common stock
with a fair value of $1,300 to consultants for services performed.
On April
4, 2005, the Company issued 100,000 shares (post-reverse split)of common stock
with a fair value of $1,300 to consultants for services performed.
On April
4, 2005, the Company issued 2,500,000 shares (post-reverse split) of common
stock with a fair value of $32,500 to employees for services
performed.
On August
19, 2005, the Company issued 13,400,000 shares (post-reverse split) of common
stock for $67,000.
On August
19, 2005, the Company issued 8,800,000 shares (post-reverse split) of common
stock with a fair value of $44,000 pursuant to the conversion of a note
payable.
During
the nine months ended September 30, 2004, the following equity transactions
occurred:
On
October, 4, 2004, the Company sold 15,000,000 shares of common stock (post
reverse-split) for cash proceeds of $320,225.
On
December 1, 2004, the Company issued 7,925,000 shares of common stock (post
reverse-split) with a fair value of $204,500 to employees and board
members for services performed.
Each of
the above listed issuances were exempt from registration pursuant to Section 4
(2) of the Securities Act of 1933.
We issued
convertible notes with a face value of $777,000. We did not meet certain of our
obligations under the loan documents relating to this issuance. These lapses
include not reserving the requisite number of treasury shares, selling
subsequent securities without offering a right of first refusal, not complying
with reporting obligations, not having our common shares quoted on the OTC:BB
and not timely registering certain securities.
NONE
NONE
31.1 Section
302 Certification
31.2 Section
302 Certification
32.1 Section
906 Certification
32.2 Section
906 Certification
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
SIGNATURE
|
TITLE
|
DATE
|
||
|
/s/ Sam
Klepfish
Sam
Klepfish
|
Chief
Executive Officer
|
April
18, 2008
|
||
|
/s/ John
McDonald
John
McDonald
|
Principal
Financial Officer
|
April
18, 2008
|
EXHIBIT
31.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
I, Sam
Klepfish, certify that:
1. I have reviewed this
quarterly
report on Form 10-QSB of Innovative
Food Holdings, Inc.;
2. Based
on my knowledge, this report does not contain any
untrue statement of a material fact or omit
to state
a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based
on
my knowledge, the financial statements, and
other financial information included in this report, fairly present
in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the
registrant and have:
|
a.
|
designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to
ensure that material information relating
to the registrant,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in
which this report is being prepared;
|
|
|
b.
|
designed such
internal control over
financial reporting, or caused such
internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the
reliability
of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted
accounting principles;
|
|
|
c.
|
evaluated
the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end
of the period covered by this report based on
such evaluation; and
|
|
|
d.
|
disclosed in
this report any change in the registrant's internal
control over financial reporting that occurred during
the
registrant's most recent fiscal quarter
(the small business
issuer's fourth
quarter in the case of an
annual report)
that has materially
affected,
or is reasonably likely to materially
affect, the
registrant's internal control over financial reporting;
and
|
5. I
have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
|
a.
|
all significant
deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which
are reasonably likely
to adversely affect
the registrant's ability to
record, process, summarize and report financial information;
and
|
|
|
b.
|
any fraud, whether
or not material, that involves management or other employees
who have a significant role in the registrant's
internal
control over financial
reporting;
|
| Date: April 18, 2008 | /s/ Sam Klepfish |
| Sam Klepfish, President |
EXHIBIT
31.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
302 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
I, John
McDonald, certify that:
1. I have reviewed this quarterly
report on Form 10-QSB of Innovative
Food Holdings, Inc.;
2. Based
on my knowledge, this report does not contain any
untrue statement of a material fact or omit
to state
a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
report;
3. Based
on
my knowledge, the financial statements, and
other financial information included in this report, fairly present
in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. I am responsible for
establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the
registrant and have:
|
a.
|
designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to
ensure that material information relating
to the registrant,
including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in
which this report is being prepared;
|
|
|
b.
|
designed such
internal control over
financial reporting, or caused such
internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the
reliability
of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted
accounting principles;
|
|
|
c.
|
evaluated
the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end
of the period covered by this report based on
such evaluation; and
|
|
|
d.
|
disclosed in
this report any change in the registrant's internal
control over financial reporting that
occurred during the
registrant's most recent fiscal quarter
(the small business
issuer's fourth
quarter in the case of
an annual report) that has materially
affected, or is reasonably likely to materially
affect, the
registrant's internal control over financial reporting;
and
|
5. I
have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
|
a.
|
all significant
deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which
are reasonably likely
to adversely affect the registrant's ability
to
record, process, summarize and report financial information;
and
|
|
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting; |
| Date: April 18, 2008 | /s/ John McDonald |
|
John
McDonald
Principal
Financial Officer
|
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
In
connection with the Quarterly Report of Innovative
Food Holdings, Inc. (the "Company") on Form 10-QSB for the quarter ended
September 30, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Sam
Klepfish, Chief Executive Officer and Director of
the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2)
The information contained in the
Report fairly presents, in all
material respects, the financial condition and
result of operations of the Company.
/s/ Sam
Klepfish
Sam
Klepfish
Chief
Executive Officer and
Director
April 18,
2008
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES OXLEY ACT OF 2002
CERTIFICATION
In
connection with the Quarterly Report of Innovative
Food Holdings, Inc. (the "Company") on Form 10-QSB for the quarter ended
September 30, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, John
McDonald, Principal Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2)
The information contained in the
Report fairly presents, in all
material respects, the financial condition and
result of operations of the Company.
/s/
John
McDonald
John
McDonald
Principal
Financial Officer
April 18,
2008